Back to GetFilings.com

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

FORM 10-K

For the Transition Period From                              to                             

Commission File Number 333-13287

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

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 ý    No o

        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.    ý

        The aggregate market value of the voting stock held by non-affiliates of the Registrant as of April 10, 2002 was $83,651,234.

        The number of shares outstanding of the Registrant's Common Stock as of April 10, 2002 was 131,031,891.

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the Proxy Statement for the Registrant's Annual Meeting of Stockholders to be held on May 29, 2001 are incorporated by reference in Part III of this Annual Report on Form 10-K.

        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 2002 Annual Meeting of Stockholders to be held on May 29, 2002.

ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

PART I

ITEM 1.    BUSINESS

        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® 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 ("EKI").

        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, including hinged-lid sandwich containers, plates, bowls, and cups, is primarily made from commonly available natural raw materials such as natural ground limestone, and potato starch. The Company believes that EarthShell Packaging has comparable or superior performance characteristics, and can be commercially produced and sold at prices that are competitive with comparable paper and plastic foodservice disposable packaging.

        There is an existing market for foodservice disposable packaging of approximately $10 billion in the United States and a total of $25 billion globally. The Company's objective is to establish EarthShell Packaging as the preferred foodservice disposable packaging to address this market opportunity. The Company's strategies to achieve this objective are to:

•

Develop price competitive foodservice disposable packaging that delivers environmental advantages while meeting the product performance requirements for the foodservice industry.



•

Demonstrate the commercial scalability and economics of EarthShell Packaging.



•

License the EarthShell Technology to strategically selected operating partners who will produce, market, and distribute EarthShell Packaging.



•

Expand the Company's business by replicating the EarthShell Packaging business model across multiple licensed partners.



•

Establish and build awareness of, and demand for, the EarthShell Packaging brand.



•

Expand and defend the portfolio of patents for the EarthShell Technology.

        As the first step to executing against these strategies, the Company was engaged in initial concept product and process 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), and the development of relationships with key licensees and end-users.

        Since 1998, the Company has been primarily engaged in commercial validation of the EarthShell Packaging container for the McDonald's® Corporation ("McDonald's") Big Mac® sandwich and in commercialization of plates and bowls for other customers as well as 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 licensed partners, and validating product performance and price acceptance through commercial contracts with influential purchasers in key segments of the foodservice market. In cooperation with its manufacturing partners, the Company has financed and built initial

2

commercial demonstration production capacity and has sold limited quantities of plates, bowls, and clamshells.

        As demonstration of the business fundamentals to licensees is accomplished, the Company expects that its operating partners will assume operational and financial responsibility for the initial commercial production lines and will build additional capacity. As this occurs, the Company will enter the next stage of development—market expansion. The Company intends to expand the use of EarthShell Packaging in the U.S. and in international markets through agreements with multiple licensed partners. By leveraging the infrastructure of manufacturing partners, the Company believes the go-to-market strategy will significantly accelerate the market penetration of EarthShell Packaging.

        Currently, the Company's strategic relationships include Sweetheart Cup Company Inc. ("Sweetheart") in Maryland, Huhtamäki Oyj, ("Huhtamäki") in Europe, Green Earth Packaging, Inc. ("GEP") in the U.S., and Green Packaging SDN BHD ("Green Packaging") in Malaysia.

        The Company developed and built its first commercial lines to produce EarthShell Packaging for the initial product, a hinged-lid container for the McDonald's Big Mac sandwich, at the Company's Owings Mills, Maryland facility in cooperation with Sweetheart. The Company has also produced EarthShell Packaging plates and bowls at its pilot facilities in Goleta, California. The Company is overseeing the fabrication of equipment for a production line in Germany in cooperation with Huhtamaki which is expected to be completed and operating by the end of the second quarter of 2002. GEP has completed the construction of its first commercial line to produce plates and is in the start-up phase. In contrast to the initial lines which were paid for by the Company, GEP has funded all capital for the plate line.

        The product validation stage of the Company's business has taken much longer and has cost substantially more than anticipated. The EarthShell Packaging container for the Big Mac sandwich was subject to a lengthy process of commercial validation and product refinement prior to obtaining customer approval of the product design for national use in March of 2001. Although the manufacturing processes currently being used to manufacture EarthShell Packaging are based on generally available methods and equipment, it has taken longer than anticipated to integrate the machinery in an automated fashion and refine the manufacturing processes and equipment at a commercially viable level. The Company is working to achieve certain manufacturing efficiencies and economics prior to launching full-scale expansion.

        Notwithstanding these product commercialization delays, the Company has received product and price acceptance for its plates, bowls and clamshell products in key segments of the foodservice disposable packaging market, including quick-service restaurants, food and facilities management companies, the U.S. government, universities/colleges, and retail. EarthShell Packaging plates and bowls are currently being used by the U.S. Department of the Interior, the Environmental Protection Agency, Bon Appetit Management Company, Cornell University, Sodexho, and others. In addition, to meet demand for EarthShell Packaging products within the Department of Defense and other government agencies, the General Services Administration awarded the Company a contract, thereby adding EarthShell Packaging products to the Federal Supply Schedule, and the Defense Logistics Information Service has assigned national stock numbers for the products.

        In addition to its rigid packaging, the Company recently introduced flexible packaging to address the estimated $1 billion market in the form of sandwich and food wraps to be marketed to quick-service restaurants and a wide variety of other foodservice operators. The Company is currently working toward building initial market acceptance for the sandwich wrap product through key users in select test markets. The Company has identified manufacturing partners capable of manufacturing its food wrap product and supporting large-scale commercial introduction using their existing processing equipment with little or no additional capital investment. The Company believes that the ability to utilize existing industry equipment and manufacturing processes will allow it to accelerate the

3

time-to-market of the product. The basic technology for the sandwich and food wrap product is owned by a subsidiary of EKI. This technology is not covered under the initial license agreement between EKI and the Company. The Company has exclusive negotiating rights to license this technology from EKI's subsidiary and the Company is finalizing the terms upon which the Company will commercialize the technology on a worldwide, exclusive basis for purposes of manufacturing and selling food and sandwich wraps.

        Pursuant to a Joint Development Agreement with E. I. DuPont de Nemours and Company ("DuPont"), the Company has been exploring and developing potential applications of DuPont's Biomax® biopolymer resins as a component of EarthShell Packaging. In March 2002, the Company and DuPont entered into a letter of intent to establish an alliance to develop, manufacture and sell environmentally preferred packaging and systems. The letter of intent contemplates granting DuPont an exclusive master license to produce and sell the EarthShell Packaging food wrap on a global basis. In this relationship, Dupont would fund all market development activities and has targeted more than $200 million in food wrap sales to occur through the end of 2003.

        The technology that the Company licenses from EKI is the subject of numerous issued and pending patents in both the United States and foreign countries. The Company believes that these patent and patent applications provide a strategic web of intellectual property protection broadly covering EarthShell Packaging including product design, material composition, and manufacturing processes.

The Foodservice Disposables Markets

        Based on industry studies, the Company believes that approximately $10 billion in the United States and a total of $25 billion globally is spent annually on foodservice disposable packaging. The key product applications comprising the foodservice disposable market which are currently addressed by EarthShell Packaging include: hinged-lid containers, plates, bowls, sandwich and food wraps, cold cups, hot cups, and trays and carriers.

        According to industry studies of the U.S. market, approximately 56% of the total foodservice disposable packaging is purchased by quick-service restaurants and 44% by other institutions such as hospitals, stadiums, airlines, schools and restaurants (other than quick-service restaurants), as well as retail stores. The Company believes that of the foodservice disposables purchased in the United States by quick-serve restaurants and other institutions, approximately 45% are made of paper, and 55% are made of plastic, polystyrene or foil.

Products

        EarthShell Packaging containers 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, processes and suppliers. EarthShell Packaging substantially reduces risk to wildlife compared to plastic and paper 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.

        Traditional foodservice disposable packages are currently manufactured from a variety of materials, including paper and plastic. The Company believes that none of these materials fully addresses three principal challenges of the foodservice industry, including performance, cost, and environmental impact. The Company believes that EarthShell Packaging best addresses the combination of these challenges and therefore will be able to achieve a significant share of the foodservice disposable packaging market.

        Meets Performance Requirements.    The Company believes its hinged-lid containers, plates, bowls, and prototype cups meet the critical performance requirements of the marketplace, including rigidity, graphic capabilities, insulation, shipping, handling and packaging. The Company believes its sandwich

4

and food wraps also meet critical performance requirements of the marketplace, including flexibility, folding characteristics, graphic capabilities, insulation, shipping, handling and packaging.

        Cost Competitive.    The Company believes that EarthShell Packaging can be manufactured and sold at prices that are competitive to comparable existing foodservice disposable packaging.

        The Company has built an integrated production line at Sweetheart's facility in Owings Mills, Maryland to produce the EarthShell Packaging clamshell for the Big Mac sandwich. The Company has successfully produced this hinged-lid sandwich container, but at low volumes relative to the intended capacity of the line. Therefore, the actual cost of manufacturing has not yet been fully demonstrated. Additionally, the Company has produced plates, bowls, and prototype cups, and has successfully demonstrated most of the individual processing steps using commercial equipment from established suppliers. To date, however, these products have not been produced on fully integrated, commercial production lines operating at target capacities, and, therefore, actual manufacturing costs have not yet been demonstrated. The Company expects that the cost of producing EarthShell Packaging will decrease over time as the technology and initial production processes are further refined.

        Reduced Environmental Impact.    EarthShell Packaging offers a number of important environmental attributes that are expected to appeal to customers and individuals concerned about the environment. Through the use of an environmental assessment ("life cycle inventory") and in consultation with leading environmental experts, EarthShell Packaging has been designed to reduce as many environmental burdens as commercially feasible through the careful selection of raw materials, processes, and suppliers. The Company believes that the relatively low environmental impacts of EarthShell Packaging have been well demonstrated.

        According to research on the performance of various formulations of the EarthShell Packaging conducted by third party organizations such as Cal Recovery, Inc., The State University of New York and the U.S. Department of Agriculture, EarthShell Packaging products were shown to be biodegradable in a composting environment. As a result, the Company believes that EarthShell Packaging substantially reduces the risk to wildlife when compared to most conventional foodservice disposables and may help mitigate potentially adverse environmental consequences created by their improper disposal. In addition, since EarthShell Packaging is compostable, it can offer a disposal alternative not available with most conventional foodservice packaging.

The EarthShell Technology

        EarthShell Packaging is based on patented composite material technology, licensed on an exclusive worldwide basis from EKI, and is manufactured using commercial equipment and EarthShell Technology. The Company's use of the technology is limited to the development, manufacture and sale of foodservice disposable packaging for use in the foodservice industry.

        The composite material used to make EarthShell Packaging is the result of more than 12 years of basic research by EKI and the Company, which has employed materials science methodologies and state-of-the-art equipment and methods to develop proprietary materials and processes. EarthShell Packaging is made from commonly available raw materials such as natural limestone, starches and fibers, biodegradable polymer and wax coatings, blended together in a unique engineered composite structure.

        The Company's hinged-lid sandwich container, plates and bowls are made from a moldable laminated composite. The compostable food wrap is made from limestone, starch, and other biodegradable materials that can be processed using commercial film manufacturing equipment.

        The Company has incurred substantial expense in connection with the commercial application of the technology for the foodservice disposable packaging market since its formation in 1992. The Company's research and development expenses related to the continued development of EarthShell

5

Packaging by EKI and the Company were approximately $47.1 million, $37.3 million, and $30.5 million in the years ended December 31, 2001, 2000, and 1999, respectively. The Company's research and development efforts are ongoing, and the Company expects to continue to incur additional research and development expenses in the future. During 2002, the Company expects to incur approximately $14.0 million in research and development costs, subject to acceptable financing availability.

Strategic Relationships

        The Company's business model is to license its technology to manufacturers of foodservice packaging which in turn will manufacture, market and distribute EarthShell Packaging as an enhanced part of their existing business. Current strategic relationships include Sweetheart, Huhtamäki, GEP, Green Packaging and DuPont.

        In October of 1997, the Company began working with Sweetheart to develop, install and operate manufacturing lines at Sweetheart's Owings Mills facility to produce EarthShell Packaging hinged-lid sandwich containers for McDonald's Big Mac sandwiches. It took substantially longer than anticipated to receive customer approval of the product design and to develop commercially viable manufacturing lines. The Company is continuing to work with Sweetheart to achieve the required performance standards.

        In May 1999, the Company signed definitive agreements with Huhtamäki a leading international food and food packaging company, establishing a new joint venture company, Polarcup EarthShell ApS, ("PolarCup EarthShell") to commercialize EarthShell Packaging throughout Europe, Australia, New Zealand, and, on a country by country basis, Asia. The Company believes that the opportunity for rapid market acceptance of its products in Europe is exceptional due to the unique environmental profile and the more demanding regulations relating to the disposal of conventional foodservice packaging in Europe.

        During 2000, Polarcup EarthShell announced its intent to establish initial production capability at the Huhtamäki facility at Goettingen, Germany. The first product will be an EarthShell Packaging hinged-lid container for the European markets ("Euro clamshell"). The parties agreed that the Company would develop and install the first line at its cost. After successful installation, it is the Company's expectation that Polarcup EarthShell will take over the line and reimburse the Company for the capital costs of the line. During 2001, the manufacturing machinery used to produce the Euro clamshell was under development at various vendor locations. At the end of 2001, final factory performance testing phase began at various vendor locations prior to shipment of equipment for final installation in Goettingen, Germany. As of the end of March 2002, all factory performance testing has been successfully completed and the equipment is being prepared to be shipped to and installed at Huhtamäki's Goettingen facility. The Company expects the manufacturing line to be operational during the second quarter of 2002, and, that Huhtamäki will assume operational responsibility of the manufacturing line, with commercial production and initial shipments of the hinged-lid container during 2002.

        In December 2001, the Company announced two new manufacturing licensees, GEP and Green Packaging. The two entities, formed specifically to expand commercialization of EarthShell Packaging in the United States and Asia, are subsidiaries of Dominance, Inc., part of a Malaysian group of companies with over 50 years of manufacturing experience. GEP plans to produce plates and bowls for U.S. markets, while Green Packaging will produce noodle bowls for certain Asian markets. All products will be marketed under the EarthShell Packaging brand. As part of the agreements, GEP and Green Packaging will provide all of the capital to develop and manage the facilities to produce EarthShell Packaging. Initially, GEP is expected to invest approximately $30 million to build the required capacity. Some of the product applications licensed to GEP and Green Earth Packaging do not constitute food service disposables and are currently outside the scope of the existing License Agreement between the

6

Company and EKI. The Company is in the process of finalizing the terms of the arrangement with EKI which is expected to expand the product applications which will be licensed to the Company.

        In late 2001, GEP began the construction and installation of its first manufacturing line in the Company's Goleta, California facility. The line is a commercial scale manufacturing line to produce EarthShell Packaging plates. The line has been built in the Company's development center to facilitate the technology transfer and training of GEP personnel. In February 2002, GEP issued a purchase order for additional fully integrated manufacturing lines from DTE, a U.S. based machinery supplier. Further, GEP has identified a potential location for U.S. manufacturing. GEP's sister company, Green Packaging, has identified a location in Malaysia for noodle-bowl production.

        As discussed above the Company is currently working with DuPont in exploring and developing potential applications of DuPont's Biomax® biopolymer resins as a component of EarthShell Packaging. In March 2002, the Company and DuPont entered into a letter of intent to establish an alliance to develop, manufacture and sell environmentally preferred packaging and systems. The letter of intent contemplates granting DuPont an exclusive master license to produce and sell the EarthShell Packaging food wrap on a global basis. In this relationship, Dupont would fund all market development activities and has targeted more than $200 million in food wrap sales to occur through the end of 2003.

        The Company believes that its progress with Sweetheart, Huhtamaki, GEP, Green Packaging and DuPont reflects its partners' commitment to the EarthShell business model. As the Company is able to transition the responsibility for manufacturing to its partners, the Company believes that this will translate into reduced cash requirements necessary to fund manufacturing operations and will largely eliminate capital expenditures needed by the Company to build 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.

Manufacturing of EarthShell Packaging

        The manufacturing process for EarthShell Packaging plates, bowls, and hinged-lid containers requires integration of several manufacturing processes, including mixing, forming, trimming, sanding, coating, printing, and stacking through the use of material handling and conveyance systems.

        The Company developed and built the first commercial lines to produce EarthShell Packaging for the initial product, a hinged-lid container for McDonald's Big Mac sandwich, at its Owings Mills, Maryland facility in cooperation with Sweetheart. To date, over 19 million EarthShell Packaging clamshells for Big Mac sandwiches have been used in the McDonald's U.S. system. The Company has also produced EarthShell Packaging plates and bowls at its pilot facilities in Goleta, California. The Company is building a sandwich container line in Germany in cooperation with Huhtamäki which is expected to be completed and operational in 2002. GEP has completed the construction of the first commercial line to produce plates at the Company's Goleta facility and is in the debug and start-up phase. In contrast to the initial lines which were paid for by the Company, GEP has paid for the plate line.

        To date the Company has been producing EarthShell Packaging at production volumes which are low relative to the intended capacity of the manufacturing lines that are required to achieve efficiencies and cost effectiveness. The Company is currently focused on improved efficiencies on its production lines. The Company expects to realize continued improvements to this manufacturing process and improved efficiencies through the broad manufacturing experience of its partners.

        In addition to its rigid packaging, the Company recently introduced flexible packaging in the form of sandwich and food wraps to be marketed to quick-service restaurants and a wide variety of other

7

foodservice operators. The Company has identified manufacturing partners capable of producing its food wrap product and supporting large-scale commercial introduction using their existing processing equipment with little or no additional capital investment. The Company believes that its ability to utilize existing industry equipment and manufacturing processes will allow it to accelerate the time-to-market of the product. The Company is currently test marketing the wrap to build initial market acceptance for the EarthShell Packaging sandwich wrap product through key users in select markets.

Future Operations

        The Company has experienced aggregate net losses of approximately $256 million from its inception on November 1, 1992 through December 31, 2001 and expects to continue to incur operating losses until EarthShell Packaging is more broadly used and has achieved greater market acceptance and market penetration. Successful future operations will depend upon the ability of the Company and its licensees and joint venture partners to commercialize EarthShell Packaging.

        To date the Company has been producing limited amounts of EarthShell Packaging at production volumes that are low relative to the intended capacity of the manufacturing lines that are required to achieve efficiencies and cost effectiveness. The Company is currently working to demonstrate the commercial viability of its manufacturing processes to enable its operating partners to compete effectively with conventional disposable foodservice packages and to transfer the operational and financial responsibility of its production lines to its operating partners.

        In order to fund working capital needs until its operating partners take over manufacturing operations, expand their capacity, and begin to pay royalties, the Company will require additional third party financing. Until production volumes and efficiencies acceptable to its licensees are achieved and the designed capacity of its production lines are reached, the actual production costs will not be known and the Company cannot be certain (i) that its products will be cost competitive or (ii) that adequate additional financing can be obtained to adequately fund future operations.

Patents, Proprietary Rights and Trademarks

        The technology that the Company licenses from EKI is the subject of numerous issued and pending patents in both the United States and foreign countries. The Company believes that these patent and patent applications provide a strategic web of patent protection broadly covering its foam analog EarthShell Packaging, material composition and the manufacturing processes. As of February 28, 2002, EKI has obtained the rights to over 100 U.S. and foreign patents, and had pending patent applications relating to the compositions, products and manufacturing processes used to produce EarthShell Packaging food and beverage containers. The patents currently issued in the United States and internationally expire between 2012 and 2018. Pending patents, if granted, would give the Company additional patent protection through 2019. Sixteen of the issued U.S. patents and 5 of the pending U.S. applications relate specifically to molded food and beverage containers manufactured from the new composite material, the formulation of the new composite material used in the EarthShell Packaging container for the Big Mac sandwich and substantially all of EarthShell Packaging currently under development. While the Company and EKI intend to continue to seek broad patent protection, the Company believes that the pending patents relating to the Company's products or other additional patents will be issued or that the Company or EKI will develop new technology that is patentable. Moreover, the Company cannot be certain that patents and patent applications licensed to the Company are sufficient to protect the Company's technology or that any patent issued to EKI and licensed to the Company will not be held invalid, circumvented or infringed by others. Litigation may be necessary to enforce patents issued or licensed to the Company, to protect trade secrets or know-how owned by the Company or to determine the enforceability, scope and validity of the proprietary rights of others.

8

        The Company believes that it owns, has the rights to use, or is in the process of acquiring all technology incorporated into its products, but an adverse determination in litigation or infringement proceedings to which the Company may become a party could subject the Company to significant liabilities to third parties or require the Company to seek licenses from third parties. Although patent and intellectual property disputes have often been settled through licensing or similar arrangements, costs associated with such arrangements may be substantial and could include ongoing royalties. Furthermore, the Company cannot be certain that necessary licenses would be available to the Company on satisfactory terms or at all. Accordingly, an adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses would prevent the Company from manufacturing or licensing others to manufacture certain of its products, which could have an adverse effect on the Company's business, financial condition and results of operations.

        The Company also relies on proprietary know-how and trade secrets, which are not the subject of patents. All of this proprietary information is licensed from EKI. To protect its rights in proprietary know-how and trade secrets, both the Company and EKI sometimes require licensees, joint venture partners, employees, consultants, advisors and collaborators to enter into confidentiality agreements. These confidentiality agreements, however, have limited terms, and the Company cannot be certain that these agreements provide meaningful protection for the Company and EKI's trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure. In addition, the Company's business could be adversely affected by competitors who independently develop competing technologies.

        The Company owns the trademark EARTHSHELL and certain other trademarks, and has been licensed by EKI to use the trademark Aliite® for the new composite material.

Relationship with and Reliance on EKI

        The Company does not own the technology necessary for the manufacture of EarthShell Packaging and, pursuant to its Amended and Restated License Agreement with EKI, as amended (the "License Agreement"), the Company is dependent upon its exclusive license from EKI to use the technology. The Company's use of the technology is limited to the development, manufacture and sale of foodservice disposable packaging for use in the foodservice industry, and the Company has no right to exploit opportunities for the application of this technology or improvements outside this field of use. EKI may terminate the license at any time if the Company is in breach of any material obligations under the License Agreement and does not cure such breach within a specified period. 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.

        The Company is currently in the process of finalizing an exclusive licensing arrangement with a subsidiary of EKI to exploit technology that is complementary to EKI's technology but which is outside the scope of the initial License Agreement. The licensed technology will be used to manufacture and distribute food and sandwich wraps constituting food service disposables that is the primary focus of the letter agreement that was recently concluded with Dupont. The Company has exclusive negotiating rights to license additional food service disposable products from EKI's subsidiary. Effective January 1, 2001 the Company commenced paying $100,000 a month to EKI for the exclusive negotiating rights to this technology. The Company has the right to terminate the exclusive licensing arrangement on thirty days notice, and during the period that the monthly licensing fees are paid, the EKI subsidiary will render technical services requested by the Company at the subsidiary's cost (including an allocable share of indirect costs).

        As of January 1, 2001, the Company terminated the prior Technical Services Agreement (pursuant to which EKI rendered technical services to the Company at scheduled hourly billing rates) and hired

9

directly from EKI the scientific, technical and administrative personnel it required for its business operations. The Company did not assume any accrued compensation obligations in connection with the transfer of the employees, and EKI remained obligated to pay all compensatory liabilities. Effective also on January 1, 2001, the Company assumed direct responsibility for the lease obligations related to the Company's office and laboratory space in Santa Barbara, California and entered into a new lease for such space (cancelable on six-months' notice) beginning April 1, 2001. The Company also purchased from EKI certain operating equipment and machinery, furniture, supplies, tools and leasehold improvements to facilitate the transfer of the EKI employees to the Company. The Company paid $900,000 for the assets. The Company's management independently verified that the price paid for the purchased assets was at or below fair market value.

        In prior years, under an Amended and Restated Agreement for the Allocation of Patent Costs (the "Patent Agreement"), the Company reimbursed EKI for the costs and expenses incurred in filing, prosecuting, acquiring and maintaining certain patents and patent applications relating to the technology licensed to the Company under an License Agreement. Effective January 1, 2001, EarthShell assumed direct responsibility to manage and maintain the patent portfolio underlying the License Agreement with EKI and to pay directly all related costs.

        The Company and EKI are both effectively controlled by a common indirect equity owner, Mr. Essam Khashoggi, who is also the Chairman of the Board of the Company and a director and officer of EKI. Certain conflicts may arise between EKI and the Company, particularly with respect to corporate opportunities, including the development of new markets and uses for products based on the EarthShell Technology, the devotion of the common directors' and officers' time to the respective businesses and the performance by EKI and the Company of their respective obligations under the License Agreement and other intercompany arrangements. Under the terms of the License Agreement and the Patent Agreement, 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.

        Mr. Khashoggi is the beneficial owner of approximately 49% of the outstanding shares of the Company's common stock. Such shares are owned indirectly through various entities that he controls, including EKI. Thus, Mr. Khashoggi may have the ability to control the direction and policies of the Company, to determine the outcome of corporate transactions requiring the approval of the Company's stockholders, including mergers, consolidations and the sale of all or substantially all of the assets of the Company, and to prevent or cause a change in control of the Company. Mr. Khashoggi also has the power to control the Company's relationship with EKI, which he also controls, and upon which the Company has been dependent, among other things, for some of its research and development efforts.

Competition

        Competition among existing food and beverage container manufacturers in the foodservice industry is intense. Most of these competitors have substantially greater financial and marketing resources at their disposal than does the Company, and many have well-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 environmental impact, one significant basis upon which the Company

10

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. The Company believes its patents uniquely position it to incorporate a significant proportion of low cost, inorganic fillers with its material, which, relative to other starch-based or specialty polymers will allow it to ultimately have a more competitive material cost. 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.

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 or beverage containers will be 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 the EarthShell Packaging container for the Big Mac sandwich and 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.

Personnel

        As of January 1, 2002, the Company had 144 employees. None of the Company's employees are represented by a labor union and the Company believes that it has a good relationship with its employees.

ITEM 2.    PROPERTIES

        As of December 31, 2001, the Company leases 3,353 square feet of office space in Lutherville, Maryland. The Company's monthly lease payment with respect to this space is $5,449. The lease expires on September 30, 2003. The Company leases 16,955 square feet of office and research and development space in Santa Barbara, California. This lease is month-to-month and expires with a 180-day notice period by the landlord. The Company's monthly lease payment with respect to this space is $36,000. The Company leases 54,800 square feet of space for its product development center in Goleta, California. This lease expires on May 31, 2003. The Company's monthly lease payment with respect to this space is $41,905.

ITEM 3.    LEGAL PROCEEDINGS

        None.

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

        None.

11

PART II

ITEM 5.    MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        The Company's common stock is traded on the NASDAQ National Market under the symbol: ERTH. For the periods indicated, the following table presents the range of closing, high and low sale prices for the Company's common stock as reported by the NASDAQ National Market:

        The number of stockholders of record of the Company's common stock at March 7, 2002 was 870. At March 11, 2002, Mr. Essam Khashoggi, directly or indirectly, owned approximately 49% of the outstanding common stock of the Company.

        The Company is a developmental stage company and does not intend to declare or pay cash dividends on its common stock in the foreseeable future.

12

ITEM 6.    SELECTED FINANCIAL DATA

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

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

13

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 Financial Statements and Notes thereto included elsewhere in this Annual Report on Form 10-K. Such financial statements and information have been prepared to reflect the historical operations, assets and liabilities of the Company from the date of the Company's organization on November 1, 1992 through December 31, 2001.

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

Results of Operations

Year Ended December 31, 2001 Compared with the Year Ended December 31, 2000

        The Company's net loss increased $13.4 million to $62.3 million from $48.9 million for the year ended December 31, 2001 compared to the year ended December 31, 2000.

        Research and Development Expenses.    Total research and development expenditures for the development of EarthShell Packaging® increased $9.8 million to $47.1 million from $37.3 million for the year ended December 31, 2001 compared to the year ended December 31, 2000, including write down of property and equipment used in development and early stages of manufacturing. Excluding the effect of the write down of property and equipment, research and development expenditures increased $2.4 million to $27.7 million in 2001 from $25.3 million in 2000. The $2.4 million increase in research and development expense is a result of continued improvements to the production process and increased production for EarthShell Packaging plates, bowls and hinged lid containers, which includes the increased supply of hinged-lid containers to McDonald's Corporation® restaurants in the Chicago area. (Commencing in November 2001, the Company increased production to support 465 stores, up from 126 stores).

        As the development and commercialization of the manufacturing technology progresses, the Company periodically assess its property and equipment used in development and early stages of manufacturing in order to reflect the lower of cost or fair value. See Critical Accounting Assumptions below. The write down of property and equipment increased $7.4 million to $19.4 million from $12.0 million for the year ended December 31, 2001 compared to the year ended December 31, 2000. Of the $19.4 million charge taken in the fourth quarter of 2001, $12.3 million is a write down to net realizable value for the manufacturing equipment located at the Owings Mills facility. The remaining $7.1 million write down was taken as certain research and development equipment was determined to have no further application in the product development cycle.

        Total General and Administrative Expenses.    Total general and administrative expenses increased $2.8 million to $9.6 from $6.8 million for the year ended December 31, 2001 compared to the year ended December 31, 2000. Personnel and related overhead costs increased $1.3 million as a result of

14

the direct hiring of certain EKI administrative personnel effective January 1, 2001. A portion of the costs were previously captured in related party research and development expense. Other personnel related costs increased by $0.7 million as a result of the hiring of additional finance, marketing, and administrative personnel along with stock grants awarded to senior management when comparing the 2001 year end to the 2000 year end. Legal fees increased by $0.8 million primarily due to the Company assuming direct responsibility for managing the patent portfolio relating to the EarthShell Technology previously managed by EKI, and reimbursed by the Company under Related Party Patent Expense, and a as a result of the final settlement in its lawsuit with Novamont. As a result of the successful settlement with Novamont, the Company's rights to manufacture and distribute the foodservice disposable packaging through its operating partners are fully protected and expanded to include the application of Novamont technology.

        Depreciation and Amortization Expense.    Depreciation and amortization expense increased $0.2 million to $5.9 million from $5.7 million for the year ended December 31, 2001 compared to the year ended December 31, 2000. The increase in depreciation expense is the result of placing certain assets in-service with respect to the Company's commercial manufacturing equipment at the Owings Mills facility.

        Related Party Patent Expenses.    Legal fees reimbursed to EKI under the Patent Agreement with EKI, decreased $0.4 million to $0 from $0.4 million for the year ended December 31, 2001 compared to the year ended December 31, 2000. Effective January 1, 2001, the Company assumed direct responsibility for the management of the patent portfolio.

        Interest Income.    Interest income decreased $0.9 million to $0.4 million from $1.3 million for the year ended December 31, 2001 compared to the year ended December 31, 2000. The decrease was a result of lower cash balances available for investment for the comparative years.

Year Ended December 31, 2000 Compared with the Year Ended December 31, 1999

        The Company's net loss increased $4.7 million to $48.9 million from $44.2 million for the year ended December 31, 2000 compared to the year ended December 31, 1999. Excluding the effects of an $11.0 million charge, the net operating loss decreased $6.3 million over 1999.

        Research and Development Expenses.    Total research and development expenditures for the development of EarthShell Packaging increased $6.8 million to $37.3 million from $30.5 million for the year ended December 31, 2000 compared to the year ended December 31, 1999. The Company wrote off property and equipment of $12.0 million in 2000 and $2.3 million in 1999, respectively, The write off is for abandonment charges related to commercializing the technology for its first manufacturing plant at the Owings Mills facility in Maryland. The Company abandoned $11 million in the fourth quarter of 2000. In December 2000, it was determined that the manufacturing configuration would have to be modified somewhat and additional process improvements implemented to accommodate the recent product design changes and to achieve the design capacity of the plant. The reconfiguration of the lines will eliminate certain process steps simplifying the manufacturing process. In anticipation of these improvements and modifications to the manufacturing lines, the Company recognized the abandonment charge described. Removing the effect of abandonment, research and development expenses decreased $2.9 million from 1999 to 2000, primarily due to a reduction in startup and debugging costs of the Owings Mills facility in Maryland.

        Total General and Administrative Expenses.    Total general and administrative expenses decreased $5.1 million to $6.8 million from $11.9 million for the year ended December 31, 2000 compared to the year ended December 31, 1999. Cost reduction has resulted primarily from a decrease in employee cost, a reduction in costs associated with operating a publicly traded company, and reductions in costs associated with consolidating its offices.

15

        Depreciation and Amortization Expense.    Depreciation and amortization expense increased $1.1 million to $5.7 million from $4.6 million for the year ended December 31, 2000 compared to the year ended December 31, 1999. The increase in depreciation expense was primarily the result of the Company's commercial manufacturing equipment at the Owings Mills facility in Maryland being depreciated for a full calendar year for 2000 versus nine months of depreciation expense for calendar year 1999.

        Related Party Patent Expenses.    Legal fees reimbursed to EKI under the Patent Agreement with EKI, decreased $0.2 million to $0.4 million from $0.6 million for the year ended December 31, 2000 compared to the year ended December 31, 1999. This cost varies with the number of patents filed, researched and/or abandoned during the year.

        Interest Income.    Interest income decreased $2.1 million to $1.3 million from $3.4 million for the year ended December 31, 2000 compared to the year ended December 31, 1999. The decrease was a result of lower cash balances available for investment for the comparative years.

Liquidity and Capital Resources at December 31, 2001

        Cash Flow.    The Company's principal uses of cash for the year ended December 31, 2001 were to fund operations and purchase equipment to facilitate the development of manufacturing capacity for EarthShell Packaging. Net cash used in operations was $33.9 and $31.5 million for the years ended December 31, 2001 and 2000, respectively. Net cash (used in) and provided by investing activities was ($3.6) million and $2.4 million for the years ended December 31, 2001 and 2000, respectively. Net cash provided by financing activities was $30.5 million and $10.5 million for the years ended December 31, 2001 and 2000, respectively. As of December 31, 2001 the Company had cash and related cash equivalents totaling $0.8 million.

        Capital Requirements.    The Company paid or accrued approximately $3.6 million in capital expenditures for the year ended December 31, 2001 primarily related to improvements to the manufacturing lines in Owings Mills and the purchase of manufacturing equipment for its first commercial line to being installed in cooperation with Huhtamaki at the Goettingen, Germany facility. The Company expects to spend approximately $3.0 million in capital expenditures in the year 2002 related to completion of the Goettingen facility and for prototype equipment for other lines of EarthShell Packaging, subject to available financing.

        Sources of Capital.    As part of the Company's initial public offering on March 27, 1998, the Company issued 10,526,316 shares of common stock, for which it received net proceeds of $206 million. On April 18, 2000 and January 4, 2001, the Company filed shelf registrations statements for 5 million and 15 million shares, respectively, of the Company's common stock. During the year ended December 31, 2001 and December 31, 2000 the Company sold approximately 13.5 million and 4.5 million shares of common stock in private transactions under such registration statements and received net proceeds from such sales of approximately $30.5 million and $10.5 million, respectively.

        In December of 2001 the Company filed a shelf registration statement that provides for the sale of up to $50 million of securities, including secured or unsecured debt securities, preferred stock, common stock, and warrants. These securities may be offered, separately or together, in distinct series, and in 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.

        From January 1, 2002 through April 10, 2002 the Company sold approximately 12.7 million shares of common stock in private transactions under such registration statements and received net proceeds from such sales of approximately $14.6 million. The Company's principal use of cash during this period was to fund operations.

16

        The Company's business plan calls for the transfer of operational and financial control of its manufacturing lines to its operating partners. The operating equipment and machinery and related manufacturing assets may be a key source of funding for the Company in 2002. However, until the transfers of such assets are complete, the Company cannot be certain of the actual amount or timing of capital it will realize from these transfers.

        The Company continues to sell equity in private transactions using its shelf registration statements as it has in the past, and will continue to consider alternative financing opportunities to minimize the cost of capital to the Company. The Company believes that its existing cash, the financing provided through the sources of funding described, as well as new sources, will enable it to continue funding its operations over the remainder of the fiscal year. The Company cannot be certain, however, that funding commitments can be obtained on favorable terms, if at all.

Critical Accounting Assumptions

        Estimated Net Realizable Value of Property and Equipment.    The Company has been engaged in the development of manufacturing equipment to demonstrate the commercial viability of its manufacturing processes. To this end the Company has developed commercial manufacturing lines in Owings Mills, Maryland and for Goettingen, Germany. The operating equipment and machinery and related manufacturing assets are carried on the Company's books at the lower of cost (net of depreciation), or fair value.

        The Company's business plans for 2002 call for the transfer of operational and financial control of its manufacturing lines to its operating partners at such time as the machinery is demonstrated to perform at a level acceptable to the operating partner. At the time of the transfer, the Company expects to negotiate a fair market value for the equipment, not to exceed the then current replacement value of the equipment. However, until the transfers and sales are complete, the Company cannot be certain that such value will be realized. Failure of the equipment to perform at a level satisfactory to the licensee, failure to negotiate mutually agreeable terms of transfer, or any other failure to conclude the transfer of one or more of the operating lines to the respective licensees may require the Company to consider alternative approaches to utilize the equipment such as finding an alternate licensee to take over, relocating the equipment, or dismantling the line. Any one of these alternatives could have a negative economic impact on the carrying value of the equipment.

        For the purposes of these financial statements, the Company has estimated the net realizable value of the manufacturing line equipment by obtaining third party assessment from one of its operating partners of the value it would be willing to pay for the equipment, if offered the opportunity to buy it. This amount does not assign any value to the cost of leasehold improvements or installation costs that have already been expended to place the equipment in service.

        Going Concern.    The accompanying 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. As discussed in the notes to the financial statements, during the period from November 1, 1992 (inception) to December 31, 2001, the Company has incurred a cumulative net loss of $256,242,596 and has a working capital deficit of $6,941,329 at December 31, 2001. These factors among others may indicate that the Company will be unable to continue as a going concern for a reasonable period of time.

        The 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. Management is continuing its efforts to obtain additional funds so that the

17

Company can meet its obligations and sustain operations from sources that are described in the notes to the financial statements.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        Not applicable.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        See Index to Financial Statements and Schedules.

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

        None.

PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        The information required by this item is contained in the Company's Proxy Statement for its 2002 annual meeting of stockholders, which will be filed on or before April 30, 2002 and is incorporated herein by reference.

ITEM 11.    EXECUTIVE COMPENSATION

        The information required by this item is contained in the Company's Proxy Statement for its 2002 annual meeting of stockholders, which will be filed on or before April 30, 2002 and is incorporated herein by reference.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The information required by this item is contained in the Company's Proxy Statement for its 2002 annual meeting of stockholders, which will be filed on or before April 30, 2002 and is incorporated herein by reference.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        The information required by this item is contained in the Company's Proxy Statement for its 2002 annual meeting of stockholders, which will be filed on or before April 30, 2002 and is incorporated herein by reference.

18

PART IV

ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)

Index to Financial Statements



1.

Financial Statements:

2.

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 Financial Statements or the Notes therein.




(b)

Reports on Form 8-K

None.

(c)

Exhibits

19

10.6		Sublicense Agreement dated June 19, 1995 by and between the Company and Dopaco, Inc, as amended. (1)
10.7		Sublicense Agreement dated November 9, 1994 by and between the Company and Genpak Corporation, as amended. (1)
10.8		EarthShell Container Corporation 1994 Stock Option Plan. (1)
10.9		EarthShell Container Corporation 1995 Stock Incentive Plan. (1)
10.10		Form of Stock Option Agreement under the EarthShell Container Corporation 1994 Stock Option Plan. (1)
10.11		Form of Stock Option Agreement under the EarthShell Container Corporation 1995 Stock Incentive Plan. (1)
10.12		Warrant to Purchase Stock issued July 2, 1996 by the Company to Imperial Bank. (1)
10.13		Warrant to Purchase Stock issued June 7, 1996 by the Company to Imperial Bank. (1)
10.14		Employment Agreement dated October 1, 1997 by and between the Company and Simon K. Hodson. (1)
10.15		Amended and Restated Technical Services and Sublease Agreement dated October 1, 1997 by and between the Company and EKI. (1)
10.16		Amended and Restated Agreement for Allocation of Patent Costs dated October 1, 1997 by and between the Company and EKI. (1)
10.17		Warrant to Purchase Stock issued November 15, 1996 by the Company to Imperial Bank. (1)
10.18		Letters dated August 22, 1997 from Shelby Yastrow to Simon K. Hodson and Simon K. Hodson to Shelby Yastrow. (1)
10.19		Warrant to Purchase Stock issued October 6, 1997 by the Company to Imperial Bank. (1)
10.20		Sublicense Agreement dated October 16, 1997 by and between the Company and Sweetheart Cup Company Inc. (1)
10.21		Operating Agreement for the Production of Hinged Sandwich Containers for McDonald's Corporation between Sweetheart Cup Company Inc. and the Company dated as of October 16, 1997. (1)
10.22		Warrant to Purchase Stock dated December 31, 1997 by the Company to Imperial Bank. (1)
10.23		Letter Agreement re Haas/BIOPAC Technology dated February 17, 1998 by and between the Company and EKI. (1)
10.24		Second Amendment to 1995 Stock Incentive Plan of the Company. (1)
10.25		Amendment No. 2 to Registration Rights Agreement dated as of September 16, 1993. (1)
10.26		Amendment No. 2 to Registration Rights Agreement dated February 28, 1995. (1)
10.27		Employment Agreement dated March 23, 1998 by and between the Company and William F. Spengler. (3)
10.28		Employment Agreement dated April 15, 1998 by and between the Company and Vincent J. Truant. (3)
10.29		Employment Agreement dated July 22, 1998 by and between the Company and Michael M. Hagerty. (3)
10.30		Lease Agreement dated June 4, 1998 by and between the Company and Baltimore Center Associates Limited Partnership. (3)
10.31		Lease Agreement dated May 1, 1998 by and between the Company and ORIX SBAP Goleta Venture, a general partnership. (3)
10.32		Design, Procurement and Construction Management Services Agreement dated May 13, 1998 by and among the Company, Sweetheart Cup Company Inc., CH2M Hill Industrial Design Corporation, and IDC Construction Management, Inc. (3)

20

10.33		First Amendment dated June 2, 1998 to the Amended and Restated License Agreement by and between the Company and E. Khashoggi Industries ("EKI"). (4)
10.34		First Amendment to 1995 Stock Incentive Plan of the Company. (5)
10.35		Third Amendment to 1995 Stock Incentive Plan of the Company. (6)
10.36		Fourth Amendment to 1995 Stock Incentive Plan of the Company. (6)
10.37		Lease Agreement dated July 2, 1999 by and between the Company and Chippewa limited partnership. (7)
10.38		Employment Agreement dated April 15, 2000 by and between the Company and Richard DiPasquale. (7)
10.39		Lease Agreement dated August 23, 2000 by and between the Company and Heaver Properties, LLC. (7)
10.40		Termination of Lease Agreement dated October 13, 2000 by and between the Company and Chippewa limited partnership. (7)
10.41		The Food Group Settlement Agreement. (8)
10.42		Joint Development Agreement by and between the Company and DuPont. (8)
10.43		Lease Agreement dated April 1, 2001 by and between the Company and Nancarrow. (8)
10.44		Employment agreement dated March 2001 by and between the Company and Dr. Per Anderson. (8)
10.45		Employment agreement dated March 16, 2001 by and between the Company and Simon Hodson. (8)
10.46		Purchase and sale agreement by and between the Company and EKI for certain fixed assets. (8)
10.47		Letter of agreement by and between the Company and Donald Samaria. (8)
10.48		Settlement Agreement with Novamont dated August 3, 2001. (9)
10.49		Amendment to Common Stock Purchase Agreement dated March 28, 2001. (9)
10.50		License Agreement by and between the Company and Green Earth Packaging, Inc.
10.51		License Agreement by and between the Company and Green Packaging SDN BHD.

(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, file no. 333-13287, 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, file no. 333-13287, 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, file no. 333-13287, 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, file no. 333-13287, 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, file no. 333-13287, 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, file no. 333-13287, for the quarter ended March 31, 2001, and incorporated herein.

(9)

Previously filed as an exhibit to the Company's quarterly report on Form 10-Q, file no. 333-13287, for the quarter ended June 30, 2001, and incorporated herein.

21

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 April 16, 2002.

        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.

22

INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

        Financial Statements:

        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 Financial Statements or the Notes therein.

F-1

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
EarthShell Corporation:

        We have audited the accompanying balance sheets of EarthShell Corporation (a development stage enterprise) (the "Company") as of December 31, 2001 and 2000, and the related statements of operations, stockholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 2001 and for the period from November 1, 1992 (inception) through December 31, 2001. 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 auditing standards generally accepted in the United States of America. 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, such financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001 and for the period from November 1, 1992 (inception) through December 31, 2001 in conformity with accounting principles generally accepted in the United States of America.

        The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company is a development stage enterprise engaged in the commercialization of foodservice disposable packaging with the environment in mind. As discussed in the notes to the financial statements, during the period from November 1, 1992 (inception) to December 31, 2001, the Company has incurred a cumulative net loss of $256,242,596 and has a working capital deficit of $6,941,329 at December 31, 2001. 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 financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

F-2

EARTHSHELL CORPORATION
(A Development Stage Enterprise)
BALANCE SHEETS

See notes to financial statements.

F-3

EARTHSHELL CORPORATION
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS

See notes to financial statements.

F-4

EARTHSHELL CORPORATION
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

See notes to financial statements

F-5

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