UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

Commission File Number 000-50933

ORBIMAGE Inc.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (703) 480-7500

Securities Registered Pursuant to Section 12(b) of the Act:

Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock, Par Value $0.01

      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, as amended, 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 þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 or Regulation S-K ’229.405 of Title 17, Code of Federal Regulations 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.                                   

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).     Yes o          No þ

      State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. $63,408,680

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

      Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes þ          No o.

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

      The number of shares outstanding of Common Stock, par value $0.01, as of March 1, 2005 was 14,171,562 shares. After the closing of our rights offering on March 25, 2005, ORBIMAGE will have 17,429,968 total outstanding shares of common stock.

DOCUMENTS INCORPORATED BY REFERENCE

      List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 242(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980).

TABLE OF CONTENTS

PART I

Overview

      ORBIMAGE is a leading provider of global space-based imagery of the earth. We provide our customers high-resolution and low-resolution imagery, imagery-derived products and image processing services.

      We currently operate the OrbView-3 high-resolution satellite and OrbView-2 low-resolution satellite. OrbView-3, launched in June 2003, supports a wide range of applications: general mapping and charting; defense, military planning, and intelligence; and civil and commercial applications such as agriculture, forestry, and environmental monitoring. It collects 1 m resolution panchromatic (black and white) imagery and 4 m resolution multi-spectral (color) imagery. OrbView-2, launched in 1997, collects 1 km resolution multi-spectral imagery and was the first commercial satellite to image the Earth’s entire surface daily in color. Its coverage supports a wide array of projects focusing on global change, global warming, and non-scientific applications for commercial fishing and environmental monitoring, as well as military operations. We are currently constructing a new satellite, which we refer to as OrbView-5. We anticipate the OrbView-5 satellite will be launched and go into service in early 2007.

      We also operate image production and exploitation facilities. One such facility is located at our headquarters in Dulles, Virginia, and produces and transmits up to 50,000 geospatial images per month. We also own and operate a satellite image processing facility in St. Louis, Missouri, that provides advanced image processing products, software, engineering analysis and related services to the U.S. Government and other commercial customers. The St. Louis facility was acquired in 1998 and is a leader in advanced image processing and photogrammetry. Photogrammetry refers to the process of measuring objects from the imagery data collected from satellites or other imagery sources and is used principally for object interpretation (i.e., establishing what the object is, type, quality, quantity) and object measurement (i.e., what are its coordinates, what is its form and size). These image production capabilities combined with imagery from our satellites enable us to provide end-to-end imagery solutions.

      Our headquarters is located at 21700 Atlantic Blvd., Dulles, Virginia, 20166. Our telephone number is 703-480-7500.

Available Information

      We maintain an Internet website at www.orbimage.com. In addition to news and other information about our company, we make available on or through the Investor Information section of our website our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and all amendments to these reports as soon as reasonably practicable after we electronically file this material with, or furnish it to, the Securities and Exchange Commission (“SEC”). At the Investor Information section of our website, we have a Corporate Governance page that includes, among other things, copies of our Code of Business Conduct and Ethics and the charters for each standing committee of the Board of Directors, including the Audit Committee, the Corporate Governance and Nominating Committee and the Compensation Committee. Printed copies of all of the above-referenced reports and documents may be requested by contacting our Investor Relations Department either by mail at our corporate headquarters or by telephone at (703) 480-7500. All of the above-referenced reports and documents are available free of charge.

      In addition, the public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

Company History; Relationship with Orbital Sciences

      We started in 1991 as an operating division of Orbital Sciences Corporation (“Orbital Sciences”) to manage the development and operation of remote imaging satellites that would collect, process and distribute digital imagery of the earth’s landmass, oceans and atmosphere. We were incorporated under the name of Orbital Imaging Corporation in 1992 in Delaware as a wholly owned subsidiary of Orbital Sciences. Our first satellite, Orb-View-1 was launched in 1995, to provide dedicated weather — related imagery and metrological data to the National Aeronautics and Space Administration (“NASA”), and was retired from service in 2003. In 1996 and 1997, we executed three significant contracts with Orbital Sciences. These contracts involved, among other things, all assets and liabilities of Orbital Science’s operating division being sold to us at historical cost. Under these contracts, we purchased engineering, construction and launch services for each of our satellites from Orbital Sciences.

      The three significant contracts which we had with Orbital Sciences at the beginning of 2002 were: (i) the ORBIMAGE System Procurement Agreement dated November 18, 1996, as amended, (ii) the OrbView-2 License Agreement dated May 8, 1997, and (iii) the Amended and Restated Administrative Services Agreement dated May 8, 1997.

      Under the system procurement agreement, we purchased (i) the OrbView-1 satellite, (ii) an exclusive license entitling us to all of the economic rights and benefits of the OrbView-2 satellite, (iii) the OrbView-3 satellite and launch service, (iv) the OrbView-4 satellite and launch service and (v) the ground system assets used to command and control the satellites as well as receive and process imagery. The system procurement agreement originally called for the OrbView-3 satellite to be constructed and launched before OrbView-4; however, continuing schedule delays resulted in OrbView-4 being constructed and delivered first. In September 2001 Orbital Sciences attempted to launch our Orb-View-4 satellite but it failed to achieve orbit and was lost over the Indian Ocean. In June of 2003, Orbital Sciences successfully launched OrbView-3. We own all of our satellites (or, in the case of OrbView-2, an exclusive license to all rights in the satellite) and all material equipment at each of our ground stations, free of any liens or other encumbrances.

      On April 5, 2002 we filed for protection under Chapter 11 of the U.S. Bankruptcy Code in the Eastern District of Virginia (the “Court”), and in that proceeding commenced actions against Orbital Sciences for various claims, including breach of our procurement agreement in connection with delays in the construction and launch of our Orb-View-3 satellite. We subsequently settled those claims pursuant to a settlement agreement with Orbital Sciences.

      The system procurement agreement is now largely completed save for a continuing warranty by Orbital Sciences on our ground stations which will expire on May 7, 2005, and post-launch incentives we may owe to Orbital Sciences in connection with the ongoing performance of our Orb-View-3 satellite. Under the system procurement agreement, as modified by the settlement agreement, a $1.5 million on-orbit milestone payment was delayed and will be due Orbital Sciences on May 7, 2005, the one-year anniversary of the date of acceptance by ORBIMAGE of the Orb-View-3 system. In addition, annual post-launch on-orbit payments to Orbital Sciences were reduced and will now be payable in maximum amounts of up to $1.125 million on each of the first five anniversaries of the acceptance by ORBIMAGE of the Orb-View-3 system, for a total possible maximum obligation of $6.375 million.

      Because the Orb-View-3 launch did not occur by April 30, 2003, the terms of the settlement agreement required Orbital Sciences to pay us penalties relating to the delayed launch and delayed on-orbit verification and checkout. The penalties were terminated in October 2003 when it was mutually agreed that Orbital Sciences had made all commercially reasonable efforts to achieve on-orbit verification. Orbital Sciences paid us delay penalties of approximately $2.3 million during the year ended December 31, 2003.

      Under the Orb-View-2 license agreement, Orbital Sciences has granted an exclusive worldwide license to ORBIMAGE to use and sell Orb-View-2 imagery. Pursuant to the terms of the Orb-View-2 license agreement, Orbital Sciences assigned to ORBIMAGE all amounts that were due to Orbital Sciences under a contract Orbital Sciences had with NASA to deliver Orb-View-2 imagery. At the time, this NASA contract,

since expired, was the primary contract for imagery from Orb-View-2. We have sole responsibility for operating and controlling the Orb-View-2 satellite.

      Under the administrative services agreement, we paid Orbital Sciences for office space and other administrative services, as well as certain direct and indirect operating services provided by Orbital Sciences. The administrative services agreement was terminated on March 31, 2002. As part of the settlement agreement, we and Orbital Sciences executed a sublease agreement which permits us to continue subleasing our current office space from Orbital Sciences through April 2005, at which time a new lease for space directly from the owner of our building will become effective.

      As of December 31, 2004, the Company has paid approximately $270 million to Orbital Sciences under these agreements most of which was paid prior to our bankruptcy. Approximately $0.8 million of this amount has been paid under our office sublease since the Company’s emergence from Chapter 11. We currently owe Orbital Sciences a $1.5 million on-orbit milestone payment payable in May 2005 and up to $6.375 million in total post-launch on-orbit incentive payments payable over the next five years. The amount of each on-orbit incentive payment is dependent on the operating performance of OrbView-3 at the time each payment is due.

      We filed an amended Plan of Reorganization with the Bankruptcy Court on September 15, 2003 which received the requisite affirmative votes of our creditors, and the Court approved our Plan on October 24, 2003. We emerged from bankruptcy on December 31, 2003 having changed our corporate name to ORBIMAGE Inc. Other than the contractual obligations with Orbital Sciences under the procurement agreement and sublease as outlined above, following our emergence from bankruptcy, we no longer have any continuing relationship with Orbital Sciences or any of its affiliates. We refer to Orbital Imaging Corporation and its operations prior to January 1, 2004 as the “Predecessor Company.”

The NextView Program

      The U.S. Government, through the National Geospatial-Intelligence Agency (“NGA”), announced in March 2003 that it intended to support the continued development of the commercial satellite imagery industry through subsidies for the engineering, construction and launch of the next generation of imagery satellites by two providers. This program is known as NextView. The first NextView award was made to a competitor of the Company in September 2003.

      NGA announced a request for proposals from potential second providers in April 2004. The NextView Second Vendor program will allow NGA to have two separate providers of next generation high-resolution satellite imagery, rather than just one under the original award. On September 30, 2004, NGA announced that the Company had been awarded a contract under this NextView Second Vendor program. As the winning bidder of the NextView Second Vendor award, we, as prime contractor, are constructing a new satellite, which we refer to as OrbView-5. We estimate the total project cost (including financing and launch insurance costs) to bring the OrbView-5 satellite into service will be approximately $502 million. Under the NextView contract that we have with NGA, NGA will support the project with a cost share totaling approximately $237 million spread out over the course of the project and subject to various milestones.

      We anticipate the OrbView-5 satellite will be launched and go into service in early 2007. We intend to purchase launch insurance and on-orbit insurance to cover the replacement cost of the satellite in the event of a launch failure or if on-orbit anomalies prevent the satellite from being placed into service. The costs of such insurance cannot be determined with specificity at this time, but we believe the premium will cost approximately 20 percent of the coverage amount if the insurance market at the time such insurance is purchased is similar to the current market. Once the OrbView-5 satellite is placed into service, the NextView award provides for NGA to purchase imagery from the satellite through September 30, 2008. NGA will have the first right to order images from the satellite, which we anticipate will utilize slightly more than half of the satellite’s imagery-taking capacity at any given time, with the remainder available for commercial and state and foreign government sales by the Company.

      We believe that the OrbView-5 satellite, when it is launched and placed into service, will be the most modern, high-capacity, high-resolution commercial imaging satellite in the world. OrbView-5 will be designed

for less than 0.5 meter resolution, panchromatic (black and white) images, and less than 2.0 meter resolution, multi-spectral (color) images, with the capability to take images across 700,000 square kilometers of the earth’s surface every day.

Remote Imagery Industry

      Remote imaging is the process of observing, measuring and recording objects or events from a distance using a variety of sensors mounted on satellites and aircraft. The market for remote sensing includes satellite development, construction and operations by both domestic and international commercial and government users who decide to build and operate their own satellite systems, as well as purchased imagery and related services currently addressable by existing imagery suppliers. Historically, in the United States, the only “commercial” operators of remote imaging satellites were quasi-governmental programs like the low-resolution Landsat satellite systems in operation since the 1970s. The opportunities for commercialization of space-based imagery expanded in 1994 when the U.S. Government implemented a policy permitting the worldwide, commercial sale of high-resolution satellite imagery by U.S. companies.

      Formerly, all satellite imagery systems were either military surveillance platforms or were sponsored by large national and international civil space agencies, which used satellites to monitor meteorological conditions and environmental changes on the Earth’s surface. Currently, there are a limited number of commercial providers of satellite imaging services, which collectively address only a portion of the market opportunities in the remote imaging industry. Historically, the majority of commercial imagery came from local or regional aerial photography firms. Although aerial imaging companies are able to achieve high spatial resolution and customize their products according to local needs, their slow response time, limited coverage range, restricted ability to fly over certain areas and high cost limit widespread use of their products.

      The major purchaser of commercial satellite imagery in the United States is NGA. Under NGA’s ClearView and NextView programs, it acquires imagery and imagery derived products on behalf of its clients in the U.S. defense, intelligence and law enforcement agencies. Other agencies of the U.S. Government that purchase satellite imagery include the Department of Agriculture, the Department of Commerce (NOAA), the Department of Interior, the Department of State, the Department of Transportation, the Department of Treasury and many independent agencies that include the EPA, FEMA and NASA among others. The White House recently announced a Commercial Remote Sensing Space Policy establishing the U.S. Geological Survey (“USGS”) as the lead civil agency to implement a civilian version of NGA’s ClearView program for the procurement of commercial imagery for all civilian Federal (i.e. non-military) agencies.

      Similarly, countries around the world that are unable or unwilling to establish their own space programs must rely on limited aerial imagery collection for border surveillance and related national defense programs. OrbView-3, however, is able to image areas that are not accessible by airplanes because of restrictions on air space or because the areas are too remote. In addition, up-to-date maps are crucial for serving the high-technology segments of the national security market, such as digital terrain modeling for aircraft and missile guidance. International customers represent a substantial portion of our revenue from OrbView-3 as well.

      In the aftermath of the terrorist attacks on the U.S. on September 11, 2001 and the conflict in Afghanistan, the “war on terror” and the conflict with Iraq have significantly contributed to the increase in demand by the U.S. Government for satellite imagery to address national security and intelligence gathering concerns. This shift in demand towards commercial satellite imagery providers was formalized in the Bush Administration’s “U.S. Commercial Remote Sensing Policy” dated April 25, 2003. This policy requires U.S. Government agencies to “rely to the maximum practical extent on commercial remotes sensing space capabilities for filling imagery and geospatial needs.”

      Additionally, a commercial imagery customer, like a telecommunications company that wants to map a large, fairly remote area to determine where to place cellular towers, would hire an aerial photographer to fly an airplane over the area to take pictures, develop the film and deliver the final map to the customer. This can be time consuming and expensive. In contrast, our high-resolution OrbView-3 satellite is capable of obtaining up to 20,000 square kilometers of one-meter resolution imagery in a single 10-minute pass (though operationally image windows are set for shorter periods and the imaging mode that maximizes the size of the

imaged area is not used unless that is the appropriate mode for a customer’s needs). Additionally, OrbView-3 can quickly downlink its imagery to a customer or we can further process the imagery in response to specialized customer requests.

      We believe real-time global satellite imagery allows commercial customers to map areas of the world efficiently and cost-effectively where either no maps exist or where existing maps are obsolete. This imagery also permits users to monitor agricultural, forestry and fishing areas frequently to provide timely information to enhance business and government effectiveness.

Products and Services

      Currently, we employ an integrated system of imaging satellites, ground stations and global sales channels to collect, process and distribute satellite imagery and derived products from our OrbView-2 and OrbView-3 satellites throughout the world. With our satellite systems and our large-scale product generation capabilities in Dulles and St. Louis, ORBIMAGE serves the worldwide market needs for advanced imagery information products to view, map, measure, and monitor the earth for applications ranging from environmental monitoring, to construction planning, to precision mapping and intelligence gathering. A clear, high-resolution image of the earth can help national security agencies monitor borders, gather intelligence on potential conflicts, plan air, ground and naval missions, deploy resources, and assess battle damage. It can also aid with a wide range of commercial applications such as environmental impact assessments, utility infrastructure planning, wireless telecommunications design, oil and gas exploration, forestry management, and natural disaster assessment.

      The U.S. Government is our largest single customer. We currently have a contract to provide NGA imagery, imagery derived products and image production services under the Government’s ClearView program over a two-year period. The contract provides for NGA to pay us a minimum of $10 million in the first year and $12 million in the second year for imagery products. The contract also provides for NGA to reimburse approximately $5 million for infrastructure costs we have incurred and expect to incur to provide the required imagery.

      We provide imagery production services to NGA under the ClearView contract and the Global Geospatial Intelligence (GGI) program. We recently received an additional task order under the ClearView contract to provide $6.4 million of production services to NGA which will be performed during the first two years of the contract. Although funding for these programs has been allocated by the U.S. Government, the Government may cancel the programs at any time, subject to limited termination liability.

      Our various contracts with the U.S. Government in the aggregate were responsible for approximately 49% of our revenues for the year ended December 31, 2004.

      After the U.S. Government, our major clients are Korea Aerospace Industries, Ltd. in Korea, NTT Data Corporation in Japan, and a client in Taiwan. The material terms of each of these agreements is similar. In each case, our international clients pay us a guaranteed annual minimum for a defined amount of direct access time to OrbView-3 while it is over their antenna “footprint”. Under the agreements, the customer provides us with their requested collection and we then uplink commands to OrbView-3 to task such imagery and transmit it to the customer by direct downlink to the customer’s ground station. The contracts are generally for a period of up to four years, and the customers have options to renew. In the event OrbView-3 becomes incapable of providing the required imagery, the contracts can be terminated, without further liability of either party beyond that for imagery already provided to the date of termination. The U.S. Government places certain restrictions on the sale and dissemination of satellite imagery which is discussed below under “Regulation — United States Regulation.”

      We also sell imagery and imagery products commercially, though it currently represents only a small portion of our revenues. ORBIMAGE currently offers two different commercial imagery products that are derived from OrbView-3 imagery and vary in type and processing levels for geolocation accuracy. Our initial product offering consists of two product types, OrbView BASIC^tm and OrbView ORTHO^tm. OrbView BASIC^tm imagery products are typically used by customers with the ability to perform their own advanced

image processing and permit the customer to orthorectify (or adjust the image to give a consistent site angle throughout the image) the BASIC imagery product and perform three dimensional feature extraction (in addition to more routine image enhancements and processing). ORBIMAGE’s OrbView ORTHO^tm imagery products are typically used by customers who need a product with a high degree of geolocation accuracy, for applications such as urban planning. Users are able to input any OrbView ORTHO^tm imagery product directly into an image processing system as a base map or as a source for feature extraction. All OrbView ORTHO^tm products have been corrected for the effects of systematic distortions, earth rotation and curvature effects, variations in orbital altitude and variations in the earth’s surface.

      Prices for our OrbView BASIC^tm and OrbView ORTHO^tm imagery products range from $15.00-$73.00 per square kilometer and are delivered to our customers by various means, including electronic transmission, tape, compact disc, and direct downlink to ground receiving stations. Beginning in 2005, ORBIMAGE plans to introduce five new commercial imagery products: OrbView GEO^tm, OrbView DEM^tm, OrbView DSM^tm, OrbView Thematic Map^tm and OrbView Feature Map^tm. Each of these products will have been processed to correct for different effects or to give users particular information that they would otherwise have to extract for themselves. Market research is currently underway to help determine the final specifications and pricing for these products.

      We market our products directly to our major markets, including the U.S. Government and the international markets. We intend to rely on value-added resellers to develop, market and sell our products and services to address certain target markets, including domestic markets.

      Prior to the spring of 2002, we also collected and distributed high-resolution aerial imagery products but we terminated the distribution agreement with our prior supplier of aerial imagery during our restructuring. We see aerial imagery data as complementary to our satellite data and plan to expand our product line to include aerial data as well as other types of imagery data, including radar and hyperspectral imagery data. However, we currently have no arrangements in place for such expansion of our product lines and agreements will need to be reached with third party providers of such imagery data prior to any expansion of our product lines.

Satellite and Ground System Operations

      Our basic system architecture consists of the following major components:

      The following table summarizes the primary characteristics of our satellites:

      We are also constructing a next-generation high-resolution imagery satellite, which we have designated OrbView-5. We anticipate the OrbView-5 satellite will be launched and go into service in early 2007.

OrbView-3

      OrbView-3 has been designed to provide one-meter resolution black and white imagery and four-meter resolution color imagery of the Earth’s surface. Orbital Sciences launched OrbView-3 on June 26, 2003. We formally accepted the system from Orbital Sciences effective May 2004. OrbView-3 provides 1-meter resolution panchromatic (i.e., black and white) and 4-meter resolution multispectral (i.e., color) imagery on a global basis to a variety of government and commercial customers worldwide. OrbView-3 has a design life of 5 years and sufficient fuel to operate for up to two additional years. Although it is possible that OrbView-3 will continue to operate past its design life, we can offer no assurances that it will maintain its orbit or remain commercially operational for its design life or thereafter.

OrbView-5

      OrbView-5 has been designed to provide 0.4 meter resolution black and white imagery and one-meter resolution color imagery of the Earth’s surface. OrbView-3 is intended to have a design life of 7 years and sufficient fuel to operate for up to two additional years. Although it is possible that OrbView-5 will continue to operate past its design life, we can offer no assurances that it will maintain its orbit or remain commercially operational for its design life or thereafter.

OrbView-2

      The OrbView-2 satellite was launched in August 1997. It has operated continuously for the last seven years. OrbView-2 collects digital imagery of the Earth’s surface (land and oceans). We market OrbView-2 imagery and derived products to commercial customers, as well as to researchers and U.S. Government agencies. We believe that OrbView-2 is one of the few satellites of its kind providing daily color images of the entire Earth’s surface. OrbView-2 downlinks imagery to both our primary and backup ground stations and to various regional receiving stations around the world. We provide OrbView-2 value-added products on a global basis to the commercial fishing industry under our SeaStar Fisheries Information Service^tm. We currently have approximately 300 customers in the commercial fishing industry. We provide OrbView-2 imagery to researchers and U.S. Government agencies for scientific and environmental applications. There can be no assurance that U.S. Government agencies will renew their contracts beyond their current terms. Despite OrbView-2’s seven and a half year design life, we currently expect to continue commercial operations with OrbView-2 for up to ten years. However, notwithstanding the ongoing successful operation of OrbView-2, we

can offer no assurance that OrbView-2 will maintain its prescribed orbit or remain commercially operational past its design life.

Ground Operations Centers and Image Processing Facilities

      OrbView-2 and OrbView-3 are controlled from our main operations center located in Dulles, Virginia. Our operations center in Dulles monitors the satellites while they are in orbit and commands them as required for imagery collection and to ensure that they maintain their proper orbits and appropriate communication links and that electrical power and other operating variables stay within acceptable limits. We communicate with the OrbView satellites through three main antennas located in Dulles, Virginia, Fairmont, West Virginia and Point Barrow, Alaska.

      In addition, the Dulles operations center performs the tasking operations for our OrbView-3 satellite. The tasking process is complicated and employs two software systems to evaluate whether a customer’s tasking request is feasible — the satellite must be able to view the desired area on a certain day at the time it passes overhead; adverse weather conditions, such as clouds or sun angle, may make it inadvisable to attempt to image a certain area on a certain day; and the order must be received in time for processing and transmission to the satellite. In addition, the tasking systems consider the relative priority of different requests by one customer or several customers.

      The Dulles facility also has an image receiving and processing center for the OrbView satellites. The Dulles image processing center receives OrbView imagery downlinked to multiple ground antennas and is equipped with numerous work stations that process and convert the digital imagery into useful imagery products. The center is designed to archive the maximum number of high-resolution OrbView satellite images per day and has the capability to generate a variety of geospatial products for resale.

      Our St. Louis image processing facility provides advanced image processing products, software, engineering analysis and related services to the U.S. Government and other commercial customers. The St. Louis facility can produce imagery from multiple sources including the U.S. Government’s satellites, our OrbView-3 satellite, the satellites operated by our two U.S. competitors and many of the current international satellites.

      For the NextView program, we will need to create two new ground stations, one in Norway and the other in Antarctica. Negotiations regarding the establishment of those ground stations are currently underway.

Backlog

      Total negotiated backlog was $462.1 million at December 31, 2004. This amount included both funded backlog (unfilled firm orders for our products and services for which funding has been both authorized and appropriated by the customer) and unfunded backlog (firm orders for which funding has not yet been appropriated). The contracts are generally for terms of up to four years, and the customers have options to renew. Negotiated backlog does not include unexercised options or task orders to be issued under indefinite-delivery/indefinite quantity (“IDIQ”) type contracts. Total funded backlog was $36.7 million at December 31, 2004.

Competition

      We compete against various private companies as well as against systems owned by the U.S. Government and various foreign governments.

      There are three primary commercial competitors in the United States market for satellite remote sensing. They are Space Imaging, Inc. (“Space Imaging”), Thornton, CO., DigitalGlobe, Inc. (“DigitalGlobe”), Longmont, CO and our company. Space Imaging operates the IKONOS satellite, which launched in 1999, and DigitalGlobe operates the QuickBird satellite, which launched in 2001. DigitalGlobe is believed to offer the highest level of resolution for its imagery products, followed by Space Imaging, then our company. Both Space Imaging and DigitalGlobe generate larger revenues than we do. We believe we have lower levels of debt

and operating expense than Space Imaging. Space Imaging has generated the most revenues to date, followed by DigitalGlobe.

      The companies compete on the basis of resolution, accuracy, the ability to downlink directly to overseas customers in real time, and the ability to produce value added products from the imagery received from the satellites. While the Ikonos and QuickBird satellites can simultaneously collect both Panchromatic (or black and white) and Multispectral (or color) imagery of any area, OrbView-3 can only collect an area in either the Panchromatic or Multispectral mode. This enhanced capability enables our competitors to generate a value-added (or “bundled”) product that ORBIMAGE cannot offer. Due to this limitation of OrbView-3, and because we were the last to launch our high resolution satellite, our competitors were able to obtain contracts with the U.S. Government and other clients before we were.

      Despite the single-mode collection capabilities of OrbView-3, we are able to compete for customers because OrbView-3 has the ability to downlink imagery data directly to international ground station customers, while DigitalGlobe must downlink imagery in the U.S. before sending it overseas. This real- time downlink capability, combined with what we believe are lower satellite access fees and ground station equipment costs, negatively impact DigitalGlobe’s ability to compete in this market segment. Additionally, although Space Imaging does offer direct downlink capability from their satellite, Ikonos, that satellite has already entered the fifth year of its seven year design life. OrbView-3 is 1¹/2 years old. Customers that now receive Ikonos imagery must soon seek another source (since there is no planned follow-on mission from Space Imaging), and we believe few (if any) new customers desiring a direct satellite receiving capability will invest in a multi-million dollar ground station for a satellite that may expire within 24 months.

      We also compete indirectly against certain systems operated by the U.S. Government. The U.S. Government currently supports the use of commercial imagery for mapping and certain other purposes. There can be no guarantee that the U.S. Government will continue that policy.

      We also compete indirectly against certain systems operated by certain foreign governments and foreign corporations. We believe that those systems do not currently offer as high a level of resolution or accuracy as the commercial U.S. companies offer. There can be no assurance that future systems will not be equal to or better than our current system.

Seasonality

      Our business is not materially affected by seasonality. Although the angle of the sun and the presence or absence of cloud cover at different times of the year affects our satellites’ ability to capture useful images, most of our clients pay us on an annual basis so seasonal weather changes do not affect our annual revenue.

Employees

      As of March 1, 2005, we employ 133 people. Of those, 89 work at the Dulles facility and 44 work at the St. Louis facility. Of our employees, 22 in our Dulles facility and 42 in our St. Louis facility have U.S. Government security clearances to work on data that is classified by the U.S. Government. We have six employees holding PhD’s or other terminal degrees in their fields.

      None of our employees are parties to a collective bargaining agreement. We believe that our relations with our employees are good.

Regulation

      The satellite remote imaging industry is a highly regulated industry, both domestically and internationally. In the U.S., remote imaging satellites generally require licenses from the Department of Commerce (“DoC”) and from the Federal Communications Commission (“FCC”). In addition, to operate internationally, remote imaging satellites may require International Telecommunications Union (“ITU”) coordination and registration and licenses from the governments of foreign countries in which imagery will be directly downlinked.

      General. The collection and transmission of satellite imagery, as well as satellite tracking, telemetry and control, are subject to various forms of regulation under different U.S. laws and regulations. Because we maintain control of the satellite at all times, there are no issues with satellite telemetry or control. Likewise, the actual transmission of imagery data has been determined to not be covered by the general export rules. However, as with any U.S. business, we are subject to restrictions from doing business with certain prohibited countries, entities or persons (such as embargoed countries or persons on the designated persons list (such as terrorist organizations). Additionally, under the current rules of the DoC and the terms of our DoC licenses (discussed below), we are restricted from providing certain imagery to non-U.S. government sources.

      DoC regulation. The DoC, through the National Oceanic and Atmospheric Administration (“NOAA”), is responsible for granting commercial imaging satellite operating licenses, coordinating satellite imaging applications among several governmental agencies to ensure that any license addresses all U.S. national security concerns, and complying with all international obligations of the United States. Under our DoC licenses, the U.S. Government reserves the right to interrupt service during periods of national emergency when U.S. national security interests are affected. The threat of these interruptions of service could adversely affect our ability to market our products to some foreign distributors or end-users. In addition, the DoC has the right to review and approve the terms of agreements with international customers and distributors for high-resolution optical imagery and the DoC licenses may not be transferred or assigned without NOAA’s prior written consent.

      We currently have a DoC license for the OrbView-2, OrbView-3 and OrbView-5 high-resolution satellites. The DoC licenses for OrbView-2 and OrbView-3 are valid through the operational lifetime of each high-resolution satellite. Once it becomes operational, the DoC license for OrbView-5 will also be valid through its operational lifetime. We expect to satisfy the terms of its DoC licenses for OrbView-2 and OrbView-3 and maintain the regulatory licenses and approvals necessary for their ongoing operations, and will be required to obtain a DoC operating license for any new commercial imaging satellite systems developed by the company. Our licenses do not allow us to disseminate imagery of the state of Israel that have better resolution than those generally available in the market (not including U.S. providers subject to the same restriction). Currently, this prevents us from providing imagery of Israel that has resolution of less than 1.8 meters. Current restrictions placed on satellite imagery providers also prevent dissemination to anyone other than the U.S. Government of panchromatic imagery with a resolution of less than .5 meters or multispectral imagery of less than 2 meters. Imagery with resolutions between .5 meters and less than .82 meters panchromatic and between 2 meters and less than 3.2 meters multispectral may not be disseminated for 24 hours after collection to anyone other than the U.S. Government.

      Under the DoC licenses for our satellites, during periods when national security or international obligations and/or foreign policies may be compromised, as defined by the U.S. Secretary of Defense or the U.S. Secretary of State, the Secretary of Commerce may, after consultation with appropriate agency(ies), require us to limit data collection and/or distribution by the system to the extent necessitated by the situation. During those periods when, and for those geographic areas, that the Secretary of Commerce requires us to limit distribution, we would be required, on request, to make the unenhanced data thus limited from the systems available exclusively, by means of government furnished rekeyable encryption on the downlink, to the U.S. Government. This form of control of the system at the direction of the U.S. Government is referred to as “shutter control” of the system. The costs and terms associated with meeting this condition would be negotiated directly between us and the Department of Defense (for the U.S. Government). Although a situation has never arisen which has resulted in the U.S. Government exercising its “shutter control”, we cannot anticipate whether or under what circumstances this condition would be exercised, nor can we reasonably determine what costs and terms would be negotiated between us and the U.S. Government.

      FCC regulation. The FCC is responsible for licensing commercial satellite systems and the radio frequencies used by commercial satellite systems. In general, the FCC grants licenses to commercial satellite systems that conform to the technical, legal and financial requirements for these systems set forth in FCC regulations.

      The FCC regulates the operation of OrbView-2. We have an experimental license issued by the FCC to operate OrbView-2 and the Fairmont, West Virginia ground station using commercial frequencies in support of existing government contracts with NOAA and NGA. The FCC experimental authorization expires October 1, 2007, and is renewable subject to FCC approval. We expect to obtain the U.S. Government agency sponsors and regulatory approvals necessary to continue OrbView-2 operations in support of our government contracts; however, if such sponsorships or approvals are not granted, it would have a material adverse effect on its results of operations.

      In February 1999, the FCC granted our application for a ten-year license to launch and operate the OrbView-3 satellite and to obtain a frequency allocation in the FCC’s Earth Exploration-Satellite Service (“EESS”) to transmit wideband imagery directly to Earth for commercial use and to perform telemetry, tracking and command of the satellites. Now that OrbView-3 has been launched successfully, the ten-year license term commenced upon the date we certified to the FCC that OrbView-3 has successfully been placed into orbit and operations conform to the terms of its FCC license. In April 1999, the FCC also granted licenses to us to operate ground stations for the OrbView-3 satellite in Dulles, Virginia and Point Barrow, Alaska. These ground station licenses have a 10-year term expiring April, 2009, and are renewable for additional terms upon FCC approval. We will be required to obtain FCC licenses for any new commercial imaging satellite systems developed by the company. Currently, two of our satellite-based competitors, DigitalGlobe and Space Imaging, hold licenses to use the same frequency band that we intend to use for its imagery transmissions by the OrbView-3 satellite and any new commercial imaging satellite systems developed by the company. The band is allocated by the FCC for use by other EESS licensees, as well as terrestrial fixed and mobile services. We expect to satisfy the terms of our FCC licenses and obtain the regulatory licenses and approvals necessary for OrbView-3 operations and any new commercial imaging satellite systems satellite we develop, including OrbView-5; however, the termination of such licenses or failure to obtain such licenses or approvals would have a material adverse effect on our results of operations.

      U.S. regulators may subject us in the future to new laws, policies or regulations, or changes in the interpretation or application of existing laws, policies and regulations, that modify the present regulatory environment in the U.S. U.S. regulators could decide to impose limitations on U.S. companies that are currently applicable only to other countries, or other regulatory limitations that affect satellite remote imaging operations. Any limitations of this kind could adversely affect our business or results of operations.

      All satellite systems operating internationally must comply with general international regulations and the specific laws of the countries in which satellite imagery is downlinked. Applicable regulations include:

      The FCC is undertaking the ITU coordination and registration process on behalf of OrbView-3 and likely will undertake the ITU coordination and registration process for any new commercial imaging satellite systems developed by the company and licensed by the FCC. Failure by the FCC to obtain the necessary coordination or registration in a timely manner could have a material adverse effect on our results of operations, as the case may be.

      The U.S. Government, on our behalf, is required to coordinate the frequencies used by the OrbView-2, OrbView-3 and OrbView-5 satellites, which do or will operate internationally. ITU frequency coordination is a necessary prerequisite to ITU registration, which provides interference protection from other international satellite systems. In addition, this coordination is a necessary prerequisite for obtaining approvals and licenses

from some foreign countries. The ITU coordination process has been completed for OrbView-2. In 1998, the FCC advanced published the OrbView-3 satellite system’s technical parameters with the ITU. There are no ITU coordination requirements for non-geostationary satellite systems such as the OrbView-3 and OrbView-5 system. In April 2003, the FCC submitted a bringing-into-use notification to the ITU informing it that all OrbView-3 satellite system frequency assignments had been brought into use within the time frame required under the ITU regulations for registration in the ITU’s Master International Frequency Register. We believe that the ITU registration process will not prevent us from obtaining necessary foreign licenses in a timely manner.

      In addition to complying with ITU regulations and coordination processes, we must also demonstrate that our satellites will not cause technical harm to Intelsat and Inmarsat communications satellites, under the Intelsat and Inmarsat agreements signed under international treaty. We have completed this process for OrbView-2 and believe that because of the frequencies they use or intend to use, the OrbView-3 and OrbView-5 satellites will not cause any technical harm to the Intelsat or Inmarsat systems.

      Within foreign countries, we expect that our regional distributors or customers will secure appropriate licenses and operational authority to use the required spectrum in each country into which we will downlink high-resolution OrbView satellite imagery. For the most part, we anticipate that distributors or customers will perform these activities, with assistance from us when required.

      While we believe we will be able to obtain all U.S., ITU and international licenses, authorizations and registrations necessary to operate effectively, we cannot assure you that we will be successful in doing so. The failure to obtain some or all necessary licenses, approvals or registrations could adversely affect our business.

Special Note Regarding Forward-Looking Statements

      All statements other than those of historical facts included in this Form  10-K, including those related to our financial outlook, liquidity, goals, business strategy, projected plans and objectives of management for future operating results, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are subject to numerous assumptions, risks and uncertainties, including the risks set forth below, and are based on our current expectations and projections about future events. Our actual results, performance or achievements could be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Although we believe the expectations reflected in these forward-looking statements are based on reasonable assumptions, there is a risk that these expectations will not be attained and that any deviations will be material. We disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained in this Form  10-K to reflect any changes in our expectations or any change in events, conditions or circumstances on which any statement is based.

Risks Related to our Company

      We have a history of net losses from operations and have generated only limited revenues from the operations of OrbView-2 and our image processing business. We can provide no assurances to what extent or even whether we will ultimately be successful in obtaining net positive cash flow or profitability from operations of OrbView-3 or OrbView-5.

      Our business plan depends upon our ability to develop a customer base, distribution channels and value-added enhancements for our imagery products and services.

      Given our limited operating history, and in light of the risks, expenses and difficulties we cannot provide assurances that we will be able to develop a sufficiently large revenue-generating customer base to compete successfully in the remote imaging industry.

      Revenues from U.S. Government contracts accounted for approximately 49%, 34%, and 80% of our revenues for the years ended December 31, 2004, 2003 and 2002, respectively. U.S. Government agencies may terminate or suspend their contracts at any time, with or without cause, or may change their policies, priorities or funding levels by reducing agency or program budgets or by imposing budgetary constraints. The NextView program is a major program for us and will involve a drastic increase in our size, both in terms of assets and spending. If a U.S. Government agency terminates or suspends any of its contracts with ORBIMAGE, or changes its policies, priorities, or funding levels, these actions would have a material adverse effect on our business, financial condition and results of operations.

      Our success depends on existing markets accepting our imagery products and services and our ability to develop new markets. Our business plan is based on the assumption that we will generate significant future revenues from sales of high-resolution imagery produced by OrbView-3, and eventually OrbView-5, to existing markets and new markets. The commercial availability of high-resolution satellite imagery is still a fairly recent phenomenon. Consequently, it is difficult to predict accurately the ultimate size of the market and the market acceptance of products and services based on this type of imagery. Our strategy to target certain markets for our satellite imagery relies on a number of assumptions, some or all of which may be incorrect. Actual markets could vary materially from the potential markets that we have identified.

      We cannot accurately predict whether our products and services will achieve significant market acceptance or whether the market will demand our products and services on terms we find acceptable. Market acceptance depends on a number of factors, including the spatial and spectral quality, scope, timeliness, sophistication and price of our imagery products and services and the availability of substitute products and services. Lack of significant market acceptance of our products and services, particularly our high-resolution imagery products and services, delays in acceptance, or failure of certain markets to develop would negatively affect our business, financial condition and results of operations.

      Our performance under the NextView Contract will require significant capital expenditures to develop, manufacture and launch the OrbView-5 satellite. The Company estimates its total project cost (including financing and launch insurance costs) to bring the OrbView-5 satellite into service will be approximately $502 million. Under the NextView contract the Company has with NGA, NGA will support the project with a cost share totaling approximately $237 million spread out over the course of the project and subject to various milestones. In order to fund its operations and obligations under the NextView Contract, the Company will need to raise approximately $265 million over a period of approximately two and one half years, of which $65 million has been raised to date. Although $65 million has been raised to date, we can not assure you that we will be successful in generating all of the necessary funding for NextView. Failure to raise adequate funding for our portion of the NextView program costs would have a material adverse effect on our business, financial condition and results of operations.

      In addition, the NextView Contract is subject to a set schedule requiring launch of OrbView-5 in early 2007. The OrbView-5 satellite and related ground system is a complex system which requires a large amount of advanced technical and engineering work and processing to be done in a relatively short amount of time. A delay in any area of the program could cause delays in other areas of the program resulting in program delay. Failure to launch OrbView-5 on time or to achieve system check-out on time could affect our ability to provide the full amount of anticipated imagery and imagery products to NGA during the course of the post-launch period of the NextView Contract. Because the NextView Contract has a set termination date that is not tied to launch or check-out of OrbView-5, any such schedule delay could cause ORBIMAGE to receive

less in purchase price for imagery under the NextView Contract, which could cause a material adverse effect on our business, financial condition and results of operations.

      Our OrbView-3 satellite employs advanced technologies and sensors that are subject to severe environmental stresses in space that could affect the satellite’s performance. Our OrbView-5 satellite will employ even more advanced technologies and sensors. Employing advanced technologies is further complicated by the fact that the satellite is in space. Hardware component problems in space could lead to degradation in performance or loss of functionality of the satellite, with attendant costs and revenue losses. In addition, human operators may execute improper implementation commands that negatively impact a satellite’s performance.

      We cannot assure you that OrbView-3 will continue to operate successfully in space throughout its expected design life or that OrbView-5 will operate successfully. Even if this satellite is operated properly, minor technical flaws in the satellite’s sensors could significantly degrade their performance, which could materially affect our ability to market our products successfully.

      We do not presently have plans to construct and launch a replacement satellite for OrbView-3 if it fails prematurely. Permanent loss of OrbView-3 would materially and adversely affect our operations and financial condition, especially if it occurred before OrbView-5 launched.

      Satellites have limited useful lives. We determine a satellite’s useful life, or its design life, using a complex calculation involving the probabilities of failure of the satellite’s components from design or manufacturing defects, environmental stresses or other causes. The design lives of our satellites are as follows:

      The expected design lives of these satellites are affected by a number of factors, including the quality of construction, the expected gradual environmental degradation of solar panels, the durability of various satellite components and the orbits in which the satellites are placed. Random failure of satellite components could cause damage to or loss of a satellite before the end of its design life. In rare cases, electrostatic storms or collisions with other objects could damage our satellites. We cannot assure you that each satellite will remain in operation for its expected design life. We expect the performance of each satellite to decline gradually near the end of its design life. Despite OrbView-2’s seven and a half year design life, we currently expect to continue commercial operations with OrbView-2 for up to ten years. However notwithstanding the ongoing successful operation of OrbView-2, we can offer no assurance that OrbView-2 will maintain its prescribed orbit or remain commercially operational past its design life.

      We anticipate using funds generated from operations to develop plans for follow-on high-resolution satellites, including OrbView-5. If we do not generate sufficient funds from operations, and if we are unable to obtain financing from outside sources, we will not be able to deploy OrbView-5 or other potential follow-on satellites to replace OrbView-3 at the end of its expected design life. We cannot assure you that we will be able to generate sufficient funds from operations or to raise additional capital, on favorable terms or on a timely basis, if at all, to develop or deploy follow-on high-resolution satellites.

      The terms governing our Senior Notes and Senior Subordinated Notes require us to maintain on-orbit operations insurance for OrbView-3 and OrbView-5. This insurance would not be sufficient to cover the cost of a replacement high-resolution satellite such as OrbView-3. We do not have any insurance coverage for the

OrbView-2 satellite. We will also be required to obtain launch insurance for OrbView-5. We may find it difficult to insure certain risks, such as partial degradation of functionality of a satellite. Insurance market conditions or factors outside our control at the time we buy the required insurance, such as failure of a satellite using similar components or a similar launch vehicle, could cause premiums to be significantly higher than current estimates. These factors could cause other terms to be significantly less favorable than those currently available, may result in limits on amounts of coverage that we can obtain or may prevent us from obtaining insurance at all.

      Our products and services will compete with satellite and aircraft-based imagery and related products and services offered by a range of private and government providers. Certain of these competitors may have greater financial, personnel and other resources than we have. Our major existing and potential competitors for high-resolution satellite imagery include:

      The U.S. Government and foreign governments also may develop, construct, launch and operate remote imaging satellites that generate imagery competitive with our products and services. In addition, the U.S. Government will probably continue to rely on government-owned and operated systems for highly classified satellite-based high-resolution imagery.

      Our competitors or potential competitors with greater resources than ours could in the future offer satellite-based imagery or other products having more attractive features than our products. New technologies, even if not ultimately successful, could negatively affect our marketing efforts. More importantly, if competitors continue to develop and launch satellites with more advanced capabilities and technologies than ours, this competition could harm our business.

      We may need to raise additional capital if:

      If these or other events occur, we cannot assure you that we could raise additional capital on favorable terms or on a timely basis or at all.

      Domestic. Our business generally requires licenses from the U.S. Department of Commerce (“DoC”) and the U.S. Federal Communications Commission (“FCC”). The DoC licenses provide that the U.S. Government can interrupt service during periods of national emergency. Actual or threatened interruptions could adversely affect our ability to market our products abroad. In addition, the DoC has the right to review and approve our agreements with international customers for high-resolution optical imagery. We have received such approval for those of our international customers as are currently operating. However, such reviews could delay or prohibit us from executing new international distributor agreements.

      Our renewal application for an experimental FCC license for OrbView-2 expires in October 2007. Our application with the FCC for a license to launch and operate OrbView-3 was granted in February 1999 and our applications to operate the associated ground systems were granted in May 1999. These licenses will expire in 10 years.

      Prior to commencing operations, we will need to obtain an FCC license for OrbView-5. We are in the process of preparing an application requesting such a license.

      International. All satellite systems operating internationally must follow general international regulations and the specific laws of the countries in which satellite imagery is downlinked.

      The FCC has undertaken the International Telecommunication Union coordination process on behalf of OrbView-3 and will do so for OrbView-5. Although no problems have been experienced to date, if the FCC failed to obtain the necessary coordination in a timely manner it could have a material adverse effect on our business, financial condition and results of operations.

      Our customers or distributors are responsible for obtaining local regulatory approval from the governments in the countries in which they do business to receive imagery directly from OrbView-2 and OrbView-3. If these regional distributors are not successful in obtaining the necessary approvals, we will not be able to distribute real time OrbView imagery in those regions. Our inability to offer real time service in a significant number of foreign countries could negatively affect our business. In addition, regulatory provisions in countries where we wish to operate may impose unduly burdensome restrictions on our operations. Our business may also be adversely affected if the national authorities where we plan to operate adopt treaties, regulations or legislation unfavorable to foreign companies.

      Export License. In connection with distributor agreements, we have in the past and may in the future supply our international customers with ground stations that enable these customers to downlink data directly from OrbView-3. Exporting these ground stations may require us to obtain export licenses from the DoC or the U.S. Department of State. If the DoC or the Department of State do not issue these export licenses, or if these licenses are significantly delayed, or if restrictions are imposed on these licenses, our financial condition and results of operations could be materially adversely affected.

      We rely on foreign regional distributors to market and sell internationally a significant portion of our imagery from OrbView-3 and will rely on such foreign regional distributors for OrbView-5. We expect our existing and future foreign regional distributors to act on behalf of, or contract directly with, foreign governments to sell imagery for national security and related purposes. These regional distributors may not have the skill or experience to develop regional commercial markets for our products and services. If we fail to enter into regional distribution agreements on a timely basis or if our foreign regional distributors fail to market and sell our imagery products and services successfully, these failures would negatively impact our business, financial condition and results of operations, and our ability to service our debt.

      We intend to rely on value-added resellers to develop, market and sell our products and services to address certain target markets, including domestic markets. If our value-added resellers fail to develop, market

and sell OrbView products and services successfully, this failure would negatively affect our business, financial condition and results of operations, and our ability to service our debt.

      We expect to derive substantial revenues from international sales of products and services. International operations are subject to certain risks, such as:

      These risks are beyond our control and could have a material adverse effect on our business.

      In the future, upon the occurrence of certain change of control events, we will be required to offer to repurchase all outstanding Senior Notes and Senior Subordinated Notes at a price equal to 100% of the principal amount, plus accrued but unpaid interest thereon. It is possible that we will not have sufficient funds at the time of a change of control to make the required repurchases. If we are not able to make the required repurchases, we would be in default under the Senior Notes and the Senior Subordinated Note indenture.

      We currently sublease approximately 24,000 square feet of office and operations space in Dulles, Virginia, from Orbital Sciences Corporation. This space includes our principal executive offices. The sublease will expire in April 2005. The current annual rent is approximately $480,000. We have entered into a lease for our office space directly with the owner of the building. Our new lease will become effective upon the expiration of our existing sublease, and will cover our existing space and an additional 13,000 square feet of office space. Our new lease will have annual rent of approximately $820,000 and will expire on June 30, 2012.

      We also lease approximately 16,000 square feet of office and operations space in St. Louis, Missouri. The lease will expire on March 31, 2009. The current annual rent is approximately $265,000.

      In the normal course of business, we are party to various lawsuits, legal proceedings and claims arising out of our business. We cannot predict the outcome of these lawsuits, legal proceedings and claims with certainty. Nevertheless, we believe that the outcome of any existing or known threatened proceedings, even if determined adversely, should not have a material adverse effect on our business, financial condition or results of operations.

      During the fourth quarter of the period covered by this report no matters were submitted to a vote of security holders.

PART II

      We emerged from Chapter 11 bankruptcy on December 31, 2003. Prior to that time there was no established trading market for our common stock. Although beginning in January 2004, our common stock has traded over-the-counter and sales have been reported on the “Pink Sheets” service provided by Pink Sheets LLC under the symbol “ORBM,” there continues to be no established trading market for our common stock.

      On March 1, 2005, there were 119 holders of record of the common stock, including employees who hold “restricted shares.”

      During the past two fiscal years and through December 31, 2004, we have not made or declared any cash dividends on our common equity. Under the instruments governing our senior notes and senior subordinated notes, we are prohibited from paying dividends until the principal amount of all such notes have been repaid. These restrictions are more fully discussed under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Cash Flows” in Item 7 below.

      The following table sets forth information regarding shares of common stock authorized for issuance pursuant to our 2003 Employee Stock Incentive Plan and 2004 Non-Employee Director Equity Incentive Plan. As of March 25, 2005, there are no other shares of common stock subject to issuance pursuant to any equity compensation plan.

      As soon as practicable, we intend to file a registration statement on Form S-8 under the Securities Act to register all of the shares of common stock issued and reserved for future issuance under the 2003 Employee Stock Incentive Plan and the 2004 Non-Employee Director Equity Incentive Plan. Based on the number of shares reserved for issuance as of December 31, 2004, this registration statement would cover approximately 129,927 shares. That registration statement will automatically become effective upon filing. Accordingly, shares issued upon the exercise of stock options granted under our 2003 Employee Stock Incentive Plan and 2004 Non-Employee Director Equity Incentive Plan will be eligible for resale in the public market from time to time, subject to vesting restrictions.

      The transfer agent for our common stock is:

      In connection with the emergence from Chapter 11 effective December 31, 2003, ORBIMAGE reflected the terms of its Plan of Reorganization in its financial statements in accordance with American Institute of Certified Public Accountants Statement of Position 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code” (“SOP 90-7”) with respect to financial reporting upon emergence from Chapter 11 (“Fresh-Start accounting”). Upon applying Fresh-Start accounting, a new reporting entity (the Successor Company) is deemed to be created on the Effective Date and the recorded amounts of assets and liabilities are adjusted to reflect their estimated fair values. The reported historical financial statements of the Predecessor Company for the years ended December 31, 2003 and prior generally will not be comparable to those of the Successor Company. In this Form 10-K, references to the periods ended December 31, 2003 and prior refer to the Predecessor Company, and the financial position as of December 31, 2003 and the periods ended subsequent to December 31, 2003 are reported as Successor Company.

      The following information should be read in conjunction with the financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

      The following discussion and analysis should be read in conjunction with “Selected Historical Consolidated Financial and Operating Data,” and our audited and unaudited consolidated financial statements and notes thereto appearing elsewhere in this Report.

Overview

      ORBIMAGE Inc. (“ORBIMAGE,” the “Company” or the “Successor Company”) operates two satellites that collect, process and distribute digital imagery of the Earth’s surface, atmosphere and weather conditions. In addition to the OrbView-3 and OrbView-2 satellites, our satellite system also includes a U.S. ground system necessary to operate the satellites and to collect, process and distribute imagery from the satellites. We own the OrbView-3 satellite and have a license to operate and control the OrbView-2 satellite that we acquired from Orbital Sciences Corporation (“Orbital Sciences”), our former corporate parent. In addition, we maintain an image processing and production center at our headquarters in Dulles, Virginia, and an advanced image processing and geospatial information technology development and production center in St. Louis, Missouri. We also are constructing a next-generation high-resolution imagery satellite, which we have designated OrbView-5. OrbView-5 is currently scheduled to be launched in the first quarter of 2007.

      Our principal sources of revenue are the sale of satellite imagery to customers and regional distributors, and processing and production of imagery and geospatial information. As our business expands, we plan to also derive revenues from the use of value-added resellers. We have entered into several long-term sales contracts to provide imagery products and, in certain circumstances, we will be entitled to receive contractual payments in advance of product delivery. We will initially record deferred revenue for the total amount of the advance payments under these contracts and recognize revenue over the contractual delivery period.

      Our direct expenses include the costs of operating and depreciating the OrbView-3 satellite, the OrbView-2 license and the related ground systems, as well as construction costs related to distributor-owned ground stations. Labor expenses and depreciation represent the largest component of our direct expenses.

      We have incurred losses from operations since our inception and have generated only limited revenues from the operations of OrbView-2 and our image processing business. We began generating revenues from OrbView-3 in the first quarter of 2004. At the end of the first quarter of 2004, we commenced OrbView-3 operations for the U.S. Government, our largest customer. Our operations in the succeeding quarters of 2004 have resulted in average quarterly revenues of $9.7 million and quarterly gross profit slightly exceeding break-even levels. As discussed in more detail below, in April 2004, NGA announced a request for proposals under its NextView Second Vendor program for a second provider of next generation high-resolution satellite imagery (a competitor received the first NextView award in 2003). Because of the significance of the contract to the future of our industry, we decided to focus on our current operations and actively pursue a NextView contract award, temporarily suspending the active pursuit of potential new customers. On September 30, 2004, NGA announced that the Company had been awarded a contract under this NextView Second Vendor program to construct, launch and operate a new satellite, which we have named OrbView-5. With the

NextView effort completed, we are now actively pursuing potential customers, particularly those in foreign markets. We believe that our revenues and operating profit in 2005 will continue at similar levels that have occurred since the commencement of OrbView-3 operations until new customers are signed up and brought into service, which we anticipate will begin in the second half of 2005.

      Chapter 11 Reorganization. On April 5, 2002, Orbital Imaging Corporation (the “Predecessor Company”), filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code (“Chapter 11”) in the United States Bankruptcy Court for the Eastern District of Virginia (the “Bankruptcy Court”). The Predecessor Company continued business operations as debtor-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of Chapter 11 and orders of the Bankruptcy Court.

      On February 11, 2003, the Predecessor Company signed a Settlement Agreement with the Creditors’ Committee and Orbital Sciences to facilitate the Predecessor Company’s emergence from its Chapter 11 reorganization proceeding. Under the Settlement Agreement, the Predecessor Company agreed to suspend its pending litigation with Orbital Sciences in exchange for additional working capital and other consideration to be provided by Orbital Sciences. The Settlement Agreement provided for mutual releases of all claims among the parties, including the Predecessor Company and a significant majority of its bondholders and preferred stockholders, Orbital Sciences, and certain officers/directors of Orbital Sciences. The releases became effective upon launch of the OrbView-3 satellite by Orbital Sciences and payment by Orbital Sciences of $2.5 million to the Predecessor Company (the “Orbital Sciences Payment”). In exchange, Orbital Sciences received new notes that were equal to the Orbital Sciences Payment and ranked pari passu with the new notes to be issued to the Predecessor Company’s pre-bankruptcy unsecured creditors. As part of the Settlement Agreement, if OrbView-3 was not launched by April 30, 2003 or on-orbit check out was not successfully completed by July 31, 2003, Orbital Sciences would pay the Predecessor Company delay penalties. Orbital Sciences also agreed to defer certain payment obligations of the Predecessor Company and to forgive others. The Predecessor Company obtained formal approval of the Settlement Agreement from the Bankruptcy Court on February 19, 2003.

      On September 15, 2003, the Predecessor Company filed its Fourth Amended Plan of Reorganization (the “Plan”) and Fourth Amended Disclosure Statement with the Bankruptcy Court. The Plan was confirmed by the Bankruptcy Court on October 24, 2003. The Successor Company, ORBIMAGE Inc., officially emerged from bankruptcy protection effective December 31, 2003. As part of the final reorganization, on December 31, 2003, all existing notes and shares of capital stock of the Predecessor Company were cancelled. Holders of the Predecessor Company’s old notes and the Predecessor Company’s general unsecured creditors received $50 million in new Senior Subordinated Notes due 2008 and 6 million shares of common stock, representing approximately 99 percent of the outstanding capital stock of ORBIMAGE. Holders of certain debt obligations incurred during the Company’s bankruptcy received approximately $19 million in new Senior Notes due 2008. Holders of the Company’s Series A Preferred Stock received warrants to purchase up to approximately 319,000 shares of common stock of ORBIMAGE at an exercise price of $28.22 per share.

      In connection with the emergence from Chapter 11, ORBIMAGE reflected the terms of its Plan of Reorganization in its financial statements in accordance with American Institute of Certified Public Accountants Statement of Position 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code” (“SOP 90-7”) with respect to financial reporting upon emergence from Chapter 11 (“Fresh-Start accounting”). Upon applying Fresh-Start accounting, a new reporting entity (the Successor Company) is deemed to be created on the Effective Date and the recorded amounts of assets and liabilities are adjusted to reflect their estimated fair values. Such fair values represent our best estimates based on independent valuations. These valuations were based on a number of estimates and assumptions which were inherently subject to significant uncertainties and contingencies beyond our control. The reported historical financial statements of the Predecessor Company for the years ended December 31, 2003 and prior will not be comparable to those of the Successor Company.

      As of April 5, 2002, the date of the Predecessor Company’s voluntary petition for reorganization under Chapter 11, the Predecessor Company adopted the financial reporting and accounting policies required for

companies operating pursuant to Chapter 11 as prescribed in SOP 90-7. We have reported revenues, expenses, gains and losses relating to the reorganization separately in the accompanying statement of operations for the years ended December 31, 2003 and 2002, respectively.

      As a general rule, all of the Predecessor Company’s contracts and leases continued in effect in accordance with their terms, unless otherwise ordered by the Bankruptcy Court. The Bankruptcy Court provided the Predecessor Company with the opportunity to reject any executory contracts or unexpired leases that were burdensome or assume any contracts or leases that were favorable or otherwise necessary to its business operations. Certain executory contracts were rejected by the Predecessor Company during the course of the bankruptcy proceedings.

      NextView Program. The U.S. Government, through the National Geospatial-Intelligence Agency (“NGA”), announced in March 2003 that it intended to support the continued development of the commercial satellite imagery industry through subsidies for the engineering, construction and launch of the next generation of imagery satellites by two providers. This program is known as NextView. The first NextView award was made to a competitor of the Company in September 2003.

      NGA announced a request for proposals from potential second providers in April 2004. The NextView Second Vendor program will allow NGA to have two separate providers of next generation high-resolution satellite imagery. On September 30, 2004, NGA announced that the Company had been awarded a contract under this NextView Second Vendor program. As the winning bidder of the NextView Second Vendor award, we will, as prime contractor, construct a new satellite, which we refer to as OrbView-5. The Company estimates its total project cost (including financing and launch insurance costs) to bring the OrbView-5 satellite into service will be approximately $502 million. Under the NextView contract the Company has with NGA, NGA will support the project with a cost share totaling approximately $237 million spread out over the course of the project and subject to various milestones.

      The Company anticipates the OrbView-5 satellite would be launched and go into service in early 2007. The Company intends to purchase launch insurance and on-orbit insurance to cover the replacement cost of the satellite in the event of a lunch failure or if on-orbit anomalies prevent the satellite from being placed into service. The costs of such insurance cannot be determined with specificity at this time, but the Company believes the premium would cost approximately 20 percent of the coverage amount if the insurance market at the time such insurance is purchased is similar to the current market. Once the OrbView-5 satellite is placed into service, the NextView award provides for NGA to purchase imagery from the satellite through September 30, 2008. NGA would have the first right to order images from the satellite, which would utilize slightly more than half of the satellite’s imagery-taking capacity at any given time, with the remainder available for commercial and state and foreign government sales by the Company.

      The Company believes that when it is launched and placed into service, the OrbView-5 satellite will be the most modern, high-capacity, high-resolution commercial imaging satellite in the world. OrbView-5 will be designed for less than 0.5 meter resolution, panchromatic (black and white) images, and less than 2.0 meter resolution, multi-spectral (color) images, with the capability to take images across 700,000 square kilometers of the earth’s surface every day.

Industry and Business Considerations

      As a government contractor, we are subject to U.S. Government oversight. The government may inquire about and investigate our business practices and audit our compliance with applicable rules and regulations. The government could make claims against us if the results of such audits or investigations warrant such action. Under government procurement regulations and practices, an indictment of a government contractor could result in that contractor being fined and/or suspended from bidding on or being awarded new government contracts for a period of time or debarment for a period of time. We are not aware of any such audits or investigations against us at this time. We are also exposed to risks associated with U.S. government contracting such as technological uncertainties and obsolescence, and dependence on Congressional appropriation and allotment of funds each year. The nature of our products and services exposes us to certain risks associated with state of the art technologies such as delays, cost growth and product failure.

      The nature of our international business also makes us subject to the export control regulations of the U.S. Department of Commerce. If these regulations are violated, it could result in monetary penalties and denial of export privileges. We are currently not aware of any violations of export control regulations which could have a material adverse effect on our business or our financial position.

Critical Accounting Policies

      We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. Management bases their estimates and judgments on historical experience and on various other factors. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be affected by changes in those estimates. The following represent what we believe are the critical accounting areas that require the most significant management estimates and judgments.

      Revenue Recognition and Contract Accounting. ORBIMAGE’s principal source of revenue is the sale of satellite imagery to customers, value added resellers and distributors. Such sales often require us to provide imagery over the term of multi-year sales contracts. Accordingly, we recognize revenues on imagery contracts on a straight-line basis over the delivery term of the contract. Deferred revenue is recorded when payments are received in advance of the delivery of imagery. As stated previously, NGA will support the NextView program with a cost share totaling approximately $237 million spread out over the course of the construction phase of the project and subject to various milestones. These NGA payments are recorded as deferred revenue when received and will be recognized as revenue from when the OrbView-5 satellite is placed into service through the initial imagery purchase period under contract, which currently is through September 30, 2008.

      A portion of our business is derived from long-term fixed-price contracts with the U.S. Government and commercial customers. Revenue under these contracts is recognized using the percentage of completion method of accounting. Such revenues are recorded based on the percentage of costs incurred in the applicable reporting period as compared to the most recent estimates of costs to complete each project. These incurred costs approximate the output of deliverables to our customers. Estimating future costs and, therefore, revenues and profits, is a process requiring a high degree of management judgment. Management bases its estimate on historical experience and on various assumptions that are believed to be reasonable under the circumstances. Costs to complete include, when appropriate, labor, subcontracting costs and materials, as well as an allocation of indirect costs. Reviews of the status of contracts are performed through periodic contract status and performance reviews. In the event of a change in total estimated contract cost or profit, the cumulative effect of such change is recorded in the period in which the change in estimate occurs. ORBIMAGE has not incurred any material changes in estimates on its imagery and image processing contracts with the U.S. Government.

      Prior to the launch of OrbView-4 in 2001, the Predecessor Company derived a significant amount of its revenues from the construction of ground stations built to downlink imagery directly from OrbView-3 and OrbView-4 to our customers. Ground station construction activity was restarted after the successful launch of OrbView-3 in June 2003, and was substantially completed in December 2003 without further increases in costs.

      Certain of our contracts with NGA consist of multiple elements. For contracts consisting of multiple elements, we identify these elements and consider whether the delivered item(s) has value to the customer on a standalone basis, whether there is objective and reliable evidence of the fair value of the undelivered item(s) and, if the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in our control. We evaluate such contracts to ensure that, for purposes of determining standalone value, performance of any one element of the contract is not directly contingent on performance of the other contract elements. Revenue recognition may be impacted if nonperformance of one contract element causes the customer to terminate the other

element(s). Such contracts are also subject to, among other things, termination rights, refunds of payments due to unsatisfactory performance and uncertainty regarding availability of future funding.

      Receivables. A significant amount of judgment is required by management in estimating the reserves required for receivables that are potentially uncollectible. We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer’s current credit worthiness, as determined by our review of their current credit information. We regularly monitor collections and payments from our customers and maintain a provision for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified. If collection of the receivable is not reasonably assured at the time services are performed, we do not initially record the revenue, but rather record an allowance for customer credits to offset the receivable. If there is a change in the customer’s financial status or the receivable is collected, revenue is recorded at that time. While such credit losses described above have historically been within our expectations and the provisions established, we cannot guarantee that we will experience the same credit loss rates that we have estimated or historically experienced. As such, additional charges could be incurred in the future to reflect differences between estimated and actual collections.

      Long-Lived Assets. In assessing the recoverability of our satellites, fixed assets and other long-lived assets, we evaluate the recoverability of those assets in accordance with the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” This Statement requires that certain long-lived fixed assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Changes in estimates of future cash flows could result in a write-down of the asset in a future period. Estimated future cash flows could be impacted by, among other things, changes in estimates of the useful lives of the assets (e.g., degradation in the quality of images downloaded from the satellite), changes in estimates of our ability to operate the assets at expected levels (e.g., due to intermittent loss of satellite transmissions) and by the loss of one or several significant customer contracts.

      Goodwill. We evaluate the carrying value of goodwill on an annual basis in the fourth quarter of each year and when events and circumstances warrant such a review in accordance with SFAS 142, “Goodwill and Other Intangible Assets.” SFAS 142 requires the use of fair value in determining the amount of impairment, if any, for recorded goodwill. In assessing the recoverability of goodwill and other intangibles, we must make assumptions regarding the estimated future cash flows and other factors (such as changes in discount rates, changes and updates to our five-year business plan and industry projections and analyses) to determine the fair value of the respective assets. Estimates of future cash flows may be affected by such factors as the reporting unit’s past performance in providing products and services, the status of contract funding and the existence of options to extend the contract and the probability of exercising such options. Should the fair value of the reporting unit exceed its carrying amount, we would then allocate the calculated fair value to the assets and liabilities of the reporting unit (including goodwill). Any calculated impairment loss would be recognized if the carrying amount of goodwill exceeds the implied fair value. If and when these circumstances or their related assumptions change in the future, the Company may be required to record impairment charges for these assets. An impairment test was performed on recorded goodwill and it was determined that no impairment existed at December 31, 2004 and 2003.

Results of Operations

      As discussed above, the Company emerged from bankruptcy protection and adopted fresh-start accounting effective December 31, 2003. References to “Predecessor Company” refer to the Company prior to December 31, 2003. References to “Successor Company” refer to the Company on and after December 31, 2003, after giving effect to the cancellation of the then-existing common stock and the issuance of new securities in accordance with the Plan of Reorganization and application of fresh-start reporting. As a result of

the fresh-start reporting, the Successor Company’s financial statements are not comparable with the Predecessor Company’s financial statements.

      Revenues. Revenues for the years ended December 31, 2004, 2003 and 2002 were $31.0 million, $9.2 million and $15.6 million, respectively. The significant increase in 2004 revenues as compared to 2003 was primarily due to the commencement of OrbView-3 operations for the U.S. Government and our major international customers. In February 2004, the OrbView-3 satellite commenced regular operations for our regional distributor in Japan. In March 2004, we were awarded a contract to supply NGA with imagery and value-added products from the OrbView-3 satellite. NGA’s ClearView award provides us with guaranteed minimum revenues of $27.5 million over two years, of which approximately $10.5 million and $12 million represent minimum commitments to purchase imagery in years one and two, respectively. The contract also provides for NGA to reimburse approximately $5 million for infrastructure costs we incurred to provide the required imagery. In June 2004, we received a task order to provide $6.4 million of production services to NGA under the ClearView program during the first year of the contract. Revenues generated from OrbView-3 products and services were approximately $23.2 million in 2004.

      Revenues for 2003 decreased by approximately $6.3 million, or 41 percent, as compared to 2002 due to the conclusion in October 2002 of a five-year, $43 million contract with the National Aeronautics and Space Administration (“NASA”) to provide OrbView-2 imagery. The Predecessor Company recognized revenues of $7.4 million under this contract in 2002. Upon conclusion of this contract, the Predecessor Company signed a new contract with NASA to provide OrbView-2 imagery in 2003 for $1.1 million. This contract expired in December 2003, but was extended by both parties to December 2004 under the same terms and conditions. The Company is currently in negotiations with NASA for another extension of the contract. The Predecessor Company also recognized $2.8 million of lower revenues in 2003 from image processing activities as compared to the prior year due to delays in U.S. government contract awards. These decreases were offset by approximately $3.4 million of 2003 revenues associated with the completion of the construction of a ground station for our regional distributor in Japan after the successful launch of the OrbView-3 satellite.

      Direct Expenses. Direct expenses include the costs of operating and depreciating the OrbView-3 satellite, the OrbView-2 license and the related ground stations and construction costs related to the OrbView-3 distributor-owned ground stations. Direct expenses for the years ended December 31, 2004, 2003 and 2002 were $33.8 million, $10.7 million and $10.5 million, respectively. In the first quarter of 2004, we commenced recording depreciation expense on the OrbView-3 satellite and related ground station assets. Total depreciation expense recorded for these assets in 2004 was approximately $18.6 million. Approximately $3.8 million of the remaining increase resulted principally from increased staffing requirements in connection with the commencement of service to our OrbView-3 customers in the U.S. and overseas and another $2.5 million resulted from increases in materials, insurance and other direct costs associated with OrbView-3 operations that commenced in 2004. These increases were offset by a $2.4 reduction in costs incurred related to the construction of a distributor ground station which was completed in early 2004.

      Direct expenses for 2003 increased by $0.2 million, or two percent, from the comparable 2002 amount. Increased costs from subcontractor activities associated with the completion of a ground station construction contract of $2.7 million and increased costs resulting from the commencement of OrbView-3 operations of $1.1 million were offset by reduced depreciation expense of $2.7 million resulting from the write-down of the value of the OrbView-2 satellite and from a reduction in imagery production activities of $1.1 million. This write down was taken in 2002 because of the decrease in OrbView-2 revenues derived from the NASA contract.

      Selling, General and Administrative Expenses. Selling, general and administrative (“SG&A”) expenses include the costs of marketing, advertising, promotion and other selling expenses, as well as the costs of the finance, administrative and general management functions of ORBIMAGE. SG&A expenses for the years ended December 31, 2004, 2003 and 2002 were $11.7 million, $4.7 million and $4.1 million, respectively. Approximately $3.5 million of this variance resulted from the amortization of deferred compensation associated with stock awards granted to employees. Another $0.7 million of the increase resulted from internal labor costs and consultant expenses associated with preparing the successful NextView proposal. The

remaining variance consisted primarily of an increase in labor costs of $0.8 million and an increase of $1.3 million resulting from non-labor expenses associated with the commencement of OrbView-3 business operations in 2004. SG&A expenses increased in 2003 by $0.6 million, or 15 percent, as compared to 2002 as a result of increased OrbView-3 sales and marketing activities after the successful launch.

      System Depreciation. Depreciation of the capitalized costs begins when the satellites and related ground systems are placed into service. Depreciation and amortization are recognized using the straight-line method. We are amortizing the cost of the OrbView-2 license over the seven and one-half year design life of the OrbView-2 satellite which will end in the second quarter of 2005. Total annual depreciation expense for the OrbView-2 system is approximately $2.7 million. We began depreciating the cost of OrbView-3 over its five-year design life in February 2004 when we commenced OrbView-3 business operations. We depreciate the ground systems assets over the estimated lives of the related satellite assets. Total annual depreciation expense for the OrbView-3 system is approximately $20.2 million.

      Asset Losses and Impairment Charges. On September 12, 2003, the Predecessor Company signed a settlement agreement with MDA concerning its remaining marketing rights in the long-delayed Canadian RadarSat-2 satellite program. The Predecessor Company had originally paid $30 million to MDA to acquire an exclusive territorial license to distribute and sell RadarSat-2 imagery in North America (except Canada), and was obligated to pay an additional $10 million to MDA as final payment prior to the Chapter 11 filing. Under the terms of the settlement agreement, the Predecessor Company received $10 million from MDA on October 1, 2003 and $1 million on October 1, 2004 and will receive an additional payment of $1 million on October 1, 2005. If MDA were to default in making such payment, interest would accrue on the unpaid principal amount at the default rate of 18 percent per annum compounded quarterly. In exchange, the Predecessor Company agreed to end its dispute with MDA and return its limited licenses in RadarSat-2 back to MDA, the prime contractor for the program. The Predecessor Company recorded a loss on the sale of the RadarSat-2 Territorial License of $18.2 million in 2003.

      In 2002, due to the continued effect of terrorism activities on Federal funding for scientific imagery applications, the Predecessor Company evaluated the recoverability of the OrbView-2 satellite pursuant to Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Accordingly, the carrying value of the satellite and related ground station assets were adjusted to their most likely estimated fair values based on anticipated future discounted cash flows, resulting in a non-cash impairment charge of $5.1 million for the year ended December 31, 2002.

      Interest Expense, net. We recorded net interest expense of approximately $10.3 million during the year ended December 31, 2004, which represents interest incurred on the Senior Notes and Senior Subordinated Notes. Interest expense on both the Senior Notes and the Senior Subordinated Notes was payable in kind at an annual rate of 13.625% through December 31, 2004. Beginning on January 1, 2005, the Senior Notes and Senior Subordinated Notes shall bear interest at an annual rate of 11.625%, payable in cash on a semiannual basis. The Predecessor Company recorded net interest expense of $1.3 million and $8.1 million for the years ended December 31, 2003 and 2002, respectively. Interest expense in 2003 represented interest expense on debt incurred for the purchase of insurance coverage for the combined risk of launch, satellite checkout and on-orbit satellite operations with respect to OrbView-3. This insurance loan is discussed in detail in the Liquidity and Cash Flows section below. The total amount borrowed was approximately $17.8 million. Interest accrued on the Insurance Loan at an annual rate of 13.625% and was added to the principal balance. This loan was converted to New Senior Notes on the effective date of the emergence from Chapter 11. Net interest expense in 2002 represents interest obligations incurred under the Predecessor Company’s Senior Notes. The Predecessor Company ceased recognizing interest expense on April 5, 2002, the date the Predecessor Company filed under Chapter 11. If the Predecessor Company had recorded interest expense during the Chapter 11 period, interest expense for the years ended December 31, 2003 and 2002 would have increased by approximately $28.0 million and $22.0 million, respectively.

      Reorganization Items. In accordance with SOP 90-7, reorganization items have been segregated from continuing operations in the Statement of Operations. The largest component of reorganization items for 2003 is a gain of $104.8 million that was recorded on the discharge of the Predecessor Company’s old Senior Notes

as discussed above. Reorganization items incurred during 2003 and 2002 also include legal and advisory fees incurred in conjunction with the Chapter 11 process of $6.1 million and $7.2 million, respectively.

      Benefit for Income Taxes. No income tax benefit was recorded for the years ended December 31, 2004, 2003 and 2002 due to uncertainty regarding sufficiency of taxable income in future periods. As of December 31, 2004, we had net operating loss carryforwards totaling approximately $158 million, which expire beginning in 2021. Such net operating loss carryforwards are subject to certain limitations and other restrictions.

      Backlog. Total negotiated backlog was $462.1 million at December 31, 2004. This amount includes both funded backlog (unfilled firm orders for our products and services for which funding has been both authorized and appropriated by the customer) and unfunded backlog (firm orders for which funding has not yet been appropriated). The contracts are generally for terms of up to four years, and the customers have options to renew. Negotiated backlog does not include unexercised options or task orders to be issued under indefinite-delivery/indefinite quantity (“IDIQ”) type contracts. Total funded backlog was $36.7 million at December 31, 2004.

Liquidity and Cash Flows

      Net cash provided by operating activities was $27.5 million in 2004 while cash used for operating activities was $3.0 million in 2003 and $5.1 million in 2002. Net income, after adjustments for non-cash items such as depreciation, amortization, interest expense paid in kind and stock compensation, was $13.2 million. Changes in working capital provided cash of $14.3 million and was derived principally from the generation of cash resulting from the commencement of OrbView-3 operations. The Predecessor Company’s net loss after adjustments for depreciation, amortization, impairment charges and the gain on debt extinguishment above was $10.2 million in 2003 and $7.8 million in 2002. Changes in working capital provided cash of $5.8 million in 2003 and $2.7 million in 2002. In 2003, the most significant source of operating cash was an $8.5 million payment received for completion of the distributor ground station in Japan. In 2002, the Predecessor Company used $34.3 million of restricted cash from insurance proceeds to repay accrued interest to the Predecessor Company’s senior note holders.

      Investing activities used cash of approximately $3.5 million in 2004, $9.1 million in 2003 and $2.0 million in 2002. Most of the 2004 expenditures represent internal salary and related costs as well as external costs associated with the in-orbit checkout of OrbView-3 and related systems and costs incurred to build the OrbView-5 satellite. The Company also incurred an additional $47.5 million of capitalized OrbView-3 costs which were owed to the program’s subcontractors and paid in March 2005. In 2003, the Predecessor Company used $21.4 million for capital expenditures, $15.6 million of which was used to purchase launch insurance for OrbView-3. Offsetting those expenditures was the receipt of $10 million from MDA for the sale of the territorial license to distribute and sell RadarSat-2 imagery and $2.3 million of launch delay payments paid to the Predecessor Company by Orbital Sciences as a result of delays in launch and check-out of the OrbView-3 satellite. ORBIMAGE expects to spend approximately $190 million on capital expenditures through the end of 2004 related to the OrbView-5 satellite and related systems. The system procurement agreement with Orbital for our existing satellite systems is now largely completed save for a continuing warranty on our ground stations which will expire on May 7, 2005, and post-launch incentives we may owe to Orbital in connection with the ongoing performance of our Orb-View-3 satellite. Under the system procurement agreement, as modified by the settlement agreement, a $1.5 million on-orbit milestone payment was delayed and will be due Orbital Sciences on May 7, 2005, the one-year anniversary of the date of acceptance by ORBIMAGE of the Orb-View-3 system. In addition, annual post-launch on-orbit payments to Orbital Sciences were reduced and will now be payable in maximum amounts of up to $1.125 million on each of the first five anniversaries of the acceptance by ORBIMAGE of the Orb-View-3 system, for a total possible maximum obligation of $6.375 million.

      Net cash provided by financing activities was $22.2 million in 2004, $20.2 million in 2003 and $0 in 2002. In conjunction with the NextView program, on November 16, 2004, ORBIMAGE completed a private placement in which the Company issued investment units composed of 3.25 million shares of common stock

and warrants to purchase 4.25 million shares of common stock for a purchase price of $10 per share. At the closing of the private placement, the Company received $32.5 million in gross proceeds. Additionally, ORBIMAGE incurred approximately $10.2 million of investment management fees and legal and other professional costs associated with a series of debt offerings that will be executed in 2005 associated with the NextView program. The 2003 amount consists of $19.1 million of loan proceeds that were used to procure launch insurance for OrbView-3 and $2.5 million of proceeds loaned by Orbital Sciences to the Predecessor Company. The insurance loan was converted into ORBIMAGE Senior Notes and the Orbital Sciences loan was converted into Successor Company Senior Subordinated Notes upon emergence from bankruptcy.

      Our operations are subject to certain risks and uncertainties that are inherent in the remote sensing industry. We have incurred losses since inception, and we believe that we will continue to do so through 2005. As of December 31, 2004, we had $60.6 million of unrestricted cash and cash equivalents. As stated previously, approximately $47.5 million of this balance is committed for payments to subcontractors under the NextView program. In connection with the settlement agreement between the Predecessor Company and MDA regarding the sale of a license for rights to distribute data from the RadarSat-2 satellite being constructed by MDA, we possess a note for $1 million payable in October 2005. Historically our operating cash flows were primarily impacted by the delays we experienced in getting the OrbView-3 satellite to launch.

      Since our emergence from Chapter 11, we have funded our capital expenditures and cash flows from operating activities using cash on hand and revenues from existing contracts and, since the award of the NextView contract, with regards to expenditures and cash flows relating to NextView, payments received under the NextView program. Our cash flows from operating activities have been at a break-even level since the commencement of full OrbView-3 operations at the end of the first quarter of 2004, and should increase with the addition of new customers. Our operating cash flows became more predictable in 2004 due to payments of guaranteed minimum amounts on our primary imagery contracts by all of our major customers, including the U.S. Government. As discussed below, we will be obligated to make cash payments of interest expense on our Senior Notes and Senior Subordinated Notes beginning in June 2005. Under our current debt covenants, we are permitted to spend approximately $6.4 million for capital expenditures (excluding the NextView program) during 2005. We believe that we currently have sufficient resources to meet our operating requirements through the next twelve months, but our ability to be profitable and generate positive cash flow through our operations beyond that period is dependent on the continued expansion of commercial services, adequate customer acceptance of our products and services and numerous other factors. As discussed below, the Company’s performance under the NextView Contract will require significant capital expenditures to develop, manufacture and launch the OrbView-5 satellite, and will be funded through separate issuances of debt and equity as well as from the Company’s future operating cash flows.

Capital Structure and Resources

      At December 31, 2004, our total long-term debt amounted to $85.0 million. On the Effective Date of our emergence from bankruptcy protection, holders of the Predecessor Company’s senior notes and the Predecessor Company’s qualified general unsecured creditors received $50 million of the Successor Company’s new Senior Subordinated Notes. In addition, Orbital Sciences received $2.5 million of Senior Subordinated Notes in full satisfaction of its claims, and certain other parties received approximately $1.5 million of Senior Subordinated Notes in exchange for advisory and other services. Each holder of the Predecessor Company’s Insurance Loan received, in full satisfaction of its Insurance Loan claim, its pro rata share of the Successor Company’s new Senior Notes totaling approximately $19.1 million. The Senior Notes rank senior to the Senior Subordinated Notes.

      Both the Senior Notes and the Senior Subordinated Notes accrued interest at the rate of 13.625 percent per annum, payable only in kind, on a semiannual basis through December 31, 2004. Thereafter, interest is payable in cash on a semiannual basis in arrears at the rate of 11.625 percent per annum, with such payments commencing on June 30, 2005. All cash on hand in excess of $45 million at June 30, 2005 (after cash required for operations, capital expenditures and required debt service) and all cash on hand in excess of $45 million semiannually thereafter (after cash required for operations, capital expenditures and required debt service) will be required to be used first to repurchase the Senior Notes, then to repurchase up to 50 percent of the

Senior Subordinated Notes. Interest payable in kind is expected to be approximately $10 million in 2004. Thereafter, annual interest payable in cash, assuming no repurchase of any portion of Senior Notes or Senior Subordinated Notes, would be approximately $9.7 million.

      Both the Senior Notes and the Senior Subordinated Notes contain certain restrictive covenants that restrict certain payments, capital expenditures, limitations on issuance of debt, transfers, and asset sales. The Senior Notes and the Senior Subordinated Notes both mature on June 30, 2008 and can be prepaid in full at any time under certain circumstances without penalty.

      The Senior Note agreement contains a covenant requiring us to maintain an on-orbit insurance policy for as long as the Senior Notes remain outstanding (the “Continuing Insurance”). The Continuing Insurance will be for a coverage amount equal to the lesser of $50 million or the maximum amount available to be underwritten in the insurance market.

      At December 31, 2004, we had contractual commitments to repay debt and to make payments under operating leases. Payments due under these long-term obligations (including interest obligations) and commitments are as follows:

In March 2005, ORBIMAGE signed a new lease for office space in its Dulles, Virginia facility through 2012. Total commitments under this lease are approximately $7.1 million.

      Under the Plan of Reorganization as confirmed by the Bankruptcy Court, all of the existing preferred stock, common stock and any options and warrants outstanding were cancelled as of the effective date of the reorganization. The capital stock of the Successor Company consists of 25.0 million authorized shares of new common stock. Holders of the Predecessor Company senior notes and the general unsecured creditors received a pro-rata distribution of 6.0 million shares of the Successor Company common stock on the Effective Date. These shares currently trade publicly in the over-the counter markets. Another 0.5 million shares of restricted stock and 0.4 million stock options have been issued as employee compensation since emergence from Chapter 11. These shares will vest over periods ranging from one to three years. The Predecessor Company’s outstanding preferred stock and outstanding warrants were cancelled as of the Effective Date. Holders of the Series A preferred stock were issued a pro-rata share of warrants to purchase up to 318,947 shares of Successor Company common stock at $28.22 per share. These warrants expire on December 31, 2007. These warrants were valued by the Successor Company at $2.04 per share.

      The Company’s performance under the NextView Contract will require significant capital expenditures to develop, manufacture and launch the OrbView-5 satellite. In order to fund its operations and obligations under the NextView Contract, the Company will need to raise approximately $265 million over a period of approximately two and one half years, which it intends to raise through a combination of (i) an issuance and sale of units composed of an aggregate of approximately 6.5 million shares of common stock and approximately 6.5 million new warrants for a price of $10 per unit totaling approximately $65 million, (ii) an issuance of $155 million of additional senior subordinated indebtedness that will rank no higher than pari passu with, and will not have any scheduled amortization or a maturity date prior to the scheduled maturity of, the existing Senior Subordinated Notes of the Company, and (iii) cash flow generated by the Company’s existing business in the amount of approximately $45 million.

      The first portion of this funding was raised in a private placement to certain private investors which closed on November 16, 2004, in which the Company issued 3.25 million shares of common stock and warrants to purchase 3.25 million shares of common stock for a purchase price of $10 per share. At the closing of the

private placement, the Company received $32.5 million in gross proceeds. In addition, on that date the Company issued warrants to purchase an additional 1.0 million shares to the private investors as consideration for their commitment to backstop this rights offering. All of these warrants were exercised in the first quarter of 2005, with the Company receiving $42.5 million of proceeds. The second portion of this funding was raised in a rights offering that commenced in February 2005 in which the Company issued to its existing shareholders transferable subscription rights to purchase up to an aggregate of approximately 3.26 million investment units, each consisting of one share of our common stock and one warrant to purchase a share of common stock at a cash exercise price of $10.00 per share. The subscription rights expired on March 14, 2005 and the offering was oversubscribed. The Company received approximately $32.5 million from the rights offering on March 24, 2005.

      ORBIMAGE has received commitments from investors to fund the $155 million in aggregate principal amount of additional senior subordinated indebtedness in conjunction with the NextView Second Vendor program. The Company paid to the parties who committed to the additional senior subordinated indebtedness a commitment fee equal to 100 basis points in cash for the total aggregate principal to which their commitments relate plus a pro rata share of 155,000 shares. Since the commitments were not refinanced by three months from contract execution, the Company paid such parties an additional commitment fee in cash equal to 50 basis points. Additionally, if the commitments have not been refinanced by six months from contract execution, the Company will pay such parties additional commitment fees in cash equal to 100 basis points unless such parties are released from their commitment by the Company.

      At September 30, 2004 the Company had received consents from the holders of its Senior Subordinated Notes and the holders of its Senior Notes due 2008 that, among other things, permit the Company to use up to $45 million of its cash flow from existing operations toward project costs for the OrbView-5 satellite. The consenting holders who held notes on the record date of July 29, 2004 received a consent fee in additional notes equal to 200 basis points on the principal amount of the notes to which the holders’ consents relate.

      During the first quarter of 2005, we expect to repay our Senior Notes due 2008 out of existing cash received pursuant to the exercise of warrants by certain investors during the first quarter of 2005. In addition, we plan to release certain private investors, who had committed to purchase $155 million of senior subordinated indebtedness in the future to fund a portion of our project costs under the NextView Contract, from their commitments. As a result of this release, we would not be obligated to pay a commitment fee to such investors that would otherwise become due and payable on March 31, 2005.

      In the second quarter of 2005, we intend to undertake a holding company reorganization, which will result in a holding company being created that will hold all of the capital stock of the Company, and will itself be held by the shareholders of the Company immediately prior to consummation of the reorganization. We plan for the new holding company to raise approximately $240 million through an offering of new senior notes of the holding company in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, and we have engaged a placement agent to assist us in the placement of these notes. The new senior notes would not be registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act. We expect that the holding company would contribute the proceeds of this offering to the Company as a capital contribution, which would constitute “unrestricted cash,” a portion of which we would be obligated to use to repay our Senior Subordinated Notes due 2008 together with interest thereon to June 30, 2005, under the mandatory redemption provisions of the Senior Subordinated Notes. Upon repayment of our Senior Subordinated Notes, we would provide a guarantee of the new senior notes issued by the new holding company. We expect to use the remainder of the cash that is contributed by the new holding company to replace the $155 million of debt commitments that were previously released, with the remaining proceeds to be used for general working capital purposes.

      The Company expects to generate at least $45 million of operating cash for the OrbView-5 construction costs over the construction period of OrbView-5. Since the NextView award, the Company has intensified its efforts to further develop its current operations, particularly in overseas markets. The incremental costs associated with international customers are expected to be smaller than the associated revenues, resulting in

higher operating margins. Management believes that sufficient positive cash flow will be generated to allow the Company to meet its NextView funding commitment.

      In addition to allowing the Company to use cash flow from existing operations to perform under the NextView Contract, the consents discussed above modified certain other provisions of its indenture governing its Senior Subordinated Notes and the note and security agreement governing its Senior Notes to allow the Company to perform its obligations under the NextView contract. In particular, those amendments will allow the Company to incur additional senior subordinated indebtedness discussed above, to issue the shares and warrants in the private placement and this rights offering without forcing the Company to offer to repurchase its outstanding senior notes and senior subordinated notes, to hold cash for purposes of performing its obligations under the NextView Contract rather than using such cash to redeem some or all of the senior notes and senior subordinated notes, and to incur capital expenditures under the NextView Contract.

Recent Accounting Pronouncements

      In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 151, “Inventory Costs.” SFAS No. 151 establishes standards for how a company accounts for abnormal amounts of idle facility expense, freight, handling costs, and wasted material when pricing its inventory. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of this statement is not expected to have a material effect on the Company’s financial statements.

      In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets.” SFAS No. 153 addresses the measurement of exchanges of nonmonetary assets. The provisions of this Statement are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of this statement is not expected to have a material effect on the Company’s financial statements.

      In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS 123(R), “Share-Based Payments,” that, upon implementation, will impact the Company’s net earnings and earnings per share, and change the classification of certain elements of the statement of cash flows. SFAS 123(R) requires stock options and other share-based payments made to employees to be accounted for as compensation expense and recorded at fair value, and to reflect the related tax benefit received upon exercise of the options in the statement of cash flows as a financing activity inflow rather than an adjustment of operating activity as currently presented. Consistent with the provisions of the new standard, the Company intends to adopt SFAS 123(R) in the third quarter of 2005, and to implement it on the modified prospective basis.

      Our primary exposure to market risk relates to interest rates. Our financial instruments which are subject to interest rate risk principally are limited to fixed rate long-term debt. Our long-term debt can be prepaid in full at any time without penalty. We do not believe that our debt securities are subject to significant market risk.

ORBIMAGE INC.

INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

ORBIMAGE, Inc.

Dulles, VA

      We have audited the accompanying balance sheets of ORBIMAGE Inc. (Successor Company) as of December 31, 2004 and 2003 and the related statement of operations, stockholders’ equity, and cash flows for the year ended December 31, 2004. We have also audited the statements of operations, stockholders’ equity, and cash flows of Orbital Imaging Corporation (Predecessor to ORBIMAGE Inc.) for the years ended December 31, 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, the financial statements referred to above present fairly, in all material respects, the financial position of ORBIMAGE Inc. at December 31, 2004 and 2003 the results of its operations and its cash flows for the year ended December 31, 2004, and the results of operations and cash flows of Orbital Imaging Corporation for the years ended December 31, 2003 and 2002, in conformity with accounting principles generally accepted in the United States of America.

Bethesda, MD

March 11, 2005

ORBIMAGE Inc.

STATEMENTS OF OPERATIONS

See accompanying Notes to Financial Statements.

ORBIMAGE Inc.

BALANCE SHEETS

See accompanying Notes to Financial Statements.

ORBIMAGE Inc.

STATEMENTS OF CASH FLOWS

See accompanying Notes to Financial Statements

ORBIMAGE Inc.

STATEMENTS OF STOCKHOLDERS’ EQUITY

See accompanying Notes to Financial Statements.

ORBIMAGE Inc.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2004

      On December 31, 2003 (the “Effective Date”), Orbital Imaging Corporation (the “Predecessor Company”) emerged from reorganization proceedings under Chapter 11 of the Federal bankruptcy laws pursuant to the terms of the Plan of Reorganization (as hereinafter defined). Upon reorganization, the Orbital Imaging Corporation changed its name to ORBIMAGE Inc. (“ORBIMAGE,” the “Company” or the “Successor Company”), a Delaware corporation.

      ORBIMAGE Inc. is a global provider of Earth imagery products and services. ORBIMAGE Inc. operates an integrated system of digital remote sensing satellites, U.S. and international ground stations and sales channels to collect, process and distribute Earth imagery products. The Company’s OrbView-3 satellite was successfully launched on June 26, 2003 and began generating revenues in 2004, providing one-meter panchromatic (black and white) and four-meter multi-spectral (color) imagery of the Earth. This imagery supports a wide range of applications including general mapping and charting, defense and intelligence, and commercial applications. ORBIMAGE recognized revenues related to the OrbView-3 satellite of $23.2 million for the year ended December 31, 2004. The Company’s OrbView-2 satellite was launched on August 1, 1997 and collects one kilometer resolution multi-spectral imagery that supports a wide array of projects focusing on global environmental monitoring. The Company recognized revenues related to the OrbView-2 satellite of $4.4 million for the year ended December 31, 2004 while the Predecessor Company recognized revenues of $3.8 million and $9.8 million for the years ended December 31, 2003 and 2002, respectively.

      On April 5, 2002, the Predecessor Company filed a voluntary petition for reorganization under Chapter 11 in the United States Bankruptcy Court for the Eastern District of Virginia (the “Bankruptcy Court”). The Predecessor Company had incurred losses since its inception, with an accumulated deficit of approximately $290 million as of the filing date. The Predecessor Company was in default on its senior notes and its ability to continue as a going concern was dependent on restructuring its senior notes. As of the date of the filing, the Predecessor Company’s current liabilities exceeded its current assets by approximately $230 million. The Predecessor Company had previously announced publicly that it intended to take such action in furtherance of its plan to reorganize and had been in negotiations with its senior noteholders, holders of its Series A Preferred Stock and Orbital Sciences Corporation (“Orbital Sciences”), its majority stockholder. The Predecessor Company was permitted to engage in ordinary course of business transactions without prior approval of the Bankruptcy Court.

      On September 15, 2003, the Predecessor Company filed its Fourth Amended Plan of Reorganization (the “Plan”) and Fourth Amended Disclosure Statement with the Bankruptcy Court. The Plan was confirmed by the Bankruptcy Court on October 24, 2003. The Predecessor Company officially emerged from bankruptcy protection effective December 31, 2003 (the “Effective Date”). On the Effective Date, all then-outstanding equity securities of the Predecessor Company, as well as substantially all of its pre-petition liabilities, were cancelled. Holders of the Predecessor Company’s old notes and the Predecessor Company’s general unsecured creditors received $50 million in new Senior Subordinated Notes due 2008 and 6 million shares of new common stock of the Successor Company, representing approximately 99 percent of the then-outstanding capital stock of the Successor Company. In addition, Orbital Sciences received $2.5 million of Senior Subordinated Notes in full satisfaction of its claims, and certain other parties received approximately $1.5 million of Senior Subordinated Notes in exchange for advisory and other services. Holders of certain debt obligations incurred during the Predecessor Company’s bankruptcy period received approximately $19 million of new Senior Notes due 2008. Holders of the Predecessor Company’s Series A Preferred Stock received out-of-the-money warrants to purchase up to 318,947 shares of common stock of the Successor Company.

ORBIMAGE Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

      As a general rule, all of the Predecessor Company’s contracts and leases continued in effect in accordance with their terms, unless otherwise ordered by the Bankruptcy Court. The Bankruptcy Court provided the Predecessor Company with the opportunity to reject any executory contracts or unexpired leases that were burdensome or assume any contracts or leases that were favorable or otherwise necessary to its business operations. Certain executory contracts were rejected by the Predecessor Company during the course of the bankruptcy proceedings.

      In connection with the emergence from Chapter 11, ORBIMAGE reflected the terms of its Plan of Reorganization in its financial statements in accordance with American Institute of Certified Public Accountants Statement of Position 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code” (“SOP 90-7”) with respect to financial reporting upon emergence from Chapter 11 (“Fresh-Start accounting”). Upon applying Fresh-Start accounting, a new reporting entity (the Successor Company) is deemed to be created on the Effective Date and the recorded amounts of assets and liabilities are adjusted to reflect their estimated fair values. In the accompanying financial statements and footnotes, references to the years ended December 31, 2003 and prior periods refer to the Predecessor Company while the year ended December 31, 2004 refers to the Successor Company. Also, the financial position as of December 31, 2004 and 2003 refer to the Successor Company. The reported historical financial statements of the Predecessor Company for the years ended December 31, 2003 and prior generally will not be comparable to those of the Successor Company.

      As of April 5, 2002, the date of the Predecessor Company’s voluntary petition for reorganization under Chapter 11, the Predecessor Company adopted the financial reporting and accounting policies required for companies operating pursuant to Chapter 11 as prescribed in SOP 90-7. Revenues, expenses, gains and losses relating to the reorganization are reported separately in the accompanying statement of operations for the years ended December 31, 2003 and 2002, respectively.

      The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amount reported in its financial statements and accompanying notes. Actual results could differ from these estimates.

      ORBIMAGE’s principal source of revenue is the sale of satellite imagery to customers, value-added resellers and distributors. Such sales often require us to provide imagery over the term of a multi-year sales contract. Accordingly, revenues are recognized on imagery contracts on a straight-line basis over the delivery term of the contract. Deferred revenue represents receipts in advance of the delivery of imagery. Revenue for other services is recognized as services are performed.

      Revenue is recognized on contracts to provide image-processing services using the percentage-of-completion method of accounting. Revenue on these contracts is recognized based on costs incurred in relation to total estimated costs. These incurred costs approximate the output of deliverables to the Company’s customers. Revenues recognized in advance of becoming billable are recorded as unbilled receivables. Such amounts generally do not become billable until after the products have been completed and delivered. Total unbilled accounts receivable were $0.3 million and $0.2 million at December 31, 2004 and 2003, respectively, and were collected in the succeeding 12 month period. To the extent that estimated costs of completion are

ORBIMAGE Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

adjusted, revenue and profit recognized from a particular contract will be affected in the period of the adjustment. Anticipated contract losses are recognized as they become known.

      Much of the Company’s revenues are generated through contracts with the U.S. Government. U.S. Government agencies may terminate or suspend their contracts at any time, with or without cause, or may change their policies, priorities or funding levels by reducing agency or program budgets or by imposing budgetary constraints. If a U.S. Government agency terminates or suspends any of its contracts with ORBIMAGE, or changes its policies, priorities, or funding levels, these actions would have a material adverse effect on the business, financial condition and results of operations. Imagery contracts with international customers generally are not cancelable.

      For contracts consisting of multiple elements, the Company identifies these elements and considers whether the delivered item(s) has value to the customer on a standalone basis, whether there is objective and reliable evidence of the fair value of the undelivered item(s) and, if the arrangement includes a general right of return relative to the delivered item(s), delivery of performance of the undelivered item(s) considered probable and substantially in the Company’s control.

      Allowances for doubtful accounts receivable balances are recorded when circumstances indicate that collection is doubtful for particular accounts receivable or as a general reserve for all accounts receivable. Management estimates such allowances based on historical evidence such as amounts that are subject to risk. Accounts receivable are written off if reasonable collection efforts are not successful.

      Compensation expense for employee stock-based compensation plans is measured using the market value as of the measurement date as prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” Compensation expense is recognized over the restriction period for the restricted stock grants to the employees. To the extent that ORBIMAGE grants stock options to non-employee consultants or advisors, costs are recorded equal to the fair value of the options granted as of the measurement date as determined using a Black-Scholes model.

      For purposes of pro forma disclosures, the options’ estimated fair values are amortized to expense over the options’ vesting periods (see Note 16). The Company’s pro forma information follows:

ORBIMAGE Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

      In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS 123(R), “Share-Based Payments,” that, upon implementation, will impact the Company’s net earnings and earnings per share, and change the classification of certain elements of the statement of cash flows. SFAS 123(R) requires stock options and other share-based payments made to employees to be accounted for as compensation expense and recorded at fair value, and to reflect the related tax benefit received upon exercise of the options in the statement of cash flows as a financing activity inflow rather than an adjustment of operating activity as currently presented. Consistent with the provisions of the new standard, the Company intends to adopt SFAS 123(R) in the third quarter of 2005, and to implement it on the modified prospective basis.

      ORBIMAGE considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents.

      Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of operating cash in excess of FDIC insured limits and temporary cash investments. ORBIMAGE places temporary cash investments with high credit quality financial institutions that invest primarily in U.S. Government instruments guaranteed by banks or savings and loan associations which are members of the FDIC.

      The Company’s policy is to review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Impairment losses are recognized when the sum of expected undiscounted net future cash flows is less than the carrying amount of the assets. The amount of the impairment is measured as the difference between the asset’s estimated fair value and its book value. Fair market value is determined primarily using the projected future cash flows discounted at a rate commensurate with the risk involved.

      On January 1, 2002, the Predecessor Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets,” which eliminated the amortization of goodwill and other intangibles with indefinite useful lives unless the intangible asset is impaired. The Successor Company performed an impairment test of its goodwill and determined that no impairment of recorded goodwill existed at December 31, 2004 and 2003, respectively.

      As part of the Fresh-Start accounting as discussed in Note 3, ORBIMAGE recorded goodwill based on an independent enterprise valuation. Intangible assets that have finite useful lives continue to be amortized over those useful lives.

      ORBIMAGE recognizes income taxes using the asset and liability method in accordance with SFAS No. 109, “Accounting for Income Taxes.” Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in

ORBIMAGE Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

the period that includes the enactment date. The deferred tax assets are reviewed periodically for recoverability and valuation allowances are provided as necessary.

      The Predecessor Company purchased the OrbView-2 License, the OrbView-3 satellite and the ground system assets from Orbital Sciences pursuant to the System Procurement Agreement, discussed in Note 5 below. Amortization of the capitalized costs begins when the assets are placed in service. Capitalized costs include the cost of any applicable launch insurance.

      Depreciation and amortization are provided using the straight-line method as follows:

      In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 151, “Inventory Costs.” SFAS No. 151 establishes standards for how a company accounts for abnormal amounts of idle facility expense, freight, handling costs, and wasted material when pricing its inventory. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of this statement is not expected to have a material effect on the Company’s financial statements.

      In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets.” SFAS No. 153 addresses the measurement of exchanges of nonmonetary assets. The provisions of this Statement are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of this statement is not expected to have a material effect on the Company’s financial statements.

      SFAS 123(R), “Share-Based Payments,” was released by the FASB in December 2004. The Company plans to adopt this new standard prospectively in the third quarter of 2005. The Company has not yet completed an evaluation but expects the adoption of SFAS 123(R) to have an effect on its financial statements based on the unamortized pro forma expense related to unvested options outstanding at the date of adoption. A brief description of SFAS 123(R) appears in the stock-based compensation section within this note.

      The emergence from Chapter 11 resulted in a new reporting entity and adoption of Fresh-Start accounting in accordance with SOP 90-7. We allocated the reorganization value to our net assets based on their estimated fair values in accordance with SFAS No. 141, “Business Combinations,” as of December 31, 2003, the Effective Date. Such fair values represented our best estimates based on independent valuations. These valuations were based on a number of estimates and assumptions which are inherently subject to significant uncertainties and contingencies beyond our control. Immaterial differences between estimated pre-petition liabilities assumed by the Successor Company and the final settlement amounts were recognized as they occurred.

      ORBIMAGE developed a set of financial projections to facilitate the calculation of the enterprise value of the Successor Company. The enterprise value was determined with the assistance of a third party financial advisor using a discounted cash flow analysis. The discounted cash flow analysis was based upon five years

ORBIMAGE Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

projected financial results, including an assumption for terminal values using cash flow multiples, discounted at our estimated post restructuring weighted-average cost of capital. The estimated enterprise value of ORBIMAGE on the effective date of the Plan of Reorganization (“POR”) was determined to be approximately $140 million to $155 million. We selected the midpoint of the range, approximately $148 million, as the estimated enterprise value. Pursuant to SOP 90-7, the reorganization value of ORBIMAGE on the effective date of the POR was determined to be approximately $153 million, which represented the enterprise value of $148 million plus the fair value of the current liabilities on December 31, 2003.

      As stated previously, ORBIMAGE’s post-emergence financial statements are not comparable with the Predecessor Company’s pre-emergence financial statements. The table below reflects the implementation of the POR and the adjustments of such assets and liabilities to fair value as of December 31, 2003 based on the Successor Company’s reorganization value as included in the POR and as approved by the Bankruptcy Court. The reorganization equity value of $74.8 million is calculated by subtracting the Successor Company’s debt of $73.1 million on the Effective Date from the estimated enterprise value. On December 31, 2003 all liabilities subject to compromise were settled in accordance with the POR by either being discharged by the Bankruptcy Court or settled as ongoing obligations.

ORBIMAGE Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

      The effects of the reorganization pursuant to the Restructuring Plan and the application of fresh start reporting on the Predecessor’s Company’s balance sheet as of December 31, 2003 are as follows (in thousands):

Notes:

ORBIMAGE Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

      The U.S. Government, through the National Geo-Spatial Intelligence Agency (“NGA”), announced in March 2003 that it intended to support the continued development of the commercial satellite imagery industry through subsidies for the engineering, construction and launch of the next generation of imagery satellites by two providers. This program is known as NextView. The first NextView award was made to a competitor of the Company in September 2003.

      NGA announced a request for proposals from potential second providers in April 2004. The NextView Second Vendor program allows NGA to have two separate providers of next generation high-resolution satellite imagery. On September 30, 2004, NGA announced that ORBIMAGE had been awarded a contract under this NextView Second Vendor program. As the winning bidder of the NextView Second Vendor award, ORBIMAGE is the prime contractor constructing a new satellite to be referred to as OrbView-5. The Company estimates its total project cost (including financing and launch insurance costs) to bring the OrbView-5 satellite into service will be approximately $502 million. Under the NextView contract, NGA will support the project with a cost share totaling approximately $237 million spread out over the course of the project and subject to various milestones. As of December 31, 2004, NGA had paid the Company approximately $21.1 million. ORBIMAGE is deferring the cost share amounts until OrbView-5 is put into service and then will recognize revenue on a straight-line basis over the imagery delivery term of the program. Total incurred costs of the OrbView-5 satellite and related ground systems were approximately $48.3 million at December 31, 2004. Approximately $47.5 million of this amount was payable to subcontractors at December 31, 2004. Of this amount, approximately $40.0 million was paid to subcontractors during the first quarter of 2005, with the remainder to be paid in April 2005.

      The Company anticipates the OrbView-5 satellite will launch and go into service in early 2007. ORBIMAGE intends to purchase launch insurance and on-orbit insurance to cover the replacement cost of the satellite in the event of a launch failure or if on-orbit anomalies prevent the satellite from being placed into service. The costs of such insurance cannot be determined with specificity at this time, but the Company believes the premium will cost approximately 20 percent of the coverage amount if the insurance market at the time such insurance is purchased is similar to the current market. Once the OrbView-5 satellite is placed into service, the NextView award provides for NGA to purchase imagery from the satellite through September 30, 2008. NGA will have the first right to order images from the satellite, which the Company anticipates will utilize slightly more than half of the satellite’s imagery-taking capacity at any given time, with the remainder available for commercial and state and foreign government sales by the Company.

      ORBIMAGE’s performance under the NextView Contract will require significant capital expenditures to develop, manufacture and launch the OrbView-5 satellite. In order to fund its operations and obligations under the NextView Contract, ORBIMAGE will need to raise approximately $265 million over a period of approximately two and one half years, which it intends to raise through a combination of (i) an issuance and sale of units composed of an aggregate of 6.5 million shares of common stock and 6.5 million new warrants for a price of $10 per unit totaling $65 million, which would be raised through a combination of a private offering and a rights offering to its existing stockholders, (ii) an issuance of $155 million of additional senior subordinated indebtedness that will rank no higher than pari passu with, and will not have any scheduled amortization or a maturity date prior to the scheduled maturity of, the existing senior subordinated notes of the Company, and (iii) cash flow generated by the Company’s existing business in the amount of approximately $45 million.

      The first portion of this funding was raised in a private placement to certain private investors which closed on November 16, 2004, in which the Company issued 3.25 million shares of common stock and warrants to purchase 3.25 million shares of common stock for a purchase price of $10 per share. At the closing of the private placement, the Company received $32.5 million in gross proceeds. In addition, on that date the Company issued warrants to purchase an additional 1.0 million shares to the private investors as consideration

ORBIMAGE Inc.

NOTES TO FINANCIAL STATEMENTS — (Continued)

for their commitment to backstop this rights offering. All of these warrants were exercised in the first quarter of 2005, with the Company receiving $42.5 million of proceeds. The second portion of this funding was raised in a rights offering that commenced in February 2005 in which the Company issued to its existing shareholders transferable subscription rights to purchase up to an aggregate of approximately 3.26 million investment units, each consisting of one share of our common stock and one warrant to purchase a share of common stock at a cash exercise price of $10.00 per share. The subscription rights expired on March 14, 2005 and the offering was oversubscribed.

      The Predecessor Company was initially established as a wholly-owned subsidiary of Orbital Sciences. In 1997, the Predecessor Company issued preferred stock to private investors to fund a significant portion of the remaining costs of existing projects (the “Private Placement”). During 1997, the Predecessor Company also executed certain contracts with Orbital Sciences whereby all assets and liabilities of Orbital Sciences’ operating division, the Predecessor Company, were sold to the Predecessor Company at historical cost.

      The Predecessor Company had three significant contracts with Orbital Sciences at the beginning of 2002: (i) the ORBIMAGE System Procurement Agreement dated November 18, 1996, as amended (the “System Procurement Agreement”), (ii) the OrbView-2 License Agreement dated May 8, 1997 (the “OrbView-2 License”), and (iii) the Amended and Restated Administrative Services Agreement dated May 8, 1997 (the “Administrative Services Agreement”).

      Under the System Procurement Agreement, the Predecessor Company purchased (i) the OrbView-1 satellite, (ii) an exclusive license entitling the Predecessor Company to all of the economic rights and benefits of the OrbView-2 satellite, (iii) the OrbView-3 satellite and launch service, (iv) the OrbView-4 satellite and launch service and (v) the ground system assets used to command and control the satellites as well as receive and process imagery. Pursuant to the System Procurement Agreement, the Predecessor Company committed to purchase various satellites, rights and ground systems for approximately $279.9 million, net of $31.0 million to be funded by the U.S. Air Force through a contract with Orbital Sciences. The System Procurement Agreement originally called for the OrbView-3 satellite to be constructed and launched before OrbView-4; however, continuing schedule delays resulted in OrbView-4 being constructed and delivered first. The OrbView-4 satellite suffered a launch failure in September 2001 and did not reach its intended orbit. On the date of the Bankruptcy Filing, $4.4 million of costs previously incurred under the System Procurement Agreement were outstanding.

      On June 19, 2002, the Official Committee of Unsecured Creditors (the “Creditors Committee”) appointed in the bankruptcy proceeding filed a motion in the Bankruptcy Court for authority to conduct discovery against Orbital Sciences under Federal Rules of Bankruptcy Procedure 2004. The stated purpose of the Creditors Committee in seeking such discovery was to investigate the details of the Predecessor Company’s relationship and transactions with Orbital Sciences in order to reveal whether claims were warranted against Orbital Sciences or certain of its directors, officers and former officers on theories that might include, among others, wrongful control and domination, breach of fiduciary duty, breach of contract, fraud and misrepresentation.

      On July 24, 2002, the Predecessor Company initiated an adversary proceeding in the Bankruptcy Court by filing a complaint seeking damages and other relief from Orbital Sciences due to, among other things, breach of the satellite System Procurement Agreement between the two parties, conversion of property, breach of fiduciary duty, fraud and misrepresentation, and civil conspiracy in connection with various transactions with Orbital Sciences and MacDonald, Dettwiler and Associates Ltd. (“MDA”), Orbital Sciences’ former subsidiary. The complaint also named certain officers/ directors of Orbital Sciences as defendants in connection with certain of the claims. The Bankruptcy Court ordered that the majority of the

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claims against Orbital Sciences be referred to resolution by binding arbitration in accordance with the arbitration provisions of the procurement agreement between the Predecessor Company and Orbital Sciences.

      On February 11, 2003, the Predecessor Company signed a Settlement Agreement with the Creditors’ Committee and Orbital Sciences to facilitate the Predecessor Company’s emergence from its Chapter 11 reorganization proceeding. Under the Settlement Agreement, the Predecessor Company agreed to suspend its pending litigation with Orbital Sciences in exchange for additional working capital and other consideration to be provided by Orbital Sciences. The Settlement Agreement provided for mutual releases of all claims among the parties, including the Predecessor Company and a significant majority of its bondholders and preferred stockholders, Orbital Sciences, and certain officers/directors of Orbital Sciences. The releases became effective upon launch of the OrbView-3 satellite by Orbital Sciences and payment by Orbital Sciences of $2.5 million to the Predecessor Company (the “Orbital Sciences Payment”). In exchange, Orbital Sciences received new notes that were equal to the Orbital Sciences Payment and ranked pari passu with the new notes to be issued to the Predecessor Company’s pre-bankruptcy unsecured creditors. As part of the Settlement Agreement, if OrbView-3 was not launched by April 30, 2003 or on-orbit check out was not successfully completed by July 31, 2003, Orbital Sciences would pay the Predecessor Company delay penalties. Orbital Sciences also agreed to eliminate the $4.4 million obligation discussed above and further agreed to defer a $1.5 million on-orbit milestone payment due Orbital Sciences until May 7, 2005, the one-year anniversary of the date of acceptance by ORBIMAGE of the OrbView-3 system. In addition, the maximum amount of the annual post-launch on-orbit payments to Orbital Sciences was reduced from $2.25 million to $1.125 million on each of the first five anniversaries of the acceptance by ORBIMAGE of the OrbView-3 system, for a total maximum obligation of $6.375 million. The Predecessor Company obtained formal approval of the Settlement Agreement from the Bankruptcy Court on February 19, 2003.

      Because the OrbView-3 launch did not occur by April 30, 2003, the terms of the Settlement Agreement required that Orbital Sciences pay the Predecessor Company daily launch delay penalties of $16,430 beginning May 1, 2003 until Launch had occurred. Furthermore, because the Predecessor Company did not accept the OrbView-3 System as provided in the System Procurement Agreement by July 31, 2003, Orbital Sciences was required to pay the Predecessor Company daily checkout delay penalties of $16,430 until either (i) the Predecessor Company accepted the OrbView-3 system; (ii) Orbital Sciences had made all commercially reasonable efforts to achieve on-orbit verification and checkout of the OrbView-3 system; or (iii) the delay penalty cap of $5 million was reached. The checkout penalty delays were terminated in October 2003 when it was mutually agreed that Orbital Sciences had made all commercially reasonable efforts to achieve on-orbit verification. Orbital Sciences paid the Predecessor Company delay penalties of approximately $2.3 million during the year ended December 31, 2003.

      Under the OrbView-2 License Agreement, Orbital Sciences has granted an exclusive worldwide license to ORBIMAGE to use and sell OrbView-2 imagery. Pursuant to the terms of the OrbView-2 License Agreement, Orbital Sciences assigned to ORBIMAGE all amounts that are due or become due to Orbital Sciences under a contract Orbital Sciences had with NASA to deliver OrbView-2 imagery, and ORBIMAGE has sole responsibility for operating and controlling the OrbView-2 satellite. This contract expired on December 19, 2002. Effective December 20, 2002, the Predecessor Company executed a new contract to provide OrbView-2 imagery to NASA for a one-year period. This contract was renewed effective December 20, 2003 for an additional year.

      Under the Administrative Services Agreement, the Predecessor Company paid Orbital Sciences for office space and other administrative services, as well as certain direct and indirect operating services provided by Orbital Sciences. The Administrative Services Agreement was terminated on March 31, 2002. As part of the Settlement Agreement, the Predecessor Company and Orbital Sciences executed a sublease agreement which permitted ORBIMAGE to continue subleasing its current office space from Orbital Sciences through April 2005.

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NOTES TO FINANCIAL STATEMENTS — (Continued)

      In 1998, the Predecessor Company entered into an agreement with MDA, then a Canadian subsidiary of Orbital Sciences, under which the Predecessor Company acquired the exclusive worldwide distribution rights for the RadarSat-2 satellite imagery (the “RadarSat-2 License”). Under the RadarSat-2 License, MDA would own and operate the RadarSat-2 satellite, and would provide operations, data reception, processing, archiving and distribution services to the Predecessor Company. The Company’s acquisition of the RadarSat-2 License was to cost $60 million, of which $30 million was paid in 1999. The RadarSat-2 License Agreement was terminated on February 9, 2001 and replaced with a new RadarSat-2 Territorial License agreement (the “RadarSat-2 Territorial License”), pursuant to which MDA granted to the Predecessor Company an exclusive territorial license to distribute and sell RadarSat-2 imagery in North America (except Canada) for $40 million. The $30 million of payments previously remitted to MDA under the original RadarSat-2 License agreement were applied to the $40 million license fee under the RadarSat-2 Territorial License. The License required the Predecessor Company to pay the remaining $10 million license fee obligation in 2002. The Predecessor Company did not pay the remaining $10 million obligation because of numerous program delays and began to pursue litigation against MDA related to the RadarSat-2 Territorial License, seeking, among other things, rescission of the RadarSat-2 License and the return of the $30 million that the Predecessor Company paid to MDA. The Predecessor Company entered into a settlement agreement with MDA dated September 12, 2003 whereby the RadarSat-2 Territorial License Agreement was returned to MDA for $12 million. MDA paid $10 million in October 2003 to the Predecessor Company and $1 million in October 2004 and will pay us $1 million in October 2005. If MDA were to default in making such payment, interest would accrue on the unpaid principal amount at the default rate of 18 percent per annum compounded quarterly. The Predecessor Company recorded a loss on the sale of the RadarSat-2 Territorial License of $18.2 million in 2003.

      Due to continued delays in the completion of OrbView-3 and RadarSat-2, the entry of competitors in markets served by us and the effect of terrorism activities on Federal funding for scientific imagery applications, we evaluated the recoverability of our remaining satellites and ground station assets pursuant to SFAS No. 144. Accordingly, the carrying value of the OrbView-2 license was adjusted to its most likely estimated fair value based on anticipated future discounted cash flows, resulting in a $5.1 million non-cash impairment charge for the year ended December 31, 2002.

      For the years ended December 31, 2004, 2003, and 2002, there were no material differences between net earnings (loss) as reported and comprehensive income (loss).

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NOTES TO FINANCIAL STATEMENTS — (Continued)

      The computations of basic and diluted loss per common share were as follows for the years ended December 31, 2004, 2003, and 2002 (in thousands, except share data):

      Property, plant and equipment consisted of the following at December 31, 2004 and 2003 (in thousands):

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NOTES TO FINANCIAL STATEMENTS — (Continued)

      Depreciation and amortization expense was $3.8 million, $1.1 million, and $1.4 million for the years ended December 31, 2004, 2003 and 2002, respectively.

      Satellites and related rights consisted of the following at December 31, 2004 and 2003 (in thousands):

      During the first quarter of 2004, the OrbView-3 system became fully operational. The total capitalized cost of the OrbView-3 system is being depreciated over its five-year design life. Total satellite depreciation and amortization expense was $21.9 million, $2.3 million, and $4.6 million for the years ended December 31, 2004, 2003 and 2002, respectively.

      The Predecessor Company recorded no income tax expense for the years ended December 31, 2004, 2003 and 2002 as a result of tax losses incurred in those years. The differences between the tax provision (benefit) calculated at the statutory Federal income tax rate and the actual tax provision (benefit) for each of those years are as follows:

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      The primary components of federal deferred tax assets and liabilities were as follows (in thousands):

      The increase in valuation allowance is principally the result of current year operating losses. We believe it is more likely than not that our existing deferred tax assets will not be realized. As of December 31, 2004, we had net operating loss carryforwards totaling approximately $158 million, which expire beginning in 2021. Such net operating loss carryforwards are subject to certain limitations and other restrictions.

      Long-term debt consisted of the following as December 31, 2004 and 2003 (in thousands):

      Prior to the Bankruptcy filing, the Predecessor Company had approximately $225 million of senior notes outstanding. Interest on the senior notes accrued at a rate of 11.625% per annum and was payable semi-annually in arrears on March 1 and September 1. The senior notes were to mature on March 1, 2005. At December 31, 2001, the Predecessor Company was in default with regard to the senior notes because the Predecessor Company did not make the scheduled interest payments for that year. On February 10, 2002, the senior noteholders received approximately $28.4 million of insurance proceeds as payment of the outstanding interest on the senior notes, which cured the payment default. This payment included interest on the overdue installments of interest which was payable at a rate of 12.625 percent per annum. The Predecessor Company made a partial payment of $5.9 million to the senior noteholders in conjunction with the March 1, 2002 semiannual interest payment on March 31, 2002, but was in default again on its interest obligations under the senior notes by $7.2 million with regard to that payment. As a result of the Bankruptcy Filing on April 5, 2002, an automatic stay was imposed to prevent claimants from attempting to collect amounts due or to proceed against property of the Predecessor Company.

      The Predecessor Company recorded interest expense on the senior notes until April 5, 2002. In accordance with SOP 90-7, interest expense was not recorded during the Chapter 11 period because it was considered probable that a claim for payment of interest would not be allowed. If the Predecessor Company

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had recorded interest expense during the Chapter 11 period, interest expense for the years ended December 31, 2003 and 2002 would have increased by approximately $28.0 million and $22.0 million, respectively.

      In conjunction with the issuance of the senior notes, the Predecessor Company incurred debt financing costs which had been deferred and were being amortized over the term of the senior notes. Such amortization was reported as a component of interest expense. As a result of the Chapter 11 filing, the Predecessor Company ceased amortizing these costs and wrote them off.

      In June 2003, the Predecessor Company purchased insurance coverage for the combined risk of launch, satellite checkout and on-orbit satellite operations with respect to OrbView-3. The Predecessor Company paid approximately $14.8 million to purchase insurance coverage of $51 million on behalf of the senior note holders. Certain of the members of the informal committee of holders of the senior notes loaned the Predecessor Company the funds necessary to purchase the insurance coverage (the “Insurance Loan”). the Predecessor Company also borrowed funds required to pay a 20 percent commitment fee to the Insurance Loan lenders for securing the loan. The total amount borrowed under the Insurance Loan was approximately $17.8 million. Interest accrued on the Insurance Loan at an annual rate of 13.625% and was added to the principal balance. The Predecessor Company recognized interest expense on the insurance loan of approximately $1.3 million during the year ended December 31, 2003.

      On the Effective Date of our emergence from bankruptcy protection, holders of the Predecessor Company’s senior notes and the Predecessor Company’s qualified general unsecured creditors received $50 million of the Successor Company’s new Senior Subordinated Notes. In addition, Orbital Sciences received $2.5 million of Senior Subordinated Notes in full satisfaction of its claims, and certain other parties received approximately $1.5 million of Senior Subordinated Notes in exchange for advisory and other services. Each holder of the Predecessor Company’s Insurance Loan received, in full satisfaction of its Insurance Loan claim, its pro rata share of the Successor Company’s new Senior Notes totaling approximately $19.1 million. The Senior Notes rank senior to the Senior Subordinated Notes. The Senior Notes and the Senior Subordinated Notes both mature on June 30, 2008 and can be prepaid in full at any time without penalty.

      Both the Senior Notes and the Senior Subordinated Notes accrued interest at the rate of 13.625 percent per annum, payable only in kind, on a semiannual basis through December 31, 2004. Thereafter, interest is payable in cash on a semiannual basis in arrears at the rate of 11.625 percent per annum, with such payments commencing on June 30, 2005. Interest payable in kind was $10 million for the year ended December 31, 2004. Thereafter, annual interest payable in cash, assuming no repurchase of any portion of Senior Notes or Senior Subordinated Notes, is expected to be approximately $9.7 million.

      Both the Senior Notes and the Senior Subordinated Notes contain certain restrictive covenants that restrict certain payments, capital expenditures, limitations on issuance of debt, transfers, and asset sales. All cash on hand in excess of $15 million at June 30, 2004 and $45 million at December 31, 2004 (after cash required for operations, capital expenditures and required debt service) was required to be used first to repurchase the Senior Notes, then to repurchase up to 50 percent of the Senior Subordinated Notes. No repurchase of Senior Notes and Senior Subordinated Notes occurred in 2004.

      The Senior Note agreement contains a covenant requiring the Company to maintain an on-orbit insurance policy for as long as the Senior Notes remain outstanding (the “Continuing Insurance”). The Continuing Insurance will be for a coverage amount equal to the lesser of $50 million or the maximum amount available to be underwritten in the insurance market. ORBIMAGE paid approximately $1.1 million in January 2004 to procure the Continuing Insurance.

      ORBIMAGE has received commitments from investors to fund the $155 million in aggregate principal amount of additional senior subordinated indebtedness in conjunction with the NextView Second Vendor program. The additional senior subordinated indebtedness will rank pari passu with the Company’s existing Senior Subordinated Notes due 2008 and will not have any scheduled amortization or a maturity date prior to

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NOTES TO FINANCIAL STATEMENTS — (Continued)

the scheduled maturity of the Senior Subordinated Notes. The Company paid to the parties who committed to the additional senior subordinated indebtedness a commitment fee equal to 100 basis points in cash for the total aggregate principal to which their commitments relate plus a pro rata share of 155,000 shares. Since the commitments were not refinanced by three months from contract execution, the Company paid such parties an additional commitment fee in cash equal to 50 basis points, or $0.8 million, in January 2005. Additionally, if the commitments have not been refinanced by six months from contract execution, the Company will pay such parties additional commitment fees in cash equal to 100 basis points unless such parties are released from their commitment by the Company.

      At September 30, 2004 the Company had received consents from the holders of its Senior Subordinated Notes and the holders of its Senior Notes due 2008 that permit the Company to use up to $45 million of its cash flow from existing operations toward project costs for the OrbView-5 satellite. The consenting holders who held notes on the record date of July 29, 2004 received a consent fee in additional notes equal to 200 basis points on the principal amount of the notes to which the holders’ consents relate.

      The Company has modified certain provisions of its indenture governing its Senior Subordinated Notes and the note and security agreement covering its Senior Notes to allow the Company to perform its obligations under the NextView contract.

      Total rental expense under operating leases was $0.8 million, $0.7 million, and $0.2 million for the years ended December 31, 2004, 2003, and 2002. Aggregate minimum rental commitments under non-cancelable operating leases (primarily for office space and equipment) as of December 31, 2004 were as follows (in thousands):

      In March 2005, ORBIMAGE signed an agreement to lease office space beginning in April 2005 for a seven-year term. The total rental commitment under this lease is approximately $7.1 million.

      The Company’s employees participate in the Orbital Imaging Corporation Retirement Savings Plan, as amended, a defined contribution plan (the “Retirement Plan”) in accordance with Section 401(k) of the Internal Revenue code of 1986, as amended. The Company’s contributions to the Retirement Plan are made based on certain plan provisions and at the discretion of the Board of Directors. The annual contribution expense was $0.3 million, $0.2 million and $0.2 million for the years ended December 31, 2004, 2003, and 2002, respectively.

      Under the POR as confirmed by the Bankruptcy Court, all of the Predecessor Company’s existing preferred stock, common stock and any options and warrants outstanding were cancelled as of the Effective Date. The capital stock of the Successor Company consists of 25,000,000 authorized shares of new common

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stock. Holders of the Predecessor Company senior notes and the general unsecured creditors received a pro-rata distribution of 6,000,000 shares of the Successor Company common stock on the Effective Date. Outstanding preferred stock was cancelled as of the Effective Date. Holders of the Series A preferred stock were issued a pro-rata share of warrants to purchase up to 318,947 shares of new common stock at $28.22 per share on the Effective Date. These warrants expire on December 31, 2007. The warrants were valued by the Successor Company at $4.73 and $2.04 per share using the Black-Scholes options pricing model at December 31, 2004 and 2003, respectively. This model utilizes certain information, such as the interest rate on a risk-free security maturing generally at the same time as the warrant being valued, and requires certain assumptions, such as the expected amount of time a warrant will be outstanding until it is exercised or it expires, to calculate the fair value per share of warrants issued. The assumptions used to determine the value of the warrants at December 31, 2004 and 2003 were as follows:

      On November 16, 2004, the Company issued 3.25 million shares of common stock and warrants to purchase 3.25 million shares of common stock for a purchase price of $10 per share in a private placement to certain private investors. At the closing of the private placement, the Company received $32.5 million in gross proceeds. In addition, on that date the Company issued warrants to purchase an additional 1.0 million shares to the private investors as consideration for their commitment to backstop this rights offering. All of these warrants were exercised in the first quarter of 2005, with the Company receiving $42.5 million of proceeds. In February 2005, the Company issued to its existing shareholders transferable subscription rights to purchase up to an aggregate of approximately 3.26 million investment units, each consisting of one share of the Company’s common stock and one warrant to purchase a share of common stock at a cash exercise price of $10.00 per share. The subscription rights expire on March 14, 2005. The Company will receive approximately $32.5 million from the rights offering if the rights offering is fully subscribed.

      On December 31, 2003, ORBIMAGE adopted the Employee Stock Incentive Plan (the “Stock Plan”), under which stock options, restricted stock and other stock-based awards may be granted to employees, officers, directors, consultants or advisors. As of December 31, 2003, 826,364 shares were authorized and available for grant under the Stock Plan. On December 31, 2003, 275,454 shares of restricted stock were issued. These shares vest in three tranches as follows: 45,909 shares on June 30, 2004, 137,727 shares on January 3, 2005 and 91,818 shares on January 3, 2006. The fair market value of the restricted stock was valued at the reorganization equity value of ORBIMAGE on the Effective Date divided by the number of ORBIMAGE common shares issued to the creditors upon reorganization. ORBIMAGE issued 156,424 shares in a restricted stock grant to employees on July 1, 2004. The restricted shares will vest entirely between December 31, 2004 and December 31, 2008.

      During 2004, ORBIMAGE issued stock options that generally will vest in annual increments of 20 percent commencing December 31, 2004. The options were valued by the Company at $14.48 per option using the Black-Scholes options pricing model at December 31, 2004. This model utilizes certain information, such as the interest rate on a risk-free security maturing generally at the same time as the option being valued, and requires certain assumptions, such as the expected amount of time a warrant will be outstanding until it is

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NOTES TO FINANCIAL STATEMENTS — (Continued)

exercised or it expires, to calculate the fair value per share of options issued. The assumptions used to determine the value of the options at December 31, 2004 were as follows: