UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K/A
                                 Amendment No. 4

                                   (Mark One)

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

                   For the fiscal year ended December 31, 2004

                                       OR

      |_| TRANSITION REPORT PURSUANT TO 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.)

            3916 State St. Ste. 110, Santa Barbara, California 93105
            --------------------------------------------------------
               (Address of principal executive office) (Zip Code)

                                 (805) 563-7590
                                 --------------
              (Registrant's telephone number, including area code)

          Securities registered pursuant to Section 12 (b) of the Act:

                                      None
                                      ----

          Securities registered pursuant to Section 12 (g) of the Act:

                           Common Stock $.01 par value
                           ---------------------------
                              (Title of each class)


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 |_|

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes |_|

Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Exchange Act Rule 12b-2). Yes |X| No |_|

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant as of June 30, 2004 was $28,681,801.

The  number  of  shares  outstanding  of the  Registrant's  Common  Stock  as of
September 15, 2005 was 18,435,452.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None
                                      ----
<PAGE>

                          ANNUAL REPORT ON FORM 10-K/A

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004


PART I.........................................................................1
   ITEM 1.  BUSINESS...........................................................1
   ITEM 2.  PROPERTIES.........................................................9
   ITEM 3.  LEGAL PROCEEDINGS.................................................10
   ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............10
PART II.......................................................................11
   ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY RELATED STOCKHOLDER
            MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.................11
   ITEM 6.  SELECTED FINANCIAL DATA...........................................12
   ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS.........................................12
   ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........26
   ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..........26
   ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
            AND FINANCIAL DISCLOSURE..........................................26
   ITEM 9A. CONTROLS AND PROCEDURES...........................................26
   ITEM 9B. OTHER INFORMATION.................................................26
PART III......................................................................28
   ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................28
   ITEM 11. EXECUTIVE COMPENSATION............................................30
   ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
            AND RELATED STOCKHOLDER MATTERS...................................35
   ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................36
   ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES............................36
PART IV.......................................................................38
   ITEM 15. EXHIBITS, FINANCIAL STATEMENT AND SCHEDULES.......................38


                                EXPLANATORY NOTE

      EarthShell  Corporation  (the "Company") is filing this Amendment No. 4 on
Form 10-K/A (this  "Amendment") to the Company's  Annual Report on Form 10-K for
the year ended  December 31, 2004 to make certain  corrections  to the Company's
Form 10-K filed with the Securities and Exchange Commission on April 4, 2005, as
it has been  subsequently  amended,  as  follows  and to  restate  the 10-K,  as
amended.

o     Amendment No. 2 has been  incorporated  into the text of this 10-K/A along
      with  conforming  updates to Item 1,  Certain  Risk  Factors  and Item 9A,
      Controls and Procedures to facilitate publication of the Annual Report.

o     In Item 1, Relationship with and Reliance on EKI,  disclosure  relating to
      the issuance of a warrant to EKI for 1,000,000  shares and the issuance of
      44,387  additional  shares in May 2005 was added, as well as minor editing
      for clarity.  This disclosure also appears in Item 7, MD&A,  Liquidity and
      Capital Resources and Subsequent Events.

o     In Item 6, the table entitled "Selected  Financial Data" has been adjusted
      for clarity and consistency in  presentation  of liabilities  from year to
      year.

o     In  Item  7,  Management's  Discussion  and  Analysis,  certain  redundant
      paragraphs  comparing  the year ended  December 31, 2003 to the year ended
      December  31,  2002 were  eliminated  in order to conform  the text to the
      Company's Annual Report on Form 10-K for the year ended December 31, 2003.
      In the section titled  Liquidity and Capital  Resources,  the table titled
      Contractual Obligations, a line item has been added to clarify the Payable
      to Related Party as a short term obligation.


                                       i
<PAGE>

o     In Item 7, Management's  Discussion and Analysis,  in the section entitled
      "Management's  Report on  Internal  Control"  has been  revised to clarify
      specifically when each of the material weaknesses was identified,  by whom
      they  were  identified  and  when  each  began.  In the  section  entitled
      "Material Weaknesses Identified", other areas of operations which could be
      improved have been added.

o     In Item 9A, Controls and Procedures,  the disclosure has been corrected to
      conform to Management's Report on Internal Control.

o     Disclosure under Items 10-14 of Part III was added.

o     On the Company's Consolidated Balance Sheet,  adjustments were made to the
      long term  liabilities  headings  to more  properly  compare  2003 to 2004
      results.

o     In  the  Notes  to  the  Company's  Consolidated  Financial  Statements  a
      correction  was made to the note entitled  "Stock  Options" to correct the
      size of the pool of options  reserved for issuance.  A paragraph was added
      to the note entitled "Commitments" to restore a note from the prior year's
      report on Form 10-K describing a purchase commitment that was satisfied in
      2003  relating  to a $3.5  million  obligation  to an  equipment  supplier
      secured by a  certificate  of  deposit.  A sentence  was added to the note
      entitled  "Stock  Warrants" to clarify the number of warrants  outstanding
      and to  correct a  typographical  error in a warrant  expiration  date.  A
      heading  was added to the table now  entitled  "Quarterly  Financial  Data
      (Unaudited)".

o     References to the Company's  Proxy  Statement  were updated to reflect the
      anticipated meeting date of July 21, 2005.

      As used  herein,  the terms  "EarthShell"  and the  "Company"  shall  mean
EarthShell  Corporation  unless the  context  otherwise  indicates  and the term
"Proxy  Statement"  shall mean the Proxy Statement for the Company's 2005 Annual
Meeting of Stockholders to be held on July 21, 2005.


                                       ii
<PAGE>

                                     PART I

ITEM 1. BUSINESS

      The Company

      EarthShell(R) Corporation ("EarthShell" or the "Company") was organized in
November  1992 to engage in the  commercialization  of a  proprietary  composite
material technology,  designed with the environment in mind, for the manufacture
of  disposable  packaging to be used in the  foodservice  industry.  Current and
future products include hinged-lid containers, plates, bowls, foodservice wraps,
cups, and cutlery ("EarthShell Packaging").

      The  EarthShell  composite  material  is  primarily  made from  abundantly
available and low cost natural raw  materials  such as limestone and starch from
annually  renewable crops such as corn and potatoes.  The Company  believes that
foodservice  disposables  made of this material  will offer certain  significant
environmental   benefits,   will  have   comparable   or  superior   performance
characteristics,  such as greater strength and rigidity, and can be commercially
produced and sold at prices that are competitive  with  comparable  conventional
paper and plastic foodservice disposables.

      The Company's  objective is to establish  EarthShell  Packaging(R)  as the
preferred  disposable packaging material for the foodservice industry throughout
the  world  based  on  comparable  performance,  environmental  superiority  and
competitive pricing. EarthShell's approach for achieving this objective has been
to:  (i)  license  the   EarthShell   technology   to   strategically   selected
manufacturing or operating partners to manufacture,  market, distribute and sell
EarthShell  Packaging;  (ii)  demonstrate  customer  acceptance  and  demand for
EarthShell  Packaging through key market leaders and environmental  groups;  and
(iii)  demonstrate  the  manufacturability  and improved  economics with initial
strategic partners.

      Industry Overview

      Based on industry  studies,  the Company believes that the annual spending
on foodservice disposable packaging is approximately $12 billion in the U.S. and
over $28 billion  globally.  According to industry  studies of the U.S.  market,
approximately 54% of the total foodservice  disposable packaging is purchased by
quick-service  restaurants  and 46% by  other  institutions  such as  hospitals,
stadiums, airlines, schools, restaurants (other than quick-service restaurants),
and retail  stores.  The Company  believes that of the  foodservice  disposables
purchased  in the U.S.  by  quick-service  restaurants  and other  institutions,
approximately 45% are made of coated or plastic laminated paper and 55% are made
of non-paper materials such as plastic,  polystyrene or foil. A breakdown of the
various  components  of the global  market  for  foodservice  disposables  is as
follows:

      Market Size

                                                                $
                                                             ($ in
                                                            millions)      %
                                                            ---------  ---------
            Commercial Products
            ----------------------------------------------
            Plates, Bowls .............................     $   4,500         16
            Hinged-Lid Containers .....................         1,750          6

            Commercial Prototypes
            ----------------------------------------------
            Wraps .....................................         2,000          7
            Hot Cups ..................................         3,000         11

            Concept Prototypes
            ----------------------------------------------
            Cold Cups .................................         5,500         20
            Containers, Trays .........................         4,000         14
            Straws, Cup Lids ..........................         3,000         11
            Pizza Boxes ...............................         2,250          8
            Cutlery ...................................         2,000          7
                                                            ---------  ---------
            Total .....................................     $  28,000        100
                                                            =========  =========


                                       1
<PAGE>

      In addition to the U.S., the Company  believes the market  opportunity for
EarthShell  Packaging is particularly  strong in Europe and parts of Asia due to
heightened  environmental  concerns  and  government  regulations.   In  Europe,
environmental  legislation,  such as the so-called "Green Dot" laws have created
an  opportunity  for  environmentally   preferable  products.   Meanwhile,   new
regulations  in many Asian  countries  have mandated a reduction in  polystyrene
production   stimulating   an  increased   demand  for   foodservice   packaging
manufactured from acceptable alternative materials. Furthermore, improvements in
the Asian and European  composting and recycling  infrastructure are expected to
facilitate the use of environmentally preferable products.

      Products

      EarthShell  Packaging is based on a patented composite material technology
licensed on an exclusive  worldwide basis from E. Khashoggi  Industries LLC, the
largest  stockholder  of the  Company,  and, on a limited  exclusive,  worldwide
basis, from its wholly-owned  subsidiaries  (collectively  "EKI"). The Company's
licensed field of use of the technology is for the development,  manufacture and
sale of disposable packaging for use in the foodservice industry and for certain
specific food packaging applications.

      Traditional foodservice  disposables,  wraps, and paperboard are currently
manufactured  from a variety of  materials,  including  paper and  plastic.  The
Company  believes  that none of these  materials  fully  addresses  three of the
principal challenges facing the foodservice industry; namely performance, price,
and  environmental  impact.  The  Company  believes  that  EarthShell  Packaging
addresses  the  combination  of  these   challenges   better  than   traditional
alternatives  and therefore  will be able to achieve a significant  share of the
foodservice disposable packaging market.

      EarthShell Packaging can be categorized into four types:  laminated foamed
products, flexible wraps,  injection-molded products and paperboard substitutes.
To date, the EarthShell  technology has been used to produce limited  commercial
quantities of plates,  bowls, and hinged-lid  containers intended for use by all
segments of the foodservice disposable packaging market, including quick-service
restaurants,  food and facilities  management  companies,  the U.S.  government,
universities/colleges,  and retail  operations.  These  products were  developed
using detailed  environmental  assessments and carefully  selected raw materials
and  processes  to  minimize  the  harmful  impact  on the  environment  without
sacrificing competitive price or performance.

      Environment

      EarthShell's  foodservice  disposable  products were  developed  over many
years  based on  environmental  models to reduce the  environmental  concerns of
foodservice disposable packaging through the careful selection of raw materials,
manufacturing processes and suppliers. For example, EarthShell Packaging reduces
risk to wildlife  compared to polystyrene foam packaging  because it biodegrades
when exposed to moisture in nature and can be composted in a commercial facility
(where available) or even in consumers' backyards.  EarthShell Packaging and the
designs approach for its manufacture and disposal has received support from many
governmental and non-governmental organizations.

      Performance

      The Company  believes that it has  demonstrated  that its  laminated  foam
products,  including hinged-lid  containers,  plates and bowls meet the critical
performance  requirements  of  the  marketplace,   including  strength,  graphic
capabilities, insulation, shipping, handling and packaging. The Company believes
its  foodservice  wraps  also  meet  critical  performance  requirements  of the
marketplace,    including   flexibility,   folding   characteristics,    graphic
capabilities, insulation, shipping, handling and packaging. Finally, the Company
believes  that its  paperboard  substitute  product,  which is  currently  under
development,  may be manufactured using the same basic raw materials as the foam
laminate  disposables and wraps and will be readily  accepted by the market when
available.

      Some examples of where EarthShell Packaging plates,  bowls, and hinged-lid
containers have been used include:

Quick-Service Restaurants:      McDonald's Corporation ("McDonalds")


                                       2
<PAGE>

Facilities Management:          Sodexho
                                Bon Appetit
                                Aramark

Government:                     U.S. Department of the Interior
                                U.S. Department of Defense
                                Environmental Protection Agency

Universities:                   University of California, Davis
                                Hampshire College
                                Allegheny College

Retail:                         Wal-Mart Stores
                                Green Earth Office Supply

      Cost

      Since EarthShell  Packaging is uniquely engineered from readily available,
low-cost  natural  raw  materials  such as  limestone  and  starch,  the Company
believes EarthShell products can be manufactured  cost-effectively at commercial
production levels.

      Business Strategy

      The  Company's  objective  is to  establish  EarthShell  Packaging  as the
preferred  foodservice  disposable  packaging in the foodservice  industry.  The
Company's strategies to achieve this objective are to:

o     Develop  products  which deliver  comparable or greater  performance,  are
      competitively  priced and offer  environmental  advantages  as compared to
      traditional packaging alternatives

o     Demonstrate customer demand as well as product performance and positioning

o     Educate the market and build awareness for the EarthShell brand

o     Prove manufacturability and economics of EarthShell Packaging

o     License the EarthShell technology to strategic  manufacturing  partners to
      manufacture, market, distribute and sell EarthShell Packaging

o     Expand the business by replicating  the EarthShell  model across  multiple
      operating partners to increase capacity

      The  Company  believes  that  the  use  of  EarthShell  Packaging  by  key
foodservice  operators  will  accelerate the acceptance of the products by other
users. To this end, the Company has worked with major  purchasers of foodservice
disposables in the  development  and testing of products in order to demonstrate
superior  product  performance,  highlight  cost-benefit  and build  demand  for
EarthShell  Packaging.  The Company also expects that the  EarthShell  Packaging
brand name will appear on EarthShell products.

      The Company's strategy includes licensing the EarthShell technology to, or
joint venturing with, strategically selected manufacturing or operating partners
for the manufacture,  marketing,  distribution and sale of EarthShell Packaging.
During 2004, the Company terminated its license agreements with  Sweetheart/Solo
and with Huhtamaki as those  relationships  had not  progressed as planned.  The
Company  entered into three new license  agreements  -- with  Meridian  Business
Solutions ("MBS") for the U.S. market,  another with EarthShell  Hidalgo S.A. de
C.V.  ("ESH")  for a segment  of the  Mexican  market,  and with Hood  Packaging
("Hood") to be the exclusive manufacturer of EarthShell food wraps for the North
American market. The Company is seeking additional  qualified licensees and will
provide each of its licensees with  technical and ongoing  support to facilitate
the application of the EarthShell  technology,  further refine the manufacturing
processes and reduce  production costs. The Company will monitor product quality
at licensee operations.


                                       3
<PAGE>

      Over the past several years, the Company has garnered support and achieved
commercial validation for EarthShell Packaging from key environmental groups and
foodservice   purchasers.   The  Company  has  also  devoted  resources  to  the
optimization   of  product  design  and  the   development   of   cost-effective
manufacturing  processes. In cooperation with former manufacturing partners, the
Company financed and built initial commercial  demonstration production capacity
and sold limited quantities of plates, bowls, and hinged-lid containers.  Having
demonstrated the manufacturability of EarthShell foam products,  the Company has
now ceased commercial  demonstration production activities and is relying on its
equipment  manufacturing  partners to  demonstrate  and  guarantee the long-term
manufacturability of EarthShell Packaging(R).

      EarthShell believes it has a high quality and cost-effective product and a
profitable  business model  necessary to take advantage of a significant  market
opportunity.  With the  introduction  of commercial  production  capacity by its
licensees and commercial sales of its products in 2005,  EarthShell  expects its
products to continue to gain  acceptance in the  marketplace  and believes it is
well-poised  to  support  capacity  expansion  and  market  penetration  by  its
licensees leading to growth of the Company's royalty revenue.

      Licensing Business Model

      The licensing  business  model enables the Company to  concentrate  on the
continuing  development of quality food service packaging  products with reduced
impact  on the  environment.  This  approach  contemplates  that  manufacturing,
marketing,   distribution   and  sale  of  EarthShell   Packaging  will  be  the
responsibility of the Company's  manufacturing  licensees.  EarthShell  believes
that its  licensing  business  model will  enable it to  generate a  sustainable
royalty revenue stream. Beyond the revenue  opportunities,  the Company believes
the licensing  business model has positive  implications  for the Company's cost
structure.  As the Company has moved from product and process development toward
the  product   commercialization   phase  and  has  reduced  its  investment  in
demonstration manufacturing operations, it has been able to significantly reduce
monthly operating costs and reposition itself to take advantage of the operating
leverage provided by the licensing model.

      EarthShell   Packaging  will  be  exclusively   manufactured  by  licensed
manufacturing partners.  Given the low cost of the raw materials required, these
strategic  manufacturing  partners should have a financial  incentive to produce
EarthShell Packaging rather than comparable  traditional  paperboard/polystyrene
products even after making the required royalty  payments to EarthShell.  As the
first  turnkey  commercial  manufacturing  equipment is  successfully  placed in
service by its first  licensee,  the Company  expects that other  licensees will
then move quickly to invest to build additional new manufacturing capacity.

      While the  Company  believes  it will be  successful  in  developing  cost
competitive products with its partners, delays in developing such products could
adversely impact the introduction and market acceptance of EarthShell  Packaging
and could have an adverse effect on the Company's business,  financial condition
and results of operations.

      Strategic Manufacturing and Distribution Relationships

      The Company  believes that it has  demonstrated  that the  performance  of
EarthShell plates, bowls and hinged-lid  containers is commercially  competitive
and that there is a customer base that is willing to buy them. The critical task
for 2005 is the installation and start-up of commercial  manufacturing  capacity
by the Company's licensees to supply EarthShell products to the marketplace. The
Company's  current  licensees are  committing  capital to purchase  equipment to
provide  EarthShell  Packaging  products or  otherwise  develop  the  EarthShell
products or production  capacity.  The Company intends to proliferate the use of
EarthShell  Packaging in the U.S. and international  markets through  agreements
with additional licensed partners.

      Meridian Business  Solutions.  In May 2004, the Company entered into a ten
year  license  agreement  with MBS for the United  States  and  granted to MBS a
priority license to supply certain retail and government  market  segments.  MBS
has paid EarthShell  $500,000 in technology fees to date. Under the terms of the
license agreement,  in order to retain its priority in its market segments,  MBS
must acquire manufacturing capacity to supply its market segments and meet other
minimum  performance  criteria.  As the  machinery  orders are finalized and the
manufacturing  equipment  is  built  and  put  into  service,  MBS  will  pay an
additional $1.5 million in technology fees. All of the technology fees thus paid
will be credited against future  royalties.  At present,  since EarthShell has a
limited number of initial licensees, MBS potentially represents more than 10% of
EarthShell's  revenue base.  Once MBS is in production  and paying  royalties to
EarthShell, loss of MBS as a licensee could have a material adverse consequence.


                                       4
<PAGE>

      EarthShell  Hidalgo.  In November of 2004, the Company  entered into a ten
year license  agreement  with ESH as the  Company's  exclusive  licensee for the
country of Mexico.  To date, they have paid the Company a $1,000,000  technology
fee that will be credited against future royalty obligations. Under the terms of
the license  agreement,  in order to retain its priority in its market segments,
ESH must acquire  manufacturing  capacity to supply its market segments and meet
other minimum performance criteria.  At present,  since EarthShell has a limited
number  of  initial  licensees,  ESH  potentially  represents  more  than 10% of
EarthShell's  revenue base.  Once ESH is in production  and paying  royalties to
EarthShell, loss of ESH as a licensee could have a material adverse consequence.

      Hood  Packaging.  In February 2004, the Company  entered into a definitive
license  agreement  with Hood  Packaging  under which Hood became the  exclusive
manufacturer/distributor of EarthShell food wraps for the North American market,
subject to maintaining certain monthly and annual performance  targets.  Hood is
currently  working on refining the  manufacturing  process prior to  introducing
wraps into selected markets.

      Manufacturing

      The current EarthShell manufacturing process for laminated foamed products
consists  of blending  the  component  ingredients  of a  proprietary  composite
material in a mixer,  depositing  the mixture into heated cavity molds,  heating
the molded mixture for approximately one minute, removing the product,  trimming
excess  material,  and  applying  functional  coatings  with  desired  graphics.
EarthShell  Packaging  uses readily  available  natural raw  materials,  such as
limestone,  potato or corn  starch,  as well as  natural  fiber  and  functional
coatings.  The Company believes that these raw materials are currently available
from multiple existing  suppliers in quantities  sufficient to satisfy projected
demand.

      Over the past several years, the Company has devoted  resources to develop
manufacturing  machinery  and to  demonstrate  the  commercial  viability of its
manufacturing  processes to enable its operating partners to compete effectively
with  conventional   disposable   foodservice  packaging  and  to  transfer  the
operational  and  financial  responsibility  of  its  production  lines  to  its
operating  partners.  In cooperation  with former  manufacturing  partners,  the
Company financed and built initial commercial  production capacity. To date, the
Company has produced limited amounts of EarthShell  Packaging bowls,  plates and
hinged-lid  containers  at  production  volumes  that  are low  relative  to the
intended and necessary  capacities of the manufacturing  lines that are required
to achieve  efficiencies  and cost  effectiveness.  Although  the  manufacturing
processes currently being used to manufacture  EarthShell Packaging are based on
generally available methods and equipment, it has taken much longer and has cost
much more than  anticipated  to integrate the machinery in an automated  fashion
and  to  refine  the  manufacturing   processes  and  equipment  to  operate  at
commercially  viable  levels.   Having  demonstrated  the  manufacturability  of
EarthShell foam products,  the Company has now ceased  commercial  demonstration
production activities and is relying on its equipment  manufacturing partners to
demonstrate  and  guarantee  the  long-term   manufacturability   of  EarthShell
Packaging(R).

      Detroit Tool & Engineering  ("DTE").  DTE was one of the initial equipment
manufacturers  to work  with  EarthShell  in  developing  its  first  generation
commercial manufacturing equipment. In 2002, EarthShell granted a license to DTE
to become an approved EarthShell equipment supplier.  In early 2005, the Company
extended the license through 2007 with exclusivity to manufacture  equipment for
production  of shallow  draw  products.  Building  on previous  experience  with
EarthShell  manufacturing,  DTE  designed  and built a modular  and  integrated,
turn-key  manufacturing  line for the production of EarthShell plates and bowls,
comprising four plate and four bowl  manufacturing  modules and has demonstrated
to EarthShell's  satisfaction that this equipment is fully capable of continuous
commercial  service.  This equipment was planned for delivery,  installation and
start-up in early 2004 with one of  EarthShell's  licensees.  However,  due to a
change in  EarthShell  licensees,  as well as a  reorganization  of DTE that was
completed in late 2004, the placement of this equipment was delayed. As of early
2005,  these  first  eight  commercial   modules  have  been  moved  from  DTE's
fabrication floor and partially  installed in a manufacturing  hall owned by DTE
and in close proximity to the fabrication facility. The Company is negotiating a
license  agreement  with a new  licensee  which has  expressed  an  interest  in
acquiring  this  equipment  from  DTE and  beginning  manufacturing  operations.
Currently,  the Company  expects that this  equipment  will be placed in service
during 2005.

      Patents, Proprietary Rights and Trademarks

      The  technology  that the  Company  licenses  from EKI is the  subject  of
numerous issued and pending patents in the U.S. and internationally. The Company
believes the patents and pending patent  applications  provide broad  protection
covering  foam  laminate  EarthShell  Packaging,  material  composition  and the
manufacturing  processes.  As of December  31,  2004,  EKI had over 130 U.S. and
international  patents  and has  pending  patent  applications  relating  to the
compositions,  products and manufacturing  processes used to produce  EarthShell
Packaging(R) food and beverage containers. Patents currently issued do not begin
to expire until 2012 and provide some protection until 2020. Pending patents, if
granted,  would  extend  protection  through  2022.  Sixteen of the issued  U.S.
patents and five of the pending U.S. patents relate  specifically to molded food
and  beverage  containers  manufactured  from the new  composite  material,  the
formulation  of  the  new  composite  material  used  in  virtually  all  of the
EarthShell  Packaging are currently under development.  The Company and EKI will
continue  to seek  domestic  and  international  patent  protection  for further
developments  in the technology and will  vigorously  enforce rights against any
person infringing on the technology.


                                       5
<PAGE>

      The Company owns the  EarthShell  trademark and certain other  trademarks,
and has been  licensed by EKI to use the  trademark  ALI-ITE  for the  composite
material.

      Relationship with and Reliance on EKI

      The  Company  has  an  exclusive,   worldwide,   royalty-free  license  in
perpetuity  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).

      On July 29, 2002, the Company entered into an amendment to its Amended and
Restated  License  Agreement  with EKI (the "License  Agreement")  expanding the
field of use for the  EarthShell  technology  to include  noodle  bowls used for
packaging  instant noodles,  a worldwide market that the Company estimates to be
approximately  $1 billion.  Because the noodle bowl  development  was made at no
cost to EarthShell and is an incremental  field of use,  EarthShell  will pay to
EKI 50% of any royalty or other consideration it receives in connection with the
sale of products within this particular field of use.

      In  addition,  on July 29,  2002 the  Company  entered  into a  License  &
Information Transfer Agreement with bio-tec Biologische Naturverpackungen GmbH &
Co. KG and bio-tec  Biologische  Naturverpackungen  Forschungs und  Entwicklungs
GmbH,  together known as "Biotec",  a wholly owned subsidiary of EKI, to utilize
the  Biotec  technology  for  foodservice  disposable  packaging   applications,
including  food wraps and cutlery (the "Biotec  Agreement").  EKI had previously
granted to the Company  priority rights to license certain product  applications
on an exclusive basis from Biotec in consideration  for the Company's payment of
a $100,000 minimum monthly payment to Biotec.  In addition,  in consideration of
the monthly payment,  Biotec agreed to render technical  services to the Company
at Biotec's  cost plus 5%. The  licensing  fee and  services  arrangements  were
continued  in the Biotec  Agreement.  Under the terms of the  Biotec  Agreement,
Biotec is entitled to receive 25% of any royalties or other  consideration  that
the Company  receives in  connection  with the sale of  products  utilizing  the
Biotec  technology,  after  applying a credit for all minimum  monthly  payments
received  to  date.  In  connection  with  the  issuance  of  EarthShell's  2006
Convertible  Debentures,  Biotec agreed to subordinate the licensee fee payments
due from EarthShell until the debentures were retired.  During this period,  the
license fees due to Biotec were  accrued.  In  September of 2004,  as part of an
overall  restructuring  of its  debt,  EarthShell  and  Biotec  entered  into an
agreement to convert  $1.475  million of the $2.475  million of accrued  license
fees as of  September  1, 2004,  plus accrued  interest  into 491,778  shares of
EarthShell common stock and to eliminate,  for two years, the $100,000 per month
minimum  license  fee.  In  December  of 2004,  the  agreement  was  amended and
EarthShell paid to Biotec  $125,000,  leaving a balance owing of $875,000.  (See
MD&A Liquidity and Capital Resources)

      During  2002 and January  2003,  EKI made a series of loans to the Company
totaling approximately $5.8 million. In connection with the issuance and sale in
March 2003 of the Company's 2% secured  convertible  debentures due in 2006 (the
"2006  Debentures")  to a  group  of  institutional  investors,  EKI  agreed  to
subordinate the repayment of these loans to the payment in full of the Company's
obligations  under the 2006  Debentures.  In addition,  EKI and Biotec agreed to
subordinate  certain  payments  referenced  above to which  they were  otherwise
entitled  under  the  License   Agreement  and  the  Biotec   Agreement  to  the
satisfaction  in full of the Company's  obligations  under the 2006  Debentures.
They further agreed not to assert any claims against the Company for breaches of
the License  Agreement or the Biotec  Agreement until such time as the Company's
obligations  under the 2006  Debentures  were  satisfied in full. EKI and Biotec
also agreed to allow the Company to pledge its interest in the License Agreement
to secure its  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 License  Agreement  and the Biotec
Agreement to third parties in an insolvency  context.  (These rights  terminated
upon the  satisfaction in full of the  obligations  under the 2006 Debentures in
October  of 2004.) In  consideration  for its  willingness  to  subordinate  the
payments and advances  that were owed to it, the Company  issued to EKI in March
2003 a warrant to acquire 83,333 shares of the Company's common stock at a price
of $6.00 per share with a ten year term.

      In October  2004,  in  connection  with the  settlement  of the March 2006
Debentures,   EKI  converted  all  of  its   outstanding   loans  to  EarthShell
($2,755,000)  into  unregistered  common  stock at $3 per share and  $532,644 of
accumulated interest at $4 per share for a total of 1,051,494 shares received by
EKI. As of December  31,  2004,  the loans from EKI to  EarthShell  had all been
retired. In May of 2005, an additional 44,387 shares were issued to EKI pursuant
to a 90 day price  protection  clause,  which  provided for an adjustment in the
effective conversion price of the interest portions of the EKI loans from $4 per
share to $3 per share.


                                       6
<PAGE>

      In May of 2005,  the  Company  granted a warrant  to EKI to  purchase  one
million shares of the Company's common stock at $3 per share in consideration of
EKI's continued support of the Company since its inception,  including providing
bridge loans at below market terms from time to time. The warrant expires in May
of 2015.

      Under the terms of the License  Agreement  and the  Amended  and  Restated
Patent Agreement for the Allocation of Patent Costs between the Company and EKI,
any  patents  granted  in  connection  with the  EarthShell  technology  are the
property  of  EKI,  and  EKI may  obtain  a  benefit  therefrom,  including  the
utilization  and/or licensing of the patents and related  technology in a manner
or for uses unrelated to the license  granted to the Company in the  foodservice
disposables field of use.  Effective January 1, 2001,  EarthShell assumed direct
responsibility  to manage and  maintain  the  patent  portfolio  underlying  the
License Agreement with EKI and continues to pay directly all relevant costs.

      Competition

      Competition  among  food  and  beverage  container  manufacturers  in  the
foodservice industry is intense. Virtually all of these competitors have greater
financial and marketing  resources at their disposal than does the Company,  and
many have  established  supply,  production and distribution  relationships  and
channels.  Companies producing  competitive  products may reduce their prices or
engage  in  advertising  or  marketing   campaigns  designed  to  protect  their
respective market shares and impede market  acceptance of EarthShell  Packaging.
In  addition,  some  of the  Company's  licensees  and  joint  venture  partners
manufacture  paper,  plastic or foil packaging that may compete with  EarthShell
Packaging.

      Several  paper  and  plastic   disposable   packaging   manufacturers  and
converters  and others have made  efforts to  increase  the  recycling  of these
products.  Increased  recycling of paper and plastic products could lessen their
harmful  environmental impact, one major basis upon which the Company intends to
compete.  A number of companies  have  introduced  or are  attempting to develop
biodegradable  starch-based materials,  plastics, or other materials that may be
positioned as potential  environmentally superior packaging alternatives.  It is
expected that many existing packaging manufacturers may actively seek to develop
competitive  alternatives  to the Company's  products and  processes.  While the
Company believes its patents uniquely position it to incorporate a proportion of
low  cost,  inorganic  fillers  with  its  material,  which,  relative  to other
starch-based or specialty  polymers,  will result in lower material  costs,  the
development of competitive,  environmentally attractive,  disposable foodservice
packaging  could  render the  Company's  technology  obsolete  and could have an
adverse effect on the business, financial condition and results of operations of
the Company.

      Certain Risk Factors

      Although  the Company  earned its first  revenues in 2004 and is no longer
classified as a "developmental stage company", it has limited operating history,
therefore,   it  remains  subject  to  the  inherent  challenges  and  risks  of
establishing  a  new  business  enterprise.   To  date,  production  volumes  of
EarthShell  Packaging  products have been low relative to intended and necessary
capacity of the manufacturing  lines. The success of future  operations  depends
upon the ability of  licensees  to  manufacture  products  made with  EarthShell
Packaging in sufficient quantities so as to be commercially feasible and then to
distribute and sell those products at competitive costs. Consistent commercially
feasible  production volumes had not been achieved and assured  competitive cost
figures had not yet been proven as of December 31, 2004.

      As of December 31, 2004,  the Company had reported  operating  revenues of
$.1 million and aggregate net losses of approximately $7.3 million for the year.
Although  the Company  hopes to achieve  break-even  cash flow by the end of the
year, the Company does not expect to operate profitably during fiscal year 2005.
Although  the Company is actively  seeking  third  party  financing  to meet its
operating and capital needs,  there is no assurance that additional funding will
be available to the Company, and, even if it is available, such financing may be
(i)  extremely  costly,  (ii)  dilutive to existing  stockholders  and/or  (iii)
restrictive to the Company's ongoing operations.  If additional financing cannot
be obtained,  the Company would have to cease  business  operations.  Management
plans to address the Company's current financing needs, in part, by raising cash
through either the sale of licenses,  the generation of royalty  revenues or the
issuance of debt or equity securities.  In addition, the Company expects cash to
be generated  during fiscal year 2005 through  royalty  payments from licensees.
However,  the Company cannot 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 2005.  Management  will also continue to in its
efforts to reduce  expenses,  but cannot  assure  that it will be able to reduce
expenses sufficiently in order to continue its business operations.


                                       7
<PAGE>

      Management  has  identified  the  following  material  weaknesses  in  the
Company's internal controls over financial reporting:

o     The Company has inadequate  segregation of critical  duties within each of
      its accounting processes and a lack of sufficient monitoring controls over
      these  processes to mitigate this risk. The  responsibilities  assigned to
      one  employee  include  maintaining  the vendor  master  file,  processing
      payables,  creating and voiding checks,  reconciling bank accounts, making
      bank deposits and processing payroll.

o     The departure of the Company's Controller in November 2004 resulted in the
      accounting  and  reporting  functions  being  centralized  under the Chief
      Financial Officer,  with no additional  personnel in the Company having an
      adequate  knowledge of accounting  principles and practices.  As a result,
      certain  transactions had not been recorded in a timely manner and several
      adjustments to the financial  statements that were considered  material to
      the financial  position at December 31, 2004 and results of operations for
      the year then ended were recorded.

o     There are  weaknesses in the  Company's  information  technology  controls
      which makes the  Company's  financial  data  vulnerable to error or fraud.
      Specifically,  there is a lack of  documentation  regarding  the roles and
      responsibilities  of the IT  function,  lack of  security  management  and
      monitoring and inadequate segregation of duties involving IT functions.

      Additionally,  at the conclusion of our independent  auditor's examination
of the Company's  internal  control over financial  reporting,  our  independent
auditor  noted  several  other  areas of  operations  which  could be  improved,
although  our  auditors  did  not  believe  these  items  constituted   material
weaknesses.  The Company's management is currently taking steps to address these
material weaknesses.  However, the Company cannot assure that management will be
able to timely  correct  such  weaknesses  nor be able to  correct  them at all.
Accordingly,  Management cannot provide reasonable  assurance that the Company's
financial  reporting and the preparation of its financial  statements conform to
generally accepted accounting principles.

      The  Company's  common  stock is no longer  traded on the NASDAQ Small Cap
Market.  SEC regulations  generally  define a "penny stock" to be any non-Nasdaq
equity security that has a market price of less than $5.00 per share, subject to
certain exceptions. Based upon the price of EarthShell common stock as currently
traded,  EarthShell  common stock is subject to Rule 15g-9 under the  Securities
and Exchange Act of 1934 which imposes additional sales practice requirements on
broker-dealers which sell securities to persons other than established customers
and  "accredited   investors."  For   transactions   covered  by  this  rule,  a
broker-dealer  must make a special  suitability  determination for the purchaser
and have  received a purchaser's  written  consent to the  transaction  prior to
sale.  Consequently,  this rule may have a  negative  effect on the  ability  of
stockholders to sell common shares of the Company in the secondary market.

      The Company's  current business model is to license the  manufacturing and
distribution  of  EarthShell  Packaging  foodservice  disposables  to licensees.
Agreements  with  the  licensees  permit  them to  manufacture  and  sell  other
foodservice  disposable  packaging  products  that are not  based on  EarthShell
Packaging.  The licensees may also  manufacture  paper or polystyrene  packaging
which could compete with EarthShell products, and they may not devote sufficient
resources or otherwise be able successfully to manufacture, distribute or market
EarthShell Packaging. Their failure to do so would be grounds for termination of
exclusivity  provisions  in their  license  agreement,  but might also delay the
rollout of EarthShell Packaging into the marketplace.

      The success of the Company depends substantially on its ability to design,
develop and manufacture  foodservice  disposables that are not as harmful to the
environment as conventional  disposable  foodservice containers made from paper,
plastic  and  polystyrene.  Although  EarthShell  Packaging  offers a number  of
environmental  advantages  over  conventional  packaging  products,  it may also
possess characteristics that consumers or environmental groups could perceive as
negative for the environment. In particular,  EarthShell Packaging may result in
more solid waste by weight,  and manufacturing  them may release greater amounts
of some pollutants than the manufacture of some other packaging would release.

      The  Company  does  not  own  the  technology   necessary  to  manufacture
EarthShell  Packaging  and is dependent  upon the License  Agreement to use that
technology.  The licensed technology is limited to the development,  manufacture
and  sale  of  specified  foodservice  disposables  for  use in the  foodservice
industry,  and  there  is no  right  to  exploit  opportunities  to  apply  this
technology  or improve it outside  this field of use. If EKI were to file for or
be  declared  bankrupt,  the Company  would  likely be able to retain its rights
under the  License  Agreement  with  respect  to U.S.  patents;  however,  it is
possible  that steps could be taken to  terminate  its rights  under the License
Agreement  with  respect  to  international  patents.  EKI  is  the  controlling
stockholder of the Company, and conflicts could arise with regard to performance
under the license  agreement,  corporate  opportunities  or time  devoted to the
business of the Company by officers and directors who are common to both EKI and
the Company.


                                       8
<PAGE>

      As disclosed in Item 9A of this Annual Report on Form 10-K/A, as permitted
by the SEC, the Company filed  Management's  Annual  Report on Internal  Control
Over Financial  Reporting and the related report of its  independent  registered
public accounting firm by amendment to this Annual Report on Form 10-K within 45
days after the date the  Annual  Report on Form 10-K was  required  to be filed.
This report on Internal Control Over Financial  Reporting and the related report
of the Company's  independent  auditor disclosed certain material  weaknesses in
internal  control  over  financial  reporting.  While the  Company is working to
remedy the material weaknesses reported,  the determination that the Company has
failed to achieve and  maintain an  effective  system of internal  control  over
financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act and
the SEC's related rules could have a material adverse effect on our business and
stock price.

      Government Regulation

      The  manufacture,  sale and use of  EarthShell  Packaging  are  subject to
regulation  by the U.S.  Food and Drug  Administration  (the  "FDA").  The FDA's
regulations are concerned with substances used in food packaging materials,  not
with  specific  finished  food  packaging  products.  Thus,  food  and  beverage
containers are in compliance  with FDA regulations if the components used in the
food and  beverage  containers:  (i) are  approved by the FDA as  indirect  food
additives for their  intended uses and comply with the  applicable  FDA indirect
food additive  regulations;  or (ii) are generally  recognized as safe for their
intended uses and are of suitable purity for those intended uses.

      The  Company  believes  that  EarthShell   Packaging  plates,   bowls  and
hinged-lid  containers and all other current and prototype  EarthShell Packaging
products of the Company are in compliance  with all  requirements of the FDA and
do not require additional FDA approval. The Company cannot be certain,  however,
that the FDA will agree with these conclusions.

      Employees

      As of  January  1,  2005,  the  Company  had 9  employees.  The  Company's
employees are not represented by a labor union,  and the Company believes it has
a good relationship with its employees.

      Available Information

      The Company's  internet website is  www.earthshell.com.  The Company makes
available  free of  charge  on its  website  its  annual  report  on Form  10-K,
quarterly  reports on Form 10-Q,  current  reports  on Form 8-K,  reports  filed
pursuant to Section 16 of the  Securities  Exchange Act of 1934, as amended (the
"Exchange   Act")  and  amendments  to  those  reports  as  soon  as  reasonably
practicable  after such materials are  electronically  filed or furnished to the
SEC.  Materials  the  Company  files  with the SEC may be read and copied at the
SEC's Public Reference Room at 450 Fifth Street, NW, Washington,  DC 20549. This
information  may  also be  obtained  by  calling  the  Securities  and  Exchange
Commission  at  1-800-SEC-0330.  The  Securities  and Exchange  Commission  also
maintains  an internet  website that  contains  reports,  proxy and  information
statements,  and other information  regarding  issuers that file  electronically
with the SEC at  www.sec.gov.  The  Company  will  provide  a copy of any of the
foregoing documents to shareholders upon request.

ITEM 2. PROPERTIES

      In  November  2004,  the  Company  relocated  its  offices to its  current
location at 3916 State Street in Santa Barbara,  California. The office space is
shared with EKI under a month to month  sublease.  The  Company's  monthly lease
payment for approximately 2,000 square feet of office space and is approximately
$4,000.  In  addition,  the Company  leases 3,353 square feet of office space in
Lutherville,  Maryland,  on a month to month basis. The Company's  monthly lease
payment with respect to this space is $5,780.


                                       9
<PAGE>

      The  Company  believes  it will be able to  lease  comparable  space  at a
comparable price when these leases expire.

ITEM 3. LEGAL PROCEEDINGS

      The Company is engaged in litigation with two equipment  suppliers seeking
to collect a total of  approximately  $600,000  for  manufacturing  equipment in
connection with the Company's former Goettingen, Germany manufacturing line that
is no longer in service. The entire amount claimed in the litigation has already
been accrued as part of the Company's  accounts  payable.  The Company  believes
that it has good  defenses and  counterclaims  inasmuch as the equipment did not
reach the  performance  requirements  specified in the purchase  contracts,  and
expects to settle the respective matters soon.

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

      None.


                                       10
<PAGE>

                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S  COMMON EQUITY RELATED  STOCKHOLDER  MATTERS
        AND ISSUER PURCHASES OF EQUITY SECURITIES

      The  Company's  common  stock is currently  listed on the  Bulletin  Board
published by the National  Quotation  Bureau,  Inc.,  and prior to March 8, 2004
traded on the Nasdaq SmallCap  Market.  The Company's  common stock trades under
the symbol  "ERTH.OB." For the periods  indicated,  the following table presents
the range of high and low closing sale prices for the Company's common stock.

<TABLE>
<CAPTION>
                                    First         Second         Third        Fourth      Total Year
                                 ------------  ------------  ------------  ------------  ------------
<S>                              <C>           <C>           <C>           <C>           <C>
2004

Market price per common share
High ......................         $  2.52       $  2.03       $  3.75       $  2.97       $  3.75
Low .......................            1.49          0.45          1.75          1.95          0.45

2003

Market price per common share
High ......................         $  7.80       $  7.08       $  5.64       $  4.56       $  7.80
Low .......................            4.20          4.32          3.72          1.33          1.33
</TABLE>

      The  Company's  common  stock  sales  prices  have  been  restated,  where
applicable,  to reflect the one-for-twelve reverse split of the Company's common
stock  effective as of October 31, 2003.  Quotations  since the Company's  stock
began trading on the OTC Bulletin Board may reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions.

      The number of  stockholders  of record of the  Company's  common  stock at
March 28, 2005 was 1,185.  At March 31, 2005, Mr. Essam  Khashoggi,  directly or
indirectly,  owned  approximately  36% of the  outstanding  common  stock of the
Company.

      The Company does not intend to declare or pay cash dividends on its common
stock in the foreseeable future nor has it paid dividends in the past two years.

      Recent Sales of Unregistered Securities

      (1) In November  2004,  as part of an overall  restructuring  of its debt,
EarthShell  issued an aggregate of 491,778  shares of its common stock to Biotec
in exchange  for the  cancellation  of $1.475  million of accrued  license  fees
EarthShell  owed  Biotec,  which  transaction  computed  to a  $3.00  per  share
conversion price.

      (2) In November 2004, in connection with the restructuring of its debt and
settlement of the 2006 Debentures,  EarthShell  issued an aggregate of 1,051,494
shares of its common  stock to EKI of the 2006  Debentures  in exchange  for the
cancellation  of $3.288  million  of  principal  and  interest  due  under  then
outstanding loans.

      (3)  Pursuant to various  agreements  dated  September  29 and 30, 2004 in
connection  with  the  restructuring  of its  debt  and  settlement  of the 2006
Debentures,  EarthShell issued an aggregate of 512,500  additional shares of its
common  stock  to the  holders  of the  2006  Debentures  in  settlement  of the
Company's default under the 2006 Debentures.

      (4) In  October  2004,  as part of an overall  restructuring  of its debt,
EarthShell  issued an aggregate of 900,000  shares of its common stock to MBS at
$3.00 per share for an aggregate offering price of $2.7 million.

      EarthShell claimed an exemption from registration under the Securities Act
for the sales and issuance of its common stock in the transactions  described in
paragraphs (1) through (4) above by virtue of Section 4(2) of the Securities Act
in that such sales and issuances did not involve a public  offering.  EarthShell
believed  that the  recipients  of  common  stock in each of these  transactions
intended to acquire the securities for investment only and not with a view to or
for sale in connection with any distribution  thereof,  and appropriate  legends
were  affixed  to  the  share   certificates  and  instruments  issued  in  such
transactions.  These sales and issuances were made without general  solicitation
or advertising and each purchaser was a sophisticated  investor.  All recipients
had  adequate  access,   through  their   relationships  with  the  Company,  to
information  about the Company.  There were no  underwriters  involved in any of
these sales and issuances.


                                       11
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

      The selected  financial data set forth below should be read in conjunction
with the Company's  Financial  Statements  and Notes  thereto and  "Management's
Discussion  and  Analysis of  Financial  Condition  and  Results of  Operations"
included elsewhere in this Annual Report on Form 10-K/A.

                             Selected Financial Data
                      (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                              For the Year Ended December 31
                                   ---------------------------------------------------------------------------------
                                      2004              2003              2002              2001             2000
                                   ----------        ----------        ----------        ---------        ----------
<S>                                <C>               <C>              <C>                <C>             <C>
Statement of Operations Data

Revenues ........................  $      138        $       --        $       --        $      --        $       --
Research and development
  expenses ......................       1,170             9,547            26,890           47,148            37,265
General and administrative
  expenses ......................       3,749             5,786             9,590            9,634             6,843
Depreciation and amortization ...          42               380             3,099            5,874             5,704
Gain on sale of property and
  equipment .....................        (168)             (452)             (441)              --                --
Interest expense (income), net ..       1,068             1,791               132            (356)            (1,264)
Related party patent expenses ...          --                --                --               --               362
Debenture conversion cost .......          --               166               321               --                --
Net loss ........................       7,257            18,517            39,591           62,302            48,912
Average shares outstanding ......      15,047            13,267            11,277            9,353             8,452

Balance Sheet Data

Cash and cash equivalents .......  $      272        $    1,902        $      111        $     828        $    7,792
Working capital (deficit) .......      (7,289)           (9,438)           (8,315)          (6,941)            2,107
Total assets ....................         483             2,287            18,024           19,886            48,474
Total long-term obligations .....       1,475             4,408                --               --                --
Deficit accumulated during
  development stage .............    (321,607)         (314,351)         (295,834)        (256,243)         (193,941)
Stockholders' equity (deficit) ..      (8,755)          (12,269)           (3,473)          11,536            42,296
Shares outstanding ..............      18,235            14,129            12,055            9,860             8,709

Per Common Share

Basic and diluted loss per share   $     0.48        $     1.40        $     3.51        $    6.66        $     5.79
</TABLE>


ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

      The following  discussion  should be read in conjunction with the Selected
Financial  Data and the Company's  Consolidated  Financial  Statements and Notes
thereto  included  elsewhere  in  this  Annual  Report  on  Form  10-K/A.   Such
consolidated  financial statements and information have been prepared to reflect
the  Company's  operations  for the three years ended  December 31, 2004 and the
assets and liabilities of the Company as of December 31, 2004 and 2003.

      Information in this Annual Report on Form 10-K/A 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  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 which may be discussed elsewhere in this Annual Report on
Form 10-K/A.


                                       12
<PAGE>

      Overview

      Organized  in  November  1992  as  a  Delaware   corporation,   EarthShell
Corporation  (the  "Company") 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.

      EarthShell was a development stage enterprise through the first quarter of
2004. With the  recognition of the Company's  first revenues  resulting from the
receipt of $500,000 in technology  fees in connection with granting a license to
a strategic  partner in the second  quarter of 2004, the Company was no longer a
development stage enterprise.

      Critical Accounting Assumptions

      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.  The
Company has incurred  significant  losses since inception,  has minimal revenues
and has a working  capital  deficit of  $7,289,431  at December 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, 2005. 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 sale of licenses,  the  generation  of
royalty revenues or the issuance of debt or equity securities.  In addition, the
Company  expects  cash to be generated in 2005  through  royalty  payments  from
licensees.  However, the Company cannot 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 2005.  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
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.
At one time, the Company had been engaged in the  development  of  manufacturing
equipment to validate  acceptance of EarthShell  products and their pricing.  To
this end, the Company previously developed  manufacturing lines in Owings Mills,
Maryland, Goleta, California and in Goettingen,  Germany. The Company recognized
impairment  charges on its equipment  amounting to $4.0 million and $9.8 million
in 2003 and 2002, respectively.

      Revenue  Recognition.  The  Company  recognizes  revenue  when  persuasive
evidence of an arrangement  exists,  the price is fixed or readily  determinable
and  collectibility is probable.  The Company  recognizes  revenue in accordance
with Staff  Accounting  Bulletin  No. 101,  "Revenue  Recognition  in  Financial
Statements,"  (SAB 101).  EarthShell's  revenues consist of technology fees that
are  recognized  ratably over the life of the related  agreements  and royalties
based on product sales by licensees  that are recognized in the quarter that the
licensee reports the sales.


                                       13
<PAGE>

      Results of Operations

      Year Ended  December 31, 2004  Compared  with the Year Ended  December 31,
2003

      The Company's net loss decreased  $11.2 million to $7.3 million from $18.5
million for the year ended December 31, 2004 compared to the year ended December
31, 2003, respectively.

      Revenues. The Company recorded revenues of $0.1 million for the year ended
December 31, 2004.  These revenues  reflect  amortization of the $3.0 million of
technology  fees payable under the sublicense  agreements that were entered into
with MBS and with ESH in the  second and  fourth  quarters  of 2004 over the ten
years of the agreements.  The amortization of the technology fees will result in
the  recognition  of $0.3  million in revenues  per year during the lives of the
agreements.  Prior to this,  the Company had no  recognized  revenue as it was a
development stage company.

      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
expenditures  for the  development  of EarthShell  Packaging(R)  decreased  $8.3
million to $1.2 million  from $9.5 million for the year ended  December 31, 2004
compared to the year ended December 31, 2003, respectively.

o     Related  party  license fee and  research  and  development  expenses  are
      comprised of the $.1 million minimum monthly  licensing fee for the use of
      the EarthShell  technology and for technical services,  both of which were
      payable to EKI, a stockholder  of the Company,  or Biotec,  a wholly-owned
      subsidiary of EKI.  Related party license fee and research and development
      expenses  decreased $0.5 million to $0.8 million from $1.3 million for the
      year ended December 31, 2004 compared to the year ended December 31, 2003,
      respectively.  The decrease was primarily due to a decrease in the license
      fee as a result of an agreement  with Biotec to eliminate the $0.1 million
      per month minimum licensing fee from September 2004 through August 2006.

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  $7.8  million to $0.4  million from $8.2
      million for the year ended  December  31, 2004  compared to the year ended
      December  31,  2003,   respectively.   The   reduction   was  due  to  the
      non-recurrence  of the  following  2003  activities:  the winding  down of
      on-going  demonstration  manufacturing in Goleta,  California in the first
      quarter of 2003, the start-up in mid-May of a new  manufacturing  line for
      plates  and bowls  built and  financed  by  Detroit  Tool and  Engineering
      Company (DTE) at their Lebanon,  Missouri  facility,  expenses incurred to
      vacate the Company's demonstration manufacturing facility in Goleta at the
      expiration of the lease on May 31, 2003, costs incurred in connection with
      testing of the  Goettingen,  Germany  manufacturing  equipment  during the
      third quarter, the write down of the Goettingen manufacturing equipment to
      $1 as of December  31, 2003 due to the  uncertainty  of the proceeds to be
      realized upon sale of the equipment, and the losses of the Company's joint
      venture.  In early August 2003,  the Company  discontinued  its day-to-day
      support of  manufacturing  activities at DTE. In keeping with its business
      model, in 2004 the Company  primarily focused on the licensing of its foam
      analog  material  and  other  technologies  to new  licensees,  and  these
      licensees and future  licensees  will install and run equipment to produce
      EarthShell Packaging(R) in their own facilities.

      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 $2.0 million to $3.8 million from $5.8 million
for the year ended  December  31, 2004  compared to the year ended  December 31,
2003,  respectively.  This was primarily the result of efforts to  significantly
reduce  general and  administrative  expenses  throughout  2003 and 2004,  which
resulted  in  reductions  in the  following  expenses:  personnel  costs by $0.7
million (due to a reduction in headcount  from 14 employees at December 31, 2003
to 9 employees at December  31,  2004),  professional  fees and services by $0.8
million, facility and support costs by $0.3 million, business insurance costs by
$0.2 million,  travel and  entertainment  expenses by $0.1 million and franchise
taxes by $0.1 million.  In addition,  the Company was able to reduce  previously
provided expense  accruals by approximately  $0.6 million due to their favorable
resolution  in the third  quarter of 2004.  Most of the  credit to  general  and
administrative  expenses  related to the  favorable  resolution  of property tax
disputes  within the states of California and Maryland.  The expense  reductions
were  partially  offset  by  approximately  $0.8  million  of  accounts  payable
settlement  gains in 2003.  The  settlement  gains  were the result of a program
began by the  Company in the  second  quarter  of 2003 to  satisfy  vendors  for
outstanding aged invoices.


                                       14
<PAGE>

      Depreciation  and  Amortization  Expense.  Depreciation  and  amortization
expense decreased $0.34 million to $0.04 million from $0.38 million for the year
ended  December  31,  2004  compared  to  the  year  ended  December  31,  2003,
respectively.  The decrease in depreciation expense is primarily attributable to
taking the remainder of EarthShell's manufacturing and development assets out of
service as of the end of 2003.

      Interest Expense.  Interest expense is comprised of Related party interest
expense and Other interest expense.

o     Related  party  interest  expense was $0.4 million for both the year ended
      December  31, 2004 and the year ended  December 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
      to EKI in  conjunction  with the March 2003 financing  transactions,  plus
      accrued interest payable on amounts owed to EKI for monthly licensing fees
      that were accrued  rather than being paid in accordance  with the terms of
      the  subordination  agreements  entered into in  connection  with the 2006
      Debentures (see "Related Party Transactions"). During the third quarter of
      2004, agreements were negotiated with EKI to convert all outstanding loans
      and accrued but unpaid  interest  into common  stock of the Company and to
      restructure the unpaid  licensing fees under the Biotec License  Agreement
      (see "Item 1 Business Relationship with and Reliance on EKI").  Therefore,
      there will be no Related party interest expense for these items subsequent
      to December 31, 2004.

o     Other  interest  expense  decreased $0.7 million to $0.7 million from $1.4
      million for the year ended  December  31, 2004  compared to the year ended
      December  31,  2003,  respectively.  Other  interest  expense  for 2004 is
      primarily  comprised of accretion of the discount and interest  accrued on
      the 2006  Debentures.  Other  interest  expense  for  2003  was  primarily
      comprised of accretion of discount on the 2006 Debentures and a beneficial
      conversion  charge in the  amount of $0.4  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.

      Gain on Sale of Property and  Equipment.  Gain on the sale of property and
equipment  decreased $0.3 million to $0.2 million from $0.5 million for the year
ended  December  31,  2004  compared  to  the  year  ended  December  31,  2003,
respectively.  The gains in both 2004 and 2003 were  realized due to the sale of
non-essential  machine shop equipment and excess office  furniture and equipment
over their net book value,  most of which was fully  depreciated.  In  addition,
2003 also included  proceeds received from the sale of production line equipment
that was previously impaired and therefore had a net book value of zero.

      Premium due to Debenture  Default.  At September 30, 2004, the Company was
in  non-compliance  with certain  covenants of the 2006  Debentures.  Two of the
debenture  holders,  including the debenture  holder with the largest  ownership
position,  notified  the Company in writing  that the Company was in default and
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.  The debenture  contains a provision for repurchase of the
debenture at a premium if the repurchase is due to an event of default,  and the
Company accrued the amount of the premium specified in the debenture.

      Other Income.  Other income for the year ended  December 31, 2004 was zero
compared to $0.4 million for the year ended  December  31, 2003.  The 2003 other
income  represents  the net gain  realized  in the  third  quarter  of 2003 from
reducing the balance of the warrant  obligation to its  estimated  fair value of
zero. The warrant obligation was initially recorded in connection with the March
2003 financing transactions (see "Convertible Debentures").

      (Gain)  Loss  on  Extinguishment  of  Debentures.  There  was  a  gain  on
extinguishment of debentures of $.1 million for the year ended December 31, 2004
compared to a loss on extinguishment of debentures was $1.7 million for the year
ended  December 31, 2003.  The $0.1 million gain for the year ended December 31,
2004 relates to interest payable on the 2006 Debentures that was not paid by the
Company upon  conversion of the  Debentures.  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 (see "Convertible Debentures").


                                       15
<PAGE>

      Debenture  Conversion Cost. Debenture Conversion Cost was $0.2 million for
the year ended December 31, 2003. The expense represents the prorated portion of
the original  discount  attributed to the 2007 Debentures  whose  conversion was
forced by the Company in the respective periods.

      Year Ended  December 31, 2003  Compared  with the Year Ended  December 31,
2002

      The Company's net loss decreased $21.1 million to $18.5 million from $39.6
million for the year ended December 31, 2003 compared to the year ended December
31, 2002, respectively.

      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
expenditures  for the  development of EarthShell  Packaging(R)  decreased  $17.4
million to $9.5 million from $26.9 million for the year ended  December 31, 2003
compared to the year ended December 31, 2002, respectively.

o     Related  party  license fee and  research  and  development  expenses  are
      comprised of the $100,000 minimum monthly licensing fee for the use of the
      EarthShell  technology  and for  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  of 2003.  Related  party  license  fee and
      research and development  expenses  decreased $0.2 million to $1.3 million
      from $1.5  million for the year ended  December  31, 2003  compared to the
      year ended December 31, 2002, respectively.  The 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  $17.2 million to $8.2 million from $25.4
      million for the year ended  December  31, 2003  compared to the year ended
      December  31,  2002,  respectively.  The  decrease in other  research  and
      development  expenses was primarily due to  concluding  the  demonstration
      manufacturing  of hinged-lid  containers in Owings Mills,  Maryland at the
      end of the second  quarter of 2002.  While the  majority  of the  expenses
      incurred in 2002 related to the Owings Mills demonstration  manufacturing,
      it also included  expenses  related to the  commencement of  demonstration
      manufacturing  of bowls and plates in Goleta,  California.  Other research
      and development expenses incurred in 2003 primarily related to the ongoing
      demonstration  manufacturing  in  Goleta  through  mid-April  and  to  the
      start-up in mid-May of a new manufacturing line for plates and bowls built
      and  financed  by  Detroit  Tool and  Engineering  Company  (DTE) at their
      Lebanon, Missouri facility. In early August 2003, the company discontinued
      its day-to-day support of manufacturing activities at DTE. In keeping with
      its business  model,  the Company will  hereafter  focus  primarily on the
      licensing  of its foam analog  material  and other  technologies,  and all
      future  manufacturing and production will be the responsibility of current
      or new licensees as they install and run  equipment to produce  EarthShell
      Packaging(R) in their own  facilities.  The decrease in other research and
      development  expenses was also due to a $5.8 million reduction in property
      and  equipment  impairment  charges,  to $4.0  million  in 2003  from $9.8
      million in 2002.

      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 $3.8 million to $5.8 million from $9.6 million
for the year ended  December  31, 2003  compared to the year ended  December 31,
2002,  respectively.  This was primarily the result of efforts to  significantly
reduce general and administrative expenses in 2003, which resulted in reductions
in the following expense  categories:  legal fees,  including patent prosecution
and  maintenance  fees,  by $0.9  million,  personnel  costs  by  $0.7  million,
professional  fees and services by $0.4  million,  travel costs by $0.3 million,
facility costs by $0.3 million and business insurance costs by $0.2 million.  In
addition,  in the second  quarter of 2003 the Company began a program to satisfy
vendors for outstanding  invoices and recognized gains from settling various old
trade accounts payable at a discount.  As a result of negotiations,  in 2003 the
Company settled and paid  outstanding  accounts  payable of  approximately  $1.5
million at a discount of approximately $0.8 million.


                                       16
<PAGE>

      Depreciation  and  Amortization  Expense.  Depreciation  and  amortization
expense  decreased  $2.7  million to $0.4 million from $3.1 million for the year
ended  December  31,  2003  compared  to  the  year  ended  December  31,  2002,
respectively.  The decrease in depreciation expense is primarily attributable to
the  decrease  in  property  and  equipment  as a result  of the  impairment  of
demonstration manufacturing property and equipment in 2002.

      Interest  Income.  Interest  income  totaled  $0.1 million for each of the
years ended December 31, 2003 and December 31, 2002.

      Interest Expense.  Interest expense is comprised of Related party interest
expense and Other interest expense.

o     Related party interest expense increased $0.3 million to $0.4 million from
      $0.1  million for the year ended  December  31, 2003  compared to the year
      ended December 31, 2002, respectively. The increase was due to an increase
      in accrued  interest  payable on outstanding  loans made to the Company by
      EKI from  September  2002  through  January  2003  that  were  outstanding
      throughout all of 2003,  accretion in 2003 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).

o     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  increased $1.2 million to $1.4 million from $0.2
      million for the year ended  December  31, 2003  compared to the year ended
      December  31,  2002,  respectively.  Other  interest  expense  for 2003 is
      primarily  comprised of  accretion of the discount on the 2006  Debentures
      and a beneficial  conversion charge in the amount of $0.4 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.  Other interest expense for 2002 was comprised of accretion of
      the discount and accrued interest payable on the 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 they
      are repaid or are converted into common stock.

      Other  Income.  Other income was $0.4 million for the year ended  December
31, 2003.  This  represents  the net gain  realized in the third quarter of 2003
from reducing the balance of the warrant  obligation to its estimated fair value
of zero. Management believes the estimated fair value of the warrant at December
31, 2003 is zero. The warrant  obligation  was initially  recorded in connection
with the March 2003 financing transactions (see Convertible Debentures).

      Loss on Extinguishment of Debentures. Loss on extinguishment of debentures
was $1.7 million for the year ended  December 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.

      Gain on Sale of Property and  Equipment.  Gain on the sale of property and
equipment  increased $0.1 million to $0.5 million from $0.4 million for the year
ended  December  31,  2003  compared  to  the  year  ended  December  31,  2002,
respectively.  The gain in both 2003 and 2002  represents the excess of proceeds
received from the sale of non-essential machine shop equipment and excess office
furniture  and  equipment  over their net book  value.  In  addition,  2003 also
includes  proceeds  received from the sale of production line equipment that was
previously impaired and therefore had a net book value of zero.


                                       17
<PAGE>

      Debenture  Conversion  Cost.  Debenture  Conversion  Cost  decreased  $0.1
million to $0.2 million  from $0.3 million for the year ended  December 31, 2003
compared  to the  year  ended  December  31,  2002,  respectively.  The  expense
represents the prorated portion of the original discount  attributed to the 2007
Debentures whose conversion was forced by the Company in the respective periods.

      Liquidity and Capital Resources

      Cash  Flow.  The  Company's  principal  uses of cash  for the  year  ended
December 31, 2004 were to fund operations, repay convertible debentures, and pay
accounts  payable and accrued  expenses.  Net cash used in  operations  was $2.7
million  and $15.7  million  for the years  ended  December  31,  2004 and 2003,
respectively. Net cash provided by investing activities was $.2 million and $4.0
million for the years ended December 31, 2004 and 2003,  respectively.  Net cash
provided by financing activities was $.9 million and $13.5 million for the years
ended  December 31, 2004 and 2003,  respectively.  As of December 31, 2004,  the
Company had cash and related cash equivalents totaling $.3 million.

      Capital  Requirements.  Due to the fact that  construction  of the initial
commercial  production  lines  was  largely  completed  in 2002 and the  Company
decided to discontinue all demonstration  manufacturing  activities in 2003, the
Company only made one minor capital  expenditure  during the year ended December
31, 2004. The Company does not expect to make significant  capital  expenditures
in the year 2005.

      Contractual  Obligations.  The following  table  summarizes  the Company's
known  obligations to make future payments  pursuant to certain  contracts as of
December  31,  2004,  as  well as an  estimate  of the  timing  in  which  these
obligations are expected to be satisfied:

<TABLE>
<CAPTION>
                                             Payments due
                                               by period
                                            (in thousands)    Less than
Contractual Obligations                          Total          1 year        1-3 years
------------------------------------------  --------------  --------------  --------------
<S>                                         <C>             <C>             <C>
Long-term debt - principal payments only
Capital leases                                          --              --              --
Operating leases                                        --              --              --
Payable to Related Party                    $          875  $          875              --
Other long-term liability                   $          726  $          314  $          412
Totals                                      $        1,601  $        1,189  $          412
</TABLE>

      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  1,250,000
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 $30.6 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 an  additional  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.  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.  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.  During the year ended  December 31, 2003,  the Company  issued 432,974
shares for the conversion of $1.8 million of 2007  Debentures.  The remainder of
the 2007 Debentures were prepaid or exchanged for 2006 Debentures during 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. 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. (See Stock Warrants) In 2003, $5.75
million  principal  amount of the 2006  Debentures  was  converted  into 958,334
shares of common stock. At December 31, 2003, the outstanding  principal balance
of 2006  Debentures  was $6.8 million.  The remaining  shares under the December
2001 shelf  registration  described above were used to secure shares potentially
issuable upon conversion of the 2006 Debentures.


                                       18
<PAGE>

      Although  the Company was in  compliance  with all  covenants  of the 2006
Debentures at December 31, 2003, 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  for  continued
listing. In addition,  the Company did not make interest payments related to the
2006  Debentures as required on January 31, 2004.  These actions put the Company
in  non-compliance  with its  covenants  under  the 2006  Debentures.  From July
through  October 2004 the Company worked to negotiate  settlements  with each of
the  remaining  debenture  holders to retire  the  debentures,  to  resolve  the
defaults, and to restructure its long-term debt as follows.

      Debenture  Purchase  Agreements.  As of September  30,  2004,  the Company
entered into agreements with each of the holders  (collectively,  the "Holders")
of the 2006  Debentures  due March 5, 2006 to amend and  restate  the  Debenture
Purchase  Agreements entered into in July 2004 by EarthShell and the Holders (as
amended and restated,  the "Debenture Purchase  Agreements" and the transactions
contemplated  therein,  collectively,  the "Debenture  Transactions").  The 2006
Debentures were in default and their outstanding  principal balance totaled $6.5
million  prior  to  their  repurchase.   Collectively,  the  Debenture  Purchase
Agreements required (i) E. Khashoggi  Industries,  LLC ("EKI") to pay $1 million
cash  (EarthShell  was  obligated  to  reimburse  EKI for this cash  payment  as
discussed below),  (ii) the Holders to convert the 2006 Debentures in accordance
with their terms, resulting in the issuance by EarthShell of 1,091,666 shares of
its common  stock,  which shares were  previously  registered  for resale by the
Company in connection with the issuance of the 2006 Debentures, (iii) EarthShell
to issue to the Holders an aggregate  of 512,500  additional  shares  EarthShell
common stock and (iv)  EarthShell to pay $2.3 million to one of the Holders from
33% of any equity  funding  received  by the Company  (excluding  the first $2.7
million funded by MBS) or 50% of the royalties  received by EarthShell in excess
of $250,000 per month  (determined  on a  cumulative  basis  commencing  July 1,
2004).  EarthShell  has the right to  convert  the  unpaid  portion  of the $2.3
million into shares of the Company's common stock at a price equal to the lesser
of $3.00 per share or the price per share  price  that  EarthShell  subsequently
receives upon the issuance of its common stock (or other  convertible  security)
during the three year period  commencing  September 30, 2004. The 512,500 shares
of common stock issued to the Holders on October 6, 2004 are not  registered for
resale under the  Securities  Act. The  consideration  for the repurchase of the
Debentures has been paid or issued, and the 2006 Debentures have been retired by
EarthShell.

      Receipt of Proceeds  from Sale of Common  Stock to MBS. On August 5, 2004,
EarthShell and Meridian  Business  Solutions,  LLC ("MBS")  entered into a Stock
Purchase Agreement (the "Stock Purchase Agreement") pursuant to which MBS agreed
to fund $5 million to  EarthShell  in exchange  for  EarthShell's  issuance of a
total of  1,666,666  shares of common  stock at a price of $3.00 per  share.  On
August 20, 2004,  EarthShell  received  $500,000 from MBS, for which the Company
issued 166,666 shares of its common stock to MBS. On October 1, 2004, EarthShell
received an additional $1.2 million of the $5 million  committed by MBS, and the
Company  issued  400,000 shares of its common stock to MBS. On October 11, 2004,
MBS purchased an additional  333,333 shares for which it had paid $.5 million as
of December 31, 2004 and $.5 million was still due.  Subsequent  to December 31,
2004, MBS paid an additional  $25,000  leaving the balance due at March 31, 2005
of $.475  million.  The shares of common stock issued to MBS are not  registered
for resale under the Securities Act of 1933, as amended (the "Securities  Act"),
and the  Company has agreed to file a  registration  statement  to register  the
shares  within 60 days of a request by MBS. The cash received from MBS was used,
in part, to fund the repurchase of the 2006 Debentures(as  defined below) and to
restructure the Company's long-term debt.

      EKI  Agreements.  In connection  with its purchase of the 2006  Debentures
from the Holders,  on September  30,  2004,  EKI entered into an agreement  with
EarthShell to sell the 2006  Debentures it purchased  back to the Company for $1
million cash, the cash price paid by EKI for the purchased 2006  Debentures (the
"EKI Debenture Purchase Agreement"). In connection therewith,  immediately after
its  acquisition,  EKI sold the purchased 2006 Debentures to the Company and, as
discussed above, the Company retired the 2006 Debentures shortly thereafter.  In
addition,  on September 30, 2004, the Company and EKI agreed to convert  certain
existing loans from EKI to the Company into shares of EarthShell's  common stock
(the "EKI Conversion  Agreement").  This transaction closed after the closing of
the Debenture  Transactions and, pursuant to the EKI Conversion  Agreement,  EKI
converted  the  $2,755,000   principal  amount  of  such  debt  into  shares  of
EarthShell's  common stock at a conversion  price of $3 per share.  In addition,
under the terms of the EKI Conversion  Agreement,  EKI converted the accrued and
unpaid  interest on such loans into  shares of  EarthShell's  common  stock at a
conversion  price equal to the greater of (i) $3 per share, and (ii) the maximum
per share price (not to exceed $4 per share)  obtained  by the Company  upon the
sale of its common stock to any investor during the three month period following
the closing.  In May of 2005,  an  additional  44,387  shares were issued to EKI
pursuant to a 90 day price protection  clause,  which provided for an adjustment
in the effective conversion price of the interest portions of the EKI loans from
$4 per share to $3 per share. The 1,051,494 shares of common stock issued to EKI
as a result of this conversion agreement will not be registered for resale under
the Securities Act.


                                       19
<PAGE>

      Biotec Agreement.  EarthShell also reached agreement to amend its existing
agreements with its affiliates, bio-tec Biologische Naturverpackungen GmbH & Co.
and bio-tec  Biologische  Naturverpackungen  Forschungs  und  Entwicklungs  GmbH
(collectively,  "Biotec"; and such agreement, the "Biotec Amendment"). Under the
terms of the Biotec Amendment,  EarthShell has agreed to satisfy the approximate
$2.5 million in indebtedness  owed to Biotec by (i) paying $750,000 to Biotec in
2004 (ii) converting  approximately $1.47 million principal amount of the Biotec
debt into shares of  EarthShell's  common stock at a conversion  price of $3 per
share and (iii) at EarthShell's option, on the first anniversary of the closing,
pay  $250,000  to Biotec or convert  the  remaining  $250,000  Biotec  debt into
133,333  shares of  EarthShell's  common stock at a  conversion  price of $3 per
share. In consideration for the above, Biotec also agreed to suspend the monthly
license fees payable by EarthShell  for two years after the date of the closing.
The  common  stock to be issued  pursuant  to the Biotec  Amendment  will not be
registered  for resale under the  Securities  Act. As of December 31, 2004,  the
Company had paid to Biotec  $125,000 in cash and converted  approximately  $1.48
million into 491,778 shares of unregistered commons stock, and the balance owing
to Biotec is $875,000 (see Relationship with and Reliance on EKI).

      Pursuant  to  transactions  described  more  fully  in  Item 5  under  the
subheading  "Recent Sales of Unregistered  Securities" and in this  Management's
Discussion  and  Analysis,  in  connection  with  the  settlement  of  the  2006
Debentures  and the related  restructuring  of the Company's  debt,  the Company
provided registration rights with respect to newly issued unregistered shares of
its common stock. Such registration  rights required the Company to, among other
things, file a registration  statement with the SEC in December 2004 registering
the resale of such shares of common stock. Under certain of the agreements,  the
Company's  not  filing  such  a  registration  statement  (or  the  registration
statement not being declared  effective) within the required  timeframe provides
the holders of the  registrable  securities  with a right to liquidated  damages
which, in the aggregate, may amount to approximately $50,000 per month until the
registration  statement is filed.  If the Company  fails to pay such  liquidated
damages,  the Company must also pay interest on such amount at a rate of 10% per
year (or such lesser amount as is permitted by law).

      Because this registration  statement was not filed as planned, in December
2004 the Company became obligated on the direct financial  obligation  described
above. In light of the Company's  current  liquidity and financial  position any
such  claim  could  have a  negative  effect on the  Company.  While none of the
holders  of  registrable  securities  have made a formal  claim  for  liquidated
damages to date,  there can be no assurance  that such holders will not do so in
the future. The Company plans to file an appropriate  registration  statement as
soon as practical following the filing of this Annual Report on Form 10-K/A.

      During 2002 and 2003, the Company's largest shareholder, EKI, made various
simple interest working capital loans to the Company.  These loans were interest
bearing at a rate of 7% or 10% per  annum,  and were  payable  on demand.  As of
December  31,  2003,  the  outstanding  principal  balance  of these  loans  was
$2,755,000.   In  connection  with  the  sale  of  the  March  2006  Debentures,
subordinated   the  payments  and  advances   that  were  owed  to  it,  and  in
consideration,  the Company  issued to EKI a warrant in March 2003,  expiring in
ten years, to acquire 83,333 shares of the Company's  common stock for $6.00 per
share.  As  disclosed  above,  as  part  of the  settlement  of the  March  2006
Debentures  in October of 2004,  EKI  agreed to convert  all of its  outstanding
loans to EarthShell  ($2,755,000) into unregistered common stock at $3 per share
and $532,644 of accumulated  interest into  unregistered  common stock at $4 per
share for a total of 1,051,494  shares received by EKI. As of December 31, 2004,
the loans from EKI were paid in full.

      During 2004,  the Company  entered into  license  agreements  for which it
received a total of $1.5 million in technology  fees.  In May 2004,  the Company
entered  into its license  agreement  with MBS,  which calls for a total of $2.0
million in technology  fees payable in $.5 million  increments  based on certain
milestones  during the  startup  of  manufacturing  operations  and prior to the
beginning of royalty  generation.  To date the Company has received $.5 million.
In November of 2004, the Company  entered into a license  agreement with ESH and
received technology fees of $1 million.

      The Company  expects to generate  additional  cash in 2005 through royalty
payments from licensees. The Company believes that the cash from this borrowing,
combined with  projected  revenues,  will be  sufficient to fund its  operations
through the year ending  December 31, 2005. If the Company is not  successful at
generating  license  revenues  during the year,  the Company  will have to raise
additional  funds  to  meet  its  current  obligations  and to  cover  operating
expenses.  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.  However,  the Company cannot assure that
it will receive any royalty payments in 2005, that additional  financing will be
available  to it,  or,  if  available,  that  the  terms  will be  satisfactory.
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.

      Off-Balance Sheet Arrangements.  The Company does not have any off-balance
sheet  arrangements  as of  December  31,  2004  and has not  entered  into  any
transactions involving unconsolidated, limited purpose entities.


                                       20
<PAGE>

      Subsequent Events

      Subsequent  to December 31, 2004, on March 23, 2005,  the Company  entered
into a Security  Agreement with Cornell  Capital  Partners,  LP. Pursuant to the
Security Agreement,  the Company shall issue promissory notes to Cornell Capital
Partners, LP in the original principal amount of $2,500,000.  The $2,500,000 was
disbursed as follows:  $1,150,000  on March 28, 2005 and  $1,350,000  on May 27,
2005. The  promissory  notes are secured by the assets of the Company and shares
of  stock  of  another  entity  pledged  by an  affiliate  of that  entity.  The
promissory notes have a one-year term and accrue interest at 12% per year.

      Subsequent to December 31, 2004 and on March 23, 2005,  EarthShell entered
into a Standby Equity Distribution  Agreement with Cornell Capital Partners, LP.
Pursuant to the Standby Equity Distribution  Agreement,  the Company may, at its
discretion,  periodically sell to Cornell Capital Partners,  LP shares of common
stock  for a total  purchase  price of up to $10.0  million.  For each  share of
common stock purchased under the Standby Equity Distribution Agreement,  Cornell
Capital  Partners  LP will pay the  Company  98% of the lowest  volume  weighted
average  price of the Company's  common stock as quoted by Bloomberg,  LP on the
Over-the-Counter Bulletin Board or other principal market on which the Company's
common stock is traded for the 5 days immediately following the notice date. The
price paid by Cornell  Capital  Partners,  LP for the  Company's  stock shall be
determined  as of the date of each  individual  request for an advance under the
Standby Equity Distribution  Agreement.  Cornell Capital Partners,  LP will also
retain 5% of each  advance  under the  Standby  Equity  Distribution  Agreement.
Cornell Capital Partner's  obligation to purchase shares of the Company's common
stock  under the Standby  Equity  Distribution  Agreement  is subject to certain
conditions,  including the Company obtaining an effective registration statement
for shares of common stock sold under the Standby Equity Distribution  Agreement
and is limited to $500,000 per weekly advance.

      In May of 2005, an additional 44,387 shares were issued to EKI pursuant to
a 90 day price  protection  clause,  which  provided  for an  adjustment  in the
effective conversion price of the interest portions of the EKI loans from $4 per
share to $3 per share.

      In May of 2005,  the  Company  granted a warrant  to EKI to  purchase  one
million shares of the Company's common stock at $3 per share in consideration of
EKI's continued support of the Company since its inception,  including providing
bridge loans at below market terms from time to time. The warrant expires in May
of 2015.

      Management's Report On Internal Control Over Financial Reporting

      The  Management  of  EarthShell  is  responsible  for   establishing   and
maintaining  adequate  internal  control over  financial  reporting  and for the
assessment of the effectiveness of internal control over financial reporting. As
defined by the SEC,  internal  control  over  financial  reporting  is a process
designed by, or supervised by, the Company's  principal  executive and principal
financial officers, to provide reasonable assurance regarding the reliability of
financial  reporting and the  preparation of financial  statements in accordance
with generally accepted accounting principles.

      The Company's  internal  control over financial  reporting is supported by
written policies and procedures,  that (1) pertain to the maintenance of records
that, in reasonable  detail,  accurately and fairly reflect the transactions and
dispositions  of the Company's  assets;  (2) provide  reasonable  assurance that
transactions  are  recorded as  necessary  to permit  preparation  of  financial
statements in accordance with generally accepted accounting principles, and that
receipts and  expenditures of the Company are being made only in accordance with
authorizations  of the  Company's  management  and  directors;  and (3)  provide
reasonable  assurance  regarding  prevention or timely detection of unauthorized
acquisition,  use or  disposition  of the  Company's  assets  that  could have a
material effect on the financial statements.

      Because of its  inherent  limitations,  internal  control  over  financial
reporting  may not prevent or detect  misstatements.  Also,  projections  of any
evaluation  of  effectiveness  to future  periods  are  subject to the risk that
controls may become  inadequate  because of changes in  conditions,  or that the
degree of compliance with the policies or procedures may deteriorate.

      A material  weakness is a  significant  deficiency  (within the meaning of
PCAOB Auditing  Standard No. 2), or a combination  of significant  deficiencies,
that  results  in there  being  more than a remote  likelihood  that a  material
misstatement of the annual or interim financial statements will not be prevented
or  detected  on a timely  basis by  employees  in the  normal  course  of their
assigned functions.


                                       21
<PAGE>

      In making its  assessment of internal  control over  financial  reporting,
management  used the  framework  set  forth  in the  report  entitled  "Internal
Control--Integrated   Framework"   published  by  the  Committee  of  Sponsoring
Organizations  ("COSO") of the Treadway Commission to evaluate the effectiveness
of the  Company's  internal  control over  financial  reporting.  Because of the
material  weaknesses  described below,  management believes that, as of December
31, 2004, the Company did not maintain effective internal control over financial
reporting based on those criteria.

      The Company's  independent  auditors have issued an attestation  report on
management's  assessment  of  the  Company's  internal  control  over  financial
reporting.  That report appears on page 22. Although the Company operated during
2004 with a significantly  reduced number of personnel  compared to prior years,
the Company's  management has implemented and documented  internal  control over
financial reporting which it believed would be considered sufficient,  given the
resources  available  to it.  However,  during the fourth  quarter of 2004,  the
Company's Controller  resigned,  and has not been replaced to this date, leaving
the  Company's  Chief  Financial  Officer  as the only  accounting  professional
employed  by  the  Company.   This  resulted  in  the  loss  of  segregation  of
responsibilities  that are  typical to  effective  financial  reporting  control
methodology.  The Company has employed certain  mitigating  controls designed to
offset the inherent control weaknesses that result from a lack of segregation of
responsibilities.

      We engaged an accounting firm in December 2004 to assist us in documenting
and testing our controls and  procedures in compliance  with the  Sarbanes-Oxley
Act.  This process was not  completed  until late in the 1st quarter  2005.  The
testing and  evaluation of our internal  controls as of that time indicated that
our controls were considered effective.

      Based on the timing of this work and the filing deadline for our 10K as an
accelerated  filer, our independent  registered  public  accounting firm was not
able to perform its audit of management's assessment of the effectiveness of its
internal  control  over  financial  reporting  as of December  31,  2004,  until
subsequent  to the  filing  of our  10K.  Their  audit  disclosed  the  material
weaknesses.  We  reviewed  the  results  of their  audit of our  assessment  and
concurred with their conclusion.  Accordingly,  we changed our assessment in our
Form 10Q for the quarter ended March 31, 2005 and in our amended Form 10K/A.

      Material Weaknesses Identified

      The Company's  assessment of its internal control over financial reporting
identified the following material weaknesses:

o     The Company has inadequate  segregation of critical  duties within each of
      its accounting processes and a lack of sufficient monitoring controls over
      these  processes to mitigate this risk. The  responsibilities  assigned to
      one  employee  include  maintaining  the vendor  master  file,  processing
      payables,  creating and voiding checks,  reconciling bank accounts, making
      bank deposits and processing payroll.

o     The departure of the Company's Controller in November 2004 resulted in the
      accounting  and  reporting  functions  being  centralized  under the Chief
      Financial Officer,  with no additional  personnel in the Company having an
      adequate  knowledge of accounting  principles and practices.  As a result,
      certain  transactions had not been recorded in a timely manner and several
      adjustments to the financial  statements that were considered  material to
      the financial  position at December 31, 2004 and results of operations for
      the year then ended were recorded.

o     There are  weaknesses in the  Company's  information  technology  controls
      which makes the  Company's  financial  data  vulnerable to error or fraud.
      Specifically,  there is a lack of  documentation  regarding  the roles and
      responsibilities  of the IT  function,  lack of  security  management  and
      monitoring and inadequate segregation of duties involving IT functions.

      Additionally,  at the conclusion of our independent  auditor's examination
of the Company's  internal  control over financial  reporting,  our  independent
auditor noted several  other areas of  operations  which could be improved.  Our
auditors did not believe these items constituted material weaknesses.


                                       22
<PAGE>

      Remediation Steps to Address the Material Weaknesses

      In  consultation  with its  independent  auditors,  as of the date of this
report,  the Company has begun taking the  following  remediation  steps,  among
others,  to enhance its internal  control over  financial  reporting  and reduce
control  deficiencies in general,  including the material weaknesses  enumerated
above:

o     Management  is  actively  seeking  qualified  candidates  to  perform  the
      Controller responsibilities;

o     Management  has  engaged an outside  firm to perform  the  Internal  Audit
      functions.  This  outside  firm will report to the Audit  Committee of the
      Board of Directors; and

o     Management  employs an outside firm to monitor and maintain the  Company's
      information systems.  This group will be directed to develop and implement
      Company-wide information management control procedures.


                                       23
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of EarthShell Corporation:

We  have  audited   management's   assessment,   included  in  the  accompanying
"Management's Annual Report on Internal Controls over Financial Reporting," that
EarthShell  Corporation  (the  "Company")  did not maintain  effective  internal
control over financial  reporting as of December 31, 2004, because of the effect
of pervasive  material  weaknesses  in the design and operation of the Company's
system  of  internal  controls,   based  on  criteria  established  in  Internal
Control--Integrated Framework issued by the Committee of Sponsoring Organization
of the Treadway  Commission (COSO). The Company's  management is responsible for
maintaining  effective  internal  control over  financial  reporting and for its
assessment of the  effectiveness of internal  control over financial  reporting.
Our  responsibility  is to express an opinion on management's  assessment and an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting based on our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain  reasonable  assurance  about whether  effective
internal  control  over  financial  reporting  was  maintained  in all  material
respects. Our audit included obtaining an understanding of internal control over
financial reporting,  evaluating management's assessment, testing and evaluating
the design and operating  effectiveness of internal control, and performing such
other  procedures as we considered  necessary in the  circumstances.  We believe
that our audit provides a reasonable basis for our opinion.

A company's  internal control over financial  reporting is a process designed to
provide reasonable  assurance  regarding the reliability of financial  reporting
and the preparation of financial  statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial  reporting  includes those policies and procedures that (1) pertain to
the  maintenance  of records that, in reasonable  detail,  accurately and fairly
reflect the  transactions  and  dispositions  of the assets of the company;  (2)
provide  reasonable  assurance  that  transactions  are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting  principles,  and that receipts and  expenditures  of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of  unauthorized  acquisition,  use, or  disposition  of the company's
assets that could have a material effect on the financial statements.

Because of its inherent  limitations,  internal control over financial reporting
may not prevent or detect misstatements.  Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate  because of changes in  conditions,  or that the degree of compliance
with the policies or procedures may deteriorate.

A  material  weakness  is  a  control  deficiency,  or  combination  of  control
deficiencies,  that  results  in more than a remote  likelihood  that a material
misstatement of the annual or interim financial statements will not be prevented
or detected.  The Company has  pervasive  material  weaknesses in the design and
operation  of its system of internal  controls  over  financial  reporting.  The
following material  weaknesses have been identified and included in management's
assessment:

(1) Inadequate  segregation of duties  involving the  authorization,  recording,
custody, and periodic reconciliation of accounting transactions.

(2)  Insufficient  staffing of accounting  personnel with adequate  knowledge of
accounting  principles  generally accepted in the United States. This inadequate
staffing  in the  accounting  department  resulted  in  transactions  not  being
recorded in a timely manner.  In addition,  there was inadequate  application of
accounting principles generally accepted in the United States in relation to the
valuation  of  the  gain  on  settlements  of  debt  obligations  in  2004,  the
classification  of  certain  debts in the  financial  statements  and the proper
recording of liabilities as of December 31, 2004. This weakness  resulted in the
recording  of  several  adjustments  to  the  financial   statements  that  were
considered  material to the financial  position at December 31, 2004 and results
of operations for the year then ended.

(3) A pervasive lack of general controls over the information  technology system
which could have a material effect on the financial statements.

These material weaknesses were considered in determining the nature, timing, and
extent of audit tests applied in our audit of the 2004 financial statements, and
this  report does not affect our report  dated March 4, 2005 on those  financial
statements.


                                       24
<PAGE>

In our opinion,  management's  assessment  that  EarthShell  Corporation did not
maintain effective internal control over financial  reporting as of December 31,
2004, is fairly stated, in all material respects,  based on criteria established
in Internal Control--Integrated  Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).  Also, in our opinion,  because
of the effect of the material weakness described above on the achievement of the
objectives of the control  criteria,  EarthShell  Corporation has not maintained
effective  internal  control  over  financial  reporting as of December 31, 2004
based on criteria established in Internal  Control--Integrated  Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We do not  express an opinion or any other  form of  assurance  on  management's
statements  referring to the  corrective  actions taken by the Company after the
date of management's assessment.


/s/ Farber & Hass LLP
April 26, 2005
Camarillo, California


                                       25
<PAGE>

ITEM 7A. 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.

      As of  December  31,  2004,  the  Company  had  significantly  reduced its
long-term debt  obligations.  There remain a few settlements of accounts payable
obligations  that will be paid out over terms  from 18 months to 36 months,  the
long term portion of which may be exposed to interest  rate risk. As of December
31, 2004, these long-term fixed rate debt obligations totaled approximately $0.4
million.  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 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      See Index to Consolidated Financial Statements and Schedules.

ITEM  9. CHANGES  IN AND  DISAGREEMENTS  WITH   ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

      Not Applicable.

ITEM 9A. CONTROLS AND PROCEDURES

      (a) 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 Report (the "Evaluation Date"). Based on such evaluation,
such officers have  concluded  that, as of the  Evaluation  Date,  the Company's
disclosure  controls and  procedures  were not  effective  in ensuring  that (i)
information required to be disclosed by the Company in the reports that it files
or  submits  under the  Exchange  Act is  recorded,  processed,  summarized  and
reported,  within the time  periods  specified  in the SEC's rules and forms and
(ii) information  required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is accumulated  and  communicated to the
Company's management,  including its principal executive and principal financial
officers,  or persons  performing  similar  functions,  as  appropriate to allow
timely decisions regarding required disclosure.

      (b) Changes in  Internal  Control  Over  Financial  Reporting.  During the
Company's  fiscal quarter ended  December 31, 2004,  other than the departure of
the Company's former  Controller  (described in Management's  Report on Internal
Control  Over  Financial  Reporting  on page  21) 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  materially  affected,  or are
reasonably  likely to materially  affect,  the Company's  internal  control over
financial  reporting.  However,  as  permitted  under  Release  No.  50754 dated
November  30,  2004,  the Company has  included  management's  annual  report on
internal control over financial  reporting and the related attestation report of
the  Company's  registered  public  accounting  firm  in this  Amendment  to the
Company's  annual report on Form 10-K/A.  See "Report of Independent  Registered
Public  Accounting  Firm on  Internal  Control  Over  Financial  Reporting"  and
Management's Report on Internal Control Over Financial Reporting on pages 22 and
20, respectively.


                                       26
<PAGE>

ITEM 9B. OTHER INFORMATION

      Pursuant  to  transactions  described  more  fully  in  Item 5  under  the
subheading  "Recent  Sales  of  Unregistered  Securities"  and  in  Management's
Discussion  and Analysis,  in connection  with the  settlement of the March 2006
Debentures  and the related  restructuring  of the Company's  debt,  the Company
provided registration rights with respect to newly issued unregistered shares of
its common stock. Such registration  rights required the Company to, among other
things, file a registration  statement with the SEC in December 2004 registering
the resale of such shares of common stock. Under certain of the agreements,  the
Company's  not  filing  such  a  registration  statement  (or  the  registration
statement not being declared  effective) within the required  timeframe provides
the holders of the  registrable  securities  with a right to liquidated  damages
which, in the aggregate, may amount to approximately $50,000 per month until the
registration  statement is filed.  If the Company  fails to pay such  liquidated
damages,  the Company must also pay interest on such amount at a rate of 10% per
year (or such lesser amount as is permitted by law).

      Because this  registration  statement was not filed,  in December 2006 the
Company became obligated on the direct financial  obligation described above. In
light of the Company's current  liquidity and financial  position any such claim
could  have a  negative  effect on the  Company.  While  none of the  holders of
registrable  securities have made a formal claim for liquidated damages to date,
there can be no assurance  that such  holders will not do so in the future.  The
Company plans to file an appropriate registration statement as soon as practical
following the filing of this Annual Report on Form 10-K/A.


                                       27
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      Directors

      The Board of  Directors  of the  Company  is  currently  comprised  of six
members.  All  directors  are  elected  each  year  at  the  annual  meeting  of
stockholders.  The following  table sets forth the name and age of each director
nominated for reelection at this year's annual meeting of shareholders, the year
the director was first elected and his or her position with the Company:

Name                      Age    Position                         Director Since
----                      ---    --------                         --------------
Essam Khashoggi........   65     Chairman of the Board            1992

Simon K. Hodson........   50     Vice Chairman of the Board and   1992
                                 Chief Executive Officer

John Daoud.............   69     Director                         1992

Layla Khashoggi........   47     Director                         1992

Hamlin M. Jennings.....   57     Director                         2003

Walker Rast............   69     Director                         2003

      The following is a  biographical  summary of the experience of each of the
directors.

      Essam  Khashoggi  has served as Chairman of the Board of the Company since
its  organization in November 1992. Mr. Khashoggi has also served as Chairman of
the Management Committee and Chief Executive Officer of E. Khashoggi Industries,
LLC ("EKI") and its predecessor  entity,  E. Khashoggi  Industries,  since their
organization  in October 1997 and June 1991,  respectively.  Mr.  Khashoggi  has
served as a director and officer of a number of domestic  and foreign  companies
engaged in licensing,  manufacturing,  real estate,  marketing and design and he
has  served  as a  Trustee  for  the  University  of  California  Santa  Barbara
Foundation.

      Simon K.  Hodson  has  served  as Vice  Chairman  of the  Board  and Chief
Executive  Officer of the  Company  since its  organization  in  November  1992.
Additionally,  Mr. Hodson served as President of the Company from May 1999 until
May 2002,  and  previously  from December  1995 until May 1996.  Mr. Hodson also
serves as President  and Vice Chairman of EKI and its  predecessor  entity since
their organization in October 1997 and June 1991, respectively, and as President
and Vice Chairman of Concrete Technology  Corporation ("CTC") since August 1987.
Mr. Hodson was  President of National  Cement & Ceramics  Laboratories,  Inc., a
company previously engaged in materials science research, from June 1990 through
1995. He is a co-inventor of a number of U.S. and foreign  patented  inventions,
all belonging to EKI.

      John Daoud has served as a Director of the Company since its  organization
in November 1992. Mr. Daoud served as Secretary of the Company from October 1996
through  December 1999 and as the  Assistant  Secretary of the Company from June
1993  until  October  1996.  Mr.  Daoud has also  served as the Chief  Financial
Officer and Secretary of EKI and its predecessor entity since their organization
in October 1997 and June 1991,  respectively,  and as the Manager and  Principal
Officer  of Condas  International,  LLC and its  predecessor  from 1987  through
October 2003. Since 1972, Mr. Daoud has advised Mr. Khashoggi and his affiliated
entities on certain financial matters both in an individual  capacity as well as
Manager and Principal Officer of Condas International,  LLC and its predecessor.
From 1970 to 1972, Mr. Daoud was a Senior Auditor with PricewaterhouseCoopers.


                                       28
<PAGE>

      Layla  Khashoggi  has  served  as a  Director  of the  Company  since  its
organization  in November  1992.  Mrs.  Khashoggi  has also been a member of the
Management  Committee  of EKI  since  its  organization  in  October  1997 and a
Director of CTC for the past five years.  Mrs.  Khashoggi has served as Chairman
of the Development  Committee and as an Executive  Committee member of the Board
of Laguna  Blanca  School,  Site Council  Member and  Co-Chairman  of the Budget
Committee of San Marcos High School,  Executive Committee member and Chairman of
the Marketing  Committee of the Santa Barbara Zoo Board, and member of the Board
of Trustees of the Santa Barbara Public Education Foundation.  Mrs. Khashoggi is
Essam Khashoggi's spouse.

      Hamlin M.  Jennings has served as a Director of the Company  since January
1,  2003.  Since  1987,  Dr.  Jennings  has been a  Professor  in the  Civil and
Environmental  Engineering Department and the Materials Sciences and Engineering
Department at Northwestern  University.  In 2002, he assumed the Chairmanship of
the Civil and Environmental Engineering Department.  Prior to his appointment at
Northwestern,  Dr.  Jennings  worked at the National  Institute of Standards and
Technology,  Imperial  College London,  and the University of Cape Town. He is a
fellow of the  Institute of  Materials  in the United  Kingdom and Fellow of the
American Ceramic  Society.  Dr. Jennings  received a Ph.D. in Materials  Science
from Brown  University in 1975,  and a Bachelor of Science in Physics from Tufts
University  in 1969.  Additionally,  Dr.  Jennings  is owner  and  President  of
Evanston Materials Consulting Corporation, founded in 1997, which specializes in
cement-based  materials  and coatings.  Dr.  Jennings  holds 12 patents,  is the
associate editor of two journals and has published over 120 scientific papers.

      Walker Rast has served as a Director of the Company since  September 2003,
when he was appointed to fill the vacancy created by the resignation of Mr. Bert
Moyer from the Board in August 2003. Mr. Rast is currently a business consultant
and a member of the  Educational  Foundation  Board of the  University  of South
Carolina and a member of the Advisory  Board of the College of  Engineering  and
Information  Technology.  From  1987 to  1994,  Mr.  Rast  was a  member  of the
Executive Board of Directors of Royal Packaging Industries Van Leer, a worldwide
packaging  company  based in the  Netherlands.  From 1979 to 1987,  Mr. Rast was
President  of Keyes Fibre  Company (now known as The Chinet  Company),  first an
operating group of Arcata Corporation and then of Royal Packaging Industries Van
Leer. Mr. Rast held various executive positions with Arcata Corporation for over
ten years, and was previously with U.S. Gypsum Corporation for over ten years.

      Executive Officers

      The  following  table sets forth the names,  ages and positions of each of
the  Company's  executive  officers.  Subject  to rights  under  any  employment
agreements,  officers  of the  Company  serve at the  pleasure  of the  Board of
Directors.

Name                      Age    Position                         Officer Since
----                      ---    --------                         -------------

Simon K. Hodson........   50     Vice Chairman of the Board       1992
                                 and Chief Executive Officer

D. Scott Houston.......   50     Chief Financial Officer and      1993
                                 Secretary

Vincent J. Truant......   57     President and Chief Operating    1998
                                 Officer

      The following is a  biographical  summary of the experience of each of the
executive officers.  For a biographical summary of the experience of Mr. Hodson,
kindly refer to the summaries of Directors' experience provided above:

      Vincent  J.  Truant  has  served  as the  Company's  President  and  Chief
Operating  Officer since May 15, 2002.  From March 2001 to May 2002,  Mr. Truant
served as Senior Vice President and Chief Marketing  Officer.  From October 1999
to March 2001, and from March 1999 to October 1999,  respectively,  he served as
Senior Vice President and as Vice President of Marketing,  Environmental Affairs
and Public  Relations,  and from April 1998 to March 1999 as Vice  President  of
Marketing  and Sales.  During a prior 15-year  tenure at Sweetheart  Cup Company
("Sweetheart"),  Mr. Truant served as Vice President and General Manager for the
National Accounts Group and the McDonald's Corporation Strategic Business Units.
Before  joining  Sweetheart,  Mr.  Truant  was  engaged  in  both  domestic  and
international  marketing  assignments for Philip Morris Inc. and its subsidiary,
Miller Brewing Company, as well as Eli Lilly & Company.

      D. Scott Houston has served as the Company's Chief Financial Officer since
October 1999, and the Company's  Secretary  since December 1999. From January to
October 1999, Mr. Houston served as Senior Vice President of Corporate  Planning
and Assistant  Secretary.  From July 1993 until January 1999, Mr. Houston served
as Chief Financial Officer.  From August 1986 until joining the Company, he held
various positions with EKI and its affiliates, including Chief Financial Officer
and Vice  President  of CTC from 1986 to 1990.  From 1984 to 1986,  Mr.  Houston
operated Houston & Associates, a consulting firm. From July 1980 until September
1983,  Mr.  Houston  held  various  positions  with the  Management  Information
Consulting  Division of Arthur Andersen & Co., an  international  accounting and
consulting firm.


                                       29
<PAGE>

      The  Company  has  an  audit  committee  comprised  of  three  independent
Directors.  With the resignation of Mr. Roland from the Board and as chairman of
the Audit Committee in February of 2005, the Company's Audit Committee currently
has one vacancy. The committee is currently comprised of Dr. Hamlin Jennings and
Mr. Walker Rast,  each of whom are  independent  directors,  and neither of whom
have been determined by the Board to be audit committee  financial experts.  The
Company  expects that a new  independent  board member who also  qualifies as an
audit  committee  financial  expert will be elected at the Company's next annual
meeting of  stockholders  in July 2005, and that this  individual  will serve as
Chairman of the Audit Committee.

      Code of Ethics

      The Company has  adopted a Code of Ethics that  applies to all  Directors,
officers and employees,  including the Chief Executive Officer,  Chief Financial
Officer and Principal  Accounting Officer of the Company. The Company has posted
its Code of Ethics on its website at www.earthshell.com.  The Company intends to
satisfy the  disclosure  requirement  under Item 5.05 of Form 8-K  regarding  an
amendment  to, or a waiver  from, a provision of its Code of Ethics that applies
to the Company's  Principal  Executive  Officer,  Principal  Financial  Officer,
Principal  Accounting  Officer  or  Controller,  or persons  performing  similar
functions and that relates to an element enumerated in Item 406(b) of Regulation
S-K by posting such information on its website.

ITEM 11. EXECUTIVE COMPENSATION

      Executive Compensation

      The  following  table sets forth certain  information  with respect to the
compensation of the Named Executive  Officers.  The "Named  Executive  Officers"
include,  (i) the Company's Chief Executive Officer (ii) the Company's executive
officers as of December 31, 2004 (iii) two additional  individuals  who were not
executive  officers as of the year ended  December 31, 2004. The Company did not
grant  any  restricted  stock  awards or stock  appreciation  rights or make any
long-term incentive plan payouts during the periods set forth below.

                           Summary Compensation Table

<TABLE>
<CAPTION>
                                                                                              Long Term
                                                                                            Compensation
                                                            Annual Compensation                Awards
                                               -------------------------------------------  -------------
                                                                                             Securities
                                  Fiscal Year                                Other Annual    Underlying
                                    Ended          Salary         Bonus      Compensation     Options
Name and Principal Position       December 31       ($)            ($)            ($)           (#)
---------------------------     -------------  -------------  -------------  -------------  -------------
<S>                                  <C>       <C>            <C>                 <C>          <C>
Simon K. Hodson                      2004      $  500,000(2)  $          --       2,750(1)     400,000
Vice Chairman of the Board           2003         500,000                --       2,250(1)      41,667
and Chief Executive Officer          2002         500,000                --       2,500(1)      41,667

Vincent J. Truant                    2004         350,000                --       2,625(1)      50,000
President and Chief                  2003         350,000                --       3,063(1)      20,833
Operating Officer                    2002         321,875(3)             --       2,844(1)      29,167

D. Scott Houston (4)                 2004         327,200                --       3,590(1)      50,000
Chief Financial Officer              2003         327,200                --       2,454(1)      20,833
and Secretary                        2002         327,200                --       2,419(1)      26,667

John B. Nevling (5)                  2004         116,363                --       2,677(1)      50,000(6)
V.P. Product Management              2003         104,565                --       3,135(1)          --
and Environmental Affairs            2002         101,000                --       3,030(1)          --

Michael P. Hawks (7)                 2004         110,000                --          --         35,000(9)
Principal Accounting Officer         2003          60,849(8)             --          --          4,167(9)
                                     2002              --                --          --             --
</TABLE>


                                       30
<PAGE>

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

* The  Company  provides   various  perquisites  to  its  executives  which,  in
accordance with SEC  regulations,  are not itemized  because their value is less
than 10% of the executive's salary.

(1)   Reflects payments under the Company's 401(k) plan.

(2)   Includes  $141,667  deferred  salary.   (See  Employment   Agreements  and
      Arrangements)

(3)   Reflects a mid-year salary  adjustment  effective May 16, 2002 as a result
      of Mr. Truant becoming President of the Company on that date. Mr. Truant's
      current salary is $350,000.

(4)   Includes  $142,222  deferred  salary in 2004 and  $7,200 in car  allowance
      payments made to Mr. Houston in 2002, 2003, and 2004.

(5)   Mr.  Nevling  is not and  was not as of  December  31,  2004 an  executive
      officer of the Company.  Mr.  Nevling  resigned from his position with the
      Company March 2005.

(6)   Options expired April 24, 2004 due to Mr. Nevling's resignation.

(7)   Mr. Hawks resigned from his position with the Company in October 2004.

(8)   Mr.  Hawks was a temporary  employee  through an agency  through  June 30,
      2003.  In addition to Mr.  Hawks'  salary for the  remainder of 2003,  the
      Company paid the agency  $68,547 in fees for his services from January 1 -
      June 30, 2003.

(9)   Options  were not  exercisable  at  December  31,  2004  due to Mr.  Hawks
      resignation.

      Stock Option Grants in 2004

      The  following  table sets forth  information  with  respect to options to
purchase  shares of the  Company's  Common  Stock  granted  in 2004 to the Named
Executive Officers:

<TABLE>
<CAPTION>
                                                                                                        Potential Realizable Value
                                                                                                        at Assumed Rates of Stock
                                                           Individual Grants                         Appreciation for Option Term(1)
                                  ---------------------------------------------------------------    -------------------------------
                                     Number of      % of Total
                                       Shares         Options
                                    Underlying      Granted to
                                      Options       Employees in    Exercise Price    Expiration
Name and Principal Position         Granted (2)        2004          (Per Share)         Date              5%                10%
---------------------------       --------------    ------------    --------------    -----------    -------------     -------------
<S>                               <C>               <C>             <C>               <C>            <C>               <C>
Simon K. Hodson                       400,000           52.5%          $0.75           6/25/2014       $488,668          $778,123
Vice Chairman of the
Board and Chief
Executive Officer

Vincent J. Truant                      50,000            6.6%          $0.75           6/25/2014       $ 61,084          $ 97,265
President and Chief
Operating Officer

D. Scott Houston.                      50,000(3)         6.6%          $0.75           6/25/2014       $ 61,084          $ 97,265
Chief Financial Officer
and Secretary

John Nevling                           50,000            6.6%          $0.75           6/25/2014       $ 61,084          $ 97,265
Vice President of Product
Management and
Environmental Affairs

Michael Hawks                          35,000            4.6%          $0.75           6/25/2014       $ 42,758          $ 68,086
Principal Accounting
Officer
</TABLE>


                                       31
<PAGE>

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

(1)   The 5% and 10% assumed rates of appreciation  are mandated by the rules of
      the Securities and Exchange  Commission and do not represent the Company's
      estimate or projection of the future Common Stock price. In each case, the
      Company  would use the  market  price of the  Common  Stock on the date of
      grant to compute the potential realizable values.

(2)   Except for Mr.  Houston,  the options granted to executives in 2004 become
      vested and  exercisable  upon the completion by the Company of certain key
      milestones,  including 1) that EarthShell plates and bowls are supplied by
      a licensee  to a customer at a level  equivalent  to 1,500 Wal Mart stores
      for a consecutive  period of no less than three months, and 2) the product
      supply  economics must be consistent  with the License  Agreement  between
      EarthShell and the Licensee including royalty structure.

(3)   The options granted to Mr. Houston become vested and  exercisable  upon 1)
      resolution  of all past due  payables  for not more  than  $800,000,  2) a
      resolution  of  all  pending  litigation  related  to  payables,   and  3)
      successful proxy solicitation for the re-scheduled  Annual Meeting on July
      26, 2004.

      Aggregated Option Exercises In 2004 and 2004 Year End Option Values

      The  following  table  sets  forth  for  the  Named   Executive   Officers
information with respect to options exercised,  unexercised options and year-end
option  values,  in each case with respect to options to purchase  shares of the
Company's Common Stock.

<TABLE>
<CAPTION>
                                                                  Number of Securities
                                                                 Underlying Unexercised           Value of Unexercised
                                                               Options at Fiscal Year End       In-the-Money Options at
                                                                          2004                  Fiscal Year End 2004 (1)
                                                              ---------------------------     ----------------------------
                                  Shares
                                Acquired on       Value
Name and Principal Position      Exercise       Realized      Unexercisable    Exerciable     Unexercisable    Exercisable
---------------------------     -----------     --------      -------------    ----------     -------------    -----------
<S>                             <C>             <C>           <C>              <C>            <C>              <C>
Simon K. Hodson                          --           --            483,334            --          $680,000             --
Vice Chairman of the
Board and Chief
Executive Officer

Vincent J. Truant                        --           --            100,000        32,917            85,000             --
President and Chief
Operating Officer

D. Scott Houston                         --           --             97,500        42,037            85,000             --
Chief Financial Officer
and Secretary

John Nevling                             --           --             50,000         2,916            85,000             --
Vice President of Product
Management and
Environmental Affairs

Michael Hawks                            --           --                 --            --                --             --
Principal Accounting
Officer
</TABLE>

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

(1)   The market  price of the  Company's  common stock at December 31, 2004 was
      $2.45.

      Compensation of Directors

      Under a  compensation  plan based on a study  conducted by SCA  Consulting
LLC,  the Board pays to each  non-employee  director an annual  retainer  fee of
$20,000,  payable  quarterly,  plus a fee of  $1,000  for each  regular  meeting
attended in person.  Committee  chairpersons  receive an  additional  $1,000 per
year. All of the Directors,  except for Mr. Hodson, are currently  considered to
be non-employee Directors of the Company.


                                       32
<PAGE>

      The 1995 Stock Incentive Plan, as amended, provides that each non-employee
Director  automatically  be granted  options  to  purchase  2,083  shares of the
Company's Common Stock,  effective at the conclusion of each annual meeting. All
such stock options (i) vest ratably at 25% at the end of each  calendar  quarter
following  the grant,  provided  the Director  holding the options  continues to
serve as a Director at the end of each such  quarter,  and (ii) have an exercise
price  equal to the "fair  market  value"  of the  underlying  shares,  which is
defined in the 1995 Stock Incentive Plan as the closing trading price on the day
before such annual meeting.

      In April 2004, based on the financial condition of the Company,  the Board
of  Directors  unanimously  agreed to defer the  payment  of the  Director  fees
discussed  above  until  such time as the  financial  condition  of the  Company
improves. As of March 31, 2005, the Company had accrued  approximately  $140,000
in Director's fees payable.

      Employment Agreements and Arrangements

      Simon Hodson currently does not have a written  employment  agreement with
the Company.  His previous  employment  agreement expired on September 30, 2001.
Mr. Hodson  receives an annual salary of $500,000,  subject to annual review and
increase at the discretion of the Board of Directors. He may also be entitled to
receive  (i)  an  annual  bonus,  the  amount  of  which  is  determined  by the
Compensation  Committee,  and (ii)  options or other  rights to  acquire  Common
Stock, under terms and conditions determined by the Stock Option Committee.  Mr.
Hodson may be terminated at any time with or without cause. In order to conserve
cash until the Company is able to  establish  its royalty  revenue  stream,  Mr.
Hodson  agreed  to a 40%  deferral  of base  salary  effective  April  16,  2004
resulting in the deferral of $141,667 for the year ended December 31, 2004.

      D. Scott  Houston  entered into a written  employment  agreement  with the
Company on October 19, 1993. Mr. Houston  receives an annual salary of $320,000,
subject  to  annual  review  and  increase  at the  discretion  of the  Board of
Directors. He may also be entitled to receive (i) an annual bonus, the amount of
which is determined  by the  Compensation  Committee,  and (ii) options or other
rights to acquire the Common Stock, under terms and conditions determined by the
Stock Option  Committee.  Mr.  Houston may be  terminated  at any time,  with or
without cause, upon thirty (30) days notice. In order to conserve cash until the
Company is able to establish its royalty revenue stream, Mr. Houston voluntarily
agreed to a 75%  deferral  of base  salary  resulting  in cash  compensation  of
$80,000 per year  effective  April 16, 2004.  As of October 16,  2004,  the cash
portion of Mr.  Houston's  salary  was  adjusted  to  $213,333  per year.  Total
deferred compensation for the year ended December 31, 2004 was $142,222.

      Vincent J. Truant  entered into an employment  agreement  with the Company
with a  commencement  date of May 1,  1998.  From time to time,  Mr.  Truant has
received  salary  increases  and  incentive  stock  options as determined by the
Compensation and Options Committees of the Board of Directors. Effective May 15,
2002, the Board increased Mr. Truant's salary to $350,000 in connection with his
new  responsibilities  as President and Chief Operating Officer.  Mr. Truant may
also be entitled to receive (i) an annual bonus in an amount equal to one year's
base salary,  provided certain financial and other milestones  determined by Mr.
Truant and the  Compensation  Committee  are met by Mr.  Truant and the Company,
and, in the event such  milestones are not met, or are  significantly  exceeded,
such  other  lesser  or  greater  bonus  as  the  Compensation  Committee  shall
determine, and (ii) options or other rights to acquire Common Stock, under terms
and conditions  determined by the Stock Option Committee.  Pursuant to the terms
of his employment  agreement,  Mr. Truant may be terminated at any time, with or
without  cause,  upon thirty (30) days written  notice,  provided  that,  if the
Company  terminates Mr.  Truant's  employment  for other than cause,  he will be
entitled  to  receive  a  one-time  severance  payment  equal  to  100%  of  his
then-current annual base salary.

      Compensation Committee Interlocks and Insider Participation

      All decisions relating to executive  compensation during 2004 were made by
the Company's Compensation Committee, which was comprised of Mr. Khashoggi, Mrs.
Khashoggi  and  Dr.  Roland.   Dr.  Roland  resigned  from  the  Board  and  the
Compensation  Committee  effective  February 2, 2005. None of the members of the
Compensation  Committee were officers of the Company in 2004.  Mr.  Khashoggi is
the controlling  stockholder of EKI, the Company's  principal  stockholder  with
whom the Company has certain  relationships and related  transactions  described
below.  Mr.  Khashoggi is the beneficial  owner of 39.25% of the Common Stock of
the Company.

      The  Company  has  an  exclusive,   worldwide,   royalty-free  license  in
perpetuity  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).


                                       33
<PAGE>

      On July 29, 2002, the Company entered into an amendment to its Amended and
Restated  License  Agreement  with EKI (the "License  Agreement")  expanding the
field of use for the  EarthShell  technology  to include  noodle  bowls used for
packaging  instant noodles,  a worldwide market that the Company estimates to be
approximately  $1 billion.  Because the noodle bowl  development  was made at no
cost to EarthShell and is an incremental  field of use,  EarthShell  will pay to
EKI 50% of any royalty or other consideration it receives in connection with the
sale of products within this particular field of use.

      In  addition,  on July 29,  2002 the  Company  entered  into a  License  &
Information Transfer Agreement with bio-tec Biologische Naturverpackungen GmbH &
Co. KG and bio-tec  Biologische  Naturverpackungen  Forschungs und  Entwicklungs
GmbH,  together known as "Biotec",  a wholly owned subsidiary of EKI, to utilize
the  Biotec  technology  for  foodservice  disposable  packaging   applications,
including  food wraps and cutlery (the "Biotec  Agreement").  EKI had previously
granted to the Company  priority rights to license certain product  applications
on an exclusive basis from Biotec in consideration  for the Company's payment of
a $100,000 minimum monthly payment to Biotec.  In addition,  in consideration of
the monthly payment,  Biotec agreed to render technical  services to the Company
at Biotec's  cost plus 5%. The  licensing  fee and  services  arrangements  were
continued  in the Biotec  Agreement.  Under the terms of the  Biotec  Agreement,
Biotec is entitled to receive 25% of any royalties or other  consideration  that
the Company  receives in  connection  with the sale of  products  utilizing  the
Biotec  technology,  after  applying a credit for all minimum  monthly  payments
received  to  date.  In  connection  with  the  issuance  of  EarthShell's  2006
Convertible  Debentures,  Biotec agreed to subordinate the licensee fee payments
due from EarthShell until the debentures were retired.  During this period,  the
license fees due to Biotec were  accrued.  In  September of 2004,  as part of an
overall  restructuring  of its  debt,  EarthShell  and  Biotec  entered  into an
agreement to convert  $1.475  million of the $2.475  million of accrued  license
fees as of  September  1, 2004,  plus accrued  interest  into 491,778  shares of
EarthShell common stock and to eliminate,  for two years, the $100,000 per month
minimum  license  fee.  In  December  of 2004,  the  agreement  was  amended and
EarthShell paid to Biotec  $125,000,  leaving a balance owing of $875,000.  (See
MD&A Liquidity and Capital Resources)

      During  2002 and January  2003,  EKI made a series of loans to the Company
totaling approximately $5.8 million. In connection with the issuance and sale in
March 2003 of the Company's 2% secured  convertible  debentures due in 2006 (the
"2006  Debentures")  to a  group  of  institutional  investors,  EKI  agreed  to
subordinate the repayment of these loans to the payment in full of the Company's
obligations  under the 2006  Debentures.  In addition,  EKI and Biotec agreed to
subordinate  certain  payments  referenced  above to which  they were  otherwise
entitled  under  the  License   Agreement  and  the  Biotec   Agreement  to  the
satisfaction  in full of the Company's  obligations  under the 2006  Debentures.
They further agreed not to assert any claims against the Company for breaches of
the License  Agreement or the Biotec  Agreement until such time as the Company's
obligations  under the 2006  Debentures  were  satisfied in full. EKI and Biotec
also agreed to allow the Company to pledge its interest in the License Agreement
to secure its  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 License  Agreement  and the Biotec
Agreement to third parties in an insolvency  context.  (These rights  terminated
upon the  satisfaction in full of the  obligations  under the 2006 Debentures in
October  of 2004.) In  consideration  for its  willingness  to  subordinate  the
payments and advances  that were owed to it, the Company  issued to EKI in March
2003 a warrant to acquire 83,333 shares of the Company's common stock at a price
of $6.00 per share with a ten year term.

      In October  2004,  in  connection  with the  settlement  of the March 2006
Debentures,   EKI  converted  all  of  its   outstanding   loans  to  EarthShell
($2,755,000)  into  unregistered  common  stock at $3 per share and  $532,644 of
accumulated interest at $4 per share for a total of 1,051,494 shares received by
EKI. As of December  31,  2004,  the loans from EKI to  EarthShell  had all been
retired. In May of 2005, an additional 44,387 shares were issued to EKI pursuant
to a 90 day price  protection  clause,  which  provided for an adjustment in the
effective conversion price of the interest portions of the EKI loans from $4 per
share to $3 per share.

      Under the terms of the License  Agreement  and the  Amended  and  Restated
Patent Agreement for the Allocation of Patent Costs between the Company and EKI,
any  patents  granted  in  connection  with the  EarthShell  technology  are the
property  of EKI,  and EKI may  obtain  a  benefit  there  from,  including  the
utilization  and/or licensing of the patents and related  technology in a manner
or for uses unrelated to the license  granted to the Company in the  foodservice
disposables field of use.  Effective January 1, 2001,  EarthShell assumed direct
responsibility  to manage and  maintain  the  patent  portfolio  underlying  the
License Agreement with EKI and continues to pay directly all relevant costs.

      In July 2002, the Company  extended a loan in the amount of $55,000 to Mr.
Vincent Truant,  President and Chief Operating  Officer.  The loan,  which bears
interest at 7% per annum and is evidenced  by a promissory  note in favor of the
Company,  is due upon demand by the Company.  In May of 2005,  the  Compensation
Committee of the Board of Directors  approved a bonus to Mr. Truant equal to the
principle and accrued interest, and the note was cancelled.


                                       34
<PAGE>

      In 2003,  the Company paid Mr. Rast, a Director,  a $4,000  consulting fee
for doing a detailed evaluation of its demonstration equipment in Europe.

      In May of 2005,  the  Company  granted a warrant  to EKI to  purchase  one
million shares of the Company's common stock at $3 per share in consideration of
EKI's continued support of the Company since its inception,  including providing
bridge loans at below market terms from time to time. The warrant expires in May
of 2015.

ITEM 12. SECURITY  OWNERSHIP  OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS

      The  following  table sets forth certain  information  with respect to the
beneficial ownership of each class of the Company's voting securities as of June
2, 2005, by (i) each person or company known by the Company to be the beneficial
owner of more than 5% of the Company's outstanding shares, (ii) each director of
the Company, or any nominee for directorship,  (iii) the Chief Executive Officer
of the  Company  and each of the other  Named  Executive  Officer,  and (iv) all
directors and Named Executive Officers of the Company as a group.

                                                                  Percentage of
                                                  Number of         Shares of
                                                  Shares of       Common Stock
Name and Address (1)                             Common Stock    Outstanding (2)
--------------------                             ------------    ---------------
Essam Khashoggi (3)                                 7,664,449             39.25%
Simon K. Hodson (4)                                     4,500                  *
John Daoud (5)                                         37,077                  *
Layla Khashoggi (6)                                     9,894                  *
Hamlin Jennings (7)                                     4,513                  *
Walker Rast (8)                                         1,562                  *
Vincent J. Truant (9)                                  37,083                  *
D. Scott Houston (10)                                  44,120                  *
John Nevling (13)                                       2,916                  *
Directors and Named Executive
  Officers as a group (11)                          7,806,114             39.70%
E Khashoggi Industries, LLC(12)                     6,720,891             34.43%

------------
*     Indicates ownership of less than 1%.

(1)   The address of all individuals,  entities and stockholder groups listed in
      the table is c/o EarthShell  Corporation,  3916 State St. Suite 110, Santa
      Barbara, California 93105.

(2)   Applicable percentage of ownership is based on 18,435,452 shares of common
      stock outstanding as of June 2, 2005, together with securities exercisable
      or convertible into shares of common stock within 60 days of June 2, 2005,
      for each  stockholder.  Beneficial  ownership is  determined in accordance
      with the rules of the  Securities  and Exchange  Commission  and generally
      includes voting or investment power with respect to securities.  Shares of
      common stock subject to securities  exercisable or convertible into shares
      of common stock that are currently  exercisable or  exercisable  within 60
      days of June 2, 2005 are  deemed to be  beneficially  owned by the  person
      holding such  securities  for the purpose of computing  the  percentage of
      ownership  of such  person,  but are not  treated as  outstanding  for the
      purpose of computing the  percentage  ownership of any other person.  Note
      that affiliates are subject to Rule 144 and Insider trading  regulations -
      percentage computation is for form purposes only.

(3)   Includes  5,637,558 shares held by E. Khashoggi  Industries,  LLC ("EKI"),
      and 715,436 shares held by EKINVESCO,  the controlling owner of each being
      Mr. Khashoggi.  Includes 218,228 shares held by other entities,  including
      CTC, in which Mr.  Khashoggi  also has a controlling  ownership  interest.
      Also includes fully exercisable options to purchase 9,894 shares of Common
      Stock issued by the Company to Mr.  Khashoggi  and warrants held by EKI to
      purchase  1,083,333  shares of Common Stock of the Company.  Mr. Khashoggi
      has sole voting and dispositive  power with respect to all shares referred
      to in this note,  and is therefore  deemed to be the  beneficial  owner of
      such shares.

(4)   Mr. Hodson holds a minority  ownership  interest in EKI and CTC. This does
      not include  any of the shares  held by EKI, or the 71,739  shares held by
      CTC.


                                       35
<PAGE>

(5)   Includes  options to purchase 25,000 shares of Common Stock from EKI which
      were issued to Mr. Daoud in his capacity as an officer of EKI, and options
      to purchase  12,077  shares of Common  Stock  issued  under the 1995 Stock
      Incentive Plan, all of which are fully vested and exercisable.

(6)   Includes options to purchase 9,894 shares of Common Stock issued under the
      1995 Stock Incentive Plan, which are fully vested and exercisable.

(7)   Includes options to purchase 4,513 shares of Common Stock issued under the
      1995 Stock Incentive Plan, which are fully vested and exercisable.

(8)   Includes options to purchase 1,562 shares of Common Stock issued under the
      1995 Stock Incentive Plan, which are fully vested and exercisable.

(9)   Includes  options to purchase  32,917  shares of Common Stock issued under
      the 1995 Stock Incentive Plan, which are fully vested and exercisable.

(10)  Includes  options to purchase  42,037  shares of Common Stock issued under
      the 1995 Stock Incentive Plan which are fully vested and exercisable.

(11)  Includes  warrants to  purchase  1,083,833  shares of Common  Stock of the
      Company and options to purchase 137,894 shares of Common Stock.

(12)  Includes  warrants to  purchase  1,083,833  shares of Common  Stock of the
      Company.

(13)  Includes options to purchase 2,916 shares of Common Stock issued under the
      1995 Stock Incentive Plan, which are fully vested and exercisable.

      Securities Authorized for Issuance Under Equity Compensation Plans

      The following  table  provides  information  with respect to  compensation
plans  (including  individual  compensation  arrangements)  under  which  equity
securities  of  the  Company  are   authorized  for  issuance  to  employees  or
non-employees (such as directors,  consultants,  advisors,  vendors,  customers,
suppliers or lenders), as of December 31, 2004.

<TABLE>
<CAPTION>
                                                                       (a)              (b)                (c)
                                                                                                        Number of
                                                                                                       Securities
                                                                                                        Remaining
                                                                                                      Available for
                                                                                                         Future
                                                                     Number of                       Issuance Under
                                                                   Securities to                         Equity
                                                                  be Issued Upon   Weighted-Average   Compensation
                                                                    Exercise of     Exercise Price        Plans
                                                                    Outstanding     of Outstanding     (Excluding
                                                                     Options,          Options,        Securities
                                                                   Warrants and      Warrants and     Reflected in
Plan Category                                                         Rights            Rights         Column (a))
-------------                                                     --------------   ----------------  --------------
<S>                                                               <C>              <C>               <C>
Equity Compensation Plans Approved by Security Holders                 1,043,245              12.58         206,755

Equity Compensation Plans Not Approved by Security Holders                    --                 --              --
                                                                  --------------   ----------------  --------------
Total                                                                  1,043,245              12.58         206,755
                                                                  ==============   ================  ==============
</TABLE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      All relationships and related transactions  reported in this Annual Report
are described under the caption  "Compensation  Committee Interlocks and Insider
Participation."

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

      The Audit  Committee  pre-approved  the engagement of Farber & Hass LLP to
provide both audit and tax services for the fiscal year ended December 31, 2004,
including the quarterly  reviews for the three  quarters of 2004.  Farber & Hass
LLP provided no other audit services,  audit-related  services,  tax services or
permitted  non-audit services for and during the fiscal year ending 2004, except
for the  statutory  audit of the  Company's  benefit  plan  for the  year  ended
December 31, 2003 and the analysis of the  Company's  net  operating  loss carry
forward.  The Audit  Committee  adopted a pre-approval  policy relating to audit
services for all audit-related  services, tax services and non-audit services to
be performed by its auditors from 2004 onward.


                                       36
<PAGE>

      During the fiscal years ended  December 31, 2004 and 2003,  the  following
audit, audit-related, tax and non-audit fees were incurred by the Company:

      Audit  Fees.  For the year  ended  December  31,  2004,  Farber & Hass LLP
charged the Company an  aggregate  of  approximately  $ 78,600 for  professional
services rendered for the 2004 audit of the Company's  financial  statements and
the review of the  financial  statements  included  in the  Company's  Quarterly
Reports on Form 10-Q for the three quarters of 2004. For the year ended December
31,  2003,  Farber & Hass,  LLP charged the Company an  aggregate of $59,710 for
professional  services  rendered for the 2003 audit of the  Company's  financial
statements and the review of the financial  statements included in the Company's
Quarterly  Reports  on Form  10-Q  for the  quarters  ended  June  30,  2003 and
September 30, 2003.  In addition,  Deloitte & Touche,  LLP, the Company's  prior
independent   public   accountants,   charged  the  Company  an   aggregate   of
approximately  $16,800 for professional services rendered in connection with the
inclusion  of their  audit  opinions  related to the 2002 and 2001 audits in the
Company's December 31, 2003 Form 10-K and the review of the financial statements
included in the  Company's  Quarterly  Report on Form 10-Q for the quarter ended
March 31, 2003.

      Audit-Related  Fees.  During the year ended December 31, 2004, the Company
incurred  fees of $-0-for  assurance  and related  services  related to Farber &
Hass, LLP's review of the Company's financial statements included in various SEC
documents  that are not  included in Audit Fees,  and Farber & Hass  charged the
Company $4,500 for benefit plan statutory audits. During the year ended December
31,  2003,  the  Company  incurred  fees of $28,750  for  assurance  and related
services related to Deloitte & Touche,  LLP's review of the Company's  financial
statements  included in various  SEC  documents  that are not  included in Audit
Fees,  and Farber & Hass charged the Company  $6,500 for benefit plan  statutory
audits.

      All Other  Fees.  During the year ended  December  31,  2004,  the Company
incurred  fees of $6,400  for tax  return  preparation.  During  the year  ended
December  31,  2003,  the  Company  incurred  fees of  $16,243  for  tax  return
preparation.

      Non-Audit  Fees.  During the year ended  December  31,  2004,  the Company
engaged Farber & Hass to analyze its tax loss  carryforward  at a fee of $1,500.
During the year ended December 31, 2003, the Company engaged  Deloitte & Touche,
LLP to analyze the  performance of the  manufacturing  equipment in Germany at a
fee of $16,487.


                                       37
<PAGE>

                                     PART IV

ITEM 15. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

      (a) Index to Consolidated Financial Statements

1.    Consolidated Financial Statements:

      Report of Independent Registered Public Accounting Firm................F-2

      Consolidated Balance Sheets as of December 31, 2004, and 2003..........F-3

      Consolidated Statements of Operations for the years ended
      December 31, 2004, 2003 and 2002.......................................F-4

      Consolidated Statements of Stockholders' Equity (Deficit) for
      the years ended December 31, 2004, 2003 and 2002.......................F-5

      Consolidated Statements of Cash Flows for the years ended
      December 31, 2004, 2003 and 2002.......................................F-6

      Notes to the Consolidated Financial Statements.........................F-9

2.    Consolidated Financial Statement Schedules:

All schedules have been omitted  because they are not required,  not applicable,
or the information required to be set forth therein is included in the Company's
Consolidated Financial Statements or the Notes therein.

      (b) Exhibits

3.1         Amended and Restated Certificate of Incorporation of the Company.(1)

3.2         Amended and Restated Bylaws of the Company.(1)

3.3         Certificate of  Designation,  Preferences  Relative,  Participating,
            Optional  and  Other  Special  Rights  of  the  Company's  Series  A
            Cumulative Senior Convertible Preferred Stock.(1)

4.1         Specimen certificate of Common Stock.(1)

4.2         Form of Warrant to purchase Common Stock dated August 12, 2002.(9)

4.3         Form of Note  under Loan  Agreement  dated as of  September  9, 2002
            between the Company and E. Khashoggi Industries, LLC.(11)

4.4         Form of Secured Convertible Debenture due March 5, 2006.(13)

4.5         Intellectual  Property Security  Agreement dated as of March 5, 2003
            among the Company,  E. Khashoggi  Industries,  LLC and the investors
            signatory thereto.(13)

4.6         Waiver and Amendment to Debentures and Warrants dated as of March 5,
            2003  among  the  Company  and  the  purchasers  identified  on  the
            signature pages thereto.(13)


                                       38
<PAGE>

4.7         Exchange Agreement dated as of March 5, 2003 between the Company and
            the institutional investor signatory thereto.(13)

10.1        Amended and Restated  License  Agreement  dated February 28, 1995 by
            and between the Company and E. Khashoggi Industries("EKI").(1)

10.2        Registration  Rights  Agreement dated as of February 28, 1995 by and
            between the Company and EKI, as amended.(1)

10.3        EarthShell Container Corporation 1994 Stock Option Plan.(1)

10.4        EarthShell Container Corporation 1995 Stock Incentive Plan.(1)

10.5        Form of  Stock  Option  Agreement  under  the  EarthShell  Container
            Corporation 1994 Stock Option Plan.(1)

10.6        Form of  Stock  Option  Agreement  under  the  EarthShell  Container
            Corporation 1995 Stock Incentive Plan.(1)

10.7        Warrant to  Purchase  Stock  issued  July 2, 1996 by the  Company to
            Imperial Bank.(1)

10.8        Amended and Restated Technical Services and Sublease Agreement dated
            October 1, 1997 by and between the Company and EKI.(1)

10.9        Amended and Restated  Agreement for Allocation of Patent Costs dated
            October 1, 1997 by and between the Company and EKI.(1)

10.10       Warrant to Purchase  Stock issued  October 6, 1997 by the Company to
            Imperial Bank.(1)

10.11       Warrant to Purchase  Stock dated December 31, 1997 by the Company to
            Imperial Bank.(1)

10.12       Letter  Agreement re Haas/BIOPAC  Technology dated February 17, 1998
            by and between the Company and EKI.(1)

10.13       Second Amendment to 1995 Stock Incentive Plan of the Company.(1)

10.14       Amendment  No.  2 to  Registration  Rights  Agreement  dated  as  of
            September 16, 1993.(1)

10.15       Amendment No. 2 to Registration  Rights Agreement dated February 28,
            1995.(1)

10.16       Employment Agreement dated April 15, 1998 by and between the Company
            and Vincent J. Truant.(3)

10.17       First  Amendment  dated  June 2, 1998 to the  Amended  and  Restated
            License  Agreement  by and  between  the  Company  and E.  Khashoggi
            Industries("EKI").(4)

10.18       First Amendment to 1995 Stock Incentive Plan of the Company.(5)

10.19       Third Amendment to 1995 Stock Incentive Plan of the Company.(6)

10.20       Fourth Amendment to 1995 Stock Incentive Plan of the Company.(6)

10.21       Lease Agreement dated August 23, 2000 by and between the Company and
            Heaver Properties, LLC.(7)

10.22       Settlement Agreement with Novamont dated August 3, 2001.(8)

10.23       Amendment  to  Common  Stock  Purchase  Agreement  dated  March  28,
            2001.(8)


                                       39
<PAGE>

10.24       Securities  Purchase  Agreement  dated as of August 12, 2002 between
            the Company and the investors signatory thereto.(9)

10.25       Amendment #1 to Employment Agreement dated as of May 15, 2002 by and
            between the Company and Vince Truant.(10)

10.26       Loan Agreement dated as of September 9, 2002 between the Company and
            E. Khashoggi Industries, LLC.(11)

10.27       Second Amendment dated 29 July, 2002 to Amended and Restated License
            Agreement between E. Khashoggi Industries, LLC and the Company.(12)

10.28       License  and  Information  Transfer  Agreement  dated 29 July,  2002
            between the Biotec Group and the Company.(12)

10.29       Loan and  Securities  Purchase  Agreement  dated as of March 5, 2003
            between the Company and the investors signatory thereto.(13)

10.30       Sublicense  Agreement  dated  February  20,  2004 by and between the
            Company and Hood Packaging Corporation. (15)

10.31       Operating  and  Sublicense  Agreement  dated  October 3, 2002 by and
            between the Company and Sweetheart Cup Company, Inc. (15)

10.32       First  Amendment to Operating and  Sublicense  Agreement  dated July
            2003 by and between the Company and  Sweetheart  Cup  Company,  Inc.
            (15)

10.34       Lease  Agreement  dated July 2003 between the Company and Sweetheart
            Cup Company, Inc. (15)

10.35       First  Amendment to Lease  Agreement dated December 16, 2003 between
            the Company and Sweetheart Cup Company, Inc. (15)

10.37       Sublicense  Agreement  dated  November  11,  2004 by and between the
            Company and EarthShell Hidalgo S.A. de C.V. (18)

10.38       Standby  Equity  Distribution  Agreement  dated as of March 23, 2005
            between the Company and Cornell Capital Partners, LP. (16)

10.39       Registration Rights Agreement dated as of March 23, 2005 between the
            Company and Cornell Capital Partners, LP. (16)

10.40       Placement  Agent  Agreement  dated as of March 23, 2005 by and among
            the  Company,  Cornell  Capital  Partners,  LP and Sloan  Securities
            Corporation. (16)

10.41       Security  Agreement  dated as of March 23, 2005  between the Company
            and Cornell Capital Partners, LP. (16)

10.42       Promissory Note dated as of March 23, 2005 issued to Cornell Capital
            Partners, LP. (16)

10.43       Meridian Business Solutions Sublicense Agreement dated May 13, 2004.
            (17)

10.44       Amended and Restated  Debenture  Purchase Agreement by and among the
            Company, EKI and SF Capital Partners, Ltd. dated September 30, 2004.
            (17)

10.45       Amended and Restated  Debenture  Purchase Agreement by and among the
            Company, EKI and Omicron Master Trust dated September 29, 2004. (17)


                                       40
<PAGE>

10.46       Amended and Restated  Debenture  Purchase Agreement by and among the
            Company, EKI and Islandia, Ltd. dated September 29, 2004. (17)

10.47       Amended and Restated  Debenture  Purchase Agreement by and among the
            Company,  EKI and Midsummer  Investment,  Ltd.  dated  September 29,
            2004. (17)

10.48       Conversion  Agreement by and among the  Company,  EKI and RHP Master
            Fund, Ltd. dated July 20, 2004. (17)

10.49       Amended and Restated  Debenture  Purchase Agreement by and among the
            Company, EKI and Straus-GEPT L.P. dated September 29, 2004. (17)

10.50       Amended and Restated  Debenture  Purchase Agreement by and among the
            Company, EKI and Straus Partners L.P. dated September 29, 2004. (17)

10.51       Amended and Restated  Debenture  Purchase Agreement by and among the
            Company and EKI dated September 30, 2004. (17)

10.52       Agreement  with EKI dated July 16,  2004 to convert  debt to equity.
            (17)

10.53       Agreement   dated   September  1,  2004  for  conversion  of  Biotec
            indebtedness. (17)

10.54       Stock Purchase  Agreement  between the Company and Meridian Business
            Solutions, LLC dated August 5, 2004. (17)

14.1        EarthShell  Corporation  Code of Ethics for Directors,  Officers and
            Employees (15)

16.1        Letter from  Deloitte & Touche LLP to the  Securities  and  Exchange
            Commission  dated  July 9,  2003,  regarding  change  in  certifying
            accountant. (14)

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.

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

(1)   Previously filed, as an exhibit to the Company's Registration Statement on
      Form S-1 and amendments  thereto,  File no.  333-13287,  and  incorporated
      herein by reference.

(2)   Previously  filed as an exhibit to the Company's  quarterly report on Form
      10-Q,  for the quarter ended March 31, 1998,  and  incorporated  herein by
      reference.

(3)   Previously  filed as an exhibit to the Company's  quarterly report on Form
      10-Q,  for the quarter  ended June 30, 1998,  and  incorporated  herein by
      reference.

(4)   Previously  filed as an exhibit to the Company's  quarterly report on Form
      10-Q, for the quarter ended September 30, 1998, and incorporated herein by
      reference.

(5)   Previously  filed as an exhibit  to the  Company's  annual  report on Form
      10-K, for the fiscal year ended December 31, 1998, and incorporated herein
      by reference.

(6)   Previously  filed as part of the Company's  definitive  proxy statement on
      Schedule  14A,  file  no.  000-23567,  for  its  1999  annual  meeting  of
      stockholders, and incorporated herein by reference.


                                       41
<PAGE>

(7)   Previously  filed as an exhibit  to the  Company's  annual  report on Form
      10-K, for the fiscal year ended December 31, 2000, and incorporated herein
      by reference.

(8)   Previously  filed as an exhibit to the Company's  quarterly report on Form
      10-Q, for the quarter ended June 30, 2001, and incorporated herein.

(9)   Previously filed as an exhibit to the Company's current report on Form 8-K
      dated August 12, 2002, and incorporated herein by reference.

(10)  Previously  filed as an exhibit to the Company's  quarterly report on Form
      10-Q for the  quarter  ended June 30,  2002,  and  incorporated  herein by
      reference.

(11)  Previously filed as an exhibit to the Company's current report on Form 8-K
      dated September 17, 2002, and incorporated herein by reference.

(12)  Previously  filed as an exhibit to the Company's  quarterly report on Form
      10-Q for the quarter ended September 30, 2002, and incorporated  herein by
      reference.

(13)  Previously filed as an exhibit to the Company's current report on Form 8-K
      dated March 5, 2003, and incorporated herein by reference.

(14)  Previously filed as an exhibit to the Company's current report on Form 8-K
      dated July 11, 2003, and incorporated herein by reference.

(15)  Previously  filed as an exhibit  to the  Company's  annual  report on Form
      10-K, for the fiscal year ended December 31, 2003, and incorporated herein
      by reference.

(16)  Previously filed as an exhibit to the Company's current report on Form 8-K
      dated March 29, 2005, and incorporated herein by reference.

(17)  Previously  filed as part of the Company's  quarterly  report on Form 10-Q
      for the quarter  ended  September  30, 2004,  and  incorporated  herein by
      reference.

(18)  Previously filed as an exhibit to the Company's annual report on Form 10-K
      for the fiscal year ended  December 31, 2004, and  incorporated  herein by
      reference.


                                       42
<PAGE>

                                   SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) 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, on November 29, 2005.

                                           EARTHSHELL CORPORATION


                                           By: /s/ SIMON K. HODSON
                                               ---------------------------------
                                               Simon K. Hodson
                                               Vice Chairman of the Board and
                                               Chief Executive Officer

      Pursuant to the requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities indicated.

Signature                        Title                              Date
-----------------------------    -----------------------------      ------------


/s/ ESSAM KHASHOGGI              Chairman of the Board         November 29, 2005
-----------------------------
Essam Khashoggi


/s/ SIMON K. HODSON              Vice Chairman of the Board    November 29, 2005
-----------------------------    and Chief Executive Officer
Simon K. Hodson                  (Principal Executive Officer)


/s/ D. SCOTT HOUSTON             Chief Financial Officer and   November 29, 2005
-----------------------------    Secretary
D. Scott Houston                 (Principal Financial Officer)


/s/ D. JOHN DAOUD                Director                      November 29, 2005
-----------------------------
John Daoud


/s/ LAYLA KHASHOGGI              Director                      November 29, 2005
-----------------------------
Layla Khashoggi


/s/ HAMLIN JENNINGS              Director                      November 29, 2005
-----------------------------
Hamlin Jennings


/s/ WALKER RAST                  Director                      November 29, 2005
-----------------------------
Walker Rast


                                       43
<PAGE>

            INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

Index to Consolidated Financial Statements and Schedules...............      F-1

Report of Independent Registered Public Accounting Firm................      F-2

Consolidated Balance Sheets as of December 31, 2004 and 2003...........      F-3

Consolidated Statements of Operations for the years ended
  December 31, 2004, 2003, and 2002 ...................................      F-4

Consolidated Statements of Stockholders' Equity (Deficit) for
  the years ended December 31, 2004, 2003, and 2002 ...................      F-5

Consolidated Statements of Cash Flows for the years ended
  December 31, 2004, 2003, and 2002 ...................................      F-6

Independent Auditors' Report...........................................      F-8

Consolidated Financial Statement Schedules:............................    None.


All schedules have been omitted  because they are not required,  not applicable,
or the information required to be set forth therein is included in the Company's
Consolidated Financial Statements or the Notes therein.


                                      F-i
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of EarthShell Corporation:

We have  audited the  accompanying  consolidated  balance  sheets of  EarthShell
Corporation  (the  "Company") as of December 31, 2004 and 2003,  and the related
consolidated statements of operations,  stockholders' (deficit) equity, and cash
flows for the years ended  December 31,  2004,  2003 and 2002.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  based on our audits,  such  consolidated  financial  statements
present fairly, in all material respects,  the financial position of the Company
as of December 31, 2004 and 2003, and the results of its operations and its cash
flows for the years ended December 31, 2004,  2003 and 2002, in conformity  with
accounting principles generally accepted in the United States of America.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern.  As discussed in the notes to
the  consolidated  financial  statements,  the Company has incurred  significant
losses,  has minimal revenues and has a working capital deficit of approximately
$7,289,000 at December 31, 2004. These matters raise substantial doubt about the
Company's ability to continue as a going concern.  Management's plans concerning
these  matters are also  described  in the notes to the  consolidated  financial
statements. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.


/s/ Farber & Hass LLP

Camarillo, California
March 4, 2005


                                      F-1
<PAGE>

                             EARTHSHELL CORPORATION
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                            December 31,
                                                                                   ------------------------------
                                                                                        2004             2003
                                                                                   -------------    -------------
<S>                                                                                <C>              <C>
ASSETS

CURRENT ASSETS
  Cash and cash equivalents ....................................................   $     272,371    $   1,901,639
  Prepaid expenses and other current assets ....................................         201,467          323,680
                                                                                   -------------    -------------
    Total current assets .......................................................         473,838        2,225,319

PROPERTY AND EQUIPMENT, NET ....................................................           9,037           61,794

EQUIPMENT HELD FOR SALE ........................................................               1                1
                                                                                   -------------    -------------

TOTALS .........................................................................   $     482,876    $   2,287,114
                                                                                   =============    =============
LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
  Accounts payable and accrued expenses ........................................   $   3,899,526    $   4,853,413
  Current portion of settlements ...............................................         313,743               --
  Current portion of deferred revenues .........................................         300,000               --
  Payable to related party, current ............................................         875,000               --
  Debenture settlement .........................................................       2,375,000               --
  Convertible debentures, net of discount of $1,505,755 ........................              --        5,294,245
                                                                                   -------------    -------------
    Total current liabilities ..................................................       7,763,269       10,147,658

DEFERRED REVENUES, LESS CURRENT PORTION ........................................       1,062,500               --
PAYABLE TO RELATED PARTY, LONG TERM ............................................              --        1,839,108
NOTES PAYABLE TO RELATED PARTY NET OF DISCOUNT .................................              --        2,535,790
OTHER LONG-TERM LIABILITIES ....................................................         412,192           33,333
                                                                                   -------------    -------------

  Total liabilities ............................................................       9,237,961       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
      December 31, 2004 and
      2003 .....................................................................              --               --
    Common stock, $.01 par value, 40,000,000 shares authorized; 18,234,615 and
      14,128,966 shares issued and outstanding as of December 31, 2004 and 2003,
      respectively .............................................................         182,346          141,290
    Additional paid-in common capital ..........................................     313,196,905      302,033,746
    Accumulated deficit ........................................................    (321,607,782)    (314,350,681)
    Less note receivable for stock .............................................        (500,000)              --
    Accumulated other comprehensive loss .......................................         (26,554)         (93,130)
                                                                                   -------------    -------------
      Total stockholders' deficit ..............................................      (8,755,085)     (12,268,775)
                                                                                   -------------    -------------

      TOTALS ...................................................................   $     482,876    $   2,287,114
                                                                                   =============    =============
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                      F-2
<PAGE>

                             EARTHSHELL CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                                                  --------------------------------------------
                                                                      2004            2003            2002
                                                                  ------------    ------------    ------------
<S>                                                               <C>             <C>             <C>
Revenues ......................................................   $    137,500    $         --    $         --

Operating Expenses
Related party license fee and research and development expenses        800,000       1,312,374       1,488,070
Other research and development expenses .......................        370,163       8,234,416      25,401,869
Related party general and administrative (reimbursements) .....         (4,875)         (4,074)        (24,444)
Other general and administrative expenses .....................      3,753,902       5,790,473       9,614,037
Depreciation and amortization .................................         42,236         379,949       3,099,367
Gain on sales of property and equipment .......................       (168,458)       (451,940)       (441,413)
                                                                  ------------    ------------    ------------
Total operating expenses ......................................      4,792,968      15,261,198      39,137,486

Operating Loss ................................................      4,655,468      15,261,198      39,137,486

Other (Income) Expenses
Interest income ...............................................         (4,606)        (95,176)       (134,391)
Related party interest expense ................................        410,965         445,628          66,599
Other interest expense ........................................        661,721       1,440,118         199,880
Premium due to debenture default ..............................      1,672,426              --              --
Other income ..................................................             --        (399,701)             --
(Gain) Loss on extinguishment of debentures ...................       (139,673)      1,697,380              --
Debenture conversion costs ....................................             --         166,494         320,970
                                                                  ------------    ------------    ------------

Loss Before Income Taxes ......................................      7,256,301      18,515,941      39,590,544

Income Taxes ..................................................            800             800             800
                                                                  ------------    ------------    ------------

Net Loss ......................................................   $  7,257,101    $ 18,516,741    $ 39,591,344
                                                                  ============    ============    ============

Basic and Diluted Loss Per Common Share .......................   $       0.48    $       1.40    $       3.51

Weighted Average Number of Common Shares Outstanding ..........     15,046,726      13,266,668      11,277,170
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                      F-3
<PAGE>

                             EARTHSHELL CORPORATION
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY

<TABLE>
<CAPTION>
                                                       Additional                                      Accumulated
                                Common Stock             Paid-In                          Stock           Other
                        ----------------------------     Common        Accumulated       Purchase     Comprehensive
                            Shares         Amount        Capital         Deficit        Receivable        Loss            Totals
                        -------------  -------------  -------------   -------------   -------------   -------------   -------------
<S>                     <C>            <C>            <C>             <C>             <C>             <C>             <C>
BALANCE, DECEMBER 31,
  2001                      9,860,255  $      98,602  $ 267,680,051   $(256,242,596)  $          --   $          --   $  11,536,057
Issuance of common
  stock                     2,025,686         20,257     21,881,459              --              --              --      21,901,716
Common stock warrants
  issued in connection
  with convertible
  debentures                       --             --      1,521,046              --              --              --       1,521,046
Conversion of
  convertible
  debentures to common
  stock                       168,696          1,687        998,313              --              --              --       1,000,000
Debenture conversion
  costs                            --             --        176,471              --              --              --         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                     12,054,637        120,546    292,257,340    (295,833,940)             --         (16,632)     (3,472,686)
Issuance of common
  stock                       137,264          1,373        811,267              --              --              --         812,640
Common stock and
  common stock
  warrants issued in
  connection with
  issuance of
  convertible
  debentures                  624,747          6,248      2,921,594              --              --              --       2,927,842
Conversion of
  convertible
  debentures to common
  stock                     1,312,318         13,123      7,536,877              --              --              --       7,550,000
Debenture conversion
  costs                            --             --     (1,493,332)             --              --              --      (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                     14,128,966        141,290    302,033,746    (314,350,681)             --         (93,130)    (12,268,775)
Issuance of common
  stock                     2,443,272         24,432      7,181,970              --        (500,000)             --       6,706,402
Conversion of
  convertible
  debentures to common
  stock                     1,662,377         16,624      4,970,508              --              --              --       4,987,132
Debenture conversion
  costs                            --             --       (989,319)             --              --              --        (989,319)
Net loss                           --             --             --      (7,257,101)             --              --      (7,257,101)
Foreign currency
  translation
  adjustment                       --             --             --              --              --          66,576          66,576
Comprehensive loss                 --             --             --              --              --              --      (7,190,525)
                        -------------  -------------  -------------   -------------   -------------   -------------   -------------

BALANCE, DECEMBER 31,
  2004                     18,234,615  $     182,346  $ 313,196,905   $(321,607,782)  $    (500,000)  $     (26,554)  $  (8,755,085)
                        =============  =============  =============   =============   =============   =============   =============
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                      F-4
<PAGE>

                             EARTHSHELL CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                     Year Ended December 31,
                                                                          --------------------------------------------
                                                                              2004            2003            2002
                                                                          ------------    ------------    ------------
<S>                                                                       <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss ............................................................   $ (7,257,101)   $(18,516,741)   $(39,591,344)
  Adjustments to reconcile net loss to net cash used in operating
    activities
    Depreciation and amortization .....................................         42,236         379,949       3,099,367
    Amortization and accretion of debenture issue costs ...............        592,316         955,574         144,500
    Premium due to debenture default ..................................      1,672,426              --              --
    Debenture issuance and conversion costs ...........................             --         166,494         320,970
    Gain on change in fair value of warrant obligation ................             --        (399,701)             --
    (Gain) Loss on extinguishment of debentures .......................       (139,673)      1,697,380              --
    Beneficial conversion value due to change in debentures conversion
      price ...........................................................             --         360,000              --
    (Gain) Loss on sale, disposal or impairment of property and
      equipment .......................................................       (168,458)      3,548,059       9,340,375
    Equity in the losses of joint venture .............................             --         392,116          20,263
    Accrued purchase commitment .......................................             --      (1,855,000)      3,500,000
    Other non-cash expense items ......................................        180,171          50,198              --
  Changes in operating assets and liabilities
    Prepaid expenses and other current assets .........................        120,549         264,153           9,670
    Accounts payable and accrued expenses .............................       (553,710)     (2,339,720)       (444,851)
    Payable to related party ..........................................      1,043,869       1,214,683         578,779
    Deferred revenues .................................................      1,362,500              --              --
    Accrued purchase commitment .......................................             --      (1,645,000)             --
    Other long-term liabilities .......................................        378,859          33,333              --
                                                                          ------------    ------------    ------------
      Net cash used in operating activities ...........................     (2,726,016)    (15,694,223)    (23,022,271)
                                                                          ============    ============    ============

CASH FLOWS FROM INVESTING ACTIVITIES
  Proceeds from release of restricted time deposit upon settlement of
    purchase commitment ...............................................             --       3,500,000              --
  Proceeds from sales of property and equipment .......................        187,708         487,691         477,566
  Investment in joint venture .........................................             --         (26,104)             --
  Purchases of property and equipment .................................         (8,729)         (1,320)     (2,802,371)
                                                                          ------------    ------------    ------------
      Net cash provided by (used in) investing activities .............        178,979       3,960,267      (2,324,805)
                                                                          ============    ============    ============
</TABLE>


                                      F-5
<PAGE>

<TABLE>
<CAPTION>
                                                                                      Year Ended December 31,
                                                                          --------------------------------------------
                                                                              2004            2003            2002
                                                                          ------------    ------------    ------------
<S>                                                                       <C>             <C>             <C>
CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from issuance of common stock ..............................      2,086,755              --      21,901,716
  Proceeds from issuance of common stock and convertible
    debentures,  net of issuance costs and discounts amounting to
    approximately $3.4 million ........................................             --       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 ..........................             --       1,800,000       1,000,000
  Proceeds from release of restricted time deposit upon exchange of
    convertible debentures ............................................             --       2,000,000              --
  Proceeds from release of restricted time deposit for repayment of
    convertible debentures ............................................             --       5,200,000              --
  Repayment of convertible debentures .................................     (1,110,294)     (5,200,000)             --
  Principal payments on settlements ...................................        (66,387)             --              --
  Proceeds from issuance of notes payable to related party ............             --       1,010,000       4,825,000
  Repayment of notes payable to related party .........................             --              --      (3,080,000)
                                                                          ------------    ------------    ------------
    Net cash provided by financing activities .........................        910,074      13,521,844      24,646,716

  Effect of exchange rate changes on cash and cash equivalents ........          7,695           2,736         (16,632)
                                                                          ------------    ------------    ------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.......................     (1,629,268)      1,790,624        (716,992)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.........................      1,901,639         111,015         828,007
                                                                          ------------    ------------    ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ..............................   $    272,371    $  1,901,639    $    111,015
                                                                          ============    ============    ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
  Cash paid for
    Income taxes ......................................................   $        800    $        800    $        800
    Interest ..........................................................        111,353          21,058              --
  Common stock warrants issued in connection with convertible
    debentures ........................................................             --         745,562       1,521,046
  Conversion of convertible debentures into common stock ..............      6,800,000       7,550,000       1,000,000
  Transfer of property from EKI .......................................             --              --              --
  Conversion of preferred stock into common stock .....................             --              --              --
  Interest paid in common stock .......................................        532,644          95,339              --
  Commission paid in common stock .....................................             --          29,500              --
  Common stock issued to service providers in connection with the
    March 2003 financing ..............................................             --         484,500              --
</TABLE>


                                      F-6
<PAGE>

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

In 2004, no warrants were issued.

In 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 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.

In 2003,  137,264 shares of common stock were issued to satisfy accounts payable
and accrued interest payable of $812,640.

In 2002, warrants for the purchase of 208,333 shares of common stock were issued
in connection  with the issuance of convertible  debentures.  The estimated fair
value of the  warrants of  $1,521,046,  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.

See Notes to Consolidated Financial Statements.


                                      F-7
<PAGE>

                             EARTHSHELL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Overview of Operations

Organized in November  1992 as a Delaware  corporation,  EarthShell  Corporation
(the  "Company")  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.

EarthShell was a development stage enterprise through the first quarter of 2004.
With the  recognition  of the Company's  first revenues in the second quarter of
2004, the Company was no longer a development stage enterprise.

BASIS OF PRESENTATION OF FINANCIAL INFORMATION

The foregoing financial information 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,  PolarCup
EarthShell GmbH. All significant  intercompany  balances and  transactions  have
been eliminated in  consolidation.  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 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.  The Company  has  incurred
significant  losses  since  inception,  has minimal  revenues  and has a working
capital  deficit of $7,289,431 at December 31, 2004.  These factors,  along with
others,  may  indicate  substantial  doubt  that the  Company  will be unable to
continue as a going concern for a reasonable period of time.

Subsequent to December 31, 2004 the Company entered into a financing transaction
to borrow $2.5 million (See Subsequent  Events).  On March 28, 2005, the Company
received  $1.15  million of this  funding.  The  Company  expects to receive the
remaining $1.35 million prior to April 30, 2005. The Company expects to generate
additional  cash in 2005 through royalty  payments from  licensees.  The Company
believes that the cash from this  borrowing,  combined with projected  revenues,
will be sufficient to fund its operations  through the year ending  December 31,
2005. If the Company is not successful at generating license revenues during the
year,  the  Company  will  have to raise  additional  funds to meet its  current
obligations and to cover operating expenses. 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.  However,  the
Company  cannot assure that it will receive any royalty  payments in 2005,  that
additional  financing will be available to it, or, if available,  that the terms
will be  satisfactory.  Management  will also  continue in its efforts to reduce
expenses,  but  cannot  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.  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.

In January 2004,  the Company  announced  that it was not in  compliance  with a
Nasdaq  SmallCap  Market  minimum  requirement.  On March 8, 2004 the  Company's
common stock was de-listed by the Nasdaq  SmallCap  Market and trading was moved
to the over-the-counter (OTC) [Pink Sheets Electronic Quotation Service].  Since
June 21,  2004,  the  Company's  common  stock has been  listed  through the OTC
Bulletin Board. The Company's common stock trades under the symbol "ERTH.OB."


                                      F-8
<PAGE>

Operations and Financing

The Company was engaged in initial concept development from 1993 to 1998. During
this period,  the Company focused on enhancing the material  science  technology
licensed from EKI, initial  development of the Company's foam packaging products
(primarily,  its  hinged-lid  sandwich  containers,  which  are  referred  to as
"hinged-lid  containers"),   and  the  development  of  relationships  with  key
licensees and end-users.

Since 1998, the Company has been primarily  engaged in commercial  validation of
EarthShell  Packaging for plates,  bowls,  hinged-lid  containers,  and sandwich
wraps, and other market development  activities.  During this stage, the Company
has worked to  demonstrate  the  commercial  viability of its business  model by
optimizing   product  design,   garnering   support  from  key  members  of  the
environmental  community,  expanding  validation  of the  environmental  profile
through third party evaluations,  developing  commercially viable  manufacturing
processes,  establishing and refining licensing  arrangements with the Company's
licensees,  and validating  product  performance  and price  acceptance  through
commercial  contracts  with  influential  purchasers  in  key  segments  of  the
foodservice  market.  In cooperation  with its operating  partners,  the Company
financed and built initial commercial  demonstration production capacity and has
sold limited quantities of plates,  bowls, and hinged-lid  containers.  In 2003,
the Company ceased commercial  demonstration  production activity and is relying
on its equipment and manufacturing  partners to demonstrate and to guarantee the
long-term manufacturability of EarthShell Packaging(R).

As demonstration of the business fundamentals to licensees is accomplished,  the
Company expects that its operating partners will build production capacity.  The
Company  intends to expand the use of  EarthShell  Packaging  in the U.S. and in
international   markets  through  agreements  with  additional   licensees.   By
leveraging  the  infrastructure  of its  licensees,  the  Company  believes  the
go-to-market  strategy  will  accelerate  the market  penetration  of EarthShell
Packaging.

Currently,  the  Company's  strategic  relationships  include  Detroit  Tool and
Equipment ("DTE"), Hood Packaging  Corporation  ("Hood"),  and Meridian Business
Solutions  ("MBS")  all in the U.S,  as well as  EarthShell  Hidalgo  ("ESH") in
Mexico.  During 2004, the Company received technology fees from MBS and ESH, and
recorded it first  revenues since its  inception.  During prior years,  proceeds
from  initial  sales  of  plates,  bowls  and  hinged-lid  containers  were  not
significant  and were  recorded  as an offset to the costs of its  demonstration
manufacturing operations.

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 S-3 shelf
registration statements for 416,667 and 1,250,000 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 under such  registration  statements  and received net proceeds
from such sales of approximately $2.3 million,  $30.6 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  an  additional  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  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 $10.0  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 (see Convertible  Debenture).  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 (see Restricted  Cash). In 2002 and 2003, $2.8 million of
the debentures were converted to common stock. In March 2003, the Company issued
$10.55  million in aggregate  principal  amount of convertible  debentures,  due
March 2006 (the "2006 Debentures"),  and 0.5 million shares of common stock to a
group of institutional investors for net proceeds of approximately $9.0 million.
In  connection  with this  transaction,  the Company  repaid $5.2 million of the
remaining balance of the 2007 Debentures, and exchanged $2.0 million of the 2007
Debentures for the 2006 Debentures.  This transaction  provided the Company with
net proceeds of approximately $11.0 million. The Company's use of these proceeds
was  subject to a number of  restrictions.  In 2003,  $5.75  million of the 2006
Debentures  were  converted  to common  stock.  The  remaining  shares under the
December 2001 shelf registration described above have been used to secure shares
potentially issuable upon conversion of the remainder of the 2006 Debentures.


                                      F-9
<PAGE>

During 2004, as a result of its stock price  dropping  below $3 per share for an
extended period of time, the Company was de-listed from NASDAQ. Consequently, it
became in  default  on its 2006  Debentures.  In the 4th  quarter  of 2004,  the
Company sold $2.7 million of  unregistered  stock,  negotiated a settlement with
each of its debenture holders, and retired all of the outstanding debentures.

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 December 31,
2003,  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 October 2004, these related party
loans,  including  accrued  interest were  converted to  unregistered  shares of
EarthShell common stock. (See Related Party Transactions).

Recent Accounting Pronouncements

The FASB recently issued the following statements:

In November 2004, the FASB issued SFAS No. 151, "Inventory Costs-an amendment of
ARB.  No. 43,  Chapter 4".  This  Statement  amends the  guidance in ARB No. 43,
Chapter 4, "Inventory  Pricing," to clarify the accounting for abnormal  amounts
of  idle  facility  expense,   freight,  handling  costs,  and  wasted  material
(spoilage).  Paragraph 5 of ARB 43, Chapter 4, previously stated that "... under
some  circumstances,  items such as idle facility expense,  excessive  spoilage,
double freight,  and rehandling costs may be so abnormal as to require treatment
as current  period  charges...."  This  Statement  requires  that those items be
recognized  as  current-period  charges  regardless  of  whether  they  meet the
criterion of "so abnormal." In addition, this Statement requires that allocation
of fixed production  overheads to the costs of conversion be based on the normal
capacity of the  production  facilities.  The Company does not believe that this
recent accounting  pronouncement has had or will have a material impact on their
financial position or results of operations.

In December  2004,  the FASB issued  SFAS No. 152,  "Accounting  for Real Estate
Time-Sharing Transactions - an amendment of FASB statements no. 66 and 67". This
Statement amends FASB Statement No. 66,  Accounting for Sales of Real Estate, to
reference  the  financial  accounting  and  reporting  guidance  for real estate
time-sharing  transactions that is provided in AICPA Statement of Position (SOP)
04-2, Accounting for Real Estate Time-Sharing Transactions.  This Statement also
amends FASB Statement No. 67, Accounting for Costs and Initial Rental Operations
of Real  Estate  Projects,  to  state  that  the  guidance  for  (a)  incidental
operations and (b) costs incurred to sell real estate projects does not apply to
real estate time-sharing  transactions.  The accounting for those operations and
costs is subject to the guidance in SOP 04-2.  The Company does not believe that
this recent  accounting  pronouncement has had or will have a material impact on
their financial position or results of operations.

In December  2004,  the FASB issued SFAS No.  153,  "Exchanges  of  Non-monetary
assets - an amendment of APB Opinion No. 29". This Statement  amends APB Opinion
29 to eliminate the exception for non-monetary  exchanges of similar  productive
assets and replaces it with a general  exception for  exchanges of  non-monetary
assets  that do not have  commercial  substance.  A  non-monetary  exchange  has
commercial  substance  if the future  cash flows of the entity are  expected  to
change  significantly as a result of the exchange.  The Company does not believe
that this recent accounting pronouncement has had or will have a material impact
on their financial position or results of operations.

In December 2004,  the FASB issued SFAS No. 123R,  "Share Based  Payment".  This
Statement is a revision of FASB Statement No. 123,  Accounting  for  Stock-Based
Compensation. This Statement supersedes APB Opinion No. 25, Accounting for Stock
Issued to Employees,  and its related  implementation  guidance.  This Statement
establishes  standards for the  accounting for  transactions  in which an entity
exchanges  its  equity  instruments  for goods or  services.  It also  addresses
transactions  in which an entity  incurs  liabilities  in exchange  for goods or
services that are based on the fair value of the entity's equity  instruments or
that may be settled by the issuance of those equity instruments.  This Statement
focuses  primarily on accounting  for  transactions  in which an entity  obtains
employee services in share-based payment  transactions.  This Statement does not
change the accounting guidance for share-based payment transactions with parties
other than  employees  provided in Statement 123 as  originally  issued and EITF
Issue No. 96-18,  "Accounting  for Equity  Instruments  That Are Issued to Other
Than  Employees  for  Acquiring,  or  in  Conjunction  with  Selling,  Goods  or
Services."  This  Statement  does not address the  accounting for employee share
ownership  plans,  which  are  subject  to AICPA  Statement  of  Position  93-6,
Employers'  Accounting for Employee Stock Ownership  Plans.  This statement will
require the Company to recognize the fair value of employee services received in
exchange for awards of equity instruments in current earnings.  The Company will
adopt this pronouncement July 1, 2005 as required.


                                      F-10
<PAGE>

Other Comprehensive Income

The  Company  has  reflected  the   provisions  of  SFAS  No.  130,   "Reporting
Comprehensive Income", in the accompanying consolidated financial statements for
all  periods   presented.   The   accumulated   comprehensive   loss  and  other
comprehensive  loss as  reflected  in the  accompanying  consolidated  financial
statements,  respectively, consists of foreign currency translation adjustments,
which historically have been insignificant to the Company's operations.

Foreign Currency Translation

Assets and liabilities of the Company's foreign subsidiary,  PolarCup EarthShell
GmbH, are  translated  into United States dollars at the exchange rate in effect
at the close of the period,  and revenues and  expenses  are  translated  at the
weighted  average  exchange  rate during the  period.  The  aggregate  effect of
translating the financial  statements of PolarCup EarthShell GmbH is included as
a separate component of stockholders' equity. Foreign exchange gains/losses have
been insignificant.

Reverse Stock Split

Effective as of October 31, 2003,  the  Company's  Board of Directors  ("Board")
approved an amendment to the Company's  Certificate of Incorporation to effect a
reverse split of the Company's  common stock.  This action by the Board followed
approval by 88% of the  stockholders of a proposal at the 2003 Annual Meeting of
the Company that  authorized the Board to take such action.  The decision by the
Board was prompted by the need to maintain  compliance with certain covenants of
the Company's 2006  debentures that require the Company to retain its listing on
a national market.

After  careful  analysis,  the Board  approved  the final ratio for the split at
one-for-twelve  (1:12),  whereby each twelve shares of the Company's  issued and
outstanding  common  stock  was  automatically  converted  into one share of new
common stock.  The percentage of the Company's  stock owned by each  shareholder
remained the same. No fractional shares were issued, and instead,  the Company's
transfer agent aggregated and sold any fractional  shares on the open market and
distributed the pro rata share of the cash proceeds to the holders of fractional
share interests.

The  reverse  split  has  been   retroactively   reflected  in  these  financial
statements.

In  conjunction  with the reverse split,  the authorized  shares of common stock
were reduced from 200 million to 25 million as of October 31, 2003.  Increase in
authorized  shares of common stock in conjunction with the annual meeting of the
shareholders  held on June 26, 2004. The authorized  shares of common stock were
increased from 25 million to 40 million.

Disclosure About Fair Value of Financial Instruments

The  Company  has  financial  instruments,  none of which  are held for  trading
purposes. The Company estimates that the fair value of all financial instruments
at  December  31,  2004 and  2003,  as  defined  in FASB  107,  does not  differ
materially  from the  aggregate  carrying  values of its  financial  instruments
recorded in the  accompanying  balance  sheet.  The estimated fair value amounts
have been  determined  by the Company using  available  market  information  and
appropriate  valuation  methodologies.  However,  the fair value of  payables to
related  parties and notes payable to related party cannot be determined  due to
their related party nature.  In addition,  it is impractical  for the Company to
estimate the fair value of the convertible  debentures because a market for such
debentures  does  not  readily  exist.  Considerable  judgment  is  required  in
interpreting   market  data  to  develop  the  estimates  of  fair  value,   and
accordingly,  the estimates are not  necessarily  indicative of the amounts that
the Company could realize in a current market exchange.

Concentration of Risk - Financial Instruments

Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of Cash and Cash Equivalents. The Company places
its excess cash in reputable  federally  insured  financial  institutions and in
high quality money market fund deposits. Money market fund deposits ($210,428 on
deposit with one bank at December  31, 2004) are subject to market  fluctuations
and there is no guarantee as to their ultimate value.


                                      F-11
<PAGE>

Reclassifications

Certain items in the 2002 and 2003 financial  statements have been  reclassified
to conform to the 2004 presentation.

Cash and Cash Equivalents

Cash and cash equivalents include cash, funds invested in money market funds and
cash invested temporarily in various instruments with maturities of three months
or  less at the  time of  purchase.  The  money  market  fund  deposits  have an
investment  objective to provide high  current  income to the extent  consistent
with  the  preservation  of  capital  and  the  maintenance  of  liquidity  and,
therefore, are subject to minimal risk.

Restricted Cash

As of December 31, 2004, the Company had no restrictions on its cash.

Prepaid Expenses and Other Current Assets

The  following  is a summary of prepaid  expenses  and other  current  assets at
December 31:

                                                          2004        2003
                                                       ---------   ---------
            Recoverable foreign taxes - VAT .........  $      -0-  $ 158,491
            Prepaid expenses and other current assets     83,583     165,189
            Receivable on sale of equipment..........     78,009          -0-
            Related party receivable.................     12,875          -0-
            Retainer for financing...................     27,000          -0-
                                                       ---------   ---------
            Total Prepaid Expenses and Other Current
              Assets.................................  $ 201,467   $ 323,680
                                                       =========   =========

Evaluation of Long-Lived Assets

The Company evaluates the recoverability of long-lived assets 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 a long-lived
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 (see Property and Equipment).

Property and Equipment and Equipment Held for Sale

Property and equipment are carried at cost.  Depreciation  and  amortization  is
provided for using the  straight-line  method for financial  reporting  purposes
based upon the estimated  useful lives of the assets,  which range from three to
seven  years.  The cost of assets  sold or retired  and the  related  amounts of
accumulated depreciation are eliminated from the accounts and the resulting gain
or loss is included in income.  As described  further  below,  the Company wrote
down  property and  equipment  related to  commercialization  of the  EarthShell
Packaging products  technology by $4.0 million in 2003 and $9.8 million in 2002.
The impairment  charges were expensed to "Other research and development" in the
accompanying Statements of Operations.


                                      F-12
<PAGE>

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

                                                          2004         2003
                                                       ----------   ----------
            Property and Equipment

            Product Development Center ..............  $       -0-  $1,175,394
            Office Furniture and Equipment ..........     245,274      356,339
                                                       ----------   ----------

              Total cost ............................     245,274    1,531,733
              Less: accumulated depreciation and
                amortization ........................    (236,237)  (1,469,939)
                                                       ----------   ----------

            Property and equipment--net .............  $    9,037   $   61,794
                                                       ==========   ==========
            Equipment held for sale .................  $        1   $        1
                                                       ==========   ==========

The Company has fully  depreciated  equipment  (original cost of $893,657) and a
commercial  production  line  which are  being  held for  sale.  The  commercial
production  line in  Goettingen,  Germany was  financed and  constructed  by the
Company for the Company's  joint venture (see  Investment in 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  will 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.  At December 31, 2003,  the Company
was  negotiating  to sell the line to a party who would  become a licensee  with
rights to produce  foodservice  disposables.  However,  because  the Company was
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  $4.0  million  impairment  charge  was  expensed  to  "Other  research  and
development" in the accompanying  Statements of Operations.  If the equipment is
sold,  the Company  will record a gain equal to the  proceeds  received  for the
equipment.

As the Company sold  non-essential  machine  shop  equipment  and excess  office
furniture  and  equipment  in 2003 and 2004,  the related  cost and  accumulated
depreciation  were removed from the  applicable  asset  account and  accumulated
depreciation, respectively.

Investment in Joint Venture

On May 24,  1999,  the  Company  entered  into a joint  venture  agreement  with
Huhtamaki to commercialize  EarthShell Packaging  throughout Europe,  Australia,
New Zealand, and, on a country by country basis, Asia. The Company and Huhtamaki
formed PolarCup EarthShell ApS ("PolarCup"),  a Danish holding company,  for the
purpose of establishing  operating  companies to manufacture,  market,  sell and
distribute EarthShell Packaging.

The Company contributed  approximately 10,000 Euros as nominal share capital and
500,000 Euros for start-up capital.  The Company paid for the development of the
initial  commercial  production line to be located at the Huhtamaki  facility at
Goettingen,  Germany (see Property and Equipment).  In January 2004, the Company
announced the conclusion of its joint venture  structure with Huhtamaki.  During
2003 and 2002 the Company recorded its equity in the losses of the joint venture
of $392,117 and $20,263  respectively,  including the write off of its remaining
investment as of December 31, 2003.

Related Party Transactions

In  connection  with the  formation of the Company,  the Company  entered into a
License  Agreement  (the "License  Agreement")  with EKI, a  stockholder  of the
Company.  Pursuant to the  license  agreement,  as  amended,  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) and to use certain  trademarks  owned by EKI in  connection
with the products covered under the License Agreement.  The license continues to
be in effect during the life of the patents licensed under the License Agreement
covering the technologies. Patents currently issued do not begin to expire until
2012 and provide some  protection  through 2020.  Pending  patents,  if granted,
would extend  protection  through 2022. On July 29, 2002, the License  Agreement
was amended to expand the field of use for the EarthShell  technology to include
noodle bowls used for packaging instant noodles. The Company will pay to EKI 50%


                                      F-13
<PAGE>

of any royalty or other consideration it receives in connection with the sale of
products within this particular field of use. In addition,  on July 29, 2002 the
Company entered into a License & Information  Transfer  Agreement with Biotec, a
wholly owned subsidiary of EKI, to utilize the Biotec technology for foodservice
applications,  including the food wraps used in  foodservice  applications  (the
"Biotec  Agreement").  Effective January 1, 2001, EKI had previously  granted to
the  Company  priority  rights to license  certain  product  applications  on an
exclusive  basis from Biotec in  consideration  for the  Company's  payment of a
$100,000 monthly licensing fee to Biotec.  In addition,  in consideration of the
monthly payment,  Biotec agreed to render  technical  services to the Company at
Biotec's  cost  plus  5%.  The  licensing  fee and  services  arrangements  were
continued  in the Biotec  Agreement.  Under the terms of the  Biotec  Agreement,
Biotec is entitled to receive 25% of any royalties or other  consideration  that
the Company  receives in  connection  with the sale of  products  utilizing  the
Biotec technology.  As part of the convertible  debenture financing completed in
March 2003 (see Convertible Debentures), payment of amounts due to EKI under the
License  Agreement  or the  Biotec  Agreement  were  subordinated  to  the  2006
Debentures with strict covenants governing their repayment. However, any amounts
deferred pursuant to this subordination requirement shall accrue interest at the
rate of 10% per annum until paid. For the years ended  December 31, 2004,  2003,
and  2002,  the  Company  paid  or  accrued  to EKI  $800,000,  $1,312,374,  and
$1,488,070 ,  respectively,  under the License  Agreement and Biotec  Agreement,
consisting  of the  $100,000 per month  licensing  fee,  materials  and services
provided  by EKI,  which vary based on the  Company's  given  requirements,  and
interest payable on outstanding balances.

In  September  of  2004,  as  part  of an  overall  restructuring  of its  debt,
EarthShell  entered into an agreement  with Biotec to convert  $1.475 million of
the $2.475  million of accrued  license  fees owing to Biotec as of September 1,
2004, plus accrued  interest into 491,778 shares of EarthShell  common stock and
to  eliminate,  for two years,  the $100,000 per month  minimum  license fee. In
December  of 2004,  EarthShell  paid to Biotec  $125,000,  leaving a balance  of
$875,000 as of December 31, 2004.

In connection  with the  settlement  of the March 2006  Debentures in October of
2004, EKI converted all of its outstanding loans to EarthShell ($2,755,000) into
unregistered  common stock at $3 per share and converted $532,644 of accumulated
interest into unregistered common stock at $4 per share for a total of 1,051,494
shares received by EKI.

In September  2004,  the Company hired an executive  assistant who supports both
EKI and  Company  executives.  The Company  pays the salary and  benefits of the
executive  assistant  and charges EKI for the portion of her time that was spent
supporting EKI executives.  Through  December 31, 2004, the Company invoiced EKI
$12,875 for such support services.

In May 2004,  the Company sold  non-essential  machine shop equipment and excess
office furniture and equipment with a net book value of approximately $19,122 to
EKI for $78,409.

On September 22, 2004, Simon K. Hodson,  Chief Executive Officer of the Company,
loaned $50,000 to the Company on a short-term  basis at an annual  interest rate
of 7%, and on September  29, 2004 Mr.  Hodson  loaned the Company an  additional
$86,000.  During the fourth quarter of 2004, the Company repaid both  short-term
loans.

Accounts Payable and Accrued Expenses

The following is a summary of accounts  payable and accrued expenses at December
31:

                                                          2004         2003
                                                       ----------   ----------
            Accounts payable and other accrued
              expenses ..............................  $2,830,204   $3,516,736
            Deferred officer compensation ...........     298,194           -0-
            Accrued property taxes ..................     112,159      655,000
            Accrued salaries, wages and benefits ....     258,691      338,402
            Accrued legal fees ......................     400,278      343,275
                                                       ----------   ----------
            Total Accounts Payable and Accrued
              Expenses ..............................  $3,899,526   $4,853,413

Convertible Debentures

On August 12,  2002,  the Company  issued $10.0  million in aggregate  principal
amount of the 2007 Debentures to institutional investors.  These debentures bore
interest  at a rate of 1.5% per  annum,  payable  quarterly  in  arrears on each
January 31,  April 30,  July 31 and October 31. 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 $8.40 per
share in November  2002 and then to $6.00 per share in March 2003 as a result of
anti-dilution  adjustments.  Based on the conversion  price relative to the fair
market  value of the  common  stock at the date of issue,  the  debentures  were
deemed to have no beneficial  conversion  feature. In March 2003, the conversion
price of the 2007  Debentures was adjusted  downward,  resulting in a beneficial
conversion  charge of $360,000 that is included in Other interest expense in the
Statements of  Operations.  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.  During 2003, 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.


                                      F-14
<PAGE>

In connection  with the issuance of the 2007  Debentures,  the Company issued to
the  debenture  holders  warrants to purchase  208,333  shares of the  Company's
common  stock at $14.40 per share.  A value of  $1,521,046  was  ascribed to the
warrants and recorded as an original issue  discount based on the  Black-Scholes
method of  valuation.  During 2002,  non-cash  interest  expense of $144,500 and
debenture  conversion  costs of $320,970 were  recognized  in the  Statements of
Operations to reflect  amortization  of the original issue  discount  associated
with the  warrants  and to reflect the 15%  discount to the market  price of the
Company's  common  stock  resulting  from  the  forced  conversions  of the 2007
Debentures.  During 2003, non-cash interest expense of $74,927 was recognized in
the  Statements  of  Operations to reflect  amortization  of the original  issue
discount  associated  with the  warrants.  In addition,  $59,747 of the original
issue discount associated with the debentures  voluntarily converted was charged
to additional paid in common capital.

In March 2003, as part of a new  convertible  debenture  financing,  the Company
prepaid $5.2 million  principal  amount of 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 exchange of $2.0 million of
the 2007 Debentures for 2006  Debentures  resulted in the release to the Company
of $2.0 million of restricted 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 bore interest
at a rate of 2.0% per annum,  payable  quarterly  in arrears on each January 31,
April 30, July 31 and October 31.

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 upon 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  2006  Debentures  were  deemed  to have no  beneficial
conversion feature.

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  would  expire  in  March  2006  and  was  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 would expire in March 2006,  was  immediately  exercisable  by the
placement agent to purchase $1.055 million in aggregate  principal amount of the
2006  Debentures and 41,667 shares of the Company's  common stock.  At September
30, 2003, the Company  evaluated the current value of this warrant,  considering
the Company's 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 warrant
had no value as of  September  31,  2003 and  December  31,  2003 and  therefore
reduced the balance of the warrant  obligation to zero as of September 30, 2003,
resulting in a $0.5 million gain that is reflected in "Other  (income)  expense"
in the Statements of Operations.


                                      F-15
<PAGE>

In 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 December 31, 2003,  the Company was in  compliance  with all covenants of the
2006  Debentures.  However,  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.  These  actions put the Company in  non-compliance
with its covenants under the 2006  Debentures.  The Company  negotiated with the
various  debenture  holders to resolve the defaults.  From July through  October
2004, the Company reach settlements with each of the remaining debenture holders
to  retire  the  entire  $6.8  million  outstanding  at the end of  2003.  Taken
together,   the  debenture  holders  converted  their  debenture  holdings  into
1,149,877 shares of registered stock,  received a total of $1.11 million in cash
payments,  and received an  additional  512,500  shares of  unregistered  common
stock. One of the debenture holders also received a settlement payable of $2.375
million,  which may be  converted to common stock at the option of the holder at
$3 per share.  This holder also has the right to elect to be paid from up to 1/3
of the  proceeds  of future  equity  capital  transactions  or from up to 1/3 of
future  revenues  until he has  received  a total of  $2.375  million,  less any
portion that has already been  converted.  As of December 31, 2004,  100% of the
outstanding  debentures had been retired, the security interest held by the 2006
Debenture  Holders  had been  released,  and any and all  defaults  under  these
debentures  had been waived.  Because the $2.375 million  settlement  payable is
payable only from future  proceeds,  it is classified on the balance sheet under
Current Liabilities as a Debenture Settlement.

In  connection  with the  March  2003  financing  transactions,  EKI  agreed  to
subordinate  the repayment of its  outstanding  loans totaling $2.755 million 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.  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.

Other Long Term Liabilities

The  Company  has  negotiated  settlements  with a number of its  trade  payable
vendors  comprised of payment plans of up to 36 months.  These  settlements have
been reclassified on the balance sheet from trade payables to Current Portion of
Settlements  for payments due within the current  reporting  year and Other Long
Term  Liabilities  for  payments due after  December 31, 2005.  Payments on such
settlements due in 2006 and 2007 total $275,786 and $136,406, respectively.

Commitments

In September  2003,  the Company leased 4,000 square feet of office and research
and development space in Santa Barbara,  California,  under a lease that expired
on December 31, 2003.  In January  2004,  the lease was extended  through  April
2004,  and thereafter on a  month-to-month  basis.  The Company's  monthly lease
payment with  respect to this space was $5,000.  In November  2004,  the Company
relocated to its current  location that it sublets from and shares with EKI. The
Company pays to EKI approximately $4,000 per month for its share of the rent and
common area costs.  In addition,  the Company leases 3,353 square feet of office
space in Lutherville, Maryland, on a month-to-month basis. The Company's monthly
lease  payment  with  respect  to this  space is $5,780.  Future  minimum  lease
payments  required  under these  leases as of December  31, 2004 are $0.  Rental
expenses  for the years  ended  December  31,  2004,  2003 and 2002  amounted to
$165,382, $558,195, and $927,386 respectively.

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,  and  pursuant to the terms of a letter  agreement  with EKI, the
Company  agreed to pay the  seller of the  technology  $3.5  million on or about
December  31,  2003,  which  obligation  is secured  by a letter of credit  (see
Restricted  Cash).  In the fourth  quarter of 2002,  the Company  established  a
liability  for the $3.5 million  commitment  as of December  31, 2002  ("Accrued
Purchase  Commitment")  and recorded a corresponding  expense to "Other research
and development" in the Statements of Operations. In the fourth quarter of 2003,
the Company  negotiated  a reduction of the  obligation  to $1.6  million.  Upon
payment of the  reduced  obligation  amount in the fourth  quarter of 2003,  the
seller simultaneously  released the letter of credit.  Therefore, as of December
31, 2003, the Accrued Purchase Commitment has been fulfilled and the excess $1.8
million  recorded  in 2002 was  recorded  as an offset to  "Other  research  and
development" in the 2003 Statements of Operations.


                                      F-16
<PAGE>

The  Company  is   periodically   involved  in  litigation  and   administrative
proceedings  primarily  arising in the  normal  course of its  business.  In the
opinion of management,  the Company's gross  liability,  if any, and without any
consideration   given  to  the  availability  of  indemnification  or  insurance
coverage,   under  any  pending  or  existing   litigation   or   administrative
proceedings,  other  than those  separately  addressed  above,  would not have a
material adverse impact upon the Company's financial statements.

Retirement Benefits

The Company  established  a qualified  401(k) plan for all of its  employees  in
1998. The 401(k) plan allows employees to contribute,  on a tax-deferred  basis,
up to  fifteen  percent of their  annual  base  compensation  subject to certain
regulatory  and plan  limitations.  The Company  uses a  discretionary  matching
formula that matches one half of the employee's  401(k) deferral up to a maximum
of six  percent  of annual  base  compensation.  The 401(k)  employer  match was
$24,311 in 2004, $44,057 in 2003, and $74,853 in 2002.

Stock Options

In 1994 the Company  established  the EarthShell  Corporation  1994 Stock Option
Plan  (the  "1994  Plan").  In 1995 the  Company  subsequently  established  the
EarthShell  Corporation  1995  Stock  Incentive  Plan (the  "1995  Plan")  which
effectively  superseded the 1994 Plan for options issued on or after the date of
the 1995  Plan's  adoption.  The 1994 and 1995  Plans as amended  (the  "Plans")
provide  that the  Company  may grant an  aggregate  number of options for up to
1,250,000  shares of common stock to  employees,  directors  and other  eligible
persons  as  defined  by the  Plans.  Options  issued  to date  under  the Plans
generally  vest over varying  periods from 0 to 5 years and generally  expire 10
years from the date of grant.

Stock option activity for 2004, 2003 and 2002 is as follows:

<TABLE>
<CAPTION>
                                  2004                       2003                        2002
                         ------------------------   ------------------------   ------------------------
                                        Weighted                   Weighted                   Weighted
                                        -Average                   -Average                   -Average
                                        Exercise                   Exercise                   Exercise
                           Shares        Price        Shares        Price        Shares        Price
                         ----------    ----------   ----------    ----------   ----------    ----------
<S>                      <C>           <C>          <C>           <C>          <C>           <C>
Outstanding at beginning
  of year ............      384,912    $    38.24      320,924    $    50.49      231,333    $    73.44
Granted ..............      762,498          0.78      121,699          4.87      168,811         34.44
Cancelled ............      (92,499)        15.00      (43,748)        34.02      (73,105)        74.52
Expired ..............      (11,666)        68.95      (13,963)        42.14       (6,115)       189.24
                         ----------    ----------   ----------    ----------   ----------    ----------
Outstanding at end of
  year ...............    1,043,245    $    12.58      384,912    $    38.24      320,924    $    50.49
                         ==========    ==========   ==========    ==========   ==========    ==========

Options exercisable at
  year-end ...........      141,162    $    61.35      155,228    $    61.70      162,476    $    63.72
                         ==========    ==========   ==========    ==========   ==========    ==========
</TABLE>


                                      F-17
<PAGE>

The following table summarizes  information  about stock options  outstanding at
December 31, 2004:

<TABLE>
<CAPTION>
                                           Options Outstanding                                Options Exercisable
                         --------------------------------------------------------   --------------------------------------
                             Number         Weighted-Average
                         Outstanding At         Remaining        Weighted-Average   Number Exercisable    Weighted-Average
Exercise Price              12/31/04        Contractual Life      Exercise Price        At 12/31/04        Exercise Price
--------------           -------------      ----------------     ----------------   ------------------    ----------------
<S>                      <C>                <C>                  <C>                <C>                   <C>
$ 0.75                         715,000                  9.46     $           0.75                   --    $             --
2.55                            12.498                  9.57                 2.55                6,249                2.55
4.80                            83,333                  8.72                 4.80                   --                  --
5.64                            11,283                  3.42                 5.64               11,283                5.64
15.00                            8,334                  1.19                15.00                8,334               15.00
16.68                            8,332                  2.41                16.68                8,332               16.68
36.00                           97,501                  7.53                36.00                   --                  --
44.04                           17,979                  6.07                44.04               17,979               44.04
45.36                            6,249                  0.36                45.36                6,249               45.36
45.60                            6,249                  1.35                45.60                6,249               45.60
60.00                           43,750                  4.79                60.00               43,750               60.00
91.56                           23,471                  1.05                91.56               23,471               91.56
182.40                           2,183                  2.90               182.40                2,183              182.40
252.00                           7,083                  3.42               252.00                7,083              252.00
                         -------------      ----------------     ----------------   ------------------    ----------------
                             1,043,245                  8.43     $          12.58              141,162    $          61.35
                         =============      ================     ================   ==================    ================
</TABLE>

The  Company  accounts  for the  Plans  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 will be amortized as pro forma  compensation
expense over the vesting period of the options.  The following  table sets forth
the  assumptions  used and the pro forma  net loss and loss per share  resulting
from applying SFAS No. 123:

<TABLE>
<CAPTION>
                                                                   Year Ended        Year Ended       Year Ended
                                                                  December 31,      December 31,     December 31,
                                                                     2004              2003             2002
                                                                 --------------    --------------    --------------
<S>                                                              <C>               <C>               <C>
Net Loss as reported .........................................   $    7,257,101    $   18,516,741    $   39,591,344
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 ...          472,267           776,018         2,136,323
                                                                 --------------    --------------    --------------
Pro forma net loss ...........................................   $    7,729,368    $   19,292,759    $   41,727,667

Net loss per common share
  As reported ................................................   $         0.48    $         1.40    $         3.51
  Pro forma ..................................................             0.51              1.45              3.70
Weighted average risk-free interest rate .....................             4.05%             4.53%             4.54%
Weighted average expected life in years ......................              9.5               9.5               9.6
Volatility ...................................................               80%              102%              182%
Weighted average fair value of options granted during the year   $         0.64    $         3.99    $        11.91
</TABLE>

Stock Warrants

In connection with the issuance of the convertible debentures on August 12, 2002
(see  Convertible  Debentures),  the  Company  issued to the  debenture  holders
warrants to purchase  208,333 shares of the Company's common stock at $14.40 per
share.  A value of  $1,521,046  was  ascribed to the warrants and recorded as an
original  issue  discount based on the  Black-Scholes  method of valuation.  The
exercise  price and  number of  common  shares  issuable  upon  exercise  of the
warrants are subject to  adjustment  under  certain  circumstances,  such as the
occurrence  of  stock  dividends  and  splits,   distributions  of  property  or
securities  other than common stock,  equity issuances for less than the warrant
exercise  price  and a change in  control  of the  Company.  In March  2003,  in
connection with the issuance of the 2006  Debentures,  the exercise price of the
warrants  was  reduced  to $6.00 per  share,  but the number of shares of common
stock issuable upon exercise  remained  fixed at 357,143.  At the same time, the
warrant agreement was amended such that any subsequent reduction in the exercise
price of the warrants will not result in any increase in the number of shares of
common stock  issuable  under the  warrants.  The warrants  expire on August 12,
2007.


                                      F-18
<PAGE>

In connection with the issuance of the convertible debentures in March 2003 (see
Convertible  Debentures),  the Company issued to the placement agent warrants to
purchase $1.055 million in aggregate  principal amount of the 2006 Debentures at
$1,200 per $1,000 of principal  amount,  28,810 shares of the  Company's  common
stock at $10.08 per share,  and 41,667 shares of the  Company's  common stock at
$7.20 per share.  When the 2006  Debentures were retired in 2004, the warrant to
purchase $1,055 million in the aggregate principal amount of the 2006 Debentures
converted to a warrant to purchase  175,833  shares of common stock at $7.20 per
share.  Therefore,  the  total  number  of  warrants  now  held by Roth  Capital
Partners,  LLC is  246,310.  The  exercise  price and  number  of common  shares
issuable upon  exercise of the warrants are subject to adjustment  under certain
circumstances,   such  as  the   occurrence  of  stock   dividends  and  splits,
distributions  of property or securities other than common stock and a change in
control of the Company. The warrants expire in March 2006.

On March 5, 2003, the Company issued to EKI a warrant to purchase  83,333 shares
at $6.00  per  share in  connection  with the  subordination  of loans of $2.755
million made to the Company and the elimination of the conversion  feature.  The
warrants expire on March 5, 2013.

Revenue Recognition Policy

The Company  recognizes  revenue  when  persuasive  evidence  of an  arrangement
exists,  the  price is fixed  or  readily  determinable  and  collectibility  is
probable.  The Company  recognizes  revenue in accordance with Staff  Accounting
Bulletin No. 101,  "Revenue  Recognition  in Financial  Statements,"  (SAB 101).
EarthShell's  revenues  consist of technology  fees that are recognized  ratably
over the life of the related  agreements and royalties based on product sales by
licensees  that are  recognized  in the quarter  that the  licensee  reports the
sales.

Income Taxes

Deferred income tax assets and liabilities are computed annually for differences
between the financial  statement and income tax bases of assets and liabilities.
Such deferred income tax asset and liability  computations  are based on enacted
tax laws and rates  applicable to periods in which the  differences are expected
to reverse.  Valuation  allowances are  established,  when necessary,  to reduce
deferred  income tax assets to the amounts  expected to be realized.  Income tax
expense is the tax payable or refundable for the period plus or minus the change
during the period in deferred income tax assets and liabilities.

Deferred  income taxes result from temporary  differences in the  recognition of
revenues and expenses for financial and tax reporting purposes.  At December 31,
2004 and 2003,  deferred  income  tax  assets,  which are fully  reserved,  were
comprised primarily of the following:

                                                        2004            2003
                                                    ------------    ------------
            Federal:
              Depreciation ........................  $ 1,375,770     $ 6,510,014
              Deferred compensation ...............      101,386       1,091,917
              Deferred contributions ..............      361,117         361,117
              Accrued management fees .............      272,000              --
              Accrued vacation ....................       87,955         110,415
              Other reserves ......................       22,258          20,945
              Capitalized operating expenses ......           --       3,198,684
              Net operating loss carryforward .....   99,808,790      92,580,034
                                                    ------------    ------------
                                                    $102,029,276    $103,873,126
                                                    ============    ============

The valuation allowance  (decreased)  increased by ($1,843,850),  $8,810,963 and
$20,523,501   during  the  years  ended  December  31,  2004,  2003,  and  2002,
respectively,  as a result of changes in the  components of the deferred  income
tax items.

For  federal   income  tax  purposes,   the  Company  has  net  operating   loss
carryforwards  of $302,487,919 as of December 31, 2004 that expire through 2024.
For state income tax purposes,  the Company has  California  net operating  loss
carryforwards  of  $64,504,022 as of December 31, 2004 that expire through 2009,
and Maryland net operating loss  carryforwards  of $120,893,526  that follow the
federal   treatment  and  expire  through  2024.   Additionally,   the  ultimate
realizability  of net  operating  losses  may be  limited  by change of  control
provision under section 382 of the Internal Revenue Code.


                                      F-19
<PAGE>

Income tax  expense for 2004,  2003,  and 2002  consists  of the  minimum  state
franchise tax.

Loss Per Common Share

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,  including Common stock to be issued.  Diluted loss per common share
is  computed  by  dividing  net loss  available  to common  stockholders  by the
weighted-average  number of common shares outstanding (including Common stock to
be issued) 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.

The dilutive effect of potentially  dilutive  securities was  approximately  3.0
million  shares,  900,000  shares,  and  39,000  shares  for the years  ended at
December 31, 2004, 2003 and 2002, respectively.

Subsequent Events

On March 23,  2005,  EarthShell  Corporation  (the  "Company"),  entered  into a
Standby  Equity  Distribution  Agreement  with  Cornell  Capital  Partners,  LP.
Pursuant to the Standby Equity Distribution  Agreement,  the Company may, at its
discretion,  periodically sell to Cornell Capital Partners,  LP shares of common
stock  for a total  purchase  price of up to $10.0  million.  For each  share of
common stock purchased under the Standby Equity Distribution Agreement,  Cornell
Capital  Partners  LP will pay the  Company  98% of the lowest  volume  weighted
average  price of the Company's  common stock as quoted by Bloomberg,  LP on the
Over-the-Counter Bulletin Board or other principal market on which the Company's
common stock is traded for the 5 days immediately following the notice date. The
price paid by Cornell  Capital  Partners,  LP for the  Company's  stock shall be
determined  as of the date of each  individual  request for an advance under the
Standby Equity Distribution  Agreement.  Cornell Capital Partners,  LP will also
retain 5% of each  advance  under the  Standby  Equity  Distribution  Agreement.
Cornell Capital Partner's  obligation to purchase shares of the Company's common
stock  under the Standby  Equity  Distribution  Agreement  is subject to certain
conditions,  including the Company obtaining an effective registration statement
for shares of common stock sold under the Standby Equity Distribution  Agreement
and is limited to $500,000 per weekly advance.

On March 23, 2005,  the Company  entered into a Security  Agreement with Cornell
Capital  Partners,  LP.  Pursuant to the Security  Agreement,  the Company shall
issue promissory notes to Cornell Capital Partners, LP in the original principal
amount of $2,500,000.  The $2,500,000 will be disbursed as follows:  $1,150,000,
within three days of the closing of all the  transaction  documents with Cornell
Capital  Partners,  LP  and  $1,350,000,  two  days  prior  to the  filing  of a
registration  statement related to Standby Equity  Distribution  Agreement.  The
promissory notes are secured by the assets of the Company and shares of stock of
another entity pledged by an affiliate of that entity. The promissory notes have
a one-year term and accrue  interest at 12% per year  beginning on the 3rd month
anniversary.

In connection  with the ESH  sub-license,  ESH agreed to purchase  shares of the
Company's stock, which is planned to occur in conjunction with their scale up of
manufacturing capacity.

In January  2005,  the Company  entered  into an  agreement  with a non-US based
prospective  licensee  for a new  product  family.  At such time as the  Company
demonstrates the commercial  manufacturability  of this new product family,  the
prospective  licensee may take a license on terms  substantially  similar to its
other licenses.

In  February  of 2005,  the Board of  Directors  of the  Company  granted to its
Chairman an option to purchase up to 1 million  shares of common  stock at $2.30
per share in consideration for his many contributions and support of the Company
since its inception.


                                      F-20
<PAGE>

                   QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
                                        First            Second            Third          Fourth          Total Year
                                    --------------   --------------   --------------   --------------   --------------
<S>                                 <C>              <C>              <C>              <C>              <C>
2004

Revenues                            $           --   $       25,000   $       50,000   $       62,500   $      137,500

Related party research and
  development                              300,000          300,000          200,000               --          800,000
Other research and development             222,538           42,913           64,121           40,591          370,163
Other general and administrative         1,173,855        1,071,116           99,162        1,409,769        3,753,902
Net loss common shareholders        $    2,066,857   $    2,264,383   $    1,645,931   $    1,279,930   $    7,257,101
Basic and diluted loss per common
  share                             $         0.15   $         0.16   $         0.12   $         0.07   $         0.48
Weighted average common shares
  outstanding                           14,128,966       14,128,966       14,223,402       17,659,043       15,046,726

2003

Related party research and
  development                       $      353,800   $      304,667   $      353,907   $      300,000   $    1,312,374
Other research and development           1,896,986        1,707,507        1,287,516        3,342,407        8,234,416
Other general and administrative         1,853,702        1,193,342        1,361,900        1,381,529        5,790,473
Net loss common shareholders        $    6,770,727   $    3,608,184   $    2,920,797   $    5,217,033   $   18,516,741
Basic and diluted loss per common
  share                             $         0.55   $         0.28   $         0.21   $         0.37   $         1.40
Weighted average common shares
  outstanding                           12,358,967       13,013,462       13,595,973       14,013,965       13,266,668
</TABLE>


                                      F-21