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

FORM 10-K

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

For the fiscal year ended December 31, 2000

Commission file number: 333-39202

EarthWatch Incorporated
(Exact name of registrant as specified in its charter)

Delaware 31-1420852
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)

EarthWatch Incorporated
1900 Pike Road
Longmont, Colorado 80501
(Address of principal executive offices, including zip code)

(303) 682-3800
(Registrant's telephone number, including area code)

Securities registered pursuant to Sections 12(b) or 12(g) of the Act: None

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

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

The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant was approximately $53,000 as of March 15, 2001.
The registrant had 213,696 shares of outstanding common stock as of March 15,
2001.

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Table of Contents

PART I
Item 1. Business. 1
Item 2. Properties. 11
Item 3. Legal Proceedings. 11
Item 4. Submission of Matters to a Vote of Security Holders. 11

PART II
Item 5. Market for the Company's Common Equity and Related Stockholder Matters. 12
Item 6. Selected Financial Data. 14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 15
Item 7A. Quantitative and Qualitative Disclosures about Market Risk. 22
Item 8. Financial Statements and Supplementary Data. 22
Item 9. Changes In and Disagreements with Independent Accountants on Accounting and
Financial Disclosure. 42

PART III
Item 10. Directors and Executive Officers of the Company. 42
Item 11. Executive Compensation. 46
Item 12. Security Ownership of Certain Beneficial Owners and Management. 48
Item 13. Certain Relationships and Related Transactions. 50

PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. 52
Signatures 53

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Reference is made in this document to Digital Globe(R) and Your Planet
Online(R), which are registered trademarks owned by the Company and
Seconds on Orbit(TM), which is a trademark of the Company.

PART I

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements in this Annual Report on Form 10-K constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties, and other factors that may cause our or our industry's results,
levels of activity, performance, or achievements to be materially different from
any future results, levels of activity, performance, or achievements expressed
or implied by such forward-looking statements. These factors include, among
others, those listed under "Business," and "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and elsewhere in this Annual
Report on Form 10-K and in the other documents we file with the Securities and
Exchange Commission, including Amendment No. 1 to the Registration Statement on
Form S-1 as filed on February 14, 2001. In some cases, you can identify
forward-looking statements by terminology, such as "may," "will," "should,"
"expects," "plans," "intends," "anticipates," "believes," "estimates,"
"predicts," "potential," or "continue" or the negative of these terms or
comparable terminology. Although we believe that the expectations reflected in
the forward-looking statements are reasonable, we cannot guarantee future
results, events, levels of activity, performance, or achievements. Our actual
results and the timing of certain events could differ materially from those
anticipated in the forward-looking statements.

Item 1. Business.

EarthWatch Incorporated, a development stage company, was incorporated
on September 30, 1994 under the laws of the State of Colorado and, on August 21,
1995, was reincorporated in the State of Delaware. We commenced operations on
March 31, 1995 with the contribution of the net assets of WorldView Imaging
Corporation and certain assets of Ball Corporation.

We believe that we will possess one of the best commercially available
systems for producing low-cost, high-resolution, map-quality imagery and
information products over large areas of the earth's surface. We are currently
building a satellite capable of collecting high-resolution digital imagery of
the earth's surface, as well as a comprehensive image collection, enhancement,
and digital archive system, our Digital Globe database. Our QuickBird 2
satellite is designed to collect 0.6-meter resolution gray scale and 2.5-meter
resolution color imagery of the earth and will have an ability to revisit most
areas within three to five days. Although we launched our first 1-meter
QuickBird satellite, QuickBird 1, on November 20, 2000, there was a failure to
achieve orbit, which resulted in the total loss of the satellite. Our previous
satellite, the EarlyBird 1, was launched in December 1997, but we lost contact
with it and determined that it was a total loss. We plan to launch QuickBird 2
in October 2001.

We believe that our system will allow us to provide high-resolution
imagery-based products at a low cost and in the forms most useful to our
targeted customer segments. For sophisticated government, scientific, and
commercial users, we expect to deliver imagery data on a near real-time basis in
response to specific customer requests. In addition, we can process and enhance
imagery data to make them more useful to our customers. For example, we can add
precision correction, elevation, terrain, and topographic information or
integrate information from other sources such as political borders or utility
infrastructure. We also expect to collect and store imagery for resale in our
Digital Globe archive database. This will allow us to produce satellite imagery
at negligible incremental cost, facilitating an array of new geographic
information, mapping, multimedia applications, and markets that do not currently
use geographic imagery.

We believe our QuickBird satellite system offers significant technical
advantages over the three other competitive commercial satellite-based systems
that have been announced by Space Imaging, Inc., Orbital Imaging Corp.
(Orbimage) and ImageSat International (formerly known as West Indian Space
Ltd.), respectively. These advantages include the highest available resolution,
the widest imaging area, the largest image storage capacity, and
state-of-the-art satellite pointing or geolocation accuracy.

We believe these technical advantages will allow us to collect more
usable imagery per day than our competitors, enabling us to provide more imagery
to our customers, to update such imagery more frequently and, assuming
equivalent launch dates, to build an imagery archive more rapidly. In addition,
we plan to position our satellite in an orbit that will provide frequent revisit
capability, so that once it is operational, we will be able to collect imagery
on virtually every location on the earth's surface every three to five days.
Applications that require near real-time high-resolution imagery, such as
monitoring natural disasters, civil emergencies, and regional security, will
benefit from this frequent revisit capability.

Industry estimates of worldwide revenues for aerial imagery exceed $2
billion annually, according to Frost & Sullivan. We believe the broader market
for geographic imagery and derivative products and services significantly
exceeds this amount and that the near-term world market for high spatial
resolution satellite imagery will exceed $1 billion annually. We believe this
market will grow as low-cost, high-quality satellite imagery becomes
commercially available, stimulating demand for satellite imagery-based products
and services, and encouraging development of new products and applications.

EarthWatch is a Delaware corporation. Our principal executive offices are
located at 1900 Pike Road, Longmont, Colorado 80501-6700. Our telephone number
is (303) 682-3800.

Industry overview

We believe that access to accurate, affordable, and timely data has
been, and still is, the single largest problem facing the Geographic Information
Systems ("GIS") market. Users have few alternative sources from which to obtain
data and we believe that high-resolution satellite imagery provided by the
QuickBird system will provide an important alternative source to aerial
photography and low-resolution satellite imagery, such as Landsat and SPOT.
One-meter and lower spatial resolution imagery can detect and locate many
objects that previously could not be identified using low-resolution satellite
imagery. High-resolution satellite imagery offers GIS customers a number of
advantages, including computer compatibility, large area coverage, and
up-to-date information.

In addition to providing high spatial resolution gray scale
(panchromatic) imagery, high-resolution satellites can take precise color and
infrared (multispectral) imagery, enabling a wide range of monitoring,
detection, and exploration applications. The digital format of satellite imagery
facilitates quick delivery, enables low-cost archiving, allows for image
enhancement and manipulation, and preserves much more information value than
analog imagery.

We are not aware of any additional competitors that plan to enter this
market other than our three announced competitors: Space Imaging, which
successfully launched its first 1-meter resolution satellite in September 1999
and has begun serving the commercial market, Orbimage, and ImageSat. Orbimage is
developing two 1-meter high-resolution imaging systems, which are scheduled for
launch during the second quarter of 2001 and during the third quarter of 2001,
respectively, as publicly announced. In addition, ImageSat launched a 1.8-meter
resolution satellite in December 2000 and has announced plans to launch a
1-meter high-resolution satellite for commercial use during the third quarter of
2001.

We believe there are significant barriers for other potential entrants.
The design, creation, launch, and operation of an integrated high-resolution
commercial satellite system requires significant expertise and knowledge. We and
each of our three announced competitors have been developing commercial
satellite imagery systems for more than five years. We believe it would take a
new potential competitor more than two years and significant capital to develop
and construct a high-resolution commercial imaging satellite. Most aerospace
companies capable of constructing such a satellite have already aligned
themselves with one of the announced entrants. As a result, we believe that
EarthWatch, together with the other announced entrants, will have a significant
advantage.

We also believe that the emergence of high-resolution commercial remote
sensing satellites will stimulate new spending to create and update GIS
databases, especially in emerging markets in Asia, Australia, the Middle East,
and South America. Furthermore, we believe that a larger, more profitable market
will evolve for value-added information products derived from raw imagery data
processed and packaged to meet the demands of specific users. Traditionally,
overhead imagery products have been marketed in the form of raw data. We seek to
be a leading provider of value-added imagery-based applications and services,
rather than just a provider of satellite imagery. We believe our advanced image
processing technology and user-friendly distribution network will enable us to
make imagery easy to use, affordable, and accessible. We believe that our focus
on developing industry-specific products will stimulate demand and expand the
market for satellite imagery and related products.

Strategy

We are committed to achieving leadership positions in specific markets
for digital imagery and derivative information products. Our strategy to achieve
our objectives includes the following elements:

Become a leading provider of imagery-driven solutions

Overhead imagery products have traditionally been marketed in the form
of raw data. However, we believe that a larger, more profitable market will
evolve for value-added information products derived from raw imagery data,
processed and packaged to meet the demands of specific users. We seek to be a
leading provider of value-added imagery-based applications and services, rather
than just a provider of satellite imagery. We believe our advanced image
processing technology and user-friendly distribution network will enable us to
make imagery easy to use, affordable, and accessible. We intend to continuously
develop industry-specific value-added products, such as tailored damage
assessment products for the insurance industry and crop monitoring products for
the agriculture industry. We believe that our focus on industry-specific
products will stimulate demand and expand the market for satellite imagery and
related products.

Pursue targeted market entry and expansion

Recognizing that we cannot address every possible sales opportunity
ourselves, we will focus on specific customer segments and new commercial
markets. We plan to focus initially on providing imagery products to the largest
potential users and early adopters, such as United States government agencies
and foreign governments, in order to rapidly build a core group of customers. We
then intend to incrementally expand our target markets by pursuing commercial
markets and applications for higher margin, value-added products that offer
prospects for long-term growth. This targeted marketing strategy will limit the
number of products that we offer initially and simplify the logistics of
supporting our customers. In addition, this focus should allow us to avoid
building the large and costly marketing and sales organization that would be
required to pursue a wide range of market opportunities simultaneously.

In addition to our direct sales efforts, we intend to market our
products through market specific distributors, agents, value-added resellers,
and e-commerce channels. We expect to work with value-added resellers to enhance
existing applications and develop new products based upon our imagery. This
should allow us to limit our initial sales and support infrastructure and to
leverage the value-added resellers' existing market access and customer
relationships, particularly for markets that require extensive product
development, customer education, and long sales cycles.

Maintain leadership through partnerships with leading technology companies

We will seek to establish our technological leadership in the remote
sensing industry as an innovative provider of imagery through partnerships with
leading aerospace and information technology companies. Our strategic partners,
including Ball Aerospace & Technologies Corp., Datron/Transco Inc., Hitachi,
Ltd., ITT Industries, Inc., MacDonald Dettwiler & Associates, Ltd., and Nuova
Telespazio S.p.A. have supplied us with much of the technology, components, and
services for our satellite imaging system. These partnerships have enabled us to
reduce our satellite development costs significantly. In addition to making a
$25 million equity investment in EarthWatch in April 1999, ITT Industries has
entered into a strategic supplier agreement with us, committing us to use ITT
Industries as the provider and integrator of sensors for the next ten years.

Leverage our technical advantages

. the highest available resolution;

. the widest imaging area;

. the largest image storage capacity; and

. state of the art satellite pointing, or geolocation accuracy.

We believe that within three years of our first QuickBird launch, we
will be able to archive most key urban areas and other areas of interest
worldwide.

With the loss of QuickBird 1, and the corresponding decreased capacity,
imagery, and revisit times inherent in a one-satellite system, populating our
archive will require more time than previously planned. Even with this decrease,
we believe the above technical advantages will allow us to collect more usable
imagery per day than our competitors,

enabling us to provide more imagery to our customers, to update such imagery
more frequently, and, assuming equivalent launch dates, to build an imagery
archive more rapidly.

We believe that these advantages, taken together, will provide one of
the best commercially available systems for producing low cost, high-resolution,
map quality imagery over large areas of the earth's surface. We plan to position
our satellite in an orbit that will provide revisit capability from three to
five days, so that once it is operational, we will be able to collect imagery on
virtually every location on the earth's surface every three to five days.
Applications that require near real-time high-resolution imagery, such as
monitoring natural disasters, civil emergencies, and regional security, will
benefit from this frequent revisit capability.

Build direct relationships with key customers and market influencers

To build market presence and demonstrate new product applications
quickly, we will seek to identify key early adopters and influencers in each
target market and develop close customer relationships. We will seek to expand
our reach to potential customers through partnerships with leading information
technology companies, distributors, agents, value-added resellers, and
customers. For example, in addition to contributing to our systems development
program, Hitachi and Eurimage, a majority-owned unit of Nuova Telespazio, will
serve as master international distributors of our products and services in Asia
and Europe, respectively. We also plan to license our products through value-
added resellers in North America and in those regions of the world not covered
by exclusive reseller distribution agreements.

In contrast to our competitors, we intend to create an open system to
support purchasers of raw imagery data who desire to process such data using
their own facilities. We plan to provide to purchasers the detailed support
data, including our satellite camera model and downlink formats, necessary to
enable them to perform their own image processing. By supporting open systems
interoperability, we believe we can stimulate third party software developers
and value-added resellers to develop innovative products and applications that
use our imagery data. We also intend to establish relationships with one or more
leading retail websites to sell our mapping and other imagery products directly
to consumers.

Develop comprehensive Digital Globe archive

We plan to create an Internet-based proprietary database of imagery
collected from our QuickBird satellite and other third party satellite and
aerial imaging companies. Over the next several years, we expect that specific
customer requests will utilize approximately 20-30% of our available imaging
capacity. We plan to use the portion of our imaging capacity not being used to
address specific customer requests to prospectively collect and archive imagery
of key geographies and markets.

We believe that once our proprietary Digital Globe database of imagery
is established and combined with value-added image enhancement tools and
processing software, it will facilitate an array of new geographic information,
mapping, and multimedia applications and markets that do not currently use
geographic imagery. For example, a user could log on to our Internet site, view
the entire earth, and then focus in on a country, state, city, or town, or even
a specific neighborhood or street corner. In addition, in the future, a user
could view interactive fly-throughs of selected areas of interest, such as
popular tourism sites or golf courses for vacation planning, or residential
neighborhoods for relocation or home purchasing.

Target markets and applications

Within the overhead imagery market, we will initially target worldwide
commercial and government applications for surveillance, GIS, and mapping.
Within the market for federal, state, and local government users, we expect to
serve domestic and foreign intelligence and security agencies, as well as
civilian agencies that use overhead imagery for environmental monitoring, land
use, disaster management, and infrastructure planning. We are also targeting
civilian agencies and local and municipal governments that currently use aerial
and low-resolution satellite imagery for mapping, environmental monitoring, land
use, and infrastructure planning. In the longer term, we expect that our
customers will include commercial users in industries such as mapping and
surveying, oil, gas, and mineral exploration, agriculture, forestry, scientific
and environmental monitoring, and insurance risk analysis and damage assessment.

Products and services

We plan to offer high-resolution panchromatic and multispectral imagery
collected from our QuickBird 2 satellite, and currently offer very
high-resolution radar imagery and other third-party data. We also plan to
develop and market specific value-added products for commercial applications. We
will incorporate into the Digital Globe, our master database for imagery
information, imagery collected by our satellite and other airborne and satellite
systems, providing imagery to customers primarily in digital form that can be
easily stored and processed on a computer. Our customers may also receive
products in other forms, such as on CD-ROMs or printed copy.

We intend to offer sophisticated government, scientific, and commercial
users raw imagery data on a near real-time basis from customer designated
satellite tasking assignments. Our Seconds on Orbit product ("Seconds on
Orbit"or "SOO") is designed to allow customers to purchase imaging time on our
satellite, with the option of downlinking directly to customer ground stations.
Customers can also purchase imagery of a desired location. In addition, we can
process and enhance acquired imagery to make it more useful for a customer.

We expect to price our products according to market conditions and
perceived consumer value, not production cost. In addition, we intend to retain
ownership of all imagery collected by our satellite and to license our imagery
to customers in a manner similar to software licenses. See "--Proprietary
Rights."

Sales, marketing, and distribution

We currently are delivering our products through direct sales,
e-commerce channels, and through our master international distributors. We are
currently expanding these channels to include value-added resellers. Our direct
sales organization is structured to provide relationship-based sales to early
adopters and key market influencers, such as large governments and commercial
customers. While our direct sales organization is not a large organization, we
will supplement our in-house sales force with third-party sales agents. These
sales agents market a variety of similar products and have extensive contacts
and customer relationships in the industries or regions they serve. Each sales
agent is dedicated to one or two customers, or to a single vertical market, such
as mapping. In addition to the direct sales force, we have a distributor sales
force that is responsible for selection, recruitment, and management of the
distributor network. They are teamed with customer service representatives to
ensure that distributors have the necessary training and support to maximize
sales.

Master international distributors

We have formed strategic relationships with Hitachi Software in Asia
and Telespazio in Europe, through its subsidiary, Eurimage, to be our master
international distributors. Hitachi Software is developing innovative
information products to expand distribution of our imagery to both businesses
and individuals. Eurimage is the largest distributor of satellite imagery in
Europe and has an extensive distribution system in place. We believe both master
international distributors have developed, and will continue to develop,
value-added resellers in their respective regions. The master international
distributors will serve as resellers and value-added resellers in their
respective regions. Such activities include providing online distribution
channels and direct links to our headquarters in Longmont, Colorado. Eurimage
has implemented a Web-based ordering and delivery system for its existing
customers and is in the process of modifying this system to include QuickBird
products.

Value-added resellers

We plan to select value-added resellers based on demonstrated
distribution capability within target market segments. We are seeking
value-added resellers who are strong product advocates, especially in markets
where the application value of high-resolution imagery remains unproven. We are
basing our selections on capability and willingness to work cooperatively with
EarthWatch in designing and selling market-specific information products.

Direct online distribution

Because our products are in digital form, customers will be able to
access products in the Digital Globe through the Internet or another online
service. For our master international distributors, who are expected to
regularly download large volumes of data and may require imagery immediately
upon receipt by ground stations, we plan to offer a direct network connection to
our master data facility. Our customers may access the Digital Globe by means of
our Web-based user interface. Similar to widely available search tools and
browsers, the Digital Globe database will be available for browsing by customers
to order imagery and products, and to track the status of orders online.

Order processing

We have developed an automated order processing system that verifies
and accepts direct orders. This system is linked to our tasking, production, and
accounting systems. Orders that we cannot fill with previously archived Digital
Globe products will be prioritized according to parameters such as project
timing and size, prevailing weather conditions, and other imaging requests, and
then translated into tasking commands passed on to the satellite. After each
orbit, orders will be matched with successful results obtained from the
satellite downlink. We expect that specific orders for large areas will require
tasking over several orbits and days.

QuickBird 2 satellite and ground system operations

QuickBird 2 satellite

We intend to launch and operate one satellite, the QuickBird 2
satellite. Ball Aerospace & Technologies Corp., a wholly-owned subsidiary of
Ball Corporation, is currently constructing and integrating this satellite at
its facility in Boulder, Colorado. Most of the components for the QuickBird 2
spacecraft have been delivered and the satellite is currently in assembly.

Satellite launch arrangements

We entered into a launch services agreement with Delta Launch Services,
Inc. in February 2001. Delta Launch Services, Inc. is a subsidiary of Boeing
Company. We plan to launch QuickBird 2 on a Delta II launch vehicle from
Vandenberg Air Force Base in California.

Ground stations and satellite control

Assuming successful launch, our QuickBird 2 satellite will be supported
by two ground stations, located in Fairbanks, Alaska and Tromso, Norway. We will
control our satellite from the mission control center at our headquarters in
Longmont, Colorado. This facility was prepared to handle the EarlyBird satellite
at the time it was launched and the related equipment has undergone upgrades to
support the QuickBird 2 satellite.

Digital Globe archive and geospatial operations

The Digital Globe value-added product archive is designed to provide
customers access to a range of products, including precision corrected image
maps, digital elevation models, and terrain-corrected image maps, as well as
maps and additional geographic data. We believe that within three years of a
successful QuickBird 2 launch, we will be able to archive most key urban and
other areas of interest worldwide, and will be able to continually update this
imagery. MacDonald Dettwiler and Associates, Interlink Group Corporation, and
InfoFusion, LLC are upgrading this system to support the QuickBird spacecraft.
We also maintain a geospatial operations facility to produce orthoimages and
digital elevation models from a variety of data sources.

Risk mitigation

Proven technology

We have followed a low-cost design philosophy that capitalizes on the
expertise of our strategic partners while incorporating proven technology used
by other satellite systems.

Insurance

As of February 28, 2001, the trustees for our 12 1/2% notes and our 13%
notes had received the majority of the $265 million in proceeds from our
insurance on QuickBird 1, and, accordingly, initiated a tender offer to purchase
these notes at a purchase price equal to their accreted value, plus any accrued
and unpaid interest to the date of purchase. As of March 26, 2001, the full
amount of the proceeds had been received.

Because we do not yet know the extent to which holders of our 12 1/2%
notes and our 13% notes will tender in our repurchase offer, we cannot predict
what funds we will have available for the purchase of insurance for the
QuickBird 2 satellite and other funding needs. Therefore, we are evaluating our
alternatives for obtaining transit and launch insurance covering QuickBird 2,
but have not yet made any determination with respect thereto.

We have contracted with Ball Aerospace to construct and deliver the
QuickBird 2 satellite. In connection with this contract, Ball Aerospace is
required to insure the satellite during construction and testing, and until the
time it leaves the Ball Aerospace facilities. Prior to delivery of the
satellite, we plan to obtain a transit insurance policy covering the satellite
from the time it leaves the Ball Aerospace facilities until the time the launch
vehicle is intentionally ignited.

Research and development

We plan to continue to invest in research and development to develop
improved satellite technology, develop the Digital Globe archive, and maintain
technological leadership in geographic imagery products and related systems. We
also plan to acquire licenses for existing technology where we determine that
adapting existing technology would be less expensive than developing it
internally.

Competition

Traditional sources of image-based information have included aerial
photography and existing low-to-medium resolution earth orbiting satellites. Our
principal competitors in high-resolution space imaging collection are Space
Imaging (United States), Orbimage (United States), and ImageSat (Israel). Space
Imaging successfully launched a satellite in September 1999 and has been
distributing imagery to its customers since that time. ImageSat successfully
launched a satellite in December 2000 and began receiving images shortly
thereafter.

To a lesser extent, we also compete on a regional basis with
independent aerial photography companies, as well as radar and low-resolution
commercial satellite systems such as Landsat, SPOT, and the 6-meter resolution
satellite launched by the Indian Government. However, we expect our competition
in the future to come primarily from high-resolution satellite systems developed
and operated by other commercial enterprises or foreign governments.

Aerial photography

Commercial aerial photogrammetry firms serve highly fragmented and
localized markets. Customers requiring imagery from different geographic areas
must coordinate with several providers, which increases the cost and time
necessary to obtain imagery data. For large projects, aerial photogrammetry
firms usually require substantial lead-time, resulting in a product that may be
out of date by the time it is delivered. Also, these firms typically produce
aerial imagery in analog form on photographic film rather than in digital form,
making post-image processing more difficult and hindering development of
value-added applications such as complex mosaics.

Satellite imagery addresses many of the limitations of aerial
photography, allowing cost effective collection of data over large areas in a
short time, access to remote regions of the world and restricted airspace, and
timely delivery of data in digital form. Nonetheless, for certain applications,
aerial photography is highly efficient and competitively priced. Since these
applications tend to require a limited geographic scope, we do not view aerial
providers as direct competitors. Conversely, we intend to work with these
companies and expect that many will purchase, enhance, and resell our imagery to
their customers. We also expect to continue to purchase and resell aerial
imagery to enrich our Digital Globe archive and our product mix.

New commercial high-resolution satellite systems

Space Imaging launched the first successful commercial high-resolution
satellite in September 1999. Other entrants, including Orbimage and ImageSat,
have launched or announced plans to launch satellites shortly prior to QuickBird
2.

Space Imaging. Space Imaging, a joint venture owned collectively by
Lockheed Martin, E-Systems, and Mitsubishi, has successfully launched and
deployed a 1-meter resolution satellite named IKONOS and a global archive

for storage of imagery. Space Imaging has access to significant technological
and capital resources through its partners and has distribution rights to both
Landsat 4 and 5 within the United States, and to Indian Remote Sensing satellite
data.

Orbimage. Orbimage is a provider of global space-based imagery.
Currently, it has two low-resolution satellites in operation: OrbView 1 and
OrbView 2. It has also acquired the rights to market and sell imagery from
RadarSat 2, a high-resolution commercial radar imaging satellite being
constructed by the Canadian government. Orbimage is also developing two 1-meter
resolution satellites, OrbView 3 and OrbView 4, which are scheduled for launch
during the second quarter of 2001 and during the third quarter of 2001,
respectively, as publicly announced.

ImageSat. ImageSat International (formerly known as West Indian Space
Ltd.) is a joint venture composed of government-owned Israel Aircraft
Industries, Electro-Optics Industries, and Core Software Technology Inc.
ImageSat has announced plans to launch and operate a constellation of 1.8-meter
and 1-meter resolution commercial imaging satellites named EROS. The former is
for use by the Israeli government and was launched in December 2000. The latter
is for commercial use and is scheduled for launch in 2001. Based upon the
announced specification for EROS satellites, we believe that they will offer
lower performance than our QuickBird satellite. However, ImageSat is associated
with the Israeli government and, if subsidized, could be able to compete
aggressively on price. ImageSat's first customer, the Israeli government, has
announced that it has reserved the full capacity of ImageSat's first and third
satellites in specific geographic areas.

Although the satellites of each of the companies mentioned above have
similar spatial and spectral resolutions as the QuickBird system, based on their
public announcements, we believe that our QuickBird system will offer
significant technical advantages over the competition.

We believe that the Orbimage and ImageSat satellites appear to be
better suited for reconnaissance than for mapping. QuickBird and IKONOS qualify
as both mapping and reconnaissance satellites.

Space Imaging's IKONOS is designed to offer mapping capability.
However, we do not believe that the IKONOS satellite will compete equally with
QuickBird in terms of collection capacity and positional accuracy. The IKONOS
satellite offers only an 11-kilometer swath, 64 gigabits of storage, and a
maximum positional accuracy of four meters. In contrast, we expect QuickBird 2
to offer a 16-kilometer swath width, 128 gigabits of on-board storage, and
geolocation accuracy as good as two meters with ground control. We believe we
will be able to collect more imagery per day than Orbimage or Space Imaging.
Accordingly, we should have more images to sell and should be able to populate
our digital archive faster than these competitors.

Strategic Relationships

We have teamed with the six strategic partners listed below. These
partners are leaders in their respective industries, and we believe that their
expertise and resources will contribute significantly to establishing EarthWatch
as a leader in satellite imaging technology. Our partners are providing us with
technology, components, and services that we believe will contribute materially
to our business. Each of our partners has an equity stake in EarthWatch, some of
which equity stakes were obtained in exchange for providing EarthWatch with
goods or services.

ITT Industries

ITT Industries, Inc. is a leading global supplier of sophisticated
military defense systems and industrial components for the transportation,
construction and aerospace industries. ITT Industries has provided innovative
satellite sensor systems to NASA and the National Oceanic and Atmospheric
Administration (NOAA) for more than 25 years. In addition to making an equity
investment in EarthWatch in April 1999, ITT Industries entered into a 10-year
strategic supplier agreement as integrator of sensors for future EarthWatch
systems. ITT Industries will provide such sensors and associated services on a
best value basis. We have entered into a contract with ITT Industries under
which it provided the QuickBird satellite scheduling and tasking system, and a
QuickBird spacecraft simulator. In addition, we have contracted with ITT
Industries to assist us in developing technical specifications of the sensors
for our next generation satellites.

Ball Aerospace

Ball Aerospace & Technologies Corp. is a leading supplier of remote
sensing, military, and space technology. Ball Aerospace has developed and
successfully executed 37 satellite-related projects. Additionally, Ball
Aerospace has developed and implemented the in-orbit solution for problems faced
by the Hubble Space Telescope's optical system.

As the prime contractor for the QuickBird system, Ball Aerospace provided
design, construction, and integration for the imaging payload and spacecraft bus
of the QuickBird 1 satellite and is providing similar services for the QuickBird
2 satellite.

Hitachi Software

Hitachi Software Engineering Company, Ltd. is a leading manufacturer of
high technology products and is a major Japanese supplier of GIS software and
hardware. Hitachi Software has established relationships in both the military
and commercial GIS markets in Asia, which, we believe, are currently the fastest
growing GIS markets in the world. Hitachi Software will serve as our master
international distributor in Asia.

Nuova Telespazio/Eurimage

Nuova Telespazio, S.p.A. is a leading owner and operator of satellite
data downlink and control facilities in Europe. Nuova Telespazio maintains a
large earth observation division with extensive international GIS and mapping
capabilities. It is also a part owner of Eurimage, a company that manages the
largest European satellite imagery sales and distribution network. Eurimage is
our master international distributor in Europe. Under our distributor agreement
with Nuova Telespazio, Eurimage will be entitled to purchase our products at
discounts of up to 50% of our retail price for end-distribution in their
assigned territories.

MacDonald Dettwiler & Associates, Ltd.

MacDonald Dettwiler & Associates, Ltd. is a leading supplier of ground
processing systems for civilian satellite data and has provided our image data
archiving and distribution capabilities. In November 1995, Orbital Sciences, one
of our competitors, acquired MacDonald Dettwiler. We believe that our rights to
software developed by MacDonald Dettwiler and access to alternative providers
would allow us to proceed without MacDonald Dettwiler if Orbital Sciences were
to prevent MacDonald Dettwiler from providing such assistance. We believe this
risk was significantly reduced with the acquisition of shares representing
one-third of MacDonald Dettwiler by CAI Capital Partners & Co. II, L.P. in
December 1999, and with MacDonald Dettwiler's initial public offering of stock
in July 2000.

Datron

Datron/Transco Inc. provides products and services for emerging radio
and satellite communication markets, primarily for ground uplink facilities.
Datron is supplying us with ground station equipment for the QuickBird
satellites. All three antenna systems to be provided by Datron have been
completed and the first two ground station antenna systems have been installed
in Fairbanks, Alaska and Tromso, Norway.

Customers

NASA and NIMA accounted for approximately $1.2 million and $1.8
million, or approximately 38.6% and 54.3%, respectively, of our revenue during
the fiscal year ended December 31, 2000. Any termination of our relationships
with NASA and NIMA would have a material adverse effect on our current operating
results and financial condition. NASA and NIMA retain our services on a case-by-
case basis and may choose at any time to use another firm to provide the
services that we perform. Therefore, any shift in either NASA's or NIMA's
decisions to continue to use our services could also result in substantially
reduced revenues for us.

Proprietary Rights

We have developed proprietary technology relating to our data
processing systems, and to our imagery product processing and distribution
systems. We also have acquired the right to use technology from our strategic
partners. We plan to combine components and systems incorporating our technology
and our strategic partners' technology to produce one or more satellites, an
image archive, and a distribution network. We do not hold any patents and rely
primarily upon copyright and trade secret laws for protection of our proprietary
technology. The source code for our own proprietary software is protected as an
unpublished copyrighted work and as a trade secret.

We also generally enter into confidentiality agreements with our
employees, consultants, vendors, customers, and licensees, and limit access to
our proprietary designs, software, and other confidential information. We own
United States trademark registrations for "Digital Globe," a graphic
representation of the Digital Globe, "Your Planet Online," and "SOO." We have
submitted, and will continue to submit, trademark applications for our
operations.

Government Regulation

Our business is subject to regulation in the United States and abroad.

Commercial remote sensing license

We have received our licenses from NOAA for QuickBird satellite
operations. The licenses contain restrictions to protect the foreign and
national security policies of the United States and to implement United States
obligations under

various international agreements. Under such licenses, we must also provide the
United States government with access to, and the use of, our data at commercial
market prices. The United States government may limit the commercial
distribution of such data in certain circumstances.

Communications frequency license

We have licenses issued by the Federal Communications Commission or
FCC, to operate radio frequency devices aboard our satellites and at ground
stations located in the United States. The FCC has allocated to us frequency
spectrum for telemetry, tracking and control operations, and data downlinks, and
we have obtained a license for QuickBird 2. Also, the FCC has granted us 10-year
licenses to operate the ground stations in Fairbanks, Alaska and Longmont,
Colorado.

We have received from the FCC a license to launch and operate two
remote-sensing satellites. The license authorizes us to transmit imagery to
earth and to perform telemetry, tracking, and command of the satellites. The
original license required the satellites to be constructed by July 1999 and to
be launched by January 2000. The first satellite was QuickBird 1, which suffered
a launch failure in November 2000. As currently amended, the license requires
construction of QuickBird 2 to be completed by May 2001, followed by launch no
later than December 2001.

In order to operate internationally and comply with international
regulations, the FCC has undertaken the international coordination process
before the International Telecommunications Union (ITU) on our behalf. The ITU
frequency coordination is necessary to maintain interference protection with
other international satellite systems and there is no assurance that this
coordination will be completed successfully.

Import authorizations and foreign government licenses

We may be required to obtain import authorizations or licenses from
foreign governments in order to market and distribute EarthWatch data and
products, and to operate ground station facilities outside the United States.
NOAA must also be notified of any significant agreements with foreign
governments or companies who provide for the tasking of satellites or sensors,
for real time direct access to unenhanced data, or for high volume data purchase
agreements.

Launch license

We have submitted the required license application to the Office of
Defense Trade Controls for QuickBird 2. We could in the future be subjected 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 United States or abroad. 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 materially
adversely affect our business.

Employees

As of December 31, 2000, we employed 148 full-time employees. Of these
employees, 31 are in data systems, 59 are in ground, product, and space
operations, 23 are in marketing, sales, and customer service, and 35 are in
executive, finance, and administration. By year-end 2000, we increased staffing
over year-end 1999 by 22%. None of our employees are represented by a labor
union or are covered by a collective bargaining agreement. We consider our
employee relations to be good.

Item 2. Properties.

Our principal executive offices consist of approximately 55,274 square
feet of leased space located in Longmont, Colorado. The term of this lease runs
through April 2005. Our monthly payments under this lease are approximately
$57,000. We also lease approximately ten acres and 400 square feet of space,
respectively, for the sites of two ground stations located in Fairbanks, Alaska
and Tromso, Norway. The terms for these leases run through July 10, 2005 and
until six months following the cessation of QuickBird operations, respectively.
Our payments under these leases are approximately $4,000 semi-annually, and
approximately $15,000 (based on current exchange rates) annually, respectively.

Item 3. Legal Proceedings.

We are not currently a party to any material pending legal proceedings.

Item 4. Submission of Matters to a Vote of Security Holders.

There were no matters submitted for vote to the security holders during
the fourth quarter of 2000.

PART II

Item 5. Market for the Company's Common Equity and Related Stockholder Matters.

Market information. There currently is no established public trading
market for our common stock or preferred stock.

Holders. As of December 31, 2000, our common stock and preferred stock
were issued and outstanding as follows:

Approximate
Shares Shares Number of
Stock Issue Authorized Outstanding Holders
Preferred Stock (1) 45,000,000 41,102,546 83
Common Stock 100,000,000 195,420 12

(1) As of December 31, 2000, the preferred stock consists of (i) Ten Million
(10,000,000) authorized shares of 7% Cumulative Convertible Redeemable
Preferred Stock Due 2009, Series A, par value $0.001 per share, of which
8,051,273 shares are issued; (ii) Ten Million (10,000,000) shares of 7%
Cumulative Convertible Redeemable Preferred Stock Due 2009, Series B, par
value $0.001 per share, of which 8,051,273 shares are issued; and (iii)
Twenty-five Million (25,000,000) shares of 8.5% Cumulative Convertible
Redeemable Preferred Stock Due 2009, Series C, of which 25,000,000 shares
are issued.

Dividends. The following is a summary of our dividend policy with
respect to shares of our common and preferred stock.

Common stock.

The holders of our common stock are entitled to receive ratably such
dividends as may be declared by the board of directors out of funds legally
available to be paid. We have not paid any dividends to the holders of our
common stock and do not intend to pay dividends to such holders in the
foreseeable future.

Series A and Series B preferred stock.

The holders of our Series A preferred stock and Series B preferred
stock are entitled to receive cumulative dividends, whether or not declared by
our board of directors, at an annual rate of 7% of the liquidation preference
amount until no later than June 15, 2002. Such dividends are payable quarterly
on March 31, June 30, September 30, and December 31, and commenced on June 30,
1999. Such dividends may be paid, subject to certain limitations, at our option,
either in cash or in additional shares of Series A preferred stock or Series B
preferred stock, as applicable. After June 15, 2002, dividends will accrue at an
annual rate of 7% of the liquidation preference amount and will be payable when,
as, and if declared by the board of directors, in cash only. If any dividend is
not paid in full in cash on a quarterly payment date after June 15, 2002, the
liquidation preference of the Series A preferred stock and Series B preferred
stock will be increased by an amount equal to the product of (a) the amount per
share not paid divided by the total amount payable per share and (b) one quarter
of the dividend rate multiplied by the effective liquidation preference. Under
our amended and restated certificate of incorporation, we are prohibited from
paying dividends on any shares of stock having rights junior to the Series A and
Series B preferred stock until all accumulated dividends have been paid on the
Series A and Series B preferred stock.

Series C preferred stock.

Until June 15, 2002, the holders of our Series C preferred stock are
entitled to cumulative dividends, whether or not declared by the board of
directors, at an annual rate of 8.5%. Such dividends are payable quarterly on
March 31, June 30, September 30, and December 31, and commenced on June 30,
1999. Such dividends may be paid, subject to certain limitations, at our option,
either in cash or in additional shares of Series C preferred stock. After June
15, 2002, dividends will accrue at an annual rate of 8.5% of the liquidation
preference amount and will be payable when, as, and if declared by the board of
directors, in cash only. If any dividend is not paid in full in cash on a
quarterly payment date after June 15, 2002, the liquidation preference of the
Series C preferred stock will be increased by an amount equal to the product of
(a) the amount per share not paid divided by the total amount payable per share
and (b) one quarter of the dividend rate multiplied by the effective liquidation
preference. Under our amended and restated certificate of

incorporation, we are prohibited from paying dividends on any shares of stock
having rights junior to the Series C preferred stock until all accumulated
dividends have been paid on the Series C preferred stock.

However, the terms of the indenture restrict our ability to pay dividends on, or
make distributions in respect to, our capital stock.

Recent Sales of Unregistered Securities.

The following is a summary of our transactions since January 1, 2000, involving
sales of our securities that were not registered under the Securities Act of
1933, as amended:

During fiscal year 2000, we granted options to purchase 3,704,075 shares of
common stock under our 1999 Equity Incentive Plan. There were 195,712 shares of
common stock issued upon exercise of options and 3,492,627 options outstanding
under the Company's stock option plans. All options were granted under Rule 701
promulgated under the Securities Act or, for those employees who are our
officers or directors or that are accredited investors, Section 4(2) of the
Securities Act.

Appropriate legends are affixed to the stock certificates issued in the
transactions listed above. Similar legends were imposed in connection with any
subsequent sales of any such securities. Each of the purchasers that are our
employees or directors had access to information through their employment by us.
Each purchaser was given the opportunity to ask questions of and request
information from us. Each investor represented and acknowledged to us in writing
that it had this opportunity. Some of the purchasers asked questions and
requested information. We complied with all requests that we deemed reasonable.

Item 6. Selected Financial Data.

The following selected financial data are qualified by reference to,
and should be read in conjunction with, our consolidated financial statements
and notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," in particular, "-Satellite failure"
included elsewhere in this Annual Report on Form 10-K. The consolidated balance
sheet data as of December 31, 1999 and 2000, and consolidated statement of
operations data for each of the three years ended December 31, 2000 and for the
period from January 1, 1995 (Inception) to December 31, 2000, have been derived
from our audited consolidated financial statements and the notes thereto
included elsewhere in this Annual Report on Form 10-K. The consolidated
statement of operations data for the years ended December 31, 1996 and 1997, and
the consolidated balance sheet data as of December 31, 1996, 1997, and 1998, are
derived from our historical consolidated financial statements not included in
this prospectus. Historical results may not be indicative of results for any
future period.

Period From
January 1, 1995
(Inception) to
Year Ended December 31, December 31,
---------------------------------------------------------------------
1996 1997 1998 1999 2000 2000
----------- ------------- ------------ ------------- ------------ -----------
(in thousands)

Consolidated Statement of Operations Data:
Revenue $ 1,900 $ 437 $ 1,809 $ 5,913 $ 3,336 $ 16,387
----------- ------------- ------------ ------------- ------------ -----------
Cost of goods sold 1,922 382 1,905 5,120 2,099 13,140
Selling, general, and administrative 5,992 8,588 4,975 12,763 15,333 50,081
Research and development 20,178 19,121 9,113 6,956 13,442 71,936
Gain (loss) from impairment of fixed assets,
net of insurance recoveries -- (25,519) (599) -- 107,608 81,490
Gain from arbitration settlement -- -- 1,515 -- -- 1,515
Gain (loss) from operations (26,192) (53,173) (13,268) (18,926) 80,070 (35,764)
Interest expense (63) (86) (1,340) (5,482) (4,492) (11,489)
Interest income 2,549 2,528 1,688 4,089 4,104 15,350
Income tax provision -- -- -- -- 3,000 3,000
----------- ------------- ------------ ------------- ------------ -----------
Net income (loss) $ (23,706) $ (50,731) $ (12,920) $ (20,319) $ 76,682 $ (34,903)
=========== ============= ============ ============= ============ ===========

Other Consolidated Financial Data:
Capital expenditures $ 33,952 $ 54,271 $ 26,037 $ 75,238 $ 82,640 $ 281,415
Cash provided (used) by operating activities (20,967) (14,192) 18,136 (6,420) (18,891) (43,888)
Cash used by investing activities (33,951) (68,290) (17,529) (97,070) (57,534) (283,652)
Cash provided (used) by financing activities 68,452 53,668 (1,972) 180,639 (43) 333,265
Ratio of earnings to fixed charges -- -- -- -- 2.89x --
Deficiency of earnings to fixed charges (23,851) (56,401) (18,976) (31,659) -- (79,443)

Consolidated Balance Sheet Data (end of period):
Cash and cash equivalents $ 35,224 $ 6,410 $ 5,045 $ 82,193 $ 5,726
Total assets 90,547 104,299 85,328 271,469 379,378
Total debt 1,188 51,511 49,804 167,148 195,485
Mandatorily redeemable preferred stock -- -- -- 129,978 141,246
Stockholders' equity (deficit) 83,107 39,737 26,831 (40,114) 26,387

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.

The following discussion should be read in conjunction with, and is
qualified in its entirety by, the consolidated financial statements and notes
thereto included elsewhere in this Annual Report on Form 10-K. Some of the
statements in this Annual Report on Form 10-K constitute forward-looking
statements. These statements involve known and unknown risks, uncertainties, and
other factors that may cause our or our industry's results, levels of activity,
performance, or achievements to be materially different from any future results,
levels of activity, performance, or achievements expressed or implied by such
forward-looking statements. These factors include, among others, those listed
under "Business," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and elsewhere in this Annual Report on
Form 10-K and in the other documents we file with the Securities and Exchange
Commission, including Amendment No. 1 to the Registration Statement on Form S-1
as filed on February 14, 2001. In some cases, you can identify forward-looking
statements by terminology, such as "may," "will," "should," "expects," "plans,"
"intends," "anticipates," "believes," "estimates," "predicts," "potential," or
"continue" or the negative of these terms or comparable terminology. Although we
believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, events, levels of activity,
performance, or achievements. Our actual results and the timing of certain
events could differ materially from those anticipated in the forward-looking
statements.

Overview

We plan to create and market a variety of information products derived
from satellite imagery of the earth's surface. We are currently building a
satellite capable of collecting high-resolution digital imagery of the earth's
surface, as well as a comprehensive image collection, enhancement, and digital
archive system known as our Digital Globe database. Our QuickBird 2 satellite is
designed to collect 0.6-meter resolution gray scale and 2.5-meter resolution
color imagery of the earth and will have an ability to revisit most areas within
three to five days. We plan to launch the QuickBird 2 satellite in October 2001.

We were originally incorporated as a wholly-owned subsidiary of Ball
Corporation. On March 31, 1995, we merged with WorldView Imaging Corporation,
which had been founded by Dr. Walter S. Scott, our Chief Technical Officer and
Executive Vice President. In connection with the merger, Ball contributed
certain assets and technology, in addition to making a substantial cash
investment. WorldView received the first United States government license to
operate a high-resolution satellite for commercial use and was developing the
EarlyBird satellites (predecessor satellites to the QuickBird satellites) when
it merged with us.

We are in an early development stage. Since the merger, we have
invested in research and development to develop our satellite system and have
incurred substantial operating costs and selling, general, and administrative
expenses. We completed and launched EarlyBird 1, our first satellite, in
December 1997. However, four days after a successful launch, we lost contact
with EarlyBird 1. We were unable to reestablish communications and determined
that the satellite was a total loss. Although we launched an additional
satellite called the QuickBird 1 on November 20, 2000, it failed to achieve
orbit, which resulted in a total loss of the satellite. As a result, we have not
generated any significant revenue from our proposed primary satellite imagery
business and will not do so until we successfully launch and begin selling
imagery generated by QuickBird 2. We have generated only limited revenue from
other related projects.

On April 8, 1999, we completed a recapitalization. As a result, all of
our existing common and preferred stock were converted into shares of Series C
preferred stock at varying conversion ratios. In connection with the
recapitalization, ITT Industries, Inc., Morgan Stanley & Co. Incorporated
("Morgan Stanley"), and entities affiliated with Capital Research and Management
Company purchased shares of our common stock, Series A preferred stock, and
Series B preferred stock for an aggregate purchase price of approximately $50
million. Morgan Stanley also received one share of common stock. This investment
by the new equity partners caused the existing stockholders, including Ball, to
become minority owners. As a result, we may have experienced a change in
control. Also, we obtained the consent of holders of the notes to amend the
indenture governing the notes and change the terms of such securities, including
extending their maturity to March 1, 2005.

On July 12, 1999, we completed a private offering of 199,000 units,
consisting of 13% notes and shares of preferred stock. Each unit consisted of a
13% note which had an accreted value of $684.61 and a principal value at
maturity in 2007 of $1,000, and 49.095 shares of our 8.5% Series C convertible
preferred stock. The offering resulted in

aggregate gross proceeds of approximately $136 million. In August 2000, we
exchanged all of the original 13% notes for registered 13% notes. We did not
receive any proceeds from this exchange offer.

QuickBird 1 was launched on November 20, 2000, but failed to reach the
proper orbit. On November 23, 2000, we filed a proof of loss of the QuickBird 1
remote sensing satellite with the underwriters of the launch insurance policies
in accordance with the terms of those policies.

We have realized significant operating losses and negative earnings
before interest, taxes, depreciation, and amortization, or EBITDA. We expect our
operating expenses to increase as we develop our QuickBird satellite and imaging
network, product and service lines, and customer base. We expect our revenue and
operating results will vary significantly from period to period.

Given our growth strategy, we expect to realize significant operating
losses at least through the third quarter of 2002 due to anticipated substantial
operating expenses, including costs of operating and maintaining QuickBird 2 and
related ground stations, costs of processing and delivering imagery products,
additional research and development expenses, and expenditures for sales and
marketing, as well as increased general and administrative expenses. Our ability
to generate operating income and cash flow is primarily dependent upon the
timely construction and successful deployment of QuickBird 2 and the development
of related ground systems, our ability to develop a customer base and
distribution channels for our imagery products and services, and demand for our
products and services. Demand and market acceptance for new products and
services is subject to a high level of uncertainty. We cannot assure you that
our products will achieve significant market acceptance in existing imagery
markets or that new markets anticipated by EarthWatch will develop in the
expected time periods, if at all.

Initially, we expect to provide imagery primarily to foreign
governments, U.S. government agencies, and large commercial users. We will also
target local and municipal governments that currently use aerial and
low-resolution satellite imagery for mapping, environmental monitoring, and land
use and infrastructure planning. We expect that revenue from government
customers will account for a majority of our revenues for the first few years
after we begin selling products based on QuickBird 2 imagery. However, we
believe that over the next several years, commercial sales will account for an
increasing portion of our revenue as our industry demonstrates the utility of
satellite imagery-based products.

We expect to begin generating revenue several months after QuickBird 2
is launched. We will use this initial period to test the system. In the first
year of QuickBird 2's operations, we expect that most of our revenues will come
from government customers who enter into pre-launch contracts with us. We
anticipate that many customers will wait to enter into imagery contracts until
after QuickBird 2 is successfully launched and fully operational.

We expect that a number of our customers will eventually want to have
their own ground stations to receive imagery. However, we expect that many of
these customers will wait until satellite operations are assured before
investing in new and upgraded ground stations. Although construction time
varies, it usually ranges from six months for an upgrade to two years for a new
facility. Until these customers upgrade or construct their own ground stations,
they will need to receive delivery of our imagery through our ground stations
and distribution systems.

Revenue

Our revenues have been generated primarily from the processing and sale
of geographic imagery purchased from third party suppliers. Once our satellite
and production facilities are operational, we expect that our principal source
of revenue will be from the licensing of our own satellite imagery and imagery
enhancement for end users, value-added resellers, and distributors.

We believe that our first-come, first-served approach to contracting
Seconds on Orbit on the QuickBird satellite will appeal to customers who want
high priority tasking. We are engaged in discussions with various potential
customers, primarily foreign and domestic government agencies, and we believe
these discussions will lead to a number of contracts soon after we launch. We
have designed our Seconds on Orbit contracts to establish long-term
relationships with customers and to encourage them to make significant
investments in their ground systems and make significant upfront cash payments.
We expect that Seconds on Orbit will represent our largest source of revenue
over the next several years. Seconds on Orbit contracts are designated to
establish a fixed dollar amount for tasking time on the satellite, which is
billed on a quarterly basis, whether or not the rental time or resulting images
are used.

In addition to selling tasking time on a satellite under a Seconds on
Orbit contract, we also plan to sell specific images requested by customers.

We believe that our planned value-added imagery products represent the
greatest potential for long-term growth. Such products include licensing of
archived EarthWatch and third party imagery, and image processing and
enhancement services, and market specific information products. Since
familiarity with high-resolution satellite imagery is limited, we expect the
markets for these products to develop more slowly than for our Seconds on Orbit
and customer requested image products. However, in the longer term, we believe
these products have the potential for significant revenue and margins.

Cost of goods sold

We do not believe that our current costs are indicative of our
anticipated costs. Currently, cost of goods sold includes third party geographic
imagery sold under contract. Once our satellite and production facilities are
operational, cost of goods sold also will include expenses incurred to operate
the data and value-added production facilities, ground stations, and satellite
operations, as well as depreciation for these facilities. In addition, cost of
goods sold will include depreciation of the satellite (once it is placed in
service), including launch insurance, capitalized interest, and ground system
construction. Since the designed useful life of the satellite is five years, we
expect to depreciate it on a straight-line basis over a similar period.

We do not expect our operating cost of goods sold, including labor in
production, satellite operations, and ground operations, to vary significantly
with revenues. The level of these costs will be established prior to the launch
of QuickBird 2 and we expect them to remain relatively flat thereafter. We
expect the costs associated with the purchase and resale of third party data to
increase as sales of these products increase.

Selling, general, and administrative expenses

Selling, general, and administrative expenses include the salaries,
benefits, and sales commissions of our distribution, marketing, and customer
service personnel, as well as expenses associated with marketing, advertising,
and sales programs to support distributor and end user sales. We expect these
expenses to increase significantly prior to the launch due to sales staff
additions and increased marketing efforts. While a portion of these expenses is
fixed, most of them will increase with revenue, particularly sales commissions,
which vary directly with sales levels.

We intend to focus our direct selling efforts on the United States
government, foreign national security markets, local governments, and large
commercial users. We will market to other users through market specific
distributors, value-added resellers, and e-commerce channels. We expect to
perform certain value-added services internally, and intend to distribute our
imagery to end users through value-added resellers. These resellers can process
such data into complex maps and other products for specific applications. As a
result, we can limit our initial sales and support infrastructure and leverage
the value-added resellers' existing market access and customer relationships,
particularly in markets requiring extensive product development, customer
education, and long sales cycles.

Selling, general, and administrative expenses also include the salaries
and benefits of the executive staff, accounting, and other corporate expenses.
We expect these expenses to decrease in 2001 as a result of staff reductions
through the third quarter of 2001, due to the failed launch of QuickBird 1. We
expect them to increase after the launch of QuickBird 2 as we begin our planned
commercial operations. As these expenses are primarily fixed, we believe they
will decrease as a percentage of revenue over time.

Research and development

Research and development costs are principally expensed as incurred and
reflect the cost of the design of the satellites, data processing, value-added
production facilities, and ground station systems. We record as research and
development expense all engineering costs associated with the preliminary design
of our satellites where we maintain the risk associated with design failure.
Once the design of the satellite is stable and not subject to significant
additional modifications, we capitalize additional costs as investments in
satellite equipment. Also included are the costs of research and development for
ongoing operational improvements and new product and application development. It
is our intention to consistently fund the development of new products,
processes, and image applications in addition to developing next generation
satellite systems.

Satellite failure

Due to the loss of our QuickBird 1 satellite on November 20, 2000, we
wrote off approximately $157 million of QuickBird 1 costs in fiscal 2000. The
impact was a decrease in balance sheet values, specifically, construction in
progress (satellite) assets in the year end consolidated financial statements
for 2000. We also recognized in fiscal 2000 a receivable in the amount of $265
million for insurance proceeds due to the loss of QuickBird 1, resulting in a
net gain on the loss of our satellite of approximately $108 million.

Income taxes

In connection with our start up expenditures and costs related to the
development of the EarlyBird and QuickBird satellites, we have generated
significant net operating losses. Our ability to use these net operating losses
to offset net income that we may earn in the future may be limited, as we may
have experienced an ownership change as defined in the Internal Revenue Code.

Capital expenditures

We expect to incur significant capital expenditures to construct and
launch the QuickBird 2 satellite, and upgrade both our ground stations and other
operating systems. As of December 31, 2000, we have spent a total of $247
million for both QuickBird 1 and QuickBird 2 and related systems. The QuickBird
2 satellite is now in final assembly and testing. It has a designed useful life
of five years. We expect to spend an additional $90 million to complete, launch,
and insure QuickBird 2 and its related systems.

We have begun to develop plans for the satellites that will replace
QuickBird 2. The first replacement satellite is planned for launch by 2005. We
expect to incur significant research and development costs and capital
expenditures to develop these next generation satellites. We believe these
satellites will provide significant additional capacity and significantly
increase our revenue opportunities compared to the QuickBird system.

Results of Operations

Year ended December 31, 1999 compared with year ended December 31, 2000

Revenue. Our revenue has been generated primarily from the processing
and licensing of geographic imagery purchased from third-party suppliers.
Revenue decreased from $5.9 million in 1999 to $3.3 million in 2000. The
decrease is attributable to a lack of contract revenue during the last three
quarters of 2000. New and existing contracts contained few scheduled product
deliveries during that time, so little revenue was realized. Revenue from the
resale of third-party data was $5.5 million for 1999 and $2.7 million for 2000.
Revenue from service contracts and sales from archives was $400,000 for 1999 and
$600,000 for 2000.

Cost of goods sold. Our cost of goods sold decreased from $5.1 million
in 1999 to $2.1 million in 2000. Costs for both periods primarily consisted of
the direct costs associated with obtaining third-party geographic imagery for
resale. We do not believe that these costs reflect our anticipated costs of
generating satellite imagery once our initial satellite and production
facilities are operational, or when acquiring imaging and other data from other
sources.

Selling, general, and administrative expenses. Selling, general, and
administrative expenses were $12.8 million in 1999 and $15.3 million in 2000.
General and administrative expenses remained relatively consistent at $9.9
million and $9.6 million for 1999 and 2000 respectively. Selling and marketing
expenses increased from $2.9 million in 1999 to $5.7 million in 2000 as a result
of increases in sales staff and increased marketing efforts in preparation for
market entry of the Company's products and services, originally anticipated for
year end 2000.

Research and development. Research and development costs increased from
$7.0 million for the year ended December 31, 1999 to $13.4 million for the year
ended December 31, 2000. The increase was attributable to additional staff and
systems development for launch and satellite systems.

Loss (gain) from impairment of fixed assets, net of insurance
recoveries. No gains or losses from impairment of fixed assets were recognized
in 1999, but due to the loss of our QuickBird 1 satellite on November 20, 2000,
we wrote off approximately $157 million of QuickBird 1 costs in 2000. The impact
was a decrease in balance sheet values, specifically, construction in progress
(satellite) assets in the year end consolidated financial statements for 2000.
We also recognized in the year 2000, a receivable in the amount of $265 million
for insurance proceeds due to the loss of QuickBird 1, resulting in a net gain
on the loss of our satellite of approximately $108 million.

Interest expense. Interest expense decreased from approximately $5.5
million in 1999 to $4.5 million in 2000, as a result of increased capitalization
of interest on the higher average balance of construction in progress during
2000.

Interest income. Interest income of approximately $4.1 million was
substantially consistent in 1999 and 2000. Cash available for investment has
steadily declined since the unit offering in July 1999 as we have drawn upon
these amounts to fund our operations. Although a greater amount of cash was
available for investment in the latter half of 1999, interest income for 2000
was approximately the same due to having more funds available during a longer
portion of 2000 than in 1999 and overall higher interest rates in 2000.

Provision for income taxes. Due to losses incurred each year since
inception, there was no provision for income taxes recorded until 2000. We
recorded a provision for income taxes in 2000 for alternative minimum taxes. We
had net operating loss carryforwards of $89.0 million and $134.5 million as of
December 31, 1999 and 2000, respectively; however, such deferred tax benefits
and the fiscal 2000 alternative minimum tax credit were not recorded as assets
because we have no history of profitability. In addition, utilization of net
operating loss carryforwards may be subject to limitation, depending on changes
in our ownership.

Net income (loss). We had a net loss of $20.3 million in 1999 versus
net income of $76.7 million in 2000. Our net income in 2000 was the result of
the recognition of the insurance proceeds from the loss of our QuickBird 1
satellite.

Year ended December 31, 1998 compared with year ended December 31, 1999

Revenue. Our revenue increased from $1.8 million in 1998 to $5.9
million in 1999. Our revenue generated from service contracts and sales from
archives for 1998 and 1999 was $400,000 for each year.

Cost of goods sold. Our cost of goods sold increased from $1.9 million
in 1998 to $5.1 million in 1999. Our costs for third-party geographic imagery
increased from $1.2 million in 1998 to $5.1 million in 1999. Our costs for
providing services under other service contracts decreased from $700,000 in 1998
to zero in 1999. We do not believe that these costs reflect our anticipated
costs of generating satellite imagery once our initial satellite and production
facilities are operational, or when acquiring imaging and other data from other
sources.

Selling, general, and administrative expenses. Selling, general, and
administrative expenses increased from $5.0 million in 1998 to $12.8 million in
1999. General and administrative expenses increased from $3.2 million in 1998 to
$9.9 million in 1999. These increased during 1999 as we implemented new systems
and procedures in preparation for full-scale operations. Selling and marketing
expenses increased from $1.8 million in 1998 to $2.9 million in 1999.

These increased in 1999 as a result of increases in sales staff and increased
marketing efforts in preparation for anticipated market entry of our products
and services in 2000.

Research and development. Research and development costs decreased from
$9.1 million in 1998 to $7.0 million in 1999. Costs associated with the design
of the satellites decreased from $3.3 million in 1998 to $2.5 million in 1999.
The remaining research and development costs were associated with the design of
the archival and value-added production facilities for image data, ground
stations, and satellite control operations.

Interest expense. Interest expense increased from approximately $1.3
million in 1998 to $5.5 million in 1999, as a result of increased capitalization
of interest on the higher average balance of construction in progress during
1999 and the additional debt outstanding.

Interest income. Interest income increased from approximately $1.7
million in 1998 to $4.1 million in 1999. As a result of the unit offering in
July of 1999, there was a significantly greater amount of cash available for
investment during the latter half of 1999.

Provision for income taxes. Due to losses incurred during 1999, there was
no provision for income taxes recorded. As of December 31, 1999, we had
approximately $89.0 million in net operating loss carryforwards; however, such
deferred tax benefits were not recorded as an asset because we have no history
of profitability. In addition, utilization of net operating loss carryforwards
may be subject to limitation, depending on changes in our ownership.

Net income (loss). We had net losses of $12.9 million and $20.3 million in
1998 and 1999, respectively.

Year ended December 31, 1997 compared with year ended December 31, 1998

Revenue. We did not generate any significant revenue in 1997 or 1998 from
our primary business, the sale of licenses for the use of overhead geographic
imagery. Our total revenue increased from $437,000 in 1997 to $1.8 million in
1998. Of these amounts, we generated $402,000 and $1.4 million in 1997 and 1998,
respectively, from sales of third party geographic imagery. In 1997, we received
$35,000 in revenue under a service contract with CTA Incorporated for assisting
in the construction of a satellite for NASA. In 1998, we also derived revenue of
$358,000 from sales of aerial imagery and production services.

Cost of goods sold. Our cost of goods sold increased from $382,000 in 1997
to $1.9 million in 1998. A substantial portion of this increase in 1998 resulted
from costs of $1.3 million incurred in connection with processing third party
geographic imagery. In 1997 and 1998, we incurred costs of $326,000 and
$651,000, respectively, that were attributable to services provided under
services contracts. In 1997, we incurred costs of $56,000 under our CTA service
contract.

Selling, general, and administrative expenses. Our selling, general, and
administrative expenses decreased from $8.6 million in 1997 to $5.0 million in
1998. General and administrative expenses declined from $4.5 million in 1997 to
$3.2 million in 1998, while selling and marketing expenses declined from $4.1
million in 1997 to $1.8 million in 1998. Substantially all of this decrease was
attributable to reduced business activity and staffing after the failure of
EarlyBird 1.

Research and development. Our research and development costs declined from
$19.1 million in 1997 to $9.1 million in 1998. A decrease in satellite design
expenses from $10.9 million in 1997 to $3.3 million in 1998 accounted for a
significant portion of this decrease. Other research and development expenses,
including design costs related to imagery processing and archival facilities,
ground stations, and satellite control operations also decreased, largely as a
result of deferred development projects in 1998.

Loss (gain) from impairment of fixed assets, net of insurance recoveries.
In 1997 and 1998, we recorded losses from the impairment of fixed assets of
$25.5 million and $599,000, respectively, in connection with the loss of
EarlyBird 1 and our decision not to continue with the EarlyBird program. The
loss from impairment of fixed assets that we recorded in 1997 represented the
total accumulated construction costs of EarlyBird 1, EarlyBird 2, and related
ground equipment, net of $29.0 million in insurance proceeds received in
connection with the failure of EarlyBird 1. We subsequently determined that some
of the imagery processing software developed for EarlyBird was not usable for
QuickBird imagery. Accordingly, in 1998 we recorded an additional loss from
impairment of fixed assets of $599,000, equal to the total accumulated
development costs of such software.

Gain from arbitration settlement. In 1998, we recorded a gain of $1.5
million as a result of the reversal of certain accrued construction in progress
expenses in connection with an arbitration settlement with Orbital Sciences
Corporation, the builder of the EarlyBird 1 satellite. This settlement offset,
in part, $3.3 million in expenses related to certain unpaid invoices previously
included in loss from impairment of fixed assets in 1997.

Interest expense. Interest expense increased from approximately $0.1
million in 1997 to $1.3 million in 1998, as a result of increased capitalization
of interest on the higher average balance of construction in progress during
1998.

Interest income. Interest income decreased from approximately $2.5
million in 1997 to $1.7 million in 1998 as a result of lower cash balances
available for investment.

Provision for income taxes. Due to losses incurred in 1997 and 1998, we
recorded no provision for income taxes in either year. As of December 31, 1997
and 1998, we had $67.3 million and $79.6 million, respectively, in net operating
loss carryforwards. We have not recorded such deferred tax benefits as assets
because we have had no history of profitability.

Net income (loss). We had net losses of $50.7 million and $12.9 million in
1997 and 1998, respectively. Of the 1997 net loss, $25.5 million was associated
with the failure of the EarlyBird 1 satellite.

Liquidity and Capital Resources

Since our recapitalization, our primary sources of liquidity have been
private sales of equity and debt securities to our strategic partners, including
Ball Corporation, Capital Research and Management, Hitachi, ITT Industries, and
Morgan Stanley. In April 1999, we received net proceeds of $48.3 million from
the sale of preferred stock in connection with our recapitalization. In July
1999, we received net proceeds of $130.2 million from our offering of 13% Notes
and shares of Series C preferred stock. See Note 6 to our Consolidated Financial
Statements contained herein.

We have used this liquidity, together with approximately $29.0 million
of insurance proceeds from the loss of EarlyBird 1, for general corporate
purposes, including primarily developing and constructing satellites,
constructing ground stations, developing imagery processing and storage
facilities, and launching and insuring our QuickBird 1 satellite. Pending the
use of such proceeds, we invest such funds in short-term, interest-bearing,
investment-grade securities. As of December 31, 1999 and 2000, we had $82.2 and
$5.7 million, respectively, in cash and cash equivalents. For the years ended
December 31, 1998, 1999, and 2000, we reported net cash flows from operations of
$18.1 million, ($6.4 million), and ($18.9 million), respectively.

Our working capital and capital expenditure requirements were
substantial during the three-year period ended December 31, 2000. Such
expenditures consisted primarily of selling, general, and administrative
expenses, research and development activities and capital expenditures for the
QuickBird program. Capital expenditures totaled $26.0 million, $75.2 million,
and $82.6 million for the years ended December 31, 1998, 1999, and 2000,
respectively. In addition, we used a portion of the proceeds of the debt and
equity financing to purchase securities to be held in escrow for use in paying
the premiums on the launch insurance.

Due to the loss of our QuickBird 1 satellite on November 20, 2000, we
wrote off approximately $157 million of QuickBird 1 costs in 2000. The impact
was a decrease in construction in progress (satellite) assets as of December 31,
2000. We also recognized in the year 2000, a restricted receivable in the amount
of $265 million for insurance proceeds due to the loss of QuickBird 1, resulting
in a net gain on the loss of our satellite of approximately $108 million.

We are currently working with holders of the notes and other existing
shareholders to not have a certain amount of the notes tendered. Because we do
not yet know the extent to which holders of the notes will tender in our
repurchase offer, we cannot predict what funds we will have available for the
purchase of insurance and other funding needs. Therefore, we are evaluating our
alternatives for raising financing and obtaining transit and launch insurance
covering QuickBird 2. Without some form of additional financing, we believe that
cash on hand and expected cash flow from operations will not be sufficient to
fund our capital expenditures and operations, including the launch of QuickBird
2 and all insurance premiums.

We cannot assure you that we will obtain or have sufficient funds to
meet our liquidity needs, including our anticipated capital expenditures, or
that these expenditures will fall within our estimates. We may also need to
raise additional capital to support the construction and deployment of our next
generation satellites. We may need to refinance all or a portion of our
indebtedness, but we may not be able to do so on commercially reasonable terms,
or at all. In addition, if we face any launch delays, if the system takes longer
to become operational, if technical or regulatory developments require that we
modify the design of the EarthWatch system, if we are unable to achieve our
revenue targets, or if we incur other additional unforeseen costs, we may
require additional capital. We do not have a revolving credit facility or other
source of readily available capital. Therefore, any shortfall in funds available
for our operations or to service our debt would cause us serious liquidity
problems.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

We invest our cash and cash equivalents in short-term, U.S. dollar
interest-bearing, investment grade securities. We hold all investments through
maturity and none are held longer than 90 days. As of December 31, 2000, the
interest rates on these investments have not fluctuated more than one percentage
point since they were purchased. We do not currently hold any derivative
instruments and do not engage in hedging activities. Also, we currently do not
hold any variable interest rate debt or lines of credit, and currently do not
generally enter into any transactions denominated in a foreign currency.
Therefore, our exposure to interest rate and foreign exchange fluctuations is
minimal.

As of December 31, 2000, we estimated the fair value of our debt to be
approximately $225.9 million using the accreted value plus accrued and unpaid
interest as of that date. This methodology was utilized as a result of the
Company's requirement to make a repurchase offer for such notes upon receiving
the insurance proceeds from the QuickBird 1 launch insurance policies. Upon
closing of the tender offer, the fair value of any untendered notes will depend
upon rates for similar instruments at that time. To the extent interest rates
increase, our costs of financing would increase at such time as we are required
to refinance our debt.

Item 8. Financial Statements and Supplementary Data.

INDEX TO FINANCIAL STATEMENTS

Page

Report of Independent Accountants 23
Consolidated Balance Sheet 24
Consolidated Statement of Operations 25
Consolidated Statement of Cash Flows 26
Consolidated Statement of Stockholders' Equity (Deficit) 27
Notes to Consolidated Financial Statements 28

EarthWatch Incorporated
(A Development Stage Company)

Report of Independent Accountants

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

To the Board of Directors and Stockholders of
EarthWatch Incorporated:

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity (deficit) and of
cash flows present fairly, in all material respects, the financial position of
EarthWatch Incorporated (a development stage company) and its subsidiaries at
December 31, 1999 and 2000, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2000 and for
the period from January 1, 1995 (Inception) to December 31, 2000, in conformity
with accounting principles generally accepted in the United States of America.
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 of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered a recent satellite launch failure
and, in accordance with the terms of its outstanding debt instruments, has
initiated a tender offer for such instruments with the proceeds from the related
launch insurance policies. These events raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Denver, Colorado
March 29, 2001

EarthWatch Incorporated
(A Development Stage Company)

Consolidated Balance Sheet
- --------------------------------------------------------------------------------

December 31,
------------------------------
1999 2000
--------------- --------------
ASSETS

Current Assets:
Cash and cash equivalents $ 82,193,314 $ 5,725,779
Accounts receivable, net of allowance for doubtful accounts of $90,646 and zero, respectively 768,029 251,408
Insurance proceeds receivable - restricted - 265,000,000
Investment securities 3,026,480 -
Investment securities - restricted 28,374,848 6,295,382
Other current assets 968,769 398,101
-------------- --------------
Total current assets 115,331,440 277,670,670
-------------- --------------
Property, plant, and equipment:
Construction in progress 143,716,962 89,716,474
Computer equipment and software 12,275,986 15,365,444
Machinery and equipment 5,665,918 5,770,640
Furniture and fixtures 1,113,073 1,281,911
-------------- --------------
Total property, plant, and equipment 162,771,939 112,134,469
Accumulated depreciation and amortization (12,031,861) (15,419,714)
-------------- --------------
Net property, plant, and equipment 150,740,078 96,714,755
-------------- --------------

Debt issuance costs, net 5,069,065 4,682,127
Other assets 328,537 310,664
-------------- --------------
TOTAL ASSETS $ 271,469,120 $ 379,378,216
============== ==============

LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK, AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities
Current Liabilities:
Accounts payable $ 12,307,440 $ 11,289,385
Accounts payable to related parties 645,464 982,232
Accrued expenses 1,503,408 3,988,060
Current portion of long-term debt 92,743 195,484,650
--------------- --------------
Total current liabilities 14,549,055 211,744,327
Long-term debt, net 167,055,390 -
-------------- --------------
Total liabilities 181,604,445 211,744,327
-------------- --------------

Mandatorily redeemable preferred stock due 2009
7% Cumulative convertible - Series A; $.001 par value; 10,000,000 shares
authorized; 7,505,765 and 8,051,273 shares issued and outstanding as
of December 31, 1999 and 2000, respectively; aggregate liquidation
preference of $28,179,456 as of December 31, 2000 25,478,661 27,473,699
7% Cumulative convertible - Series B; $.001 par value, 10,000,000 shares authorized;
7,505,765 and 8,051,273 shares issued and outstanding as of December 31,
1999 and 2000, respectively; aggregate liquidation preference of $28,179,456
as of December 31, 2000 25,478,661 27,473,699
8.5% Cumulative convertible - Series C; $.001 par value; 25,000,000 shares
authorized; 22,987,305 and 25,000,000 shares issued and outstanding
as of December 31, 1999 and 2000, respectively; aggregate liquidation
preference of $87,577,914 as of December 31, 2000 79,021,011 86,298,993
-------------- --------------
Total mandatorily redeemable preferred stock 129,978,333 141,246,391
-------------- --------------

Stockholders' equity (deficit)
Common stock; $.001 par value; 100,000,000 shares authorized, 1 and 195,420
shares issued and outstanding at December 31, 1999 and 2000, respectively - 195
Additional paid-in capital 71,587,153 61,824,829
Deferred stock compensation - (534,600)
Accumulated other comprehensive loss (115,953) -
Deficit accumulated during the development stage (111,584,858) (34,902,926)
-------------- --------------
Total stockholders' equity (deficit) (40,113,658) 26,387,498
-------------- --------------
TOTAL LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK, AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 271,469,120 $ 379,378,216
============== ==============

The accompanying notes are an integral part of these consolidated
financial statements.

EarthWatch Incorporated
(A Development Stage Company)

Consolidated Statement of Operations
- --------------------------------------------------------------------------------

Period from
January 1, 1995
(Inception) to
Year Ended December 31, December 31,
--------------------------------------------------------
1998 1999 2000 2000
----------------- ------------------ ----------------- -----------------

Revenue $ 1,808,573 $ 5,913,310 $ 3,336,052 $ 16,387,491

Cost of goods sold 1,904,867 5,120,575 2,098,513 13,140,239
----------------- ------------------ ----------------- -----------------
Gross profit (loss) (96,294) 792,735 1,237,539 3,247,252
----------------- ------------------ ----------------- -----------------

Expenses:
Selling, general, and administrative 4,975,232 12,762,636 15,332,973 50,080,515
Research and development 9,112,745 6,956,244 13,442,214 71,935,782
Loss (gain) from impairment of fixed assets,
net of insurance recoveries 599,015 - (107,607,601) (81,489,890)
Gain from arbitration settlement (1,514,776) - - (1,514,776)
----------------- ------------------ ----------------- -----------------
Total expenses 13,172,216 19,718,880 (78,832,414) 39,011,631
----------------- ------------------ ----------------- -----------------

Gain (loss) from operations (13,268,510) (18,926,145) 80,069,953 (35,764,379)
Interest expense (1,339,599) (5,481,820) (4,492,399) (11,488,910)
Interest income 1,688,554 4,089,199 4,104,378 15,350,363
----------------- ------------------ ----------------- -----------------
Income (loss) before provision
for income taxes (12,919,555) (20,318,766) 79,681,932 (31,902,926)

Provision for income taxes - - (3,000,000) (3,000,000)
----------------- ------------------ ----------------- -----------------
Net income (loss) (12,919,555) (20,318,766) 76,681,932 (34,902,926)

Mandatorily redeemable preferred stock dividends
and accretion - (6,690,537) (11,268,058) (17,958,595)
----------------- ------------------ ----------------- -----------------
Net income (loss) attributable to
common stockholders $ (12,919,555) $ (27,009,303) $ 65,413,874 $ (52,861,521)
================= ================== ================= =================

The accompanying notes are an integal part of these consolidated
financial statements.

EarthWatch Incorporated
(A Development Stage Company)

Consolidated Statement of Cash Flows
- --------------------------------------------------------------------------------

Period from
January 1, 1995
(Inception) to
Year Ended December 31, December 31,
------------------------------------------------
1998 1999 2000 2000
--------------- --------------- --------------- --------------

CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (12,919,555) $ (20,318,766) $ 76,681,932 $ (34,902,926)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation expense 4,383,188 3,885,611 3,775,680 17,001,745
Non-cash interest expense 789,298 4,752,339 4,428,974 10,097,380
Non-cash (gain) loss from disposals and impairments of property
plant, and equipment, net of insurance recoveries 667,358 3,346 (107,607,601) (50,886,959)
Non-cash stock compensation - - 921,400 921,400
Changes in assets and liabilities:
Accounts receivable, net 28,329,903 (47,995) 516,621 747,717
Other assets 1,243,312 (458,088) 588,541 (486,391)
Accounts payable (2,153,712) 8,001,287 (1,018,055) 10,776,776
Accounts payable - related parties (2,484,767) (763,291) 336,768 982,232
Accrued expenses 280,716 (1,474,643) 2,484,652 1,861,270
--------------- --------------- --------------- --------------

Net cash provided (used) by operating activities 18,135,741 (6,420,200) (18,891,088) (43,887,756)
--------------- --------------- --------------- --------------

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities (882,000) (27,686,994) - (45,148,332)
Proceeds from maturities of investment securities 5,431,000 5,853,910 25,105,946 38,694,856
Proceeds from sales of property, plant, and equipment 3,959,280 1,213 - 4,216,978
Constuction in progress additions (25,912,268) (72,681,412) (78,888,733) (265,853,954)
Other property, plant, and equipment additions (124,893) (2,557,024) (3,750,845) (15,561,468)
--------------- --------------- --------------- --------------

Net cash used by investing activities (17,528,881) (97,070,307) (57,533,632) (283,651,920)
--------------- --------------- --------------- --------------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term notes, net - 97,450,086 - 145,718,374
Proceeds from issuance of preferred and common stock, net 50,872 83,512,114 49,929 191,172,334
Cash acquired in merger - - - 916,457
Principal payments on debt (2,023,118) (322,984) (92,744) (4,541,710)
--------------- --------------- --------------- --------------

Net cash provided (used) by financing activities (1,972,246) 180,639,216 (42,815) 333,265,455
--------------- --------------- --------------- --------------

Net increase (decrease) in cash and cash equivalents (1,365,386) 77,148,709 (76,467,535) 5,725,779
Cash and cash equivalents, beginning of period 6,409,991 5,044,605 82,193,314 -
--------------- --------------- --------------- --------------
Cash and cash equivalents, end of period $ 5,044,605 $ 82,193,314 $ 5,725,779 $ 5,725,779
=============== =============== =============== ==============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 6,344,475 $ 3,150,575 $ 3,153 $ 12,671,661

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
Assets acquired pursuant to capital-lease and financing
obligations $ - $ - $ - $ 4,599,935
Net book value of assets acquired in merger - - - 4,290,496
Liabilities assumed in merger - - - 3,738,588
Stockholder advances converted to equity - - - 1,030,000
Property in-kind contributed by stockholder - - - 7,521,028
Non-cash interest capitalized in construction in progress 6,056,000 11,340,000 24,328,936 47,539,936
Issuance of mandatorily redeemable preferred stock - 39,765,364 10,940,902 50,706,266

The accompanying notes are an integral part of these consolidated financial
statements.

EarthWatch Incorporated
(A Development Stage Company)

Consolidated Statement of Stockholders' Equity (Deficit)
- ---------------------------------------------------------------------------------------------------------------------------------
Convertible Convertible Convertible Senior
Series A Series B Series C
Preferred Stock Preferred Stock Preferred Stock
------------------------ ------------------------- ----------------------
Shares Amount Shares Amount Shares Amount
---------- ------------ --------- ------------ --------- ---------

Balance at January 1, 1995 (inception) - $ - - $ - - $ -
Issuance of stock in exchange for future
cash contributions and contributions
of property in-kind 8,000,000 14,400,000 - - - -
Contribution of net assets in merger 5,362,285 551,908 - - - -
Issuance of common stock for services
and for stock options exercised - - - - - -
Issuance of preferred stock 5,475,001 21,712,635 189,040 1,890,400 - -
Property in-kind, conversion of debt, and
cash contributions from stockholder - - - - - -
Net and comprehensive income (loss) - - - - - -
---------- ------------ --------- ------------ ---------- --------
Balance at December 31, 1995 18,837,286 36,664,543 189,040 1,890,400 - -
Restatement of capital stock and additional
paid-in capital for reincorporation as
of January 1, 1996 - (36,645,706) - (1,890,211) - -
Issuance of stock in exchange for property
in-kind and other, net 513,124 513 22,260 22 - -
Issuance of preferred stock - - 100,000 100 7,000,000 7,000
Property in-kind contributed by stockholder - - - - - -
Net and comprehensive income (loss) - - - - - -
---------- ------------ --------- ------------ ---------- --------
Balance at December 31, 1996 19,350,410 19,350 311,300 311 7,000,000 7,000
Issuance of common stock - - - - - -
Issuance of common stock for services
and for stock options exercised - - - - - -
Issuance of preferred stock - - - - - -
Other - - - - - -
Net and comprehensive income (loss) - - - - - -
---------- ------------ --------- ------------ ---------- --------
Balance at December 31, 1997 19,350,410 19,350 311,300 311 7,000,000 7,000
Issuance of preferred and common stock for
stock options exercised 17,916 18 - - - -
Net and comprehensive income (loss) - - - - - -
---------- ------------ --------- ------------ ---------- --------
Balance at December 31, 1998 19,368,326 19,368 311,300 311 7,000,000 7,000
Issuance of preferred and common stock for
stock options exercised - - - - - -
Issuance of common stock for warrants
exercised - - - - - -
Surrender and cancellation of shares from
Ball Technologies Holdings Corp. (2,761,983) (2,762) - - - -
Reclassification of preferred and common
stock into Series C 8.5% Cumulative
Convertible Redeemable Preferred Stock
Due 2009 in connection with the
recapitalization (16,606,343) (16,606) (311,300) (311) (7,000,000) (7,000)
Issuance of preferred and common stock
in connection with the recapitalization - - - - - -
Mandatorily redeemable preferred stock
dividends and accretion - - - - - -
Net and comprehensive income (loss) - - - - - -
---------- ------------ --------- ------------ ---------- --------
Balance at December 31, 1999 - - - - - -
Issuance of preferred and common stock
for stock options exercised - - - - - -
Deferred stock compensation - - - - - -
Amortization of deferred stock compensation - - - - - -
Mandatorily redeemable preferred stock
dividends and accretion - - - - - -
Net and comprehensive income (loss) - - - - - -
---------- ------------ --------- ------------ ---------- --------
Balance at December 31, 2000 - $ - - $ - - $ -
========== ============ ========= ============ ========== ========

- -----------------------------------------------------------------------------------------------------------------------------------
Convertible
Series D
Preferred Stock Common Stock Additional
-------------------- --------------------------- Paid-in
Shares Amount Shares Amount Capital Other
------- --------- ------------ --------- ---------- ------------

Balance at January 1, 1995 (inception) - $ - - $ - $ - $ -
Issuance of stock in exchange for future
cash contributions and contributions
of property in-kind - - 1 - - (14,400,000)
Contribution of net assets in merger - - - - - -
Issuance of common stock for services
and for stock options exercised - - 79,500 63,600 - -
Issuance of preferred stock - - - - - -
Property in-kind, conversion of debt, and
cash contributions from stockholder - - - - - 13,381,523
Net and comprehensive income (loss) - - - - - -
----------- ----- ------------ --------- ------------ ------------
Balance at December 31, 1995 - - 79,501 63,600 - (1,018,477)
Restatement of capital stock and additional
paid-in capital for reincorporation as
of January 1, 1996 - - - (63,521) 38,599,438 -
Issuance of stock in exchange for property
in-kind and other, net - - - - 2,288,561 -
Issuance of preferred stock 400,000 400 - - 69,833,305 -
Property in-kind contributed by stockholder - - - - (25,944) 1,018,477
Net and comprehensive income (loss) - - - - - -
----------- ----- ------------ --------- ------------ ------------
Balance at December 31, 1996 400,000 400 79,501 79 110,695,360 -
Issuance of common stock - - - - 1,229,240 -
Issuance of common stock for services
and for stock options exercised - - 69,416 70 55,463 -
Issuance of preferred stock 600,000 600 - - 5,999,400 -
Other - - - - (4,773) -
Net and comprehensive income (loss) - - - - - -
----------- ----- ------------ --------- ------------ ------------
Balance at December 31, 1997 1,000,000 1,000 148,917 149 117,974,690 -
Issuance of preferred and common stock for
stock options exercised - - 54,631 55 50,799 -
Net and comprehensive income (loss) - - - - - -
----------- ----- ------------ --------- ------------ ------------
Balance at December 31, 1998 1,000,000 1,000 203,548 204 118,025,489 -
Issuance of preferred and common stock for
stock options exercised - - 1,000 1 799 -
Issuance of common stock for warrants
exercised - - 1,556,000 1,556 14,004 -
Surrender and cancellation of shares from
Ball Technologies Holdings Corp. - - - - 2,762 -
Reclassification of preferred and common
stock into Series C 8.5% Cumulative
Convertible Redeemable Preferred Stock
Due 2009 in connection with the
recapitalization (1,000,000) (1,000) (1,760,548) (1,761) (39,765,364) -
Issuance of preferred and common stock
in connection with the recapitalization - - 1 - - -
Mandatorily redeemable preferred stock
dividends and accretion - - - - (6,690,537) -
Net and comprehensive income (loss) - - - - - -
----------- ----- ------------ --------- ------------ ------------
Balance at December 31, 1999 - - 1 - 71,587,153 -
Issuance of preferred and common stock
for stock options exercised - - 195,419 195 49,734 -
Deferred stock compensation - - - - 1,456,000 (1,456,000)
Amortization of deferred stock compensation - - - - - 921,400
Mandatorily redeemable preferred stock
dividends and accretion - - - - (11,268,058) -
Net and comprehensive income (loss) - - - - - -
----------- ----- ------------ --------- ------------ ------------
Balance at December 31, 2000 - $ - 195,420 $ 195 $ 61,824,829 $ (534,600)
=========== ===== ============ ========= ============ ============

Accumulated Deficit Accumulated
Other During the Total
Comprehensive Development Stockholders'
Income (Loss) Stage Equity (Deficit)
------------ ------------------- ----------------

Balance at January 1, 1995 (inception) $ - $ - $ -
Issuance of stock in exchange for future
cash contributions and contributions
of property in-kind - - -
Contribution of net assets in merger - - 551,908
Issuance of common stock for services
and for stock options exercised - - 63,600
Issuance of preferred stock - - 23,603,035
Property in-kind, conversion of debt, and
cash contributions from stockholder - - 13,381,523
Net and comprehensive income (loss) - (3,909,208) (3,909,208)
------------- ------------- ------------
Balance at December 31, 1995 - (3,909,208) 33,690,858
Restatement of capital stock and additional
paid-in capital for reincorporation as
of January 1, 1996 - - -
Issuance of stock in exchange for property
in-kind and other, net - - 2,289,096
Issuance of preferred stock - - 69,840,805
Property in-kind contributed by stockholder - - 992,533
Net and comprehensive income (loss) - (23,706,344) (23,706,344)
------------- ------------- ------------
Balance at December 31, 1996 - (27,615,552) 83,106,948
Issuance of common stock - - 1,229,240
Issuance of common stock for services
and for stock options exercised - - 55,533
Issuance of preferred stock - - 6,000,000
Other - - (4,773)
Net and comprehensive income (loss) 80,400 (50,730,985) (50,650,585)
------------- ------------- ------------
Balance at December 31, 1997 80,400 (78,346,537) 39,736,363
Issuance of preferred and common stock for
stock options exercised - - 50,872
Net and comprehensive income (loss) (36,971) (12,919,555) (12,956,526)
------------- ------------- ------------
Balance at December 31, 1998 43,429 (91,266,092) 26,830,709
Issuance of preferred and common stock for
stock options exercised - - 800
Issuance of common stock for warrants
exercised - - 15,560
Surrender and cancellation of shares from
Ball Technologies Holdings Corp. - - -
Reclassification of preferred and common
stock into Series C 8.5% Cumulative
Convertible Redeemable Preferred Stock
Due 2009 in connection with the
recapitalization - - (39,792,042)
Issuance of preferred and common stock
in connection with the recapitalization - - -
Mandatorily redeemable preferred stock
dividends and accretion - - (6,690,537)
Net and comprehensive income (loss) (159,382) (20,318,766) (20,478,148)
------------- ------------- ------------
Balance at December 31, 1999 (115,953) (111,584,858) (40,113,658)
Issuance of preferred and common stock
for stock options exercised - - 49,929
Deferred stock compensation - - -
Amortization of deferred stock compensation - - 921,400
Mandatorily redeemable preferred stock
dividends and accretion - (11,268,058)
Net and comprehensive income (loss) 115,953 76,681,932 76,797,885
------------- ------------- ------------
Balance at December 31, 2000 $ - $ (34,902,926) $ 26,387,498
============= ============= ============

The accompanying notes are an integral part of these consolidated financial
statements.

EarthWatch Incorporated
(A Development Stage Company)

Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------

1. General Information and Financial Condition

EarthWatch Incorporated and its subsidiaries ("EarthWatch" or the
"Company"), a development stage company, was incorporated on September 30,
1994 under the laws of the State of Colorado and, on August 21, 1995, was
reincorporated in the State of Delaware. The Company commenced operations
on March 31, 1995 with the contribution of the net assets of WorldView
Imaging Corporation ("WorldView") and certain assets of Ball Corporation
("Ball") (the "Merger") (See "Note 3--Merger Agreement"). The Company is a
supplier of digital geographic imagery and is building high-resolution
commercial imaging satellites to generate high-quality, direct-to-desktop
digital imagery of the earth's surface. The Company's current and
anticipated customers include utility, real estate, engineering,
transportation, agricultural, and media companies as well as federal,
state, and local governments.

On November 20, 2000, the QuickBird 1 satellite was launched from
Plesetsk, Russia. QuickBird 1 failed to achieve orbit, which resulted in a
total loss of the satellite and its write off totaling $157 million in
fiscal 2000. In December 2000, the Company filed insurance claims for the
loss of the satellite with its various insurance carriers totaling $265
million (the full amount of which was received as of March 26, 2001),
resulting in a net gain on the loss of the satellite of approximately $108
million in fiscal 2000. The Company is currently in the process of
negotiating, with new and existing investors, debt and equity financing
with which it will fund future operations. The Company's ability to
continue as a going concern and to generate positive future operating and
net cash flows is dependent upon its ability to successfully negotiate such
financing, launch, insure and operate QuickBird 2, and to produce and
market digital imagery in commercial quantities.

2. Summary of Significant Accounting Principles

Principles of Consolidation

The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
investments, accounts, and transactions have been eliminated.

Cash and Cash Equivalents

The Company considers all highly liquid investments, excluding
restricted investment securities, purchased with an original maturity of
three months or less to be cash equivalents. Cash equivalents are carried
at amortized cost.

Investment Securities

The Company accounts for its investment securities in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 115, Accounting
for Certain Investments in Debt and Equity Securities, which requires that
individual debt and equity securities be classified into one of three
categories: trading, held to maturity, or available for sale. The Company
determines the appropriate classification of investment securities at the
time of purchase and reevaluates such designation at each balance sheet
date.

Property and Equipment

Property and equipment are recorded at cost. Pursuant to SFAS No. 34,
Capitalization of Interest Cost, the cost of significant assets includes
capitalized interest incurred during the construction and development
period. The costs of satellites under construction are capitalized during
the construction phase, assuming the eventual successful launch and
in-orbit operation of the satellite. If a satellite were to fail during
launch or while in-orbit, the resultant loss would be charged to expense in
the period such loss was incurred. The amount of any such loss would be
reduced to the extent of insurance proceeds received as a result of the
launch or in-orbit failure. Depreciation is computed using the
straight-line method over the estimated useful lives of the respective
assets (three to ten years). Leasehold improvements and assets acquired
pursuant to capital-lease obligations are amortized on a straight-line
basis over the shorter of their useful lives or lease terms; such
amortization is included in depreciation expense. Repairs and maintenance
are expensed as incurred.

EarthWatch Incorporated
(A Development Stage Company)

Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------

Long-Lived Assets

The Company evaluates the recoverability of its long-lived assets based
on fair values or undiscounted cash flows, in the event fair value is not
readily determinable, whenever events or changes in circumstances occur
which indicate the carrying amount of an asset may not be recoverable.
Impairments are recognized as the excess of the carrying amount of the
asset over its fair value as estimated, based on the present value of
expected future cash flows.

Revenue Recognition

Revenue is primarily derived from the sale of third-party imagery under
contracts to customers. Revenue is also earned processing third-party data,
such as aerial photography, into usable digital imagery. Revenue from these
sales is recognized when the product has been delivered to the customer.

Research and Development Costs

The Company records as research and development expense all engineering
costs associated with the design of its satellites where the Company
maintains the risk associated with design failure. Once the satellite is
ready for commercial production, engineering costs are capitalized as
investments in satellite equipment.

Advertising Costs

Advertising costs are expensed as incurred and historically have been
immaterial.

Stock-Based Compensation

Employee stock awards under the Company's stock option plan are
accounted for in accordance with Accounting Principles Board Opinion
("APB") No. 25, Accounting for Stock Issued to Employees and related
interpretations. Stock-based awards to nonemployees, if any, are accounted
for in accordance with SFAS No. 123, Accounting for Stock-Based
Compensation and related interpretations.

Income Taxes

Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end based on enacted tax
laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable earnings. Valuation allowances
are established when necessary to reduce deferred tax assets to the amount
more likely than not to be realized.

Comprehensive Income (Loss)

Effective January 1, 1998, the Company adopted the provisions of SFAS
No. 130, Reporting Comprehensive Income. SFAS No. 130 establishes standards
for reporting comprehensive income and its components in financial
statements. Comprehensive income or loss includes all changes in equity
during a period from non-owner sources. Total comprehensive income (loss),
which includes unrealized gains and losses on investments classified as
available-for-sale securities, was ($12,956,526), ($20,478,148), and
$76,797,885 for the years ended December 31, 1998, 1999, and 2000,
respectively.

Fair Values of Financial Instruments

The Company's financial instruments include cash and cash equivalents,
investment securities, accounts receivable, accounts payable, accrued
liabilities, and debt. The carrying amounts of financial instruments, other
than investments and debt, approximate fair value due to their short-term
maturities. The Company's investment securities were accounted for at fair
value. The fair value of the Company's debt instruments was approximately
$225,889,000 at December 31, 2000.

Concentration of Credit Risk and Significant Customers

The Company's cash and cash equivalents and investment securities are
maintained in various financial institutions. The Company has not
experienced any losses in such accounts and believes it is not exposed to
any significant credit risk in this area. The Company's restricted accounts
receivable balance was with various large insurance institutions, the full
amount of which was received as of March 26, 2001 (see Note 6).

EarthWatch Incorporated
(A Development Stage Company)

Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------

Revenue percentages from each of the Company's significant customers
were as follows for the years ended December 31:

1998 1999 2000
---- ---- ----
Customer A 63.1% 90.1% 38.6%
Customer B 26.4% 9.1% 54.3%

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make significant
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the
date of the financial statements and the reported amounts of revenue and
expenses during the periods. Actual results could differ from these
estimates, making it reasonably possible that a change in these estimates
could occur in the near-term.

Reclassifications

Certain items previously reported in specific financial statement
captions have been reclassified to conform to the current presentation.

New Accounting Pronouncements

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements". SAB No. 101 provides specific guidance, among other things, as
to the recognition of revenue related to up-front non-refundable fees and
service charges received in connection with a contractual arrangement. The
adoption of SAB No. 101 did not have a material impact on the financial
condition or results of operations of the Company.

As of July 1, 2000, FASB Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation, an Interpretation of Accounting
Principles Board Opinion No. 25," which clarifies certain issues related to
the accounting for stock-based compensation, became effective. The adoption
of this standard did not have a material impact on the financial condition
or results of operations of the Company.

SFAS No. 133, "Accounting for Derivative Instruments and for Hedging
Activities," was issued in June 1998 and requires companies to value
derivative financial instruments, including those used for hedging
purposes, at current market values with the impact of any change in market
value being charged against earnings in each period. In addition, SFAS No.
138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities," was issued in June 2000 and amends SFAS No. 133 to provide
additional implementation guidance related to SFAS No. 133. The Company
will adopt both pronouncements in the first quarter of 2001 and anticipates
that the adoption will not have a material impact on its consolidated
financial position or results of operations.

3. Merger Agreement

On March 31, 1995, Ball and WorldView consummated the Merger pursuant
to an Agreement and Plan of Merger (the "Agreement") which was entered into
on January 25, 1995. Pursuant to this Agreement, the stockholders of
WorldView contributed assets and liabilities of WorldView with a net
carrying value of $551,908 in exchange for 5,362,285 shares of the
Company's Series A preferred stock ("Series A Preferred Stock"). Pursuant
to this Agreement, Ball provided two gimbaled mirror systems in exchange
for 875,000 shares of Series A Preferred Stock. Ball also provided
$10,000,000 of cash in exchange for 7,125,000 shares of Series A Preferred
Stock. The contributed net assets were recorded by the Company at amounts
equal to Ball's and WorldView's basis in such net assets.

4. Investment Securities

In connection with the issuance of the 12 1/2% senior notes (the
"Senior Notes"), due March 1, 2001, the

EarthWatch Incorporated
(A Development Stage Company)

Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------

Company purchased U.S. Treasury notes to be held in escrow as security for
the first six semi-annual interest payments on the Notes. During the third
quarter of 1999, these securities were released from escrow in connection
with the exchange for 12 1/2% notes due March 1, 2005. During the first
quarter of 2000, they were sold and converted to cash.

Gross
Unrealized
Investment Securities Cost Gains (Losses) Fair Value
--------------------- ---- -------------- ----------

U.S. Government securities as of December 31, 1999:
Maturing in one year or less. $3,078,360 ($51,880) $3,026,480
========== ========= ==========
U.S. Government securities as of December 31, 2000:
Maturing in one year or less. (none) (none) (none)

In connection with the issuance of the 13% senior discount notes (the
"Senior Discount Notes"), the Company purchased U.S. Treasury notes to be
held in escrow as security for the premiums on the launch insurance on the
QuickBird 1 satellite.

Unrealized
Investment Securities - Restricted Cost Gains (Losses) Fair Value
---------------------------------- ---- -------------- ----------

U.S. Government securities as of December 31, 1999:
Maturing in one year or less $28,438,921 ($64,073) $28,374,848
=========== ========= ===========
U.S. Government securities as of December 31, 2000:
Maturing in one year or less $ 6,295,382 (none) $ 6,295,382
=========== ===========

5. Construction In Progress, Losses from Impairments of Fixed Assets and
Insurance Recoveries

Construction in progress consists primarily of satellite construction
and launch costs, ground station construction costs, and third-party
developed software. Construction in progress consisted of the following:

December 31, 1999 December 31, 2000
----------------- -----------------
QuickBird satellites $ 125,414,700 $55,952,495
Digital Globe software 14,809,982 26,570,191
Ground station equipment 3,492,280 7,193,788
-------------- ------------
$ 143,716,962 $ 89,716,474
============== ============

In 1997, the Company launched and lost contact with its EarlyBird 1
satellite. As a result, the Company wrote off in fiscal 1997 accumulated
construction costs for the EarlyBird satellite program of approximately
$25.5 million, net of insurance recoveries of $29 million.

During the year ended December 31, 1998, the Company determined that
certain software would not be used with the QuickBird satellite system.
Accordingly, the total accumulated development costs of $599,000 are
included in the Statement of Operations as a loss from impairment of fixed
assets for the year ended December 31, 1998.

EarthWatch Incorporated
(A Development Stage Company)

Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------

6. Debt

12 1/2% Senior Notes and Warrant Issuance

On March 19, 1997, the Company issued $50,000,000 in Senior Notes
representing 50,000 units. Each Unit included one warrant (the "Warrants")
to purchase 31.12 shares of Common Stock at an exercise price of $0.01 per
share, subject to adjustment. The Senior Notes rank pari passu in right of
payment with all existing and future unsubordinated unsecured indebtedness
of the Company.

Recapitalization

In April 1999, the Company amended and restated the Senior Notes
Indenture, dated as of March 1997. Under the amended and restated Senior
Notes Indenture, the new senior notes (the "New Senior Notes") replaced the
Senior Notes, extending the maturity from March 1, 2001 to March 1, 2005,
and the indenture trustee for the Senior Notes authorized the release of
all collateral securing the Senior Notes upon the securing of the New
Senior Notes with the proceeds of satellite insurance for QuickBird 1. The
Company is to accrete the next six semi-annual interest payments, which
will result in an increase of the principal of the securities to $72
million. The interest rate remains at 12 1/2%. The Company recorded an
additional discount on the New Senior Notes equal to the difference between
the current principal balance and the principal balance at maturity. In
conjunction with the recapitalization and restructuring of the debt, the
Warrants were exercised for the purchase of 1,556,000 shares of Common
Stock.

13% Senior Discount Notes and Series C 8 1/2% Convertible Redeemable
Preferred Stock Issuance

July 12, 1999 the Company received $136,237,390 gross proceeds from a
debt and equity offering. This offering represented 199,000 units, each of
which consisted of one Senior Discount Note due July 15, 2007 ("Senior
Discount Note") and 49.095 shares of the Company's Series C 8 1/2%
Cumulative Convertible Redeemable Preferred Stock ("Series C Convertible
Preferred Stock"). Each note had an initial accreted value of $684.61 and
has a principal amount at maturity of $1,000.00. The Senior Discount Notes
do not begin to accrue cash interest until July 15, 2002. Beginning on
January 15, 2003, interest will be payable on January 15 and July 15 of
each year.

The Company may redeem any of the Senior Discount Notes beginning on
July 15, 2004. Issuance costs of $6.0 million were incurred in connection
with the issuance of the units. Of these costs, $4.5 million were allocated
to the Senior Discount Notes and $1.5 million were allocated to the Series
C Convertible Preferred Stock. The Company allocated the gross proceeds
between the debt and equity securities issued using their relative fair
values. This allocation resulted in additional debt discount of
$34,195,000.

The Senior Discount Notes rank equally with the other unsubordinated
indebtedness of the Company. The Senior Discount Notes will be senior to
any subordinated indebtedness of the Company. The Senior Notes and Senior
Discount Notes are secured by the insurance policies covering the launch of
QuickBird 1.

As of February 28, 2001, the trustees for our 12 1/2% notes and our 13%
notes had received the majority of the $265 million in proceeds from our
insurance on QuickBird 1, and, accordingly, initiated a tender offer to
purchase these notes at a purchase price equal to their accreted value,
plus any accrued and unpaid interest to the date of purchase. As of March
26, 2001, the full amount of the insurance proceeds had been received.

The Company's debt is comprised of the following at December 31:

1999 2000
---- ----

13% Senior Discount Notes, net of unamortized discount of
$86,681,504, and $64,852,862, respectively, effective rate of 15.9% $ 112,318,496 $ 134,147,138
12 1/2% Senior Notes, net of unamortized discount of $17,321,394
and $10,731,089, respectively, effective rate of 12.9% 54,678,606 61,268,911
Capital-lease obligations 151,031 68,601
------------- -------------
167,148,133 195,484,650
Less: current portion (92,743) (195,484,650)
------------- -------------
$ 167,055,390 $ --
============= =============

Earth Watch Incorporated
(A Development Stage Company)

Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------

7. Stockholders' Equity

In conjunction with the Company's reincorporation in Delaware on August
21, 1995, the Company changed the par value of its outstanding common stock
("Common Stock") and all convertible preferred stock from no par value to a
par value of $0.001.

Recapitalization

A special meeting of the Company's stockholders was called in April
1999 to discuss a preferred stock financing and recapitalization of the
Company. The stockholders approved and adopted an Amended and Restated
Certificate of Incorporation and a Recapitalization Agreement, which
resulted in three new series of EarthWatch Preferred Stock. At the closing,
shares of the Company's new Series A 7% Cumulative Convertible Redeemable
Preferred Stock ("Series A Convertible Preferred Stock"), Series B 7%
Cumulative Convertible Redeemable Preferred Stock ("Series B Convertible
Preferred Stock"), and new Common Stock were sold and issued for an
aggregate cash payment of $50,000,000. In accordance with the
Recapitalization Agreement, all outstanding shares of Common Stock and
former Series A, B, C, and D preferred stock were exchanged (at a 1 to
.44116 ratio for all outstanding Preferred Stock and at a 1 to .210202
ratio for all outstanding Common Stock) for an aggregate of 11,042,075
shares of new Series C Convertible Preferred Stock.

Additional Funding

As discussed in Note 6--Debt, 199,000 units, each of which consisted of
one Senior Discount Note and 49.095 shares of Series C Convertible
Preferred Stock were issued in July 1999.

Description of EarthWatch Stock

The following description summarizes certain terms of the Company's
capital stock and certain provisions of the Company's amended and restated
certificate of incorporation and bylaws.

Old Series A and B Convertible Preferred Stock

Each share of Series A Convertible Preferred Stock (the "Old Series A
Preferred Stock") and Series B Convertible Preferred Stock (the "Old Series
B Preferred Stock") was, as of December 31, 1998, convertible into one
share of Common Stock, subject to future adjustment in the event of
recapitalizations or dividends of Common Stock. The holders of Old Series A
Preferred Stock had the contractual right to receive additional shares upon
certain issuances of stock for a price less than $4.00 per share. The
conversion ratio of Old Series B Preferred Stock was subject to adjustment
upon certain issuances of stock for a price less than $10.00 per share.

All Old Series A and B Preferred Stock, by their terms, were
convertible at the option of the holder at any time and converted into
Common Stock simultaneously upon an initial public offering with gross
proceeds of at least $5,000,000 or with the written notice to the Company
from holders of a majority of the outstanding shares of either of the two
series of participating preferred stock consenting thereto. Upon
conversion, all accrued and unpaid dividends, whether or not declared, were
canceled.

All Old Series A and B Preferred Stock were voting and had liquidation
preferences (Old Series A Stock and Series B Stock at $4.00 and $10.00 per
share, respectively, plus an amount equal to all declared but unpaid
dividends on each share).

When, and only if, dividends were declared by the Company's Board of
Directors, the Series A Stock and Series B Stock participated pari passu
and had a right to receive dividends of $0.32 per share per annum prior to
any dividends paid to holders of Common Stock. Upon the distribution to
each common stockholder of an amount per share equal to $4.00 divided by
the Old Series A Stock conversion ratio, the Old Series A Stock, Old Series
B Stock, and Common Stock shared in any remaining liquidation distributions
on a pro rata as-converted basis.

Old Series C Senior Convertible Preferred Stock Issuance

On April 30, 1996, the Company issued 7,000,000 shares of 12% Series C
Convertible Senior Preferred Stock (the "Old Series C Preferred Stock") at
a price of $10.00 per share. Holders of the Old Series C Preferred Stock

Earth Watch Incorporated
(A Development Stage Company)

Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------

were entitled to dividends at an annual rate of 12% of the accreted
liquidation preference on a quarterly basis commencing June 30, 1996. All
unpaid dividends compounded quarterly at the annual dividend rate. The
Company did not declare or pay in cash the dividends accrued as of December
31, 1998. Accordingly, the liquidation preference increased from $10.00 to
$13.72 per share as of December 31, 1998.

Each share of Old Series C Preferred Stock was convertible, at the
option of the holder, at any time into one share of Common Stock of the
Company, subject to adjustment in certain events. Accrued and unpaid
dividends may be converted concurrently with the conversion of the Old
Series C Preferred Stock, at the option of the holder only upon certain
events, at a conversion price equal to 85% of the market price of the
Company's Common Stock.

Old Series D Convertible Preferred Stock

The Old Series D Convertible Preferred Stock (the "Old Series D
Preferred Stock") had the same terms as the Old Series B Stock but excluded
anti-dilution protection.

Series A and Series B Convertible Redeemable Preferred Stock

As of December 31, 2000, there were 8,051,273 shares of Series A
Convertible Preferred Stock outstanding held of record by one stockholder
and 8,051,273 shares of Series B Convertible Preferred Stock outstanding
held of record by six stockholders.

Except with respect to the voting rights and representation on the
board of directors, the Company's Series A Convertible Preferred Stock and
Series B Convertible Preferred Stock are identical in all respects.

Rank. Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock are pari passu and rank senior to Series C Convertible
Preferred Stock and Common Stock with respect to dividends, liquidation
preference, and redemption.

Dividends. The holders of Series A Convertible Preferred Stock and
Series B Convertible Preferred Stock are entitled to receive cumulative
dividends, whether or not declared by the Company's board of directors, at
an annual rate of 7% until no later than June 18, 2002. Such dividends are
payable quarterly on March 31, June 30, September 30, and December 31, and
commenced on June 30, 1999. Such dividends may be paid, subject to certain
limitations, at the Company's option, either in cash or in additional
shares of Series A Convertible Preferred Stock or Series B Convertible
Preferred Stock, as applicable, until June 15, 2002. After June 15, 2002,
dividends will accrue at an annual rate of 7% of the liquidation preference
and will be payable, when, as, and if declared by the board of directors,
in cash only.

If any dividend is not paid in full in cash on a quarterly payment date
after June 15, 2002, the liquidation preference of the Series A Convertible
Preferred Stock and Series B Convertible Preferred Stock will be increased
by an amount equal to the product of (a) the amount per share not paid
divided by the total amount payable per share and (b) one quarter of the
dividend rate multiplied by the effective liquidation preference. The
Company is prohibited from paying dividends on any shares of stock having
rights junior to the Series A and Series B Convertible Preferred Stock
until all accumulated dividends have been paid on the Series A and Series B
Convertible Preferred Stock.

Liquidation Preference. Upon liquidation, dissolution, or winding up,
the holders of Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock will be entitled to receive out of the assets
available for distribution prior to and in preference of the Series C
Convertible Preferred Stock, an amount equal to $3.50 per share, plus all
accrued and unpaid dividends, subject to adjustment.

Conversion. From June 15, 1999 and until June 15, 2002, each share of
Series A Convertible Preferred Stock and Series B Convertible Preferred
Stock is convertible at the option of the holder into that number of shares
of Common Stock obtained by dividing the applicable liquidation preference,
plus any accumulated but unpaid dividends by $3.50, subject to
anti-dilution adjustments. Prior to June 15, 2002, each share of Series A
Convertible

Earth Watch Incorporated
(A Development Stage Company)

Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------

Preferred Stock and Series B Convertible Preferred Stock will automatically
convert into Common Stock at the applicable conversion ratio upon the
earlier of (a) an initial public offering of shares of Common Stock with an
aggregate public offering price of at least $35,000,000 and (b) the listing
of shares of the Company's Common Stock under certain circumstances. After
June 15, 2002, each share of Series A Preferred Stock and Series B
Preferred Stock shall not be convertible into common stock.

Anti-dilution. The conversion price of the Series A Convertible
Preferred Stock and Series B Convertible Preferred Stock is subject to
adjustment under certain circumstances, including upon any subsequent
issuance of capital stock. The issuance of the Series C Convertible
Preferred Stock resulted in an adjustment in the conversion prices of the
Series A and Series B Convertible Preferred Stock.

Redemption. The Company is required to redeem all of the Series A
Convertible Preferred Stock and Series B Convertible Preferred Stock
outstanding on March 31, 2009, at a redemption price equal to 100% of the
then existing applicable liquidation preference, plus accrued and unpaid
dividends to the date of redemption, subject to the legal availability of
funds therefor.

Voting Rights. Each holder of Series A Convertible Preferred Stock is
entitled to .65 (subject to adjustment) votes per share held (on an
as-converted basis) and each holder of Series B Convertible Preferred Stock
is entitled to 1.35 (subject to adjustment) votes per share held (on an
as-converted basis).

Board Representation. The holders of Series A Convertible Preferred
Stock has the right to elect two persons to the board of directors and the
holders of the Series B Convertible Preferred Stock have the right to elect
four persons to the board of directors.

Series C Convertible Redeemable Preferred Stock

As of December 31, 2000, there were 25,000,000 shares of Series C
Convertible Preferred Stock outstanding.

Rank. The Series C Convertible Preferred Stock is junior to the Series
A Convertible Preferred Stock and Series B Convertible Preferred Stock, but
senior to the Common Stock, with respect to dividends, liquidation
preference, and redemption.

Dividends. The holders of Series C Convertible Preferred Stock are
entitled to cumulative dividends, whether or not declared by the board of
directors, at an annual rate of 8.5% until no later than June 15, 2002.
Such dividends are payable quarterly on March 31, June 30, September 30,
and December 31, and commenced on June 30, 1999. Until June 15, 2002, such
dividends may be paid, subject to certain limitations, at the Company's
option, either in cash or in additional shares of Series C Convertible
Preferred Stock. After June 15, 2002, dividends will accrue at an annual
rate of 8.5% of the liquidation preference and will be payable, when, as,
and if declared by the board of directors, in cash only.

If any dividend is not paid in full in cash on a quarterly payment date
after June 15, 2002, the liquidation preference of the Series C Convertible
Preferred Stock will be increased by an amount equal to the product of (a)
the amount per share not paid divided by the total amount payable per share
and (b) one quarter of the dividend rate multiplied by the effective
liquidation preference. The Company is prohibited from paying dividends on
any shares of stock having rights junior to the Series C Convertible
Preferred Stock until all accumulated dividends have been paid on the
Series C Convertible Preferred Stock.

Liquidation Preference. Upon liquidation, dissolution, or winding up,
the holders of the Series C Convertible Preferred Stock will be entitled to
receive out of the assets available for distribution, following payment of
the Series A and Series B liquidation preference, an amount equal to $3.50
per share, plus all accrued and unpaid dividends, subject to adjustment.

Earth Watch Incorporated
(A Development Stage Company)

Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------

Conversion. Until June 15, 2002, each share of Series C Convertible
Preferred Stock will be convertible at the option of the holder into that
number of shares of Common Stock obtained by dividing the Series C
liquidation preference, plus any accumulated but unpaid dividends by $3.50,
subject to anti-dilution adjustments. Prior to June 15, 2002, each share of
Series C Convertible Preferred Stock will automatically convert into Common
Stock at the applicable conversion ratio upon the earlier of (a) an initial
public offering of shares of Common Stock with an aggregate public offering
price of at least $35,000,000 and (b) the listing of shares of the
Company's Common Stock under certain circumstances. After June 15, 2002,
each share of Series C preferred stock shall not be convertible into common
stock.

Antidilution. The conversion price of the Series C Convertible
Preferred Stock is subject to adjustment under certain circumstances.

Redemption. The Company is required to redeem all of the Series C
Convertible Preferred Stock outstanding on March 31, 2009, at a redemption
price equal to 100% of the effective liquidation preference, plus accrued
and unpaid dividends to the date of redemption, subject to the legal
availability of funds therefor.

Voting Rights. Each holder of EarthWatch Series C Convertible Preferred
Stock is entitled to one (subject to adjustment) vote per share on an "as-
converted" basis.

Board Representation. The holders of the Series C Convertible Preferred
Stock are entitled to elect three members of the board of directors.

Tag-along Rights. If one stockholder or a group of stockholders
proposes to sell any shares of capital stock in one transaction such that,
following such sale, shares of capital stock representing more than 35% of
the then outstanding shares (on a fully-diluted basis) will have been sold
to one holder or a group of related holders, then each holder of Series C
Convertible Preferred Stock shall have the right to receive notice of such
a transaction and shall also have the right to participate in the
transaction and sell a proportionate number of such holders' Series C
Convertible Preferred Stock in such transaction.

Common Stock

Holders of Common Stock are entitled to one vote for each share held of
record at all meetings of the stockholders. Holders of Common Stock are not
entitled to cumulative voting rights with respect to the election of
directors. Subject to preferences that are applicable to outstanding shares
of preferred stock, holders of Common Stock are entitled to receive ratably
such dividends as may be declared by the board of directors out of funds
legally available to be paid.

In the event of a liquidation, dissolution, or winding up, holders of
Common Stock are entitled to share ratably in all assets remaining after
payment of liabilities and the liquidation preference of the outstanding
preferred stock. Holders of Common Stock have no preemptive rights and no
right to convert their Common Stock into any other securities. There are no
redemption provisions applicable to the Common Stock. The outstanding
shares of Common Stock are fully paid and nonassessable.

8. Stock Options and Warrants

The Company maintains a 1995 Stock Option/Stock Issuance Plan (the "95
Plan") pursuant to which incentive and nonqualified stock options to
purchase shares of the Company's stock or the stock itself have been issued
to employees, officers, directors, and consultants. Under the 95 Plan,
incentive stock options were granted with exercise prices not less than the
fair value of the stock on the various dates of grant, as determined by the
Company's Board of Directors. Options granted pursuant to the 95 Plan are
subject to certain terms and conditions as contained in the 95 Plan itself,
have a ten-year term, generally vest over a four-year period, and are
immediately exercisable. Upon termination of services to the Company by
optionees, any acquired but unvested shares are

Earth Watch Incorporated
(A Development Stage Company)

Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------

subject to repurchase by the Company at the original exercise price. During
1999, the Board of Directors amended the 95 Plan eliminating future grants.
As a result of the Recapitalization Agreement adopted in 1999, the stock
from any exercised options under the 95 Plan automatically convert to the
new Series C Convertible Preferred Stock at the rates established in the
Recapitalization Agreement.

On February 15, 2000, the Board of Directors approved the written 1999
Equity Incentive Plan (the "99 Plan") pursuant to which incentive and
nonqualified stock options to purchase shares of the Company's stock or the
stock itself may be issued to employees, officers, directors, and
consultants. Under the 99 Plan, incentive stock options are granted with
exercise prices not less than the fair value of the stock on the various
dates of grant, as determined by the Company's Board of Directors. Options
granted pursuant to the 99 Plan are subject to certain terms and conditions
as contained in the 99 Plan itself, have a ten-year term, generally vest
over a four-year period, and are immediately exercisable. Upon termination
of services to the Company by optionees, any acquired but unvested shares
are subject to repurchase by the Company at the original exercise price. At
December 31, 2000, there were 6,565,254 shares available for grant under
the 99 Plan.

The following is a summary of stock option activity:

Number Weighted- Weighted- Number Weighted-
of Series A Average Number Average of Series C Average
Preferred Exercise of Common Exercise Preferred Exercise
Shares Price Shares Price Shares Price
------ ------ ------- ----- ------- -----

Outstanding at January 1, 1997 37,800 $0.05 1,158,300 $0.80
Granted - - 620,295 0.80
Exercised - - (10,282) 0.80
Expire - - (117,571) 0.80
------------ ------------
Outstanding at December 31, 1997 37,800 0.05 1,650,742 0.80
Granted - - 798,655 0.80
Exercised (17,916) 0.05 (54,631) 0.80
Expired or terminated (2,084) - (1,019,595) 0.80
------------ ------------
Outstanding at December 31, 1998 17,800 0.05 1,375,171 0.80
As converted (17,800) 0.05 (1,375,171) 0.80 296,916 $3.71
Adjustment for conversion rounding - - - - (5) 3.71
Granted - - - - 12,297 3.71
Exercised - - - - (5,025) 3.71
Expired or terminated - - - - (10,859) 3.71
------------ ------------ ----------
Outstanding at December 31, 1999 - - - - 293,324 3.71
Granted - - 3,719,075 0.25 - -
Exercised - - (195,419) 0.25 (293) 3.81
Expired or terminated - - (284,329) 0.25 (39,731) 3.81
------------ ------------ ----------
Outstanding at December 31, 2000 - - 3,239,327 0.25 253,300 3.69
============ ============ ==========
Weighted-average remaining contractual
life 9.3 years 6.0 years
Range of exercise prices 0.25 0.05 - 3.81
Outstanding options vested 1,615,250 0.25 250,738 3.69

Weighted-average grant-date fair values were as follows:

1998 1999 2000
---- ---- ----
Exercise price * market value -- -- $0.57
Exercise price = market value $0.17 $0.94 0.07

______________
* less than sign

Earth Watch Incorporated
(A Development Stage Company)

Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------

The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions:

1998 1999 2000
---- ---- ----

Expected dividend yield 0.00% 0.00% 0.00%
Expected stock price volatility 0.00% 0.00% 0.00%
Risk free interest rate 5.27% - 5.63% 4.60% - 5.14% 6.50%
Expected life of options (years) 4.42 5.00 5.00

Prior to fiscal 2000, the Company had not recognized any stock
compensation expense in its financial statements. As part of its fiscal
2000 year end close process, the Company recorded approximately $1.5
million of deferred stock compensation expense in accordance with APB No.
25, approximately $0.9 million of which was recognized in fiscal 2000. Had
compensation expense for the Company's stock options been determined based
on the fair values at the grant dates for awards under the plan consistent
with the method of accounting prescribed by SFAS No. 123, Accounting for
Stock-based Compensation, the Company's net loss for the current period
would have been as follows (in thousands):

1998 1999 2000
---- ---- ----
Net income (loss) - as reported $(12,920) $(20,319) $76,682
Net loss - pro forma (13,030) (20,396) 76,402

As of December 31, 2000, the Company had warrants outstanding for the
purchase of 12,463 shares of Series C Preferred Stock, with an exercise
price of $4.53 per share. The warrants are exercisable through May 27,
2001.

9. Income Taxes

The provision for income taxes consists of the following for the fiscal
years ended December 31:

Current provision: 1998 1999 2000
---- ---- ----
Federal $ -- $ -- $ 2,500,000
State -- -- 500,000
---------- ---------- --------------
Provision for income taxes $ -- $ -- $ 3,000,000
========== ========== ==============

At December 31, 2000, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $134.5 million. In
addition, the Company has research and development tax credits of
approximately $1.5 million. If unused, the carryforwards and credits will
begin to expire in 2010. The Internal Revenue code places certain
limitations on the annual amount of net operating loss carryforwards which
can be utilized if certain changes in the Company's ownership occurs. The
Company believes that such changes have occurred and could occur in the
future to further limit the utilization of the carryforwards.

The Company's deferred tax assets and liabilities are comprised of the
following as of December 31:

Deferred tax assets: 1999 2000
---- ----

Net operating loss carryforwards $ 3,762,887 $ 52,615,023
Fixed assets 4,950,790 --
Other 1,573,977 5,859,826
-------------- --------------
Gross deferred tax assets 40,284,654 58,474,849
-------------- --------------
Deferred tax liabilities:
Fixed assets -- (41,707,211)
-------------- --------------
Net deferred tax assets -- 16,767,638
(40,284,654) (16,767,638)
-------------- --------------
Net deferred tax assets (liabilities) $ -- --
============== ==============

EarthWatch Incorporated
(A Development Stage Company)

Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------

Net deferred tax assets have been reduced to zero by a valuation
allowance based on current evidence which indicates that it is considered
more likely than not that these benefits will not be realized.

The following is a reconciliation of the statutory U.S. federal income
tax rate to the Company's effective income tax rate of continuing
operations for the fiscal years ended December 31:

1998 1999 2000
----- ---- ----

Federal income tax rate 34.0% 34.0% 35.0%
State income tax rate, net of federal benefit 5.0 5.0 4.7
Meals and entertainment (0.5) (0.2) (1.0)
Disqualified interest - - 1.2
Effect of change in valuation allowance and other items (38.5) (38.8) (36.1)
-------- ------ -------
Effective income tax rate - % -% 3.8%
======== ====== =======

10. Benefit Plan

In October 1995, the Company adopted a 401k Savings and Retirement Plan
(the "401k Plan"), a tax-qualified plan covering all of its employees.
Employees may elect to contribute, subject to certain limitations, up to
15% of their annual compensation to the 401k Plan. The 401k Plan provides
that the Company may contribute matching or additional contributions to the
401k Plan at the discretion of the Board of Directors. The Company has not
made any contributions to the 401k Plan since its inception.

11. Commitments

Operating Leases

The Company leases its facilities under various operating lease
arrangements. Future minimum lease payments under noncancelable operating
leases as of December 31, 2000 are summarized below:

2001 $ 887,956
2002 783,651
2003 742,025
2004 724,527
2005 and thereafter 135,921
------------
Total $ 3,274,080
============

Rent expense approximated $988,422, $888,305, and $1,451,324 for the
years ended December 31, 1998, 1999, and 2000, respectively.

Material Relationships and Related Party Transactions

Ball Aerospace & Technologies Corp.

The Company has had various contracts with Ball Aerospace &
Technologies Corp. ("Ball Aerospace"), a stockholder of the Company, since
inception for the design and manufacture of satellites. The Company $36.0
million for the QuickBird 2 spacecraft. The Company made payments to Ball
Aerospace totaling $9,976,000, $33,455,000, $16,225,217 and $85,294,755
under these contracts for the years ended December 31, 1998, 1999, and
2000, and for the period from January 1, 1995 (inception) through December
31, 2000, respectively. At December 31, 1999 and 2000, amounts totaling
$68,276 and $537,298 are included in accounts payable to Ball Aerospace.

Mr. Vanlandingham, a director of EarthWatch, is the President and
Chief Executive Officer of Ball Aerospace.

EarthWatch Incorporated
(A Development Stage Company)

Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------

Hitachi, Ltd./Hitachi Software Engineering Company, Ltd.

Hitachi, Ltd. ("Hitachi"), a stockholder of the Company, currently is
a master international distributor of our products, and the exclusive
distributor in most of Asia. Under the Company's distribution agreement,
Hitachi will be entitled to purchase our products at significant discounts.
Additionally, the Company has entered into an agreement with Hitachi
Software Engineering Company, Ltd. ("Hitachi Software"), an affiliate of
Hitachi, Ltd., for the development and delivery of a product processor and
to cross-license certain intellectual property rights related to the
Company's ground system and the proprietary software of Hitachi Software.
The license grants Hitachi Software the right to offer customers ground
systems that permit them to receive data directly from the Company's
QuickBird satellite. The Company made payments to Hitachi Software totaling
$2,167,000 under this agreement for the year ended December 31, 2000.

Mr. Kodaira, a director of EarthWatch, is the General Manager of the
Geospatial Information Division of Hitachi Software.

ITT Industries, Inc.

Since December 1998, the Company has had various contracts with the ITT
Systems division of ITT Industries, Inc. ("ITT"), a stockholder of the
Company, for system engineering and other efforts associated with the
scheduling and tasking module of the QuickBird satellites, the development
of a satellite simulator and certain other research and development
efforts. The Company made payments to ITT totaling $2,946,117 and
$3,083,399 under these contracts for the years ended December 31, 1999 and
2000, respectively. At December 31, 1999 and 2000, amounts totaling
$447,034 and $28,020 are included in accounts payable to ITT.

Dr. Sambur, a director of EarthWatch, is the President and General Manager
of ITT Industries' Aerospace/Communications Division. Mr. Foley, a director
of EarthWatch, is the Treasurer of ITT Industries.

MacDonald Dettwiler and Associates

Since June 1996, the Company and MacDonald Dettwiler and Associates
("MDA"), a stockholder of the Company, have had an agreement whereby the
Company has purchased various goods and services from MDA. Amounts totaling
$322,102, $3,091,653, $2,034,831 and $6,445,811 have been paid to MDA
during the years ended December 31, 1998, 1999, and 2000, and for the
period from January 1, 1995 (inception) through December 31, 2000,
respectively. At December 31, 1999 and 2000, amounts totaling $307,016 and
$236,220 are included in accounts payable to Ball Aerospace.

Morgan Stanley & Co. Incorporated

Morgan Stanley & Co. Incorporated ("Morgan Stanley"), a stockholder of
the Company, acted as placement agent in connection with the Company's
offering in April 1996 of 7,000,000 shares of the Company's former Series C
preferred stock and the Company's offering in March 1997 of 50,000 units,
each consisting of one note and one warrant to purchase 31.12 shares of the
Company's common stock. Morgan Stanley also acted as placement agent in
connection with the Company's offering in July 1999 of 199,000 units, each
consisting of one 13% note and 49.095 shares of the Company's existing
Series C preferred stock. In connection with its role in these offerings,
Morgan Stanley received customary commissions and discounts in its capacity
as placement agent.

As of December 31, 2000, Morgan Stanley, in addition to its equity
investment, held $2.9 and $2.0 million principal amount at maturity of the
12 1/2% Senior Notes and 13% Senior Discount Notes, respectively. In
addition, Morgan Stanley acts as exclusive financial advisor to EarthWatch
under a five-year agreement. Morgan Stanley received $750,000 in connection
with its advisory role in the recapitalization in April 1999.

Mr. Petrick, a director of EarthWatch, is a Managing Director of
Morgan Stanley.

United Start Corporation/Assured Space Access, Inc.

In 1998, the Company entered into an agreement with United Start
Corporation ("United Start") pursuant to which United Start provided launch
and associated services for the QuickBird 1 satellite launch and we have an
option to launch another satellite. The Company made payments to United
Start under this agreement of approximately $153,559, $3.3 million, and
$5.2 million in 1998, 1999, and 2000, respectively. At December 31,

EarthWatch Incorporated
(A Development Stage Company)

Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------

1999 and 2000, amounts totaling $1,850,000 and $2,240,000 are included in
accounts payable to United Start. In addition, the Company made payments to
Assured Space Access, Inc., which performed services in connection with the
launch of the QuickBird 1 satellite, of approximately $1.1 million in 1999
and $662,781 in 2000.

Mr. Lushtak, a director of EarthWatch, is Co-Chairman and Chief
Executive Officer of United Start, and is Chairman and Chief Executive
Officer of Assured Space Access.

The Company believes that all of the transactions set forth above were
made on terms no less favorable than would be obtained for similar services
provided to unrelated third parties. Any future transactions between the
Company and its executive officers, directors, and their affiliates will be
on terms no less favorable to the Company than can be obtained from
unaffiliated third parties, and any material transactions with such persons
will be approved by a majority of the disinterested members of the
Company's board of directors.

12. Summary of Activity by Geographical Area

Net Sales (in thousands) U.S. Other Consolidated
------------------------ ----- ------ ------------

1998 $ 1,808.6 - $ 1,808.6
1999 5,913.3 - 5,913.3
2000 3,336.1 - 3,336.1

Long-Lived Assets (in thousands)

1999 $161,093.6 $ 1,678.3 $ 162,771.9
2000 110,047.7 2,086.8 112,134.5

Item 9. Changes in and Disagreements With Independent Accountants on Accounting
and Financial Disclosure.

There were no matters required to be reported under this item.

PART III

Item 10. Directors and Executive Officers of the Company.

The following table provides information concerning our directors,
executive officers, and certain key employees as of December 31, 2000:

Name Age Position

Herbert F. Satterlee III....... 45 Chief Executive Officer, President, and Director
Henry E. Dubois................ 39 Chief Operating Officer, Chief Financial Officer, and Executive Vice President
Dr. Walter S. Scott............ 42 Chief Technical Officer, Executive Vice President, and Director
Neal T. Anderson............... 56 Vice President Space Segment
Mark A. Hargrove............... 44 Chief Information Officer and Vice President of Operations
John C. Jasper................. 35 Vice President Data Systems
Jeffrey S. Kerridge............ 39 Vice President Sales
Shawn R. Thompson, Esq......... 46 Secretary of the Board
Paul M. Albert, Jr............. 57 Director
Donald E. Foley................ 49 Director
Anne Karalekas................. 54 Director
Takatoshi Kodaira.............. 52 Director
Alexander S. Lushtak........... 62 Director
Michael J. Petrick............. 39 Director
Dr. Marvin R. Sambur........... 54 Director
Donald W. Vanlandingham........ 60 Director

Herbert F. Satterlee III has served as Chief Executive Officer, President,
and a director since he joined EarthWatch in June 1998. From August 1995 to
April 1998, Mr. Satterlee served as President of RESOURCE 21 LLC, a Denver-based
remote sensing information products company, where Mr. Satterlee led the
development of aircraft-derived imagery information products for the agriculture
industry in preparation for the 2001 launch of the company's Earth observing
satellite. Additionally, from October 1978 to June 1998, Mr. Satterlee spent 19
years with The Boeing Company, holding senior management positions on programs
such as Teledesic, UK/ROF AWACS (international defense), and the B-1 Bomber
Simulator (United States defense).

Henry E. Dubois has served as Chief Operating Officer, Chief Financial
Officer, and Executive Vice President since September 1999. From June 1995 to
December 1998, Mr. Dubois served as Advisor to the Board of Directors, Chief
Executive Officer, and Chief Financial Officer of P.T. Centralindo Panca Sakti,
a telecommunication and multimedia company in Indonesia. From March 1993 to
February 1995, Mr. Dubois served as Senior Vice President of P.T. Ongko Multi
Corpora, a diversified conglomerate based in Indonesia. From October 1987 to
February 1993, he served as a consultant and in financial functions for Booz
Allen and Hamilton in Asia. From August 1985 to September 1987, he served in
financial functions for Exxon Corporation.

Dr. Walter S. Scott has served as Chief Technical Officer and Executive
Vice President since we merged with WorldView in March 1995. Dr. Scott has
served as a director of EarthWatch since June 1999 and from March 1995 until
April 1999. From May 1998 to June 1998, Dr. Scott served as our interim Chief
Executive Officer. Dr. Scott founded WorldView, our predecessor, in January 1992
and served as its Chief Technical Officer, Chairman of the Board, and Chief
Financial Officer from January 1992 to March 1995. From January 1986 to February
1993, he served in a variety of positions at the Lawrence Livermore National
Laboratory, including program leader of the Brilliant Pebbles Strategic Defense
Initiative program. In addition, he developed low-cost lightweight satellite
technology, managed the successful launch of several space flight experiments,
and developed computer automated design tools for the

manufacture of hybrid wafer scale integrated circuits. From June 1982 to
December 1985, he was founder and president of Scott Consulting, a software and
consulting firm.

Neal T. Anderson has served as Vice President Space Segment since September
1999. Mr. Anderson is responsible for overall management of the development,
production, test, and launch of the QuickBird spacecrafts. From March 1995 to
September 1999, Mr. Anderson served as Senior Director, Space Segment. Mr.
Anderson's experience includes marketing, engineering, and management of over 25
spacecraft programs. From January 1994 to March 1995, Mr. Anderson served as a
Director of Advanced Programs with Spectrum Astro Inc., an aerospace company.
From November 1978 to December 1993, he served in a variety of positions with
Ball Aerospace. From May 1967 to November 1978, he served in the U.S. Air Force.

Mark A. Hargrove has served as Vice President of Operations and Chief
Information Officer since May 2000. Mr. Hargrove is responsible for managing all
aspects of corporate information systems at EarthWatch. From December 1997 to
May 2000, Mr. Hargrove served as Vice President and Chief Information Officer of
Computer Curriculum Corporation, a publisher of educational software. From
September 1996 to December 1997, he served as Director of Software Engineering
at BayStone Software, a start-up developer of customer relationship management
software. From June 1995 to September 1996, Mr. Hargrove consulted with various
companies on large-scale MIS integration. Prior to that time, he served as
Director of Technical Services at 3Com Corporation.

John C. Jasper has served as Vice President of Data Systems since September
1999. Mr. Jasper is responsible for overall management of the development, test,
and integration of the EarthWatch data systems. From October 1996 to August
1999, Mr. Jasper served as Vice President Software Engineering and Chief
Architect of Navigation Technologies, a developer of vector map databases for
the in-vehicle navigation marketplace. From July 1994 to October 1996, Mr.
Jasper served as Director of Customer Tools Development and Chief Architect for
Navigation Technologies. From 1983 to 1994, Mr. Jasper served as a software
engineering consultant with Shields Enterprise Inc.

Jeffrey S. Kerridge has served as our Vice President Sales since August
1998 and as our Vice President Marketing from August 1998 to February 1999. Mr.
Kerridge joined EarthWatch in September 1996 as our Director,
Defense/Intelligence Programs. His responsibilities in that position included
managing EarthWatch's direct sales and marketing efforts with the United States
Department of Defense and Intelligence Community and with Middle East and
European foreign government accounts. From February 1984 until August 1996, Mr.
Kerridge served in a variety of capacities for the Central Intelligence Agency's
National Photographic Interpretation Center, including strategic planning,
division level officer, program management, branch chief, and analyst.

Shawn R. Thompson, Esq. has served as Secretary of the Board since August
1999, as Director of Contracts since October 1996, and is responsible for
contract administration, negotiations, and compliance. Mr. Thompson is an
attorney licensed to practice in the state of Colorado. Previously, Mr. Thompson
served as Contract Manager for Tenera Rocky Flats from September 1995 to October
1996 and as Manager of Contract Administration for NFT Inc. from September 1990
to September 1995.

Paul M. Albert, Jr. has served as a director of EarthWatch since June 1999.
Since December 1996, Mr. Albert has been retained as a consultant and/or
employee of The Globecon Group, a financial services consulting company. Prior
to such time, from September 1996 to November 1996, Mr. Albert served as a
consultant to Eccles Associates, Inc., a financial consulting company working
primarily with multinational financial institutions in developing countries.
From September 1983 to February 1996, he served as a Managing Director,
Investment Banking of Prudential Securities, Inc., a financial services company.
Mr. Albert also serves as a Director of Teletrac, Inc.

Donald E. Foley has served as a director of EarthWatch since June 1999.
Since May 1996, Mr. Foley has served as the treasurer of ITT Industries. From
July 1989 to May 1996, Mr. Foley served as the Assistant Treasurer of
International Paper Company, where he helped manage that company's global
expansion. Additionally, Mr. Foley has held executive positions with the Mobil
Corporation and the General Electric Company. He also is the Director/Chairman
of the New York Corporate Treasury Association.

Anne Karalekas has served as a director of EarthWatch since November 1999.
From September 1996 until October 1999, Ms. Karalekas served as General Manager
for Microsoft's online guide, MSN Sidewalk Washington. From 1985 until 1996, Ms.
Karalekas held several positions at the Washington Post newspaper, including
Director of Marketing, Publisher of the Washington Post Magazine, and Director
of the Specialty Products Group. Between 1978

and 1985, Ms. Karalekas was a member of McKinsey & Co., a management consulting
firm. From 1975 until 1978, she served as Senior Staff member of the Senate
Select Committee on Intelligence.

Takatoshi Kodaira served as a director of EarthWatch from June 1995 to
April 1999, and since June 1999. Since April 1999, Mr. Kodaira has served as the
General Manager, Geospatial Information Division of Hitachi Software. From
August 1994 to April 1999, Mr. Kodaira served as the Department Manager of the
New Business Development Department of Hitachi, where he was responsible for
identifying and developing new business opportunities. From August 1992 to
August 1994, Mr. Kodaira was a Department Manager of the Defense Systems
Department of Hitachi, where he established a military tactical trainer business
and commercial satellite-based image exploitation systems for the Japanese
government.

Alexander S. Lushtak served as a director of EarthWatch from March 1995 to
April 1999, and since June 1999. Mr. Lushtak serves as director of Genesis
Microchip Corp., a microelectronics company. In addition, Mr. Lushtak has served
as Chairman of the Board of Paradise Electronics (which was acquired by Genesis
Microchip in May 1999) since January 1993. From January 1993 until August 1998,
Mr. Lushtak served as Chief Executive Officer for Paradise Electronics. Between
1992 and 1993, he was employed by Cirrus Logic, Inc., a computer circuit and
chip supplier, as a consultant. From 1988 to 1992, Mr. Lushtak served as
Chairman of the Board and Chief Technical Officer of Acumos Incorporated, a
microelectronics company. Mr. Lushtak is also a founder and Chairman of the
Board of Assured Space Access, an aerospace company, and Co-Chairman and Chief
Executive Officer of United Start Corporation, an aerospace company.

Michael J. Petrick has served as a director of EarthWatch since June 1999.
Mr. Petrick is a Managing Director of Morgan Stanley and has been with Morgan
Stanley since 1989. Mr. Petrick also serves as a director of Marvel Enterprises,
Inc., CHI Energy, Inc., and Premium Standard Farms, Inc.

Dr. Marvin R. Sambur has served as a director of EarthWatch since June
1999. Dr. Sambur has served as President and General Manager of ITT Industries'
Aerospace/Communications Division since August 2000. From October 1998 to August
2000, Dr. Sambur served as President of ITT Defense and Vice President of ITT
Industries, where he was responsible for the management of ITT Industries'
global defense operations. From 1991 to 1998, Dr. Sambur served as President and
General Manager of ITT Industries' Aerospace/Communications Division. From 1986
to 1991, he served as Division President for ITT Electron Technology. From 1977
to 1986, Dr. Sambur served in the ITT Defense Communications Division as the
Vice-President of Engineering, then Vice President and Director of Total
Operations.

Donald W. Vanlandingham has served as a director of EarthWatch since
October 1996. Mr. Vanlandingham has served as President and Chief Executive
Officer of Ball Aerospace since January 1997. Mr. Vanlandingham joined Ball
Corporation, an affiliate of Ball Aerospace, in July 1967 as Production Engineer
and has held various managerial positions over the last 30 years within the
aerospace operations of Ball Corporation.

Board Composition

The composition of our board of directors is governed by a stockholders'
agreement entered into in connection with our recapitalization in April 1999.
The stockholders' agreement provides for a board of directors consisting of 11
members. The holder of the Series A preferred stock is entitled to designate two
directors, the holders of the Series B preferred stock are entitled to designate
four directors, our Chief Executive Officer is entitled to designate two
directors, and a majority of the holders of the Series C preferred stock are
entitled to designate the remaining three directors. The numbers of directors to
be designated by the holders of Series A preferred stock and Series B preferred
stock may be adjusted if the holders' percentage ownership changes. Currently,
the board consists of ten members, as the Series B stockholders have only
designated three members.

The holder of the Series A preferred stock has designated Mr. Foley and Dr.
Sambur as its representatives. The holders of the Series B preferred stock have
designated Messrs. Albert and Petrick, and Ms. Karalekas as their
representatives, and are entitled to designate one additional director. The
holders of the Series C preferred stock have designated Messrs. Kodaira,
Lushtak, and Vanlandingham as their representatives. Our Chief Executive Officer
has designated Mr. Satterlee and Dr. Scott to serve on the board of directors.

During fiscal year 2000, our board of directors held 8 meetings, and
its committees held a total of 6 meetings. Each of the directors attended at
least 75% of the aggregate of all meetings of the board of directors and the
total number of meetings held by all committees of the board of directors of
which each respective director was a member during the time he was serving as
such during fiscal year 2000.

Committees of the board of directors

The Compensation Committee consists of Messrs. Petrick, Vanlandingham, and
Lushtak, Dr. Sambur, and Ms. Karalekas. The Compensation Committee is chaired by
Mr. Petrick and is responsible for the review of our company's equity and bonus
plans, as well as compensation plans for executive officers with base salaries
in excess of $125,000.

The Audit Committee consists of Messrs. Albert, Petrick, Vanlandingham,
and Foley, and is chaired by Mr. Albert. The Audit Committee makes
recommendations to the board of directors regarding the selection of independent
accountants, reviews the results and scope of the audit, and reviews the annual
financial statements before their submission to the board for approval.
The Governance Committee consists of Messrs. Albert and Kodaira, Ms. Karalekas,
and Drs. Scott and Sambur. The Governance Committee is chaired by Mr. Albert and
is responsible for advising the board of directors on our company's compliance
with relevant laws and regulations, including without limitation, export
controls, the Foreign Corrupt Practices Act, matters relating to the
environment, worker's health and safety, and employment law.

The Finance Committee is chaired by Mr. Foley, and consists of Messrs.
Albert, Foley, Petrick, and Satterlee. The Finance Committee is responsible for
oversight of our company's financial policies.

Director Compensation

The majority of the directors on the board are compensated by their
employer and are not directly compensated by our company for attendance at board
or committee meetings. In 1999, two independent directors, Mr. Paul Albert and
Ms. Anne Karalekas, were elected to the board. We have committed to an annual
stipend of $24,000, board attendance fees of $2,500 per meeting, for up to six
meetings, and annual committee attendance fees of $7,500 per committee, to be
paid to such outside directors for their service on the board. Mr. Albert and
Ms. Karalekas, as outside and unaffiliated directors, have each received an
initial grant of non-qualified stock options to purchase 15,000 shares of common
stock at a price of $0.25 per share. Additionally, Mr. Albert and Ms. Karalekas
will each receive grants of options to purchase 7,500 shares of common stock at
the end of each calendar year in which they serve as directors, prorated for
their period of service as a director during the first year in which they served
as a director.

Compensation Committee Interlocks and Insider Participation

The members of the Compensation Committee of our board of directors for
the 2000 fiscal year were those named above. No member of this Committee was at
any time during the 2000 fiscal year or at any other time an officer or employee
of EarthWatch.

No executive officer of EarthWatch has served on the board of directors or
compensation committee of any other entity that has or has had one or more
executive officers serving as a member of the board of directors of EarthWatch.
Except for Ms. Karelekas, each member of the Compensation Committee is employed
by an entity that is either a stockholder of or maintains a business
relationship with EarthWatch. See "Certain Relationships and Related
Transactions."

Section 16(a) Beneficial Ownership Reporting Compliance

Not applicable.

Item 11. Executive Compensation.

Summary of cash and certain other compensation

The following table sets forth information concerning the compensation
received for services rendered during fiscal 1998, 1999, and 2000 by our Chief
Executive Officer and our four next most highly compensated executive officers:

Summary Compensation Table

Long-term
Annual Compensation Compensation
-------------------------------------------- ------------
Securities
Name and Principal Position Year Salary ($) Bonus ($) Underlying Options/(1)/
--------------------------- ----- ----------- ---------- ---------------------

Herbert F. Satterlee III 2000 256,250 -- 55,000
Chief Executive Officer, President, and 1999 203,333 40,000 --
Director 1998 101,591 -- 84,081

Walter S. Scott 2000 181,500 -- 40,000
Chief Technical Officer, Executive Vice 1999 165,000 45,000 --
President, and Director 1998 138,546 -- 5,255

Henry E. Dubois 2000 231,000 37,500 55,000
Chief Operating Officer, Chief Financial 1999 75,000 30,000 175,000
Officer, and Executive Vice President 1998 -- -- --

John C. Jasper 2000 181,000 29,000 39,000
Vice President Data Systems 1999 53,200 12,000 100,000
1998 -- -- --

Jeffrey S. Kerridge 2000 220,048 /(2)/ -- 38,300
Vice President Sales 1999 198,690 /(2)/ 30,000 --
1998 118,119 -- 9,459

(1) The options granted to each of the named executive officers in 2000 are
stock options to purchase shares of common stock at the initial
exercise price of $0.25 that were issued under our 1999 Stock
Option/Stock Issuance Plan. The options granted prior to 2000 are stock
options to purchase shares of Series C preferred stock at an initial
exercise price of $3.81 that were issued under our 1995 Stock
Option/Stock Issuance Plan.
(2) The compensation paid to Mr. Kerridge for his services during 1999 and
2000 includes sales commissions of $57,205 and $41,048, respectively.

Option grants in 2000

The following table sets forth certain information regarding options
granted during the year ended December 31, 2000 by our company to the named
executive officers:

Option Grants in Last Fiscal Year

Potential
Realizable Value
At Assumed Annual
Percent of Rates of Stock
Total Options Price
Number of Granted to Exercise Appreciation
Options Employees Price Per Expiration for Option Term
Name Granted (1) in Fiscal Year Share (2) Date 5% 10%

Herbert F. Satterlee III 55,000 1.5% $0.25 December 15, 2010 $22,397 $35,664
Dr. Walter S. Scott 40,000 1.1 0.25 December 15, 2010 16,289 25,937
Henry E. Dubois 55,000 1.5 0.25 December 15, 2010 22,397 35,664
John C. Jasper 39,000 1.1 0.25 December 15, 2010 15,882 25,289
Jeffrey S. Kerridge 38,300 1.0 0.25 December 15, 2010 15,597 24,835

(1) Based on 3,704,075 options granted during 2000.
(2) The exercise price per share of options granted was equal to the fair
market value of the Common Stock on the date of grant as determined by
the board of directors.

2000 option exercises and year end option values

The following table sets forth information concerning the value realized
upon exercise of options during 2000 and the number and value of unexercised
options held by each of the named executive officers at December 31, 2000.

Number of Value of Unexercised In
Unexercised Options at the Money Options at
Shares December 31, 2000 December 31, 2000
------------------------------- -------------------------------
Acquired Value
on Exercise Realized Exercisable/(1)/ Unexercisable Exercisable Unexercisable

Herbert F. Satterlee III -- -- 455,000 -- -- --
Dr. Walter S. Scott -- -- 543,850 -- -- --
Henry E. Dubois -- -- 230,000 -- -- --
John C. Jasper -- -- 139,000 -- -- --
Jeffrey S. Kerridge -- -- 138,300 -- -- --

(1) All options are immediately exercisable, subject to repurchase by
EarthWatch of any unvested shares at the exercise price upon cessation
of the optionee's service to EarthWatch.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

The following table sets forth certain information with respect to
beneficial ownership of our voting capital stock as of March 15, 2001 for:

. each person (or group of affiliated persons) known to us to own
beneficially more than 5% of the outstanding shares of common stock or
of any series of preferred stock;
. each of our directors;
. each of our named executive officers; and
. all of our directors and executive officers as a group.

Number of Shares Beneficially Owned
-----------------------------------
as of March 15, 2001 and Percent of Class(1)
--------------------------------------------
Directors, Series A Series B Series C % of
Named Executive Convertible Percent Convertible Percent Convertible Percent % of total
Officers, and Preferred of Preferred of Preferred of Common Common voting
5% stockholders Stock Series(%) Stock Series(%) Stock Series(%) Stock Stock power
--------------- ----- --------- ----- --------- ----- --------- ----- ----- -----

ITT Industries, Inc.(2).... 8,051,273 100.0 -- -- -- -- -- -- 17.8
Morgan Stanley & Co........
Incorporated (3)........... -- -- 4,830,763 60.0 321,158 1.3 1 * 22.7
Capital Research and
Management Company(4).... -- -- 3,220,510 40.0 929,091 3.7 -- -- 16.2
Ball Technologies Holdings
Corp.(5)................. -- -- -- -- 4,436,847 17.6 -- -- 7.0
Hitachi, Ltd(6)............ -- -- -- -- 2,423,411 9.6 -- -- 3.8
Dr. Walter S. Scott(7)..... -- -- -- -- 624,145 2.5 538,595 15.9 1.8
Howard J. Gannes(8)........ -- -- -- -- 69,669 * 56,108 1.7 *
Herbert F. Satterlee III(9) -- -- -- -- 84,081 * 370,919 10.9 *
Henry E. Dubois ........... -- -- -- -- -- * 230,000 6.8 *
Jeffrey S. Kerridge(10).... -- -- -- -- 12,034 * 126,266 3.7 *
Neal T. Anderson(11)....... -- -- -- -- 10,018 * 70,015 2.1 *
Paul M. Albert, Jr. (12)... -- -- -- -- -- -- 26,250 * *
Donald E. Foley(13)........ -- -- -- -- -- -- -- -- --
Anne Karalekas(14)......... -- -- -- -- -- -- 24,375 * *
Takatoshi Kodaira(15)...... -- -- -- -- 2,423,411 9.6 -- -- 3.8
Alexander S. Lushtak(16)... -- -- -- -- 159,480 * 125,000 3.7 *
Michael J. Petrick(17)..... -- -- -- -- -- -- -- -- --
Dr. Marvin R. Sambur(18)... -- -- -- -- -- -- -- -- --
Donald W. Vanlandingham(19) -- -- -- -- -- -- -- -- --
All non-named
executive officers....... -- -- -- -- 2,995 * 423,005 12.5 1.0
All executive officers and
directors as a group
(18 persons)............. -- -- -- -- 3,385,833 13.4 1,990,533 58.7 8.5
--------------
* Less than 1%.
--------------

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock and
preferred stock subject to warrants and options currently exercisable or
exercisable within 60 days of December 31, 2000, are deemed outstanding for
computing the percentage of the person or entity holding such securities,
but are not outstanding for computing the percentage of any other person or
entity. Except as indicated by footnote, and subject to community property
laws where applicable, the persons named in the table above have sole voting
and investment power with respect to all shares of common stock and
preferred stock shown as beneficially owned by them.
(2) The address of ITT Industries, Inc. is 4 West Red Oak Lane, White Plains,
New York 10604.
(3) The address of Morgan Stanley & Co. Incorporated is 1585 Broadway, New York,
New York 10036. Morgan Stanley also holds one share of common stock.
(4) The shares of Series B preferred stock reflected as being held by Capital
Research Management Company, a registered investment advisor, are held by
the following entities to whom Capital Research Management Company provides
investment services: The Bond Fund of America, Inc., 1,046,665 shares;
American Variable Insurance Funds, 1,368,717 shares; and American High
Income Trust, 805,128 shares. The address of Capital Research and Management
Company and its affiliated entities is 11100 Santa Monica Boulevard, Los
Angeles, California 90025.
(5) The address of Ball Technologies Holdings Corp. is 10 Longs Peak Drive,
Broomfield, Colorado 80021.
(6) The address of Hitachi, Ltd., is 5-79 Onoe-cho, Nakaku, Yokohama,
Japan 231-0015.
(7) Includes 5,255 shares of Series C convertible preferred stock issuable upon
exercise of an option granted pursuant to our 1995 Stock Option/Stock
Issuance Plan. Includes as beneficial ownership the shares held by The Leona
A. Rose Trust, Kenneth E. Scott & Shelly A. Scott, and Jean Scott Crowell &
Luther Crowell.

(8) Consists of 3,363 shares of Series C convertible preferred stock issuable
upon exercise of options granted pursuant to our 1995 Stock Option/Stock
Issuance Plan and 66,306 shares of Series C preferred stock held jointly
with his spouse.
(9) Consists of 84,081 shares of Series C convertible preferred stock issuable
upon exercise of an option granted pursuant to our 1995 Stock Option/Stock
Issuance Plan, of which 31,531 shares are subject to repurchase until fully
vested.
(10) Consists of 12,034 shares of Series C convertible preferred stock issuable
upon the exercise of options granted pursuant to our 1995 Stock
Option/Stock Issuance Plan, of which 1,538 shares are subject to repurchase
until fully vested.
(11) Includes 9,775 shares of Series C convertible preferred stock issuable upon
the exercise of options granted pursuant to our 1995 Stock Option/Stock
Issuance Plan, of which 164 shares are subject to repurchase until fully
vested.
(12) The address of Mr. Albert is 135 Main Street, South Salem, New York 10590.
(13) The address of Mr. Foley is c/o ITT Industries, Inc., 4 West Red Oak Lane,
White Plains, New York 10604.
(14) The address of Ms. Karalekas is 2126 Connecticut Avenue, N.W., Suite 25,
Washington, DC 20008.
(15) Includes 2,423,411 shares of Series C convertible preferred stock held by
Hitachi, Ltd. The address of Mr. Kodaira is c/o Hitachi, Ltd. 5-79 Onoe-
cho, Nakaku, Yokohama, Japan 231-0015.
(16) The address of Mr. Lushtak is 4 Upper Road, P.O. Box 1511, Ross, California
94957.
(17) The address of Mr. Petrick is c/o Morgan Stanley & Co. Incorporated, 1585
Broadway, New York, New York 10036.
(18) The address of Dr. Sambur is c/o ITT Industries, Inc., 4 West Red Oak Lane,
White Plains, New York 10604. Dr. Sambur is President and General Manager
of ITT Industries' Aerospace/Communications Division and may be viewed as
the beneficial owner of the shares of Series A preferred stock held by ITT
Industries. Dr. Sambur disclaims beneficial ownership of shares held by ITT
Industries.
(19) The address of Mr. Vanlandingham is c/o Ball Technologies Holdings Corp.,
10 Longs Peak Drive, Broomfield, Colorado 80021. Mr. Vanlandingham is the
President and Chief Executive Officer of Ball Aerospace, an affiliate of
Ball Technologies, and may be viewed as the beneficial owner of the shares
of Series C preferred stock held by Ball Technologies Holdings Corp. Mr.
Vanlandingham disclaims beneficial ownership of shares held by Ball
Technologies.

Item 13. Certain Relationships and Related Transactions.

Transactions with Ball Corporation

In March 1996, we entered into a contract with Ball Aerospace &
Technologies Corp., an affiliate of Ball Technologies Holdings Corp., which
holds in excess of 10% of our outstanding capital stock, for engineering
services in connection with the QuickBird 1 spacecraft. This agreement currently
remains in effect.

In October 1997, we entered into an agreement with Ball Aerospace that
granted us an option to purchase either one or two QuickBird spacecraft at
varying prices, depending on the timing of our exercise of that option. Under
the agreement, Ball Aerospace is permitted to sell spacecraft based on the
QuickBird design to third parties under specified circumstances. Ball Aerospace
did not perform any work under the agreement from October 1997 through May 1998,
and we did not make any payments to Ball Aerospace during that period. Under the
agreement, we issued to Ball Aerospace a promissory note in the principal amount
of $1.6 million. We repaid this note in May 1998.

In June 1998, we entered into a new agreement with Ball Aerospace. This
agreement restarted work on QuickBird 1, with a total fixed cost of $34.1
million. In April 1999, we exercised our option to purchase a second QuickBird
satellite at a cost of $31.1 million. We made payments to Ball Aerospace under
the Ball Aerospace agreements of approximately $15.4 million in 2000.

In April 1999, Ball Technologies exercised its option in connection with
the recapitalization to purchase 714,286 shares of our Series C preferred stock
for an aggregate purchase price of $2.5 million. The purchase was consummated in
July 1999.

Mr. Vanlandingham, a director of EarthWatch, is the President and Chief
Executive Officer of Ball Aerospace.

Transaction with Hitachi Software

Hitachi, Ltd., which holds approximately 3.8% of our outstanding capital
stock, currently is a master international distributor of our products, and the
exclusive distributor in most of Asia. Under our distribution agreement, Hitachi
will be entitled to purchase our products at discounts of up to 76% of our
retail price for end-distribution in Asia for the first $400,000 worth of our
products and at discounts of up to 40% thereafter. Additionally, we have entered
into an agreement with Hitachi Software Engineering Company, Ltd. an affiliate
of Hitachi, Ltd., for the development and delivery of a product processor and to
cross-license certain intellectual property rights related to our ground system
and the proprietary software of Hitachi Software. The license grants Hitachi
Software the right to offer customers ground systems that permit them to receive
data directly from our QuickBird satellite.

Mr. Kodaira, a director of EarthWatch, is the General Manager of the
Geospatial Information Division of Hitachi Software.

Transactions with ITT Industries

In December 1998 and January 1999, we entered into agreements with ITT
Industries, Inc., which holds in excess of 10% of our outstanding capital stock,
for system engineering and development of a scheduling and tasking model of the
QuickBird 1 and QuickBird 2 satellites and the development of a satellite
simulator. We made payments to ITT Industries under these agreements of
approximately $3.0 million in 2000.

In February 1999, we entered into a strategic supplier agreement with ITT
Industries. In exchange for our commitment to use ITT Industries as the provider
and integrator of sensors for ten years, ITT Industries will provide such
sensors and associated services on a best value basis. Additionally, we have
qualified ITT Systems as a preferred EarthWatch supplier for certain goods and
services during the term of the strategic supplier agreement.

In June 1999, we entered into an agreement with the
Aerospace/Communications division of ITT Industries to assist us in evaluating
our options for our next generation satellite system. We made payments under
this agreement of $140,528 during 2000.

Dr. Sambur, a director of EarthWatch, is the President and General Manager
of ITT Industries' Aerospace/Communications Division. Mr. Foley, a director of
EarthWatch, is the Treasurer of ITT Industries.

Transactions with Morgan Stanley

Morgan Stanley & Co. Incorporated, which holds in excess of 10% of our
outstanding capital stock, acted as placement agent in connection with our
offering in April 1996 of 7,000,000 shares of our former Series C preferred
stock and our offering in March 1997 of 50,000 units, each consisting of one
note and one warrant to purchase 31.12 shares of our common stock. Morgan
Stanley also acted as placement agent in connection with our offering in July
1999 of 199,000 units, each consisting of one 13% note and 49.095 shares of our
existing Series C preferred stock. In connection with its role in these
offerings, Morgan Stanley received customary commissions and discounts in its
capacity as placement agent.

On December 31, 2000, Morgan Stanley held 4,830,763 shares of Series B
preferred stock, had beneficial ownership of 321,158 shares of Series C
preferred stock, and one share of common stock, as well as $2.9 million
principal amount at maturity of the notes and $2.0 million principal amount at
maturity of the 13% Notes. In addition, Morgan Stanley acts as exclusive
financial advisor to EarthWatch under a five-year agreement. Morgan Stanley
received $750,000 in connection with its advisory role in the recapitalization
in April 1999.

Mr. Petrick, a director of EarthWatch, is a Managing Director of Morgan
Stanley.

Transactions with United Start Corporation

We have an agreement with United Start Corporation, pursuant to which
United Start provided launch and associated services for the QuickBird 1
satellite launch and we have an option to launch another satellite. We made
payments to United Start under this agreement of approximately $5.2 million in
2000. We expect to pay approximately $12 million cash to United Start over the
term of the contract. In addition, we made payments to Assured Space Access,
Inc., which performed services in connection with the launch of the QuickBird 1
satellite, of $662,781 in 2000.

Mr. Lushtak, a director of EarthWatch, is Co-Chairman and Chief Executive
Officer of United Start, and is Chairman and Chief Executive Officer of Assured
Space Access.

We believe that all of the transactions set forth above were made on terms
no less favorable than would be obtained for similar services provided to
unrelated third parties. Any future transactions between us and our executive
officers, directors, and their affiliates will be on terms no less favorable to
us than can be obtained from unaffiliated third parties, and any material
transactions with such persons will be approved by a majority of the
disinterested members of our board of directors.

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a) 1. Financial Statements.

The financial statements listed in the Index to Financial Statements that
appears in Item 8 on Page 22 of this Report on Form 10-K are filed as part of
this report.

2. Financial Statement Schedules.

Schedules are not listed above because the information to be set forth
therein is not applicable or is shown in the financial statements or the notes
thereto.

3. Exhibits.

See the Index to Exhibits which appears at the end of this document and
which is incorporated by reference herein.

(b) Reports on Form 8-K.

A report on Form 8-K and Form 8-K/A was filed on November 30, 2000 to
report the failure of the QuickBird 1 remote sensing satellite to reach its
proper orbit and the filing of a proof of loss with the underwriters of the
launch insurance policies in accordance with the terms of those policies. The
report also discussed the required tender offer for our notes upon receiving the
proceeds from the insurance policies noted above.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

EARTHWATCH INCORPORATED
(Registrant)

By: /s/ Herbert F. Satterlee III
---------------------------------------
Herbert F. Satterlee III
President and Chief Executive Officer
March 29, 2001

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

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

/s/ Herbert F. Satterlee III President, Chief Executive Officer, March 29, 2001
- ---------------------------------
Herbert F. Satterlee III Director, and Chairman of the Board
(Principal Executive Officer)

/s/ Henry E. Dubois Chief Operating Officer, Chief Financial March 29, 2001
- ---------------------------------
Henry E. Dubois Officer, and Executive Vice President
(Principal Financial and Accounting Officer)

/s/ Walter S. Scott Chief Technical Officer, Executive March 29, 2001
- ---------------------------------
Walter S. Scott Vice President, and Director

/s/ Paul M. Albert, Jr. Director March 29, 2001
- ---------------------------------
Paul M. Albert, Jr.

/s/ Donald E. Foley Director March 29, 2001
- ---------------------------------
Donald E. Foley

/s/ Anne Karalekas Director March 29, 2001
- ---------------------------------
Anne Karalekas

/s/ Takatoshi Kodaira Director March 29, 2001
- ---------------------------------
Takatoshi Kodaira

/s/ Alexander S. Lushtak Director March 29, 2001
- ---------------------------------
Alexander S. Lushtak

/s/ Michael J. Petrick Director March 29, 2001
- ---------------------------------
Michael J. Petrick

/s/ Marvin R. Sambur Director March 29, 2001
- ---------------------------------
Marvin R. Sambur

/s/ Donald W. Vanlandingham Director March 29, 2001
- ---------------------------------
Donald W. Vanlandingham

EARTHWATCH INCORPORATED
Annual Report on Form 10-K
For the year ended December 31, 2000
Index to Exhibits

Exhibit
Number Description of Exhibits
------ ------------------------------------------------------------------
2.1* Recapitalization Agreement dated as of April 8, 1999 among
EarthWatch, Morgan Stanley & Co. Incorporated, Capital Research
and Management Company, for the benefit of American High-Income
Trust, American Variable Insurance Series Asset Allocation Fund,
American Variable Insurance Series Bond Fund, American Variable
Insurance Series High-Yield Bond Fund and Bond Fund of America,
Inc., Ball Technologies Holdings Corp. and ITT Industries, Inc.
3.1* Amended and Restated Certificate of Incorporation of EarthWatch
Incorporated.
3.2* Bylaws.
4.1* Stockholders' Agreement dated as of April 8, 1999 among
EarthWatch, Morgan Stanley & Co. Incorporated,
Capital Research and Management Company, for the benefit of
American High Income Trust, American Variable
Insurance Series Asset Yield Bond Fund and Bond and Bond Fund of
America, Inc., ITT Industries, Inc. and the
other persons listed on the signature pages thereto.
4.2* Amended and Restated Indenture dated as of April 8, 1999 by and
between EarthWatch and The Bank of New York,
including form of 12 1/2% Senior Note Due 2005.
4.2(a) + First Supplemental Indenture dated as of July 7, 1999 to the
Amended and Restated Indenture relating to the
12 1/2% Senior Notes Due 2005
4.3* Indenture dated as of July 12, 1999, by and between EarthWatch and
The Bank of New York, including form of 13% Senior Discount Note
Due 2007
4.4* Pledge Agreement dated as of July 12, 1999 between EarthWatch and
The Bank of New York, as trustee.
4.5* Amended and Restated Collateral Pledge and Security Agreement
dated as of July 12, 1999 between EarthWatch
and The Bank of New York, as collateral agent
4.6* Series C Preferred Registration Rights Agreement dated as of July
7, 1999 between EarthWatch and Morgan Stanley & Co. Incorporated.
4.7** Notes Registration Rights Agreement dated as of July 12, 1999
between EarthWatch and Morgan Stanley & Co.
Incorporated.
4.8* Specimen 13% Senior Discount Note Due 2007.
4.9* Specimen 12 1/2% Senior Note Due 2005.
10.1* EarthWatch Incorporated 1995 Stock Option Stock Issuance Plan.
10.2* EarthWatch Incorporated 1999 Equity Incentive Plan.
10.3* Ball-EarthWatch Agreement dated as of April 8, 1999 by and between
EarthWatch and Ball Technologies Holdings Corp.
10.4* Contract for QuickBird Spacecraft dated as of June 9, 1998, as
amended, by and between EarthWatch and Ball
Aerospace & Technologies Corp.
10.5* Engineering Services Agreement dated as of March 6, 1996, as
amended, by and between EarthWatch and Ball
Aerospace & Technologies Corp.
10.6* Strategic Supplier Agreement dated as of February 26, 1999, by and
between EarthWatch and ITT Industries, Inc.
10.7* Agreement for the EarthWatch QuickBird Sensor Subsystem dated as
of October 15, 1996, as amended, by and between EarthWatch and
Eastman Kodak Company.
10.8* EarthWatch-Hitachi Imaging Distribution Agreement dated as of June
4, 1995, as amended, by and between EarthWatch and Hitachi, Ltd.
10.9* Distributor Agreement dated as of August 1, 1997, by and between
Nuovo Telespazio, S.p.A.
10.11* Lease Agreement between EarthWatch and Pratt Land Limited
Liability Company.
12.1 Computation of ratio of earnings to fixed charges.
21.1** Subsidiaries of EarthWatch.

* Incorporated by reference to the exhibits with the corresponding exhibit
numbers in EarthWatch's Registration Statement on Form S-4 (File No.
333-39202).
** Incorporated by reference to the exhibits with the corresponding
exhibit numbers in Amendment No. 1 to EarthWatch's
Registration Statement on Form S-4 (File No. 333-39202).
+ Incorporated by reference to the exhibits with the corresponding exhibit
numbers in EarthWatch's Registration Statement on Form S-1 (File No.
333-46582).