Our products and services enable our customers and end-users to enhance productivity, reduce costs and improve security through a variety of commercial, government, and emerging homeland security applications. We enable our customers and end-users to achieve these benefits using a single global satellite technology standard for machine-to-machine and telematic, or M2M, data communications. Our customers have made significant investments in developing ORBCOMM-based applications. Examples of assets that are connected through our M2M data communications system include trucks, trailers, railcars, containers, heavy equipment, fluid tanks, utility meters, pipeline monitoring equipment, marine vessels, and oil wells. Our customers include original equipment manufacturers, or OEMs, such as Caterpillar Inc., ("Caterpillar"), Doosan Infracore America, Hitachi Construction Machinery Co., Ltd., Hyundai Heavy Industries, Komatsu Ltd., The Manitowoc Company and Volvo Construction Equipment, IVARs, such as GE, VARs, such as XATA Corporation and American Innovations, Ltd., and government agencies, such as the U.S. Coast Guard. Our products and services are satellite-based data communications services, product sales from subscriber communicators, terrestrial-based cellular communications services, product sales from cellular wireless subscriber identity modules, or SIMS for use with devices or equipment that enable the use of the cellular provider's wireless network for data communications and satellite AIS data services.
We currently have a contract to provide AIS data to the U.S. Coast Guard and plan to offer the AIS data service to other government and commercial customers. Further, we will be working with system integrators and maritime information service providers for value-added service and to facilitate the sales and distribution of our AIS data. In January 2009, we entered into our first AIS data license distribution agreement for commercial purposes with Lloyd's Register-Fairplay Ltd. We will continue to work with additional candidates to address the various market sectors for AIS data. We believe we are the only commercially available satellite-based AIS data provider reaching beyond coastal access into the open water.
The recent global economic conditions, including concerns about a global economic recession, along with unprecedented credit and capital constraints in the capital markets and deteriorations of financial institutions have created a challenging economic environment leading to a lack of customer confidence. Our worldwide operations and performance depend significantly on global economic conditions and their impact on our customers' decisions to purchase our services and products. Economic conditions have worsened significantly in many parts of the world, and may remain weak or even deteriorate further in the foreseeable future. The worldwide economic turmoil may have a material adverse effect on our operations and financial results, and we may be unable to predict the scope and magnitude of its effects on our business. VARs and end users in any of our target markets, including in commercial transportation and heavy equipment, have and may experience unexpected fluctuations in demand for their products, as our end users alter purchasing activities in response to this economic volatility. Our customers may change or scale back product development efforts, the roll-out of service applications, product purchases or other sales activities that affect purchases of our products and services, and this could adversely affect the amount and timing of revenue for the long-term future, leaving us with limited visibility in the revenue we can anticipate in any given period. These economic conditions also affect our third party manufacturers, and if they are unable to obtain the necessary capital to operate their business, this may also impact their ability to provide the subscriber communicators that our end-users need, or may adversely affect their ability to provide timely services or to make timely deliveries of products or services to our end-users. It is currently unclear as to what overall effect these economic conditions and uncertainties will have on our existing customers and core markets, and future business with existing and new customers in our current and future markets.
On June 19, 2008, the Coast Guard Demonstration satellite and five quick-launch satellites were successfully launched. Due to delays associated with the construction of the final quick-launch satellite, we are retaining it for future deployment. Each of the satellites successfully separated from the launch vehicle in the proper orbit, and began in-orbit testing and final positioning. During this testing, communications contact was lost with one satellite as described below. The majority of in-orbit testing of the payload subsystems has been completed to verify proper operation of the subscriber links, gateway links and AIS payload functionality. As a result of on-going in-orbit testing of these satellites, our engineers and satellite providers are investigating the lower than nominal gateway transmission power on one satellite, lower than expected nominal subscriber transmission on one satellite, intermittent computer resets on one satellite and outages to the reaction wheel components of the attitude control system on each of the satellites. The satellite with the lower than expected subscriber transmission has been reprogrammed to operate in a mode which utilizes the gateway transmission for subscriber messaging traffic. The satellite with intermittent flight computer resets is being reprogrammed to use a redundant receiver to perform some of the flight computer functions. The extent of the impacts of these operational procedures continues to be evaluated. All the satellites with the exception of the satellite that lost communications contact are providing limited ORBCOMM messaging and worldwide AIS services. On February 22, 2009, one quick-launch satellite experienced a power system anomaly that subsequently resulted in a loss of contact with the satellite by both our ground control systems and the ground control systems of the company providing in-orbit monitoring and testing, KB Polyot-Joint Stock Company, a provider of sub-contracting services to OHB. After consultation with OHB and our own engineers, we believe that after such an extended period of no communication with the satellite, it is unlikely that the satellite will be recovered. A non-cash impairment charge to write-off the cost of this satellite of approximately $7.0 million has been recognized in the quarter ended March 31, 2009. The loss of one quick-launch satellite is not expected to have a material adverse effect on our current communications service as the satellite was only in the testing phase and not in regular operational service. Each of the quick-launch and Coast Guard Demonstration satellites is equipped with an AIS payload and we believe the loss of one satellite will not adversely impact our current AIS service in any material respect, as the other satellites provide redundant capabilities to the AIS data service.
We conducted a post-loss data analysis to determine the root cause and establish operational procedures, if any, to mitigate the risk of a similar anomaly from occurring on the remaining four quick-launch satellites which are of the same design and the Coast Guard Demonstration Satellite which is of a similar design. This analysis revealed the most likely cause to be a failure of the Electrical Power System (EPS) components that control battery charging which resulted in completely discharging the battery and precluding additional charging. As a precaution to mitigate the risk of this type of failure leading to the loss of the other satellites, we have has developed new software that resides in the payload flight computer that performs the majority of the functions performed by the EPS component we believe failed. This software has been uploaded to three of the satellites that have experienced failures to redundant EPS components. We are unable to determine whether or when another EPS anomaly will occur on the other satellites, and is currently unable to quantify the impact, if any, that a potential EPS anomaly will have on the expected useful life and communications capabilities of these satellites.

The remaining satellites that were recently launched are experiencing Attitude Control System (ACS) anomalies, which results in the satellites not pointing towards the sun and the earth as expected. The result of this pointing error is reduced power generation, improper satellite spacing within the orbital plane and expected reduced communications capabilities. While OHB, the satellite bus manufacturer and our engineering staff, continue their efforts to correct and develop alternate operational procedures to satisfactorily mitigate the effect of these anomalies, there can be no assurance in this regard. We are currently unable to quantify the impact that ACS anomalies will have on the expected useful life of the satellites or the extent of degradation in their communication capabilities until the in-orbit testing is completed and all operational procedures to minimize the impact, including autonomous software system correction techniques, have been fully implemented and evaluated. We have in-orbit insurance that under certain circumstances covers the total loss or constructive total loss of the Coast Guard demonstration and five quick-launch satellites. Under the terms of the policy, a satellite that does not meet the working satellite criteria constitutes a constructive total loss of that satellite for insurance purposes. The in-orbit insurance is subject to certain exclusions including a deductible under which no claim is payable under the policy for the first satellite to suffer a constructive total loss or total loss.
We expect to file shortly a claim under the policy for all six satellites as either a total loss or constructive total loss. The total loss claim is for the one satellite that suffered a power system failure resulting in loss of contact, and the constructive total loss claim is for each of the other five satellites on the basis that these satellites do not meet the working satellite criteria stated in the policy due to, among other anomalies, the pointing errors described above. The Company is testing for impairment of the remaining satellites and we may be required to record a further impairment charge that could have a significant non-cash financial impact. The information needed to complete this assessment is not available as of the date of this report. The maximum amount we can recover under the policy from third party insurers for all six satellites covered by the policy is $50 million, which includes the one-satellite deductible described above, and less any salvage value that can be established. Any payments that are made under this policy may not be sufficient to compensate us for the losses we may suffer. ORBCOMM Japan
On March 25, 2008, we received a 37% equity interest in ORBCOMM Japan, which was accounted for as an investment in affiliates at March 31, 2008. ORBCOMM Japan's results of operations were not significant for the period from March 25, 2008 through March 31, 2008. On May 15, 2008, we received an additional 14% equity interest in Japan and, as a result, our ownership interest increased to 51%. On June 9, 2008, we entered into an agreement with the noncontrolling stockholder, which terminated its substantive participatory rights in the governance of ORBCOMM Japan and as a result, we obtained the controlling interest in ORBCOMM Japan.
We consolidated the results of ORBCOMM Japan as though the controlling interest was acquired on April 1, 2008.
GE
On April 3, 2009, we entered into a Settlement Agreement ( the "Settlement Agreement") with GE with respect to the supply agreement dated October 10, 2006 (the "2006 Agreement") to supply up to 412,000 units of in-production and future models of subscriber communicators through December 31, 2009 to support GE's applications utilizing our data communications system. 270,000 of these units were non-cancelable except for specified early termination provisions. Pursuant to the Settlement Agreement, we received $0.8 million as settlement for GE's obligation under the 2006 Agreement. GE did not purchase its minimum committed volumes for 2007 and 2008.
The Company and GE terminated the 2006 Agreement and all their respective obligations relating to it, and released each other from any claims relating to their obligations arising under the 2006 Agreement, except for certain obligations related to warranties, indemnities, confidentiality and intellectual property.
Concurrent with the Settlement Agreement, we and GE entered into a Services Agreement (the "Services Agreement") with a term of January 1, 2009 through December 31 2013, pursuant to which we and GE agreed to expand the scope of services provided or that may in the future be provided to include other satellite, cellular or dual mode (cellular plus satellite) data communications services, in addition to the low-earth-orbit-satellite-based data communication services (the "Low-Earth Services").
Under the Services Agreement, GE will activate and provide telematics and machine-to-machine data communications services on all communicators sold or managed by or on behalf of GE in the United States, Canada and Mexico for purposes of communications between (i) subscriber communicators sold or managed by or on behalf of GE's asset tracking and monitoring business and
(ii) communications centers or customers of GE's asset tracking and monitoring business, whether satellite, cellular or dual mode (cellular plus satellite), exclusively (subject to certain restrictions and qualifications) on ORBCOMM's communications system that provides the Low-Earth Services and terrestrial-based cellular communication services through reseller agreements with major cellular wireless providers and that may in the future provide communication services through other third party communication networks in each case as long as we provide competitive services at competitive rates with appropriate regulatory approval, subject to the terms of the Services Agreement. Assets Held for Sale
We have been focusing on our network business and are in the process of identifying interested parties to pursue a sale of our subsidiary, Stellar Satellite Communications, Ltd ("Stellar"). The GE Settlement and Services Agreements discussed above provides us with the ability to dispose of Stellar without disrupting ORBCOMM's growth prospects with GE and allows us to concentrate on our service-based data communications business. Beginning with the second quarter of 2009, we will reclassify the net assets of Stellar as assets held for sale on our consolidated balance sheet and reclassify Stellar's results of operations as discontinued operations in our consolidated statements of operations for the periods presented. As of March 31, 2009, the major classes of assets and liabilities of Stellar were as follows:

                      Accounts receivable       $0.5 million
                      Inventories, current      1.7 million
                      Current assets            2.3 million
                      Other equipment, net      0.5 million
                      Inventories, long term    1.5 million
                      Current liabilities       0.4 million

Critical Accounting Policies
Our discussion and analysis of our results of operations, liquidity and capital resources are based on our condensed consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and judgments, including those related to revenue recognition, costs of revenues, accounts receivable, inventory valuation, satellite network and other equipment, capitalized development costs, intangible assets, the valuation of deferred tax assets, uncertain tax positions and the fair value of securities underlying share-based payment arrangements. We base our estimates on historical and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results may differ from our estimates and could have a significant adverse effect on our results of operations and financial position. For a discussion of our critical accounting policies see Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2008. There have been no material changes to our critical accounting policies during the three months ended March 31, 2009.
EBITDA
EBITDA is defined as earnings before interest income (expense), provision for income taxes and depreciation and amortization. We believe EBITDA is useful to our management and investors in evaluating our operating performance because it is one of the primary measures we use to evaluate the economic productivity of our operations, including our ability to obtain and maintain our customers, our ability to operate our business effectively, the efficiency of our employees and the profitability associated with their performance. It also helps our management and investors to meaningfully evaluate and compare the results of our operations from period to period on a consistent basis by removing the impact of our financing transactions and the depreciation and amortization impact of capital investments from our operating results. In addition, our management uses EBITDA in presentations to our board of directors to enable it to have the same measurement of operating performance used by management and for planning purposes, including the preparation of our annual operating budget. EBITDA is not a performance measure calculated in accordance with accounting principles generally accepted in the United States, or GAAP. While we consider EBITDA to be an important measure of operating performance, it should be considered in addition to, and not as a substitute for, or superior to, net loss or other measures of financial performance prepared in accordance with GAAP and may be different than EBITDA measures presented by other companies. The following table (in thousands) reconciles our net loss to EBITDA for the periods shown:

                                                 Three months ended
                                                      March 31,
                                                  2009           2008

               Net loss                        $    (9,135 )    $ (534 )
               Interest income                         (41 )      (766 )
               Interest expense                         48          50
               Depreciation and amortization         1,302         648

               EBITDA                          $    (7,826 )    $ (602 )

EBITDA during the three months ended March 31, 2009 decreased by $7.2 million over the three months ended March 31, 2008. This decrease was due to a non-cash impairment charge of $7.0 million for one of our quick-launch satellites and an increase in operating expenses of $1.7 million, offset by higher net service revenue of $1.8 million. Operating expenses increased during the three months ended March 31, 2009 due to $0.4 million in operating expenses of ORBCOMM Japan, unanticipated expenses of $0.2 million for a contested proxy vote, $0.1 million in severance payments and $0.1 million in legal fees related to the preparation of our pending satellite insurance claim. We also had an increase of $0.5 million for bad debt reserves. These increases were offset by a decrease of $0.4 million in stock-based compensation expense. Also during the three months ended March 31, 2008, we recognized a $0.9 million gain from the settlement of claims from ORBCOMM Japan which did not recur during the three months ended March 31, 2009.

Results of Operations
Revenues
We derive service revenues from our resellers and direct customers from utilization of satellite subscriber communicators on our communications system and the reselling of airtime from the utilization of terrestrial-based subscriber communicators using SIMS on the cellular providers' wireless networks. These service revenues generally consist of a one-time activation fee for each subscriber communicator and SIMS activated for use on our communications system and monthly usage fees. Usage fees that we charge our customers are based upon the number, size and frequency of data transmitted by the customer and the overall number of subscriber communicators and SIMS activated by each customer. Revenues for usage fees from currently billing subscriber communicators and SIMS are recognized on an accrual basis, as services are rendered, or on a cash basis, if collection from the customer is not reasonably assured at the time the service is provided. Usage fees charged to our resellers and direct customers are charged primarily at wholesale rates based on the overall number of subscriber communicators activated by them and the total amount of data transmitted. Service revenues also includes AIS data transmissions, services to the United States Coast Guard for the Concept Validation Project, royalty fees from third parties for the use of our proprietary communications protocol charged on a one-time basis for each satellite subscriber communicator connected to our M2M data communications system, and fees from providing engineering, technical and management support services to customers.
The table below presents our revenues for the three months ended March 31, 2009 and 2008, together with the percentage of total revenue represented by each revenue category in (in thousands):

                                          Three months ended March 31,
                                          2009                    2008
                                                % of                    % of
                                                Total                   Total
                Service revenues   $ 6,627        90.0 %   $ 4,855        82.6 %
                Product sales          734        10.0 %     1,024        17.4 %

                                   $ 7,361       100.0 %   $ 5,879       100.0 %

Total revenues for the three months ended March 31, 2009 increased $1.5 million, or 25.2%, to $7.4 million from $5.9 million for the three months ended March 31, 2008. Total revenues for the three months ended March 31, 2009 included $0.5 million from ORBCOMM Japan.
Service revenues
Service revenues increased $1.8 million for the three months ended March 31, 2009, or 36.5%, to $6.6 million, or approximately 90% of total revenues, from $4.9 million, or approximately 82.6% of total revenues for the three months . . .