Orbcomm 10Q 2011 Q3 Quarterly report

United States Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September30, 2011


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

For the transition period from to

Commission File Number 001-33118

ORBCOMM INC.

(Exact name of registrant as specified in its charter)


Delaware		41-2118289
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification No.)

2115 Linwood Avenue, Fort Lee, New Jersey 07024
(Address of principal executive offices)

(201) 363-4900
(Registrant’s telephone number)

N/A
(Former name, former address and formal fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) 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. Yesþ Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filero	Accelerated filerþ		Non-accelerated filero	Smaller reporting companyo
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

The number of shares outstanding of the registrant’s common stock as of November 3, 2011 is 45,668,527

TABLE OF CONTENTS


		Condensed Consolidated Balance Sheets
		Condensed Consolidated Statements of Operations
		Condensed Consolidated Statements of Cash Flows
		Condensed Consolidated Statements of Changes in Equity
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures about Market Risks
	Item 4. Disclosure Controls and Procedures
PART II — OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 1A. Risk Factors
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
	Item 3. Defaults Upon Senior Securities
	Item 5. Other Information
	Item 6. Exhibits
SIGNATURES
EXHIBIT INDEX
Exhibit 10.3
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

ORBCOMM Inc.

Condensed Consolidated Balance Sheets
(in thousands, except share data)
(Unaudited)


	September 30,			December 31,
	2011			2010
ASSETS

Current assets:
Cash and cash equivalents	$	47,725		$	17,026
Restricted cash		1,000			1,000
Marketable securities		33,208			67,902
Accounts receivable, net of allowances for doubtful accounts of $270 and $557		8,196			4,536
Inventories		1,907			172
Prepaid expenses and other current assets		1,652			1,377
Deferred income taxes		90			117

Total current assets		93,778			92,130

Satellite network and other equipment, net		74,677			71,684
Goodwill		9,099			—
Intangible assets, net		7,315			1,114
Restricted cash		2,220			3,030
Deferred income taxes		55			141
Other assets		1,414			1,092
Other investment		—			2,278


Total assets	$	188,558		$	171,469


LIABILITIES AND EQUITY

Current liabilities:
Accounts payable	$	3,655		$	2,143
Accrued liabilities		6,938			6,043
Current portion of note payable		188			—
Current portion of deferred revenue		2,117			2,134

Total current liabilities		12,898			10,320
Note payable — related party		1,548			1,416
Note payable, net of current portion		3,433			—
Deferred revenue, net of current portion		1,437			1,239
Other liabilities		231			375

Total liabilities		19,547			13,350


Commitments and contingencies

Equity:
ORBCOMM Inc. stockholders’ equity
Preferred Stock Series A, par value $0.001; 1,000,000 shares authorized; 184,455 and 0 shares issued and outstanding		1,843			—
Common stock, par value $0.001; 250,000,000 shares authorized; 45,668,527 and 42,616,950 shares issued and outstanding		46			43
Additional paid-in capital		243,681			234,125
Accumulated other comprehensive income		1,445			1,126
Accumulated deficit		(77,310	)		(76,584	)

Total ORBCOMM Inc. stockholders’ equity		169,705			158,710
Noncontrolling interests		(694	)		(591	)

Total equity		169,011			158,119


Total liabilities and equity	$	188,558		$	171,469

See notes to condensed consolidated financial statements.

ORBCOMM Inc.

Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)


	Three months ended						Nine months ended
	September 30,						September 30,
	2011			2010			2011			2010
Revenues:
Service revenues	$	10,315		$	12,975		$	26,692		$	27,134
Product sales		3,625			937			5,940			2,032

Total revenues		13,940			13,912			32,632			29,166


Costs and expenses⁽¹⁾:
Costs of services		4,483			3,081			11,721			9,277
Costs of product sales		2,659			601			4,315			1,273
Selling, general and administrative		5,146			3,986			14,216			12,168
Product development		361			163			816			486
Impairment charge-satellite network		—			6,509			—			6,509
Acquisition-related costs		391			—			1,426			—

Total costs and expenses		13,040			14,340			32,494			29,713


Income (loss) from operations		900			(428	)		138			(547	)

Other income (expense):
Interest income		31			68			129			160
Other income (expense)		(14	)		105			(220	)		24
Interest expense		(110	)		(48	)		(236	)		(144	)

Total other income (expense)		(93	)		125			(327	)		40


Income (loss) from continuing operations before income taxes		807			(303	)		(189	)		(507	)

Income taxes		272			—			578			—


Income (loss) from continuing operations		535			(303	)		(767	)		(507	)

Loss from discontinued operations		—			(113	)		—			(3,683	)


Net income (loss)		535			(416	)		(767	)		(4,190	)

Less: Net income (loss) attributable to the noncontrolling interests		(20	)		193			(50	)		450


Net income (loss) attributable to ORBCOMM Inc.	$	555		$	(609	)	$	(717	)	$	(4,640	)


Net income (loss) attributable to ORBCOMM Inc. common stockholders	$	546		$	(609	)	$	(726	)	$	(4,640	)


Net income (loss) attributable to ORBCOMM Inc.:
Income (loss) from continuing operations	$	555		$	(496	)	$	(717	)	$	(957	)
Loss from discontinued operations		—			(113	)		—			(3,683	)

Net income (loss) attributable to ORBCOMM Inc.	$	555		$	(609	)	$	(717	)	$	(4,640	)


Per share information-basic:
Income (loss) from continuing operations	$	0.01		$	(0.01	)	$	(0.02	)	$	(0.02	)
Loss from discontinued operations		—			(0.00	)		—			(0.09	)

Net income (loss) attributable to ORBCOMM Inc.	$	0.01		$	(0.01	)	$	(0.02	)	$	(0.11	)


Per share information-diluted:
Income (loss) from continuing operations	$	0.01		$	(0.01	)	$	(0.02	)	$	(0.02	)
Loss from discontinued operations		—			(0.00	)		—			(0.09	)

Net income (loss) attributable to ORBCOMM Inc.	$	0.01		$	(0.01	)	$	(0.02	)	$	(0.11	)


Weighted average common shares outstanding:
Basic		45,665			42,604			44,211			42,575

Diluted		45,788			42,604			44,211			42,575

Condensed Consolidated Statements of Operations


(1) Stock-based compensation included in costs and expenses:
Costs of services	$	34	$	40	$	94	$	83
Costs of product sales		2		—		2		—
Selling, general and administrative		362		561		951		1,534
Product development		8		5		18		13

	$	406	$	606	$	1,065	$	1,630

See notes to condensed consolidated financial statements.

ORBCOMM Inc.

Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)


	Nine months ended
	September 30,
	2011			2010
Cash flows from operating activities:
Net loss	$	(767	)	$	(4,190	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Change in allowance for doubtful accounts		(291	)		(249	)
Depreciation and amortization		3,953			3,232
Accretion on note payable — related party		98			98
Amortization of debt discount for the 6% secured promissory note issued
in connection with the acquisition of StarTrak		9			—
Loss on dispostion of other investment in Alanco		305			—
Stock-based compensation		1,065			1,630
Foreign exchange losses		17			7
Amortization of premium on marketable securities		1,041			759
Decrease in fair value of indemnification assets		47			—
Deferred income taxes		121			—
Dividend received in common stock from other investment		(84	)		(28	)
Gain on settlement of vendor liabilities		—			(220	)
Impairment charge-net assets held for sale		—			3,306
Impairment charge-satellite network		—			6,509
Changes in operating assets and liabilities:
Accounts receivable		(1,756	)		(1,091	)
Inventories		359			(91	)
Prepaid expenses and other assets		(51	)		161
Accounts payable and accrued liabilities		266			(1,025	)
Deferred revenue		(269	)		(6,564	)
Other liabilities		(88	)		347

Net cash provided by operating activities of continuing operations		3,975			2,591
Net cash used in operating activities of discontinued operations		—			(26	)

Net cash provided by operating activities		3,975			2,565


Cash flows from investing activities:
Capital expenditures		(5,937	)		(5,056	)
Purchases of marketable securities		(47,497	)		(114,301	)
Proceeds from maturities of marketable securities		81,146			82,013
Purchase of other investment		—			(1,356	)
Acquisition of net assets of StarTrak, net of cash acquired of $322		(1,876	)		—
Change in restricted cash		810			(50	)

Net cash provided by (used in) investing activities of continuing operations		26,646			(38,750	)
Net cash provided by investing activities of discontinued operations		—			48

Net cash provided by (used in) investing activities		26,646			(38,702	)


Cash flows from financing activities
Principal payment of note payable		(200	)		—
Payment upon exercise of SARs		(24	)		—

Net cash used in financing activities		(224	)		—


Effect of exchange rate changes on cash and cash equivalents		302			413


Net increase (decrease) in cash and cash equivalents		30,699			(35,724	)

Cash and cash equivalents:
Beginning of period		17,026			65,292


End of period	$	47,725		$	29,568


Supplemental disclosures of cash flow information:
Cash paid for
Interest	$	83		$	—

Income taxes	$	25		$	—


Supplemental schedule of noncash investing and financing activities
Capital expenditures incurred not yet paid	$	701		$	1,545

Stock-based compensation included in capital expenditures	$	44		$	25

Accounts receivable exchanged and deferred credit issued as part of consideration for other investment	$	—		$	894

Gateway and components recorded in inventory in prior years and used for construction under satellite network and other equipment	$	84		$	129

Common stock issued as a form of payment for bonus	$	125		$	—

6% secured promissory note issued in connection with the acquisition of StarTrak	$	3,812		$	—

Series A convertible preferred stock issued in connection with the acquisition of StarTrak	$	1,834		$	—

Common stock issued in connection with the acquisition of StarTrak	$	8,349		$	—

Cost method investment in Alanco delivered back to Alanco in connection with the acquisition of StarTrak	$	2,050		$	—

Series A convertible preferred stock dividend paid in-kind	$	9		$	—

See notes to condensed consolidated financial statements.

ORBCOMM Inc.

Condensed Consolidated Statements of Changes in Equity
Nine months ended September 30, 2011 and 2010
(in thousands, except share data)
(Unaudited)


												Accumulated
	Series A convertible								Additional			other
	Preferred stock				Common stock				paid-in			comprehensive		Accumulated			Noncontrolling			Total
	Shares		Amount		Shares		Amount		capital			income		deficit			interests			equity

Balances, January 1, 2011		—	$	—		42,616,950	$	43	$	234,125		$	1,126	$	(76,584	)	$	(591	)	$	158,119
Vesting of restricted stock units		—		—		148,290		—		—			—		—			—			—
Stock-based compensation		—		—		—		—		1,109			—		—			—			1,109
Common stock issued for payment of bonus		—		—		34,115		—		125			—		—			—			125
Issuance of Series A convertible preferred stock in connection with the acquisition of StarTrak		183,550		1,834									—		—			—			1,834
Issuance of common stock in connection with the acquisition of StarTrak						2,869,172		3		8,346			—		—			—			8,349
Series A convertible preferred stock dividend		905		9									—		(9	)					—
Payment upon exercise of SARs		—		—		—		—		(24	)		—		—			—			(24	)
Net loss		—		—		—		—		—			—		(717	)		(50	)		(767	)
Cumulative translation adjustment		—		—		—		—		—			319		—			(53	)		266


Balances, September 30, 2011		184,455	$	1,843		45,668,527	$	46	$	243,681		$	1,445	$	(77,310	)	$	(694	)	$	169,011


Balances, January 1, 2010		—	$	—		42,455,531	$	42	$	230,512		$	76	$	(71,415	)	$	1,703		$	160,918
Vesting of restricted stock units		—		—		161,419		1		—			—		—			—			1
Stock-based compensation		—		—		—		—		1,655			—		—			—			1,655
Net income (loss)		—		—		—		—		—			—		(4,640	)		450			(4,190	)
Cumulative translation adjustment		—		—		—		—		—			332					201			533


Balances, September 30, 2010		—	$	—		42,616,950	$	43	$	232,167		$	408	$	(76,055	)	$	2,354		$	158,917

See notes to condensed consolidated financial statements.

1. Overview

ORBCOMM Inc. (“ORBCOMM” or the “Company”), a Delaware corporation, is a global wireless data communications company focused on machine-to-machine (“M2M”) communications. The Company’s services are designed to enable businesses and government agencies to track, monitor, control and communicate with fixed and mobile assets. The Company operates a two-way global wireless data messaging system optimized for narrowband data communication. The Company also provides customers with technology to proactively monitor, manage and remotely control refrigerated transportation assets. This technology enables the Company to expand its global technology platform by transferring capabilities across new and existing vertical markets and deliver complementary products to our channel partners and resellers worldwide. The Company provides these services through a constellation of 27 owned and operated low-Earth orbit satellites and accompanying ground infrastructure, and also provides terrestrial-based cellular communication services through reseller agreements with major cellular wireless providers. The Company’s satellite-based system uses small, low power, fixed or mobile satellite subscriber communicators (“Communicators”) for connectivity, and cellular wireless subscriber identity modules, or SIMS, are connected to the cellular wireless providers’ networks, with data gathered over these systems is capable of being connected to other public or private networks, including the Internet (collectively, the “ORBCOMM System”).

2. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to SEC rules. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

In the opinion of management, the financial statements as of September 30, 2011 and for the three and nine-month periods ended September 30, 2011 and 2010 include all adjustments (including normal recurring accruals) necessary for a fair presentation of the consolidated financial position, results of operations and cash flows for the periods presented. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.

The financial statements include the accounts of the Company, its wholly-owned and majority-owned subsidiaries, and investments in variable interest entities in which the Company is determined to be the primary beneficiary. All significant intercompany accounts and transactions have been eliminated in consolidation. The portions of majority-owned subsidiaries that the Company does not own are reflected as noncontrolling interests in the condensed consolidated balance sheets.

Investments in entities over which the Company has the ability to exercise significant influence but does not have a controlling interest are accounted for under the equity method of accounting. The Company considers several factors in determining whether it has the ability to exercise significant influence with respect to investments, including, but not limited to, direct and indirect ownership level in the voting securities, active participation on the board of directors, approval of operating and budgeting decisions and other participatory and protective rights. Under the equity method, the Company’s proportionate share of the net income or loss of such investee is reflected in the Company’s consolidated results of operations.

Although the Company owns interests in companies that it accounts for pursuant to the equity method, the investments in those entities had no carrying value as of September 30, 2011 and December 31, 2010. The Company has no guarantees or other funding obligations to those entities. The Company had no equity or losses of those investees for the three and nine months ended September 30, 2011 and 2010.

Noncontrolling interests in companies are accounted for by the cost method where the Company does not exercise significant influence over the investee.

The Company has incurred significant losses, and a net loss of $717 for the nine months ended September 30, 2011 and as of September 30, 2011 the Company has an accumulated deficit of $77,310. As of September 30, 2011, the Company’s primary source of liquidity consisted of cash, cash equivalents, restricted cash and marketable securities totaling $84,153, which the Company believes will be sufficient to provide working capital and milestone payments for its next-generation satellites for the next twelve months.

Acquisition costs and loss on other investment

Acquisition-related costs directly relate to the acquisition of substantially all of the assets of StarTrak Systems, (“StarTrak”) LLC from Alanco Technologies, Inc., (“Alanco”) on May 16, 2011. These costs include professional services expenses. For the three and nine months ended September 30, 2011 acquisition-related costs were $391 and $1,426, respectively.

In connection with the acquisition of StarTrak, the Company recognized a loss of $305 on the disposition of its investment in Alanco for the difference between the fair value and the carrying value. The amount of the loss was recorded in other income (expense) in the statement of operations for the three and nine months ended September 30, 2011.

Fair Value of Financial instruments

The Company has no financial assets or liabilities that are measured at fair value on a recurring basis. However, if certain triggering events occur the Company is required to evaluate the non-financial assets for impairment and any resulting asset impairment would require that a non-financial asset be recorded at the fair value. FASB Topic ASC 820 “Fair Value Measurement Disclosure”, prioritizes inputs used in measuring fair value into a hierarchy of three levels: Level 1- unadjusted quoted prices for identical assets or liabilities traded in active markets, Level 2- inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and Level 3- unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions that market participants would use in pricing.

The carrying value of the Company’s financial instruments, including cash, accounts receivable, note receivable, accounts payable and accrued expenses approximated their fair value due to the short-term nature of these items. The fair value of the Note payable-related party is de minimis. The carrying value of the 6% secured promissory note approximates the fair value (See Note 3).

Marketable securities

Marketable securities consist of debt securities including U.S. government and agency obligations, corporate obligations and FDIC-insured certificates of deposit, which have stated maturities ranging from three months to less than one year. The Company classifies these securities as held-to-maturity since it has the positive intent and ability to hold until maturity. These securities are carried at amortized cost. The changes in the value of these marketable securities, other than impairment charges, are not reported in the condensed consolidated financial statements. The fair value of the Company’s marketable securities approximate their carrying value (See Note 8).

Concentration of credit risk

The Company’s customers are primarily commercial organizations. Accounts receivable are generally unsecured.

Accounts receivable are due in accordance with payment terms included in contracts negotiated with customers. Amounts due from customers are stated net of an allowance for doubtful accounts. Accounts that are outstanding longer than the contractual payment terms are considered past due. The Company determines its allowance for doubtful accounts by considering a number of factors, including the length of time accounts are past due, the customer’s current ability to pay its obligations to the Company, and the condition of the general economy and the industry as a whole. The Company writes-off accounts receivable when they are deemed uncollectible.

The following table presents customers with revenues greater than 10% of the Company’s consolidated total revenues for the periods shown:


	Three Months ended						Nine Months ended
	September 30,						September 30,
	2011			2010			2011			2010
Caterpillar Inc.		19.8	%		8.9	%		21.9	%		11.3	%
Komatsu Ltd.		14.6	%		9.9	%		15.9	%		11.9	%
Hitachi Construction Machinery Co., Ltd.		8.7	%		9.5	%		9.5	%		10.6	%
Asset Intelligence		6.1	%		6.1	%		7.7	%		11.2	%

The following table presents customers with accounts receivable greater than 10% of the Company’s consolidated accounts receivable for the periods shown:


	September 30,			December 31,
	2011			2010

Caterpillar Inc.		34.3	%		19.9	%
Asset Intelligence		10.8	%		20.3	%

The Company does not currently maintain in-orbit insurance coverage for its satellites to address the risk of potential systemic anomalies, failures or catastrophic events affecting its satellite constellation. If the Company experiences significant uninsured losses, such events could have a material adverse impact on the Company’s business.

Inventories

Inventories are stated at the lower of cost or market, determined on a first-in, first-out basis. Inventory consists primarily of raw materials and purchased parts to be utilized by its contract manufacturer. The Company reviews inventory quantities on hand and evaluates the realizability of inventories and adjusts the carrying value as necessary based on forecasted product demand. A provision is made for potential losses on slow moving and obsolete inventories when identified.

Warranty costs and deferred revenues

The Company accrues for StarTrak’s one-year warranty coverage on product sales estimated at the time of sale based on historical costs to repair or replace products for customers compared to historical product revenues of StarTrak. As the Company continues to gather additional information these accrual estimates may differ from actual results and adjustments to the estimated warranty liability would be required. The warranty accrual is included in accrued liabilities.

The Company also offers to its StarTrak customers extended warranty service agreements beyond the initial warranty for a fee. These fees are recorded as deferred revenue and recognized ratably into income over the life of the extended warranty contract.

Income taxes

As part of the Company’s accounting for the acquisition of StarTrak, a portion of the purchase price was allocated to goodwill. The acquired goodwill is deductible for tax purposes and amortized over fifteen years for income tax purposes. Under GAAP, the acquired goodwill is not amortized in the Company’s financial statements, as such, a deferred income tax expense and a deferred tax liability arise as a result of the tax deductibility for this amount for tax purposes but not for financial statement purposes. The resulting deferred tax liability, which is expected to continue to increase over time will remain on the Company’s balance sheet indefinitely unless there is an impairment of the asset (See Note 3).

For the three and nine months ended September 30, 2011, the Company recorded an income tax provision of $272 and $578, respectively, consisting of income generated by ORBCOMM Japan and a deferred income tax expense related to the acquired goodwill from the acquisition of StarTrak. As of September 30, 2011, the Company maintained a valuation allowance against all of its net deferred tax assets, excluding goodwill, attributable to operations in the United States and all other foreign jurisdictions, except for Japan, as the realization of such assets was not considered more likely than not.

As of September 30, 2010, the Company maintained a valuation allowance against all net deferred tax assets attributable to all operations in the United States and all foreign jurisdictions as the realization of such assets was not considered more likely than not.

As of September 30, 2011, the Company had unrecognized tax benefits of $775. There were no changes to the Company’s unrecognized tax benefits during the nine months ended September 30, 2011. The Company is subject to U.S. federal and state examinations by tax authorities from 2008. The Company does not expect any significant changes to its unrecognized tax positions during the next twelve months.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. No interest and penalties related to uncertain tax positions were recognized during the three and nine months ended September 30, 2011.

Accounting Pronouncements

In May 2011, FASB issued ASU No. 2011-04,Amendment to Achieve Common Fair Value Measurement and Disclosure Requirements, in U.S. GAAP and International Financial Reporting Standards (IFRS), which amends FASB Topic ASC 820,Fair value measurement. ASU No. 2011-04 modifies the existing standard to include disclosure of all transfers between Level 1 and Level 2 asset and liability fair value categories. In addition, ASU No. 2011-04 provides guidance on measuring the fair value of financial instruments managed within a portfolio and the application of premiums and discounts on fair value measurements. ASU No. 2011-04 requires additional disclosure for Level 3 measurements regarding the sensitivity of fair value to changes in unobservable inputs and any interrelationships between those inputs. ASU No. 2011-04 will be effective for the Company on January 1, 2012. The Company does not expect adopting ASU No 2011-04 will have a material impact on the Company’s results of operations, financial condition or its disclosures.

In June 2011, FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. ASU 2011-05 eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. The guidance allows two presentation alternatives: (1) present items of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income; or (2) in two separate, but consecutive, statements of net income and other comprehensive income. ASU 2011-05 will be effective for the Company on January 1, 2012. The Company is currently evaluating the impact of adopting ASU 2011-05 on its consolidated financial statements.

In September 2011, FASB issued ASU No. 2011-08,Intangibles-Goodwill and Other: Testing Goodwill for Impairment, which amends FASB Topic ASC 350,Intangible Assets-Goodwill and Other. Under ASU No. 2011-08, an entity may elect the option to assess qualitative factors to determine whether it is necessary to perform the first step in the two-step impairment testing process. ASU No. 2011-08 is effective for annual reporting periods beginning after December 15, 2011, with early adoption permitted. The Company has chosen to early adopt ASU No. 2011-08 and therefore, the new guidance will be effective for the year ended December 31, 2011. The Company does not expect such adoption will have a material impact on the Company’s results of operations, financial condition or its disclosures.

3. Acquisition of StarTrak

Effective on the close of business on May 16, 2011, the Company completed the acquisition of substantially all of the assets of StarTrak including but not limited to cash, accounts receivable, inventory, equipment, intellectual property, all of StarTrak’s rights to customer contracts, supplier lists and assumed certain liabilities pursuant to an Asset Purchase Agreement dated as of February 23, 2011. The results of operations of StarTrak have been included in the condensed consolidated results for the period subsequent to the acquisition date of May 16, 2011.

The consideration paid to acquire StarTrak was valued at $18,242 consisting of: (i) cash subject to a final working capital adjustment, (ii) forgiveness of the 6% secured promissory note advanced by the Company to Alanco on February 23, 2011, (iii) note payable issued to a lender and stockholder of Alanco, (iv) common stock, (v) Series A convertible preferred stock and (vi) delivery of the Company’s investment in preferred stock and common stock of Alanco back to Alanco.

In addition to the consideration paid, up to an additional gross amount of $1,500 (subject to certain reductions) in contingent payments is payable by the Company if certain revenue milestones of StarTrak are achieved for the 2011 calendar year. Any potential earn-out amount can be paid in common stock, cash or a combination at the Company’s option. Any shares of common stock issued will be based on the 20-day average closing price of the common stock ending March 31, 2012 subject to certain reductions set forth in the Asset Purchase Agreement. The potential earn-out amount will be paid to Alanco stockholders and to two selling stockholders of Alanco. The earn-out amount is based on StarTrak achieving certain revenue milestones for calendar year ending December 31, 2011 payable on or before April 30, 2012. If StarTrak does not achieve the revenue milestone of at least $20,000 neither Alanco stockholders nor the two selling stockholders are entitled to an earn-out amount. The Company expects the contingent earn-out amount to be nil. The potential earn-out is calculated as follows:

	•		$250 if StarTrak achieves at least $20,000 in total revenues;

	•		plus an additional $750 such additional amount to be pro-rated on a straight line basis, if StarTrak achieves between $20,000 and $22,000 in total revenues;

	•		plus an additional $250 if StarTrak achieves at least $23,000 in total revenues; and

	•		plus an additional $250 if StarTrak achieves at least $24,000 in total revenues.

The Company accounted for the acquisition pursuant to FASB Topic ASC 805,“Business Combinations”. In accordance with ASC 805, the estimated purchase price was allocated to intangible assets and identifiable assets acquired and liabilities assumed based on their relative fair values. The excess of the purchase price over the net assets and liabilities assumed was recorded as goodwill.

The preliminary estimated fair values of the purchase price are as follows:


Cash consideration	$	1,893

Forgiveness of 6% secured promissory note advanced to Alanco on February 23, 2011 including interest of $4		304
Contingent earn-out consideration		—
The Company’s investment in preferred stock and common stock of Alanco delivered back to Alanco		2,050
$3,900 secured 6% promissory note payable issued to a lender and stockholder of Alanco		3,812
Issuance of 183,550 shares of Series A convertible preferred stock		1,834
Issuance of 2,869,172 shares of common stock (valued at $2.91 per share, which reflects the Company’s common stock closing price on May 16, 2011)		8,349

Total	$	18,242

Contingent earn-out consideration

As of the acquisition date, the fair value of the contingent earn-out amount was estimated to be nil. The estimated fair value of the earn-out was determined using weighted probabilities to achieve the revenue milestones. The Company estimated the fair value of the contingent consideration using a probability-weighted discounted cash flow model discounted at 19.0%. The fair value measurement is based on significant inputs not observed in the market and thus represents a Level 3 measurement. Any change in the fair value of the contingent earn-out subsequent to the acquisition date, including changes from events after the acquisition date, will be recognized in earnings in the period the estimated fair value changes. For the three months ended September 30, 2011, there were no changes to the fair value of the contingent earn-out amount.

Investment in Alanco

The Company accounted for the investment in Alanco at cost, or $2,356. The investment consisted of an initial purchase of 500,000 shares of Alanco’s Series E convertible preferred stock for $2,250, and 73,737 shares of common stock received as payment of dividends on the Series E convertible preferred stock totaling $106. The fair value of the Series E convertible preferred stock was estimated using a combination of an income approach for the debt component and the Black-Scholes option pricing model for the option component. The rate utilized to discount the net cash flows to the present value for the debt component was 20.0% based on a private-equity rate of return for this security. The fair value of the option component was de minimis. The fair value of the common stock dividends was based on Alanco’s closing stock price as of May 16, 2011. The Company recorded a loss of $305 on the revaluation of its investment in Alanco, triggered by the acquisition, for the difference between the fair value and the carrying value at the date of acquisition. Such loss was recorded prior to tendering the shares to Alanco. The loss is recorded in other income (expense) in the statement of operations for the nine months ended September 30, 2011.

$3,900 secured 6% promissory note payable issued to a lender and stockholder of Alanco

The fair value of the note payable was estimated using an income approach-yield analysis based on the contractual interest and principal payments. The rate utilized to discount the net cash flows to the present value was 6.85%, which was based on: (i) comparable loan indices with similar structure and credit and (ii) comparable companies. As a result, the Company recognized a fair value adjustment of $88, which reduced the carrying value of the note. This amount will be amortized to interest expense using the effective interest method which will increase the carrying value of the note through the maturity date (See Note 15).

Series A convertible preferred stock

The face value of the Series A convertible preferred stock is $1,836 and the estimated fair value is $1,834. As a result, the face value will be accreted up to the fair value using the effective interest method through the date of redemption (See Note 16).

Preliminary Estimated Purchase Price Allocation

The total preliminary estimated purchase price was allocated to the net assets based upon their preliminary estimated fair values as of the close of business on May 16, 2011 as set forth below. The excess of the preliminary purchase price over the preliminary net assets was recorded as goodwill. The preliminary allocation of the purchase price was based upon a preliminary valuation and the estimates and assumptions are subject to change, and the revisions may materially affect the presentation in the Company’s consolidated balance sheet. Any change to the initial estimates of the assets and liabilities acquired will be recorded as adjustments to goodwill throughout the measurement period. The areas of the preliminary purchase price allocation that are not yet finalized relate to the fair values of certain net assets and liabilities, including deferred warranty revenues and warranty liabilities, intangible assets, goodwill and the final working capital adjustment. The Company anticipates finalizing the purchase price allocation by the end of 2011. The preliminary estimated purchase price allocation is as follows:


Cash and cash equivalents	$	322
Accounts receivable		1,535
Inventory		2,085
Other current and noncurrent assets		279
Indemnification assets		379
Property, plant and equipment		303
Intangible assets		7,600

Total identifiable assets acquired		12,503

Accounts payable and accrued expenses		(1,755	)
Deferred warranty revenues		(400	)
Warranty liabilities		(1,050	)
Patent infringement claim		(155	)

Total liabilities assumed		(3,360	)

Net identifiable assets acquired		9,143
Goodwill		9,099

Total preliminary purchase price	$	18,242

Intangible Assets

The fair values of the trademarks and the technology and patents were estimated using a relief from royalty method under the income approach based on discounted cash flows. The fair value of customer relationships were estimated based on an income approach using the excess earnings method. A discount rate of 19% was selected to reflect risk characteristics of these intangible assets. The discount rate was applied to the projected cash flows associated with the assets in order to value these intangible assets. The remaining useful lives of the technology and patents and trademarks were based on historical product development cycles, the projected rate of technology migration and the pattern of projected economic benefit of these intangible assets. The remaining useful lives of customer relationships were based on customer attrition and the future economic benefit (See Note 11).


	Estimated
	useful life (in
	years)		Amount
Technology and patents		10	$	3,900
Customer relationships		10		2,900
Trademarks		10		800

			$	7,600

Goodwill

Goodwill represents the excess of the preliminary estimated purchase consideration over the preliminary estimated fair values of the underlying net tangible and intangible assets. In accordance FASB Topic 350, “Intangibles-Goodwill and Other”, goodwill will not be amortized, but instead will be tested for impairment at least annually and whenever events or circumstances have occurred that may indicate a possible impairment. In the event the Company determines the fair value of goodwill has become impaired, the Company will incur an accounting charge for the amount of impairment during the fiscal period in which the determination is made (See Note 11). The Company will perform the goodwill impairment test during the fourth quarter of 2011.

The acquisition of StarTrak enables the Company to create a global technology platform to transfer capabilities across new and existing vertical markets and deliver complementary products to the Company’s channel partners and resellers worldwide. In addition, the acquisition provides an opportunity to drive new subscribers to the Company’s global communications network while accelerating the growth of StarTrak’s suite of products by adding scale and providing subscriber management tools. These factors contributed to a preliminary purchase price resulting in the recognition of goodwill. The acquired goodwill is deductible for income tax purposes over fifteen years.

Deferred warranty revenues

In connection with the preliminary estimated purchase price allocation, the Company estimated the fair value of the service obligations assumed from StarTrak. The estimated fair value of the service obligations was determined using a version of the income approach, known as the build-up method to estimate the cost necessary to fulfill the obligations plus a normal profit margin on the fulfillment effort. The estimated costs to fulfill the service obligations were based on StarTrak’s historical direct costs and indirect costs related to StarTrak’s service agreements with its customers. Direct costs include personnel directly engaged in providing service and support activities, while indirect costs consist of estimated general and administrative expenses based on an overall margin of StarTrak’s business (See Note 13).

Warranty liabilities and Escrow Agreement

As a result of the acquisition of StarTrak on May 16, 2011, the Company acquired warranty obligations on StarTrak’s product sales, which provide for costs to replace or fix the product. One-year warranty coverage is accrued on product sales which provide for costs to replace or fix the product. The Company’s analysis of the warranty liabilities associated with the one-year warranty coverage are estimated based on the historical costs of StarTrak to replace or fix products for customers, and additional liability for warranty coverage for other specific claims that are expected to be incurred within the next twelve months, for which it is estimated that customers may have a warranty claim. As the Company continues to gather additional information, these accrual estimates may differ from actual results and adjustments to the estimated warranty liability would be required. The Company will continue to evaluate warranty liabilities relating to the acquisition of StarTrak throughout the measurement period. If the Company determines that adjustments to these amounts are required during the remainder of the measurement period such amounts will be recorded as an adjustment to goodwill.

The Company is estimating additional warranty obligations of $1,050 related to warranty claims the Company is investigating. These claims vary in nature, and the range of additional warranty obligations is estimated between $1,050 and $1,700. This amount has not yet been fair valued. The Company is currently in the process of determining the extent of the additional warranty obligations and any changes during the remainder of the measurement period to the estimate will be an adjustment to goodwill. For the three months ended September 30, 2011, there were no changes to the amount of the initial warranty obligations recorded at the date of acquisition.

In connection with the acquisition, the Company entered into an escrow agreement with Alanco. Under the terms of the escrow agreement, 166,611 shares of common stock were issued to Alanco and placed in an escrow account to cover 50% of certain costs relating to fuel sensor warranty obligations incurred by the Company. In the event that the sum of (i) aggregate warranty expenses (other than for fuel sensors) and (ii) any fuel sensor damages directly expended or accrued on the StarTrak balance sheet from March 1, 2011 through March 1, 2012 exceeds $600, the Company shall have the right to provide written notice to the escrow agent and Alanco setting forth a description of the fuel sensor distribution event and the number of shares of the Company’s common stock to be distributed to the Company from the escrow account. The number of shares of common stock that the Company will direct the escrow agent to release to the Company from the escrow account will equal 50% of the fuel sensor damages (excluding the amount of damages that when added to the non-fuel sensor damages equals $600) incurred or suffered from June 1, 2011 through March 1, 2012, valued at $3.001 per share. As a result, the Company has recorded $304 relating to the escrow agreement as an indemnification asset, which is included in other assets. As of September 30, 2011, there were no changes to the contractual amount of the indemnification asset. For the three months ended September 30, 2011, the Company recorded a loss of $38 on the fair value of the common stock held in escrow. The loss is recorded in selling, general and administrative expenses in the condensed consolidated statements of operations.

Patent infringement liability and Escrow Agreement

StarTrak was a named defendant in a patent infringement action filed by Innovative Global Systems LLC (“Innovative Global Systems”) in the United States District Court for the Eastern District of Texas. In July 2011, a settlement agreement was reached under which Innovative Global Systems dismissed the patent infringement action and grant StarTrak and StarTrak Information Technologies, LLC, a wholly owned subsidiary of ORBCOMM holding the acquired StarTrak assets, a license in the patents-in-suit and certain other patents. Under the settlement agreement Innovative Global Systems received the amount of $155, which amount was agreed in principle in May 2011. Accordingly, the Company recognized a liability relating to the patent infringement action for $155 on the date of acquisition. As of September 30, 2011, there were no changes to the patent infringement liability.

In connection with the acquisition, the Company entered into an escrow agreement with Alanco. Under the terms of the escrow agreement, 249,917 shares of common stock were issued to Alanco and placed in an escrow account to cover 50% of any damages relating to the Innovative Global Systems patent infringement action incurred or suffered by the Company. The Company and Alanco are in discussions regarding the extent to which legal fees incurred by the Company relating to this patent infringement action will, in addition to the settlement payment, be covered by the escrow agreement. Upon final agreement between the Company and Alanco regarding these additional costs, the Company will direct the escrow agent to release to the Company from the escrow account shares of common stock valued at $3.001 per share equal to 50% of the damages incurred or suffered by the Company. As a result of the settlement agreement, the Company has recorded $75 relating to this escrow agreement as an indemnification asset, which is included in prepaid expenses and other current assets. As of September 30, 2011, there were no changes to the contractual amount of the indemnification asset. For the three months ended September 30, 2011, the Company recorded a loss of $9 on the fair value of the common stock held in escrow. The loss is recorded in selling, general and administrative expenses in the condensed consolidated statements of operations.

Pre-Acquisition Contingencies

The Company has evaluated and continues to evaluate pre-acquisition contingencies related to StarTrak that existed as of the acquisition date. If these pre-acquisition contingencies that existed as of the acquisition date become probable of occurring and can be estimated during the remainder of the measurement period, amounts recorded for such matters will be made to goodwill in the measurement period and, subsequent to the measurement period, in the Company’s results of operations.

Pro Forma Results for StarTrak Acquisition

The following table presents the unaudited pro forma results (including StarTrak) for the three and nine months ended September 30, 2011 and 2010 as though the companies had been combined as of the beginning of each of the periods presented. The pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of each period presented.

The supplemental pro forma revenues, net income (loss) attributable to ORBCOMM Inc. and the net income (loss) attributable to common stockholders for the periods presented in the table below were adjusted to include the amortization of the intangible assets, interest expense on the 6% secured promissory note, income tax expense and record dividends on the Series A convertible preferred stock calculated from January 1, 2010 to the acquisition date. Also the supplemental pro forma information was adjusted to exclude acquisition costs and elimination of intercompany transactions.

The amount of StarTrak’s revenues and net loss included in the Company’s condensed consolidated statements of operations from the acquisition date to September 30, 2011 and the revenues, net income (loss) attributable to ORBCOMM Inc. and the net income (loss) attributable to common stockholders of the combined entity had the acquisition date been January 1, 2010, are as follows:


			Net Income (loss) Attributable			Net Income (loss) Attributable
	Revenues		ORBCOMM Inc.			to Common Stockholders
Actual from May 17, 2011 to September 30, 2011	$	6,894	$	(352	)	$	(352	)

Supplemental pro forma for the three months ended September 30, 2011	$	13,940	$	946		$	928

Supplemental pro forma for the three months ended September 30, 2010	$	16,586	$	(849	)	$	(867	)

Supplemental pro forma for the nine months ended September 30, 2011	$	38,140	$	316		$	262

Supplemental pro forma for the nine months ended September 30, 2010	$	39,426	$	(5,488	)	$	(5,542	)

4. Discontinued Operations

On August 5, 2010, Stellar Satellite Communications, Ltd. (“Stellar”) entered into an Asset Purchase Agreement with Quake Global, Inc., a manufacturer of satellite communicators to purchase Stellar. Under the terms of the Asset Purchase Agreement, the Company will receive royalty payments contingent on future product sales of inventory as defined in the Asset Purchase Agreement. The Company will recognize the future royalty payments when they are received and the contingency is resolved in accordance with FASB Topic ASC 450 “Contingencies”. For the three and nine months ended September 30, 2011, the Company received royalty payments totaling $12 and $111, respectively, which are included in continuing operations in its condensed consolidated statements of operations. For the three months ended September 30, 2010, the Company did not recognize any royalty payments in its condensed consolidated statements of operations. For the three and nine months ended September 30, 2011, the Company had no discontinued operations.

A summary of discontinued operations for the three and nine months ended September 30, 2010 is as follows:


	Three months ended			Nine months ended
	September 30, 2010			September 30, 2010

Revenues- Product sales	$	119		$	548

Loss from discontinued operations	$	(113	)	$	(3,683	)

5. Comprehensive Loss

The components of comprehensive loss are as follows:


	Three months ended					Nine months ended
	September 30,					September 30,
	2011		2010			2011			2010
Net income (loss)	$	535	$	(416	)	$	(767	)	$	(4,190	)
Foreign currency translation adjustment		378		86			266			533

Comprehensive income (loss)		913		(330	)		(501	)		(3,657	)
Comprehensive income (loss) attributable to noncontrolling interests		119		319			(103	)		651

Comprehensive income (loss) attributable to ORBCOMM Inc.	$	794	$	(649	)	$	(398	)	$	(4,308	)

6. Stock-based Compensation

The Company’s stock-based compensation plans consist of its 2006 Long-Term Incentives Plan (the “2006 LTIP”) and its 2004 Stock Option Plan. On April 28, 2011, the Company’s stockholders approved an amendment to the 2006 LTIP to increase the maximum number of shares available for grant by 5,000,000 shares to 9,641,374. As of September 30, 2011, there were 5,043,569 shares available for grant under the 2006 LTIP and no shares available for grant under the 2004 Stock Option Plan.

For the three months ended September 30, 2011 and 2010, the Company recorded stock-based compensation expense in continuing operations of $406 and $606, respectively. For the three months ended September 30, 2011 and 2010, the Company capitalized stock-based compensation of $15 and $11, respectively. For the nine months ended September 30, 2011 and 2010, the Company recorded stock-based compensation expense in continuing operations of $1,065 and $1,630, respectively. For the nine months ended September 30, 2011 and 2010, the Company capitalized stock-based compensation of $44 and $25, respectively. The components of the Company’s stock-based compensation expense are presented below:


	Three months ended				Nine months ended
	September 30,				September 30,
	2011		2010		2011		2010

Stock appreciation rights	$	277	$	466	$	762	$	1,232
Restricted stock units		129		140		303		398


Total	$	406	$	606	$	1,065	$	1,630

As of September 30, 2011, the Company had unrecognized compensation costs for all share-based payment arrangements totaling $1,733.

Time-Based Stock Appreciation Rights

During the nine months ended September 30, 2011, the Company granted 395,000 time-based SARs, which vest through May 2014. The weighted-average grant date fair value of these SARs was $1.73 per share.

A summary of the Company’s time-based SARs for the nine months ended September 30, 2011 is as follows:


						Weighted-Average
						Remaining		Aggregate
	Number of			Weighted-Average		Contractual		Intrinsic Value
	Shares			Exercise Price		Term (years)		(In thousands)
Outstanding at January 1, 2011		2,000,667		$	4.07
Granted		395,000			2.81
Exercised		(4,000	)		2.46
Forfeited or expired		—			—

Outstanding at September 30, 2011		2,391,667		$	3.86		7.67	$	119

Exercisable at September 30, 2011		1,432,334		$	4.72		6.81	$	40

Vested and expected to vest at September 30, 2011		2,391,667		$	3.86		7.67	$	119

For the three months ended September 30, 2011 and 2010, the Company recorded stock-based compensation expense in continuing operations of $167 and $359 relating to these SARs, respectively. For the nine months ended September 30, 2011 and 2010, the Company recorded stock-based compensation expense in continuing operations of $414 and $986 relating to these SARs, respectively. As of September 30, 2011, $1,214 of total unrecognized compensation cost related to these SARs is expected to be recognized through May 2014.

The intrinsic value of the SARs exercised was $4 for the nine months ended September 30, 2011.

Performance-Based Stock Appreciation Rights

During the nine months ended September 30, 2011, the Company granted 393,666 performance-based SARs for 2011 financial and operational targets, which are expected to vest in the first quarter of 2012. As of September 30, 2011, the Company estimates that 85% of the performance targets will be achieved. The weighted-average grant date fair value of these SARs was $2.00 per share.

A summary of the Company’s performance-based SARs for the nine months ended September 30, 2011 is as follows:


						Weighted- Average
						Remaining		Aggregate
	Number of			Weighted-Average		Contractual		Intrinsic Value
	Shares			Exercise Price		Term (years)		(In thousands)
Outstanding at January 1, 2011		567,146		$	6.00
Granted		393,666			3.25
Exercised		(19,500	)		2.30
Forfeited or expired		(89,013	)		2.45

Outstanding at September 30, 2011		852,299		$	5.18		8.16	$	18

Exercisable at September 30, 2011		458,634		$	6.85		6.93	$	18

Vested and expected to vest at September 30, 2011		794,324		$	5.31		8.06	$	23

For the three months ended September 30, 2011 and 2010, the Company recorded stock-based compensation expense in continuing operations of $110 and $107 relating to these SARs, respectively. For the nine months ended September 30, 2011 and 2010, the Company recorded stock-based compensation expense in continuing operations of $348 and $246 relating to these SARs, respectively. As of September 30, 2011, $369 of total unrecognized compensation cost related to these SARs is expected to be recognized through the first quarter of 2012.

The intrinsic value of the SARs exercised was $20 for the nine months ended September 30, 2011.

The fair value of each time and performance SAR award is estimated on the date of grant using the Black-Scholes option pricing model with the assumptions described below for the periods indicated. The expected volatility was based on an average of the Company’s historical volatility over the expected terms of the SAR awards and the comparable publicly traded companies historical volatility. The Company uses the “simplified” method to determine the expected terms of SARs due to an insufficient history of exercises. Estimated forfeitures were based on voluntary and involuntary termination behavior as well as analysis of actual forfeitures. The risk-free interest rate was based on the U.S. Treasury yield curve at the time of the grant over the expected term of the SAR grants.


	Nine months ended
	September 30,
	2011	2010
Risk-free interest rate	1.00% to 2.34%	2.27% and 2.65%
Expected life (years)	5.50 and 6.0	5.5 and 6.0
Estimated volatility factor	64.15% to 74.34%	85.95% and 83.67%
Expected dividends	None	None

Time-based Restricted Stock Units

During the nine months ended September 30, 2011, the Company granted 120,000 time-based RSUs, which vest in January 2012.

A summary of the Company’s time-based RSUs for the nine months ended September 30, 2011 is as follows:


				Weighted-Average Grant
	Shares			Date Fair Value
Balance at January 1, 2011		156,624		$	2.90
Granted		120,000			2.97
Vested		(118,290	)		3.09
Forfeited or expired		—			—

Balance at September 30, 2011		158,334		$	2.81

For the three months ended September 30, 2011 and 2010, the Company recorded stock-based compensation expense in continuing operations of $129 and $140 related to these RSUs, respectively. For the nine months ended September 30, 2011 and 2010, the Company recorded stock-based compensation expense in continuing operations of $303 and $398 related to these RSUs, respectively. As of September 30, 2011, $150 of total unrecognized compensation cost related to these RSUs is expected to be recognized through July 2012.

The fair value of the time-based RSU awards is based upon the closing stock price of the Company’s common stock on the date of grant.

2004 Stock Option Plan

A summary of the status of the Company’s stock options as of September 30, 2011 is as follows:


					Weighted- Average
					Remaining		Aggregate
	Number of		Weighted-Average		Contractual		Intrinsic Value
	Shares		Exercise Price		Term (years)		(In thousands)
Outstanding at January 1, 2011		757,828	$	2.97
Granted		—		—
Exercised		—		—
Forfeited or expired		—		—

Outstanding at September 30, 2011		757,828	$	2.97		2.46	$	89

Exercisable at September 30, 2011		757,828	$	2.97		2.46	$	89

Vested and expected to vest at September 30, 2011		757,828	$	2.97		2.46	$	89

7. Net Income (loss) Attributable to ORBCOMM Inc. Common Stockholders

Basic net income (loss) per common share is calculated by dividing net income (loss) attributable to ORBCOMM Inc. by the weighted-average number of common shares outstanding for the period. Diluted net loss per common share is the same as basic net loss per common share, because potentially dilutive securities such as Series A convertible preferred stock, SARs, RSUs and stock options would have an antidilutive effect as the Company incurred a net loss for the three months ended September 30, 2010 and for the nine months ended September 30, 2011 and 2010. For the three months ended September 30, 2011, the Company reported net income attributable to ORBCOMM Inc. and included the effect of 122,831 SARs, RSUs and stock options in its diluted weighted average common shares outstanding.

For the three months ended September 30, 2011, 307,322 shares of Series A convertible preferred stock, 3,222,706 SARs, 96,700 RSUs and 716,991 stock options were not included in the calculation of diluted income per share as their effect was antidilutive.

The potentially dilutive securities excluded from the determination of diluted loss per share, as their effect is antidilutive, are as follows:


	Nine months ended
	September 30,
	2011		2010
Series A convertible preferred stock		307,322		—
SARs		3,243,966		2,543,813
RSUs		158,334		186,624
Stock options		757,828		780,829

		4,467,450		3,511,266

The computation of net income (loss) attributable to ORBCOMM Inc. common stockholders are as follows for the three and nine months ended September 30, 2011.


	Three months ended September 30, 2011			Nine months ended September 30, 2011
Net income (loss) attributable to ORBCOMM Inc.	$	555		$	(717	)
Preferred stock dividends on Series A convertible preferred stock (See Note 16)		(9	)		(9	)

Net income (loss) attributable to ORBCOMM Inc. common stockholders	$	546		$	(726	)

8. Marketable Securities

As of September 30, 2011 and December 31, 2010, the marketable securities are recorded at amortized cost which approximates fair market value which was based on Level 1 inputs. All investments mature in one year or less.


	September 30, 2011						December 31, 2010
			Gross		Gross				Gross		Gross
	Fair		Unrealized		Unrealized		Fair		Unrealized		Unrealized
	Value		Losses		Gains		Value		Losses		Gains

U.S. government and agency obligations	$	13,758	$	14	$	2	$	39,926	$	18	$	5
Corporate obligations		14,986		5		—		24,108		18		3
FDIC-insured certificates of deposit		4,446		1		—		3,837		3		—

	$	33,190	$	20	$	2	$	67,871	$	39	$	8

The Company would recognize an impairment loss when the decline in the estimated fair value of a marketable security below the amortized cost is determined to be other-than-temporary. The Company considers various factors in determining whether to recognize an impairment charge, including the duration of time and the severity to which the fair value has been less than the amortized cost, any adverse changes in the issuer’s financial conditions and the Company’s intent to sell or whether it is more likely than not that it would be required to sell the marketable security before its anticipated recovery. Investments with unrealized losses have been in an unrealized loss position for less than a year.

As of September 30, 2011 and December 31, 2010, the gross unrealized losses of $20 and $39, respectively, were primarily due to changes in interest rates and not credit quality of the issuer. Accordingly, the Company has determined that the gross unrealized losses are not other-than-temporary at September 30, 2011 and there has been no recognition of impairment losses in its condensed consolidated statements of operations for the three and nine months ended September 30, 2011 and 2010.

9. Satellite Network and Other Equipment

Satellite network and other equipment consisted of the following:


	Useful life		September 30,			December 31,
	(years)		2011			2010
Land			$	381		$	381
Satellite network		1-10		33,823			32,560
Capitalized software		3-5		1,759			1,646
Computer hardware		5		1,380			1,247
Other		5-7		1,585			1,311
Assets under construction				66,018			62,374

				104,946			99,519
Less: accumulated depreciation and amortization				(30,269	)		(27,835	)

			$	74,677		$	71,684

During the nine months ended September 30, 2011 and 2010, the Company capitalized costs attributable to the design and development of internal-use software in the amount of $197 and $160, respectively. Depreciation and amortization expense for the three months ended September 30, 2011 and 2010 was $844 and $560, respectively. This includes amortization of internal-use software of $83 and $96 for the three months ended September 30, 2011 and 2010, respectively. Depreciation and amortization expense for the nine months ended September 30, 2011 and 2010 was $2,554 and $2,118, respectively. This includes amortization of internal-use software of $259 and $241 for the nine months ended September 30, 2011 and 2010, respectively.

Assets under construction primarily consist of milestone payments pursuant to procurement agreements which includes, the design, development, launch and other direct costs relating to the construction of the next-generation satellites (See Note 18) and upgrades to its infrastructure and ground segment.

10. Restricted Cash

Restricted cash consists of the remaining cash collateral of $3,000 for a performance bond required by the FCC in connection with the construction, launch and operation of the 18 next-generation satellites that was authorized in the March 21, 2008 FCC Space Segment License modification. Under the terms of the performance bond, the cash collateral will be reduced in increments of $1,000 upon completion of specified milestones. The Company certified completion of a third milestone. The FCC has not yet issued a ruling on the certification of the third milestone. The Company has classified $1,000 of restricted cash for the third milestone as a current asset and the remaining $2,000 as a non-current asset at September 30, 2011 and December 31, 2010.

At December 31, 2010, restricted cash also included $680 deposited into an escrow account under the terms of a procurement agreement for the quick-launch satellites. During the nine months ended September 30, 2011, $500 was paid to the supplier and the balance of $180 was returned to the Company.

At December 31, 2010, restricted cash also included $350 placed into certificates of deposit to collateralize a letter of credit with a cellular wireless provider to secure terrestrial communications services and to secure a credit card facility. During the nine months ended September 30, 2011, the cellular wireless provider reduced the amount of the letter of credit by $130 which was refunded to the Company.

The interest income earned on the restricted cash balances is unrestricted and included in interest income in the consolidated statements of operations.

11. Goodwill and Intangible Assets

The Company’s intangible assets consisted of the following:


			September 30, 2011							December 31, 2010
	Useful life				Accumulated							Accumulated
	(years)		Cost		amortization			Net		Cost		amortization			Net
Acquired licenses		6	$	8,115	$	(8,115	)	$	—	$	8,115	$	(7,001	)	$	1,114
Patents and technology		10		3,900		(146	)		3,754		—		—			—
Trademarks		10		800		(30	)		770		—		—			—
Customer lists		10		2,900		(109	)		2,791		—		—			—

			$	15,715	$	(8,400	)	$	7,315	$	8,115	$	(7,001	)	$	1,114

Amortization expense was $561 and $371 for the three months ended September 30, 2011 and 2010, respectively. Amortization expense was $1,399 and $1,114 for the nine months ended September 30, 2011 and 2010, respectively.

Goodwill

Goodwill allocated to the Company’s one business segment relates to the acquisition of StarTrak (See Note 3). For the three months ended September 30, 2011 there were no changes to goodwill.

Intangible Assets

The patents and the technology, trademarks and customer lists relate to the acquisition of StarTrak (See Note 3).

Estimated amortization expense for intangible assets subsequent to September 30, 2011 is as follows:


Years ending December 31,
Remainder of 2011	$	190
2012		760
2013		760
2014		760
2015		760
Thereafter		4,085

	$	7,315

12. Accrued Liabilities

The Company’s accrued liabilities consisted of the following:


	September 30,		December 31,
	2011		2010
Accrued compensation and benefits	$	2,041	$	2,151
Accrued interest		903		857
Deferred rent payable		134		112
Warranty		890		—
Corporate income tax payable		456		—
Other accrued expenses		2,514		2,923

	$	6,938	$	6,043

For the period ended September 30, 2011, changes in accrued warranty obligations consisted of the following:


Balance at January 1, 2011		—
Warranty liabilities assumed from the acquisition of StarTrak (See Note 3)		1,050
Warranty expense		162
Warranty charges		(322	)

Balance at September 30, 2011	$	890

13. Deferred Revenues

Deferred revenues consisted of the following:


	September 30,			December 31,
	2011			2010
Service activation fees	$	2,084		$	2,277
Prepaid services		1,123			1,067
Warranty revenues		329			—
Manufacturing license fees		18			29

		3,554			3,373
Less current portion		(2,117	)		(2,134	)

Long-term portion	$	1,437		$	1,239

14. Note Payable-Related Party

In connection with the acquisition of a majority interest in Satcom in 2005, the Company recorded an indebtedness to OHB Technology A.G. (formerly known as OHB Teledata A.G.), a stockholder of the Company. At September 30, 2011, the principal balance of the note payable was €1,138 ($1,548) and it had a carrying value of $1,548. At December 31, 2010, the principal balance of the note payable was €1,138 ($1,514) and it had a carrying value of $1,416. The carrying value was based on the note’s estimated fair value at the time of acquisition. The difference between the carrying value and principal balance was being amortized to interest expense over the estimated life of the note of six years which ended in September 30, 2011. The amortization to interest expense related to the note for the three months and nine months ended September 30, 2011 and 2010 was $33 and $98, respectively. This note does not bear interest and has no fixed repayment term. Repayment will be made from the distribution profits (as defined in the note agreement) of ORBCOMM Europe LLC. The note has been classified as long-term and the Company does not expect any repayments to be required prior to September 30, 2012.

15. Note Payable

On May 16, 2011, the Company issued a $3,900 6% secured promissory note to an existing lender and stockholder of Alanco. The note bears interest at 6.00% per annum. The note is secured by substantially all of the assets of StarTrak and guaranteed by ORBCOMM Inc. The Company made a $200 principal payment on May 16, 2011 in accordance with the terms of note agreement. As of September 30, 2011, the note payable balance is presented net of the unamortized debt discount of $79 (See Note 3). For the three and nine months ended September 30, 2011, the Company recognized debt discount of $6 and $9, respectively, which is included in interest expense. The remaining principal payments are due in quarterly installments beginning on March 31, 2012 with a balloon payment due on December 31, 2015 is as follows:


Years ending December 31,
Remainder of 2011	$	—
2012		250
2013		300
2014		400
2015		2,750

	$	3,700

16. Stockholders’ Equity

Series A convertible preferred stock

As part of the purchase price to acquire StarTrak, the Company issued 183,550 shares of Series A convertible preferred stock.

Key terms of the Series A convertible preferred stock are as follows:

Dividends

Holders of the Series A convertible preferred stock are entitled to receive a cumulative 4% dividend annually (calculated on the basis of the redemption price of $10.00 per share) payable quarterly in additional shares of the Series A convertible preferred stock. During the three months ended September 30, 2011, the Company issued a dividend in the amount of 905 shares to the holders of the Series A Convertible preferred stock. As of September 30, 2011, dividends in arrears was $18.

Conversion

Shares of the Series A convertible preferred stock are convertible into 1.66611 shares of common stock: (i) at the option of the holder at any time or (ii) at the option of the Company beginning six months from the issuance date and if the average closing market price for the Company’s common stock for the preceding twenty consecutive trading days equals or exceeds $11.20 per share.

Voting

Each share of the Series A convertible preferred stock is entitled to one vote for each share of common stock into which the preferred stock is convertible.

Liquidation

In the event of any liquidation, sale or merger of the Company the holders of the Series A convertible preferred stock are entitled to receive prior to and in preference over the common stock, an amount equal to $10.00 per share plus unpaid dividends.

Redemption

The Series A convertible preferred stock may be redeemed by the Company for an amount equal to the issuance price of $10.00 per share plus all unpaid dividends at any time after two years from the issuance date.

Common Stock

During the nine months ended September 30, 2011, the Company issued 34,115 shares of its common stock as a form of payment for bonuses.

As of September 30, 2011, the Company has reserved 9,203,697 shares of common stock for future issuances related to employee stock compensation plans.

17. Geographic Information

The Company operates in one reportable segment, M2M data communications. Other than satellites in orbit, long-lived assets outside of the United States are not significant. The following table summarizes revenues on a percentage basis by geographic regions, based on the country in which the customer is located.


	Three months ended						Nine months ended
	September 30,						September 30,
	2011			2010			2011			2010
United States		84	%		85	%		84	%		82	%
Japan		15	%		12	%		15	%		14	%
Other		1	%		3	%		1	%		4	%

		100	%		100	%		100	%		100	%

18. Commitments and Contingencies

Procurement agreements in connection with next-generation satellites

On May 5, 2008, the Company entered into a procurement agreement with Sierra Nevada Corporation (“SNC”) pursuant to which SNC is constructing eighteen low-earth-orbit satellites in three sets of satellites (“shipsets”) for the Company’s next-generation satellites (the “Initial Satellites”). Under the agreement, SNC is also providing launch support services, a test satellite (excluding the mechanical structure), a satellite software simulator and the associated ground support equipment.

The total contract price for the Initial Satellites under the procurement agreement is $117,000, subject to reduction upon failure to achieve certain in-orbit operational milestones with respect to the Initial Satellites or if the pre-ship reviews of each shipset are delayed more than 60-120 days after the specified time periods described below. The Company has agreed to pay SNC up to $1,500 in incentive payments for the successful operation of the Initial Satellites five years following the successful completion of in-orbit testing for the third shipset of eight satellites.

On August 31, 2010, the Company entered into two additional task order agreements with SNC in connection with the procurement agreement discussed above. Under the terms of the launch vehicle changes task order agreement, SNC will perform the activities to launch eighteen of the Company’s next-generation satellites on a SpaceX Falcon 1E or Falcon 9 launch vehicle. The total price for the launch activities is cost reimbursable up to $4,110 that is cancelable by the Company, less a credit of $1,528. Any unused credit can be applied to other activities under the task order agreement, or the original procurement agreement if application to the task order agreement becomes impossible or impracticable. Under the terms of the engineering

change requests and enhancements task order agreement, SNC will design and make changes to each of the next-generation satellites in order to accommodate an additional payload-to-bus interface. The total price for the engineering changes requests is cost reimbursable up to $317. Both task order agreements are payable monthly as the services are performed, provided that with respect to the launch vehicle changes task order agreement, the credit in the amount of $1,528 will first be deducted against amounts accrued thereunder until the entire balance is expended.

On August 23, 2011, the Company and SNC entered into a definitive First Amendment to the procurement agreement (the “Amendment”). The Amendment amends certain terms of the procurement agreement dated May 5, 2008 and supplements or amends five separate task order agreements, dated as of May 20, 2010 (Task Order #1), August 31, 2010 (Task Orders #2 and #3), and December 15, 2010 (Task Orders #4 and #5) (collectively, the “Task Orders”).

The Amendment modifies the milestone payment schedule under the procurement agreement dated May 5, 2008 but does not change the total contract price (excluding optional satellites and costs under the Task Orders) of $117,000. Payments under the Amendment extend into the second quarter of 2014, subject to SNC’s successful completion of each payment milestone.

Under the Amendment, SNC has reaffirmed their agreement to provide the Company with optional secured financing for up to $20,000, commencing July 1, 2012 through April 30, 2014, if the Company elects to establish and use the financing, pursuant to terms to be set forth in a definitive agreement to be entered into by the parties.

The Amendment also settles the liquidated delay damages triggered under the procurement agreement dated May 5, 2008 and provides an ongoing mechanism for the Company to obtain pricing proposals to order up to thirty optional satellites substantially identical to the Initial Satellites for which firm fixed pricing previously had expired under the procurement agreement dated May 5, 2008.

As of September 30, 2011, the Company has made milestone payments of $42,120 under the SNC procurement agreement. The Company anticipates making payments under the agreement of $15,000 during the remainder of 2011.

On August 28, 2009, the Company and Space Exploration Technologies Corp. (“SpaceX”) entered into a Commercial Launch Services Agreement (the “Agreement”) pursuant to which SpaceX will provide launch services (the “Launch Services”) using multiple SpaceX Falcon 1e launch vehicles for the carriage into low-Earth-orbit for the Company’s 18 next-generation commercial communications satellites currently being constructed by SNC. Under the Agreement, SpaceX will also provide to the Company launch vehicle integration and support services, as well as certain related optional services. The Company and SpaceX are finalizing terms to an amended agreement to provide launch services on Falcon 9 launch vehicles instead of the Falcon 1e launch vehicle.

The Company anticipates that the Launch Services will be performed between early 2012 and 2014, subject to certain rights of the Company and SpaceX to reschedule any of the particular Launch Services as needed. The Agreement also provides the Company the option to procure, prior to each Launch Service, reflight launch services whereby in the event the applicable Launch Service results in a failure due to the SpaceX launch vehicle, SpaceX will provide comparable reflight launch services at no additional cost to the Company beyond the initial option price for such reflight launch services.

The total price under the Agreement (excluding any options or additional launch services) is $46,600, subject to certain adjustments. The amounts due under the Agreement are payable in periodic installments from the date of execution of the Agreement through the performance of each Launch Service. The Company may postpone and reschedule the Launch Services for any reason at its sole discretion, following 12 months of delay for any particular Launch Services. The Company also has the right to terminate any of the Launch Services subject to the payment of a termination fee in an amount that would be based on the date the Company exercises its termination right.

As of September 30, 2011, the Company has made milestone payments of $10,080 under the SpaceX Agreement. The Company does not anticipate making payments under the agreement during the remainder of 2011.

AIS Satellite Deployment and License Agreement

On September 28, 2010, the Company and OHB entered into an AIS Satellite Deployment and License Agreement (the “AIS Satellite Agreement”) pursuant to which OHB, through its affiliate Luxspace Sarl (“LXS”), will (1) design, construct, launch and in-orbit test two AIS microsatellites and (2) design and construct the required ground support equipment. Under the AIS Satellite Agreement, the Company will receive exclusive licenses for all data (with certain exceptions as defined in the AIS Satellite Agreement) collected or transmitted by the two AIS microsatellites (including all AIS data) during the term of the AIS Satellite Agreement and nonexclusive licenses for all AIS data collected or transmitted by another microsatellite expected to be launched by LXS.

The AIS Satellite Agreement provides for milestone payments totaling $2,000 (inclusive of in-orbit testing) subject to certain adjustments. Payments under the AIS Satellite Agreement began upon the execution of the agreement and successful completion of each milestone through to the launch of the two AIS microsatellites. In addition, to the extent that both AIS microsatellites are successfully operating after launch, the Company will pay OHB lease payments of up to $546, subject to certain adjustments, over thirty-six months. At the Company’s option after thirty-six months it can continue the exclusive licenses for the data with a continuing payment of up to $6 per month. In addition, OHB will also be entitled to credits of up to $500 to be used solely for the microsatellites AIS data license fees payable to the Company under a separate AIS data resale agreement.

On October 12, 2011, the first of two AIS microsatellites was launched and is currently undergoing in-orbit testing. The Company expects the AIS microsatellite to be placed in commercial service by December 31, 2011. The second AIS microsatellite is scheduled for launch in early 2012.

As of September 30, 2011, the Company has made milestone payments of $1,100 under the AIS Satellite Agreement.

Airtime credits

In 2001, in connection with the organization of ORBCOMM Europe LLC and the reorganization of the ORBCOMM business in Europe, the Company agreed to grant certain country representatives in Europe approximately $3,736 in airtime credits. The Company has not recorded the airtime credits as a liability for the following reasons: (i) the Company has no obligation to pay the unused airtime credits if they are not utilized; and (ii) the airtime credits are earned by the country representatives only when the Company generates revenue from the country representatives. The airtime credits have no expiration date. Accordingly, the Company is recording airtime credits as services are rendered and these airtime credits are recorded net of revenues from the country representatives. For the three months ended September 30, 2011 and 2010, airtime credits used totaled approximately $8 and $9, respectively. For the nine months ended September 30, 2011 and 2010, airtime credits used totaled approximately $24 and $63, respectively. As of September 30, 2011 and December 31, 2010, unused credits granted by the Company were approximately $2,167 and $2,191, respectively.

Litigation

From time to time, the Company is involved in various claims or litigation matters involving ordinary and routine claims incidental to its business. Management currently believes that the outcome of these proceedings, either individually or in the aggregate, will not have a material adverse effect on the Company’s business, results of operations or financial condition.


Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

Safe Harbor Statement Under the Private Securities Litigation Reform of Act 1995.

Certain statements discussed in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally relate to our plans, objectives and expectations for future events and include statements about our expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts. Such forward-looking statements, including those concerning the Company’s expectations, are subject to known and unknown risks and uncertainties, which could cause actual results to differ materially from the results, projected, expected or implied by the forward-looking statements, some of which are beyond the Company’s control, that may cause the Company’s actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include but are not limited to: the impact of global recession and continued worldwide credit and capital constraints; substantial losses we have incurred and may continue to incur; demand for and market acceptance of our products and services and the applications developed by our resellers; loss or decline or slowdown in the growth in business from Asset Intelligence, a subsidiary of I.D. Systems, Inc. (“AI”), other value-added resellers or VARs and international value-added resellers or IVARs; loss or decline or slowdown in growth in business of any of the specific industry sectors the Company serves, such as transportation, heavy equipment, fixed assets and maritime; our acquisition of the StarTrak Systems, LLC (“StarTrak”) business may expose us to additional risks; litigation proceedings; technological changes, pricing pressures and other competitive factors; the inability of our international resellers to develop markets outside the United States; market acceptance and success of our Automatic Identification System (“AIS”) business; the ability to restore commercial-level AIS service in the near term; satellite launch and construction delays and cost overruns of our AIS and next-generation satellites; in-orbit satellite failures or reduced performance of our existing satellites; the failure of our system or reductions in levels of service due to technological malfunctions or deficiencies or other events; our inability to renew or expand our satellite constellation; political, legal regulatory, government administrative and economic conditions and developments in the United States and other countries and territories in which we operate; and changes in our business strategy. In addition, specific consideration should be given to various factors described in more detail in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010. The Company undertakes no obligation to publicly revise any forward-looking statements or cautionary factors, except as required by law.

Overview

We operate a global commercial wireless messaging system optimized for narrowband communications. Our system consists of a global network of 27 low-Earth orbit, or LEO, satellites and accompanying ground infrastructure. Our two-way communications system enables our customers and end-users, which include large and established multinational businesses and government agencies, to track, monitor, control and communicate cost-effectively with fixed and mobile assets located anywhere in the world. We also provide terrestrial-based cellular communication services through reseller agreements with major cellular wireless providers. Currently, our agreements with major cellular providers include GSM and CDMA offerings in the United States and GSM services with significant coverage worldwide. These terrestrial-based communication services enable our customers who have higher bandwidth requirements to receive and send messages from communication devices based on terrestrial-based technologies using the cellular providers’ wireless networks as well as from dual-mode devices combining our satellite subscriber communicators with devices for terrestrial-based technologies. As a result, our customers are now able to integrate into their applications a terrestrial communications device that will allow them to send and receive messages, including data intensive messaging using the cellular providers’ wireless networks.

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, and 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., (“Hitachi”), Hyundai Heavy Industries, Komatsu Ltd., (“Komatsu”), The Manitowoc Company and Volvo Construction Equipment. In addition, we market our services through a distribution network of vertical market technology integrators known as VARs and IVARs, such as AI, XATA Corporation and American Innovations, Ltd., and U.S. government agencies.

As a result of our acquisition of StarTrak on May 16, 2011, we now provide customers with the ability to proactively monitor, manage and remotely control their refrigerated transport assets. StarTrak is an innovator and leading provider of tracking, monitoring and control services for the refrigerated transport market. Their information services also help industry leaders realize better fleet efficiency and utilization while reducing risk by adding safety monitoring of perishable cargo. In addition to relationships with leading refrigerated unit manufacturers such as Carrier and Thermo King, StarTrak’s customers include well-known brands such as Tropicana, Maersk Line, Prime Inc., CR England, FFE Transport, Inc. and Exel Transportation. The acquisition of StarTrak enables us to create a global technology platform to transfer capabilities across new and existing vertical markets and deliver complementary products to our channel partners and resellers worldwide. In addition, the acquisition provides an opportunity to drive new subscribers to our global communications network while accelerating the growth of StarTrak’s suite of products by adding scale and providing subscriber management tools.

On October 12, 2011, our first of two AIS microsatellites was launched and is currently undergoing in-orbit testing. We expect this AIS microsatellite to be placed in commercial service by December 31, 2011. The second AIS microsatellite is scheduled for launch in early 2012.

Through our M2M data communications system, our customers and end-users can send and receive information to and from any place in the world using low-cost subscriber communicators and paying airtime costs that we believe are the lowest in the industry for global connectivity. Our customers can also use cellular terrestrial units, or wireless subscriber identity modules (“SIMS”), for use with devices or equipment that enable the use of a cellular provider’s wireless network, singularly or in conjunction with satellite services, to send and receive information from these devices. We believe that there is no other satellite or terrestrial network currently in operation that can offer global two-way wireless narrowband data service including coverage at comparable cost using a single technology standard worldwide, that also provides a parallel terrestrial network for data intensive applications.

Global economic conditions, including a global economic recession, along with unprecedented credit and capital constraints in the capital markets 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 in many parts of the world remain weak or may 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.

Acquisition of StarTrak

Effective on the close of business on May 16, 2011, we completed the acquisition of substantially all of the assets of StarTrak, a wholly-owned subsidiary of Alanco Technologies, Inc., (“Alanco”) including but not limited to cash, accounts receivable, inventory, equipment, intellectual property, all of StarTrak’s rights to customer contracts, supplier lists and assumed certain liabilities pursuant to an Asset Purchase Agreement dated as of February 23, 2011. The consideration paid to acquire StarTrak was valued at $18.2 million consisting of: (i) cash subject to a final working capital adjustment, (ii) forgiveness of the 6% secured promissory note advanced by us to Alanco on February 23, 2011, (iii) note payable issued to a lender and stockholder of Alanco, (iv) common stock, (v) Series A convertible preferred stock and (vi) delivery of our investment in preferred stock and common stock of Alanco back to Alanco.

In addition to the consideration paid, up to an additional gross amount of $1.5 million (subject to certain reductions) in contingent payments is payable by us if certain revenue milestones of StarTrak are achieved for the 2011 calendar year. The initial estimate of the fair value of the contingent consideration was nil. The estimated fair value of the earn-out was determined using weighted probabilities to achieve the revenue milestones discounted at 19.0%. Any change in the fair value of the contingent earn-out subsequent to the acquisition date, including changes from events after the acquisition date, will be recognized in earnings in the period the estimated fair value changes. For the three months ended September 30, 2011, there were no changes to the fair value of the contingent earn-out amount.

As a result of the acquisition of StarTrak, we recognized $9.1 million of goodwill and $7.6 million of intangible assets. The acquired goodwill will not be amortized for financial reporting purposes. However the acquired goodwill is tax deductible, and therefore amortized over fifteen years for income tax purposes. As such, deferred income tax expense and a deferred tax liability arise as a result of the difference in tax deductibility of this amount for tax and financial reporting purposes. The resulting deferred tax liability, which is expected to continue to increase over time will remain on our balance sheet indefinitely unless there is an impairment of the asset.

The acquired intangible assets consist of technology and patents, customer relationships and trademarks which will be amortized over 10 years.

The results of operations of StarTrak are included in our condensed consolidated results for the period subsequent to the acquisition date of May 16, 2011. See Note 3 to the condensed consolidated financial statements for further discussion.

Critical Accounting Policies and Estimates

Our discussion and analysis of our results of operations, liquidity and capital resources are based on our consolidated financial statements which have been prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these consolidated 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 services, warranty costs, accounts receivable, inventory, accounting for business combinations, satellite network and other equipment, long-lived assets, capitalized development costs, valuation of deferred tax assets, uncertain tax positions, provision for income taxes, loss contingencies, pre-acquisition contingencies and the value of securities underlying stock-based compensation. 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 and estimates 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, 2010. There have been no material changes to our critical accounting policies during 2011 except as discussed below:

Accounting for Business Combinations

We accounted for the acquisition of StarTrak pursuant to FASB Topic ASC 805,“Business Combinations”. In accordance with ASC 805, the estimated purchase price was allocated to intangible assets and identifiable assets acquired and liabilities assumed based on their relative fair values. The excess of the purchase price over the net tangible and intangible assets and liabilities assumed was recorded as goodwill. We have made significant assumptions and estimates in determining the preliminary estimated purchase price and the preliminary allocation of the estimated purchase in the condensed consolidated financial statements. These preliminary estimates and assumptions are subject to change as we finalize the valuations of certain assets and liabilities, including deferred revenues and warranty liabilities, intangible assets, goodwill and the final working capital adjustment. The final valuations may change significantly from the preliminary estimates. Although we believe the assumptions and estimates we have made have been reasonable and appropriate, they are based, in part, on historical experience, information obtained from the management of the acquired company and future expectations. We anticipate finalizing the purchase price allocation by the end of 2011. Examples of critical estimates in accounting for the acquisition of StarTrak include but are not limited to:

	•		We estimated the fair value of the contingent earn-out consideration using a probability-weighted discounted cash flow model based upon the expected achievement of the revenue milestones;

	•		the future expected cash flows from revenues of acquired technology and the patents and trademarks;

	•		the estimated useful lives of the intangible assets acquired; and

	•		the discount rates.

Warranty Costs

As a result of our acquisition of StarTrak on May 16, 2011, we acquired warranty obligations on StarTrak’s product sales, which provide for costs to replace or fix the product. One-year warranty coverage is accrued on product sales which provide for costs to replace or fix the product. Our analysis of the warranty liabilities associated with the one-year warranty coverage are estimated based on historical costs of StarTrak to replace or fix products for customers, and additional liability for warranty coverage for other specific claims that are expected to be incurred within the next twelve months, for which it is estimated that customers may have a warranty claim. These warranty liabilities have not yet been fair valued. As we continue to gather additional information, these accrual estimates may differ from actual results and adjustments to the estimated warranty liability would be required. We will continue to evaluate warranty liabilities relating to the acquisition of StarTrak throughout the measurement period. If we determine that adjustments to these amounts are required during the remainder of the measurement period such amounts will be recorded as an adjustment to goodwill. For the three months ended September 30, 2011, there were no changes to the amount of the initial warranty liabilities.

For the warranty costs subsequent to the acquisition date, we accrue for StarTrak’s one-year warranty coverage on product sales estimated at the time of sale based on historical costs to repair or replace products for customers compared to historical product revenues of StarTrak. As we continue to gather additional information these accrual estimates may differ from actual results and adjustments to the estimated warranty liability would be required.

Pre-Acquisition Contingencies

We have evaluated and continue to evaluate pre-acquisition contingencies related to StarTrak that existed as of the acquisition date. If these pre-acquisition contingencies that existed as of the acquisition date become probable of occurring and can be estimated during the remainder of the measurement period, amounts recorded for such matters will be made in the measurement period to goodwill and, subsequent to the measurement period, in our results of operations.

EBITDA

EBITDA is defined as earnings attributable to ORBCOMM Inc., 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 reconciles our net income (loss) to EBITDA for the periods shown:


	Three months ended September 30,						Nine months ended September 30,
	2011			2010			2011			2010
Net income (loss) attributable ORBCOMM Inc,	$	555		$	(609	)	$	(717	)	$	(4,640	)
Income tax expense		272			—			578			—
Interest income		(31	)		(68	)		(129	)		(160	)
Interest expense		110			48			236			144
Depreciation and amortization		1,403			931			3,953			3,232

EBITDA	$	2,309		$	302		$	3,921		$	(1,424	)

Three Months: EBITDA during the three months ended September 30, 2011 improved $2.0 million over 2010. The improvement was primarily due to a decrease in operating expenses of $1.8 million, excluding depreciation and amortization, primarily due to a non-cash impairment charge-satellite network of $6.5 million in 2010, offset by an increase in operating expenses, excluding depreciation of $4.3 million from StarTrak and acquisition-related costs of $0.4 million.

Nine Months: EBITDA during the nine months ended September 30, 2011 improved $5.3 million over 2010. The improvement was primarily due an increase in total revenues of $3.5 million and a non-cash impairment charge of $3.3 million in discontinued operations to write down net assets held for sale in 2010. Service revenues decreased $0.4 million primarily due to a drop in AIS revenue of $8.0 million which included a one-time recognition in 2010 of the remaining unamortized AIS deferred service revenue of $5.9 million prepaid by the U.S. Coast Guard, offset by an increase in satellite and terrestrial revenues of $7.2 million including $2.9 million of incremental revenue from StarTrak. Product revenues increased $3.9 million including $3.5 million from StarTrak. The increase in total revenues was offset by an increase in expenses, excluding depreciation and amortization, of $2.4 million primarily due to a non-cash impairment charge to satellite network of $6.5 million in 2010 and $6.3 million in expenses, excluding depreciation and amortization, from StarTrak and $1.7 million of acquisition-related costs and losses.

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 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 include extended warranty service agreements extending beyond the initial warranty period of one year, 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.

On August 5, 2010, our agreement with the U.S. Coast Guard was completed. We terminated AIS data transmission and maintenance services to the U.S. Coast Guard the following day. We do not know when or if another agreement will be reached to provide the AIS data services to the U.S. Coast Guard, but do expect that any future agreement will reflect fair value of the services provided. As a result of the expiration of the agreement, the remaining unamortized AIS deferred professional services revenues that were prepaid are recognized in service revenues for the three and nine months ended September 30, 2010.

We derive product revenues primarily from sales of subscriber communicators to our resellers (i.e., our VARs, IVARs, international licensees and country representatives) and direct customers and other equipment such as gateway earth stations and related products to customers. We also sell cellular wireless subscriber identity modules, or SIMS, (for our terrestrial-communication services) to our resellers and direct customers.

The table below presents our revenues for the three and nine months ended September 30, 2011 and 2010, together with the percentage of total revenue represented by each revenue category in (in thousands):


	Three months ended September 30,										Nine months ended September 30,
	2011					2010					2011					2010
			% of					% of					% of					% of
			Total					Total					Total					Total
Service revenues	$	10,315		74.0	%	$	12,975		93.3	%	$	26,692		81.8	%	$	27,134		93.0	%
Product sales		3,625		26.0	%		937		6.7	%		5,940		18.2	%		2,032		7.0	%

	$	13,940		100.0	%	$	13,912		100.0	%	$	32,632		100.0	%	$	29,166		100.0	%

Three months: Total revenues for the three months ended September 30, 2011 and 2010 were $13.9 million.

Nine months: Total revenues for the nine months ended September 30, 2011 increased $3.5 million, or 11.9%, to $32.6 million from $29.2 million for the nine months ended September 30, 2010.

Service revenues

Three Months: Service revenues decreased $2.7 million for the three months ended September 30, 2011, or 20.5%, to $10.3 million. The decrease in service revenues in 2011 over 2010 was primarily due to a reduction in AIS revenues of $6.5 million including the recognition of $5.9 million of the remaining unamortized AIS deferred service revenues prepaid by the U.S. Coast Guard in 2010, offset by an increase in satellite and terrestrial revenues of $3.8 million primarily from an increase in messaging service due to increases in billable subscriber communicators and usage by some customers and $1.9 million of incremental revenue from StarTrak.

Nine Months: Service revenues decreased $0.4 million for the nine months ended September 30, 2011, or 1.6%, to $26.7 million. The decrease in service revenues in 2011 over 2010 was primarily due to a reduction in AIS revenues of $8.0 million including the recognition of $5.9 million of the remaining unamortized AIS deferred service revenues prepaid by the U.S. Coast Guard, offset by an increase in satellite and terrestrial revenues of $7.2 million primarily from an increase in messaging service due to increases in billable subscriber communicators and usage by some customers and $2.9 million of incremental revenue from StarTrak.

As of September 30, 2011, we had approximately 626,000 billable subscriber communicators on the ORBCOMM System compared to approximately 556,000 billable subscriber communicators as of September 30, 2010, an increase of approximately 12.6%.

Service revenue growth can be impacted by the customary lag between subscriber communicator activations and recognition of service revenue from these units.

Product sales

Three months: Revenues from product sales increased $2.7 million for the three months ended September 30, 2011, or 286.6% to $3.6 million from $0.9 million for the three months ended September 30, 2010. The increase was primarily due to $2.5 million from StarTrak and sales to the heavy equipment sector by our Japanese subsidiary.

Nine months: Revenues from product sales increased $3.9 million for the nine months ended September 30, 2011, or 192.3% to $5.9 million from $2.0 million for the nine months ended September 30, 2010. The increase was primarily due to $3.6 million from StarTrak and sales to the heavy equipment sector by our Japanese subsidiary.

Costs of services

Costs of services is comprised of expenses to provide services, such as payroll and related costs, including stock-based compensation, materials and supplies, depreciation and amortization of assets and usage fees to cellular wireless providers for the data transmitted by the resellers on our network and other third-party networks.

Three months: Costs of services increased by $1.4 million, or 45.5%, to $4.5 million for the three months ended September 30, 2011 from $3.1 million for the three months ended September 30, 2010. The increase was primarily due from StarTrak. As a percentage of service revenues, cost of services were 43.5% for the three months ended September 30, 2011 compared to 23.8% for the three months ended September 30, 2010. The increase in costs of services as a percentage of revenues for the three months ended September 30, 2011 over the corresponding period was primarily due to recognizing the remaining AIS deferred professional services revenues that were prepaid as the agreement with the U.S. Coast Guard expired.

Nine months: Costs of services increased by $2.4 million, or 26.4%, to $11.7 million for the nine months ended September 30, 2011 from $9.3 million for the nine months ended September 30, 2010. The increase was primarily due from StarTrak. As a percentage of service revenues, cost of services were 43.9% for the nine months ended September 30, 2011 compared to 34.2% for the nine months ended September 30, 2010. The increase in cost of services as a percentage of revenues for the nine months ended September 30, 2011 over the corresponding period was primarily due to recognizing the remaining AIS deferred professional services revenues that were prepaid as the agreement with the U.S. Coast Guard expired.

Costs of product sales

Costs of products includes the purchase price of subscriber communicators and SIMS sold, shipping charges as well as operational costs to fulfill customer orders, including costs for employees.

Three months: Costs of product sales increased by $2.1 million, to $2.7 million for the three months ended September 30, 2011 from $0.6 million for the three months ended September 30, 2010. The increase was primarily due from StarTrak. We had a gross profit from product sales (revenues from product sales minus costs of product sales including distribution costs) of $1.0 million for the three months ended September 30, 2011 compared to a gross profit from product sales of $0.3 million for the three months ended September 30, 2010.

Nine months: Costs of product sales increased by $3.0 million, to $4.3 million for the nine months ended September 30, 2011 from $1.3 million for the nine months ended September 30, 2010. The increase was primarily due from StarTrak. We had a gross profit from product sales (revenues from product sales minus costs of product sales including distribution costs) of $1.6 million for the nine months ended September 30, 2011 compared to a gross profit from product sales of $0.8 million for the nine months ended September 30, 2010.

Selling, general and administrative expenses

Selling, general and administrative expenses relate primarily to expenses for general management, sales and marketing, finance, professional fees and general operating expenses.

Three months: Selling, general and administrative expenses increased by $1.2 million, or 29.1% to $5.1 million for the three months ended September 30, 2011, from $4.0 million for the three months ended September 30, 2010. The increase was primarily due from StarTrak.

Nine months: Selling, general and administrative expenses increased by $2.0 million, or 16.8%, to $14.2 million for the nine months ended September 30, 2011 from $12.2 million for the nine months ended September 30, 2010. The increase was primarily due from StarTrak.

Product development expenses

Product development expenses consist primarily of the expenses associated with our engineering team, along with the cost of third parties that are contracted to support our current applications.

Product development expenses for the three months ended September 30, 2011 and September 30, 2010 were $0.4 million and $0.2 million. The increase was primarily due from StarTrak.

Product development expenses for the nine months ended September 30, 2011 and September 30, 2010 were $0.8 million and $0.5 million. The increase was primarily due from StarTrak.

Acquisition costs

Acquisition-related costs directly related to the acquisition of StarTrak include professional services expenses. For the three and nine months ended September 30, 2011 acquisition-related costs were $0.4 million and $1.4 million, respectively.

Other income (expense)

Other income is comprised primarily of interest income from our cash and cash equivalents, which consists of U.S. Treasuries, interest bearing instruments, and our investments in marketable securities consisting of U.S. government and agency obligations, corporate obligations and FDIC-insured certificates of deposit classified as held to maturity, foreign exchange gains and losses and interest expense.

Three months: For the three months ended September 30, 2011 other expense was $0.1 million compared to other income of $0.1 million for the three months ended September 30, 2010.

Nine months: For the nine months ended September 30, 2011 other expense was $0.3 million compared to other income of less than $0.1 million for the nine months ended September 30, 2010. The increase is primarily due to a loss of $0.3 million on the disposition of our investment in Alanco, incurred in connection with the acquisition of StarTrak, for the difference between the fair value and the carrying value.

Income (loss) from continuing operations before income taxes

Three months: We have income from continuing operations before income taxes of $0.8 million for the three months ended September 30, 2011, which includes $0.4 million of acquisition-related costs, compared to a loss from continuing operations before income taxes of $0.3 million for the three months ended September 30, 2010.

Nine months: We have a loss from continuing operations before income taxes of $0.2 million for the nine months ended September 30, 2011 compared to a loss from continuing operations before income taxes of $0.5 million for the nine months ended September 30, 2010. The acquisition-related costs and the loss on disposition of our investment in Alanco of $1.7 million were the significant factors in contributing to the loss for the nine months ended September 30, 2011.

Provision for Income taxes

The provision for income taxes for the three and nine months ended September 30, 2011 was $0.3 and $0.6 million consisting of a foreign tax expense incurred as result of income generated by ORBCOMM Japan and the amortization of goodwill for income tax purposes generated from the acquisition of StarTrak which is tax deductible.

As of September 30, 2011, we maintained a valuation allowance against all net deferred tax assets, other than goodwill, attributable to all operations in the United States and all other foreign jurisdictions as the realization of such assets was not considered more likely than not.

For the three and nine months ended September 30, 2010, we did not record a provision for taxes as we maintained a valuation allowance against all net deferred tax assets attributable to all operations in the United States and all foreign jurisdictions as the realization of such assets was not considered more likely than not.

Income(loss) from continuing operations

Three months: We have income from continuing operations of $0.5 million for the three months ended September 30, 2011 compared to a loss from continuing operations of $0.3 million for the three months ended September 30, 2010. For the three months ended September 30, 2011, our income from continuing operations included acquisition-related costs of $0.4 million and the provision for income taxes described above.

Nine months: We have a loss from continuing operations of $0.8 million for the nine months ended September 30, 2011 compared to a loss from continuing operations of $0.5 million for the nine months ended September 30, 2010. The acquisition-related costs and loss on disposition of our investment in Alanco of $1.7 million and the provision for income taxes described above were the significant factors in contributing to the loss for the nine months ended September 30, 2011.

Loss from discontinued operations

Loss from discontinued operations was $0.1 million and $3.7 million for the three months and nine months ended September 30, 2010, respectively.

Noncontrolling interests

Noncontrolling interests relate to earnings and losses attributable to noncontrolling shareholders.

Net income (loss) attributable to ORBCOMM Inc.

Three months: We have net income attributable to our company of $0.6 million for the three months ended September 30, 2011 compared to a net loss of $0.6 million for the three months ended September 30, 2010. For the three months ended September 30, 2011, our net income included acquisition-related costs of $0.4 million.

Nine months: We have a net loss attributable to our company of $0.7 million for the nine months ended September 30, 2011 compared to a net loss of $4.6 million for the nine months ended September 30, 2010. The acquisition-related costs and the loss on disposition of our investment in Alanco of $1.7 million and the provision for income taxes described above were the significant factors in contributing to the loss for the nine months ended September 30, 2011.

Net income (loss) attributable to ORBCOMM Inc. common stockholders

For the three and nine months ended September 30, 2011, net income (loss) attributable to our common stockholders and our net income (loss) attributable to our common stockholders includes dividends of less than $0.1 million paid in shares of the Series A convertible preferred stock issued in connection with the acquisition of StarTrak.

Liquidity and Capital Resources

Overview

Our liquidity requirements arise from our working capital needs and to fund capital expenditures to support our current operations, and facilitate growth and expansion. We have financed our operations and expansion mostly from sales of our common stock through public offerings and private placements of debt, convertible redeemable preferred stock and common stock. We have incurred significant losses, and at September 30, 2011 we have an accumulated deficit of $77.3 million. As of September 30, 2011, our primary source of liquidity consisted of cash, cash equivalents, restricted cash and marketable securities totaling $84.2 million, which we believe will be sufficient to provide working capital and milestone payments for our next-generation satellites for the next twelve months.

Operating activities

Cash provided by our operating activities for the nine months ended September 30, 2011 was $4.0 million resulting from a net loss of $0.8 million, offset by non-cash items including $4.0 million for depreciation and amortization, $1.1 million for stock-based compensation, $0.3 million loss on the disposition of our investment in Alanco and amortization of premium on marketable securities of $1.0 million. Working capital activities primarily consisted of a net use of cash of $1.8 million for an increase in accounts receivable primarily due to the increase in satellite, terrestrial and product revenues.

Cash provided by our operating activities of continuing operations for the nine months ended September 30, 2010 was $2.6 million resulting from a net loss of $4.2 million, offset by several non-cash items including a $6.5 million impairment charge-satellite network, $3.3 million impairment charge related to the sale of Stellar, $3.2 million for depreciation and amortization and $1.6 million for stock-based compensation. Working capital activities consisted of net uses of cash of $1.1 million for an increase in accounts receivable primarily due to the increase in revenues, $1.0 million from a decrease in accounts payable and accrued expenses primarily related to timing of payments, and $6.6 million from a decrease in deferred revenue of which $5.9 million is related to recognizing the remaining AIS deferred professional services revenue that were prepaid as the agreement with the U.S. Coast Guard expired.

Cash used in our operating activities of discontinued operations for the nine months ended September 30, 2010 was less than $0.1 million.

Investing activities

Cash provided by our investing activities for the nine months ended September 30, 2011 was $26.6 million, resulting from proceeds received from the maturities of marketable securities totaling $81.1 million, offset primarily by $1.9 million in consideration paid to acquire StarTrak, capital expenditures of $5.9 million and purchases of marketable securities of $47.5 million.

Cash used in our investing activities of continuing operations for the nine months ended September 30, 2010 was $38.8 million, resulting from capital expenditures of $5.1 million, purchases of marketable securities of $114.3 million and the purchase of a cost method investment of $1.4 million. These uses were offset by proceeds received from the maturities of marketable securities totaling $82.0 million.

Financing activities

Cash used in our financing activities for the nine months ended September 30, 2011 was $0.2 million, resulting primarily from the principal payment on the 6% secured promissory note payable.

For the nine months ended September 30, 2010, we did not have any cash flows from financing activities.

Future Liquidity and Capital Resource Requirements

We expect cash flows from operating activities, along with our existing cash, cash equivalents, restricted cash and marketable securities will be sufficient to provide working capital to fund long-term debt payments and capital expenditures, which primarily includes milestone payments under the procurement agreements for the next-generation satellites for the next twelve months. For the remainder of 2011, we expect to incur approximately $15.0 million of capital expenditures primarily for our next-generation satellites.

Contractual Obligations

There have been no material changes in our contractual obligations as of September 30, 2011, as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2010 except as discussed below:

On May 16, 2011, we issued a $3.9 million secured 6% promissory note payable as part of the purchase price to acquire StarTrak. We made a $0.2 million principal payment on May 16, 2011. The remaining principal payments are due in quarterly installments beginning on March 31, 2012 with a balloon payment of $2.4 million due on December 31, 2015.

Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

Recent accounting pronouncements

In May 2011, FASB issued ASU No. 2011-04,Amendment to Achieve Common Fair Value Measurement and Disclosure Requirements, in U.S. GAAP and International Financial Reporting Standards (IFRS), which amends FASB Topic ASC 820,Fair value measurement. ASU No. 2011-04 modifies the existing standard to include disclosure of all transfers between Level 1 and Level 2 asset and liability fair value categories. In addition, ASU No. 2011-04 provides guidance on measuring the fair value of financial instruments managed within a portfolio and the application of premiums and discounts on fair value measurements. ASU No. 2011-04 requires additional disclosure for Level 3 measurements regarding the sensitivity of fair value to changes in unobservable inputs and any interrelationships between those inputs. ASU No. 2011-04 will be effective for us on January 1, 2012. We do not expect adopting ASU No. 2011-4 will have a material impact on our results of operations, financial condition or its disclosures.

In June 2011, FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. ASU 2011-05 eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. The guidance allows two presentation alternatives: (1) present items of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income; or (2) in two separate, but consecutive, statements of net income and other comprehensive income. ASU 2011-05 will be effective for us on January 1, 2012. We are currently evaluating the impact of adopting ASU 2011-05 on our consolidated financial statements.


Item 3.		Quantitative and Qualitative Disclosures about Market Risks

There has been no material changes in our assessment of our sensitivity to market risk as of September 30, 2011, as previously disclosed in Part II, Item 7A “Quantitative and Qualitative Disclosures about Market Risks” in our Annual Report on Form 10-K for the year ended December 31, 2010.

Concentration of credit risk

The following table presents customers with revenues greater than 10% of our consolidated total revenues for the periods shown:


	Three Months ended						Nine Months ended
	September 30,						September 30,
	2011			2010			2011			2010
Caterpillar Inc.		19.8	%		8.9	%		21.9	%		11.3	%
Komatsu Ltd.		14.6	%		9.9	%		15.9	%		11.9	%
Hitachi Construction Machinery Co., Ltd.		8.7	%		9.5	%		9.5	%		10.6	%
Asset Intelligence		6.1	%		6.1	%		7.7	%		11.2	%


Item 4.		Disclosure Controls and Procedures

Evaluation of the Company’s disclosure controls and procedures.

The Company’s management evaluated, with the participation of the Company’s President and Chief Executive Officer and Executive Vice President and Chief Financial Officer, the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of September 30, 2011. Based on their evaluation, the Company’s President and Chief Executive Officer and Executive Vice President and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2011.

Changes in Internal Control over Financial Reporting.

We reviewed our internal control over financial reporting at September 30, 2011. As a result, of the acquisition of StarTrak, we have begun to integrate certain business processes and systems of StarTrak. Accordingly, certain changes have been made and will continue to be made to our internal controls over financial reporting until such time as this integration is complete. In reliance on interpretive guidance issued by the SEC staff, management has chosen to exclude disclosure of changes in internal control over financial reporting related to the Acquired Business.

There have been no other changes in our internal control over financial reporting identified in an evaluation thereof that occurred during the third fiscal quarter of 2011 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION


Item 1.		Legal Proceedings

From time to time, we are involved in various litigation claims or matters involving ordinary and routine claims incidental to our business. Management currently believes that the outcome of these proceedings, either individually or in the aggregate, will not have a material adverse effect on our business, results of operations or financial condition.


Item 1A.		Risk Factors

Except as discussed under “Overview” in Part 1, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” there have been no material changes in the risk factors as of September 30, 2011, as previously disclosed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010.


Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds

None.


Item 3.		Defaults Upon Senior Securities

None.


Item 5.		Other Information

None.


Item 6.		Exhibits


†10.3		First Amendment to ORBCOMM Generation 2 Procurement Agreement

31.1		Certification of President and Chief Executive Officer required by Rule 13a-14(a).

31.2		Certification of Executive Vice President and Chief Financial Officer required by Rule 13a-14(a).

32.1		Certification of President and Chief Executive Officer required by Rule 13a-14(b) and 18 U.S.C. Section 1350.

32.2		Certification of Executive Vice President and Chief Financial Officer required by Rule 13a-14(b) and 18 U.S.C. Section 1350.

101. INS*		XBRL Instance Document

101.SCH*		XBRL Taxonomy Extension Schema Document

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*		XBRL Taxonomy Extension Label Linkbase Document

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document


*		This exhibit with this Quarterly Report on Form 10-Q, is deemed filed with the Securities and Exchange Commission, and is not incorporated by reference into any filing of ORBCOMM Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing.

†		Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been separately filed with the Securities and Exchange Commission.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	ORBCOMM Inc.
	(Registrant)

Date: November 9, 2011	/s/ Marc J. Eisenberg

	Marc J. Eisenberg,
	President and Chief Executive Officer
	(Principal Executive Officer)

Date: November 9, 2011	/s/ Robert G. Costantini

	Robert G. Costantini,
	Executive Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)

EXHIBIT INDEX


Exhibit
No.		Description

† 10.3		First Amendment to ORBCOMM Generation Procurement Agreement

31.1		Certification of Chief Executive Officer and President required by Rule 13a-14(a).

31.2		Certification of Executive Vice President and Chief Financial Officer required by Rule 13a-14(a).

32.1		Certification of Chief Executive Officer and President required by Rule 13a-14(b) and 18 U.S.C. Section 1350.

32.2		Certification of Executive Vice President and Chief Financial Officer required by Rule 13a-14(b) and 18 U.S.C. Section 1350.

101. INS*		XBRL Instance Document

101.SCH*		XBRL Taxonomy Extension Schema Document

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*		XBRL Taxonomy Extension Label Linkbase Document

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document


*		This exhibit with this Quarterly Report on Form 10-Q, is deemed filed with the Securities and Exchange Commission, and is not incorporated by reference into any filing of ORBCOMM Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing.

†		Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions have been separately filed with the Securities and Exchange Commission.

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Orbcomm (ORBC) 10-Q2011 Q3 Quarterly report

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