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

                                   FORM 10-K/A
                                 Amendment No. 3

                                   (Mark One)

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

                   For the fiscal year ended December 31, 2004

                                       OR

      |_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF SECURITIES
            EXCHANGE ACT OF 1934

                  For the Transition Period From        to

                        Commission File Number 333-13287

                             EARTHSHELL CORPORATION
             (Exact name of Registrant as specified in its charter)


              Delaware                                     77-0322379
   (State or other jurisdiction of                      (I.R.S. Employer
    incorporation or organization)                     Identification No.)

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

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

                                   -----------


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

                                      None

          Securities registered pursuant to Section 12 (g) of the Act:
                           Common Stock $.01 par value
                              (Title of each class)

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

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

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

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

The number of shares outstanding of the Registrant's Common Stock as of June 8,
2005 was 18,435,452.

                       DOCUMENTS INCORPORATED BY REFERENCE

None.


<PAGE>

                          ANNUAL REPORT ON FORM 10-K/A

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

<TABLE>
<CAPTION>
                                          PART I
<S>                                                                                     <C>
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.................. 25
ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................. 26
ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
           DISCLOSURE.................................................................. 26
ITEM 9A.   CONTROLS AND PROCEDURES..................................................... 26
ITEM 9B.   OTHER INFORMATION........................................................... 26

                                         PART III
ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......................... 27
ITEM 11.   EXECUTIVE COMPENSATION...................................................... 29
ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
           STOCKHOLDER MATTERS......................................................... 32
ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................. 33
ITEM 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES...................................... 33

                                         PART IV
ITEM 15.   EXHIBITS,  FINANCIAL STATEMENTS AND SCHEDULES............................... 34
</TABLE>

                                EXPLANATORY NOTE

EarthShell Corporation (the "Company") is filing this Amendment No. 3 on Form
10-K/A (this "Amendment") to the Company's Annual Report on Form 10-K for the
year ended December 31, 2004 to make certain corrections to the Company's Form
10-K filed with the Securities and Exchange Commission on April 4, 2005, as it
has been subsequently amended, as follows and to restate the 10-K, as amended.

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

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

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

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

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

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

o     In the Notes to the Company's Consolidated Financial Statements a
      correction was made to the note entitled "Stock Options" to correct the
      size of the pool of options reserved for issuance. A sentence was added to
      the note entitled "Stock Warrants" to clarify the number of warrants
      outstanding and to correct a typographical error in a warrant expiration
      date. A heading was added to the table now entitled "Quarterly Financial
      Data (Unaudited)".

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



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

                                        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 Packaging
("Hood") to be the exclusive manufacturer of EarthShell food wraps for the North
American market. The Company is seeking additional qualified licensees and will
provide each of its licensees with technical and ongoing support to facilitate
the application of the EarthShell technology, further refine the manufacturing
processes and reduce production costs. The Company will monitor product quality
at licensee operations.


                                        3
<PAGE>

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

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

                            Licensing Business Model

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

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

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

             Strategic Manufacturing and Distribution Relationships

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

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


                                        4
<PAGE>

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

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

                                  Manufacturing

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

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

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

                   Patents, Proprietary Rights and Trademarks

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


                                        5
<PAGE>

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

                      Relationship with and Reliance on EKI

The Company has an exclusive, worldwide, royalty-free license in perpetuity to
use and license the EKI technology to manufacture and sell disposable,
single-use containers for packaging or serving food or beverages intended for
consumption within a short period of time (less than 24 hours).

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

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

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

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

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


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

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

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

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

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

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

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


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

                              Government Regulation

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

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

                                    Employees

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

                              Available Information

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


                                        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 feet of office space and is approximately $4,000. In
addition, the Company leases 3,353 square feet of office space in Lutherville,
Maryland, on a month to month basis. The Company's monthly lease payment with
respect to this space is $5,780.

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/A.

                             Selected Financial Data

                      (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                  For the Year Ended December 31
                                   -------------------------------------------------------------
                                     2004         2003         2002         2001         2000
                                   ---------    ---------    ---------    ---------    ---------
<S>                                <C>          <C>          <C>          <C>          <C>
Statement of Operations Data
Revenues .......................   $     138           --           --           --           --
Research and development
  expenses .....................       1,170    $   9,547    $  26,890    $  47,148    $  37,265
General and administrative
  expenses .....................       3,749        5,786        9,590        9,634        6,843
Depreciation and amortization ..          42          380        3,099        5,874        5,704
Gain on sale of property and
  equipment ....................        (168)        (452)        (441)          --           --
Interest expense (income), net .       1,068        1,791          132         (356)      (1,264)
Related party patent expenses ..          --           --           --           --          362
Debenture conversion cost ......          --          166          321           --           --
Net loss .......................       7,257       18,517       39,591       62,302       48,912
Average shares outstanding .....      15,047       13,267       11,277        9,353        8,452
Balance Sheet Data
Cash and cash equivalents ......   $     272    $   1,902    $     111    $     828    $   7,792
Working capital (deficit) ......      (7,289)      (9,438)      (8,315)      (6,941)       2,107
Total assets ...................         483        2,287       18,024       19,886       48,474
Total long-term obligations ....       1,475        4,408           --           --           --
Deficit accumulated during
  development stage ............    (321,607)    (314,351)    (295,834)    (256,243)    (193,941)
Stockholders' equity (deficit) .      (8,755)     (12,269)      (3,473)      11,536       42,296
Shares outstanding .............      18,235       14,129       12,055        9,860        8,709
Per Common Share

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

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

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

Information in this Annual Report on Form 10-K/A including but not limited to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, as amended. These statements
may be identified by the use of forward-looking terminology such as "may,"
"will," "expect," "anticipate," "estimate," or "continue," or the negative
thereof or other comparable terminology. Any one factor or combination of
factors could cause the Company's actual operating performance or financial
results to differ from those anticipated by management that are described
herein. Factors influencing the Company's operating performance and financial
results include, but are not limited to, changes in the general economy, the
availability of financing, governmental regulations concerning, but not limited
to, environmental issues, and other risks and unforeseen circumstances affecting
the Company's business which may be discussed elsewhere in this Annual Report on
Form 10-K/A.


                                       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. The Company has
incurred significant losses since inception, has minimal revenues and has a
working capital deficit of $7,289,431 at December 31, 2004. These factors, along
with others, may indicate that the Company will be unable to continue as a going
concern for a reasonable period of time. The Company will have to raise
additional funds to meet its current obligations and to cover operating expenses
through the year ending December 31, 2005. If the Company is not successful in
raising additional capital it may not be able to continue as a going concern for
a reasonable period of time. Management plans to address this need by raising
cash through either the sale of licenses, the generation of royalty revenues or
the issuance of debt or equity securities. In addition, the Company expects cash
to be generated in 2005 through royalty payments from licensees. However, the
Company cannot assure that additional financing will be available to it, or, if
available, that the terms will be satisfactory, that it will receive any royalty
payments in 2005. Management will also continue in its efforts to reduce
expenses, but can not assure that it will be able to reduce expenses below
current levels. The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.

Estimated Net Realizable Value of Property and Equipment. The Company evaluates
the recoverability of property and equipment whenever events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable. If there is an indication that the carrying value of an asset may
not be recoverable and the estimated future cash flows (undiscounted and without
interest charges) from the use of the asset are less than the carrying value, a
write-down is recorded to reduce the related asset to its estimated fair value.
At one time, the Company had been engaged in the development of manufacturing
equipment to validate acceptance of EarthShell products and their pricing. To
this end, the Company previously developed manufacturing lines in Owings Mills,
Maryland, Goleta, California and in Goettingen, Germany. The Company recognized
impairment charges on its equipment amounting to $4.0 million and $9.8 million
in 2003 and 2002, respectively.

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


                                       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.

                         Liquidity and Capital Resources

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

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

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

                                           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                                   --         --         --
Payable to Related Party                       $  875     $  875         --
Other long-term liability                      $  726     $  314       $412
                                               ------     ------       ----

Totals                                         $1,601     $1,189       $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.


                                       17
<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. 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.


                                       18
<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 for which it had paid $.5 million as
of December 31, 2004 and $.5 million was still due. Subsequent to December 31,
2004, MBS paid an additional $25,000 leaving the balance due at March 31, 2005
of $.475 million. The shares of common stock issued to MBS are not registered
for resale under the Securities Act of 1933, as amended (the "Securities Act"),
and the Company has agreed to file a registration statement to register the
shares within 60 days of a request by MBS. The cash received from MBS was used,
in part, to fund the repurchase of the 2006 Debentures(as defined below) and to
restructure the Company's long-term debt.

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


                                       19
<PAGE>

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

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

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

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

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

The Company expects to generate additional cash in 2005 through royalty payments
from licensees. The Company believes that the cash from this borrowing, combined
with projected revenues, will be sufficient to fund its operations through the
year ending December 31, 2005. If the Company is not successful at generating
license revenues during the year, the Company will have to raise additional
funds to meet its current obligations and to cover operating expenses. If the
Company is not successful in raising additional capital it may not be able to
continue as a going concern for a reasonable period of time. Management plans to
address this need by raising cash through either the issuance of debt or equity
securities. However, the Company cannot assure that it will receive any royalty
payments in 2005, that additional financing will be available to it, or, if
available, that the terms will be satisfactory. Management will also continue in
its efforts to reduce expenses, but can not assure that it will be able to
reduce expenses below current levels.

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

                               Subsequent Events

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


                                       20
<PAGE>

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

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

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

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

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

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

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

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


                                       21
<PAGE>

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

      The Company's independent auditors have issued an attestation report on
management's assessment of the Company's internal control over financial
reporting. That report appears on page 6.

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

Material Weaknesses Identified

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

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

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

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

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

Remediation Steps to Address the Material Weaknesses

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

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

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

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


                                       22
<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of EarthShell Corporation:

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

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

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

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

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

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


                                       23
<PAGE>

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

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

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

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

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


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


                                       24
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

                                       25
<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 were effective in ensuring that (i)
information required to be disclosed by the Company in the reports that it files
or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SEC's rules and forms and
(ii) information required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is accumulated and communicated to the
Company's management, including its principal executive and principal financial
officers, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure.

(b) Changes in Internal Control Over Financial Reporting. During the Company's
fiscal quarter ended December 31, 2004, other than the departure of the
Company's former Controller (described in Management's Report on Internal
Control Over Financial Reporting on page 21) no changes in the Company's
internal control over financial reporting have come to management's attention
during the Company's last fiscal quarter that materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting. However, as permitted under Release No. 50754 dated
November 30, 2004, the Company has included management's annual report on
internal control over financial reporting and the related attestation report of
the Company's registered public accounting firm in this Amendment to the
Company's annual report on Form 10-K/A. See "Report of Independent Registered
Public Accounting Firm on Internal Control Over Financial Reporting" and
Management's Report on Internal Control Over Financial Reporting on pages 23 and
21, respectively.

ITEM 9B. OTHER INFORMATION

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

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


                                       26
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors

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

<TABLE>
<CAPTION>
Name                         Age        Position                                                       Director Since
----                         ---        --------                                                       --------------
<S>                          <C>        <C>                                                            <C>
Essam Khashoggi..........    65         Chairman of the Board                                          1992
Simon K. Hodson..........    50         Vice Chairman of the Board and Chief Executive Officer         1992
John Daoud...............    69         Director                                                       1992
Layla Khashoggi..........    47         Director                                                       1992
Hamlin M. Jennings.......    57         Director                                                       2003
Walker Rast..............    69         Director                                                       2003
</TABLE>

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

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

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

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

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

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

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

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


                                       27
<PAGE>

Executive Officers

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

<TABLE>
<CAPTION>
Name                            Age     Position                                                     Officer Since
----                            ---     --------                                                     -------------
<S>                             <C>     <C>                                                              <C>
Simon K. Hodson..........       50      Vice Chairman of the Board and Chief Executive Officer           1992
D. Scott Houston.........       50      Chief Financial Officer and Secretary                            1993
Vincent J. Truant               57      President and Chief Operating Officer                            1998
</TABLE>

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

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

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

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

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

Code of Ethics

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


                                       28
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

Executive Compensation

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

                           Summary Compensation Table

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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




                                       29
<PAGE>

Stock Option Grants in 2004

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

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

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

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

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

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

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

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

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

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


                                       30
<PAGE>

Aggregated Option Exercises In 2004 and 2004 Year End Option Values

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

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

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

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

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

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

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

Compensation of Directors

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

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

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

Employment Agreements and Arrangements

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

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

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

Compensation Committee Interlocks and Insider Participation

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

The Company has an exclusive, worldwide, royalty-free license in perpetuity to
use and license the EKI technology to manufacture and sell disposable,
single-use containers for packaging or serving food or beverages intended for
consumption within a short period of time (less than 24 hours).

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

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

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

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

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

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

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

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


                                       31
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Securities Authorized for Issuance Under Equity Compensation Plans

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

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

Equity Compensation Plans Not
  Approved by Security Holders                --                --                        --

Total                                  1,043,245             12.58                   206,755
</TABLE>


                                       32
<PAGE>

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

      The Audit Committee pre-approved the engagement of Farber & Hass LLP to
provide both audit and tax services for the fiscal year ended December 31, 2004,
including the quarterly reviews for the 3 three quarters of 2004. Farber & Hass
LLP provided no other audit services, audit-related services, tax services or
permitted non-audit services for and during the fiscal year ending 2004, except
for the statutory audit of the Company's benefit plan for the year ended
December 31, 2003 and the analysis of the Company's net operating loss carry
forward. The Audit Committee adopted a pre-approval policy relating to audit
services for all audit-related services, tax services and non-audit services to
be performed by its auditors from 2004 onward.

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

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

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

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

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


                                       33
<PAGE>

                                     PART IV

ITEM 15. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

(a) Index to Consolidated Financial Statements

1. Consolidated Financial Statements:

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

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

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

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

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

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

2. Consolidated Financial Statement Schedules:

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

(b) Exhibits

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

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

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

4.1 Specimen certificate of Common Stock.(1)

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

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

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

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

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

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


                                       34
<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.. (18)


                                       35
<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.


                                       36
<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.

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



                                       37
<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 June 8, 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               June 8, 2005
-------------------------------
       Essam Khashoggi


                                   Vice Chairman of the Board and Chief
     /s/ SIMON K. HODSON          Executive Officer (Principal Executive       June 8, 2005
-------------------------------                  Officer)
       Simon K. Hodson


     /s/ D. SCOTT HOUSTON          Chief Financial Officer and Secretary       June 8, 2005
-------------------------------        (Principal Financial Officer)
       D. Scott Houston

      /s/ JOHN DAOUD                             Director                      June 8, 2005
-------------------------------
       JOHN DAOUD

     /s/ LAYLA KHASHOGGI                         Director                      June 8, 2005
-------------------------------
       Layla Khashoggi


     /s/ HAMLIN JENNINGS                         Director                      June 8, 2005
-------------------------------
       Hamlin Jennings


       /s/ WALKER RAST                           Director                      June 8, 2005
-------------------------------
         Walker Rast
</TABLE>


                                       38
<PAGE>

            INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

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

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

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

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

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

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

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


Consolidated Financial Statement Schedules:

None.

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


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

    Total current liabilities .................................................       7,763,269       10,147,658

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

    Total liabilities .........................................................       9,237,961       14,555,889
                                                                                  ------------------------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT
  Preferred Stock, $.01 par value, 10,000,000 shares authorized; 9,170,000
    Series A shares designated; no shares issued and outstanding as of December
    31, 2004 and 2003 .........................................................              --               --
  Common stock, $.01 par value, 40,000,000 shares authorized;
    18,234,615 and 14,128,966 shares issued and outstanding as
    of December 31, 2004 and 2003, respectively ...............................         182,346          141,290
  Additional paid-in common capital ...........................................     313,196,905      302,033,746
  Accumulated deficit .........................................................    (321,607,782)    (314,350,681)
  Less note receivable for stock ..............................................        (500,000)              --
  Accumulated other comprehensive loss ........................................         (26,554)         (93,130)
                                                                                  ------------------------------

    Total stockholders' deficit ...............................................      (8,755,085)     (12,268,775)
                                                                                  ------------------------------

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

                 See Notes to Consolidated Financial Statements.


                                       F-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>
<CAPTION>
                                                                    Year Ended December 31,
                                                             2004            2003           2002
                                                         --------------------------------------------
<S>                                                      <C>             <C>             <C>
CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issuance of common stock ...............      2,086,755              --      21,901,716
Proceeds from issuance of common stock and convertible
   debentures, net of issuance costs and discounts
   amounting to approximately  $3.4 million ..........             --       8,711,844              --
Proceeds from issuance of convertible debentures .....             --              --      10,000,000
Purchase of restricted time deposit in connection with
   issuance of convertible debentures ................             --              --     (10,000,000)
Proceeds from release of restricted time deposit upon
   conversion of convertible debentures into common
   stock .............................................             --       1,800,000       1,000,000
Proceeds from release of restricted time deposit upon
   exchange of convertible debentures ................             --       2,000,000              --
Proceeds from release of restricted time deposit for
   repayment of convertible debentures ...............             --       5,200,000              --
Repayment of convertible debentures ..................     (1,110,294)     (5,200,000)             --
Principal payments on settlements ....................        (66,387)             --              --
Proceeds from issuance of notes payable to related
   party .............................................             --       1,010,000       4,825,000
Repayment of notes payable to related
    party ............................................             --              --      (3,080,000)
                                                         --------------------------------------------

      Net cash provided by financing activities ......        910,074      13,521,844      24,646,716

Effect of exchange rate changes on cash and cash
   equivalents .......................................          7,695           2,736         (16,632)
                                                         --------------------------------------------

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS .....     (1,629,268)      1,790,624        (716,992)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .......      1,901,639         111,015         828,007
                                                         --------------------------------------------


CASH AND CASH EQUIVALENTS,

END OF PERIOD ........................................   $    272,371    $  1,901,639    $    111,015
                                                         ============================================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid for
   Income taxes ......................................   $        800    $        800    $        800
   Interest ..........................................        111,353          21,058
Common stock warrants issued in connection with
   convertible debentures ............................             --         745,562       1,521,046
Conversion of convertible debentures into common stock      6,800,000       7,550,000       1,000,000
Transfer of property from EKI ........................             --              --              --
Conversion of preferred stock into common stock ......             --              --              --
Interest paid in common stock ........................        532,644          95,339              --
Commission paid in common stock ......................             --          29,500              --
Common stock issued to service providers in connection
   with the March 2003 financing .....................             --         484,500              --
</TABLE>


                                       F-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, leaving a balance of
$875,000 as of December 31, 2004.

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

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

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

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

                      Accounts Payable and Accrued Expenses

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

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

Total Accounts Payable and Accrued Expenses ......     $3,899,526     $4,853,413
                                                       =========================

                             Convertible Debentures

On August 12, 2002, the Company issued $10.0 million in aggregate principal
amount of the 2007 Debentures to institutional investors. These debentures bore
interest at a rate of 1.5% per annum, payable quarterly in arrears on each
January 31, April 30, July 31 and October 31. The holders of these debentures
had the right to convert the debentures into the Company's common stock at an
initial conversion price of $15.60 per share, which was reduced to $8.40 per
share in November 2002 and then to $6.00 per share in March 2003 as a result of
anti-dilution adjustments. Based on the conversion price relative to the fair
market value of the common stock at the date of issue, the debentures were
deemed to have no beneficial conversion feature. In March 2003, the conversion
price of the 2007 Debentures was adjusted downward, resulting in a beneficial
conversion charge of $360,000 that is included in Other interest expense in the
Statements of Operations. During the third quarter of 2002, the Company forced
conversion of $1.0 million principal amount of the debentures for 168,696 shares
of common stock, resulting in the release to the Company of $1.0 million of
restricted cash. During 2003, the Company forced conversion of an additional
$1.3 million principal amount of the debentures and debenture holders
voluntarily converted $0.5 million principal amount of the debentures, for a
total of 353,985 shares of common stock, resulting in the release to the Company
of $1.8 million of restricted cash.


                                      F-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
1,250,000 shares of common stock to employees, directors and other eligible
persons as defined by the Plans. Options issued to date under the Plans
generally vest over varying periods from 0 to 5 years and generally expire 10
years from the date of grant.

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

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

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

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. When the 2006 Debentures were retired in 2004, the warrant to
purchase $1,055 million in the aggregate principal amount of the 2006 Debentures
converted to a warrant to purchase 175,833 shares of common stock at $7.20 per
share. Therefore, the total number of warrants now held by Roth Capital
Partners, LLC is 246,310. The exercise price and number of common shares
issuable upon exercise of the warrants are subject to adjustment under certain
circumstances, such as the occurrence of stock dividends and splits,
distributions of property or securities other than common stock and a change in
control of the Company. The warrants expire in March 2006.


                                      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 5, 2013.


                           Revenue Recognition Policy

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

                                  Income Taxes

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

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

                                                       2004              2003
                                                --------------------------------
Federal:

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


                                      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>

                   QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
                                                First        Second         Third        Fourth       Total Year
                                             -------------------------------------------------------------------
<S>                                          <C>           <C>           <C>           <C>           <C>
2004
Revenues .................................   $        --   $    25,000   $    50,000   $    62,500   $   137,500
Related party research and development ...       300,000       300,000       200,000            --       800,000
Other research and development ...........       222,538        42,913        64,121        40,591       370,163
Other general and administrative .........     1,173,855     1,071,116        99,162     1,409,769     3,753,902
Net loss common shareholders .............   $ 2,066,857   $ 2,264,383   $ 1,645,931   $ 1,279,930   $ 7,257,101
Basic and diluted loss per common share ..   $      0.15   $      0.16   $      0.12   $      0.07   $      0.48
Weighted average common shares outstanding    14,128,966    14,128,966    14,223,402    17,659,043    15,046,726
2003

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


                                      F-22