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

                                   -----------

                                    FORM 10-K

                                   (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 |_|
<PAGE>

      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
March 31, 2005 was 18,391,065.

                       DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the Proxy  Statement for the  Registrant's  Annual  Meeting of
Stockholders  to be held on May 26, 2005 are  incorporated  by reference in Part
III of this Annual Report on Form 10-K.
<PAGE>

                           ANNUAL REPORT ON FORM 10-K

                        FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

<TABLE>
<S>        <C>                                                                          <C>
                                          PART I
ITEM 1.    BUSINESS....................................................................  1
ITEM 2.    PROPERTIES..................................................................  9
ITEM 3.    LEGAL PROCEEDINGS...........................................................  9
ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........................  9

                                         PART II
ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
           ISSUER PURCHASES OF EQUITY SECURITIES.......................................  9
ITEM 6.    SELECTED FINANCIAL DATA..................................................... 11
ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
           OPERATIONS.................................................................. 11
ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................. 23
ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................. 24
ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
           DISCLOSURE.................................................................. 24
ITEM 9A.   CONTROLS AND PROCEDURES..................................................... 24
ITEM 9B.   OTHER INFORMATION........................................................... 24

                                         PART III
ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......................... 24
ITEM 11.   EXECUTIVE COMPENSATION...................................................... 24
ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
           STOCKHOLDER MATTERS......................................................... 24
ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................. 24
ITEM 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES...................................... 24

                                         PART IV
ITEM 15.   EXHIBITS,  FINANCIAL STATEMENTS SCHEDULES................................... 25
</TABLE>

      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 May 26, 2005.

                                       i

<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:

                                       2
<PAGE>


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

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  Pakaging
("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
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  EarthShell  plates,
bowls  and  hinged-lid  containers  are  commercially  competitive  in  terms of
performance  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  applications,  including food wraps and
cutlery  used in  foodservice  applications  (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 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,  after applying a credit for monthly  licensee
fee  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,  EarthShell  paid to Biotec  $125,000,
leaving a balance owing of $875,000.

      During  2002 and January  2003,  EKI made a series of loans to the Company
totaling  approximately  $5.8  million.  These loans were used to pay  operating
costs and  accrued  interest  at 7% or 10% per  annum.  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
(other  than their  respective  percentages  of any  royalties  received  by the
Company) 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  (other  than the
assertion of certain equitable remedies to enjoin the Company from, for example,
selling  products  outside  its field of use) until  such time as the  Company's
obligations  under the 2006  Debentures  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.

                                       6
<PAGE>


      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 an aggregate net losses of  approximately  $7.3 million for this
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.

      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.

                                       7
<PAGE>


      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.

      As disclosed in Item 9A of this Annual  Report on Form 10-K,  as permitted
by the SEC, the Company  plans to file  Management's  Annual  Report on Internal
Control  Over  Financial  Reporting  and the related  attestation  report of its
independent registered public accounting firm by amendment to this Annual Report
on Form 10-K  within 45 days after the date this  Annual  Report on Form 10-K is
required to be filed.  While the Company is currently  not aware of any material
weakness in internal control over financial  reporting,  any 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.

                                       8
<PAGE>


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 foor 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.

      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.

                                     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.

                                                                           Total
                                  First   Second      Third    Fourth      Year
                                ------------------------------------------------
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

      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.

                                       9
<PAGE>


      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.

                                       10
<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.

                                  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
Convertible debentures,
  accounts payable to related
  party, accrued interest and
  accrued dividends ............          --           --       10,190           --          266
Total long-term obligations ....       1,475
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. 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  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.

                                       11
<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. During the
period from November 1, 1992  (inception)  to December 31, 2004, the Company has
incurred a cumulative net loss of $7,257,101 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.

                                       12
<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.

                                       13
<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").

                                       14
<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.

                                       15
<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.

                                       16
<PAGE>


      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.

      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.

                                       17
<PAGE>


            The commercial production line in Goettingen, Germany was originally
            financed  and  constructed  by the Company for the  Company's  joint
            venture with Huhtamaki.  During 2001, $1.2 million of the Goettingen
            line was  written  off to  reflect  equipment  that  had no  further
            application  in the  product  development  cycle.  During  the third
            quarter of 2002 the Company  concluded,  after obtaining  quotations
            from various  machinery  suppliers for an identical  line, that $1.7
            million  of the  cost  of the  line  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.

            During  the fourth  quarter of 2001 and the fourth  quarter of 2002,
            $5.9  million and $0.5  million,  respectively,  of equipment at the
            Company's product  development center was written off because it had
            no further application in the product development activities at that
            time.

      Other   General   and   Administrative   Expenses.   Other   General   and
Administrative  Expenses are  comprised of  personnel  costs,  travel and direct
overhead  for  marketing,   finance  and   administration.   Other  general  and
administrative  expenses were $9.6 million for both the year ended  December 31,
2002 and the year ended December 31, 2001.  Patent  prosecution  and maintenance
fees  remained flat year over year.  Reductions in headcount and legal  expenses
were offset by an increase in insurance and Nasdaq fees, as well as increases in
investor and public relations programs.

      Depreciation  and  Amortization  Expense.  Depreciation  and  amortization
expense  decreased  $2.8  million to $3.1 million from $5.9 million for the year
ended  December  31,  2002  compared  to  the  year  ended  December  31,  2001,
respectively.  The decrease in depreciation expense is primarily attributable to
the  decrease in fixed  assets as a result of the  impairment  of  property  and
equipment to net realizable value during both 2002 and 2001.

      Interest  Income.  Interest income  decreased $0.3 million to $0.1 million
from $0.4  million for the year ended  December  31,  2002  compared to the year
ended December 31, 2001, respectively. The decrease was the result of lower cash
balances available for investment for the comparative years.

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

      o     Related party  interest  expense was $0.1 million for the year ended
            December 31,  2002.  This  represents  accrued  interest  payable on
            short-term  working  capital  loans  made  to  the  Company  by  EKI
            beginning in September 2002.

      Other  interest  expense was $0.2 million for the year ended  December 31,
      2002.  This  represents  accretion of the  discount  and accrued  interest
      payable  on the 2007  Debentures  issued in August  2002.  Gain on Sale of
      Property and Equipment.

      Gain on the sale of property and  equipment  was $0.4 million for the year
ended  December  31, 2002.  The gain was  primarily  due to the Company  selling
equipment  no  longer  required  to meet  objectives,  most of which  was  fully
depreciated.

      Debenture  Conversion Cost. Debenture Conversion Cost was $0.3 million for
the year ended December 31, 2002. This expense  represents the prorated  portion
of the original discount attributed to the $1.0 million of 2007 Debentures whose
conversion was forced by the Company in the third quarter of 2002.

                         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.

                                       18
<PAGE>


      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:

                                           Payments due by period (in thousands)
                                           ------------------------------------
Contractual Obligations                                  Less than     1-3
                                                 Total     1 year      years
                                           ------------------------------------
Long-term debt - principal payments only
Capital leases                                     --         --         --
Operating leases                                   --         --         --
Other long-term liability                        $726       $314       $412
                                                 ----       ----       ----

Totals                                           $726       $314       $412
                                                 ====       ====       ====

      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.


                                       19
<PAGE>


      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 debentures were secured by
the  Company's  rights,  title and  interest to the  technology  and  trademarks
covered  by the  EKI  License  Agreement,  including  all  process  and  product
improvements  of the Company,  the Company's  right to use and to sublicense the
technology,  and all license fees,  royalties and/or other forms of compensation
due to the Company from  sublicenses  under existing or future  sublicenses.  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.

      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.


                                       20
<PAGE>


      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 or 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.  The  1,051,494  shares of common  stock issued to EKI will not be
registered for resale under the Securities Act.

                                       21
<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.

                                       22
<PAGE>


      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 tp 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.

      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 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.

      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.

      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.

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 $.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.

                                       23
<PAGE>


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  are  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.

      On November 30, 2004,  the SEC  published  Exchange Act Release No. 50754,
which allowed certain  registrants that satisfy the conditions set forth in that
Release to file the required Management's Annual Report on Internal Control Over
Financial  Reporting not later than 45 days after the date of this annual report
on Form 10-K is required to be filed.  The Company  satisfies the conditions set
forth in that Release and plans to file that Report and the related  attestation
report of its independent registered public accounting firm by amendment to this
Form 10-K within the specified  period.  Currently,  the Company is not aware of
any  material  weaknesses  in the  Company's  internal  control  over  financial
reporting.

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

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.


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The  information  required by this item will be contained in the Company's
Proxy Statement for its 2005 annual meeting of stockholders, which will be filed
on or before April 29, 2005 and is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

      The  information  required by this item will be contained in the Company's
Proxy Statement for its 2005 annual meeting of stockholders, which will be filed
on or before April 29, 2005 and is incorporated herein by reference.

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

      The  information  required by this item will be contained in the Company's
Proxy Statement for its 2005 annual meeting of stockholders, which will be filed
on or before April 29, 2005 and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The  information  required by this item will be contained in the Company's
Proxy Statement for its 2005 annual meeting of stockholders, which will be filed
on or before April 29, 2005 and is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      The  information  required by this item will be contained in the Company's
Proxy Statement for its 2005 annual meeting of stockholders, which will be filed
on or before April 29, 2005 and is incorporated herein by reference.

                                       24
<PAGE>


                                    PART IV

ITEM 15. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

(a)   Index to Consolidated Financial Statements

      1.    Consolidated Financial Statements:

<TABLE>
<S>                                                                                             <C>
            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
</TABLE>

      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)

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

                                       25
<PAGE>


      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)

      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..

                                       26
<PAGE>


      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)

      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.

(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.

                                       27
<PAGE>


(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.


                                       28
<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 March 31, 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.

<TABLE>
<CAPTION>
          Signature                                Title                         Date
          ---------                                -----                         ----

<S>                               <C>                                          <C>
     /s/ ESSAM KHASHOGGI                   Chairman of the Board               March 31, 2005
-------------------------------
       Essam Khashoggi


                                   Vice Chairman of the Board and Chief
     /s/ SIMON K. HODSON          Executive Officer (Principal Executive       March 31, 2005
-------------------------------                  Officer)
       Simon K. Hodson


     /s/ D. SCOTT HOUSTON          Chief Financial Officer and Secretary       March 31, 2005
-------------------------------        (Principal Financial Officer)
       D. Scott Houston


     /s/ LAYLA KHASHOGGI                         Director                      March 31, 2005
-------------------------------
       Layla Khashoggi


     /s/ HAMLIN JENNINGS                         Director                      March 31, 2005
-------------------------------
       Hamlin Jennings


       /s/ WALKER RAST                           Director                      March 31, 2005
-------------------------------
         Walker Rast
</TABLE>

                                       29
<PAGE>

            INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

<TABLE>
<S>                                                                                  <C>
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
</TABLE>

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-1
<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-2
<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 ....................................................         875,000        1,839,108
  Debenture settlement ........................................................       2,375,000               --
  Convertible debentures, net of discount of $1,505,755 .......................              --        5,294,245
                                                                                  ------------------------------

    Total current liabilities .................................................       7,763,269       11,986,766

DEFERRED REVENUES, LESS CURRENT PORTION........................................       1,062,500        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-3
<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
                                          --------------------------------------------

    Total operating expenses ..........      4,961,426      15,713,138      39,578,899

Operating Loss ........................      4,823,926      15,713,138      39,578,899

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
  Gain on sales of property and
    equipment .........................       (168,458)       (451,940)       (441,413)
  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-4
<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-5
<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-6
<PAGE>


<TABLE>
CASH FLOWS FROM FINANCING ACTIVITIES

<S>                                                      <C>             <C>             <C>
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-7
<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-8
<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.

                                      F-9
<PAGE>


      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."

                            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-10
<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-11
<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.

                                      F-12
<PAGE>


                  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.

                                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.

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

                                      F-13
<PAGE>


                                                         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%
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.

                                      F-14
<PAGE>


      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. Subsequent to December 31,
2004, leaving a balance of $875,000.

      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-15
<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-16
<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 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 Liabilites

      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.

                                      F-17
<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
833,333  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>

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

<TABLE>
<CAPTION>
                           Options Outstanding                      Options Exercisable
            ------------------------------------------------------------------------------------
               Number
            Outstanding     Weighted-Average                        Number
   Exercise      At            Remaining      Weighted-Average    Exercisable   Weighted-Average
    Prices    12/31/04      Contractual Life   Exercise Price     At 12/31/04    Exercise Price
------------------------------------------------------------------------------------------------
<S> <C>        <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>

                                      F-18
<PAGE>


      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.

      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.  A value of  $484,500  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 and a change in
control of the Company. The warrants expire in March 2006.

                                      F-19
<PAGE>


      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 4, 2010.

                           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
                                                ================================

                                      F-20
<PAGE>


      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.

      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-21
<PAGE>


<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-22