Globalstar, Inc. 10-Q

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, 2022 June 30, 2021 June 30, 2022 June 30, 2021 Revenue: Service revenue $ 33,048 $ 25,617 $ 62,392 $ 48,703 Subscriber equipment sales 3,752 4,662 7,180 8,505 Total revenue 36,800 30,279 69,572 57,208 Operating expenses: Cost of services (exclusive of depreciation, amortization, and accretion shown separately below) 10,695 9,123 21,489 18,200 Cost of subscriber equipment sales 3,097 2,858 5,663 5,757 Cost of subscriber equipment sales - reduction in the value of inventory 16 782 16 782 Marketing, general and administrative 9,693 9,681 19,034 19,778 Reduction in value of long-lived assets 525 — 525 — Depreciation, amortization and accretion 24,130 23,843 47,913 47,959 Total operating expenses 48,156 46,287 94,640 92,476 Loss from operations ( 11,356 ) ( 16,008 ) ( 25,068 ) ( 35,268 ) Other (expense) income: Gain on extinguishment of debt — 2,664 — 2,664 Interest income and expense, net of amounts capitalized ( 7,187 ) ( 10,778 ) ( 16,717 ) ( 22,352 ) Derivative loss ( 1,242 ) ( 1,310 ) ( 1,728 ) ( 2,439 ) Foreign currency (loss) gain ( 7,123 ) 4,425 ( 3,891 ) 110 Other 272 ( 88 ) 389 ( 66 ) Total other (expense) income ( 15,280 ) ( 5,087 ) ( 21,947 ) ( 22,083 ) Loss before income taxes ( 26,636 ) ( 21,095 ) ( 47,015 ) ( 57,351 ) Income tax expense 121 354 204 431 Net loss $ ( 26,757 ) $ ( 21,449 ) $ ( 47,219 ) $ ( 57,782 ) Other comprehensive loss: Foreign currency translation adjustments 5,315 ( 3,158 ) 4,636 84 Comprehensive loss $ ( 21,442 ) $ ( 24,607 ) $ ( 42,583 ) $ ( 57,698 ) Net loss per common share: Basic $ ( 0.01 ) $ ( 0.01 ) $ ( 0.03 ) $ ( 0.03 ) Diluted ( 0.01 ) ( 0.01 ) ( 0.03 ) ( 0.03 ) Weighted-average shares outstanding: Basic 1,799,886 1,791,943 1,798,784 1,736,158 Diluted 1,799,886 1,791,943 1,798,784 1,736,158 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, 2022 December 31, 2021 ASSETS Current assets: Cash and cash equivalents $ 13,141 $ 14,304 Accounts receivable, net of allowance for credit losses of $ 2,986 and $ 2,962 , respectively 24,117 21,182 Inventory 15,887 13,829 Prepaid expenses and other current assets 16,586 19,558 Total current assets 69,731 68,873 Property and equipment, net 708,005 672,156 Operating lease right of use assets, net 29,964 32,041 Prepaid satellite construction costs and related customer receivable 94,164 — Intangible and other assets, net of accumulated amortization of $ 11,836 and $ 11,189 , respectively 42,287 41,036 Total assets $ 944,151 $ 814,106 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 2,548 $ 6,247 Vendor financing 73,575 — Accrued expenses 23,574 28,947 Payables to affiliates 411 444 Deferred revenue 39,872 25,927 Total current liabilities 139,980 61,565 Long-term debt 257,451 237,932 Operating lease liabilities 27,134 29,237 Deferred revenue, net 182,376 112,054 Other non-current liabilities 7,877 7,887 Total non-current liabilities 474,838 387,110 Commitments and contingencies (Note 8) Stockholders’ equity: Preferred Stock of $ 0.0001 par value; 100,000,000 shares authorized and none issued and outstanding at June 30, 2022 and December 31, 2021, respectively — — Series A Preferred Convertible Stock of $ 0.0001 par value; one share authorized and none issued and outstanding at June 30, 2022 and December 31, 2021, respectively — — Voting Common Stock of $ 0.0001 par value; 2,150,000,000 shares authorized; 1,800,477,322 and 1,796,528,871 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively 180 180 Nonvoting Common Stock of $ 0.0001 par value; no shares authorized and no ne issued and outstanding at June 30, 2022 and December 31, 2021, respectively — — Additional paid-in capital 2,153,195 2,146,710 Accumulated other comprehensive income 6,526 1,890 Retained deficit ( 1,830,568 ) ( 1,783,349 ) Total stockholders’ equity 329,333 365,431 Total liabilities and stockholders’ equity $ 944,151 $ 814,106 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, 2022 1,796,529 $ 180 $ 2,146,710 $ 1,890 $ ( 1,783,349 ) $ 365,431 Net issuance of restricted stock awards and stock for employee stock options and recognition of stock-based compensation 703 — 2,230 — — 2,230 Contribution of services — — 47 47 Recognition of stock-based compensation of employee stock purchase plan — — 117 — — 117 Common stock issued in connection with conversion of 2013 8.00 % Notes 2,253 — 2,548 — — 2,548 Other comprehensive loss — — — ( 679 ) — ( 679 ) Net loss — — — — ( 20,462 ) ( 20,462 ) Balances – March 31, 2022 1,799,485 $ 180 $ 2,151,652 $ 1,211 $ ( 1,803,811 ) $ 349,232 Net issuance of restricted stock awards and stock for employee stock options and recognition of stock-based compensation 546 — 879 — — 879 Contribution of services — — 47 — — 47 Net issuance of stock through employee stock purchase plan and recognition of stock-based compensation 446 — 617 — — 617 Other comprehensive income — — — 5,315 — 5,315 Net loss — — — — ( 26,757 ) ( 26,757 ) Balances – June 30, 2022 1,800,477 $ 180 $ 2,153,195 $ 6,526 $ ( 1,830,568 ) $ 329,333 Common Shares Common Stock Amount Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Retained Deficit Total Balances – January 1, 2021 1,674,669 $ 167 $ 2,096,566 $ ( 2,944 ) $ ( 1,670,724 ) $ 423,065 Net issuance of restricted stock awards and stock for employee stock options and recognition of stock-based compensation 1,998 — 1,932 — — 1,932 Contribution of services — — 47 — — 47 Recognition of stock-based compensation of employee stock purchase plan — — 79 — — 79 Issuance of stock for warrant exercises 115,036 12 43,666 — — 43,678 Other comprehensive income — — — 3,242 — 3,242 Net loss — — — — ( 36,333 ) ( 36,333 ) Balances – March 31, 2021 1,791,703 $ 179 $ 2,142,290 $ 298 $ ( 1,707,057 ) $ 435,710 Net issuance of restricted stock awards and stock for employee stock options and recognition of stock-based compensation 173 — 576 — — 576 Contribution of services — — 47 — — 47 Net issuance of stock through employee stock purchase plan and recognition of stock-based compensation 1,187 — 406 — — 406 Other comprehensive loss — — — ( 3,158 ) — ( 3,158 ) Net loss — — — — ( 21,449 ) ( 21,449 ) Balances – June 30, 2021 1,793,063 $ 179 $ 2,143,319 $ ( 2,860 ) $ ( 1,728,506 ) $ 412,132 See accompanying notes to unaudited interim condensed consolidated financial statements. 3 GLOBALSTAR, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Six Months Ended June 30, 2022 June 30, 2021 Cash flows provided by operating activities: Net loss $ ( 47,219 ) $ ( 57,782 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation, amortization and accretion 47,913 47,959 Change in fair value of derivatives 1,728 2,439 Stock-based compensation expense 2,380 2,186 Amortization of deferred financing costs 287 1,841 Reduction in value of long-lived assets and inventory 541 782 Provision for credit losses 558 696 Noncash interest and accretion expense 16,235 16,939 Gain on extinguishment of debt — ( 2,664 ) Unrealized foreign currency loss (gain) 4,139 ( 245 ) Noncash reversal of tariff accrual — ( 912 ) Other, net ( 2,710 ) ( 430 ) Changes in operating assets and liabilities: Accounts receivable 3,737 ( 7,750 ) Inventory ( 1,840 ) 1,118 Prepaid expenses and other current assets ( 227 ) ( 665 ) Other assets 605 ( 2,770 ) Accounts payable and accrued expenses ( 8,106 ) 4,416 Payables to affiliates ( 33 ) ( 162 ) Other non-current liabilities ( 370 ) ( 87 ) Deferred revenue 3,153 51,011 Net cash provided by operating activities 20,771 55,920 Cash flows used in investing activities: Network upgrades (including capitalized interest) ( 18,511 ) ( 8,832 ) Property and equipment additions ( 3,198 ) ( 2,288 ) Sale of property and equipment — 350 Purchase of intangible assets ( 683 ) ( 1,228 ) Net cash used in investing activities ( 22,392 ) ( 11,998 ) Cash flows provided by (used in) financing activities: Principal payments of the 2009 Facility Agreement — ( 89,164 ) Proceeds from exercise of warrants — 43,678 Payments for debt and equity issuance costs — ( 133 ) Proceeds from issuance of common stock and exercise of options 449 391 Net cash provided by (used in) financing activities 449 ( 45,228 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash 9 ( 9 ) Net decrease in cash, cash equivalents and restricted cash ( 1,163 ) ( 1,315 ) Cash, cash equivalents and restricted cash, beginning of period 14,304 68,023 Cash, cash equivalents and restricted cash, end of period $ 13,141 $ 66,708 As of: June 30, 2022 December 31, 2021 Reconciliation of cash and cash equivalents Cash and cash equivalents $ 13,141 $ 14,304 Total cash and cash equivalents cash shown in the statement of cash flows $ 13,141 $ 14,304 Six Months Ended June 30, 2022 June 30, 2021 Supplemental disclosure of cash flow information: Cash paid for interest $ — $ 3,977 Supplemental disclosure of non-cash financing and investing activities: Increase in capitalized accrued interest for network upgrades $ 5,059 $ 1,041 Capitalized accretion of debt discount and amortization of prepaid financing costs 754 251 Satellite construction assets acquired through vendor financing arrangement 73,575 — Forgiveness of principal and interest of Paycheck Protection Program loan — 5,030 See accompanying notes to unaudited interim condensed consolidated financial statements. 4 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. The Company’s only reportable segment is its MSS business. 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, 2021, as filed with the SEC on February 25, 2022 (the “2021 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. These unaudited interim condensed consolidated financial statements include the accounts of Globalstar and all its subsidiaries. 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, 2022 are not necessarily indicative of the results that may be expected for the full year or any future period. 5 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, 2022 June 30, 2021 June 30, 2022 June 30, 2021 Service revenue: Duplex $ 6,936 $ 7,243 $ 13,082 $ 13,898 SPOT 11,536 11,139 22,791 22,123 Commercial IoT 5,038 4,504 9,708 8,985 Engineering and other 9,538 2,731 16,811 3,697 Total service revenue 33,048 25,617 62,392 48,703 Subscriber equipment sales: Duplex $ 143 $ 331 $ 273 $ 624 SPOT 1,674 2,230 3,149 4,145 Commercial IoT 1,908 2,090 3,714 3,611 Other 27 11 44 125 Total subscriber equipment sales 3,752 4,662 7,180 8,505 Total revenue $ 36,800 $ 30,279 $ 69,572 $ 57,208 The Company is reimbursed by the customer under the Terms Agreement for certain costs incurred by the Company as it completes its performance obligations under the contract. During the three and six months ended June 30, 2022, the Company recognized revenue associated with these services of $ 8.8 million and $ 15.7 million, respectively. During the three and six months ended June 30, 2021, the Company recognized revenue associated with other performance obligations associated with the Terms Agreement of $ 2.2 million and $ 2.7 million, respectively; this revenue is included in Engineering and other service revenue in the table above. 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, 2022 June 30, 2021 June 30, 2022 June 30, 2021 Service revenue: United States $ 24,875 $ 18,228 $ 47,163 $ 34,671 Canada 4,128 4,376 7,817 8,206 Europe 1,671 1,857 3,154 3,568 Central and South America 2,248 815 3,984 1,596 Others 126 341 274 662 Total service revenue 33,048 25,617 62,392 48,703 Subscriber equipment sales: United States $ 2,227 $ 2,438 $ 3,783 $ 4,610 Canada 879 1,118 1,677 1,867 Europe 309 527 945 1,006 Central and South America 328 571 757 992 Others 9 8 18 30 Total subscriber equipment sales 3,752 4,662 7,180 8,505 Total revenue $ 36,800 $ 30,279 $ 69,572 $ 57,208 6 Accounts Receivable The Company has agreements whereby it acts as an agent to procure goods and perform services on behalf of the customer under the Terms Agreement. As of June 30, 2022 and December 31, 2021, the Company recorded $ 3.3 million and $ 6.5 million, respectively, in accounts receivable related to these arrangements. In connection with the Company's performance under the Terms Agreement, the Company recorded receivables totaling $ 83.4 million, which represents amounts owed by the customer for the Company's completion of performance obligations under the contract. As of June 30, 2022, $ 8.6 million and $ 74.8 million were recorded as current and non-current receivables, respectively, in line with the expected service periods under the Terms Agreement. 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, 2022 and 2021 from performance obligations included in the contract liability balance at the beginning of these periods was $ 18.3 million and $ 18.8 million, respectively. The duration of the Company’s contracts with subscribers is generally one year or less. As of June 30, 2022, the Company expects to recognize $ 39.9 million, or approximately 18 %, of its remaining performance obligations during the next twelve months . Contract liabilities also include deferred revenue associated with the Terms Agreement. The Company recorded deferred revenue for advance payments received from the customer for services expected to be performed in the future, totaling $ 75.0 million as of June 30, 2022. The Company also records deferred revenue for the reimbursement (and anticipated reimbursement) of costs incurred in connection with ongoing network upgrades, construction costs under the satellite procurement agreement and other performance obligations under the Terms Agreement, totaling $ 124.8 million as of June 30, 2022. In accordance with applicable accounting guidance, the Company records imputed interest associated with the significant financing component, totaling $ 3.9 million as of June 30, 2022, which is related to and included in the balances associated with certain of the items recorded to deferred revenue discussed above. Deferred revenue is classified as either short-term or long-term consistent with the expected timing of the Company's obligation to provide services to the customer or the recoupment period defined in the Terms Agreement. As of June 30, 2022, the Company has recorded $ 15.9 million and $ 180.7 million as short-term and long-term deferred revenue, respectively. The total amount of deferred revenue associated with this customer is also reflected net of a contract asset of $ 3.1 million in the Company's condensed consolidated balance sheet as of June 30, 2022. 7 3. LEASES The following tables disclose the components of the Company’s finance and operating leases (amounts in thousands): As of: As of: June 30, 2022 December 31, 2021 Operating leases: Right-of-use asset, net $ 29,964 $ 32,041 Short-term lease liability (recorded in accrued expenses) 2,442 2,501 Long-term lease liability 27,134 29,237 Total operating lease liabilities $ 29,576 $ 31,738 Finance leases: Right-of-use asset, net (recorded in intangible and other current assets, net) $ 5 $ 8 Short-term lease liability (recorded in accrued expenses) 4 6 Long-term lease liability (recorded in non-current liabilities) 2 3 Total finance lease liabilities $ 6 $ 9 Lease Cost The components of lease cost are reflected in the table below (amounts in thousands): Three Months Ended Six Months Ended June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021 Operating lease cost: Amortization of right-of-use assets $ 604 $ 663 $ 1,324 $ 1,154 Interest on lease liabilities 632 393 1,277 711 Capitalized lease cost ( 244 ) — ( 487 ) — Finance lease cost: Amortization of right-of-use assets 1 1 3 8 Short-term lease cost 144 41 208 79 Total lease cost $ 1,137 $ 1,098 $ 2,325 $ 1,952 Interest on finance lease liabilities was less than $ 0.1 million for the three and six months ended June 30, 2022 and 2021; accordingly, these amounts are not shown in the table above. 8 Weighted-Average Remaining Lease Term and Discount Rate The following table discloses the weighted-average remaining lease term and discount rate for finance and operating leases. As of: As of: June 30, 2022 December 31, 2021 Weighted-average lease term Finance leases 1.2 years 1.6 years Operating Leases 10.2 years 10.6 years Weighted-average discount rate Finance leases 7.6 % 7.0 % Operating leases 8.4 % 8.4 % Supplemental Cash Flow Information The below table discloses supplemental cash flow information for finance and operating leases (in thousands): Six Months Ended June 30, 2022 June 30, 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows for operating leases $ 2,536 $ 2,080 Operating and financing cash flows from finance leases were each less than $ 0.1 million for each of the six months ended June 30, 2022 and 2021; accordingly, these cash flows are not shown in the table above. Maturity Analysis The following table reflects undiscounted cash flows on an annual basis for the Company’s lease liabilities as of June 30, 2022 (amounts in thousands): Operating Leases Finance Leases 2022 (remaining) $ 2,421 $ 3 2023 4,876 3 2024 4,749 — 2025 4,778 — 2026 4,825 — Thereafter 22,322 — Total lease payments $ 43,971 $ 6 Imputed interest ( 14,395 ) — Discounted lease liability $ 29,576 $ 6 As of June 30, 2022, the Company executed additional operating leases for new gateway locations. These leases have not yet commenced as of June 30, 2022 since the lessors are continuing to ready the sites for use. Accordingly, these leases are not included on the balance sheet as of June 30, 2022, or in the maturity table above. The Company is in the process of evaluating these lease obligations and expects the impact of these leases to be an increase of lease liabilities of approximately $ 4.7 million. 9 4. PROPERTY AND EQUIPMENT Property and equipment consists of the following (in thousands): June 30, 2022 December 31, 2021 Globalstar System: Space component First and second-generation satellites in service $ 1,261,793 $ 1,195,509 Second-generation satellite, on-ground spare — 32,442 Ground component 293,465 282,268 Construction in progress: Space component 57,542 16,394 Ground component 25,756 33,998 Other 7,429 4,123 Total Globalstar System 1,645,985 1,564,734 Internally developed and purchased software 22,000 20,823 Equipment 8,691 8,590 Land and buildings 1,694 1,149 Leasehold improvements 2,081 2,088 Total property and equipment 1,680,451 1,597,384 Accumulated depreciation ( 972,446 ) ( 925,228 ) Total property and equipment, net $ 708,005 $ 672,156 Amounts included in "second-generation satellite, on-ground spare" in the table above consist of costs related to one of the Company's second-generation satellites that was stored as an on-ground spare satellite until its launch in June 2022. The costs to prepare this satellite for launch were included in "construction in progress - space component" in the table above prior to its launch in June 2022. During the second quarter of 2022, $ 65.1 million in costs associated with the construction and launch of this spare satellite (including capitalized interest) were placed into service. Since this satellite is expected to remain as an in-orbit spare and will only be raised to its operational orbit at a future date if needed, it was placed into service following its successful launch. The customer under the Terms Agreement has reimbursed 85 % of the costs incurred to prepare and launch this satellite. These reimbursements are recorded in deferred revenue on the Company's consolidated balance sheet as of June 30, 2022 and are expected to be recognized in service revenue as performance obligations are completed in accordance with the Terms Agreement. See Note 2: Revenue for further discussion . In February 2022, the Company entered into an agreement for the purchase of new satellites that will replenish the Company's existing satellite constell ation. As of June 30, 2022, the Company recorded $ 19.4 million as prepaid satellite construction costs and $ 54.2 million in construction in progress on its balance sheet reflecting the milestone work completed under this agreement. The customer under the Terms Agreement will reimburse 95 % of these capital expenditures. In accordance with the expected timing of reimbursement, $ 4.4 million is recorded in Accounts receivable and $ 74.8 million is recorded as a non-current receivable in Prepaid satellite construction costs and related customer receivable. The satellite construction assets acquired through this vendor financing arrangement are included in the supplemental section of the Company's condensed consolidated statement of cash flows as non-cash financing and investing activities. See further discussion in Note 2: Revenue, Note 5: Long-Term Debt and Other Financing Arrangements and Note 8: Commitments and Contingencies. The ground component of construction in progress includes costs incurred for assets to upgrade the Company's ground infrastructure, including costs associated with the procurement of new gateway antennas. During 2022, the Company placed $ 11.2 million o f costs into service associated with these antennas (including capitalized interest), which are included in ground component in the table above. These capital expenditures relate primarily to gateway upgrade work in connection with the Terms Agreement. 10 5. LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS Long-term debt consists of the following (in thousands): June 30, 2022 December 31, 2021 Principal Amount Unamortized Discount and Deferred Financing Costs Carrying Value Principal Amount Unamortized Discount and Deferred Financing Costs Carrying Value 2019 Facility Agreement 282,023 24,572 257,451 263,812 27,287 236,525 8.00 % Convertible Senior Notes Issued in 2013 — — — 1,407 — 1,407 Total Debt 282,023 24,572 257,451 265,219 27,287 237,932 The principal amounts shown above include payment of in-kind interest. The carrying value is net of deferred financing costs and any discounts to the loan amounts at issuance, including accretion. Excluded from the table are obligations related to a vendor financing arrangement discussed below. 2019 Facility Agreement In November 2019, the Company entered into a $ 199.0 million facility agreement with Thermo, an affiliate of EchoStar Corporation and certain other unaffiliated lenders (the "2019 Facility Agreement"). The 2019 Facility Agreement is scheduled to mature in November 2025. The loans under the 2019 Facility Agreement 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). As of June 30, 2022, the Company was in compliance with the covenants of the 2019 Facility Agreement, except as it relates to capital expenditures. In August 2022, the Company received a waiver letter from its lenders increasing permitted capital expenditures for 2022. The 2019 Facility Agreement requires mandatory prepayments of principal with any Excess Cash Flow (as defined and calculated in the 2019 Facility Agreement) on a semi-annual basis. The Company generated excess cash flow for the six-month measurement period ended June 30, 2022 and expects to make a prepayment of approximately $6.0 million in August 2022. Refer to Note 6: Derivatives and Note 7: Fair Value Measurements for further discussion on the compound embedded derivative bifurcated from the 2019 Facility Agreement. 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 Interest was paid in cash at a rate of 5.75 % and in additional notes at a rate of 2.25 %. In February 2022, the Company notified the holders of the 8.00 % Notes of its intention to redeem all of the outstanding amount of principal and interest in March 2022. Prior to the Company's intended redemption of the 8.00 % Notes, the holders converted the remaining principal amount outstanding of $ 1.4 million into 2.3 million shares of Globalstar common stock in February and March 2022. The 2013 8.00 % Notes were converted into shares of common stock at a conversion price of $ 0.69 per share of common stock. As a result of the conversions during the first quarter of 2022, the Company recorded gains and losses on extinguishment of debt resulting from the difference between the fair value of shares of Globalstar common stock issued to the holders and the principal amount of the notes that converted as well as the write-offs of the embedded derivative associated with the 2013 8.00 % Notes. The net impact to the Company's condensed consolidated statement of operations for the first quarter of 2022 was a gain of less than $ 0.1 million. Refer to Note 6: Derivatives and Note 7: Fair Value Measurements for further discussion on the compound embedded derivative bifurcated from the 2013 8.00 % Notes. 11 Vendor Financing In February 2022, the Company entered into a satellite procurement agreement (see Note 8: Commitments and Contingencies for further discussion). This agreement provides for payment deferrals of milestone payments through August 2022 at a 0 % interest rate. As of June 30, 2022, the Company had recorded $ 73.6 million in short-term vendor financing on its condensed consolidated balance sheet associated with this agreement. Deferred payments are due in August 2022 under the terms of the agreement. The Company intends to seek an extension of the maturity date while it pursues debt financing for the funding of the construction and launch costs for these satellites. 2009 Facility Agreement In 2009, the Company entered into a 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 "2009 Facility Agreement"). The 2009 Facility Agreement was fully repaid in November 2021. As a result of prepayments made under the 2009 Facility Agreement during the second quarter of 2021, the Company wrote off $ 2.3 million in deferred financing costs, which represents the portion of debt prepaid by the Company in the second quarter of 2021, and which was recorded as a loss on extinguishment of debt on its condensed consolidated statements of operations. Paycheck Protection Program Loan In April 2020, the Company sought relief under the CARES Act and received a $ 5.0 million loan under the Paycheck Protection Program ("PPP"), (the "PPP Loan"). In June 2021, the Small Business Administration ("SBA") approved the Company's request for forgiveness of all amounts outstanding under the PPP Loan, including accrued interest. 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 the entire principal balance, including accrued interest, was forgiven in June 2021, the Company recorded a gain on extinguishment of debt totaling $ 5.0 million on its condensed consolidated statements of operations for the period ended June 30, 2021. 12 6. DERIVATIVES The Company has identified various embedded derivatives resulting from certain features in the Company’s existing borrowing arrangements, requiring recognition 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, 2022 December 31, 2021 Derivative (liabilities) assets: Compound embedded derivative with the 2019 Facility Agreement $ ( 1,460 ) $ 484 Compound embedded derivative with the 2013 8.00 % Notes $ — ( 1,364 ) As of June 30, 2022 and December 31, 2021, the derivative (liability) asset recorded for the Compound embedded derivative with the 2019 Facility Agreement was reflected in Other non-current liabilities and Intangible and other assets, net, respectively, on the Company's condensed consolidated balance sheets. During the first quarter of 2022, the remaining principal amount of the 2013 8.00 % Notes was converted into shares of Globalstar common stock; accordingly, the associated derivative is no longer outstanding. The following table discloses the changes in value recorded as derivative loss in the Company’s condensed consolidated statement of operations (in thousands): Three Months Ended Six Months Ended June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021 Compound embedded derivative with the 2013 8.00 % Notes $ — $ ( 1,077 ) $ 216 $ ( 2,821 ) Compound embedded derivative with the 2019 Facility Agreement ( 1,242 ) ( 233 ) ( 1,944 ) 382 Total derivative loss $ ( 1,242 ) $ ( 1,310 ) $ ( 1,728 ) $ ( 2,439 ) The fair value of each embedded derivative 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 derivatives consistent with the classification of the underlying debt on the Company's condensed consolidated balance sheet. See Note 7: Fair Value Measurements for further discussion. 7. 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). 13 The Company's derivatives are classified as Level 3. The Company marks-to-market its derivatives 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. During the first quarter of 2022, the remaining principal amount of the 2013 8.00 % Notes was converted into shares of Globalstar common stock; accordingly, the associated derivative is no longer outstanding See Note 5: Long-Term Debt and Other Financing Arrangements and Note 6: Derivatives for further discussion. Recurring Fair Value Measurements The following tables provide a summary of the assets and liabilities measured at fair value on a recurring basis (in thousands): June 30, 2022 (Level 1) (Level 2) (Level 3) Total Balance Liabilities: Compound embedded derivative with the 2019 Facility Agreement $ — $ — $ ( 1,460 ) $ ( 1,460 ) Total liabilities measured at fair value $ — $ — $ ( 1,460 ) $ ( 1,460 ) December 31, 2021 (Level 1) (Level 2) (Level 3) Total Balance Assets: Compound embedded derivative with the 2019 Facility Agreement $ — $ — $ 484 $ 484 Total assets measured at fair value $ — $ — $ 484 $ 484 Liabilities: Compound embedded derivative with the 2013 8.00 % Notes $ — $ — $ ( 1,364 ) $ ( 1,364 ) Total liabilities measured at fair value $ — $ — $ ( 1,364 ) $ ( 1,364 ) 2013 8.00 % Notes The significant quantitative Level 3 inputs utilized in the valuation model are shown in the table below: December 31, 2021 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 120 % - 139 % 0.5 % $ 0.69 18 % $ 1.16 14 Fluctuation in the Company’s stock price and stock price volatility were significant drivers of the change in the compound embedded derivative with the 2013 8.00 % Notes. Increases in these inputs resulted in a higher fair value measurement. 2019 Facility Agreement The compound embedded derivative with the 2019 Facility Agreement 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 20 % and 13 % at June 30, 2022 and December 31, 2021, respectively. When the discount yield utilized in the valuation is higher than the blended interest rate of the underlying debt, the features embedded in the underlying debt result in a liability for the Company. Conversely, when the discount yield is lower than the blended interest rate of the underlying debt, the features embedded in the underlying debt result in an asset for the Company. The unobservable inputs used in the fair value measurement include the 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 Assets and Liabilities The following table presents a rollforward for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in thousands): Balance at beginning of period, January 1, 2022 and 2021, respectively $ ( 880 ) $ 163 Derivative adjustment related to conversions 1,148 — Unrealized loss, included in derivative loss ( 1,728 ) ( 1,043 ) Balance at end of period, June 30, 2022 and December 31, 2021, respectively $ ( 1,460 ) $ ( 880 ) Fair Value of Debt Instruments The Company believes it is not practicable to determine the fair value of the 2019 Facility Agreement without incurring significant additional costs. Unlike typical long-term debt, certain terms for this instrument are not readily available and generally involve a variety of factors, including due diligence by the debt holders. As previously disclosed, the remaining principal amount of the 2013 8.00 % Notes was converted into shares of Globalstar common stock during the first quarter of 2022; accordingly, there is no value in the table below as of June 30, 2022. The following table sets forth the carrying value and estimated fair value of the Company's Level 3 financial instrument (in thousands): June 30, 2022 December 31, 2021 Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value 2013 8.00% Notes $ — $ — $ 1,407 $ 1,265 See Note 5: Long-Term Debt and Other Financing Arrangements for further discussion of the Company's debt instruments. 15 Nonrecurring Fair Value Measurements The Company follows the authoritative guidance regarding non-financial assets and non-financial liabilities that are remeasured at fair value on a nonrecurring basis. Derivative Liabilities On February 17, 2022 and March 9, 2022, the remaining principal balance of the 2013 8.00 % Notes was converted into shares of Globalstar common stock, eliminating the principal balance outstanding. See further discussion in Note 5: Long-Term Debt and Other Financing Arrangements. As a result of the conversion, the Company wrote off the proportionate fair value of the compound embedded derivative liability with the 2013 8.00 % Notes based on the value of the derivative on each conversion date. As of each conversion date, the fair value of the compound embedded derivative liability with the 2013 8.00 % Notes was $ 0.8 million. The significant quantitative Level 3 inputs utilized in the valuation models as of the conversion date are shown in the table below: February 17, 2022 Risk-Free Interest Rate Note Conversion Price Discount Rate Market Price of Common Stock Compound embedded derivative with the 2013 8.00% Notes 0.06 % $ 0.69 18 % $ 1.00 March 9, 2022 Risk-Free Interest Rate Note Conversion Price Discount Rate Market Price of Common Stock Compound embedded derivative with the 2013 8.00% Notes 0.18 % $ 0.69 19 % $ 1.21 Intangible and Other Assets, net Intangible and other assets are reviewed for impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. During the second quarter of 2022, the Company wrote off approximately $ 0.5 million of work in progress associated with its spectrum intangible assets. The work in progress was related to efforts to obtain spectrum licensing authority in certain countries around the world; during the second quarter of 2022, the Company determined that it would not continue pursing such authorities in these countries and recorded a reduction in the value of long-lived assets in its condensed consolidated statements of operations for the six months ended June 30, 2022. 8. COMMITMENTS AND CONTINGENCIES Terms Agreement The Terms Agreement sets forth the primary terms for the Company to provide services to the customer and incur costs related primarily to new gateways and upgrades at existing gateways as well as satellite construction and launch costs. Under this agreement, the customer has made advance payments to the Company for services expected to be delivered under the Terms Agreement. To the extent the Company does not provide such services, it will be required to refund the amounts to the customer. The Terms Agreement also provides for various commitments with which the Company must comply to the extent that services under the agreement continue. Refer to Note 2: Revenue, Note 3: Leases and Note 4: Property and Equipment for further discussion. Satellite Procurement Agreement In February 2022, the Company entered into a satellite procurement agreement with Macdonald, Dettwiler and Associates Corporation ("MDA") pursuant to which Globalstar will acquire 17 satellites that will replenish Globalstar's existing constellation of satellites and ensure long-term continuity of its mobile satellite services. Globalstar is acquiring the satellites to provide continuous satellite services to the potential customer under the Terms Agreement, as well as services to Globalstar’s current and future customers. Globalstar maintains the option to acquire additional satellites under the contract. Globalstar plans 16 to contract separately for launch services and launch insurance for the new satellites. The total contract price for the initial 17 satellites is $ 327.0 million; Globalstar has the option to purchase additional satellites at a lower per unit cost, subject to certain conditions. The satellites are expected to be manufactured during the next three years . Under the Terms Agreement, subject to certain conditions, the counterparty is required to reimburse 95 % of the capital expenditures and certain other costs incurred for this contract. The current terms of the agreement with MDA provide for the deferral of milestone payments through August 2022. As of June 30, 2022, the total amount of deferred payments is approximately $ 74.0 million. The Company intends to seek an extension of the maturity date while it pursues a broader financing. This financing is expected to provide sufficient proceeds for the construction and launch of the satellites. 9. RELATED PARTY TRANSACTIONS Payables to Thermo and other affiliates related to normal purchase transactions were $ 0.4 million and $ 0.4 million as of June 30, 2022 and December 31, 2021, 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 that 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. The Company has a lease agreement with Thermo Covington, LLC for the Company's headquarters office. Annual lease payments started at $ 1.4 million per year in 2019 and increase at a rate of 2.5 % per year, for a lease term of ten years . During each of the six months ended June 30, 2022 and 2021, the Company incurred lease expense of $ 0.8 million under this lease agreement. In November 2019, the Company entered into the 2019 Facility Agreement. Thermo's participation in the 2019 Facility Agreement 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 2019 Facility Agreement was approximately $ 38.0 million, of which $ 8.3 million was accrued during the six months ended June 30, 2022. See Note 5: Long-Term Debt and Other Financing Arrangements for further discussion of the Company's debt and financing transactions with Thermo. 10. LOSS PER SHARE Loss per share is computed by dividing loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period. In periods of net income, 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 income. Common stock equivalents are included in the calculation of diluted earnings per share only when the effect of their inclusion would be dilutive. When outstanding, the effect of potentially dilutive common shares for the Company's convertible notes is 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 computation of basic and diluted loss per common share during each of the six months ended June 30, 2022 and 2021 (amounts in thousands, except per share data): Three Months Ended Six Months Ended June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021 Net loss $ ( 26,757 ) $ ( 21,449 ) $ ( 47,219 ) $ ( 57,782 ) Weighted average shares outstanding 1,799,886 1,791,943 1,798,784 1,736,158 Net loss per common share - basic and diluted $ ( 0.01 ) $ ( 0.01 ) $ ( 0.03 ) $ ( 0.03 ) 17 For the three months ended June 30, 2022 and 2021, 7.8 million and 7.3 million shares, respectively, of potential common stock were excluded from diluted shares outstanding because the effects of potentially dilutive securities would be anti-dilutive. For the six months June 30, 2022 and 2021, 7.6 million and 7.1 million shares, respectively, of potential common stock were excluded from diluted shares outstanding because the effects of potentially dilutive securities would be anti-dilutive.