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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One) 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2020 
or
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 001-33117 
GLOBALSTAR, INC.
(Exact Name of Registrant as Specified in Its Charter) 
Delaware   41-2116508
(State or Other Jurisdiction of   (I.R.S. Employer Identification No.)
Incorporation or Organization)    
 
1351 Holiday Square Blvd.
Covington, Louisiana 70433
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (985) 335-1500
Securities registered pursuant to section 12(b) of the Act:
Title of each class Trading Symbol Name of exchange on which registered
Common Stock, par value $0.0001 per share GSAT NYSE American
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x No ☐
 
Indicate by check mark 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). Yes  x  No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. 
Large accelerated filer ☐
 
Accelerated filer ☒
Non-accelerated filer ☐
 
Smaller reporting company  ☐
(Do not check if a smaller reporting company)  
Emerging growth company  ☐
 If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
 
As of July 31, 2020, 1,670,326,068 shares of voting common stock were outstanding, and no shares of nonvoting common stock were authorized or outstanding. Unless the context otherwise requires, references to common stock in this Report mean the Registrant’s voting common stock. 



FORM 10-Q

GLOBALSTAR, INC.
TABLE OF CONTENTS
 
 




PART I - FINANCIAL INFORMATION
 
Item 1. Financial Statements.
 
GLOBALSTAR, INC.  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share data)
(Unaudited) 
  Three Months Ended Six Months Ended
June 30,
2020
June 30,
2019
June 30,
2020
June 30,
2019
Revenue:    
Service revenue $ 27,090    $ 26,700    $ 56,025    $ 52,819   
Subscriber equipment sales 3,274    4,491    6,533    8,450   
Total revenue 30,364    31,191    62,558    61,269   
Operating expenses:    
Cost of services (exclusive of depreciation, amortization, and accretion shown separately below) 8,647    9,395    17,375    19,248   
Cost of subscriber equipment sales 2,940    3,578    5,583    6,727   
Marketing, general and administrative 10,253    11,022    21,344    22,628   
Depreciation, amortization and accretion 23,903    23,852    47,720    47,653   
Total operating expenses 45,743    47,847    92,022    96,256   
Loss from operations (15,379)   (16,656)   (29,464)   (34,987)  
Other income (expense):    
Interest income and expense, net of amounts capitalized (11,508)   (12,808)   (25,518)   (25,678)  
Derivative gain 1,160    35,116    339    92,124   
Foreign currency gain (loss) 1,314    880    (7,639)   966   
Other (233)   (286)   (566)   (381)  
Total other (expense) income (9,267)   22,902    (33,384)   67,031   
(Loss) income before income taxes (24,646)   6,246    (62,848)   32,044   
Income tax expense 90    57    111    84   
Net (loss) income $ (24,736)   $ 6,189    $ (62,959)   $ 31,960   
Other comprehensive (loss) income:
Foreign currency translation adjustments (1,368)   (498)   3,935    (768)  
Comprehensive (loss) income $ (26,104)   $ 5,691    $ (59,024)   $ 31,192   
Net (loss) income per common share:    
Basic $ (0.01)   $ 0.00    $ (0.04)   $ 0.02   
Diluted (0.01)   (0.01)   (0.04)   (0.03)  
Weighted-average shares outstanding:    
Basic 1,668,974    1,450,380    1,613,467    1,449,355   
Diluted 1,668,974    1,640,442    1,613,467    1,640,537   
 
See accompanying notes to unaudited interim condensed consolidated financial statements. 
1


GLOBALSTAR, INC.  
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value and share data)  
(Unaudited) 
  June 30, 2020 December 31, 2019
ASSETS    
Current assets:    
Cash and cash equivalents $ 12,070    $ 7,606   
Restricted cash 3,625    622   
Accounts receivable, net of allowance of $5,136 and $2,952, respectively
19,756    21,760   
Inventory 15,688    16,341   
Prepaid expenses and other current assets 14,045    16,931   
Total current assets 65,184    63,260   
Property and equipment, net 754,263    799,914   
Restricted cash 51,234    50,900   
Operating lease right of use assets, net 14,926    15,871   
Intangible and other assets, net of accumulated amortization of $9,427 and $9,009, respectively
37,943    35,645   
Total assets $ 923,550    $ 965,590   
LIABILITIES AND STOCKHOLDERS’ EQUITY    
Current liabilities:    
Current portion of long-term debt $ 45,000    $ —   
Accounts payable 4,714    8,015   
Accrued expenses 23,624    24,874   
Payables to affiliates 361    261   
Deferred revenue 26,987    29,910   
Total current liabilities 100,686    63,060   
Long-term debt, less current portion 324,233    464,176   
Operating lease liabilities 14,037    14,747   
Employee benefit obligations 3,985    4,128   
Derivative liabilities 2,395    3,792   
Deferred revenue 5,017    5,273   
Other non-current liabilities 2,711    3,071   
Total non-current liabilities 352,378    495,187   
Commitments and contingencies
Stockholders’ equity:    
Preferred Stock of $0.0001 par value; 100,000,000 shares authorized and none issued and outstanding at June 30, 2020 and December 31, 2019, respectively
—    —   
Series A Preferred Convertible Stock of $0.0001 par value; one share authorized and none issued and outstanding at June 30, 2020 and December 31, 2019, respectively
—    —   
Voting Common Stock of $0.0001 par value; 1,900,000,000 shares authorized; 1,670,289,833 shares and 1,464,544,144 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively
167    146   
Nonvoting Common Stock of $0.0001 par value; no shares authorized and none issued and outstanding at June 30, 2020 and December 31, 2019, respectively
—    —   
Additional paid-in capital 2,093,877    1,970,047   
Accumulated other comprehensive income (loss) 486    (3,449)  
Retained deficit (1,624,044)   (1,559,401)  
Total stockholders’ equity 470,486    407,343   
Total liabilities and stockholders’ equity $ 923,550    $ 965,590   
 See accompanying notes to unaudited interim condensed consolidated financial statements.  
2


GLOBALSTAR, INC.  
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)  
(Unaudited) 
  Common
Shares
Common
Stock
Amount
Additional
Paid-In
Capital
Accumulated Other Comprehensive Income (Loss) Retained
Deficit
Total
Balances – January 1, 2020 1,464,544    $ 146    $ 1,970,047    $ (3,449)   $ (1,559,401)   $ 407,343   
Net issuance of restricted stock awards and recognition of stock-based compensation 3,020      1,729    —    —    1,730   
Contribution of services —    —    91    —    —    91   
Recognition of stock-based compensation of employee stock purchase plan —    —    102    —    —    102   
Common stock issued in connection with conversion of Loan Agreement with Thermo 200,140    20    120,441    —    —    120,461   
Impact of adoption of Credit Loss Standard —    —    —    —    (1,684)   (1,684)  
Other comprehensive income —    —    —    5,303    —    5,303   
Net loss —    —    —    —    (38,223)   (38,223)  
Balances – March 31, 2020 1,667,704    $ 167    $ 2,092,410    $ 1,854    $ (1,599,308)   $ 495,123   
Net issuance of restricted stock awards and recognition of stock-based compensation 1,354    —    922    —    —    922   
Contribution of services —    —    47    —    —    47   
Net issuance of stock through employee stock purchase plan and recognition of stock-based compensation 1,188    —    482    —    —    482   
Common stock issued in connection with conversion of 2013 8.00% Notes
44    —    16    —    —    16   
Other comprehensive loss —    —    —    (1,368)   —    (1,368)  
Net loss —    —    —    (24,736)   (24,736)  
Balances – June 30, 2020 1,670,290    $ 167    $ 2,093,877    $ 486    $ (1,624,044)   $ 470,486   

3


Common
Shares
Common
Stock
Amount
Additional
Paid-In
Capital
Accumulated Other Comprehensive Loss Retained
Deficit
Total
Balances – January 1, 2019 1,446,784    $ 145    $ 1,937,364    $ (3,839)   $ (1,574,725)   $ 358,945   
Net issuance of restricted stock awards, stock for employee stock option exercises and recognition of stock-based compensation 3,285    —    1,000    —    —    1,000   
Contribution of services —    —    47    —    —    47   
Recognition of stock-based compensation of employee stock purchase plan —    —    77    —    —    77   
Stock offering issuance costs —    —    (195)   (195)  
Other comprehensive loss —    —    —    (270)   —    (270)  
Net income —    —    —    —    25,771    25,771   
Balances – March 31, 2019 1,450,069    $ 145    $ 1,938,293    $ (4,109)   $ (1,548,954)   $ 385,375   
Net issuance of restricted stock awards, stock for employee stock option exercises and recognition of stock-based compensation 232    —    968    —    —    968   
Contribution of services —    —    197    —    —    197   
Net issuance of stock through employee stock purchase plan and recognition of stock-based compensation 1,437    —    500    —    —    500   
Investment in business —    —    155    —    —    155   
Other comprehensive loss —    —    —    (498)   —    (498)  
Net income —    —    —    —    6,189    6,189   
Balances – June 30, 2019 1,451,738    $ 145    $ 1,940,113    $ (4,607)   $ (1,542,765)   $ 392,886   

See accompanying notes to unaudited interim condensed consolidated financial statements.
4


GLOBALSTAR, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
  Six Months Ended
  June 30,
2020
June 30,
2019
Cash flows provided by (used in) operating activities:    
Net (loss) income $ (62,959)   $ 31,960   
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating
activities:
   
Depreciation, amortization and accretion 47,720    47,653   
Change in fair value of derivative assets and liabilities (339)   (92,124)  
Stock-based compensation expense 2,508    2,756   
Amortization of deferred financing costs 3,822    4,480   
Provision for bad debts 1,419    1,170   
Noncash interest and accretion expense 16,029    9,135   
Unrealized foreign currency loss (gain) 7,619    (975)  
Other, net 24    230   
Changes in operating assets and liabilities:    
Accounts receivable (1,445)   (4,328)  
Inventory 536    (1,755)  
Prepaid expenses and other current assets 2,541    (2,486)  
Other assets (1,623)   (361)  
Accounts payable and accrued expenses (3,844)   4,277   
Payables to affiliates 100    1,700   
Other non-current liabilities (217)   216   
Deferred revenue (3,032)   262   
Net cash provided by operating activities 8,859    1,810   
Cash flows used in investing activities:    
Second-generation network costs (including interest) (1,600)   (1,244)  
Property and equipment additions (2,237)   (2,366)  
Purchase of intangible assets (1,042)   (1,487)  
Net cash used in investing activities (4,879)   (5,097)  
Cash flows provided by (used in) financing activities:    
Principal payments of the Facility Agreement (276)   (47,435)  
Payments for debt and equity issuance costs (1,074)   (1,230)  
Proceeds from PPP Loan 4,973    —   
Proceeds from Subordinated Loan Agreement —    62,000   
Proceeds from issuance of common stock and exercise of options and warrants 346    402   
Net cash provided by financing activities 3,969    13,737   
Effect of exchange rate changes on cash, cash equivalents and restricted cash (148)   43   
Net increase in cash, cash equivalents and restricted cash 7,801    10,493   
Cash, cash equivalents and restricted cash, beginning of period 59,128    75,490   
Cash, cash equivalents and restricted cash, end of period $ 66,929    $ 85,983   
As of:
June 30,
2020
December 31,
2019
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents $ 12,070    $ 7,606   
Restricted cash (See Note 4 for further discussion on restrictions) 54,859    51,522   
Total cash, cash equivalents and restricted cash shown in the statement of cash flows $ 66,929    $ 59,128   
  Six Months Ended
  June 30,
2020
June 30,
2019
Supplemental disclosure of cash flow information:    
Cash paid for interest $ 5,971    $ 12,882   
Supplemental disclosure of non-cash financing and investing activities:    
Increase in capitalized accrued interest for second-generation network costs $ 792    $ 208   
Capitalized accretion of debt discount and amortization of prepaid financing costs 223    165   
Principal amount of Loan Agreement with Thermo converted into common stock 137,366    —   
Reduction of debt discount and issuance costs due to conversion of Loan Agreement with Thermo 17,963    —   
Fair value of common stock issued upon conversion of Loan Agreement with Thermo 84,059    —   
Reduction in derivative liability due to conversion of Loan Agreement with Thermo 1,058    —   
See accompanying notes to unaudited interim condensed consolidated financial statements.
5


GLOBALSTAR, INC.  
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
1. BASIS OF PRESENTATION

Globalstar, Inc. (“Globalstar” or the “Company”) provides Mobile Satellite Services (“MSS”) including voice and data communications services through its global satellite network. Thermo Companies, through commonly controlled affiliates, (collectively, “Thermo”) is the principal owner and largest stockholder of Globalstar. The Company’s Executive Chairman of the Board controls Thermo. Two other members of the Company's Board of Directors are also directors, officers or minority equity owners of various Thermo entities.

The Company has prepared the accompanying unaudited interim condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information. Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”); however, management believes the disclosures made are adequate to make the information presented not misleading. These financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Globalstar Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on February 28, 2020 (the “2019 Annual Report”). 

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from estimates. The Company evaluates estimates on an ongoing basis. Significant estimates include the value of derivative instruments, the allowance for doubtful accounts, the net realizable value of inventory, the useful life and value of property and equipment, the value of stock-based compensation and income taxes. The Company has made certain reclassifications to prior period condensed consolidated financial statements to conform to current period presentation.

These unaudited interim condensed consolidated financial statements include the accounts of Globalstar and all its subsidiaries. All significant intercompany transactions and balances have been eliminated in the consolidation. In the opinion of management, the information included herein includes all adjustments, consisting of normal recurring adjustments, that are necessary for a fair presentation of the Company’s condensed consolidated statements of operations, condensed consolidated balance sheets, condensed consolidated statements of stockholders' equity and condensed consolidated statements of cash flows for the periods presented. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the full year or any future period.

Recent Developments: COVID-19

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) a global pandemic. Various levels of governmental agencies and authorities have taken measures to reduce the spread of COVID-19, including “stay at home” orders, social distancing and closures of non-essential businesses. These measures, as well as the pandemic itself, have significantly impacted economic conditions around the world and created uncertainties in the economy. In recent months, some governmental agencies have partially lifted restrictions, but significant economic uncertainties remain.

The Company performed a detailed analysis of its financial statements, liquidity position and business operations to assess the impact caused by COVID-19 for the period ended June 30, 2020 and through the release date of these condensed consolidated financial statements. Among other effects, the Company has accommodated certain pricing concessions requested by customers and experienced lower demand for its products and services, particularly from its retail customers and those that operate in the oil and gas market. While the full extent and duration of the impact is unknown, the Company expects a continuation of this lower demand at least until these industries fully recover. Additionally, the Company began and expects to continue to operate with a remote workforce, manage a supply chain sourcing predominantly from China, and engage with international regulators remotely to advance the terrestrial spectrum authorization process. There are a number of uncertainties that could impact the Company's future results of operations, including the effectiveness of COVID-19 mitigation measures; the duration of the pandemic; global economic conditions; changes to the Company's operations; changes in consumer confidence, behaviors and spending; work from home trends; and the sustainability of supply chains.

6


In accordance with the Company's accounting policies disclosed in its 2019 Annual Report, the Company reviews the carrying value of long-lived assets, intangible assets and inventory when circumstances warrant an assessment in order to evaluate whether indicators of impairment exist. The Company updated its internal projections as part of this assessment to reflect the reduction in cash flows from operations that it currently expects will result from COVID-19. The Company expects these reductions to be temporary; therefore, no indicator of impairment was identified. For inventory, the carrying value of inventory on hand was lower than its expected net realizable value; accordingly, no impairment was necessary. For accounts receivable, the Company increased its loss rate for certain receivables as discussed in more detail in Note 3: Credit Losses.

Revised internal projections have also been evaluated in light of financial covenant requirements in the Company's facility agreements. The Company continues to monitor its ability to remain in compliance with financial covenants over the next twelve months. See Note 4: Long-Term Debt and Other Financing Arrangements and Risk Factors: "The effect of an epidemic or pandemic, including the current COVID-19 pandemic, could have an adverse impact on our operations and the operations of our customers and may have a material adverse impact on our financial condition and results of operations" for further discussion. If the Company is able to remain in compliance, its sources of liquidity are expected to be sufficient to cover its obligations over the next twelve months.

This liquidity assessment considers relief granted to the Company under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES" Act), including a $5.0 million loan the Company received in April 2020 under the payroll protection program, which the Company expects to be forgiven, and the deferral of the payment of certain payroll taxes. Additionally, the Company evaluated tax law changes pursuant to the CARES Act and revised its net operating loss carryforwards and other estimates, as necessary.

As previously stated, the full impact of COVID-19 on the Company's condensed consolidated financial statements is uncertain at this time and the Company will continue to reassess the impact at each reporting period.

Recently Issued Accounting Pronouncements 

In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. As part of the FASB's disclosure framework project, it has changed the disclosure requirements for defined pension and other post-retirement benefit plans as outlined in ASU No. 2018-14. This ASU is effective for public entities for annual periods beginning after December 15, 2020. This ASU adds certain narrative disclosures and removes other disclosures as outlined in ASU No. 2018-14 related to the defined benefit plan.

In December 2019, the FASB issued ASU No. 2019-12: Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU No. 2019-12 amends the accounting treatment for income taxes by simplifying and clarifying certain aspects of the existing guidance. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2020. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company has not yet determined the impact this standard will have on its condensed consolidated financial statements and related disclosures.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Credit Losses, Measurement of Credit Losses on Financial Instruments. ASU No. 2016-13, as amended, significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard replaced the incurred loss approach with an expected loss model for instruments measured at amortized cost. Entities are required to apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. This ASU became effective for public entities for annual and interim periods beginning after December 15, 2019. The Company adopted this standard when it became effective on January 1, 2020. See Note 3: Credit Losses for a discussion of the impact to the Company's condensed consolidated financial statements and required disclosures.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. As part of the FASB's disclosure framework project, it has eliminated, amended and added disclosure requirements for fair value measurements. Entities are no longer required to disclose the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy, the policy of timing of transfers between levels of the fair value hierarchy and the valuation processes for Level 3 fair value measurements. Public companies are required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2019. The
7


Company adopted this standard when it became effective on January 1, 2020. The adoption of this standard impacted certain of the Company's disclosures included in Note 6: Fair Value Measurements.

2. REVENUE

Disaggregation of Revenue

The following table discloses revenue disaggregated by type of product and service (amounts in thousands):
Three Months Ended Six Months Ended
June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
Service revenue:
Duplex $ 8,556    $ 9,031    $ 16,219    $ 17,676   
SPOT 11,579    12,619    23,702    25,714   
Commercial IoT 4,298    4,353    8,608    8,051   
IGO 109    179    200    345   
Engineering and other 2,548    518    7,296    1,033   
Total service revenue 27,090    26,700    56,025    52,819   
Subscriber equipment sales:
Duplex $ 625    $ 306    $ 1,029    $ 557   
SPOT 1,695    2,186    3,102    3,777   
Commercial IoT 939    1,972    2,352    4,044   
Other 15    27    50    72   
Total subscriber equipment sales 3,274    4,491    6,533    8,450   
Total revenue $ 30,364    $ 31,191    $ 62,558    $ 61,269   

Engineering and other service revenue includes revenue generated primarily from certain governmental and engineering service contracts. During the three and six months ended June 30, 2020, the Company recognized $2.0 million and $6.0 million, respectively, in revenue related to the completion of certain milestones for non-recurring engineering services under the Terms Agreement described in its 2019 Annual Report.

8


The Company attributes equipment revenue to various countries based on the location where equipment is sold. Service revenue is generally attributed to the various countries based on the Globalstar entity that holds the customer contract. The following table discloses revenue disaggregated by geographical market (amounts in thousands):
Three Months Ended Six Months Ended
June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
Service revenue:
United States $ 20,016    $ 19,452    $ 42,705    $ 38,704   
Canada 4,392    4,331    8,363    8,142   
Europe 1,791    2,212    3,152    4,334   
Central and South America 669    570    1,379    1,134   
Others 222    135    426    505   
Total service revenue 27,090    26,700    56,025    52,819   
Subscriber equipment sales:
United States $ 1,721    $ 2,549    $ 3,164    $ 4,760   
Canada 859    1,133    1,942    1,946   
Europe 376    440    870    1,017   
Central and South America 306    349    572    661   
Others 12    20    (15)   66   
Total subscriber equipment sales 3,274    4,491    6,533    8,450   
Total revenue $ 30,364    $ 31,191    $ 62,558    $ 61,269   

Accounts Receivable

The Company has agreements with certain of its independent gateway operators ("IGOs") whereby the parties net settle outstanding payables and receivables between the respective entities on a periodic basis. As of June 30, 2020 and December 31, 2019, $6.3 million and $6.5 million, respectively, related to these agreements was included in accounts receivable on the Company’s condensed consolidated balance sheet.

Contract Liabilities

Contract liabilities, which are included in deferred revenue on the Company’s condensed consolidated balance sheet, represent the Company’s obligation to transfer service or equipment to a customer from whom it has previously received consideration. The amount of revenue recognized during the six months ended June 30, 2020 and 2019 from performance obligations included in the contract liability balance at the beginning of each of the periods was $24.4 million and $21.4 million, respectively.

In general, the duration of the Company’s contracts is one year or less; however, from time to time, the Company offers multi-year contracts. As of June 30, 2020, the Company expects to recognize $27.0 million, or approximately 84%, of its remaining performance obligations during the next twelve months.

3. CREDIT LOSSES
Adoption of ASU No. 2016-13 "Credit Losses"

On January 1, 2020, the Company adopted the provisions of ASU No. 2016-13Credit Losses, Measurement of Credit Losses on Financial Instruments, and recognized the cumulative effect of initially applying the guidance as an adjustment to the opening balance of retained deficit. As a result of adopting ASU No. 2016-13, the Company recorded a net decrease to stockholders' equity of $1.7 million, which resulted in an increase to the opening retained deficit balance as of January 1, 2020. The most significant driver of this adjustment was the Company’s change in accounting policy related to expected losses (rather than incurred losses) from trade receivables applied to its portfolio based on historical and future performance.
Receivables are recorded when the right to consideration from the customer becomes unconditional, which is generally upon billing or upon satisfaction of a performance obligation, whichever is earlier. Accounts receivable are uncollateralized, without interest, and consist primarily of receivables from the sale of Globalstar services and equipment. For service customers,
9


payment is generally due within thirty days of the invoice date and for equipment customers, payment is generally due within thirty to sixty days of the invoice date, or, for some customers, may be made in advance of shipment.

Credit Losses

The Company performs ongoing credit evaluations of its customers and impairs receivable balances by recording specific allowances for bad debts based on factors such as supportable and reasonable current trends, the length of time the receivables are past due and historical collection experience. The Company believes that historical collection experience is the most reasonable basis for predicting future performance. The Company’s major portfolio of contract assets are customer receivables and, as such, historical delinquency percentages are generally consistent over time. The estimate of the allowance for credit losses is computed using aging schedules by type of revenue (service and subscriber equipment), by product (Duplex, SPOT and Commercial IoT) and by country. As discussed above, accounts receivable are considered past due in accordance with the contractual terms of the arrangements. The Company applies a loss rate to its portfolio of trade receivables based on past-due status and records an allowance for doubtful accounts, which represents the expected losses of those trade receivables over their estimated contractual life. The estimated life may vary by service and product type, but is generally less than one year. Allowances are generally recorded for all aging categories of outstanding receivables, including those in the current category (which is a change from legacy GAAP). Accounts receivable balances that are determined likely to be uncollectible are included in the allowance for doubtful accounts. After attempts to collect a receivable have failed, the receivable is written off against the allowance.
In March 2020, after the Company adopted ASU No. 2016-13, the World Health Organization declared the outbreak COVID-19 a global pandemic. COVID-19 has resulted in some disruption to the Company, primarily as it relates to the volume of equipment sales and uncertainties impacting the collection of certain outstanding receivables. Although the Company expects this disruption to be temporary, it has considered the potential impact of COVID-19 on its portfolio of trade receivables and has increased its loss rate for such receivables for the period ending June 30, 2020, where necessary. The Company will continue to reassess its sales and collections of receivables each reporting period to support its allowance across its portfolio.
The following is a summary of the activity in the allowance for doubtful accounts as of June 30, 2020 (in thousands):
Balance at beginning of period $ 2,952   
Impact of adoption of ASU 2016-13 1,684   
Provision, net of recoveries 1,419   
Write-offs and other adjustments (919)  
Balance at end of period $ 5,136   

4. LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS 
Long-term debt consists of the following (in thousands): 
  June 30, 2020 December 31, 2019
  Principal
Amount
Unamortized Discount and Deferred Financing Costs Carrying
Value
Principal
Amount
Unamortized Discount and Deferred Financing Costs Carrying
Value
Facility Agreement $ 190,084    $ 8,290    $ 181,794    $ 190,361    $ 10,185    $ 180,176   
Second Lien Term Loan Facility 215,476    34,371    181,105    201,495    35,448    166,047   
Loan Agreement with Thermo —    —    —    135,105    18,562    116,543   
8.00% Convertible Senior Notes Issued in 2013
1,396    —    1,396    1,410    —    1,410   
Payroll Protection Program Loan 4,973    35    4,938    —    —    —   
Total Debt 411,929    42,696    369,233    528,371    64,195    464,176   
Less: Current Portion 45,000    —    45,000    —    —    —   
Long-Term Debt $ 366,929    $ 42,696    $ 324,233    $ 528,371    $ 64,195    $ 464,176   

The principal amounts shown above include payment of in-kind interest, as applicable. The carrying value is net of deferred financing costs and any discounts to the loan amounts at issuance, including accretion, as further described below. The current
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portion of long-term debt represents the scheduled principal repayment under the Facility Agreement due within one year of the balance sheet date.
 
First Lien Facility Agreement 

In 2009, the Company entered into the Facility Agreement with a syndicate of bank lenders, including BNP Paribas, Société Générale, Natixis, Crédit Agricole Corporate and Investment Bank and Crédit Industriel et Commercial, as arrangers, and BNP Paribas, as the security agent. The Facility Agreement was amended and restated in July 2013, August 2015, June 2017 and November 2019.

The Facility Agreement is scheduled to mature in December 2022. Indebtedness under the Facility Agreement bears interest at a floating rate of LIBOR plus a margin that increases by 0.5% each year to a maximum rate of LIBOR plus 5.75%. The current interest rate is LIBOR plus 4.75%. Interest on the Facility Agreement is payable semi-annually in arrears on June 30 and December 31 of each calendar year.

As previously discussed, the Company received a loan under the CARES Act in April 2020. Due to restrictions limiting the Company's ability to incur indebtedness, the execution of this loan required a waiver under the Facility Agreement, which was approved by the Company's senior lenders.

In calculating compliance with the financial covenants of the Facility Agreement, the Company may include certain cash funds contributed to the Company from the issuance of the Company's common stock and/or subordinated indebtedness. These funds are referred to as “Equity Cure Contributions” and may be used to achieve compliance with financial covenants through maturity. If the Company violates any financial covenants and is unable to obtain a sufficient Equity Cure Contribution or obtain a waiver, it would be in default under the Facility Agreement and payment of the indebtedness could be accelerated. The acceleration of the Company's indebtedness under one agreement may permit acceleration of indebtedness under other agreements that contain cross-acceleration provisions. As of June 30, 2020, the Company was in compliance with respect to the covenants of the Facility Agreement. The Company continues to monitor the impact of COVID-19 on its results of operations and liquidity relative to compliance with financial covenants over the next twelve months.

The Facility Agreement also requires the Company to maintain a debt service reserve account, which is pledged to secure all of the Company's obligations under the Facility Agreement. The required balance in the debt service reserve account is fixed and must equal at least $50.9 million. As of June 30, 2020, the balance in the debt service reserve account was $51.2 million and is classified as non-current restricted cash on the Company's condensed consolidated balance sheet as it will be used towards the final scheduled payment due upon maturity of the Facility Agreement in December 2022.

The amended and restated Facility Agreement includes a requirement that the Company raise no less than $45.0 million of equity prior to March 31, 2021 via the cash exercise of outstanding warrants or the sale of other equity, the proceeds of which are required to be applied towards the principal payment due on June 30, 2021 and then, if applicable, to the next scheduled principal payments. The Company currently expects to fulfill this requirement with proceeds from the exercise of all the remaining warrants issued to the Second Lien Term Loan Facility lenders in November 2019; however, it may be required to find alternative sources of equity capital if the Company's share price does not exceed the warrants' exercise price of $0.38 per share. In December 2019, the Company received proceeds of $3.6 million from the exercise of a portion of warrants issued to the Second Lien Term Loan Facility Agreement lenders, which is retained in the equity proceeds account under the Facility Agreement and recorded in current restricted cash on the Company's condensed consolidated balance sheet as of June 30, 2020 and may be used to fulfill a portion of the $45.0 million requirement discussed above.

Second Lien Facility Agreement

In November 2019, the Company entered into a $199.0 million Second Lien Term Loan Facility with Thermo, EchoStar Corporation and certain other unaffiliated lenders. The Second Lien Term Loan Facility is scheduled to mature in November 2025. The loans under the Second Lien Term Loan Facility bear interest at a blended rate of 13.5% per annum to be paid in kind (or in cash at the option of the Company, subject to restrictions in the Facility Agreement).

As additional consideration for the loan, the Company issued the lenders warrants to purchase 124.5 million shares of voting common stock at an exercise price of $0.38 per share. These warrants expire on March 31, 2021. As of June 30, 2020, approximately 115.0 million warrants remain outstanding.
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As previously discussed, the Company received a loan under the CARES Act in April 2020. Due to restrictions limiting the Company's ability to incur indebtedness, the execution of this loan required a waiver under the Second Lien Term Loan Facility, which was approved by the Company's second lien lenders. As of June 30, 2020, the Company was in compliance with the covenants of the Second Lien Term Loan Facility.

Refer to Note 5: Derivatives and Note 6: Fair Value Measurements for further discussion on the compound embedded derivative bifurcated from the Second Lien Term Loan Facility Agreement.

Thermo Loan Agreement 

In connection with the amendment and restatement of the Facility Agreement in July 2013, the Company amended and restated its loan agreement with Thermo (the “Loan Agreement”). All obligations of the Company to Thermo under the Loan Agreement were subordinated to the Company’s obligations under the Facility Agreement and the Second Lien Term Loan Facility. The Loan Agreement was convertible into shares of common stock at a conversion price of $0.69 (as adjusted) per share of common stock and accrued interest at 12% per annum, which was capitalized and added to the outstanding principal in lieu of cash payments.

On February 19, 2020, Thermo converted the entire principal balance outstanding under the Loan Agreement, which totaled $137.4 million and included accrued interest since inception of $93.9 million. This conversion resulted in the issuance of 200.1 million shares of common stock. In accordance with applicable accounting guidance for debt extinguishment with related parties, upon conversion, the remaining debt discount was written off and recorded as a contribution to capital though equity and the associated derivative liability was marked to market at the conversion date and then extinguished through equity as a contribution to capital.

Refer to Note 5: Derivatives and Note 6: Fair Value Measurements for further discussion on the compound embedded derivative bifurcated from the Loan Agreement with Thermo.

8.00% Convertible Senior Notes Issued in 2013
 
In May 2013, the Company issued $54.6 million aggregate principal amount of its 2013 8.00% Notes. The 2013 8.00% Notes are convertible into shares of common stock at a conversion price of $0.69 per share of common stock, as adjusted pursuant to the terms of the Fourth Supplemental Indenture between the Company and U.S. Bank National Association, as Trustee (the “Indenture”). The 2013 8.00% Notes are senior unsecured debt obligations that will mature on April 1, 2028, subject to various call and put features, and bear interest at a rate of 8.00% per annum. Interest is paid in cash at a rate of 5.75% and in additional notes at a rate of 2.25%. Since issuance, $55.4 million of principal amount of the 2013 8.00% Notes have been converted resulting in the issuance of 98.6 million shares of Globalstar common stock.

The Company may redeem the 2013 8.00% Notes, with the prior approval of the majority lenders under the Facility Agreement and the Second Lien Term Loan Facility, in whole or in part at a price equal to the principal amount of the 2013 8.00% Notes to be redeemed plus all accrued and unpaid interest thereon. A holder of the 2013 8.00% Notes has the right to require the Company to purchase some or all of the 2013 8.00% Notes held by it on April 1, 2023, or at any time if there is a Fundamental Change (as defined in the Indenture), at a price equal to the principal amount of the 2013 8.00% Notes to be purchased plus accrued and unpaid interest. A holder may convert its 2013 8.00% Notes at its option at any time prior to April 1, 2028, into shares of common stock (or cash, at the option of the Company and subject to the consent of its lenders under the Facility Agreement and Second Lien Term Loan Facility).

The Indenture provides for customary events of default. As of June 30, 2020, the Company was in compliance with respect to the terms of the 2013 8.00% Notes and the Indenture.
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Refer to Note 5: Derivatives and Note 6: Fair Value Measurements for further discussion on the compound embedded derivative bifurcated from the 2013 8.00% Notes.

Payroll Protection Program Loan

In April 2020, the Company sought relief under the CARES Act and received a $5.0 million loan under the Payroll Protection Program ("PPP"). This loan (the "PPP Loan") is an unsecured debt obligation and is scheduled to mature in April 2022. As permitted under the CARES Act, the Company expects to apply for loan forgiveness, inclusive of both principal and accrued interest, in accordance with the terms of the CARES Act, based on payroll and other allowable costs incurred since disbursement of the PPP Loan. Any amount not forgiven by the Small Business Administration (the "SBA") is subject to an interest rate of 1.00% per annum commencing on the date of the PPP Loan. Uncertainties exist around if and when the PPP Loan will be repaid. Principal and interest payments due under the PPP Loan are generally deferred until the review and approval of any forgiveness is made by the SBA, subject to the PPP rules. Furthermore, the Company's first and second lien lenders would require the Company to accelerate the repayment of any portion of the loan amount that is not forgiven. As the deferral period allowed under the CARES Act is greater than twelve months from the balance sheet date, the loan is classified as long-term debt as of June 30, 2020.

The Company evaluated the applicable accounting guidance relative to the PPP Loan and accounted for the proceeds of the PPP Loan as debt under ASC 470. As previously discussed, the Company expects the PPP Loan to be forgiven, but cannot provide assurance of such forgiveness until it has been approved by the Company's lender and the SBA. Any portion of the PPP Loan that is forgiven will be recorded in the Company's condensed consolidated statement of operations as a gain on extinguishment of debt in the period of forgiveness.

5. DERIVATIVES 

In connection with certain existing borrowing arrangements, the Company was required to record derivative instruments on its condensed consolidated balance sheets. None of these derivative instruments are designated as a hedge. The following table discloses the fair values of the derivative instruments on the Company’s condensed consolidated balance sheets (in thousands):

  June 30, 2020 December 31, 2019
Derivative liabilities:    
Compound embedded derivative with the 2013 8.00% Notes
$ (255)   $ (522)  
Compound embedded derivative with the Loan Agreement with Thermo —    (1,270)  
Compound embedded derivative with the Second Lien Term Loan Facility (2,140)   (2,000)  
Total derivative liabilities $ (2,395)   $ (3,792)  

 The following table discloses the changes in value recorded as derivative gain (loss) in the Company’s condensed consolidated statement of operations (in thousands): 

  Three Months Ended Six Months Ended
  June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
Compound embedded derivative with the 2013 8.00% Notes
$ 20    $ 255    $ 267    $ 469   
Compound embedded derivative with the Loan Agreement with Thermo —    34,861    212    91,655   
Compound embedded derivative with the Second Lien Term Loan Facility 1,140    —    (140)   —   
Total derivative gain $ 1,160    $ 35,116    $ 339    $ 92,124   
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The Company has identified various embedded derivatives resulting from certain features in the Company’s debt instruments, including the conversion option and the contingent put feature within both the 2013 8.00% Notes and the Loan Agreement with Thermo as well as certain contingent put features within the Second Term Loan Facility. The fair value of each embedded derivative liability is marked-to-market at the end of each reporting period, or more frequently as deemed necessary, with any changes in value reported in its condensed consolidated statements of operations and its condensed consolidated statements of cash flows as an operating activity. The Company classifies its derivative liabilities consistent with the classification of the underlying debt on the Company's condensed consolidated balance sheet. See Note 6: Fair Value Measurements for further discussion.

6. FAIR VALUE MEASUREMENTS 

The Company follows the authoritative guidance for fair value measurements relating to financial and non-financial assets and liabilities, including presentation of required disclosures herein. This guidance establishes a fair value framework requiring the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets and liabilities.  Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment.  The three levels are defined as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.

Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. 

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

Recurring Fair Value Measurements 

The following tables provide a summary of the liabilities measured at fair value on a recurring basis (in thousands): 
  June 30, 2020
(Level 1) (Level 2) (Level 3) Total
 Balance
Compound embedded derivative with the 2013 8.00% Notes
$ —    $ —    $ (255)   $ (255)  
Compound embedded derivative with the Second Lien Term Loan Facility —    —    (2,140)   (2,140)  
Total liabilities measured at fair value $ —    $ —    $ (2,395)   $ (2,395)  
 
  December 31, 2019
(Level 1) (Level 2) (Level 3) Total
 Balance
Compound embedded derivative with the 2013 8.00% Notes
$ —    $ —    $ (522)   $ (522)  
Compound embedded derivative with the Loan Agreement with Thermo —    —    (1,270)   (1,270)  
Compound embedded derivative with the Second Lien Term Loan Facility —    —    (2,000)   (2,000)  
Total liabilities measured at fair value $ —    $ —    $ (3,792)   $ (3,792)  

Derivative Liabilities

All of the Company's derivative liabilities are classified as Level 3. The Company marks-to-market these liabilities at each reporting date, or more frequently as deemed necessary, with the changes in fair value recognized in the Company’s condensed consolidated statements of operations.

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2013 8.00% Notes and Loan Agreement with Thermo

The significant quantitative Level 3 inputs utilized in the valuation models are shown in the tables below:
  June 30, 2020
  Stock Price
Volatility
Risk-Free
Interest
Rate
Note
Conversion
Price
Discount Rate Market Price of Common Stock
Compound embedded derivative with the 2013 8.00% Notes
80% - 115%
0.2  % $0.69 27  % $0.33

During the first quarter of 2020, the compound embedded derivative with the Loan Agreement with Thermo was extinguished and, therefore, as of June 30, 2020, the value was zero and there were no significant qualitative Level 3 inputs utilized in a valuation. See Note 4: Long-Term Debt and Other Financing Arrangements and Note 5: Derivatives for further discussion. 

  December 31, 2019
  Stock Price
Volatility
Risk-Free
Interest
Rate
Note
Conversion
Price
Discount Rate Market Price of Common Stock
Compound embedded derivative with the 2013 8.00% Notes
70% - 130%
1.6  % $0.69 27  % $0.52
Compound embedded derivative with the Loan Agreement with Thermo
70% - 130%
1.6  % $0.69 27  % $0.52

Second Lien Term Loan Facility

 The compound embedded derivative with the Second Lien Term Loan Facility is valued using a probability weighted discounted cash flow model. The most significant observable input used in the fair value measurement is the discount yield, which was 19% and 18% at June 30, 2020 and December 31, 2019, respectively. Increases in the discount yield generally will result in a higher fair value measurement in the model. The unobservable inputs used in the fair value measurement include probability of change of control and the estimated timing and amounts of cash flows associated with certain mandatory prepayments within the debt agreement.

Rollforward of Recurring Level 3 Liabilities

The following table presents a rollforward for all liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in thousands):
Balance at beginning of period, January 1, 2020 and 2019, respectively $ (3,792)   $ (146,865)  
Issuance of compound embedded derivative with the Second Lien Term Loan Facility —    (2,000)  
Derivative adjustment related to conversions and exercises 1,058    —   
Unrealized gain, included in derivative gain 339    145,073   
Balance at end of period, June 30, 2020 and December 31, 2019, respectively
$ (2,395)   $ (3,792)  
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Fair Value of Debt Instruments

The Company believes it is not practicable to determine the fair value of the Facility Agreement, the Second Lien Term Loan Facility and the PPP Loan without incurring significant additional costs. Unlike typical long-term debt, interest rates and other terms for these instruments are not readily available and generally involve a variety of factors, including due diligence by the debt holders. The following table sets forth the carrying values and estimated fair values of the Company's other debt instruments, which are classified as Level 3 financial instruments (in thousands):
  June 30, 2020 December 31, 2019
Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value
Loan Agreement with Thermo $ —    $ —    $ 116,543    $ 88,886   
2013 8.00% Notes
1,396    925    1,410    875   

Nonrecurring Fair Value Measurements 

The Company follows the authoritative guidance regarding non-financial assets and liabilities that are remeasured at fair value on a nonrecurring basis. On February 19, 2020, Thermo converted the entire principal balance outstanding under the Loan Agreement with Thermo into shares of common stock. See further discussion in Note 4: Long-Term Debt and Other Financing Arrangements. As a result of the conversion, the Company wrote off the total fair value of the compound embedded derivative liability with the Loan Agreement with Thermo based on the derivative value on the conversion date of $1.1 million. The significant quantitative Level 3 inputs utilized in the valuation model are shown in the table below:

  February 19, 2020
Stock Price
 Volatility
Risk-Free Interest Rate Note Conversion Price Discount Rate Market Price of Common Stock
Compound embedded derivative with the Loan Agreement with Thermo
70% - 130%
1.4  % $0.69 27  % $0.42

7. RELATED PARTY TRANSACTIONS  

Payables to Thermo and other affiliates related to normal purchase transactions were $0.4 million and $0.3 million as of June 30, 2020 and December 31, 2019, respectively.

Transactions with Thermo 

Certain general and administrative expenses are incurred by Thermo on behalf of the Company. These expenses, which include non-cash expenses that the Company accounts for as a contribution to capital, related to services provided by certain executive officers of Thermo and expenses incurred by Thermo on behalf of the Company which are charged to the Company. The expenses charged are based on actual amounts (with no mark-up) incurred by Thermo or upon allocated employee time. 

In February 2019, the Company entered into a lease agreement with Thermo Covington, LLC for the Company's headquarters office. Annual lease payments started at $1.4 million per year, increasing at a rate of 2.5% per year, for a lease term of 10 years. During the three months ended June 30, 2020 and 2019, the Company incurred lease expense of $0.4 million in each period under this lease agreement. During the six months ended June 30, 2020 and 2019, the Company incurred lease expense of $0.8 million and $0.7 million, respectively, due to Thermo under this lease agreement.

On February 19, 2020, Thermo converted the entire principal balance outstanding under the Loan Agreement resulting in the issuance of 200.1 million shares of common stock.

In November 2019, the Company entered into the Second Lien Term Loan Facility. Thermo's participation in the Second Lien Term Loan Facility was $95.1 million. This principal balance earns paid-in-kind interest at a rate of 13% per annum. Interest accrued since inception with respect to Thermo's portion of the debt outstanding on the Second Lien Term Loan Facility was approximately $7.6 million, of which $6.4 million was accrued during the six months ended June 30, 2020. In connection with the issuance of the Second Lien Term Loan Facility, the holders received warrants to purchase shares of voting
16


common stock, of which Thermo received 59.5 million warrants with an exercise price of $0.38 per share. As of June 30, 2020, approximately 50.0 million warrants remain outstanding.

Additionally, the Facility Agreement requires Thermo to maintain minimum and maximum ownership levels in the Company's common stock.

The Company has a Strategic Review Committee that is required to remain in existence for as long as Thermo and its affiliates beneficially own forty-five percent (45%) or more of Globalstar’s outstanding common stock. To the extent permitted by applicable law, the Strategic Review Committee has exclusive responsibility for the oversight, review and approval of, among other things and subject to certain exceptions, any acquisition by Thermo and its affiliates of additional newly-issued securities of the Company and any transaction between the Company and Thermo and its affiliates with a value in excess of $250,000.

See Note 4: Long-Term Debt and Other Financing Arrangements for further discussion of the Company's debt and financing transactions with Thermo.

8. (LOSS) EARNINGS PER SHARE 

Basic (loss) earnings per share is computed by dividing (loss) income available to common stockholders by the weighted average number of shares of common stock outstanding during the period. The numerator used to calculate diluted EPS includes the effect of dilutive securities, including interest expense, net, and derivative gains or losses reflected in net (loss) income. Common stock equivalents are included in the calculation of diluted earnings per share only when the effect of their inclusion would be dilutive. The effect of potentially dilutive common shares for the Company's convertible notes are calculated using the if-converted method. Generally, for all other potentially dilutive common shares, the effect is calculated using the treasury stock method.

The following table sets forth the calculation of basic and diluted (loss) earnings per share and reconciles basic weighted average shares to diluted weighted average shares of common stock outstanding for the periods indicated (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Net (loss) income $ (24,736)   $ 6,189    $ (62,959)   $ 31,960   
Effect of dilutive securities:
2013 8.00% Notes
  (228)   (213)   (415)  
Loan Agreement with Thermo —    (30,239)   2,506    (82,536)  
Loss to common stockholders plus assumed conversions $ (24,729)   $ (24,278)   $ (60,666)   $ (50,991)  
Weighted average common shares outstanding:
Basic shares outstanding 1,668,974    1,450,380    1,613,467    1,449,355   
Incremental shares from assumed exercises, conversions and other issuance of:
Stock options, restricted stock, restricted stock units and Employee Stock Purchase Plan —    3,828    —    4,948   
2013 8.00% Notes
—    2,020    —    2,020   
Loan Agreement with Thermo —    184,214    —    184,214   
Diluted shares outstanding 1,668,974    1,640,442    1,613,467    1,640,537   
Net (loss) income per common share:
Basic $ (0.01)   $ 0.00    $ (0.04)   $ 0.02   
Diluted (0.01)   (0.01)   (0.04)   (0.03)  

For each of the three and six months ended June 30, 2020, 4.4 million shares of potential common stock were excluded from diluted shares outstanding because the effects of potentially dilutive securities would be anti-dilutive.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements. 

Certain statements contained in or incorporated by reference into this Quarterly Report on Form 10-Q (the "Report"), other than purely historical information, including, but not limited to, estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally are identified by the words "believe," "project," "expect," "anticipate," "estimate," "intend," "strategy," "plan," "may," "should," "will," "would," "will be," "will continue," "will likely result," and similar expressions, although not all forward-looking statements contain these identifying words. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Forward-looking statements, such as the statements regarding our ability to develop and expand our business (including our ability to monetize our spectrum rights), our anticipated capital spending, our ability to manage costs, our ability to exploit and respond to technological innovation, the effects of laws and regulations (including tax laws and regulations) and legal and regulatory changes (including regulation related to the use of our spectrum), the opportunities for strategic business combinations and the effects of consolidation in our industry on us and our competitors, our anticipated future revenues, our anticipated financial resources, our expectations about the future operational performance of our satellites (including their projected operational lives), the expected strength of and growth prospects for our existing customers and the markets that we serve, commercial acceptance of new products, problems relating to the ground-based facilities operated by us or by independent gateway operators, worldwide economic, geopolitical and business conditions and risks associated with doing business on a global basis, business interruptions due to natural disasters, unexpected events or public health crises, including viral pandemics such as the COVID-19 coronavirus, and other statements contained in this Report regarding matters that are not historical facts, involve predictions. Risks and uncertainties that could cause or contribute to such differences include, without limitation, those in Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as filed with the Securities and Exchange Commission (the "SEC") on February 28, 2020 (the "2019 Annual Report"). We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this Report to reflect actual results or future events or circumstances. 

New risk factors emerge from time to time, and it is not possible for us to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We undertake no obligation to update publicly or revise any forward-looking statements. You should not rely upon forward-looking statements as predictions of future events or performance. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf. 

This "Management's Discussion and Analysis of Financial Condition" should be read in conjunction with the "Management's Discussion and Analysis of Financial Condition" and information included in our 2019 Annual Report. 

Overview 

Mobile Satellite Services Business

Globalstar, Inc. ("we", "us" or the "Company") provides Mobile Satellite Services (“MSS”) including voice and data communications services globally via satellite. We offer these services over our network of in-orbit satellites and our active ground stations (“gateways”), which we refer to collectively as the Globalstar System. In addition to supporting Internet of Things ("IoT") data transmissions in a variety of applications, we provide reliable connectivity in areas not served or underserved by terrestrial wireless and wireline networks and in circumstances where terrestrial networks are not operational due to natural or man-made disasters. By providing wireless communications services across the globe, we meet our customers' increasing desire for connectivity.

We currently provide the following communications services, which are available only with equipment designed to work on our network: 

two-way voice communication and data transmissions using mobile or fixed devices, including our GSP-1700 phone, two generations of our Sat-Fi®, the Sat-Fi ® Remote Antenna Station, and other fixed and data-only devices ("Duplex");
one-way or two-way communication and data transmissions using mobile devices, including our SPOT family of products, such as SPOT X®, SPOT Gen4 and SPOT Trace®, that transmit messages and the location of the device ("SPOT"); and
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one-way data transmissions using a mobile or fixed device that transmits its location and other information to a central monitoring station, including our commercial IoT products, such as our battery- and solar-powered SmartOne, STX-3, STINGR and ST100 ("Commercial IoT").

Our constellation of Low Earth Orbit ("LEO") satellites includes second-generation satellites, which were launched and placed into service during the years 2010 through 2013 after a $1.1 billion investment, and certain first-generation satellites, which are currently being used as in-orbit spares. We designed our second-generation satellites to last twice as long in space, have 40% greater capacity and be built at a significantly lower cost compared to our first-generation satellites. We achieved this longer life by increasing the solar array and battery capacity, using a larger fuel tank, adding redundancy for key satellite equipment, and improving radiation specifications and additional lot level testing for all susceptible electronic components, in order to account for the accumulated dosage of radiation encountered during a 15-year mission at the operational altitude of the satellites. The second-generation satellites use passive S-band antennas on the body of the spacecraft providing additional shielding for the active amplifiers which are located inside the spacecraft, unlike the first-generation amplifiers that were located on the outside as part of the active antenna array. Each satellite has a high degree of on-board subsystem redundancy, an on-board fault detection system and isolation and recovery for safe and quick risk mitigation.

We believe that we provide the best voice quality among our peer group (which is backed by customer input) due to the specific design of the Globalstar System. We define a successful level of service for our customers by their ability to make uninterrupted calls of average duration for a system-wide average number of minutes per month. Our goal is to provide service levels and call or message success rates equal to or better than our MSS competitors so our products and services are attractive to potential customers. We define voice quality as the ability to easily hear, recognize and understand callers with imperceptible delay in the transmission. By this measure, we believe that our system outperforms geostationary (“GEO”) satellites used by some of our competitors. GEO satellite signals must travel approximately 42,000 additional miles on average, which introduces considerable delay and signal degradation to GEO calls. For our competitors using cross-linked satellite architectures, which require multiple inter-satellite connections to complete a call, signal degradation and delay can result in lower call quality as compared to that experienced over the Globalstar System. 

We designed our second-generation ground network to provide our customers with enhanced services featuring speeds up to 72 kbps as well as increased capacity, when combined with our next-generation products. The second-generation ground network is an Internet protocol multimedia subsystem ("IMS") based solution providing such industry standard services as voice, internet, email and short message services ("SMS").

We compete aggressively on price. We offer a range of price-competitive products to the industrial, governmental and consumer markets. We expect to retain our position as a cost-effective, high quality leader in the MSS industry.  

As technological advancements are made, we continue to explore opportunities to develop new products and provide new services over our network to meet the needs of our existing and prospective customers. We are currently pursuing initiatives that we expect to expand our satellite communications business by effectively leveraging our network capabilities and distribution relationships. Among our current initiatives is the development of a two-way module to expand our Commercial IoT offerings.
Customers
The specialized needs of our global customers span many industries. As of June 30, 2020, we had approximately 752,000 subscribers worldwide, principally within the following markets: recreation and personal; government; public safety and disaster relief; oil and gas; maritime and fishing; natural resources, mining and forestry; construction; utilities; and transportation. Our system is able to offer our customers cost-effective communications solutions completely independent of cellular coverage. Although traditional users of wireless telephony and broadband data services have access to these services in developed locations, our customers often operate, travel or live in remote regions or regions with under-developed telecommunications infrastructure where these services are not readily available or are not provided on a reliable basis.
Spectrum and Regulatory Structure
We benefit from a world-wide allocation of radio frequency spectrum in the international radio frequency tables administered by the International Telecommunications Union ("ITU"). Access to this globally harmonized spectrum enables us to design satellites, networks and terrestrial infrastructure enhancements more cost effectively because the products and services can be deployed and sold worldwide. In addition, this broad spectrum assignment enhances our ability to capitalize on existing and emerging wireless and broadband applications.
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In the United States, the Federal Communications Commission ("FCC") has authorized us to operate our first-generation satellites in 25.225 MHz of radio spectrum comprising two blocks of non-contiguous radio frequencies in the 1.6/2.4 GHz band commonly referred to as the "Big LEO" Spectrum Band. We licensed and registered our second-generation satellites in France. We also obtained all authorizations necessary from the FCC to operate our domestic gateways with our second-generation satellites.

Terrestrial Authority for Globalstar's Licensed 2.4GHz Spectrum
 
In December 2016, the FCC unanimously adopted a Report and Order permitting us to seek modification of our existing MSS licenses to provide terrestrial broadband services over 11.5 MHz of our licensed Mobile Satellite Services spectrum at 2483.5 to 2495 MHz, throughout the United States of America and its Territories. In August 2017, the FCC modified Globalstar's MSS licenses, granting us authority to provide terrestrial broadband services over a portion of our satellite spectrum. Specifically, the FCC modified Globalstar's space station authorization and our blanket mobile earth station license to permit a network using 11.5 MHz of our authorized Big LEO mobile-satellite service spectrum. We will need to comply with certain conditions in order to provide terrestrial broadband service, including obtaining FCC certifications for our equipment that will utilize this spectrum authority.

We believe our MSS spectrum position provides potential for harmonized terrestrial authority across many international regulatory domains and have been seeking approvals in various international jurisdictions. To date, we have received terrestrial authorizations in various countries. We expect this global effort to continue for the foreseeable future while we seek additional terrestrial approvals to internationally harmonize our S-band spectrum across the entire 16.5 MHz authority for terrestrial mobile broadband services.

We expect our terrestrial authority will allow future partners to develop high-density dedicated networks using the TD-LTE protocol for private LTE networks as well as the densification of cellular networks. We believe that our offering has competitive advantages over other conventional commercial spectrum allocations. Such other allocations must meet minimum population coverage requirements, which effectively prohibit the exclusive use of most carrier spectrum for dedicated small cell deployments. In addition, low frequency carrier spectrum is not physically well suited to high-density small cell topologies, and mmWave spectrum is subject to range and attenuation limitations. We believe that our licensed 2.4 GHz band holds physical, regulatory, and ecosystem qualities that distinguishes it from other current and anticipated allocations, and that it is well positioned to balance favorable range, capacity and attenuation characteristics.

In December 2018, we were successful in obtaining approval to create a new defined band class, Band 53, from the Third Generation Partnership Project (3GPP) for our 2.4 GHz terrestrial spectrum. Additionally, in March 2020, we announced that the 3GPP approved the 5G variant of our Band 53, which is known as n53. This band class provides a pathway for our terrestrial spectrum to be integrated into handset and infrastructure ecosystems. Additional follow-on 3GPP specifications and approvals are expected in the future.

Recent Developments: COVID-19

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) a global pandemic. Various levels of governmental agencies and authorities have taken measures to reduce the spread of COVID-19, including “stay at home” orders, social distancing and closures of non-essential businesses. The success of our business depends on our global operations, including the performance of our satellites and ground stations as well as our supply chain and consumer demand, among other things. As a result of COVID-19, we have experienced a reduction in the volume of sales of our subscriber equipment, received requests for service pricing concessions from certain customers, and expect an impact on the ability of certain of our customers to pay outstanding balances. Our results of operations for the three and six months ended June 30, 2020 partially reflect this impact; however, we expect that this trend may continue and the full extent of the impact is unknown. In recent months, some governmental agencies have lifted certain restrictions. However, if customer demand continues to be low, our future equipment sales, subscriber activations and sales margin will be impacted. We have implemented several measures to minimize the impact on our operations and sustain our liquidity position, including:
Receiving economic relief and support under the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, including a $5.0 million forgivable payroll protection program loan and the deferral of certain payroll taxes,
Refocusing internal resources on high-value opportunities, such as working with federal agencies that may require our equipment and services in times of crisis,
Working with our product manufacturers to ensure we will continue to have sufficient inventory levels on hand to meet consumer demand, and
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Supporting both consumer and commercial customers, particularly those that operate in the retail and oil and gas industries, to adjust pricing where necessary, whether under e-commerce promotions or temporary service pricing concessions.

Performance Indicators 

Our management reviews and analyzes several key performance indicators in order to manage our business and assess the quality and potential variability of our earnings and cash flows. These key performance indicators include: 

total revenue, which is an indicator of our overall business growth;
subscriber growth and churn rate, which are both indicators of the satisfaction of our customers;
average monthly revenue per user, or ARPU, which is an indicator of our pricing and ability to obtain effectively long-term, high-value customers. We calculate ARPU separately for each type of our Duplex, Commercial IoT, SPOT and IGO revenue;
operating income and adjusted EBITDA, both of which are indicators of our financial performance; and
capital expenditures, which are an indicator of future revenue growth potential and cash requirements.

Comparison of the Results of Operations for the three and six months ended June 30, 2020 and 2019  

Overall, our results of operations for the three and six months ended June 30, 2020 were impacted by COVID-19; however, we cannot predict the full extent or duration of the future impact of COVID-19. Certain trends or uncertainties related to COVID-19 that impact revenue or expense items are discussed below.

Revenue

Total revenue decreased 3%, to $30.4 million for the three months ended June 30, 2020 from $31.2 million for the same period in 2019 and increased 2%, to $62.6 million for the six months ended June 30, 2020 from $61.3 million for the same period in 2019. See below for a discussion of these fluctuations.

The following table sets forth amounts and percentages of our revenue by type of service (dollars in thousands).
 
  Three Months Ended 
June 30, 2020
Three Months Ended 
June 30, 2019
Six Months Ended 
June 30, 2020
Six Months Ended 
June 30, 2019
  Revenue % of Total
Revenue
Revenue % of Total
Revenue
Revenue % of Total
Revenue
Revenue % of Total
Revenue
Service revenue:        
Duplex $ 8,556    28  % $ 9,031    29  % $ 16,219    26  % $ 17,676    29  %
SPOT 11,579    38    12,619    40    23,702    38    25,714    42   
Commercial IoT 4,298    14    4,353    14    8,608    14    8,051    13   
IGO 109    —    179      200    —    345     
Engineering and other 2,548      518      7,296    12    1,033     
Total $ 27,090    88  % $ 26,700    86  % $ 56,025    90  % $ 52,819    87  %
 
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The following table sets forth amounts and percentages of our revenue generated from equipment sales (dollars in thousands).
  Three Months Ended 
June 30, 2020
Three Months Ended 
June 30, 2019
Six Months Ended 
June 30, 2020