Table of Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

# **Washington, D.C. 20549**

#  

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**FORM 10-Q**

 

**(Mark One)**
| **x** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|--------------------------------------------------------------------------------------------------------|

 

**For thequarterly period ended September 30, 2008**

 

**OR**

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

 

#### **Forthe transition periodfrom                    to                   **

####  

**Commission file number 001-33117**

 

**GLOBALSTAR, INC.**

(Exact Name of Registrant as Specified in ItsCharter)

 
| **Delaware**                    | ** ** | **41-2116508**                       |
|---------------------------------|------------|--------------------------------------|
| (State or Other Jurisdiction of |       | (I.R.S. Employer Identification No.) |
| Incorporation or Organization)  |       |                                 |

 

**461 South Milpitas Blvd.Milpitas, California 95035**

(Address of principal executive offices andzip code)

 

**(408) 933-4000**

Registrant’s telephone number, including areacode

 

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

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer or asmaller reporting company. See definition of “large accelerated filer,” “acceleratedfiler” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 
| Large accelerated filer o | Accelerated filer x | Non-accelerated filer o(Do not check if a  smaller  reporting company) | Smaller reporting company o |
|--------------------------------|--------------------------|-----------------------------------------------------------------------------|----------------------------------|

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes   o        No   x

 

Indicate the number ofshares outstanding of each of the issuer’s classes of Common Stock, as of thelatest practicable date. As of November 4, 2008, 119,773,472 shares ofCommon Stock, par value $0.0001 per share, were outstanding.

 

 

 

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Tableof Contents

 

TABLE OF CONTENTS

 
| ** **                               | ** **             | ** **                                                                                                               | **Page** |
|------------------------------------------|------------------------|--------------------------------------------------------------------------------------------------------------------------|----------|
|                                     |                   |                                                                                                                     |     |
| **PART I  - Financial Information** | 3                      |
|                                     |                   |                                                                                                                     |     |
|                                     | Item 1.                | Financial Statements                                                                                                     | 3        |
|                                     |                   |                                                                                                                     |     |
|                                     |                   | Consolidated  Statements of Operations for the three and nine months ended  September 30, 2008 and 2007 (unaudited) | 3        |
|                                     |                   |                                                                                                                     |     |
|                                     |                   | Consolidated Balance Sheets  as of September 30, 2008 and December 31, 2007 (unaudited)                        | 4        |
|                                     |                   |                                                                                                                     |     |
|                                     |                   | Consolidated Statements of  Cash Flows for the nine months ended September 30, 2008 and 2007  (unaudited)           | 5        |
|                                     |                   |                                                                                                                     |     |
|                                     |                   | Notes to Unaudited Interim Consolidated Financial  Statements                                                            | 6        |
|                                     |                   |                                                                                                                     |     |
|                                     | Item 2.                | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                              | 18       |
|                                     |                   |                                                                                                                     |     |
|                                     | Item 3.                | Quantitative  and Qualitative Disclosures about Market Risk                                                              | 42       |
|                                     |                   |                                                                                                                     |     |
|                                     | Item 4.                | Controls and  Procedures                                                                                                 | 43       |
|                                     |                   |                                                                                                                     |     |
| **PART II  - Other Information**    | 43                     |
|                                     |                   |                                                                                                                     |     |
|                                     | Item 1.                | Legal Proceedings                                                                                                        | 43       |
|                                     |                   |                                                                                                                     |     |
|                                     | Item 1 A. Risk Factors | 44                                                                                                                       |
|                                     |                   |                                                                                                                     |     |
|                                     | Item 6.                | Exhibits                                                                                                                 | 46       |
|                                     |                   |                                                                                                                     |     |
|                                     | Signatures             | 47                                                                                                                       |

 

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**PART I. FINANCIAL INFORMATION**

 

**Item 1. Financial Statements**

 

**GLOBALSTAR, INC.CONSOLIDATED STATEMENTS OF OPERATIONS**

**(In thousands, except per sharedata)(Unaudited)**

** **
| ** **                                                                            | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|---------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                            | ** ** | **September 30,  2008**     | ** ** | **September 30,  2007**    | ** ** | **September 30,  2008** | ** ** | **September 30,  2007** | ** ** |
| ** **                                                                            | ** ** | ** **                       | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenue:                                                                              |       |                             |       |                            |       |   |   |   |   |
| Service revenue                                                                       |       | $                                | 16,150     |                            | $          | 21,263 |   | $ | 48,833 |   | $ | 58,713 |   |
| Subscriber equipment sales                                                            |       | 6,375                            |       | 4,425                           |       | 18,825 |   | 15,966 |   |
| Total revenue                                                                         |       | 22,525                           |       | 25,688                          |       | 67,658 |   | 74,679 |   |
| Operating expenses:                                                                   |       |                             |       |                            |       |   |   |   |   |
| Cost of services (exclusive of depreciation  and amortization shown separately below) |       | 10,452                           |       | 7,307                           |       | 26,534 |   | 20,428 |   |
| Cost of subscriber equipment sales:                                                   |       |                             |       |                            |       |   |   |   |   |
| Cost of subscriber equipment sales                                                    |       | 4,942                            |       | 3,390                           |       | 14,050 |   | 11,398 |   |
| Cost of subscriber equipment sales –  Impairment of assets                       |       | —                           |       | —                          |       | 404 |   | 17,255 |   |
| Total cost of subscriber equipment sales                                              |       | 4,942                            |       | 3,390                           |       | 14,454 |   | 28,653 |   |
| Marketing, general, and administrative                                                |       | 17,372                           |       | 12,069                          |       | 48,602 |   | 34,185 |   |
| Depreciation and amortization                                                         |       | 7,196                            |       | 3,264                           |       | 19,135 |   | 8,225 |   |
| Total operating expenses                                                              |       | 39,962                           |       | 26,030                          |       | 108,725 |   | 91,491 |   |
| Operating loss                                                                        |       | (17,437                          | )          | (342                            | )          | (41,067 | ) | (16,812 | ) |
| Other income (expense):                                                               |       |                             |       |                            |       |   |   |   |   |
| Interest income                                                                       |       | 1,474                            |       | 734                             |       | 4,407 |   | 2,253 |   |
| Interest expense                                                                      |       | (1,285                           | )          | (341                            | )          | (2,754 | ) | (1,037 | ) |
| Interest rate derivative loss                                                         |       | (229                             | )          | (2,297                          | )          | (25 | ) | (751 | ) |
| Other                                                                                 |       | (6,587                           | )          | 3,827                           |       | 1,587 |   | 4,874 |   |
| Total other income (expense)                                                          |       | (6,627                           | )          | 1,923                           |       | 3,215 |   | 5,339 |   |
| Income (loss) before income taxes                                                     |       | (24,064                          | )          | 1,581                           |       | (37,852 | ) | (11,473 | ) |
| Income tax expense                                                                    |       | 2,039                            |       | 929                             |       | 2,234 |   | 118 |   |
| Net income (loss)                                                                     |       | $                                | (26,103    | )                               | $          | 652 |   | $ | (40,086 | ) | $ | (11,591 | ) |
| Income (loss) per common share:                                                       |       |                             |       |                            |       |   |   |   |   |
| Basic                                                                                 |       | $                                | (0.31      | )                               | $          | 0.01 |   | $ | (0.48 | ) | $ | (0.15 | ) |
| Diluted                                                                               |       | (0.31                            | )          | 0.01                            |       | (0.48 | ) | (0.15 | ) |
| Weighted-average shares outstanding:                                                  |       |                             |       |                            |       |   |   |   |   |
| Basic                                                                                 |       | 84,631                           |       | 78,000                          |       | 83,711 |   | 75,614 |   |
| Diluted                                                                               |       | 84,631                           |       | 79,044                          |       | 83,711 |   | 75,614 |   |

 

See accompanying notes to unaudited interim consolidated financialstatements.

 

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**GLOBALSTAR, INC.CONSOLIDATED BALANCE SHEETS**

**(In thousands, except par value)(Unaudited)**

 
| ** **                                                                                                                                                                                        | ** ** | **September 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| **ASSETS**                                                                                                                                                                                        | ** ** | ** **                   | ** ** | ** **                  | ** ** |
| Current assets:                                                                                                                                                                                   |       |                         |       |                        |       |
| Cash and cash equivalents                                                                                                                                                                         |       | $                            | 12,937     |                        | $          | 37,554 |   |
| Accounts receivable, net of allowance of  $5,701 (2008) and $4,177 (2007)                                                                                                                         |       | 15,279                       |       | 12,399                      |       |
| Inventory                                                                                                                                                                                         |       | 64,849                       |       | 54,939                      |       |
| Advances for inventory                                                                                                                                                                            |       | 9,313                        |       | 9,769                       |       |
| Deferred tax assets                                                                                                                                                                               |       | 604                          |       | 1,257                       |       |
| Prepaid expenses and other current assets                                                                                                                                                         |       | 6,867                        |       | 3,262                       |       |
| Total current assets                                                                                                                                                                              |       | 109,849                      |       | 119,180                     |       |
|                                                                                                                                                                                              |       |                         |       |                        |       |
| Property and equipment:                                                                                                                                                                           |       |                         |       |                        |       |
| Spare satellites and related launch costs                                                                                                                                                         |       | —                       |       | 47,848                      |       |
| Second-generation satellites, launch costs  and ground segment                                                                                                                                    |       | 435,218                      |       | 147,998                     |       |
| Globalstar System, net                                                                                                                                                                            |       | 122,753                      |       | 84,939                      |       |
| Other property and equipment, net                                                                                                                                                                 |       | 12,812                       |       | 9,318                       |       |
|                                                                                                                                                                                              |       | 570,783                      |       | 290,103                     |       |
|                                                                                                                                                                                              |       |                         |       |                        |       |
| Other assets:                                                                                                                                                                                     |       |                         |       |                        |       |
| Restricted cash                                                                                                                                                                                   |       | 104,722                      |       | 80,871                      |       |
| Deferred tax assets                                                                                                                                                                               |       | 19,049                       |       | 20,303                      |       |
| Other assets, net                                                                                                                                                                                 |       | 15,174                       |       | 2,518                       |       |
| Total assets                                                                                                                                                                                      |       | $                            | 819,577    |                        | $          | 512,975 |   |
|                                                                                                                                                                                              |       |                         |       |                        |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                                                                                                    | ** ** | ** **                   | ** ** | ** **                  | ** ** |
| Current liabilities:                                                                                                                                                                              |       |                         |       |                        |       |
| Accounts payable                                                                                                                                                                                  |       | $                            | 35,952     |                        | $          | 8,400 |   |
| Accrued expenses                                                                                                                                                                                  |       | 39,543                       |       | 17,650                      |       |
| Payables to affiliates                                                                                                                                                                            |       | 3,119                        |       | 1,487                       |       |
| Deferred revenue                                                                                                                                                                                  |       | 19,740                       |       | 19,396                      |       |
| Total current liabilities                                                                                                                                                                         |       | 98,354                       |       | 46,933                      |       |
|                                                                                                                                                                                              |       |                         |       |                        |       |
| Borrowings under revolving credit facility                                                                                                                                                        |       | 35,000                       |       | 50,000                      |       |
| Long term debt                                                                                                                                                                                    |       | 100,000                      |       | —                      |       |
| Long term convertible senior notes                                                                                                                                                                |       | 150,000                      |       | —                      |       |
| Employee benefit obligations, net of  current portion                                                                                                                                             |       | 1,422                        |       | 1,779                       |       |
| Other non-current liabilities                                                                                                                                                                     |       | 54,583                       |       | 8,719                       |       |
| Total non-current liabilities                                                                                                                                                                     |       | 341,005                      |       | 60,498                      |       |
|                                                                                                                                                                                              |       |                         |       |                        |       |
| Ownership equity:                                                                                                                                                                                 |       |                         |       |                        |       |
| Preferred Stock, $0.0001 par value; 100,000  shares authorized, issued and outstanding — none                                                                                                |       | —                       |       | —                      |       |
| Common Stock, $0.0001 par value; 800,000  shares authorized, 118,419 shares issued and outstanding at  September 30, 2008 and 83,693 shares issued and outstanding at December 31, 2007 |       | 12                           |       | 8                           |       |
| Additional paid-in capital                                                                                                                                                                        |       | 424,443                      |       | 407,743                     |       |
| Accumulated other comprehensive income                                                                                                                                                            |       | 1,467                        |       | 3,411                       |       |
| Retained deficit                                                                                                                                                                                  |       | (45,704                      | )          | (5,618                      | )          |
| Total ownership equity                                                                                                                                                                            |       | 380,218                      |       | 405,544                     |       |
|                                                                                                                                                                                              |       |                         |       |                        |       |
| Total liabilities and shareholders’ equity                                                                                                                                                   |       | $                            | 819,577    |                        | $          | 512,975 |   |

 

See accompanying notes to unaudited interim consolidated financialstatements.

 

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**GLOBALSTAR, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(In thousands)(Unaudited)**

 
| ** **                                                                              | ** ** | **Nine Months Ended** | ** **    |
|-----------------------------------------------------------------------------------------|------------|---------------------------------|---------------|
| ** **                                                                              | ** ** | **September 30, 2008**     | ** **    | **September 30, 2007** | ** ** |
| Cash flows from operating activities:                                                   |       |                            |          |   |   |
| Net loss                                                                                |       | $                               |  (40,086 | ) | $ | (11,591 | ) |
| Adjustments to reconcile net loss to net  cash from operating activities:               |       |                            |          |   |   |
| Deferred income taxes                                                                   |       | 1,800                           |          | (510 | ) |
| Depreciation and amortization                                                           |       | 19,135                          |          | 8,225 |   |
| Interest rate derivative loss                                                           |       | 25                              |          | 751 |   |
| Stock-based compensation expense                                                        |       | 10,318                          |          | 5,409 |   |
| Loss (gain) on disposal of fixed assets                                                 |       | 59                              |          | (137 | ) |
| Provision for bad debts                                                                 |       | 1,871                           |          | 425 |   |
| Interest income on restricted cash                                                      |       | (3,526                          | )             | (1,557 | ) |
| Contribution of services                                                                |       | 337                             |          | 315 |   |
| Cost of subscriber equipment sales -  impairment of assets                              |       | 404                             |          | 17,255 |   |
| Amortization of deferred financing costs                                                |       | 514                             |          | 332 |   |
| Loss in equity method investee                                                          |       | 105                             |          | — |   |
| Changes in operating assets and  liabilities, net of acquisition:                       |       |                            |          |   |   |
| Accounts receivable                                                                     |       | (4,931                          | )             | 5,132 |   |
| Inventory                                                                               |       | (13,871                         | )             | (25,447 | ) |
| Advances for inventory                                                                  |       | (74                             | )             | 6,607 |   |
| Prepaid expenses and other current assets                                               |       | 1,219                           |          | (429 | ) |
| Other assets                                                                            |       | (1,035                          | )             | 327 |   |
| Accounts payable                                                                        |       | 1,665                           |          | (8,549 | ) |
| Payables to affiliates                                                                  |       | 1,722                           |          | 128 |   |
| Accrued expenses and employee benefit  obligations                                      |       | (3,504                          | )             | (4,036 | ) |
| Other non-current liabilities                                                           |       | 1,075                           |          | (109 | ) |
| Deferred revenue                                                                        |       | 804                             |          | (4,152 | ) |
| Net cash from operating activities                                                      |       | (25,974                         | )             | (11,611 | ) |
| Cash flows from investing activities:                                                   |       |                            |          |   |   |
| Spare and second-generation satellites and  launch costs                                |       | (199,525                        | )             | (125,850 | ) |
| Second-generation ground                                                                |       | (5,294                          | )             | — |   |
| Property and equipment additions                                                        |       | (4,551                          | )             | (2,702 | ) |
| Proceeds from sale of property and equipment                                            |       | 141                             |          | 263 |   |
| Payment for intangible assets                                                           |       | —                          |          | (214 | ) |
| Investment in businesses                                                                |       | (2,000                          | )             | — |   |
| Cash acquired on purchase of subsidiary                                                 |       | 1,839                           |          | — |   |
| Restricted cash                                                                         |       | (18,298                         | )             | — |   |
| Net cash from investing activities                                                      |       | (227,688                        | )             | (128,503 | ) |
| Cash flows from financing activities:                                                   |       |                            |          |   |   |
| Proceeds from revolving credit loan                                                     |       | 35,000                          |          | — |   |
| Payment of principal on notes payable                                                   |       | —                          |          | (273 | ) |
| Borrowings from long-term convertible  senior notes                                     |       | 150,000                         |          | — |   |
| Borrowings from long term debt                                                          |       | 100,000                         |          | — |   |
| Repayment of revolving credit loan                                                      |       | (50,000                         | )             | — |   |
| Proceeds from irrevocable standby stock  purchase agreement                             |       | —                          |          | 140,255 |   |
| Deferred financing cost payments                                                        |       | (4,880                          | )             | (1,533 | ) |
| Reduction in derivative margin account  balance requirements                            |       | 159                             |          | — |   |
| Net cash from financing activities                                                      |       | 230,279                         |          | 138,449 |   |
| Effect of exchange rate changes on cash                                                 |       | (1,234                          | )             | (5,694 | ) |
| Net decrease in cash and cash equivalents                                               |       | (24,617                         | )             | (7,359 | ) |
| Cash and cash equivalents, beginning of  period                                         |       | 37,554                          |          | 43,698 |   |
| Cash and cash equivalents, end of period                                                |       | $                               |  12,937  |   | $ | 36,339 |   |
| Supplemental disclosure of cash flow  information:                                      |       |                            |          |   |   |
| Cash paid for:                                                                          |       |                            |          |   |   |
| Interest                                                                                |       | $                               |  5,502   |   | $ | 2,301 |   |
| Income taxes                                                                            |       | $                               |  994     |   | $ | 84 |   |
| Supplemental disclosure of non-cash  financing and investing activities:                |       |                            |          |   |   |
| Conversion of redeemable Common Stock to  Common Stock                                  |       | $                               |  —  |   | $ | 1,249 |   |
| Accrued launch costs and second-generation  satellites costs                            |       | $                               |  27,481  |   | $ | 347 |   |
| Capitalization of interest for spare and  second-generation satellites and launch costs |       | $                               |  10,460  |   | $ | — |   |
| Vendor financing of second-generation Globalstar  System                                |       | $                               |  48,215  |   | $ |   |

 

See accompanying notes to unaudited interim consolidated financialstatements.

 

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** **

**GLOBALSTAR, INC.**

 

**NOTES TO UNAUDITED INTERIMCONSOLIDATED FINANCIAL STATEMENTS**

 

**Note 1: TheCompany and Summary of Significant Accounting Policies**

 

***Nature ofOperations***

 

Globalstar, Inc.(“Globalstar” or the “Company”) was formed as a Delaware limited liabilitycompany in November 2003, and was converted into a Delaware corporation onMarch 17, 2006.

 

Globalstaris a leading provider of mobile voice and data communications services viasatellite. Globalstar’s network, originally owned by Globalstar, L.P. (“OldGlobalstar”), was designed, built and launched in the late 1990s by atechnology partnership led by Loral Space and Communications (“Loral”) andQUALCOMM Incorporated (“QUALCOMM”). On February 15, 2002, Old Globalstarand three of its subsidiaries filed voluntary petitions under Chapter 11 of theUnited States Bankruptcy Code. In 2004, Thermo Capital Partners L.L.C.,together with its affiliates (“Thermo”), became Globalstar’s principal owner,and Globalstar completed the acquisition of the business and assets of OldGlobalstar. Thermo remains Globalstar’s largest stockholder.  Globalstar’s Chairman and Chief ExecutiveOfficer controls Thermo and its affiliates. Two other members of Globalstar’sBoard of Directors are also directors, officers or minority equity owners ofvarious Thermo entities.

 

Globalstaroffers satellite services to commercial and recreational users in more than 120countries around the world. The Company’s voice and data products includemobile and fixed satellite telephones, Simplex and duplex satellite data modemsand flexible service packages. Many land based and maritime industries benefitfrom Globalstar with increased productivity from remote areas beyond cellularand landline service. Globalstar’s customers include those in the followingindustries: oil and gas, government, mining, forestry, commercial fishing,utilities, military, transportation, heavy construction, emergency preparedness,and business continuity, as well as individual recreational users.

 

***Basis of Presentation***

 

Theaccompanying unaudited interim consolidated financial statements have beenprepared in accordance with generally accepted accounting principles in theUnited States of America (“GAAP”) for interim financial information. Theseunaudited interim consolidated financial statements include the accounts ofGlobalstar and its majority owned or otherwise controlled subsidiaries. Allsignificant intercompany transactions and balances have been eliminated in theconsolidation. In the opinion of management, such information includes alladjustments, consisting of normal recurring adjustments, that are necessary fora fair presentation of the Company’s consolidated financial position, resultsof operations, and cash flows for the periods presented. The results ofoperations for the three and nine months ended September 30, 2008 are notnecessarily indicative of the results that may be expected for the full year orany future period. Globalstar’s results of operations are subject to seasonalusage changes. The months of April through October are typically peakmonths for service revenues and equipment sales. Government customers in NorthAmerica tend to use Globalstar’s services during summer months, often insupport of relief activities after events such as hurricanes, forest fires andother natural disasters.

 

Thepreparation of consolidated financial statements in conformity with GAAPrequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period. The Company evaluates itsestimates on an ongoing basis, including those related to revenue recognition,allowance for doubtful accounts, inventory valuation, deferred tax assets,property and equipment, warranty obligations and contingencies and litigation.Actual results could differ from these estimates.

 

Theseunaudited interim consolidated financial statements should be read inconjunction with the audited consolidated financial statements and relatednotes included in the Company’s Annual Report on Form 10-K for the yearended December 31, 2007. Certain information and footnote disclosuresnormally included in financial statements prepared in accordance with GAAP havebeen condensed or omitted. Certain reclassifications have been made to prioryear consolidated financial statements to conform to current year presentation.

 

Globalstaroperates in one segment, providing voice and data communication services viasatellite. As a result, all segment-related financial information required byStatement of Financial Accounting Standards (“SFAS”) No. 131, “DisclosuresAbout Segments of an Enterprise and Related Information,” or SFAS 131, isincluded in the consolidated financial statements.

 

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Otherincome (expense) includes foreign exchange transaction gains (losses) of $(6.5)million and $1.6 million for the three and nine months ended September 30,2008, respectively, and $3.8 million and $4.9 million for the three and ninemonths ended September 30, 2007, respectively.

 

***Recent Accounting Pronouncements***

 

In September 2006, the Financial Accounting Standards Board (the “FASB”)issued Statement of Financial Standards No. 157, “Fair Value Measurements”(“SFAS No. 157”), which clarifies the definition of fair value,establishes guidelines for measuring fair value, and expands disclosuresregarding fair value measurements. SFAS No. 157 does not require anynew fair value measurements and eliminates inconsistencies in guidance found invarious prior accounting pronouncements. SFAS No. 157 initially wasto be effective for the Company on January 1, 2008. However, on February 12,2008, the FASB approved FASB Staff Position (“FSP”) FAS 157-2, whichdelays the effective date of SFAS No. 157 for all non-financialassets and non-financial liabilities except those that are recognized ordisclosed at fair value in the financial statements on a recurring basis (atleast annually). This FSP partially defers the effective date of Statement No. 157to fiscal years beginning after November 15, 2008, and interim periodswithin those fiscal years, for items within the scope of this FSP. On January 1,2008, the Company adopted the provisions of SFAS No. 157 that relate toestablishing guidelines for measuring fair value of financial assets andliabilities and non-financial assets and non-financial liabilities that arerecognized at fair value on a recurring basis. This adoption did not have amaterial impact on the Company’s financial position, results of operations, orcash flows.

 

In February 2007, the FASB issued Statement of FinancialAccounting Standards No. 159, “The Fair Value Option for Financial Assetsand Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 allowscompanies to measure many financial assets and liabilities at fair value. Italso establishes presentation and disclosure requirements designed tofacilitate comparisons between companies that choose different measurementattributes for similar types of assets and liabilities. SFAS No. 159 iseffective for financial statements issued for fiscal years beginning after November 15,2007, and interim periods within those fiscal years. On January 1, 2008,the Company adopted SFAS No. 159. The adoption of SFAS No. 159 didnot have a material impact on the Company’s financial position, results ofoperations, or cash flows.

 

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities an amendment of FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 requires companies to provide enhanced disclosures regarding derivative instruments and hedging activities. It requires a company to convey better the purpose of derivative use in terms of the risks that it is intending to manage. Disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect a company’s financial position, financial performance, and cash flows are required. SFAS No. 161 retains the same scope as SFAS No. 133 and is effective for fiscal years and interim periods beginning after November 15, 2008. The Company is currently assessing implementation plans and does not expect the adoption of SFAS No. 161 to have a material impact, if any, on the Company’s financial position, results of operations, or cash flows.

 

In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP (the GAAP hierarchy). SFAS No. 162 supersedes the existing hierarchy contained in the U.S. auditing standards. The existing hierarchy was carried over to SFAS No. 162 essentially unchanged. The Statement becomes effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to the auditing literature. The new hierarchy is not expected to change current accounting practice in any area.

 

InMay 2008, the FASB issued FSP APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled inCash upon Conversion (Including Partial Cash Settlement)*.*” FSP APB 14-1 clarifies thatconvertible debt instruments that may be settled in cash upon either mandatoryor optional conversion (including partial cash settlement) are not addressed byparagraph 12 of APB Opinion No. 14, *Accountingfor Convertible Debt and Debt issued with Stock Purchase Warrants*.Additionally, FSP APB 14-1 specifies that issuers of such instruments shouldseparately account for the liability and equity components in a manner thatwill reflect the entity’s nonconvertible debt borrowing rate when interest costis recognized in subsequent periods. FSP APB 14-1 is effective for financialstatements issued for fiscal years beginning after December 15, 2008, andinterim periods within those fiscal years. The Company will adopt FSP APB 14-1beginning in the first quarter of 2009, and this standard must be applied on aretrospective basis. The Company is evaluating the impact of the adoption ofFSP APB 14-1 on its financial position, results of operations or cash flows.

 

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**Note 2: Basic and Diluted LossPer Share**

 

TheCompany applies the provisions of Statement of Financial Accounting Standard No. 128,“Earnings Per Share” (“SFAS 128”), which requires companies to present basicand diluted earnings per share. Basic earnings per share is computed based onthe weighted-average number of shares of Common Stock outstanding during theperiod. Common Stock equivalents are included in the calculation of dilutedearnings per share only when the effect of their inclusion would be dilutive.

 

Thefollowing table sets forth the computations of basic and diluted loss per share(in thousands, except per share data):

 
| ** **                                   | ** ** | **Three Months Ended September 30, 2008** | ** ** | **Nine Months Ended September 30, 2008** | ** ** |
|----------------------------------------------|------------|--------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                   | ** ** | **Income  (Numerator)**                                            | ** ** | **Weighted  Average Shares  Outstanding  (Denominator)**     | ** ** | **Per-Share  Amount** | ** ** | **Income  (Numerator)** | ** ** | **Weighted  Average Shares  Outstanding  (Denominator)** | ** ** | **Per-Share  Amount** | ** ** |
| **Basic and Dilutive loss per common share** | ** ** | ** **                                                         | ** ** | ** **                                                        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net loss                                     |       | $                                                                  | (26,103    | )                                                                 | 84,631     |   | $ | (0.31 | ) | $ | (40,086 | ) | 83,711 |   | $ | (0.48 | ) |
|                                              |            |                                                                    |            |                                                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                 | ** ** | **Three Months Ended September 30, 2007** | ** ** | **Nine Months Ended September 30, 2007** | ** ** |
|--------------------------------------------|------------|--------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                 | ** ** | **Income  (Numerator)**                                            | ** ** | **Weighted  Average Shares  Outstanding  (Denominator)**     | ** ** | **Per-Share  Amount** | ** ** | **Income  (Numerator)** | ** ** | **Weighted  Average Shares  Outstanding  (Denominator)** | ** ** | **Per-Share  Amount** | ** ** |
| **Basic income (loss) per common share**   | ** ** | ** **                                                         | ** ** | ** **                                                        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income (loss)                          |       | $                                                                  | 652        |                                                              | 78,000     |   | $ | 0.01 |   | $ | (11,591 | ) | 75,614 |   | $ | (0.15 | ) |
| **Effect of Dilutive Securities**          |       |                                                               |       |                                                              |       |   |   |   |   |   |   |   | ** ** |
| Stock Options to Director                  |       |                                                               |       | 88                                                                |       |   |   |   |   |   |   |   | ** ** |
| GAT acquisition                            |       |                                                               |       | 536                                                               |       |   |   |   |   |   |   |   | ** ** |
| Unvested restricted stock                  |       |                                                               |       | 420                                                               |       |   |   |   |   |   |   |   | ** ** |
| **Diluted income (loss) per common share** |       | $                                                                  | 652        |                                                              | 79,044     |   | $ | 0.01 |   | $ | (11,591 | ) | 75,614 |   | $ | (0.15 | ) |

 

For the three andnine months ended September 30, 2008 and 2007, diluted net income (loss)per share of Common Stock is the same as basic net income (loss) per share ofCommon Stock, because the effects of potentially dilutive securities areanti-dilutive.

 

Shares issuedunder the Share Lending Agreement (31.4 million shares at September 30,2008) are excluded from the computation of earnings per share (Note 13).

 

**Note 3:**** Acquisitions**

 

On March 25, 2008, the Company completed its acquisition of anindependent gateway operator that owns and operates three gateway groundstations in Brazil. Pursuant to the terms of the acquisition, the Companyacquired all of the outstanding equity of the independent gateway operator for$6.5 million, including $6.0 million payable in Common Stock of the Company and$0.5 million in release of service fees owed to the Company by the independentgateway operator. The Company also incurred transaction costs of $0.2 million.Earlier in 2008, the Company received the necessary Agencia Nacional deTelecomunicacoes (ANATEL) regulatory approval. The acquisition allows theCompany to expand its coverage in South America and engage in discussions withpotential partners to provide ancillary terrestrial component or ATC-typeservices in Brazil.

 

The following table summarizes the Company’spreliminary allocation of the estimated values of the assets acquired andliabilities assumed in the acquisition (in thousands):

 
| ** **                | ** ** | **March 25,  2008** | ** ** |
|---------------------------|------------|--------------------------|------------|
| Current assets            |       | $                        | 7,695      |   |
| Property and equipment    |       | 6,872                    |       |
| Long-term assets          |       | 5,361                    |       |
| Total assets acquired     |       | 19,928                   |       |
| Current liabilities       |       | 6,419                    |       |
| Long-term liabilities     |       | 6,792                    |       |
| Total liabilities assumed |       | 13,211                   |       |
| Net assets acquired       |       | $                        | 6,717      |   |

 

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**Note 4:****Property and Equipment**

 

Property and equipmentconsist of the following (in thousands):

 
| ** **                                             | ** ** | **September 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|--------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Globalstar System:                                     |       |                         |       |                        |       |
| Space segment                                          |       | $                            | 132,983    |                        | $          | 85,142 |   |
| Ground segment                                         |       | 27,822                       |       | 21,530                      |       |
| Second-generation satellites and related  launch costs |       | 428,998                      |       | 147,998                     |       |
| Second-generation ground segment                       |       | 6,263                        |       | —                      |       |
| Spare satellites and related launch costs              |       | —                       |       | 47,848                      |       |
| Furniture and office equipment                         |       | 16,872                       |       | 14,417                      |       |
| Land and buildings                                     |       | 3,079                        |       | 2,478                       |       |
| Leasehold improvements                                 |       | 705                          |       | 717                         |       |
| Construction in progress                               |       | 3,710                        |       | 1,132                       |       |
|                                                   |       | 620,432                      |       | 321,262                     |       |
| Accumulated depreciation                               |       | (49,649                      | )          | (31,159                     | )          |
|                                                   |       | $                            | 570,783    |                        | $          | 290,103 |   |

 

Property and equipment consists of anin-orbit satellite constellation, ground equipment, spare satellites andrelated launch costs, second-generation satellites and related launch costs,second-generation ground segment and support equipment located in variouscountries around the world.

 

On November 30, 2006, the Companyentered into a contract with Thales Alenia Space (formerly known as AlcatelAlenia Space France) to construct 48 low-earth orbit satellites. The totalcontract price, including subsequent additions, is approximately €669.6 million(approximately $946.7 million at a weighted average conversion rate of€1.00 = $1.4139 at September 30, 2008) including approximately €146.8million which was paid by the Company in U.S. dollars at a fixed conversionrate of €1.00 = $1.2940. The contract requires Thales Alenia Space to commencedelivery of satellites in the third quarter of 2009, with deliveries continuinguntil 2013 unless Globalstar elects to accelerate delivery. At September 30,2008, $72.8 million was held in escrow to secure the Company’s paymentobligations related to its contract for the construction of itssecond-generation satellite constellation. Funds that the Company deposits intothe escrow account to support this contract will be used to make payments underthis contract in the future. At the Company’s request, Thales Alenia Space haspresented a plan for accelerating delivery of the initial 24 satellites by upto four months. The expected cost of this acceleration will range fromapproximately €6.7 million to €13.4 million ($9.7 million to $19.4 million at€1.00 = $1.4449).  In 2007, the Companyauthorized the first two portions of the Thales’ four-part sequential plan withan additional cost of €4.1 million ($5.9 million at €1.00 =$1.4449). In October 2008, the Company authorized the third portion of thesequential plan with an additional cost of €0.9 million ($1.3 million at €1.00= $1.4449). The Company cannot provide assurance that the remaining accelerationwill occur.

 

In March 2007, the Company and Thales AleniaSpace entered into an agreement for the construction of the SatelliteOperations Control Centers, Telemetry Command Units and In Orbit Test Equipment(collectively, the “Control Network Facility”) for the Company’ssecond-generation satellite constellation. This agreement complements thesecond-generation satellite construction contract between Globalstar and ThalesAlenia Space for the construction of 48 low-earth orbit satellites and allowsThales Alenia Space to coordinate all aspects of the second-generationsatellite constellation project, including the transition of first-generationsoftware and hardware to equipment for the second generation. The totalcontract price for the construction and associated services is €9.1 million(approximately $13.1 million at a weighted average conversion rate of €1.00 =$1.4345) consisting of €4.0 million for the Satellite Operations ControlCenters, €3.1 million for the Telemetry Command Units and €2.0 million for theIn Orbit Test Equipment, with payments to be made on a quarterly basis throughcompletion of the Control Network Facility in late 2009. Globalstar has theoption to terminate the contract if excusable delays affecting Thales AleniaSpace’s ability to perform the contract total six consecutive months or at itsconvenience. If Globalstar terminates the contract, it must pay Thales AleniaSpace the lesser of its unpaid costs for work performed by Thales Alenia Spaceand its subcontractors or payments for the next two quarters followingtermination. If Thales Alenia Space has not completed the Control NetworkFacility acceptance review within 60 days of the due date, Globalstar will beentitled to certain liquidated damages. Failure to complete the Control NetworkFacility acceptance review on or before six months after the due date resultsin a default by Thales Alenia Space, entitling Globalstar to a refund of allpayments, except for liquidated damage amounts previously paid or with respectto items where final delivery has occurred. The Control Network Facility, whenaccepted, will be covered by a limited one-year warranty. The contract containscustomary arbitration and indemnification provisions.

 

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On September 5, 2007, the Company andArianespace (the “Launch Provider”) entered into an agreement for the launch ofthe Company’s second-generation satellites and certain pre and post-launchservices. Pursuant to the agreement, the Launch Provider will make fourlaunches of six satellites each, and the Company has the option to require theLaunch Provider to make four additional launches of six satellites each. Thetotal contract price for the first four launches is approximately $210.1million. On July 5, 2008, theCompany amended its agreement with its Launch Provider for the launch ofthe Company’s second-generation satellites and certain pre and post-launch services.Under the amended terms, the Company can defer payment on up to 75% of certainamounts due to the Launch Provider. The deferred payments will incur annualinterest at 8% to 12%. See “Item 2. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations - Liquidity and Capital Resources- Capital Expenditures” for a schedule of the payments to the Launch Provider.The anticipated time period for the first four launches ranges from the thirdquarter of 2009 through the end of 2010 and the optional launches are availablefrom spring 2010 through the end of 2014. Prolonged delays due to postponementsby the Company or the Launch Provider may result in adjustments to the paymentschedule.

 

To augment its existing satellite constellation, the Companysuccessfully launched eight spare satellites in two separate launches of foursatellites each on May 29, 2007 and October 21, 2007. The Company nolonger has any spare satellites remaining to be launched.  All of the eight spare satellites hadbeen placed into service and were handling call traffic as of June 30,2008.

 

On May 14, 2008, the Company and Hughes NetworkSystems, LLC (“Hughes”) entered into an agreement under which Hughes willdesign, supply and implement the Radio Access Network (“RAN”) ground networkequipment and software upgrades for installation at a number of the Company’ssatellite gateway ground stations and satellite interface chips to be a part ofthe User Terminal Subsystem (UTS) in various next-generation Globalstardevices. The total contract purchase price of approximately $100.8 million ispayable in various increments over a period of 40 months. The Company hasthe option to purchase additional RANs and other software and hardwareimprovements at pre-negotiated prices. The RANs, when completed, will becovered by a limited one-year warranty, with an option for the Company toextend the warranty. The agreement contains customary arbitration andindemnification provisions. Future costs associated with certain projects underthis contract will be capitalized once the Company has determined thattechnological feasibility has been achieved on these projects.

 

As of September 30, 2008 and December 31,2007, capitalized interest recorded was $14.8 million and $1.1 million,respectively. Interest capitalized during the three and nine months ended September 30,2008 was $5.4 million and $13.7 million, respectively. No interest wascapitalized during the three and nine months ended September 30, 2007.Depreciation expense for the three and nine months ended September 30,2008 was $7.2 million and $19.0 million, respectively, and $3.2 millionand $8.1 million for the three and nine months ended September 30, 2007,respectively.

 

**Note 5: Payables to Affiliates**

 

Payables to affiliates relate to normal purchasetransactions, excluding interest, and are comprised of the following (inthousands):

 
| ** **              | ** ** | **September 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|-------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **              | ** ** | ** **                   | ** ** | ** **                  | ** ** |
| QUALCOMM                |       | $                            | 2,912      |                        | $          | 1,286 |   |
| Thermo Capital Partners |       | 207                          |       | 201                         |       |
|                    |       | $                            | 3,119      |                        | $          | 1,487 |   |

 

Thermo incurs certaingeneral and administrative expenses on behalf of the Company, which are chargedto the Company. For the three and nine months ended September 30, 2008,total expenses were approximately $57,000 and $167,000, respectively, and$45,000 and $143,000 for the three and nine months ended September 30,2007, respectively.

 

For the three and ninemonths ended September 30, 2008, the Company also recorded approximately$112,000 and $337,000, respectively, of non-cash expenses related to servicesprovided by two executive officers of Thermo and the Company who receive nocompensation from the Company, which were accounted for as a contribution tocapital. For the three and nine months ended September 30, 2007, theCompany recorded $141,000 and $315,000, respectively, of expenses related toservices provided by officers of Thermo, which were accounted for as acontribution to capital. The Thermo expense charges are based on actual amountsincurred or upon allocated employee time. Management believes the allocationsare reasonable.

 

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**Note 6: Other Related PartyTransactions**

 

Since 2005, Globalstar has issued separate purchase orders foradditional phone equipment and accessories under the terms of previouslyexecuted commercial agreements with QUALCOMM. Within the terms of thecommercial agreements, the Company paid QUALCOMM approximately 7.5% to 25% ofthe total order as advances for inventory. As of September 30, 2008 and December 31, 2007, total advancesto QUALCOMM for inventory were $9.2 million and $9.7 million,respectively. As of September 30, 2008 and December 31, 2007, theCompany had outstanding commitment balances of approximately $50.4 million and$57.0 million, respectively. On October 28, 2008, the Companyamended its agreement with QUALCOMM to extend the term for 12 months and deferdelivery of mobile phones and related equipment until 2010.

 

As required by the lender under the Company’s then-current creditagreement discussed below, the Company executed an agreement with ThermoFunding Company LLC, an affiliate of Thermo (“Thermo Funding”), to provideGlobalstar up to an additional $200.0 million of equity via an irrevocablestandby stock purchase agreement. The irrevocable standby purchase agreementallowed the Company to put up to 12,371,136 shares of its Common Stock toThermo Funding at a predetermined price of approximately $16.17 per share whenthe Company required additional liquidity or upon the occurrence of certain otherspecified events. Thermo Funding also could elect to purchase the shares at anytime. Minority stockholders of Globalstar as of June 15, 2006 who wereaccredited investors and who received at least thirty-six shares of GlobalstarCommon Stock as a result of the Old Globalstar bankruptcy will be provided anopportunity to acquire Common Stock on the same terms. By November 2007,Thermo Funding had purchased all the Common Stock subject to the agreement andfully satisfied its commitment.

 

On August 16, 2006, the Company enteredinto an amended and restated credit agreement with Wachovia InvestmentHoldings, LLC, as administrative agent and swingline lender, and WachoviaBank, National Association, as issuing lender, which was subsequently amendedon September 29 and October 26, 2006. On December 17, 2007,Thermo Funding was assigned all the rights (except indemnification rights) andassumed all the obligations of the administrative agent and the lenders underthe amended and restated credit agreement and the credit agreement was againamended and restated. The credit agreement as currently in effect provides fora $50.0 million revolving credit facility and a $100.0 milliondelayed draw term loan facility. As of September 30, 2008, the Company haddrawn $35.0 million of the revolving credit facility and $100.0 million ofthe delayed draw term loan facility was outstanding. As of December 31,2007, the Company had drawn $50.0 million of the revolving credit facility butnone of the delayed draw term loan was outstanding.

 

All loans will mature on December 31,2012.  Revolving credit loans bearinterest at LIBOR plus 4.25% to 4.75% or the greater of the prime rate orFederal Funds rate plus 3.25% to 3.75%. The delayed draw term loan bears interest at either 5% plus the greaterof the prime rate and the Federal Funds rate plus 0.5%, or LIBOR plus 6%.  The delayed draw term loan facility bore anannual commitment fee of 2.0% until drawn or terminated. Commitment feesrelated to the loans, incurred during the three and nine months ended September 30,2008 were less than $0.1 million and $0.3 million, respectively.Commitment fees related to the loans, incurred during the three and nine monthsended September 30, 2007, were $0.6 million and $1.7 million,respectively. The revolving credit loan facility bears an annual commitment feeof 0.5% until drawn or terminated. Additional term loans will bear interest atrates to be negotiated. To hedge a portion of the interest rate risk withrespect to the delayed draw term loan, the Company entered into a five-yearinterest rate swap agreement. The loans may be prepaid without penalty at anytime. On September 29, 2008, the Company and Thermo agreed that, effectiveMay 26, 2008, all payment of interest on the debt will be deferred until 45days after Thermo provides notice that the interest is then payable. Interest wouldaccrue on this outstanding interest at the same rate as the underlying loan andbe compounded on December 31, 2008 and annually thereafter.

 

***Purchases and other transactions with Affiliates***

 

Total purchases and other transactions from affiliates, excludinginterest, are as follows (in thousands):

 
| ** **       | ** ** | **Three months ended  September 30,** | ** ** | **Nine months ended September  30,** | ** ** |
|------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **       | ** ** | **2008**                                             | ** ** | **2007**                                            | ** ** | **2008** | ** ** | **2007** | ** ** |
|             |       |                                                 |       |                                                |       |   |   |   |   |
| QUALCOMM         |       | $                                                    | 3,119      |                                                | $          | 9,794 |   | $ | 9,023 |   | $ | 32,486 |   |
| Other affiliates |       | 29                                                   |       | 6,326                                               |       | 1,597 |   | 13,690 |   |
| Total            |       | $                                                    | 3,148      |                                                | $          | 16,120 |   | $ | 10,620 |   | $ | 46,176 |   |

 

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**Note 7: Income Taxes**

 

On January 1, 2007, the Company adoptedFinancial Accounting Standards Board Interpretation No. 48 “Accounting forUncertainty in Income Taxes” (“FIN 48”). FIN 48 prescribes a recognition thresholdthat a tax position is required to meet before being recognized in thefinancial statements and provides guidance on derecognition, measurement,classification, interest and penalties, accounting in interim periods,disclosure and transition issues.

 

The application of FIN 48 resulted in a cumulativeadjustment of $0.6 million which decreased retained earnings. This decrease wasa result of an unrecognized tax benefit of approximately $73.7 million whichwas substantially offset by the application of a valuation allowance. Theunrecognized tax benefit of $74.5 million at December 31, 2007 did notchange significantly during the three and nine months ended September 30,2008. In addition, future changes in the unrecognized tax benefit may not havean impact on the effective tax rate due to the existence of the valuationallowances on most of the Company’s deferred tax assets. At September 30,2008, the Company determined, based on its evaluation of current evidence andits effect on its estimate of future taxable income that it was necessary toprovide a full valuation allowance against its Canadian subsidiary’s deferredtax assets. Accordingly, the Company increased its deferred tax valuationallowance by $2.1 million with respect to its deferred tax assets,

 

The Company has been notified that one of its subsidiaries and itspredecessor, Globalstar L.P. are currently under audit for the 2004 and 2005tax years. During the audit period, the Company and its subsidiaries were taxedas partnerships. Neither the Company nor any of its subsidiaries, except forthe one noted above, are currently under audit by the Internal Revenue Service(“IRS”) or by any state jurisdiction in the United States with respect toIncome Taxes. The Company’s corporate U.S. tax returns for 2006 and 2007 andU.S. partnership tax returns filed for years before 2006 remain subject toexamination by tax authorities. In the Company’s international taxjurisdictions, numerous tax years remain subject to examination by taxauthorities, including tax returns for 2001 and subsequent years in most of theCompany’s major international tax jurisdictions.

 

**Note 8: Comprehensive Income (Loss)**

 

SFAS No. 130, “Reporting Comprehensive Income,” establishesstandards for reporting and displaying comprehensive income and its componentsin shareholders’ equity. Comprehensive income (loss) includes all changes inequity during a period from non-owner sources. The change in accumulated othercomprehensive income for all periods presented resulted from foreign currencytranslation adjustments and minimum pension liability adjustment.

 

The following are the components of comprehensiveincome (loss) (in thousands):

 
| ** **                               | ** ** | **Three months ended  September 30,** | ** ** | **Nine months ended  September 30,** | ** ** |
|------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                               | ** ** | **2008**                                             | ** ** | **2007**                                            | ** ** | **2008** | ** ** | **2007** | ** ** |
| Net income (loss)                        |       | $                                                    | (26,103    | )                                                   | $          | 652 |   | $ | (40,086 | ) | $ | (11,591 | ) |
| Other comprehensive income:              |       |                                                 |       |                                                |       |   |   |   |   |
| Foreign currency translation adjustments |       | (488                                                 | )          | 1,488                                               |       | (1,944 | ) | 4,184 |   |
| Minimum pension liability adjustment     |       | —                                               |       | —                                              |       | — |   | (203 | ) |
|                                     |       |                                                 |       |                                                |       |   |   |   |   |
| Total comprehensive income (loss)        |       | $                                                    | (26,591    | )                                                   | $          | 2,140 |   | $ | (42,030 | ) | $ | (7,610 | ) |

 

**Note 9:Equity Incentive Plan**

 

The Company’s 2006 EquityIncentive Plan (the “Equity Plan”) is a broad based, long-term retentionprogram intended to attract and retain talented employees and align stockholderand employee interests. Approximately 0.1 million and 2.1 million restrictedstock awards and restricted stock units (including grants to both employees andexecutives) were granted during the three and nine months ended September 30,2008, respectively. In January 2008, the Company’s Board of Directorsapproved the addition of approximately 1.7 million shares of the Company’sCommon Stock to the shares available for issuance under the Equity Plan. TheCompany’s stockholders approved the Amended and Restated Equity Plan on May 13,2008, which added an additional 3.0 million shares of the Company’s CommonStock to the shares available for issuance under the Equity Plan.

 

**Note10: Litigation and Other Contingencies**

 

The Company is involved in certain litigation matters as discussedbelow.

 

On February 9, 2007, the first of three purported class actionlawsuits was filed against the Company, its Chief Executive Officer (“CEO”) andits Chief Financial Officer (“CFO”) in the United States District Court for theSouthern District of New 

 

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York alleging that the Company’s registration statement related to itsinitial public offering (“IPO”) in November 2006 contained materialmisstatements and omissions. The Court consolidated the three cases as LadmenPartners, Inc. v. Globalstar, Inc., et al., Case No. 1:07-CV-0976(LAP), and appointed Connecticut Laborers’ Pension Fund as lead plaintiff. On August 15,2007, the lead plaintiff filed its Securities Class Action ConsolidatedAmended Complaint reasserting claims against the Company and the Company’s CEOand CFO, and adding as defendants the three co-lead underwriters of the IPO,Wachovia Capital Markets, LLC, JPMorgan Securities, Inc. and Jefferies &Company, Inc. On November 15, 2007 plaintiffs filed a Second AmendedComplaint. That complaint cites a drop in the trading price of the Company’sCommon Stock that followed its filing, on February 5, 2007, of a CurrentReport on Form 8-K relating in part to changes in the condition of itssatellite constellation. It seeks, on behalf of a class of purchasers of theCompany’s Common Stock who purchased shares in the IPO, recovery of damagesunder Sections 11 and 15 of the Securities Act of 1933, and rescission under Section 12(a)(2) ofthe Securities Act of 1933. On February 15, 2008, all of the defendantsfiled motions to dismiss the Second Amended Complaint. The plaintiff’s responseto these motions was filed on April 15, 2008, and defendants’ replymemorandum was filed May 15, 2008. On September 30, 2008, thepresiding judge dismissed all of the plaintiff’s claims with prejudice. The plaintifffiled a notice of appeal to the Second Circuit Court of Appeals on October 29,2008.

 

On April 7, 2007, Kenneth Stickrath and SharanStickrath filed a purported class action complaint against the Company in theU.S. District Court for the Northern District of California (Case No:07-CV-01941 THE). The complaint is based on alleged violations of CaliforniaBusiness & Professions Code § 17200 and California Civil Code § 1750,et seq., the Consumers’ Legal Remedies Act. Plaintiffs allege that members ofthe proposed class suffered damages from March 2003 to the present becauseGlobalstar did not perform according to its representations with respect tocoverage and reliability. Plaintiffs claim that the amount in controversyexceeds $5.0 million but do not allege any particular actual damages incurred.Plaintiffs amended their complaint on June 29, 2007, and the Company fileda motion to dismiss the complaint on July 6, 2007. On September 25,2007, the court issued an order granting in part and denying in part theCompany’s motion. Subsequently, on October 17, 2007, the plaintiffs filedtheir Second Amended Complaint, and Globalstar filed a reply and second motionto dismiss. On February 6, 2008, the judge granted Globalstar’s motion inpart and denied it in part, thereby narrowing the scope of the case. Amandatory mediation session was held March 10, 2008 and discovery relatedsolely to the issue of certification of the class was completed in April 2008.A hearing on Globalstar’s motion for summary judgment was held on October 29,2008. The judge deferred hearing plaintiffs’ motion for class certification.

 

On April 24, 2007, Mr. Jean-PierreBarrette filed a motion for Authorization to Institute a Class Action inQuebec, Canada, Superior Court against Globalstar Canada. Mr. Barretteasserted claims based on Quebec law related to his alleged problems withGlobalstar Canada’s service. In June 2008 Globalstar Canada and theplaintiff settled the case for an immaterial amount.  The settlement was approved by the court on June 25,2008 and has been fully implemented.

 

On February 5, 2008, the Company filed aPetition for Review in the U.S. Court of Appeals for the District of ColumbiaCircuit of the FCC’s November 9, 2007, Second Order on Reconsideration andSecond Report and Order (the “Second Report”) in IB Docket No. 02-364.  The Second Report, among other things,reassigned the L-band spectrum in the 1610-1626.5 MHz frequency band betweenthe Company and Iridium Satellite LLC, reducing Globalstar’s spectrum andincreasing Iridium’s.  The Company filedits brief on September 17, and the FCC filed its brief on October 17.  The Company’s reply brief is due on November 18.  The Company cannot predict whether the courtwill rule in its favor or when a decision may be issued.

 

The Company is under a sales and use tax examinationby the California Board of Equalization for tax years ended 2005, 2006 and2007. The Company believes that the amount accrued on its books related tosales and use tax contingency is adequate.

 

Fromtime to time, the Company is involved in various other litigation mattersinvolving ordinary and routine claims incidental to its business. Managementcurrently believes that the outcome of these proceedings, either individuallyor in the aggregate, will not have a material adverse effect on the Company’sbusiness, results of operations or financial condition.

 

**Note 11: Geographic Information**

 

Revenue by geographic location, presented netof eliminations for intercompany sales, was as follows for the three and nine monthsended September 30, 2008 and 2007 (in thousands):

 
| ** **                         | ** ** | **Three months ended  September 30,** | ** ** | **Nine months ended  September 30,** | ** ** |
|------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                         | ** ** | **2008**                                             | ** ** | **2007**                                            | ** ** | **2008** | ** ** | **2007** | ** ** |
| Service:                           |       |                                                 |       |                                                |       |   |   |   |   |
| United States                      |       | $                                                    | 8,233      |                                                | $          | 11,922 |   | $ | 24,908 |   | $ | 32,175 |   |
| Canada                             |       | 5,018                                                |       | 7,047                                               |       | 16,140 |   | 20,391 |   |
| Europe                             |       | 946                                                  |       | 1,431                                               |       | 3,018 |   | 3,498 |   |
| Central and South America          |       | 1,747                                                |       | 559                                                 |       | 4,165 |   | 1,788 |   |
| Others                             |       | 206                                                  |       | 304                                                 |       | 602 |   | 861 |   |
| Total service revenue              |       | 16,150                                               |       | 21,263                                              |       | 48,833 |   | 58,713 |   |
| Subscriber equipment:              |       |                                                 |       |                                                |       |   |   |   |   |
| United States                      |       | 3,742                                                |       | 1,298                                               |       | 9,730 |   | 6,351 |   |
| Canada                             |       | 1,632                                                |       | 1,522                                               |       | 5,644 |   | 4,259 |   |
| Europe                             |       | 115                                                  |       | 1,163                                               |       | 1,534 |   | 4,066 |   |
| Central and South America          |       | 685                                                  |       | 255                                                 |       | 1,677 |   | 714 |   |
| Others                             |       | 201                                                  |       | 187                                                 |       | 240 |   | 576 |   |
| Total subscriber equipment revenue |       | 6,375                                                |       | 4,425                                               |       | 18,825 |   | 15,966 |   |
|                               |       |                                                 |       |                                                |       |   |   |   |   |
| Total revenue                      |       | $                                                    | 22,525     |                                                | $          | 25,688 |   | $ | 67,658 |   | $ | 74,679 |   |

 

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**Note12: Interest Rate Derivative**

 

In July 2006, in connection with entering intoits credit agreement, which provides for interest at a variable rate (Note 6),the Company entered into a five-year interest rate swap agreement. The interestrate swap agreement reflected a $100.0 million notional amount at a fixedinterest rate of 5.64%. The fair value of the interest rate swap agreement asmeasured on a recurring basis as of September 30, 2008 and December 31,2007 is presented in the table below.

 
| ** **                                            | ** ** | ** **                      | ** ** | **Fair Value Measurements at September 30, 2008 using** | ** **                                 |
|-------------------------------------------------------|------------|---------------------------------|------------|--------------------------------------------------------------------------------------------|--------------------------------------------|
| ** **                                            | ** ** | ** **                      | ** ** | **Quoted  Prices  in Active  Markets for  Identical  Instruments**               | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                            | ** ** | ** **                      | ** ** | ** **                                                                                 | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                            | ** ** | ** **                      | ** ** | ** **                                                                                 | **Significant  Other  Observable  Inputs** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                            | ** ** | ** **                      | ** ** | ** **                                                                                 | ** **                                 | **Significant  Unobservable  Inputs** | ** ** | ** ** | ** ** |
| ** **                                            | ** ** | ** **                      | ** ** | ** **                                                                                 | ** **                                 | ** ** | ** ** | ** ** |
| ** **                                            | ** ** | ** **                      | ** ** | ** **                                                                                 | ** **                                 | ** ** | ** ** | ** ** |
| **(In Thousands)**                               | ** ** | **December 31, 2007** | ** ** | **(Level 1)**                                                                         | ** **                                 | **(Level 2)** | ** ** | **(Level 3)** | ** ** | **Total Balance** | ** ** |
| Other non-current liabilities:                        |       |                            |       |                                                                                       |                                       |   |   |   |   |   |   |
|                                                  |       |                            |       |                                                                                       |                                       |   |   |   |   |   |   |
| Interest rate derivative                              |       | $                               | 5,949      |                                                                                       | $                                          | — |   | $ | 5,974 |   | $ | — |   | $ | 5,974 |   |
|                                                  |       |                            |       |                                                                                       |                                       |   |   |   |   |   |   |
| Total non-current liabilities measured at  fair value |       | $                               | 5,949      |                                                                                       | $                                          | — |   | $ | 5,974 |   | $ | — |   | $ | 5,974 |   |

 

The increases in fair value of the interest rateswap agreement liability, for the three and nine months ended September 30,2008, of approximately $0.2 million and less than $0.1 million, respectively, wererecognized as “Interest rate derivative loss” in the accompanying ConsolidatedStatements of Operations.

 

**Note 13: Recent Public Offerings**

 

***Convertible Senior Note Offering***

 

OnApril 10, 2008, the Company entered into an Underwriting Agreement (the“Convertible Notes Underwriting Agreement”) with Merrill Lynch & Co.,Merrill Lynch, Pierce, Fenner & Smith Incorporated and Deutsche BankSecurities Inc. (together, the “Convertible Notes Underwriters”) relating tothe sale by the Company of $135.0 million aggregate principal amount of its5.75% Convertible Senior Notes due 2028 (the “Notes”). Pursuant to theConvertible Notes Underwriting Agreement, the Company granted the ConvertibleNotes Underwriters a 30-day option to purchase up to an additional $15.0million aggregate principal amount of the Notes solely to coverover-allotments, if any.

 

Thesale of $135.0 million aggregate principal amount of the Notes was completed onApril 15, 2008. The Convertible Notes Underwriters subsequently executed theirover-allotment option and purchased an additional $15.0 million aggregateprincipal amount of the Notes on May 8, 2008. The sale of the Notes wasregistered under the Securities Act of 1933, as amended, pursuant to aRegistration Statement on Form S-3 (File No. 333-149798), assupplemented by a prospectus supplement and a free-writing prospectus, bothdated April 10, 2008.

 

TheNotes were issued under a Senior Indenture, entered into and dated as of April 15,2008 (the “Base Indenture”), between the Company and U.S. Bank, NationalAssociation, as trustee (the “Trustee”), supplemented by a First SupplementalIndenture with respect to the Notes, entered into and dated as of April 15,2008 (the “Supplemental Indenture”), between the Company and the Trustee (theBase Indenture and the Supplemental Indenture, collectively, the “Indenture”).Also, pursuant to the Indenture, the Company, the Trustee and U.S. Bank,National Association, as escrow agent (the “Escrow Agent”), entered into aPledge and Escrow Agreement dated as of April 15, 2008 (the “PledgeAgreement”).

 

Inaccordance with the Pledge Agreement, approximately $25.5 million of theproceeds of the offering of the Notes were placed in an escrow account with theEscrow Agent. Funds in the escrow account will be invested in governmentsecurities and, if the Company does not elect to make the payments from itsother funds, will be used to make the first six scheduled semi-annual interestpayments on the Notes. Pursuant to the Pledge Agreement, the Company pledgedits interest in this escrow account to the Trustee as security for theseinterest payments.

 

Except for the pledge of the escrow account under the Pledge Agreement,the Notes are senior unsecured debt obligations of the Company. There is nosinking fund for the Notes. The Notes mature on April 1, 2028 and bearinterest at a rate of 5.75% per annum. Interest on the Notes is payablesemi-annually in arrears on April 1 and October 1 of each year,commencing October 1, 2008, to holders of record on the preceding March 15and September 15, respectively.

 

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Subject to certain exceptions set forth in the Indenture, the Notes aresubject to repurchase for cash at the option of the holders of all or anyportion of the Notes (i) on each of April 1, 2013, April 1, 2018and April 1, 2023 or (ii) upon a fundamental change, both at apurchase price equal to 100% of the principal amount of the Notes, plus accruedand unpaid interest, if any. A fundamental change will occur upon certainchanges in the ownership of the Company, or certain events relating to thetrading of the Company’s Common Stock, as further described below.

 

Holdersmay convert their Notes at their option at any time prior to the close ofbusiness on the business day immediately preceding April 1, 2028. TheNotes are convertible into shares of Common Stock, subject to the Company’soption to deliver cash in lieu of all or a portion of the shares. The Notes areconvertible at an initial conversion rate of 166.1820 shares of Common Stockper $1,000 principal amount of Notes, subject to adjustment in the manner setforth in the Supplemental Indenture. The conversion rate may not exceed240.9638 shares of Common Stock per $1,000 principal amount of Notes, subjectto adjustment. In addition to receiving the applicable amount of shares ofCommon Stock or cash in lieu of all or a portion of the shares, holders of Noteswho convert their Notes prior to April 1, 2011 will receive the cashproceeds from the sale by the Escrow Agent of the portion of the governmentsecurities in the escrow account that are remaining with respect to any of thefirst six interest payments that have not been made on the Notes beingconverted. See Note 14.

 

Holders who convert their Notes in connection with certain eventsoccurring on or prior to April 1, 2013 constituting a “make wholefundamental change” (as defined below) will be entitled to an increase in theconversion rate as specified in the Indenture. The number of additional sharesby which the applicable base conversion rate will be increased will bedetermined by reference to the applicable table below and is based on the dateon which the make whole fundamental change becomes effective (the “effectivedate”) and the price (the “stock price”) paid, or deemed paid, per share of theCompany’s common stock in the make whole fundamental change, subject toadjustment as described below.  If theholders of common stock receive only cash in a make whole fundamental change,the stock price will be the cash amount paid per share of the Company’s commonstock.  Otherwise, the stock price willbe the average of the closing sale prices of the Company’s common stock foreach of the 10 consecutive trading days prior to, but excluding, the relevanteffective date.

 

The events that constitute a make whole fundamental change are asfollows:

 

·                  Any “person” or “group” (as suchterms are used in Sections 13(d) and 14(d) of the Exchange Act) is orbecomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 underthe Exchange Act, except that a person shall be deemed to have beneficial ownershipof all shares that such person has the right to acquire, whether such right isexercisable immediately or only after the passage of time), directly orindirectly, of voting stock representing 50% of more (or if such person isThermo Capital Partners LLC, 70% or more) of the total voting power of alloutstanding voting stock of the Company;

 

·                  The Company consolidates with, ormerges with or into, another person or the Company sells, assigns, conveys,transfers, leases or otherwise disposes of all or substantially all of itsassets to any person;

 

·                  The adoption of a plan of liquidationor dissolution of the Company; or

 

·                  The Company’s common stock (or othercommon stock into which the Notes are then convertible) is not listed on aUnited States national securities exchange or approved for quotation andtrading on a national automated dealer quotation system or establishedautomated over-the-counter trading market in the United States.

 

The stock prices set forth in the first column of the Make Whole Tablebelow will be adjusted as of any date on which the base conversion rate of thenotes is otherwise adjusted.  Theadjusted stock prices will equal the stock prices applicable immediately priorto the adjusted multiplied by a fraction, the numerator of which is the baseconversion rate immediately prior to the adjustment giving rise to the stockprice adjustment and the denominator of which is the base conversion rate as soadjusted.  The base conversion rateadjustment amounts set forth in the table below will be adjusted in the samemanner as the base conversion rate.

 

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| ** **                                            | ** ** | **Effective Date   Make Whole Premium (Increase in Applicable Base Conversion Rate)** | ** ** |
|-------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------|------------|
| **Stock Price on Effective Date** | ** ** | **April 15,   2008**                                                                                                          | ** ** | **April 1,   2009** | ** ** | **April 1,   2010** | ** ** | **April 1,   2011** | ** ** | **April 1,   2012** | ** ** | **April 1,   2013** | ** ** |
| $                                                     | 4.15       |                                                                                                                                    | 74.7818    |   | 74.7818 |   | 74.7818 |   | 74.7818 |   | 74.7818 |   | 74.7818 |   |
| $                                                     | 5.00       |                                                                                                                                    | 74.7818    |   | 64.8342 |   | 51.4077 |   | 38.9804 |   | 29.2910 |   | 33.8180 |   |
| $                                                     | 6.00       |                                                                                                                                    | 74.7818    |   | 63.9801 |   | 51.4158 |   | 38.2260 |   | 24.0003 |   | 0.4847 |   |
| $                                                     | 7.00       |                                                                                                                                    | 63.9283    |   | 53.8295 |   | 42.6844 |   | 30.6779 |   | 17.2388 |   | 0.0000 |   |
| $                                                     | 8.00       |                                                                                                                                    | 55.1934    |   | 46.3816 |   | 36.6610 |   | 26.0029 |   | 14.2808 |   | 0.0000 |   |
| $                                                     | 10.00      |                                                                                                                                    | 42.8698    |   | 36.0342 |   | 28.5164 |   | 20.1806 |   | 11.0823 |   | 0.0000 |   |
| $                                                     | 20.00      |                                                                                                                                    | 18.5313    |   | 15.7624 |   | 12.4774 |   | 8.8928 |   | 4.9445 |   | 0.0000 |   |
| $                                                     | 30.00      |                                                                                                                                    | 10.5642    |   | 8.8990 |   | 7.1438 |   | 5.1356 |   | 2.8997 |   | 0.0000 |   |
| $                                                     | 40.00      |                                                                                                                                    | 6.6227     |   | 5.5262 |   | 4.4811 |   | 3.2576 |   | 1.8772 |   | 0.0000 |   |
| $                                                     | 50.00      |                                                                                                                                    | 4.1965     |   | 3.5475 |   | 2.8790 |   | 2.1317 |   | 1.2635 |   | 0.0000 |   |
| $                                                     | 75.00      |                                                                                                                                    | 1.4038     |   | 1.1810 |   | 0.9358 |   | 0.6740 |   | 0.4466 |   | 0.0000 |   |
| $                                                     | 100.00     |                                                                                                                                    | 0.4174     |   | 0.2992 |   | 0.1899 |   | 0.0985 |   | 0.0663 |   | 0.0000 |   |

#  

The actual stock price and effective date may not be set forth in thetable above, in which case:

 

·                  Ifthe actual stock price on the effective date is between two stock prices in thetable or the actual effective date is between two effective dates in the table,the amount of the base conversion rate adjustment will be determined bystraight-line interpolation between the adjustment amounts set forth for thehigher and lower stock prices and the earlier and later effective dates, asapplicable, based on a 365-day year;

 

·                  Ifthe actual stock price on the effective date exceeds $100.00 per share of theCompany’s common stock (subject to adjustment), no adjustment to the baseconversion rate will be made; and

 

# ·                  If the actualstock price on the effective date is less than $4.15 per share of the Company’scommon stock (subject to adjustment), no adjustment to the base conversion ratewill be made.

#  

# Notwithstanding theforegoing, the base conversion rate will not exceed 240.9638 shares of commonstock per $1,000 principal amount of Notes, subject to adjustment in the samemanner as the base conversion rate.

#  

# Except as described abovewith respect to holders of notes who convert their Notes prior to April 1,2011, there is no circumstance in which holders could receive cash in additionto the maximum number of shares of common stock issuable upon conversion of theNotes.

#  

If the Company makes at least 10 scheduledsemi-annual interest payments, the Notes are subject to redemption at theCompany’s option at any time on or after April 1, 2013, at a price equalto 100% of the principal amount of the Notes to be redeemed, plus accrued andunpaid interest, if any.

 

The Indenture contains customary financial reportingrequirements and also contains restrictions on mergers and asset sales. TheIndenture also provides that upon certain events of default, including withoutlimitation failure to pay principal or interest, failure to deliver a notice offundamental change, failure to convert the Notes when required, acceleration ofother material indebtedness and failure to pay material judgments, either thetrustee or the holders of 25% in aggregate principal amount of the Notes maydeclare the principal of the Notes and any accrued and unpaid interest throughthe date of such declaration immediately due and payable. In the case ofcertain events of bankruptcy or insolvency relating to the Company or itssignificant subsidiaries, the principal amount of the Notes and accruedinterest automatically becomes due and payable.

 

***Common Stock Offering and Share Lending Agreement***

 

# Concurrently with theoffering of the Notes, on April 10, 2008, the Company entered into a sharelending agreement (the “Share Lending Agreement”) with Merrill LynchInternational (the “Borrower”), through Merrill Lynch, Pierce, Fenner &Smith Incorporated, as agent for Borrower (in such capacity, the “BorrowingAgent”), pursuant to which the Company agreed to lend up to 36,144,570 sharesof Common Stock (the “Borrowed Shares”) to the Borrower, subject to certainadjustments set forth in the Share Lending Agreement, for a period ending onthe earliest of (i) the date the Company notifies the Borrower in writingof its intention to terminate the Share Lending Agreement at any time after theentire principal amount of the Notes ceases to be outstanding and the Companyhas settled all payments or deliveries in respect of the Notes (as thesettlement may be extended pursuant to market disruption events or otherwisepursuant to the Indenture), whether as a 

 

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# result of conversion, redemption, repurchase,cancellation, at maturity or otherwise, (ii) the written agreement of theCompany and the Borrower to terminate, (iii) the occurrence of a Borrowerdefault, at the option of Lender, and (iv) the occurrence of a Lenderdefault, at the option of the Borrower. Pursuant to the Share LendingAgreement, upon the termination of the share loan, the Borrower must return theBorrowed Shares to the Company.  The onlyexception would be that, if pursuant to a merger, recapitalization orreorganization, the Borrowed Shares were exchanged for or converted into cash,securities or other property (“Reference Property”), the Borrower would returnthe Reference Property.  Upon theconversion of Notes (in whole or in part), a number of Borrowed Sharesproportional to the conversion rate for such notes must be returned to theCompany. In no event will the Borrower retain the Borrowed Shares.

#  

# On April 10, 2008,the Company entered into an underwriting agreement (the “Equity UnderwritingAgreement”) with the Borrower and the Borrowing Agent. Pursuant to and upon theterms of the Share Lending Agreement, the Company will issue and lend theBorrowed Shares to the Borrower as a share loan. The Borrowing Agent also isacting as an underwriter (the “Equity Underwriter”) with respect to theBorrowed Shares, which are being offered to the public. The Borrowed Sharesinclude 21,936,020 shares of Common Stock initially loaned by the Company tothe Borrower pursuant to Section 2(a) of the Underwriting Agreement,an aggregate of 10,000,000 shares of Common Stock loaned by the Company to theBorrower on two separate occasions pursuant to Borrowing Notices dated as of April 15,2008 and August 13, 2008, delivered pursuant to the Share LendingAgreement and the Underwriting Agreement, and an additional 4,208,550 shares ofCommon Stock that, from time to time, may be borrowed from the Company by theBorrower pursuant to the Share Lending Agreement and the Underwriting Agreementand subsequently offered and sold at prevailing market prices at the time ofsale or negotiated prices. The sale of the Borrowed Shares was registered underthe S-3 (33-149798).  The Company usedtwo prospectus supplements for the transaction, one for the sale of the Notes(and the underlying Common Stock) and the other for the sale of the BorrowedShares.  The Company filed the prospectussupplement for the sale of the Borrowed Shares pursuant to Rule 424(b) (3) onApril 2, 2008 and pursuant to Rule 424(b) (5) on April 14,2008.  Hence the Borrowed Shares are freetrading shares.

#  

The Company will not receive any proceeds from thesale of the Borrowed Shares pursuant to the Share Lending Agreement but willreceive a nominal lending fee of $0.0001 per share for each share of CommonStock that it loans to the Borrower pursuant to the Share Lending Agreement.The Borrower will receive all of the proceeds from the sale of Borrowed Sharespursuant to the Share Lending Agreement.

 

TheBorrowed Shares are treated as issued and outstanding for corporate lawpurposes, and accordingly, the holders of the Borrowed Shares will have all ofthe rights of a holder of the Company’s outstanding shares, including the rightto vote the shares on all matters submitted to a vote of the Company’sstockholders and the right to receive any dividends or other distributions thatthe Company may pay or makes on its outstanding shares of Common Stock.However, under the Share Lending Agreement, the Borrower has agreed:

 

·                  To pay, within one business day after therelevant payment date, to the Company an amount equal to any cash dividendsthat the Company pays on the Borrowed Shares; and

 

·                  To pay or deliver to the Company, upontermination of the loan of Borrowed Shares, any other distribution, inliquidation or otherwise, that the Company makes on the Borrowed Shares.

 

Tothe extent the Borrowed Shares the Company initially lent under the sharelending agreement and offered in the Common Stock offering have not been sold orreturned to it, the Borrower has agreed that it will not vote any such BorrowedShares. The Borrower has also agreed under the share lending agreement that itwill not transfer or dispose of any Borrowed Shares, other than to itsaffiliates, unless the transfer or disposition is pursuant to a registrationstatement that is effective under the Securities Act. However, investors thatpurchase the shares from the Borrower (and any subsequent transferees of suchpurchasers) will be entitled to the same voting rights with respect to thoseshares as any other holder of the Company’s Common Stock.

 

In view of the contractual undertakings of theBorrower in the Share Lending Agreement, which have the effect of substantiallyeliminating the economic dilution that otherwise would result from the issuanceof the Borrowed Shares, the Company believes that under generally acceptedaccounting principles in the United States currently in effect, the BorrowedShares will not be considered outstanding for the purpose of computing andreporting the Company’s earnings per share.

 

The Company evaluated the various embeddedderivatives within the Indenture for bifurcation from the Notes under theprovisions of FASB’s Statement of Financial Standards No.133, “Accounting forDerivative Instruments and Hedging Activities” (“SFAS No. 133”), EmergingIssues Task Force Issue No. 01-6, “The Meaning of Indexed to a Company’sOwn Stock” (“EITF 01-6”) and Emerging Issues Task Force Issue No. 00-19, “Accountingfor Derivative Financial Instruments 

 

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Indexed to, and Potentially Settled in, a Company’s Own Stock” (“EITF00-19”). Based upon its detailed assessment, the Company concluded that theseembedded derivatives were either (i) excluded from bifurcation as a resultof being clearly and closely related to the Notes or are indexed to the Company’sCommon Stock and would be classified in stockholders’ equity if freestanding or(ii) the fair value of the embedded derivatives was estimated to beimmaterial.

 

**Note 14: Subsequent Events**

 

On October 8, 2008, the Company signedan agreement with Ericsson Federal Inc., a leading global provider of technologyand services to telecom operators. According to the $22.7 million contract,Ericsson will work with the Company to develop, implement and maintain a groundinterface, or core network, system that will be installed at Globalstar’ssatellite gateway ground stations. The all Internet Protocol (IP) based corenetwork system is wireless 3G/4G compatible and will link the Company’s radioaccess network to the public-switched telephone network (PSTN) and/or Internet.Design of the new core network system is now underway.

 

On October 15, 2008, the FCC released anOrder of Modifications (“Order”) modifyingboth the Company’s and Iridium’s satellite constellation licenses consistentwith its Second Report.  See Note 10. TheFCC’s Order, which is effective December 14, 2008, reduces the Company’sspectrum assignment not only in the U.S. but globally. The FCC invited theCompany to file applications for waiver of the Order in the event that theOrder would cause particular hardship. The Company has not yet decided how torespond to the Order.

 

On October 28, 2008, the Company amendedits agreement with QUALCOMM to extend the term for 12 months and defer deliveryof mobile phones and related equipment until 2010.

 

On October 31, 2008,the FCC released an order authorizing us to implement the Company’s agreementwith Open Range Communications, Inc, to provide WiMax service in ruralcommunities as an ancillary terrestrial component of the Company’s satelliteservice.

 

Holdersof $36 million aggregate principal amount, or 24%, of the outstanding 5.75%Convertible Senior Notes due 2028 (“Notes”) of the Company have submittednotices of conversion to the trustee in order to convert their Notes intoCommon Stock in accordance with the terms of the indenture governing the Notes.The Company expects to issue approximately 6.0 million shares of its CommonStock and pay a nominal amount of cash for fractional shares when theconversion of these Notes is completed over the conversion referenceperiod.  In addition, the holders are entitled to receive an earlyconversion make whole amount of approximately $5.2 million representing thenext five semi-annual interest payments that would have become due on theconverted Notes, which will be paid from funds in an escrow account for the benefitof the holders of Notes. After this conversion, $114 million aggregateprincipal amount of Notes will remain outstanding. The Company’s aggregate cashinterest cost savings through maturity resulting from these conversions will beapproximately $35.2 million.

 

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

 

**Forward-Looking Statements**

 

Certain statements contained in orincorporated by reference into this Report, other than purely historicalinformation, including, but not limited to, estimates, projections, statementsrelating to our business plans, objectives and expected operating results, andthe assumptions upon which those statements are based, are forward-lookingstatements within the meaning of the Private Securities Litigation Reform Actof 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,” “willlikely result,” and similar expressions, although not all forward-lookingstatements contain these identifying words. These forward-looking statementsare based on current expectations and assumptions that are subject to risks anduncertainties which may cause actual results to differ materially from theforward-looking statements. Forward-looking statements, such as the statementsregarding our ability to develop and expand our business, our ability to obtainadditional financing, our ability to manage costs, our ability to exploit andrespond to technological innovation, the effects of laws and regulations(including tax laws and regulations) and legal and regulatory changes, theopportunities for strategic business combinations and the effects ofconsolidation in our industry on us and our competitors, our anticipated futurerevenues, our anticipated capital spending (including for future satelliteprocurements and launches), our anticipated financial resources, ourexpectations about the future operational performance of our satellites(including their projected operational lives), the expected strength of andgrowth prospects for our existing customers and the markets that we serve, andother statements contained in this Report regarding matters that are nothistorical facts, involve predictions. Risks and 

 

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uncertainties that could cause or contribute to such differencesinclude, without limitation, those in Part II. Item 1A. Risk Factors inthis Report or incorporated by reference into this Report, including thosedescribed in our Annual Report on Form 10-K for the fiscal year ended December 31,2007.

 

Although we believe that the forward-looking statements contained orincorporated by reference in this Report are based upon reasonable assumptions,the forward-looking events and circumstances discussed in this Report may notoccur, and actual results could differ materially from those anticipated orimplied in the forward-looking statements.

 

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

 

This“Management’s Discussion and Analysis of Financial Condition” should be read inconjunction with the “Management’s Discussion and Analysis of Financial Condition” andinformation included in our Annual Report on Form 10-K for the year ended December 31,2007.

 

**Overview**

 

We are a provider of mobile voice and datacommunication services via satellite. Our communications platform extendstelecommunications beyond the boundaries of terrestrial wireline and wirelesstelecommunications networks to serve our customer’s desire for connectivity.Using in-orbit satellites and ground stations, which we call gateways, we offervoice and data communications services to government agencies, businesses andother customers in over 120 countries.

 

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*Material Trends and Uncertainties.*  Our satellite communications business, byproviding critical mobile communications to our subscribers, serves principallythe following markets: government, public safety and disaster relief;recreation and personal; oil and gas; maritime and fishing; natural resources,mining and forestry; construction; utilities; and transportation. Our industryhas been growing as a result of:

 

·                  favorablemarket reaction to new pricing plans with lower service charges;

 

·                  awarenessof the need for remote communication services;

 

·                  increaseddemand for communication services by disaster and relief agencies and emergencyfirst responders;

 

·                  improvedvoice and data transmission quality;

 

·                  ageneral reduction in prices of user equipment; and

 

·                  withthe addition of our retail product line we are exposed to current consumerspending and consumer confidence.

 

In addition, our industry as a whole has benefitedfrom the improved financial condition of most industry participants followingtheir financial reorganizations.

 

Nonetheless, we face a number of challengesand uncertainties, including:

 

·                  *Constellation life and health. *Our current satellite constellationis aging. We successfully launched our eight spare satellites in 2007. All ofour satellites launched prior to 2007 have experienced various anomalies overtime, one of which is a degradation in the performance of the solid-state poweramplifiers of the S-band communications antenna subsystem (our “two-waycommunication issues”). The S-band antenna provides the downlink from thesatellite to a subscriber’s phone or data terminal. Degraded performance of theS-band antenna amplifiers reduces the availability of two-way voice and datacommunication between the affected satellites and the subscriber, and mayreduce the ability to connect, or the duration of a call. If the S-band antennaon a satellite ceases to be commercially functional, two-way communication isimpossible over that satellite, but not necessarily over the constellation as awhole. Subscriber service will continue to be available, but at certain timesin any given location it may take longer to establish calls and the averageduration of calls may be impacted adversely. There are periods of time each dayduring which no two-way voice and data service is available at any particularlocation. The root cause of our two-way communication issues is unknown,although we believe it may result from irradiation of the satellites in orbitcaused by the space environment at the altitude that our satellites operate.

 

The decline in the quality of two-waycommunication does not affect adversely our one-way Simplex data transmissionservices, including our new SPOT satellite messenger*TM* productsand services, which utilize only the L-band uplink from a subscriber’s Simplexterminal to the satellites.

 

To date, we have managed the two-waycommunication issue in various technical ways, including moving less impairedsatellites to key orbital positions and launching eight spare satellites.Nonetheless, we have been unable to correct our two-way communication issues.As of September 30, 2008, we have decommissioned 10 of our original 52satellites.

 

Although the rate of degradation of theS-band antennas has slowed since 2007, we continue to believe that the qualityof two-way communication services will continue to decline, and by some time inearly 2009 we anticipate that all of our satellites launched between 1998 and2000, but not those satellites launched in 2007, will cease to be able tosupport two-way communications. Simplex data services, including our new SPOTsatellite messenger products and services, will not be affected.

 

We continue to work on plans, including newproducts and services and pricing programs to mitigate the effects of reducedservice availability upon our customers and operations. Among other things, werequested Thales Alenia Space to present a plan for accelerating delivery of theinitial 24 satellites of our second-generation constellation by up to fourmonths. In 2007, we accepted the first two portions of the Thales’ four-partsequential plan. In October, 2008, we accepted the third portion of thefour-part sequential plan. See “Part II, Item 1A. Risk Factors.

 

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·                  *Competition and pricing pressures. *We face increased competition fromboth the expansion of terrestrial-based cellular phone systems and from othermobile satellite service providers. We believe Inmarsat plans to commenceoffering satellite services to handheld devices in the United States in 2009,and several competitors, such as ICO Global Communications Company, areconstructing geostationary satellites to provide mobile satellite service. Theincreased number of competitors, and the introduction of new services andproducts by competitors, increases competition for subscribers and pressuresall providers, including us, to reduce prices. Increased competition may resultin loss of subscribers, decreased revenue, decreased gross margins, higherchurn rates, and, ultimately, decreased profitability and cash.

 

·                  *Technological changes. *It is difficult for us to respondpromptly to major technological innovations by our competitors becausesubstantially modifying or replacing our basic technology, satellites orgateways is time-consuming and very expensive. Approximately 70% of our totalassets at September 30, 2008 represented fixed assets. Although we plan toprocure and deploy our second-generation satellite constellation and upgradeour gateways and other ground facilities, we may nevertheless become vulnerableto the successful introduction of superior technology by our competitors.

 

·*                  Capitalexpenditures. *We have incurredsignificant capital expenditures from 2006 to 2008, and we expect to incuradditional significant expenditures through 2013 under the followingcommitments:

 

We estimate that procuring and deploying oursecond-generation satellite constellation and upgrading our gateways and otherground facilities will cost approximately $1.26 billion (exclusive ofinternal costs and capitalized interest), which we expect will be reflected incapital expenditures through 2013. The following obligations are included inthis amount:

 

In November, 2006, we entered into a contractwith Thales Alenia Space for the construction of our second-generationconstellation. The total contract price, including subsequent additions, willbe approximately €669.6 million (approximately $946.7 million at a weightedaverage conversion rate of €1.00 = $1.4139 at September 30, 2008,including approximately €146.8 million paid by us in U.S. dollars at afixed conversion rate of €1.00 = $1.2940). We have made aggregate paymentsof approximately €217.7 million (approximately $294.4 million) through September 30,2008 under this contract. At our request, Thales Alenia Space has presented tous a plan for accelerating delivery of the initial 24 satellites by up to fourmonths. The expected cost of this acceleration will range from approximately€6.7 million to €13.4 million ($9.7 million to $19.4 million at€ 1.00 = $1.4449). In 2007, we accepted the first two portions of theThales four-part sequential acceleration plan with an additional cost of€4.1 million ($5.9 million at €1.00 = $1.4449). In October 2008, the Companyauthorized the third portion of the sequential plan with an additional cost of €0.9million ($1.3 million at €1.00 = $1.4449). We cannot provide assurance that anyof the remaining acceleration will occur.

 

In March 2007, we entered into a€9.1 million (approximately $13.1 million at a weighted averageconversion rate of €1.00 = $1.4345) agreement with Thales Alenia Space forthe construction of the Satellite Operations Control Centers, Telemetry CommandUnits and In Orbit Test Equipment (collectively, the “Control Network Facility”)for our second-generation satellite constellation. We have made aggregatepayments under this contract of approximately €6.7 million (approximately$9.9 million) through September 30, 2008.

 

In September, 2007, we entered into acontract with our Launch Provider for the launch of our second-generationsatellites and certain pre and post-launch services. Pursuant to the contract,our Launch Provider will make four launches of six satellites each, and we havethe option to require our Launch Provider to make four additional launches ofsix satellites each. The total contract price for the first four launches is$210.1 million. On July 5,2008, we amended our agreement with our Launch Provider for the launchof our second-generation satellites and certain pre and post-launch services.Under the amended terms, we can defer payment on up to 75% of certain amountsdue to the Launch Provider. The deferred payments will incur annual interest at8% to 12%. We have made aggregate payments under this contract ofapproximately $26.3 million through September 30, 2008.

 

On May 14, 2008, we entered into a contract with Hughes under whichHughes will design, supply and implement the Radio Access Network (“RAN”)ground network equipment and software upgrades for installation at a number ofour satellite gateway ground stations and satellite interface chips to be apart of the User Terminal Subsystem (UTS) in our various next-generationdevices. The total contract purchase price of approximately $100.8 million ispayable in various increments over a period of 40 months. We have theoption to purchase additional RANs and other software and hardware improvementsat pre-negotiated prices. We have made aggregate payments under this contractof approximately $4.8 million through September 30, 2008.

 

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On October 8, 2008, we signed anagreement with Ericsson Federal Inc., a leading global provider of technologyand services to telecom operators. According to the $22.7 million contract,Ericsson will work with us to develop, implement and maintain a groundinterface, or core network, system that will be installed at our satellitegateway ground stations. The all Internet protocol (IP) based core networksystem is wireless 3G/4G compatible and will link our radio access network tothe public-switched telephone network (PSTN) and/or Internet. Design of the newcore network system is now underway.

 

We have completed construction of a gatewayin Singapore at a total cost of approximately $4.0 million. This gatewaywas fully operational for Simplex service in October 2008.  Duplex service is expected to be introducedwhen the second-generation constellation becomes operational.

 

See “Liquidity and Capital Resources” for adiscussion of our requirements for funding these capital expenditures.

 

·                  *Introduction of new products. *We work continuously with themanufacturers of the products we sell to offer our customers innovative andimproved products. Virtually all engineering, research and development costs ofthese new products are paid by the manufacturers. However, to the extent thecosts are reflected in increased inventory costs to us, and we are unable toraise our prices to our subscribers correspondingly, our margins andprofitability would be reduced.

 

*Simplex Products (Personal Tracking Services and Emergency Messaging).*  In early November 2007, we introducedthe SPOT satellite messenger, aimed at attracting both the recreational andcommercial markets that require personal tracking, emergency location and messagingsolutions for users that require these services beyond the range of traditionalterrestrial and wireless communications. Using the Globalstar Simplex networkand web-based mapping software, this device provides consumers with thecapability to trace or map the location of the user on Google MapsTM. Theproduct enables users to transmit messages to specific preprogrammed emailaddresses, phone or data devices, and to request assistance in the event of anemergency. We are continuing to develop second-generation SPOT-like applications.

 

·                  SPOT SatelliteMessenger Addressable Market

 

We believe the addressable market for ourSPOT satellite messenger products and services in North America consists ofapproximately 50 million consumers, primarily made up of outdoorenthusiasts. Our objective is to capture 2-3% of that market by the end of2010. The reach of our Simplex System, on which our SPOT satellite messengerproducts and services relies, covers approximately 60% of the world population.We intend to market our SPOT satellite messenger products and services aggressively in our overseasmarkets including South and Central America, Western Europe, and throughindependent gateway operators (“IGOs”) in their respective territories.

 

·                  SPOT SatelliteMessenger**Pricing

 

The pricing for SPOT satellite messengerproducts and services and equipment is intended to be extremely competitive.Annual service fees, depending whether they are for domestic or internationalservice, currently range from $99.99 to approximately $156.00 for our basiclevel plan, and $149.98 to approximately $218.00 with additional trackingcapability. We expect the equipment will be sold to end users at $149.99 toapproximately $300.00 per unit (subject to foreign currency rates).

 

·                  SPOT SatelliteMessenger Distribution

 

We are distributing and selling our new SPOTsatellite messenger through a variety of existing and new distributionchannels. We have signed distribution agreements with a number of “Big Box”retailers and other similar distribution channels including Amazon.com, BassPro Shops, Best Buy Canada, Big 5 Sporting Goods, Big Rock Sports, Boater’sWorld, Cabela’s, Campmor, Costco, Joe’s Sport, London Drug, Outdoor and More,Gander Mountain, REI, Sportsman’s Warehouse, The Source by Circuit Citydealers, Wal-Mart.com, West Marine, DBL Distribution, D.H. Distributions, andCWR Electronics. We have achieved our objective to sell SPOT satellitemessenger products through approximately 5,000 distribution points and expectto reach 10,000 in 2009. We also intend to sell directly using our existingsales force into key vertical markets and through our direct e-commerce website(*www.findmespot.com*).

 

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SPOT satellitemessenger products and services have been introduced only recently and theircommercial introduction and their commercial success cannot be assured.

 

·                  *Fluctuations in interest and currency rates. *Debt under our credit agreementbears interest at a floating rate. Therefore, increases in interest rates willincrease our interest costs if debt is outstanding. A substantial portion ofour revenue (41% for the nine months ended September 30, 2008) isdenominated in foreign currencies. In addition, a substantial majority of ourobligations under the contracts for our second-generation constellation andrelated control network facility are denominated in Euros. The recent increasein the relative value of the U.S. dollar versus the Euro has positivelyaffected our revenues and is expected to decrease our capital expenditures. Anyfuture declines in the relative value of the U.S. dollar versus the Euro will havean opposite affect on our revenue and increase our capital expenditures. Therecent increase in the relative value of the U.S. dollar versus the Canadiandollar has negatively affected our revenues. See “Item 3. Quantitative andQualitative Disclosures about Market Risk” for additional information.

 

·                    *Ancillary Terrestrial Component (ATC).*  ATC is the integration of a satellite-basedservice with a terrestrial wireless service resulting in a hybrid mobilesatellite service. The ATC network would extend our services to urban areas andinside buildings in both urban and rural areas where satellite servicescurrently are impractical. We believe we are at the forefront of ATCdevelopment and are actively working to be among the first market entrants. Tothat end, we are considering a range of options for rollout of our ATCservices. We are exploring selective opportunities with a variety of media andcommunication companies to capture the full potential of our spectrum andUnited States ATC license.

 

On October 31, 2007, weentered into an agreement with Open Range Communications, Inc. thatpermits Open Range to deploy service in certain rural geographic markets in theUnited States under our ATC authority. Open Range will use our spectrum to offer dual mode mobile satellitebased and terrestrial wireless WiMAX services to over 500 rural Americancommunities. Commercial availability is expected to begin in selected marketsin late 2008. The initial term of the agreement of up to 30 years isco-extensive with our ATC authority and is subject to renewal optionsexercisable by Open Range. Based on Open Range’s business plan used in supportof its $267 million loan under a federally authorized loan program, the fixedand variable payments to be made by Open Range over the initial term of 30years indicate a value for this agreement between $0.30 - $0.40/MHz/POP. Uponthe fulfillment of all contingencies, Open Range’s down payment will be $3.6million and annual payments in the first six years of the agreement will rangefrom approximately $1.2 million to $10.3 million, assuming Open Range has theability to use all of the licensed spectrum covered by the agreement. Theamount of the payments made to us will depend on a number of factors, includingthe eventual geographic coverage of and the number of customers on the OpenRange system. We have also agreed to make a $5.0 million preferred equityinvestment in Open Range, $3.0 million of which was made through September 30,2008. Under the agreement Open Range will have the right to use our spectrumwithin the United States in the 1.6 and 2.4 MHz bands to provide terrestrialwireless broadband services. Open Range will deploy portable broadband servicesvia a WiMAX architecture within the targeted communities. In addition, OpenRange has an option to expand this relationship over the next six years. Theagreement is contingent on various conditions, including receiving authorityfrom the FCC to use an expanded portion of our licensed spectrum for ATCservices and such other FCC and other governmental approvals as may be requiredfor the agreement, and Open Range’s completion of its equity and debtfinancing. In March 2008, Open Range secured approval for a $267 millionbroadband loan from the Department of Agriculture’s Rural Utilities Program.

 

In addition toour agreement with Open Range Communications, Inc., we hope to exploitadditional ATC monetization strategies and opportunities in urban markets or insuburban areas that are not the subject of our agreement with Open Range. Oursystem is flexible enough to allow us to use different technologies and networkarchitectures in different geographic areas.

 

On April 10,2008, the FCC increased our ATC grant to a total of 19.275 MHz in our twofrequency bands. The FCC’s order is now final and effective. On May 16,2008, we filed an application with the FCC to modify our authorization byadding additional wave forms.  One ofthese is the time division duplex (TDD) WiMAX wave form that Open Range intendsto deploy.  Two parties, Iridium andSprint Nextel, filed petitions to deny our application, and we and Open Rangefiled our oppositions to their petitions. On October 31, 2008, the FCCgranted us the authority necessary to implement our agreement with Open Rangebut deferred a decision on waveforms other than WiMax.

 

*Service and Subscriber Equipment SalesRevenues.*  Thetable below sets forth amounts and percentages of our revenue by type ofservice and equipment sales for the three and nine months ended September 30,2008 and 2007.

 

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| ** **                           | ** ** | **Three months ended   September 30, 2008** | ** ** | **Three months ended   September 30, 2007** | ** ** | **Nine months ended   September 30, 2008** | ** ** | **Nine months ended   September 30, 2007** | ** ** |
|--------------------------------------|------------|----------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                           | ** ** | **Revenue**                                                          | ** ** | **% of Total  Revenue**                                    | ** ** | **Revenue**                                                         | ** ** | **% of Total  Revenue**                                   | ** ** | **Revenue** | ** ** | **% of Total  Revenue** | ** ** | **Revenue** | ** ** | **% of Total  Revenue** | ** ** |
|                                 |       |                                                                 |       |                                                                 |       |                                                                |       |                                                                |       |   |   |   |   |   |   |   |   |
| **Service Revenue:**                 | ** ** | ** **                                                           | ** ** | ** **                                                           | ** ** | ** **                                                          | ** ** | ** **                                                          | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Mobile                               |       | $                                                                    | 9,976      |                                                                 | 44         | %                                                                   | $          | 16,482                                                              |       | 64 | % | $ | 33,199 |   | 49 | % | $ | 46,409 |   | 62 | % |
| Fixed                                |       | 920                                                                  |       | 4                                                                    |       | 1,389                                                               |       | 6                                                                   |       | 2,817 |   | 4 |   | 4,383 |   | 6 |   |
| Data                                 |       | 174                                                                  |       | 1                                                                    |       | 380                                                                 |       | 2                                                                   |       | 600 |   | 1 |   | 1,160 |   | 2 |   |
| Simplex                              |       | 1,838                                                                |       | 8                                                                    |       | 570                                                                 |       | 2                                                                   |       | 4,239 |   | 6 |   | 1,730 |   | 2 |   |
| IGO                                  |       | 889                                                                  |       | 4                                                                    |       | 1,340                                                               |       | 5                                                                   |       | 2,617 |   | 4 |   | 3,145 |   | 4 |   |
| Other(1)                             |       | 2,353                                                                |       | 10                                                                   |       | 1,102                                                               |       | 4                                                                   |       | 5,361 |   | 8 |   | 1,886 |   | 3 |   |
| **Total Service Revenue**            |       | 16,150                                                               |       | 71                                                                   |       | 21,263                                                              |       | 83                                                                  |       | 48,833 |   | 72 |   | 58,713 |   | 79 |   |
|                                 |       |                                                                 |       |                                                                 |       |                                                                |       |                                                                |       |   |   |   |   |   |   |   |   |
| **Subscriber Equipment Sales:**      |       |                                                                 |       |                                                                 |       |                                                                |       |                                                                |       |   |   |   |   |   |   |   |   |
| Mobile                               |       | 2,043                                                                |       | 9                                                                    |       | 2,854                                                               |       | 11                                                                  |       | 6,383 |   | 9 |   | 9,731 |   | 13 |   |
| Fixed                                |       | 162                                                                  |       | 1                                                                    |       | 380                                                                 |       | 1                                                                   |       | 1,053 |   | 2 |   | 1,977 |   | 2 |   |
| Data and Simplex                     |       | 1,936                                                                |       | 9                                                                    |       | 174                                                                 |       | 1                                                                   |       | 6,471 |   | 10 |   | 540 |   | 1 |   |
| Accessories                          |       | 2,234                                                                |       | 10                                                                   |       | 1,017                                                               |       | 4                                                                   |       | 4,918 |   | 7 |   | 3,718 |   | 5 |   |
| **Total Subscriber Equipment Sales** |       | 6,375                                                                |       | 29                                                                   |       | 4,425                                                               |       | 17                                                                  |       | 18,825 |   | 28 |   | 15,966 |   | 21 |   |
|                                 |       |                                                                 |       |                                                                 |       |                                                                |       |                                                                |       |   |   |   |   |   |   |   |   |
| **Total Revenue**                    |       | $                                                                    | 22,525     |                                                                 | 100        | %                                                                   | $          | 25,688                                                              |       | 100 | % | $ | 67,658 |   | 100 | % | $ | 74,679 |   | 100 | % |

 

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(1)             Includesengineering services and activation fees

 

*Operating Loss.*We realized an operating loss of $41.1 million for the nine monthsended September 30, 2008 compared to an operating loss of $16.8 millionfor the same period in 2007. This increased loss can be attributed primarily tolower service revenues and higher depreciation expense, non-cash executivecompensation expense related to a change in compensation from cash torestricted stock, advertising and marketing expense, as well as higher cost ofservices. Lower service revenue was a result of lower price service plansintroduced to maintain our subscriber base despite two-way communication issuesaffecting our two-way service during the first nine months of 2008. The higherdepreciation expense resulted from placing all eight of our recently launchedspare satellites into service. The higher advertising expense resulted from thelaunch of our SPOT satellite messenger product and services.

 

*Subscribersand ARPU for the three and nine months ended September 30, 3008 and 2007.*Average number of subscribers and ARPU forretail, IGO and Simplex customers for the three and nine months ended September 30,2008 and 2007 are presented below. The following numbers are subject toimmaterial rounding inherent in calculating averages.

 
| ** **                                         | ** ** | **Three months ended   September 30,** | ** ** | **Nine months ended   September 30,** | ** ** |
|----------------------------------------------------|------------|------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                         | ** ** | **2008**                                                   | ** ** | **2007**                                                  | ** ** | **% Net   Change** | ** ** | **2008** | ** ** | **2007** | ** ** | **% Net   Change** | ** ** |
| **Average number of subscribers for the  period:** |       |                                                       |       |                                                      |       |   |   |   |   |   |   |   |   |
|                                               |       |                                                       |       |                                                      |       |   |   |   |   |   |   |   |   |
| Retail                                             |       | 119,222                                                    |       | 122,880                                                   |       | (3 | )% | 178,448 |   | 185,403 |   | (4 | )% |
| IGO                                                |       | 76,101                                                     |       | 91,780                                                    |       | (17 | ) | 120,488 |   | 135,476 |   | (11 | ) |
| Simplex                                            |       | 127,328                                                    |       | 66,805                                                    |       | 91 |   | 161,802 |   | 91,121 |   | 78 |   |
|                                               |       |                                                       |       |                                                      |       |   |   |   |   |   |   |   |   |
| **ARPU (monthly):**                                |       |                                                       |       |                                                      |       |   |   |   |   |   |   |   |   |
|                                               |       |                                                       |       |                                                      |       |   |   |   |   |   |   |   |   |
| Retail                                             |       | $                                                          | 35.32      |                                                      | $          | 48.41 |   | (27 | ) | $ | 37.34 |   | $ | 46.21 |   | (19 | ) |
| IGO                                                |       | $                                                          | 3.89       |                                                      | $          | 4.87 |   | (20 | ) | $ | 3.62 |   | $ | 3.87 |   | (6 | ) |
| Simplex                                            |       | $                                                          | 4.85       |                                                      | $          | 2.84 |   | 71 |   | $ | 4.36 |   | $ | 3.16 |   | 38 |   |

 

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** **
| ** **                        | ** ** | **September 30,  2008** | ** ** | **September 30,    2007** | ** ** | **% Net Change** | ** ** |
|-----------------------------------|------------|------------------------------|------------|------------------------------------------|------------|----------------------------|------------|
| **Ending number of subscribers:** |       |                         |       |                                     |       |                       |       |
|                              |       |                         |       |                                     |       |                       |       |
| Retail                            |       | 118,802                      |       | 121,342                                  |       | (2                         | )%         |
| IGO                               |       | 74,272                       |       | 92,276                                   |       | (20                        | )          |
| Simplex                           |       | 136,314                      |       | 71,650                                   |       | 90                         |       |
| Total                             |       | 329,388                      |       | 285,268                                  |       | 16                         | %          |

 

The total number of net subscribers increased from approximately285,000 at September 30, 2007 to approximately 329,000 at September 30,2008. Although we experienced a net increase in our total customer base of 15%from September 30, 2007 to September 30, 2008, our total servicerevenue decreased for the same period. This is due primarily to lowercontributions from subscribers in addition to the change in our subscriber mix.

 

**IndependentGateway Acquisition Strategy**

 

Currently, 13 of the 26 gateways in ournetwork are owned and operated by unaffiliated companies, which we callindependent gateway operators, some of whom operate more than one gateway. Wehave no financial interest in these independent gateway operators other thanarms’ length contracts for wholesale minutes of service. Some of theseindependent gateway operators have been unable to grow their businessesadequately due in part to limited resources. Old Globalstar initially developedthe independent gateway operator acquisition strategy to establish operationsin multiple territories with reduced demands on its capital. In addition, thereare territories in which for political or other reasons, it is impractical forus to operate directly. We sell services to the independent gateway operatorson a wholesale basis and they resell them to their customers on a retail basis.

 

We have acquired, and intend to continue topursue the acquisition of, independent gateway operators when we believe we cando so on favorable terms and the current independent operator has expressed adesire to sell its assets to us, subject to capital availability. We believethat these acquisitions can enhance our results of operations in threerespects. First, we believe that, with our greater financial and technicalresources, we can grow our subscriber base and revenue faster than some of theindependent gateway operators. Second, we realize greater margin on retailsales to individual subscribers than we do on wholesale sales to independentgateway operators. Third, we believe expanding the territory we serve directlywill better position us to market our services directly to multinationalcustomers who require a global communications provider.

 

However, acquisitions of independent gatewayoperators do require us to commit capital for acquisition of their assets, aswell as management resources and working capital to support the gatewayoperations, and therefore increase our risk in operating in these territoriesdirectly rather than through the independent gateway operators. In addition,operating the acquired gateways increases our marketing, general andadministrative expenses. Our credit agreement limits to $25.0 million theaggregate amount of cash we may invest in foreign acquisitions without theconsent of our lender.

 

In March 2008, weacquired an independent gateway operator that owns three satellite gatewayground stations in Brazil for $6.5 million. We also incurred transactioncosts of $0.2 million related to this acquisition. The purchase price was paidprimarily in our Common Stock. We are unable to predict the timing or cost offurther acquisitions because independent gateway operations vary in size andvalue.

 

**Performance Indicators**

 

Our management reviewsand analyzes several key performance indicators in order to manage our businessand assess the quality of and potential variability of our earnings and cashflows. These key performance indicators include:

 

·                  total revenue, which is an indicatorof our overall business growth;

 

·                  subscriber growth and churn rate,which are both indicators of the satisfaction of our customers;

 

·                  average monthly revenue per unit, orARPU, which is an indicator of our pricing and ability to obtain effectivelylong-term, high-value customers. We calculate ARPU separately for each of ourretail, IGO and Simplex businesses;

 

·                  operating income, which is anindication of our performance;

 

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·                  earnings before interest, taxes,depreciation and amortization, or EBITDA, which is an indicator of our financialperformance; and

 

·                  capital expenditures, which are anindicator of future revenue growth potential and cash requirements.

 

**Seasonality**

** **

Our results of operationsare subject to seasonal usage changes. April through October aretypically our peak months for service revenues and equipment sales. Governmentcustomers in North America tend to use our services during summer months, oftenin support of relief activities after events such as hurricanes, forest firesand other natural disasters.

 

**CriticalAccounting Policies and Estimates**

 

The preparation of our consolidated financialstatements requires us to make estimates and judgments that affect our revenuesand expenses for the periods reported and the reported amounts of our assetsand liabilities, including contingent assets and liabilities, as of the date ofthe financial statements. We evaluate our estimates and judgments, includingthose related to revenue recognition, inventory, long-lived assets, incometaxes, pension obligations, derivative instruments and stock-basedcompensation, on an on-going basis. We base our estimates and judgments onhistorical experience and on various other assumptions that are believed to bereasonable under the circumstances. Actual results may differ from ourestimates under different assumptions or conditions. We believe the followingaccounting policies are most important to understanding our financial resultsand condition and require complex or subjective judgments and estimates.

 

***Revenue Recognition***

*** ***

Customer activation feesare deferred and recognized over four to five year periods, which approximatesthe estimated average life of the customer relationship. We periodicallyevaluate the estimated customer relationship life. Historically, changes in theestimated life have not been material to our financial statements.

 

Monthly access feesbilled to retail customers and resellers, representing the minimum monthlycharge for each line of service based on its associated rate plan, are billedon the first day of each monthly bill cycle. Airtime minute fees in excess ofthe monthly access fees are billed in arrears on the first day of each monthlybilling cycle. To the extent that billing cycles fall during the course of agiven month and a portion of the monthly services has not been delivered atmonth end, fees are prorated and fees associated with the undelivered portionof a given month are deferred. Under our annual plans, where customers prepayfor minutes, revenue is deferred until the minutes are used or the prepaid timeperiod expires. Unused minutes are accumulated until they expire, usually oneyear after activation. In addition, we offer an annual plan called theEmergency Plan under which the customer is charged an annual fee to access oursystem and for each minute used. The annual fee for an Emergency Plan isrecognized as revenue on a straight-line basis over the term of the plan.

 

Occasionally we havegranted to customers credits which are expensed or charged against deferredrevenue when granted.

 

Subscriber acquisitioncosts include items such as dealer commissions, internal sales commissions andequipment subsidies and are expensed at the time of the related sale.

 

We also provide certainengineering services to assist customers in developing new technologies relatedto our system. The revenues associated with these services are recorded whenthe services are rendered, and the expenses are recorded when incurred.

 

We own and operate oursatellite constellation and earn a portion of our revenues through the sale ofairtime minutes on a wholesale basis to independent gateway operators. Revenuefrom services provided to independent gateway operators is recognized basedupon airtime minutes used by their customers and contractual fee arrangements.If collection is uncertain, revenue is recognized when cash payment isreceived.

 

We introduced annualplans (sometimes called Liberty Plans) in August 2004 and broadened theiravailability during the second quarter of 2005. These plans grew substantiallyin 2005 and 2006. These plans require users to pre-pay usage charges for theentire plan period, generally 12 months, which results in the deferral ofcertain of our revenues. Under our revenue recognition policy for annual plans,we defer revenue until the earlier of when the minutes are used or when theseminutes expire. Any unused minutes are recognized as revenue at the expirationof a plan. Most of our customers have not used all the minutes that areavailable to them or have not used them at the pace anticipated, which hascaused us to defer a portion of our service revenue.

 

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During the second quarterof 2007, we introduced an unlimited airtime usage service plan (called theUnlimited Loyalty Plan) which allows existing and new customers to useunlimited satellite voice minutes for anytime calls for a fixed monthly fee.The unlimited loyalty plan incorporates a declining monthly price schedule thatreduces the fixed monthly fee at the completion of each calendar year throughthe duration of the customer agreement, which ends on June 30, 2010.Customers have an option to extend their customer agreement by one year at thefixed monthly price. We record revenue for this plan monthly based on astraight line average derived by computing the total fees charged over the termof the customer agreement and dividing it by the number of the months. If acustomer cancels prior to the ending date of the customer agreement, thebalance in deferred revenue is recognized as revenue. At September 30,2008 and December 31, 2007, our deferred revenue aggregated approximately$20.9 million (with $1.2 million included in non-current liabilities) and $20.4million (with $1.0 million included in non-current liabilities),respectively.

 

Subscriber equipmentrevenue represents the sale of fixed and mobile user terminals and accessories.Revenue is recognized upon shipment provided title and risk of loss have passedto the customer, persuasive evidence of an arrangement exists, the fee is fixedand determinable and collection is probable.

 

In December 2002,the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue No. 00-21,“Revenue Arrangements with Multiple Deliverables.” EITF Issue No. 00-21addresses certain aspects of the accounting by a vendor for arrangements underwhich it will perform multiple revenue-generating activities. In somearrangements, the different revenue-generating activities (deliveries) aresufficiently separable and there exists sufficient evidence of their fairvalues to account separately for some or all of the deliveries (that is, thereare separate units of accounting). In other arrangements, some or all of the deliveriesare not independently functional, or there is not sufficient evidence of theirfair values to account for them separately. EITF Issue No. 00-21 addresseswhen and, if so, how an arrangement involving multiple deliverables should bedivided into separate units of accounting. EITF Issue No. 00-21 does notchange otherwise applicable revenue recognition criteria.

 

***Inventory***

*** ***

Inventory consists ofpurchased products, including fixed and mobile user terminals, accessories andgateway spare parts. Inventory is stated at the lower of cost or market. At theend of each quarter, product sales and returns from the previous twelve monthsare reviewed and any excess and obsolete inventory is written off. Cost iscomputed using the first-in, first-out (FIFO) method. Inventory allowances forinventories with a lower market value or that are slow moving are recorded inthe period of determination.

 

***Globalstar System,Property and Equipment***

*** ***

OurGlobalstar System assets include costs for the design, manufacture, test andlaunch of a constellation of low earth orbit satellites, including satellitespreviously held as ground spares which we launched in May and October 2007,which we refer to as the space segment, and primary and backup terrestrialcontrol centers and gateways, which we refer to as the ground segment. Lossfrom an in-orbit failure of a satellite is recognized as an expense in theperiod it is determined that the satellite is not recoverable. We regard theserecently launched satellites as part of the second-generation constellationwhich will be supplemented by the 48 second-generation satellites currentlybeing constructed. These 48 second-generation satellites will have an estimatedin-orbit life of 15 years.

 

The carrying value of theGlobalstar System components is reviewed for impairment whenever events orchanges in circumstances indicate that the recorded value of the space segmentand ground segment, may not be recoverable. We look to current and futureundiscounted cash flows, excluding financing costs, as primary indicators ofrecoverability. If an impairment is determined to exist, any related impairmentloss is calculated based on fair value. We believe our two-waytelecommunications services, or Duplex services, after the launch of our second-generationconstellation, and Simplex services will generate sufficient undiscounted cashflow after our second-generation system becomes fully operational, which isexpected to be sometime in 2010, to justify our carrying value for oursecond-generation costs.

 

The satellites previouslyrecorded as spare satellites and subsequently incorporated into the GlobalstarSystem on the date the satellite is placed into service (the “In-Service Date”)are being depreciated over an estimated life of eight years beginning on thesatellite’s “In-Service Date.”

 

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Property and equipmentacquired by us on December 5, 2003 in the Old Globalstar bankruptcyproceedings was recorded based on our allocation of acquisition cost. Becausethe acquisition cost of these assets was substantially below their historiccost or replacement cost, current depreciation and amortization costs have beenreduced substantially for GAAP purposes, thereby increasing net income ordecreasing net loss. As we increase our capital expenditures, especially toprocure and launch our second-generation satellite constellation, we expectGAAP depreciation to increase substantially. Depreciation is provided using thestraight-line method over the estimated useful lives. Leasehold improvementsare amortized on a straight-line basis over the shorter of the estimated usefullife of the improvement or the term of the lease. We perform ongoingevaluations of the estimated useful lives of our property and equipment fordepreciation purposes. The estimated useful lives are determined andcontinually evaluated based on the period over which services are expected tobe rendered by the asset. Maintenance and repair items are expensed asincurred.

 

***Income Taxes***

*** ***

Until January 1,2006, we were treated as a partnership for U.S. tax purposes. Generally, ourtaxable income or loss, deductions and credits were passed through to our members.We did have some corporate subsidiaries that required a tax provision orbenefit using the asset and liability method of accounting for income taxes asprescribed by Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes”**(“SFAS No. 109”). Effective January 1,2006, we elected to be taxed as a C corporation in the United States. When anenterprise changes its tax status from non-taxable to taxable, under SFAS No. 109the effect of recognizing deferred tax assets and liabilities is included inincome from continuing operations in the period of change. As a result, werecognized a gross deferred tax asset of $204.2 million and a gross deferredtax liability of $0.1 million on January 1, 2006. SFAS No. 109 alsorequires that deferred tax assets be reduced by a valuation allowance if it ismore likely than not that some portion or all of the deferred tax asset willnot be realized. In evaluating the need for a valuation allowance, we take intoaccount various factors including the expected level of future taxable incomeand available tax planning strategies. We determined that it was more likelythan not that we would not recognize the entire deferred tax asset; therefore,we established a valuation allowance of $182.7 million, resulting inrecognition of a net deferred tax benefit of $21.4 million. At September 30,2008, we determined, based on our evaluation of current evidence and its effecton our estimate of future taxable income that it was necessary to provide afull valuation allowance against our Canadian subsidiary’s deferred tax assets.Accordingly, we increased our deferred tax valuation allowance by $2.1 millionwith respect to our deferred tax assets. We monitor the situation to ensurethat, if and when we are more likely than not to be able to utilize more of thedeferred tax asset, we will be able to reduce the valuation allowanceaccordingly. On January 1, 2007, we adopted Financial Accounting StandardsBoard Interpretation No. 48 “Accounting for Uncertainty in Income Taxes”(“FIN 48”). See Note 7 to our unaudited interim consolidated financialstatements for the impact of this adoption on our financial statements.

 

***Spare Satellites andRelated Launch Costs, Second-Generation Satellites and Launch Costs and GroundSegment***

*** ***

Old Globalstar purchasedeight additional satellites in 1998 for $148.0 million (including performanceincentives of up to $16.0 million) to serve as on-ground spares. Costs of$147.0 million (including a portion of the performance incentives) were previouslyrecognized for these spare satellites. Prior to December 5, 2003, OldGlobalstar recorded an impairment of these assets, and at December 5, 2003they were carried at $0.9 million. The eight spare satellites were launchedsuccessfully in two separate launches of four satellites each in May 2007and October 2007. Depreciation of these assets began when the satelliteswere placed in service and began to handle call traffic. As of September 30,2008, all eight satellites were in service. As of December 31, 2007, thespare satellites not in service were recorded at $47.8 million. The amountrelating to spare satellites that were placed into service during the three andnine months ended September 30, 2008 (approximately zero and $48.0million, respectively), was classified within the Globalstar System as part ofthe space segment. These satellites are being depreciated over an estimateduseful life of eight years.

 

In November 2006, we entered into acontract with Thales Alenia Space to construct 48 low-earth orbitsatellites.  We entered into anadditional agreement with Thales Alenia Space in March 2007 for theconstruction of the Satellite Operations Control Centers, Telemetry CommandUnits and In Orbit Test Equipment (collectively, the “Control NetworkFacility”) for our second-generation satellite constellation.

 

In September 2007,we and our Launch Provider entered into an agreement for the launch of oursecond-generation satellites and certain pre and post-launch services. Pursuantto the agreement, our Launch Provider will make four launches of six satelliteseach, and we have the option to require our Launch Provider to make fouradditional launches of six satellites each. For further discussion, see Note 4 of the unaudited interim consolidatedfinancial statements in Part I of this Report.

 

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On May 14, 2008, weentered into a contract with Hughes under which Hughes will design, supply andimplement the Radio Access Network (“RAN”) ground network equipment andsoftware upgrades for installation at a number of our satellite gateway groundstations and satellite interface chips to be a part of the User TerminalSubsystem (UTS) in our various next-generation Globalstar devices. The totalcontract purchase price of approximately $100.8 million is payable in variousincrements over a period of 40 months. We have the option to purchaseadditional RANs and other software and hardware improvements at pre-negotiatedprices.

 

On October 8, 2008,we signed an agreement with Ericsson Federal Inc., a leading global provider oftechnology and services to telecom operators. According to the $22.7 millioncontract, Ericsson will work with us to develop, implement and maintain aground interface, or core network, system that will be installed at oursatellite gateway ground stations. The all Internet protocol (IP) based corenetwork system is wireless 3G/4G compatible and will link our radio accessnetwork to the public-switched telephone network (PSTN) and/or Internet. Designof the new core network system is now underway.

 

The depreciation of theseassets will begin once the assets are completed and placed into service.

 

***PensionObligations***

 

We have a company-sponsored retirement plancovering certain current and past U.S.-based employees. Until June 1,2004, substantially all of Old Globalstar’s and our employees and retirees whoparticipated and/or met the vesting criteria for the plan were participants inthe Retirement Plan of Space Systems/Loral, Inc. (the “Loral Plan”), adefined benefit pension plan. The accrual of benefits in the Old Globalstarsegment of the Loral Plan was curtailed, or frozen, by the administrator of theLoral Plan as of October 23, 2003. Prior to October 23, 2003,benefits for the Loral Plan were generally based upon compensation, length ofservice with the company and age of the participant. On June 1, 2004, theassets and frozen pension obligations of the segment attributable to ouremployees were transferred into a new Globalstar Retirement Plan (the“Globalstar Plan”). The Globalstar Plan remains frozen and participants are notcurrently accruing benefits beyond those accrued as of October 23, 2003. Ourfunding policy is to fund the Globalstar Plan in accordance with the InternalRevenue Code and regulations.

 

We account for our defined benefit pensionand life insurance benefit plans in accordance with SFAS No. 87,“Employers’ Accounting for Pensions,” (“SFAS 87”), SFAS No. 106,“Employer’s Accounting for Postretirement Benefits Other than Pensions,”(“SFAS 106”) and SFAS No. 158, “Employers’ Accounting Defined BenefitPension and Other Postretirement Plans,” (“SFAS 158”) which require thatamounts recognized in financial statements be determined on an actuarial basis.We adopted the recognition and disclosure provisions of SFAS No. 158 on December 31,2006 and this adoption did not have any impact on our results of operation.Pension benefits associated with these plans are generally based on eachparticipant’s years of service, compensation, and age at retirement ortermination. Two critical assumptions, the discount rate and the expectedreturn on plan assets, are important elements of expense and liabilitymeasurement.

 

We determine the discount rate used tomeasure plan liabilities as of the December 31 measurement date for theU.S. pension plan. The discount rate reflects the current rate at which theassociated liabilities could be effectively settled at the end of the year. Inestimating this rate, we look at rates of return on fixed-income investments ofsimilar duration to the liabilities in the plan that receive high, investmentgrade ratings by recognized ratings agencies. Using these methodologies, wedetermined a discount rate of 6.00% to be appropriate as of December 31,2007, which is an increase of 0.25 percentage points from the rate used asof December 31, 2006. An increase of 1.0% in the discount rate would havedecreased our plan liabilities as of December 31, 2007 by$1.4 million and a decrease of 1.0% could have increased our planliabilities by $1.7 million.

 

A significant element in determining ourpension expense in accordance with SFAS No. 158 is the expected return onplan assets, which is based on historical results for similar allocations amongasset classes. For the U.S. pension plan, our assumption for the expectedreturn on plan assets was 7.5% for 2007.

 

The difference betweenthe expected return and the actual return on plan assets is deferred and, undercertain circumstances, amortized over future years of service. Therefore, thenet deferral of past asset gains (losses) ultimately affects future pensionexpense. This is also true of changes to actuarial assumptions. As of December 31,2007, we had net unrecognized pension actuarial losses of $1.7 million.These amounts represent potential future pension and postretirement expensesthat would be amortized over average future service periods.

 

***Derivative Instrument***

*** ***

We utilize a derivativeinstrument in the form of an interest rate swap agreement to minimize our riskfrom interest rate fluctuations related to our variable rate credit agreement.We use the interest rate swap agreement to manage risk and not for trading orother speculative purposes. At the end of each accounting period, we record thederivative instrument on our balance sheet as either an asset or a liabilitymeasured at fair value. The interest rate swap agreement does not qualify forhedge accounting treatment. Changes in the fair value of the interest rate swapagreement are recognized as “Interest rate derivative gain (loss)” over thelife of the agreement. We provide collateral in the form of cash and securitiesequal to any negative value of the interest rate swap agreement.

 

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***Stock-BasedCompensation***

 

Effective January 1, 2006, as a result of our initial publicoffering, we adopted the provisions of Statement of Financial Accounting Standards123(R), “Share-Based Payment” (“SFAS 123(R)”), and relatedinterpretations, or SFAS 123(R), to account for stock-based compensationusing the modified prospective transition method and therefore have notrestated our prior period results. Among other things, SFAS 123(R) requiresthat compensation expense be recognized in the financial statements for bothemployee and non-employee share-based awards based on the grant date fair valueof those awards.

 

Additionally, stock-based compensation expense includes an estimate forpre-vesting forfeitures and is recognized over the requisite service periods ofthe awards on a straight-line basis, which is generally commensurate with thevesting term.

 

**Resultsof Operations**

 

*Comparisonof Results of Operations for the Three Months Ended September 30, 2008 and2007 (in thousands):*

 
| ** **                                                                            | ** ** | **Three months ended  September 30,** | ** ** | ** ** | ** ** |
|---------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|------------|------------|
| ** **                                                                            | ** ** | **2008**                                             | ** ** | **2007**   | ** ** | **% Change** | ** ** |
| **Revenue:**                                                                          | ** ** | ** **                                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Service revenue                                                                       |       | $                                                    | 16,150     |       | $          | 21,263 |   | (24 | )% |
| Subscriber equipment sales                                                            |       | 6,375                                                |       | 4,425      |       | 44 |   |
| Total revenue                                                                         |       | 22,525                                               |       | 25,688     |       | (12 | ) |
|                                                                                  |       |                                                 |       |       |       |   |   |
| **Operating expenses:**                                                               | ** ** | ** **                                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cost of services (exclusive of depreciation and amortization shown  separately below) |       | 10,452                                               |       | 7,307      |       | 43 |   |
| Cost of subscriber equipment sales:                                                   |       |                                                 |       |       |       |   |   |
| Cost of subscriber equipment sales                                                    |       | 4,942                                                |       | 3,390      |       | 46 |   |
| Cost of subscriber equipment sales – Impairment of assets                        |       | —                                               |       | —     |       | — |   |
| Total cost of subscriber equipment sales                                              |       | 4,942                                                |       | 3,390      |       | 46 |   |
| Marketing, general and administrative                                                 |       | 17,372                                               |       | 12,069     |       | 44 |   |
| Depreciation and amortization                                                         |       | 7,196                                                |       | 3,264      |       | 120 |   |
| Total operating expenses                                                              |       | 39,962                                               |       | 26,030     |       | 54 |   |
|                                                                                  |       |                                                 |       |       |       |   |   |
| Operating loss                                                                        |       | (17,437                                              | )          | (342       | )          | 4,999 |   |
|                                                                                  |       |                                                 |       |       |       |   |   |
| Other income (expense):                                                               |       |                                                 |       |       |       |   |   |
| Interest income                                                                       |       | 1,474                                                |       | 734        |       | 101 |   |
| Interest expense                                                                      |       | (1,285                                               | )          | (341       | )          | 277 |   |
| Interest rate derivative loss                                                         |       | (229                                                 | )          | (2,297     | )          | (90 | ) |
| Other income (expense)                                                                |       | (6,587                                               | )          | 3,827      |       | N/A |   |
| Total other income (expense)                                                          |       | (6,627                                               | )          | 1,923      |       | N/A |   |
|                                                                                  |       |                                                 |       |       |       |   |   |
| Income (loss) before income taxes                                                     |       | (24,064                                              | )          | 1,581      |       | N/A |   |
| Income tax expense                                                                    |       | 2,039                                                |       | 929        |       | 119 |   |
| Net income (loss)                                                                     |       | $                                                    | (26,103    | )          | $          | 652 |   | N/A | % |

 

***Revenue. ***Totalrevenue decreased by $3.2 million, or approximately 12%, to $22.5 million forthe three months ended September 30, 2008, from $25.7 million for thethree months ended September 30, 2007. This decrease is attributable tolower service revenue which, we believe, stems from lower price service plansintroduced in order to maintain our subscriber base despite our two-waycommunication issues.  This resulted in areduction in our retail ARPU during the three months ended September 30,2008, which decreased by approximately 27% to $35.32 from $48.41 for the threemonths ended September 30, 2007.

 

*Service Revenue.*Service revenue decreased $5.1 million, orapproximately 24%, to $16.2 million for the three months ended September 30,2008, from $21.3 million for the three months ended September 30, 2007.Our overall subscriber base grew 15% to approximately 329,000 over thetwelve-month period from September 30, 2007 to September 30, 2008.All of such growth resulted from an increase in the number of our Simplexcustomers. However, we experienced decreased retail ARPU for the three monthsended September 30, 2008 compared to the same period in 2007. 

 

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We believe that thetwo-way communication issues we first reported in February 2007 andrelated price reductions, as well as a change in the mix of our subscriberbase, were the reasons for this reduction. This was partially offset byincreases in our Simplex ARPU during the three months ended September 30,2008 compared to the same period in 2007. The increase in our Simplex ARPU wasdue to introduction of SPOT satellite messenger services during the fourthquarter of 2007.

 

*Subscriber Equipment Sales.*Subscriber equipment sales increased by $2.0 million,or approximately 44%, to $6.4 million for the three months ended September 30,2008, from $4.4 million for the three months ended September 30, 2007.This increase is attributable to the sales of our SPOT satellitemessenger product inthe third quarter of 2008.

 

***Operating Expenses.***Total operating expenses increased approximately $13.9million, or approximately 54%, from $26.0 million for the three months ended September 30,2007 to $40.0 million for the three months ended September 30, 2008. Thisincrease was due to higher costs related to our SPOT satellite messengerproduct and services,  expenses relatedto the construction of our ground segment, higher bad debt expense, expensesfrom our recently acquired subsidiary in Brazil, and higher depreciationexpense as a result of all eight of our spare satellites being in service inthe quarter ended September 30, 2008.

 

*Cost of Services.*Our cost of services for the three months ended September 30,2008 and 2007 were $10.5 million and $7.3 million, respectively.  Our cost of services is comprised primarilyof network operating costs, which are generally fixed in nature. The increasein the cost of services during the three months ended September 30, 2008is primarily due to expenses related to the construction of our groundsegment..

 

*Cost of Subscriber Equipment Sales.*Cost of subscriber equipment salesincreased approximately $1.6 million, or approximately 46%, from $3.4 millionfor the three months ended September 30, 2007 to $4.9 million for thethree months ended September 30, 2008. This increase was due to increasedsales of our SPOT satellite messenger products in the quarter endedSeptember 30, 2008.  Sales of SPOT satellite messenger productscommenced in the fourth quarter of 2007.

 

*Marketing,General and Administrative.*Marketing, general and administrative expensesincreased $5.3 million, or approximately 44%, from $12.1 million for the threemonths ended September 30, 2007 to $17.4 million for the three monthsended September 30, 2008. This increase was due primarily to increasedadvertising and marketing costs related to our SPOT satellite messenger product and services, expenses from ourrecently acquired subsidiary in Brazil, and increased bad debt expense.

 

*Depreciationand Amortization.*Depreciationand amortization expense increased $3.9 million, or approximately 120%, from$3.3 million for the three months ended September 30, 2007 to $7.2 millionfor the three months ended September 30, 2008. This increase was dueprimarily to the additional depreciation associated with placing all eight ofour recently-launched spare satellites into service.

 

***Operating Loss.***Our operating loss of $17.4 million for the threemonths ended September 30, 2008, increased $17.1 million from an operatingloss of $0.3 million for the three months ended September 30, 2007. Theincreased loss was due to lower retail ARPU as a consequence of our two-waycommunication issues in 2008 and the change in our subscriber base. Higheradvertising and marketing costs and higher depreciation expense associated withall eight of our spare satellites being in service also contributed to ouroperating loss during the three months ended September 30, 2008.

 

*InterestIncome.*Interestincome increased by $0.7 million for the three months ended September 30,2008. This increase was due to increased cash balances on hand.

 

*InterestExpense.*Interestexpense increased by approximately $0.9 million from $0.3 million for the threemonths ended September 30, 2007, to $1.3 million for the three monthsended September 30, 2008. This increase was primarily due to higher levelsof debt outstanding during the second quarter of 2008.

 

*Interest Rate Derivative Loss*. Interest rate derivative loss decreasedby $2.1 million from  $2.3 million forthree months ended September 30, 2007 to $0.2 million for the three monthsended September 30, 2008. This decrease was due to an increase in the fairvalue of our interest rate swap agreement liability.

 

*OtherIncome (Expense).*Otherincome (expense) generally consists of foreign exchange transaction gains andlosses. Other expense increased by $10.4 million for the three months ended September 30,2008 as compared to the same period in 2007, primarily as a result of theunfavorable exchange rate on the Euro denominated escrow account for oursecond-generation constellation procurement contract resulting from theappreciation of the U.S. dollar vis-à-vis the Euro.

 

*IncomeTax Expense.*Incometax expense for the three months ended September 30, 2008 was $2.0 millioncompared to $0.9 million during the same period in 2007. This was due primarilyto recording an increase in the valuation allowance against our Canadiansubsidiary’s deferred tax asset during the three months ended September 30,2008.

 

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*** ***

***Net Income ( Loss).***Our net income decreased $26.8 million from a netincome of $0.7 million for the three months ended September 30, 2007 to anet loss of $26.1 million for the three months ended September 30, 2008.This decrease was due to lower retail ARPU as a consequence of our two-waycommunication issues. Furthermore, we experienced higher advertising,marketing, and depreciation expenses, and higher expenses from our recentlyacquired subsidiary in Brazil, during the three months ended September 30,2008.

 

*Comparisonof Results of Operations for the Nine Months Ended September 30, 2008 and2007 (in thousands):*

 
| ** **                                                                            | ** ** | **Nine months ended  September 30,** | ** ** | ** ** | ** ** |
|---------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|------------|------------|
| ** **                                                                            | ** ** | **2008**                                            | ** ** | **2007**   | ** ** | **% Change** | ** ** |
| **Revenue:**                                                                          | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Service revenue                                                                       |       | $                                                   | 48,833     |       | $          | 58,713 |   | (17 | )% |
| Subscriber equipment sales                                                            |       | 18,825                                              |       | 15,966     |       | 18 |   |
| Total revenue                                                                         |       | 67,658                                              |       | 74,679     |       | (9 | ) |
|                                                                                  |       |                                                |       |       |       |   |   |
| **Operating expenses:**                                                               | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cost of services (exclusive of depreciation and amortization shown  separately below) |       | 26,534                                              |       | 20,428     |       | 30 |   |
| Cost of subscriber equipment sales:                                                   |       |                                                |       |       |       |   |   |
| Cost of subscriber equipment sales                                                    |       | 14,050                                              |       | 11,398     |       | 23 |   |
| Cost of subscriber equipment sales – Impairment of assets                        |       | 404                                                 |       | 17,255     |       | (98 | ) |
| Total cost of subscriber equipment sales                                              |       | 14,454                                              |       | 28,653     |       | (50 | ) |
| Marketing, general and administrative                                                 |       | 48,602                                              |       | 34,185     |       | 42 |   |
| Depreciation and amortization                                                         |       | 19,135                                              |       | 8,225      |       | 133 |   |
| Total operating expenses                                                              |       | 108,725                                             |       | 91,491     |       | 19 |   |
|                                                                                  |       |                                                |       |       |       |   |   |
| Operating loss                                                                        |       | (41,067                                             | )          | (16,812    | )          | 144 |   |
|                                                                                  |       |                                                |       |       |       |   |   |
| Other income (expense):                                                               |       |                                                |       |       |       |   |   |
| Interest income                                                                       |       | 4,407                                               |       | 2,253      |       | 96 |   |
| Interest expense                                                                      |       | (2,754                                              | )          | (1,037     | )          | 166 |   |
| Interest rate derivative loss                                                         |       | (25                                                 | )          | (751       | )          | (97 | ) |
| Other income (expense)                                                                |       | 1,587                                               |       | 4,874      |       | (67 | ) |
| Total other income (expense)                                                          |       | 3,215                                               |       | 5,339      |       | (40 | ) |
|                                                                                  |       |                                                |       |       |       |   |   |
| Loss before income taxes                                                              |       | (37,852                                             | )          | (11,473    | )          | 230 |   |
| Income tax expense                                                                    |       | 2,234                                               |       | 118        |       | 1,793 |   |
| Net loss                                                                              |       | $                                                   | (40,086    | )          | $          | (11,591 | ) | 246 | % |

 

***Revenue. ***Totalrevenue decreased by $7.0 million, or approximately 9%, from $74.7 million forthe nine months ended September 30, 2007 to $67.7 million for the ninemonths ended September 30, 2008, This decrease is attributable to lowerservice revenue which we believe stems from lower price service plansintroduced in order to maintain our subscriber base despite our two-waycommunication issues.  This resulted in areduction in our retail ARPU during the nine months ended September 30,2008, which decreased by 19% to $37.34 from $46.21 for the nine months ended September 30,2007.

 

*Service Revenue.*Service revenue decreased $9.9 million, orapproximately 17%, from $58.7 million for the nine months ended September 30,2007 to $48.8 million for the nine months ended September 30, 2008.Although our overall subscriber base grew 15% to approximately 329,000 over thetwelve-month period from September 30, 2007 to September 30, 2008, weexperienced decreased retail ARPU. We believe that the two-way communicationissues we first reported in February 2007 and related price reductions andthe change in our subscriber base were the primary reasons for this decrease.

 

*Subscriber Equipment Sales.*Subscriber equipment sales increased by approximately$2.9 million, or approximately 18%, from $16.0 million for the nine monthsended September 30, 2007 to $18.8 million for the nine months ended September 30,2008, This increase is attributable to the sales of our SPOT satellitemessenger product.

 

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***Operating Expenses.***Total operating expenses increased $17.2 million, orapproximately 19%, from $91.5 million for the nine months ended September 30,2007 to $108.7 million for the nine months ended September 30, 2008. Thisincrease was due to costs related to the launch of our new SPOT satellitemessenger product and services, higher depreciation expense as a result ofplacing all eight of our spare satellites into service, and higher non-cashstock compensation expense. Consistent with higher subscriber equipment sales,higher costs of subscriber equipment also contributed to the increase inoperating expenses for the nine months ended September 30, 2008.

 

*Cost of Services.*Our cost of services for the nine months ended September 30,2008 and 2007 were $26.5 million and $20.4 million, respectively. Our cost ofservices is comprised primarily of network operating costs, which are generallyfixed in nature. The increase in the cost of services during the nine monthsended September 30, 2008 is due to higher non-cash executive incentivecompensation costs resulting from the change in our Executive IncentiveCompensation Plan in August 2007, and expenses related to the constructionof our ground segment. Furthermore, the expenses from our recently acquiredsubsidiary in Brazil also contributed to the increase.

 

*Cost of Subscriber Equipment Sales.*Cost of subscriber equipment salesdecreased $14.2 million, or approximately 50%, from $28.7 million for the ninemonths ended September 30, 2007 to $14.5 million for the nine months endedSeptember 30, 2008.  This decreasewas due primarily to the asset impairment charge of $17.3 million that werecognized in 2007, which was not repeated in 2008, and which was partiallyoffset by higher equipment sales in the nine months ended September 30,2008 as compared to the same period in 2007 resulting from sales of our newSPOT satellite messenger product.

 

*Marketing,General and Administrative.*Marketing, general and administrative expensesincreased $14.4 million, or approximately 42%, from $34.2 million for the ninemonths ended September 30, 2007 to $48.6 million for the nine months endedSeptember 30, 2008. This increase was due primarily to higher non-cashexecutive compensation costs resulting from the change in the ExecutiveIncentive Compensation Plan, increased advertising and marketing costs relatedto the sales of our new SPOT satellite messenger**product and services, as well as highercosts by our Brazilian subsidiary, which was acquired in March, 2008, andincreased bad debt expenses.

 

*Depreciationand Amortization.*Depreciationand amortization expense increased approximately $10.9 million, orapproximately 133%, from $8.2 million for the nine months ended September 30,2007 to $19.1 million for the nine months ended September 30, 2008. Thisincrease was due primarily to the additional depreciation associated withplacing all eight of our spare satellites into service.

 

***Operating Loss.***Our operating loss of $41.1 million for the ninemonths ended September 30, 2008, increased approximately $24.3 millionfrom an operating loss of $16.8 million for the nine months ended September 30,2007. The increase was due to lower retail ARPU as a consequence of our two-waycommunication issues and change in subscriber base mix, higher non-cashexecutive incentive compensation, higher advertising and marketing costs,higher depreciation expense associated with placing all eight of our sparesatellites into service, and expenses from our recently acquired subsidiary inBrazil.

 

*InterestIncome.*Interestincome increased by $2.2 million for the nine months ended September 30,2008. This increase was due to increased cash balances on hand.

 

*InterestExpense.*Interestexpense increased by $1.7 million, to $2.8 million for the nine months ended September 30,2008 from $1.0 million for the nine months ended September 30, 2007. Thisincrease was primarily due to higher levels of debt outstanding during thefirst nine months of 2008.

 

*Interest Rate Derivative Loss*. Interest rate derivative loss decreasedby $0.7 million to less than $0.1 million for the nine months ended September 30,2008 from $0.8 million for nine months ended September 30, 2007. Thisdecrease was due to change in the fair value of our interest rate swapagreement.

 

*OtherIncome (Expense).*Otherincome (expense) generally consists of foreign exchange transaction gains andlosses. Other income decreased by $3.3 million for the nine months ended September 30,2008 as compared to the same period in 2007 primarily as a result of theunfavorable exchange rate on the Euro denominated escrow account for oursecond-generation constellation procurement contract resulting from theincrease of the U.S. dollar vis-à-vis the Euro.

 

*IncomeTax Expense.*Incometax expense for the nine months ended September 30, 2008 was $2.2 millioncompared to $0.1 million during the same period in 2007. This was due primarilyto the absence in the first nine months of 2008 of the impairment chargerecognized during the nine months ended September 30, 2007, and avaluation allowance on our Canadian subsidiary’s deferred tax assets recognizedduring the three months ended September 30, 2008.

 

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***Net Loss.***Our net loss increased $28.5 million to a loss of$40.1 million for the nine months ended September 30, 2008 from a net lossof $11.6 million for the nine months ended September 30, 2007. Thisincrease was due to lower retail ARPU as a consequence of our two-waycommunication issues and higher non-cash executive incentive compensation,advertising, marketing and depreciation expenses, as well as the expenses fromour recently acquired subsidiary in Brazil during the nine months ended September 30,2008.

 

**Liquidity and Capital Resources**

 

The following table showsour cash flows from operating, investing, and financing activities for the ninemonths ended September 30, 2008 and 2007:

 
| ** **                                   | ** ** | **Nine Months Ended  September 30, 2008** | ** ** | **Nine Months Ended  September 30, 2007** | ** ** |
|----------------------------------------------|------------|--------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                   | ** ** | ** **                                                         | ** ** |
|                                         |       |                                                               |       |                                                          |       |
| Net cash from (used in) operating activities |       | $                                                                  | (25,974    | )                                                             | $          | (11,611 | ) |
| Net cash from (used in) investing activities |       | (227,688                                                           | )          | (128,503                                                      | )          |
| Net cash from financing activities           |       | 230,279                                                            |       | 138,449                                                       |       |
| Effect of exchange rate changes on cash      |       | (1,234                                                             | )          | (5,694                                                        | )          |
| Net decrease in cash and cash equivalents    |       | $                                                                  | (24,617    | )                                                             | $          | (7,359 | ) |

 

Currently,our principal sources of liquidity are our credit agreement with Thermo Fundingand our existing cash.

 

AtNovember 1, 2008, our principal short-term liquidity needs were:

 

·                                          to makepayments to procure our second-generation satellite constellation and constructthe Control Network Facility in a total amount not yet determined, but whichwill include approximately €123.3 million (approximately $178.2 million ata conversion rate of €1.00 = $1.4449 at September 30, 2008) payable toThales Alenia Space by September 30, 2009 under the purchase contract forour second-generation satellites. The amount payable to Thales Alenia Space by September 30,2009 under the contract for construction of the Control Network Facility isapproximately €2.4 million (approximately $3.5 million at €1.00 = $1.4449);

 

·                                          to makepayments related to our launch for the second-generation satelliteconstellation in the amount of $85.4 million payable to our launch provider by September 30,2009;

 

·                                          to makepayments related to the construction of our second-generation ground segment inthe amount of $15.0 million by September 30, 2009; and

 

·                                          to fund our working capital ($11.5million at September 30, 2008).

 

Wedo not believe our liquidity sources at September 30, 2008 are sufficient tofund our short-term needs without additional debt or equity financing or accessto our restricted cash balance reserved for making payments under oursecond-generation satellite construction contract.

 

During the nine monthsended September 30, 2008 and the year ended December 31, 2007, ourprincipal sources of liquidity were:

 
| **Dollars in millions**                | ** ** | **Nine Months Ended  September 30, 2008** | ** ** | **Year Ended  December 31, 2007** | ** ** |
|--------------------------------------------------|------------|---------------------------------------------------------------|------------|--------------------------------------------------|------------|
| Cash on-hand at beginning of period              |       | $                                                             | 12.9       |                                             | $          | 43.7 |   |
|                                             |       |                                                          |       |                                             |       |
| Net proceeds from Convertible Senior Notes       |       | $                                                             | 119.6      |                                             | $          | — |   |
|                                             |       |                                                          |       |                                             |       |
| Borrowings under Thermo Funding credit agreement |       | $                                                             | 135.0      |                                             | $          | 50.0 |   |
|                                             |       |                                                          |       |                                             |       |
| Purchase of Common Stock by Thermo Funding       |       | $                                                             | —     |                                             | $          | 152.7 |   |

 

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Weexpect to fund our short-term liquidity requirements from the followingsources:

 

·                                          cash from ourrevolving credit agreement with Thermo ($15.0 million at September 30,2008 which we borrowed in October 2008);

 

·                                          cash on hand($12.9 million at September 30, 2008);

 

·                                          cash in ourescrow account ($72.8 million at September 30, 2008), which will be usedperiodically to pay down our obligation to Thales Alenia Space or, ifpermitted, for operating purposes; and

 

·                                          the incurrence of additional indebtedness, additionalequity financings or a combination thereof.

 

Wemay not be able to meet these expectations. Currently, we are exploring manyfinancing options, but we have not obtained any commitments and we cannot giveyou any assurance that these efforts will be successful. 

 

Ourprincipal long-term liquidity needs are:

 

·                                          to pay thecosts of procuring and deploying our second-generation satellite constellationand upgrading our gateways and other ground facilities;

 

·                                          to fund ourworking capital, including any growth in working capital required by growth inour business; and

 

·                                          to fund thecash requirements of our independent gateway operator acquisition strategy, inan amount not determinable at this time.

 

Weexpect to fund our long-term capital needs with cash flow from operationsanticipated in future periods, which we expect will be generated primarily fromsales of our Simplex products and services, including our new SPOT products andservices, potential ATC monetization strategies and the incurrence ofadditional indebtedness, additional equity financings or a combination of thesepotential sources of funds. See “Capital Expenditures” below and “Part I,Item 1A. Risk Factors—We must generate significant cash flow fromoperations and have to raise additional capital in order to complete our second-generationsatellite constellation” in our Annual Report on Form 10-K for the yearended December 31, 2007. See Note 13 to the unaudited interim consolidatedfinancial statements.

 

Ourliquidity and our ability to fund these needs will depend on achievingsubstantial growth in revenues, having positive cash flows from operations,obtaining additional financing or access to our restricted cash for operatingpurposes or a combination thereof, which will be subject in part to generaleconomic, financial, regulatory and other factors, including obtaining theconsent of others, that are beyond our control, including our ability toachieve positive cash flow from operations despite the problems with oursatellite constellation described elsewhere, the willingness of others toinvest in us and trends in our industry and technology discussed elsewhere inthis Report. In addition to these general and economic and industry factors,the principal factors affecting our cash flows will be our ability to continueto provide attractive and competitive services and products, successfullymanage our two-way communication issues until we can deploy oursecond-generation satellite constellation, increase our number of subscribersand retail average revenue per unit, control our costs, and maintain ourmargins and profitability. If those factors change significantly or otherunexpected factors adversely affect us, our business may not generatesufficient cash flow from operations and future financings may not be availableon terms acceptable to us or at all to meet our liquidity needs. In assessingour liquidity, our management reviews and analyzes our current cash on-hand,the average number of days our accounts receivable are outstanding, thecontractual rates that we have established with our vendors, inventory turns,foreign exchange rates, capital expenditure commitments and income tax rates.

 

***NetCash from Operating Activities***

 

Netcash used by operating activities for the nine months ended September 30,2008 increased to a cash outflow of $26.0 million from a cash outflow of $11.6million for the nine months ended September 30, 2007. This increase wasdue primarily to  lower collections onaccount balances during the nine months ended September 30, 2008 comparedto the nine months ended September 30, 2007, offset partially by lowerinventory purchases.

 

***NetCash from Investing Activities***

 

Cashused in investing activities was $227.7 million for the nine months ended September 30,2008, compared to $128.5 million for the same period in 2007. This increase wasthe result of higher capital expenditures associated with construction expensesfor our second-generation satellite constellation.

 

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***NetCash from Financing Activities***

 

Netcash provided by financing activities increased by approximately $91.8 millionto $230.3 million from $138.4 million for the nine months ended September 30,2007. The increase was primarily the result of $119.6 million of net proceedsof the sale of Convertible Senior Notes, and $100.0 million and $35.0 million,respectively, of term loans and revolving credit loans borrowed from ThermoFunding under our credit agreement, in the nine months ended September 30,2008.

 

***CapitalExpenditures***

 

Our capital expenditures consist primarily ofprocurement and launch of our second-generation satellite constellation andupgrading our gateways and other ground facilities. We have completedconstruction of a gateway in Singapore at a total cost of approximately$4.0 million. This gateway was fully operational for Simplex service in October 2008.  Duplex service is expected to be introduced whenthe second-generation constellation becomes operational.

 

In the fourth quarter of 2006, we entered into acontract with Thales Alenia Space for our second-generation satelliteconstellation. The total contract price, including subsequent additions, is€669.6 million (approximately $946.7 million at a weighted averageconversion rate of €1.00 = $1.4139 at September 30, 2008, includingapproximately €146.8 million which was paid by us in U.S. dollars at afixed conversion rate of €1.00 = $1.2940). We have made payments in theamount of approximately $294.4 million in related costs through September 30,2008. In addition, $72.8 million is held in an escrow account that will be usedfor future payments on this contract. At our request, Thales Alenia Space haspresented to us a plan for accelerating delivery of the initial 24 satellitesby up to four months. The expected cost of this acceleration will range fromapproximately €6.7 million to €13.4 million ($9.7 million to $19.4million at €1.00 = $1.4449). In 2007, we authorized the first two portionsof the Thales four-part sequential plan with an additional cost of€4.1 million ($5.9 million at €1.00 = $1.4449). In October 2008,we authorized the third portion of the sequential plan with an additional costof €0.9 million ($1.3 million at €1.00 = 1.4449). We cannot assure you that theremaining acceleration will occur.

 

InMarch 2007, we entered into an agreement with Thales Alenia Space for theconstruction of the Satellite Operations Control Centers, Telemetry CommandUnits and In Orbit Test Equipment (collectively, the “Control Network Facility”)for our second-generation satellite constellation. This agreement complementsthe second-generation satellite construction contract with Thales Alenia Spacefor the construction of 48 low-earth orbit satellites and allows Thales AleniaSpace to coordinate all aspects of the second-generation satelliteconstellation project, including the transition of first-generation softwareand hardware to equipment for the second generation. The total contract pricefor the construction and associated services is €9.1 million(approximately $13.1 million at a weighted average conversion rate of€1.00 = $1.4345) consisting of €4.0 million for the Satellite OperationsControl Centers, €3.1 million for the Telemetry Command Units and€2.0 million for the In Orbit Test Equipment, with payments to be made ona quarterly basis through completion of the Control Network Facility in late2009. We have made payments in the aggregate amount of approximately €6.7million (approximately $9.9 million) through September 30, 2008.

 

In September 2007, we entered into a contractwith our Launch Provider for the launch of our second-generation satellites andcertain pre and post-launch services. Pursuant to the contract, our LaunchProvider will make four launches of six satellites each, and we have the optionto require our Launch Provider to make four additional launches of sixsatellites each. The total contract price for the first four launches is$210.1 million. As of September 30, 2008, we have made payments inthe aggregate amount of approximately $26.3 million associated with our launchservices contract.  The anticipated timeperiod for the first four launches ranges from as early as the third quarter of2009 through the end of 2010 and the optional launches are available fromspring 2010 through the end of 2014. Prolonged delays due to postponements byus or our Launch Provider may result in adjustments to the payment schedule.

 

On May 14, 2008, we entered into a contractwith Hughes under which Hughes will design, supply and implement the RadioAccess Network (“RAN”) ground network equipment and software upgrades forinstallation at a number of our satellite gateway ground stations and satelliteinterface chips to be a part of the User Terminal Subsystem (UTS) in ourvarious next-generation devices. The total contract purchase price ofapproximately $100.8 million is payable in various increments over a period of40 months. We have the option to purchase additional RANs and othersoftware and hardware improvements at pre-negotiated prices. As of September 30,2008, we have made payments in the aggregate amount of approximately $4.8million associated with this contract.

 

On October 8, 2008, we signed an agreement withEricsson Federal Inc., a leading global provider of technology and services totelecom operators. According to the $22.7 million contract, Ericsson will workwith us to develop, implement and maintain a ground interface, or core network,system that will be installed at our satellite gateway ground stations. The 

 

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allInternet protocol (IP) based core network system is wireless 3G/4G compatibleand will link our radio access network to the public-switched telephone network(PSTN) and/or Internet. Design of the new core network system is now underway.The agreement represents the final significant ground network infrastructurecomponent for our next-generation of advanced IP-based satellite voice and dataservices.

 

The total cost for the satellites, launches and thesatellite ground stations under these contracts with Thales Alenia Space, ourLaunch Provider, Hughes, and Ericsson are included in the estimated$1.26 billion (which is exclusive of internal costs and capitalizedinterest and the majority of which is denominated in Euros) of capitalexpenditures which we currently anticipate will be required to procure anddeploy our second-generation satellite constellation and related gatewayupgrades. Since the fourth quarter of 2006, we have used portions of theproceeds from sales of Common Stock to Thermo Funding under the irrevocable standbystock purchase agreement, the proceeds from our initial public offering, thenet proceeds from the sale of the Convertible Senior Notes and borrowings underour credit agreement to fund the approximately $488.4 million (excludinginternal costs and capitalized interest but including $72.8 million whichis held in escrow pursuant to the contract for the procurement of oursecond-generation satellite constellation to secure our payment obligationsunder that contract) paid through September 30, 2008. We expect to fundthe balance of the capital expenditures through cash generated by our operations,which has been and is currently negative, future debt financings, deferral ofpayments to certain of our vendors and additional equity financings or acombination of these potential sources. The extent of our need for externalcapital, which we expect to be substantial, will vary depending on the successof our SPOT satellite messenger product and services and other commercialfactors. This funding may not be available to us on acceptable terms, or atall.

 

Theamount of actual and contractual capital expenditures related to theconstruction of the second-generation constellation and satellite operationscontrol centers, ground segment and related costs and the launch servicescontracts is presented in the table below (in millions):

 
| ** **                                         | ** ** | **Currency**        | ** ** | **Payments  through  September 30,** | ** **  | **Estimated Future Payments** | ** ** |
|----------------------------------------------------|------------|---------------------|------------|-------------------------------------------|-------------|-----------------------------------------|------------|
| **Contract**                                       | ** ** | **of Payment** | ** ** | **2008**                                  | ** **  | **2008**                                | ** ** | **2009** | ** ** | **2010** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
| Thales Alenia Second Generation Constellation      |       | EUR                 |       | €                                    |  217.7 |                                    | €     |  36.0 |   | € | 96.0 |   | € | 92.3 |   | € | 227.6 |   | € | 669.6 |   |
| Thales Alenia Satellite Operations Control Centers |       | EUR                 |       | €                                    |  6.7   |                                    | €     | 1.5 |   | € | 0.9 |   | € | — |   | € | — |   | € | 9.1 |   |
| Arianespace Launch Services                        |       | USD                 |       | $                                         | 26.3        |                                    | $          | — |   | $ | 128.6 |   | $ | 55.2 |   | $ | — |   | $ | 210.1 |   |
| Hughes second-generation ground segment            |       | USD                 |       | $                                         | 4.8         |                                    | $          | 1.1 |   | $ | 19.1 |   | $ | 60.1 |   | $ | 15.7 |   | $ | 100.8 |   |
| Ericsson                                           |       | USD                 |       | $                                         | —      |                                    | $          | 0.5 |   | $ | 0.5 |   | $ | 5.9 |   | $ | 15.8 |   | $ | 22.7 |   |

 

The exchange rate on September 30,2008 was €1.00 = $1.4449. The estimated future payments do not include theinterest payable on vendor financing agreements related to the Arianespace andHughes contracts. A portion of these above costs are not consideredcapitalizable and will be expensed. See “Item 3 - Quantitative and QualitativeDisclosures About Market Risk.”

 

***CashPosition and Indebtedness***

 

As of September 30,2008, our total cash and cash equivalents were $12.9 million and we had totalindebtedness of $333.2 million (with $15.0 million available under therevolving credit facility which we borrowed in October 2008), compared tototal cash and cash equivalents and total indebtedness at December 31,2007 of $37.6 million and $50.0 million, respectively.

 

***ConvertibleDebt***

 

On April 15,2008, we entered into an Underwriting Agreement (the “Convertible NotesUnderwriting Agreement”) with Merrill Lynch & Co., Merrill Lynch,Pierce, Fenner & Smith Incorporated and Deutsche Bank Securities Inc.(together, the “Convertible Notes Underwriters”) relating to the sale by us of$135.0 million aggregate principal amount of its 5.75% Convertible Senior Notesdue 2028 (the “Notes”). Pursuant to the Convertible Notes UnderwritingAgreement, we granted the Convertible Notes Underwriters a 30-day option topurchase up to an additional $15.0 million aggregate principal amount of theNotes solely to cover over-allotments.

 

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The sale of the$135.0 million aggregate principal amount of the Notes was completed on April 15,2008. The Convertible Notes Underwriters subsequently executed theirover-allotment option and purchased an additional $15.0 million aggregateprincipal amount of the Notes on May 8, 2008. The sale of the Notes wasregistered under the Securities Act of 1933, as amended, pursuant to aRegistration Statement on Form S-3 (File No. 333-149798), assupplemented by a prospectus supplement and a free-writing prospectus, bothdated April 10, 2008.

 

TheNotes were issued under a Senior Indenture, entered into and dated as of April 15,2008 (the “Base Indenture”), between us and U.S. Bank, National Association, astrustee (the “Trustee”), supplemented by a First Supplemental Indenture withrespect to the Notes, entered into and dated as of April 15, 2008 (the “SupplementalIndenture”), between us and the Trustee (the Base Indenture and theSupplemental Indenture, collectively, the “Indenture”). Also, pursuant to theIndenture, the Company, the Trustee and U.S. Bank, National Association, asescrow agent (the “Escrow Agent”), entered into a Pledge and Escrow Agreementdated as of April 15, 2008 (the “Pledge Agreement”).

 

Inaccordance with the Pledge Agreement, approximately $25.5 million of theproceeds of the offering of the Notes were placed in an escrow account with theEscrow Agent. Funds in the escrow account are invested in government securitiesand, if we do not elect to make the payments from other funds, will be used tomake the first six scheduled semi-annual interest payments on the Notes.Pursuant to the Pledge Agreement, we pledged our interest in this escrowaccount to the Trustee as security for these interest payments.

 

Exceptfor the pledge of the escrow account under the Pledge Agreement, the Notes areour senior unsecured debt obligations. There is no sinking fund for the Notes.The Notes mature on April 1, 2028 and bear interest at a rate of 5.75% perannum. Interest on the Notes is payable semi-annually in arrears on April 1and October 1 of each year, commencing October 1, 2008, to holders ofrecord on the preceding March 15 and September 15, respectively.

 

Subject to certainexceptions set forth in the Indenture, the Notes are subject to repurchase forcash at the option of the holders of all or any portion of the Notes (i) oneach of April 1, 2013, April 1, 2018 and April 1, 2023 or (ii) upona fundamental change, both at a purchase price equal to 100% of the principalamount of the Notes, plus accrued and unpaid interest, if any. A fundamentalchange will occur upon certain changes in the ownership of the Company, orcertain events relating to the trading of the our Common Stock, as furtherdescribed in the Indenture.

 

Holdersmay convert their Notes at their option at any time prior to the close ofbusiness on the business day immediately preceding April 1, 2028. TheNotes are convertible into shares of Common Stock, subject to our option todeliver cash in lieu of all or a portion of the shares. The Notes areconvertible at an initial conversion rate of 166.1820 shares of Common Stockper $1,000 principal amount of Notes, subject to adjustment in the manner setforth in the Supplemental Indenture. The conversion rate may not exceed240.9638 shares of Common Stock per $1,000 principal amount of Notes, subjectto adjustment. In addition to receiving the applicable amount of shares ofCommon Stock or cash in lieu of all or a portion of the shares, holders ofNotes who convert their Notes prior to April 1, 2011 will receive the cashproceeds from the sale by the Escrow Agent of the portion of the governmentsecurities in the escrow account that are remaining with respect to any of thefirst six interest payments that have not been made on the Notes beingconverted. Holders of $36 million aggregate principal amount, or 24%, of theoutstanding Notes have submitted notices of conversion to the trustee in orderto convert their Notes into our Common Stock in accordance with the terms ofthe Indenture. We expect to issue approximately 6.0 million shares of our CommonStock and pay a nominal amount of cash for fractional shares when theconversion of these Notes is completed over the conversion referenceperiod. In addition, the holders are entitled to receive an earlyconversion make whole amount of approximately $5.2 million representing thenext five semi-annual interest payments that would have become due on theconverted Notes, which will be paid from funds in an escrow account for thebenefit of the holders of Notes. After these conversions, $114 million aggregateprincipal amount of Notes will remain outstanding. Our aggregate cash interestcost savings through maturity resulting from this conversion will beapproximately $35.2 million.

 

Holderswho convert their Notes in connection with certain events occurring on or priorto April 1, 2013 constituting a “make whole fundamental change” (asdefined in Note 13 to the unaudited interim consolidated financial statements)will be entitled to an increase in the conversion rate as described in Note 13.

 

If wemake at least 10 scheduled semi-annual interest payments, the Notes are subjectto redemption at our option at any time on or after April 1, 2013, at aprice equal to 100% of the principal amount of the Notes to be redeemed, plusaccrued and unpaid interest, if any.

 

The Indenture containscustomary financial reporting requirements and also contains restrictions onmergers and asset sales. The Indenture also provides that upon certain events ofdefault, including without limitation failure to pay principal or interest,failure to deliver a notice of fundamental change, failure to convert the Noteswhen required, acceleration of other 

 

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materialindebtedness and failure to pay material judgments, either the trustee or theholders of 25% in aggregate principal amount of the Notes may declare theprincipal of the Notes and any accrued and unpaid interest through the date of suchdeclaration immediately due and payable. In the case of certain events ofbankruptcy or insolvency relating to us or our significant subsidiaries, theprincipal amount of the Notes and accrued interest automatically becomes dueand payable.

 

# Concurrently withthe offering of the Notes, on April 10, 2008, we entered into a sharelending agreement (the “Share Lending Agreement”) with Merrill LynchInternational (the “Borrower”), through Merrill Lynch, Pierce, Fenner &Smith Incorporated, as agent for Borrower (in such capacity, the “BorrowingAgent”), pursuant to which we agreed to lend up to 36,144,570 shares of CommonStock (the “Borrowed Shares”) to the Borrower, subject to certain adjustmentsset forth in the Share Lending Agreement, for a period ending on the earliestof (i) the date we notify the Borrower in writing of its intention toterminate the Share Lending Agreement at any time after the entire principalamount of the Notes ceases to be outstanding and we have settled all paymentsor deliveries in respect of the Notes (as the settlement may be extendedpursuant to market disruption events or otherwise pursuant to the Indenture),whether as a result of conversion, redemption, repurchase, cancellation, atmaturity or otherwise, (ii) our written agreement with the Borrower toterminate, (iii) the occurrence of a Borrower default, at our option, and (iv) theoccurrence of our default, at the option of the Borrower. Pursuant to the ShareLending Agreement, upon the termination of the share loan, the Borrower mustreturn the Borrowed Shares to us.  Theonly exception would be that, if pursuant to a merger, recapitalization orreorganization, the Borrowed Shares were exchanged for or converted into cash,securities or other property (“Reference Property”), the Borrower would returnthe Reference Property.  Upon theconversion of Notes (in whole or in part), a number of Borrowed Sharesproportional to the conversion rate for such notes must be returned to us.  In no event will the Borrower retain the BorrowedShares.

#  

# On April 10, 2008, we entered into an underwriting agreement (the “EquityUnderwriting Agreement”) with the Borrower and the Borrowing Agent. Pursuant toand upon the terms of the Share Lending Agreement, we will issue and lend theBorrowed Shares to the Borrower as a share loan. The Borrowing Agent also isacting as an underwriter (the “Equity Underwriter”) with respect to theBorrowed Shares, which are being offered to the public. The Borrowed Sharesinclude 21,936,020 shares of Common Stock initially loaned by us to theBorrower pursuant to Section 2(a) of the Underwriting Agreement, anaggregate of 10,000,000 shares of Common Stock loaned by us to the Borrower ontwo separate occasions pursuant to Borrowing Notices dated as of April 15,2008 and August 13, 2008, delivered pursuant to the Share LendingAgreement and the Underwriting Agreement, and an additional 4,208,550 shares ofCommon Stock that, from time to time, may be borrowed from us by the Borrowerpursuant to the Share Lending Agreement and the Underwriting Agreement andsubsequently offered and sold at prevailing market prices at the time of saleor negotiated prices. The sale of the Borrowed Shares was registered under theS-3(33-149798).  We used two prospectussupplements for the transaction, one for the sale of the convertible notes (andthe underlying common stock) and the other for the sale of the BorrowedShares.  We filed the prospectussupplement for the sale of the Borrowed Shares pursuant to Rule 424(b) (3) onApril 2, 2008 and pursuant to Rule 424(b) (5) on April 14,2008.

#  

Wewill not receive any proceeds from the sale of the Borrowed Shares pursuant tothe Share Lending Agreement but will receive a nominal lending fee of $0.0001per share for each share of Common Stock that we loan to the Borrower pursuantto the Share Lending Agreement. The Borrower will receive all of the proceedsfrom the sale of Borrowed Shares pursuant to the Share Lending Agreement.

 

The shares that we loanedto the Borrower will be issued and outstanding for corporate law purposes, andaccordingly, the holders of the Borrowed Shares will have all of the rights ofa holder of our outstanding shares, including the right to vote the shares onall matters submitted to a vote of our stockholders and the right to receiveany dividends or other distributions that we may pay or makes on itsoutstanding shares of Common Stock. However, under the Share Lending Agreement,the Borrower has agreed:

 

·                  To pay, within one business day after the relevant payment date, to usan amount equal to any cash dividends that we pay on the Borrowed Shares; and

 

·                  To pay or deliver to us, upon termination of the loan of BorrowedShares, any other distribution, in liquidation or otherwise, that we make onthe Borrowed Shares.

 

To the extent the Borrowed Shares we initially lentunder the Share Lending Agreement and offered in the Common Stock offering havenot been sold or returned to it, the Borrower has agreed that it will not voteany such Borrowed Shares. The Borrower has also agreed under the Share LendingAgreement that it will not transfer or dispose of any Borrowed Shares, otherthan to its affiliates, unless the transfer or disposition is pursuant to aregistration statement that is effective under the Securities Act. However,investors that purchase the shares from the Borrower (and any subsequenttransferees of such purchasers) will be entitled to the same voting rights withrespect to those shares as any other holder of our Common Stock.

 

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In view of thecontractual undertakings of the Borrower in the Share Lending Agreement, whichhave the effect of substantially eliminating the economic dilution thatotherwise would result from the issuance of the Borrowed Shares, we believethat under generally accepted accounting principles in the United Statescurrently in effect, the Borrowed Shares will not be considered outstanding forthe purpose of computing and reporting our earnings per share.

 

We evaluated the various embedded derivatives withinthe Indenture for bifurcation from the Notes under the provisions of FASB’s Statementof Financial Standards No.133, “Accounting for Derivative Instruments andHedging Activities” (“SFAS No. 133”), Emerging Issues Task Force Issue No. 01-6,“The Meaning of Indexed to a Company’s Own Stock” (“EITF 01-6”) and EmergingIssues Task Force Issue No. 00-19, “Accounting for Derivative FinancialInstruments Indexed to, and Potentially Settled in, a Company’s Own Stock” (“EITF00-19”). Based upon our detailed assessment, we concluded that these embeddedderivatives were either (i) excluded from bifurcation as a result of beingclearly and closely related to the Notes or are indexed to our Common Stock andwould be classified in stockholders’ equity if freestanding or (ii) thefair value of the embedded derivatives was estimated to be immaterial.

 

***CreditAgreement***

 

On August 16, 2006, we entered into an amendedand restated credit agreement with Wachovia Investment Holdings, LLC, asadministrative agent and swingline lender, and Wachovia Bank, NationalAssociation, as issuing lender, which was subsequently amended on September 29and October 26, 2006. On December 17, 2007, Thermo Funding wasassigned all the rights (except indemnification rights) and assumed all theobligations of the administrative agent and the lenders under the amended andrestated credit agreement and the credit agreement was again amended andrestated. The credit agreement as currently in effect provides for a$50.0 million revolving credit facility and a $100.0 million delayeddraw term loan facility. At March 31, 2008, we had drawn $50.0 millionunder the revolving credit facility, which was subsequently repaid in full in April 2008with a portion of the proceeds of our Convertible Senior Notes offering. At September 30,2008, $35.0 million on the revolving credit facility were outstanding. Thedelayed draw term loan could be drawn after January 1, 2008 and prior to August 16,2009. Since January 1, 2008, we have drawn an aggregate of$100.0 million of the delayed draw term loan. In addition to the$150.0 million revolving and delayed draw term loan facilities, theamended and restated credit agreement permits us to incur additional term loanson an equally and ratably secured, *paripassu*, basis in an aggregate amount of up to $250.0 million(plus the amount of any reduction in the delayed draw term loan facility orprepayment of loans) from the lenders under the credit agreement or otherbanks, financial institutions or investment funds approved by us and theadministrative agent. We have not sought commitments for these additional termloans. These additional term loans may be incurred only if no event of defaultthen exists and if we are in pro-forma compliance with all of the financialcovenants of the credit agreement.

 

The credit agreement limits the amount of ourcapital expenditures, requires us to maintain minimum liquidity of$5.0 million and provides that as of the end of the second full fiscalquarter after we place 24 of our second-generation satellites into service andat the end of each fiscal quarter thereafter, we must maintain a consolidatedsenior secured leverage ratio of not greater than 5.0 to 1.0. We were incompliance with these debt covenants at September 30, 2008.

 

All loans will mature on December 31, 2012.Revolving credit loans bear interest at LIBOR plus 4.25% to 4.75% or thegreater of the prime rate or the Federal Funds rate plus 3.25% to 3.75%. We hadborrowings of $150.0 million under the revolving credit facility at September 30,2008. The delayed draw term loan bears interest at either 5% plus the greaterof the prime rate and the Federal Funds rate plus 0.5%, or LIBOR plus 6%.  The delayed draw term loan facility bears anannual commitment fee of 2.0% until drawn or terminated. The revolving creditloan facility bears an annual commitment fee of 0.5% until drawn or terminated.Additional term loans will bear interest at rates to be negotiated. The loansmay be prepaid without penalty at any time. On September 29, 2008, we andThermo agreed that, effective May 26, 2008, all payment of interest on the debtwould be deferred until 45 days after Thermo provides notice that the interestis then payable. Interest will accrue on this outstanding interest at the samerate as the underlying loan and be compounded on December 31, 2008 andannually thereafter.

 

To hedge a portion of the interest rate risk withrespect to the delayed draw term loans, we entered into a five-year interestrate swap agreement. See “Note 12: Derivatives” of the Notes to UnauditedInterim Consolidated Financial Statements in Part I, Item 1 of thisReport. Upon the assumption of the credit agreement by Thermo Funding, theinterest rate swap agreement was amended to require us to provide collateral incash and securities equal to the negative value of the interest rate swap. At September 30,2008, the negative value of the interest rate swap was approximately$6.0 million and was classified as a non-current liability.

 

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***IrrevocableStandby Stock Purchase Agreement***

 

In connection with the execution of the initialWachovia credit agreement on April 24, 2006, we entered into anirrevocable standby stock purchase agreement with Thermo Funding pursuant towhich it agreed to purchase under the circumstances described below up to12,371,136 shares of our Common Stock at a price per share of approximately$16.17 (approximately $200.0 million in the aggregate), without regard toany future increase or decrease in the trading price of our Common Stock.Thermo Funding’s obligation to purchase these shares was secured by the escrowof cash and marketable securities in an amount equal to 105% of its unfundedcommitment. Thermo Funding completed its purchase of all shares subject to theagreement on November 2, 2007. All requirements were fulfilled by ThermoFunding by November 2007. As required by the pre-emptive rights provisionscontained in our former certificate of incorporation, we intend to offer ourstockholders as of June 15, 2006 who are accredited investors (as definedunder the Securities Act of 1933) and who received 36 or more shares of ourCommon Stock as a result of the Old Globalstar bankruptcy, the opportunity topurchase shares of our Common Stock on substantially the same terms as ThermoFunding. These stockholders, excluding stockholders who have waived theirpre-emptive rights, will be entitled to purchase, and upon entering into acommitment may elect to purchase at any time thereafter, up to 785,328additional shares of our Common Stock at approximately $16.17 per share in thepre-emptive rights offering.

 

***ContractualObligations and Commitments***

 

AtSeptember 30, 2008, we have a remaining commitment to purchase a total of$50.4 million of mobile phones, services and other equipment under variouscommercial agreements with QUALCOMM. We believe the long-term equipmentcontract with QUALCOMM is necessary to obtain the best possible pricing for thedevelopment and purchase of our second-generation of handsets and accessories.We expect to fund this remaining commitment from our working capital, fundsgenerated by our operations, proceeds from our convertible notes offering whichclosed on April 15, 2008 and, if necessary, additional capital from theissuance of equity or debt. On October 28, 2008, we and QUALCOMM amendedour agreement to extend the term for 12 months and defer delivery of mobilephones and related equipment until 2010.

 

EffectiveAugust 10, 2007 (the “Effective Date”), our board of directors, uponrecommendation of the Compensation Committee, approved the concurrenttermination of our Executive Incentive Compensation Plan and awards ofrestricted stock or restricted stock units under our 2006 Equity Incentive Planto five executive officers (the “Participants”). Each Award Agreement providesthat the recipient will receive awards of restricted Common Stock or restrictedstock units, which upon vesting, each entitle him to one share of our CommonStock. Total benefits per Participant (valued at the grant date) areapproximately $6.0 million, which represents an increase of approximately$1.5 million in potential compensation compared to the maximum potentialbenefits under the Executive Incentive Compensation Plan. However, the newAward Agreements extend the vesting period by up to two years and provide forpayment in shares of Common Stock instead of cash, thereby enabling us toconserve our cash for capital expenditures for the procurement and launch ofour second-generation satellite constellation and related ground stationupgrades.

 

InNovember 2006, we and Thales Alenia Space entered into a definitivecontract pursuant to which Thales Alenia Space will construct 48low-earth-orbit satellites in two batches (the first of 25, including aproto-flight model satellite, and the second of 23) for oursecond-generation satellite constellation. Under the contract, Thales AleniaSpace also will provide launch support services and mission operations supportservices. We have contracted separately with our Launch Provider for launchservices and will do so for launch insurance for the satellites. In March 2007,we entered into an agreement with Thales Alenia Space for the construction ofthe Satellite Operations Control Centers, Telemetry Command Units and In OrbitTest Equipment (collectively, the “Control Network Facility”) for oursecond-generation satellite constellation. This agreement complements thesecond-generation satellite construction contract with Thales Alenia Space forthe construction of 48 low-earth orbit satellites and allows Thales AleniaSpace to coordinate all aspects of the second-generation satelliteconstellation project, including the transition of first-generation softwareand hardware to equipment for the second generation. In September 2007, weentered into a contract with our Launch Provider for the launch of oursecond-generation satellites and certain pre and post-launch services. Pursuantto the contract, our Launch Provider will make four launches of six satellites each.On July 5, 2008, we amended our agreement with our Launch Provider for the launch of our second-generationsatellites and certain pre and post-launch services. Under the amended terms,we can defer payment on up to 75% of certain amounts due to the LaunchProvider. The deferred payments will incur annual interest at 8% to 12%.

 

OnMay 14, 2008, we entered into a contract with Hughes under which Hugheswill design, supply and implement the Radio Access Network (“RAN”) groundnetwork equipment and software upgrades for installation at a number of oursatellite gateway ground stations and satellite interface chips to be a part ofthe User Terminal Subsystem (UTS) in our various next-generation devices. Thetotal contract purchase price of approximately $100.8 million is payable invarious increments over a period of 40 months. We have the option topurchase additional RANs and other software and hardware improvements atpre-negotiated prices. For a schedule of contractual payments, see “CapitalExpenditures” under Liquidity and Capital Resources.

 

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OnOctober 8, 2008, we signed an agreement with Ericsson Federal Inc., aleading global provider of technology and services to telecom operators.According to the $22.7 million contract, Ericsson will work with us to develop,implement and maintain a ground interface, or core network, system that will beinstalled at our satellite gateway ground stations. The all Internet protocol(IP) based core network system is wireless 3G/4G compatible and will link ourradio access network to the public-switched telephone network (PSTN) and/orInternet. Design of the new core network system is now underway. The agreementrepresents the final significant ground network infrastructure component forour next-generation of advanced IP-based satellite voice and data services.

 

**Off-BalanceSheet Transactions**

 

We have no materialoff-balance sheet transactions.

 

**Recently Issued Accounting Pronouncements**

 

The information provided under “Note 1: The Companyand Summary of Significant Accounting Policies — Recent AccountingPronouncements” of the Notes to Unaudited Interim Consolidated Financial Statementsin Part I, Item 1 of this Report is incorporated herein by reference.

 

**Item 3.Quantitative and Qualitative Disclosures about Market Risk**

 

Our services and productsare sold, distributed or available in over 120 countries. Our internationalsales are made primarily in U.S. dollars, Canadian dollars and Euros. In somecases insufficient supplies of U.S. currency may require us to accept paymentin other foreign currencies. We reduce our currency exchange risk from revenuesin currencies other than the U.S. dollar by requiring payment in U.S. dollarswhenever possible and purchasing foreign currencies on the spot market whenrates are favorable. We currently do not purchase hedging instruments to hedgeforeign currencies. However, our credit agreement requires us to do so on termsreasonably acceptable to the administrative agent not later than 90 daysafter the end of any quarter in which more than 25% of our revenue isoriginally denominated in a single currency other than U.S. or Canadian dollars.

 

Asdiscussed in “Item 2. Management’s Discussion and Analysis of FinancialCondition and Results of Operations—Liquidity and Capital Resources—ContractualObligations and Commitments,” we have entered into two separate contracts withThales Alenia Space to construct 48 low earth orbit satellites for oursecond-generation satellite constellation and to provide launch-related andoperations support services, and to construct the Satellite Operations ControlCenters, Telemetry Command Units and In-Orbit Test Equipment for oursecond-generation satellite constellation. A substantial majority of thepayments under the Thales Alenia Space agreements is denominated in Euros.

 

Ourinterest rate risk arises from our variable rate debt under our creditagreement, under which loans bear interest at a floating rate based on the U.S.prime rate or LIBOR. Assuming that we borrowed the entire $150.0 millionin revolving and term debt available under our credit agreement, and withoutgiving effect to the hedging arrangement described in the next sentence, a 1.0%change in interest rates would result in a change to interest expense ofapproximately $1.5 million annually. To hedge a portion of our interest raterisk, we have entered into a five-year interest rate swap agreement withrespect to a $100.0 million notional amount at a fixed rate of 5.64%. See “Note 12:Interest Rate Derivative” of the Notes to Unaudited Interim ConsolidatedFinancial Statements in Part I, Item 1 of this Report.

 

Our exposure to fluctuations in currency exchangerates has increased significantly as a result of contracts for the constructionof our second-generation constellation satellite and the related controlnetwork facility, which are primarily payable in Euros. A 1.0% decline in therelative value of the U.S. dollar, on the remaining balance related to thesecontracts of approximately €454.4 million on September 30, 2008, wouldresult in $6.6 million of additional payments. See “Note 4: Property andEquipment” of the Unaudited Interim Consolidated Financial Statements in Part I,Item 1 of this Report.

 

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**Item 4. Controls and Procedures**

 

*(a)**                              **Evaluationof disclosure controls and procedures.*

 

Our management, with the participation of our chief executive officerand chief financial officer, evaluated the effectiveness of our disclosurecontrols and procedures pursuant to Rule 13a-15(b) under theSecurities Exchange Act of 1934 as of September 30, 2008, the end of theperiod covered by this Report. The evaluation included certain internal controlareas in which we have made and are continuing to make changes to improve andenhance controls. This evaluation was based on the guidelines established in *Internal Control—Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO). In designing and evaluating the disclosure controls and procedures, managementrecognized that any controls and procedures, no matter how well designed andoperated, can provide only reasonable assurance of achieving the desiredcontrol objectives.

 

Based on this evaluation, our chief executive officer and chieffinancial officer concluded that as of September 30, 2008 our disclosurecontrols and procedures were effective to provide reasonable assurance thatinformation we are required to disclose in reports that we file or submit underthe Exchange Act is recorded, processed, summarized and reported within thetime periods specified in Securities and Exchange Commission rules andforms, and that such information is accumulated and communicated to ourmanagement, including our chief executive officer and chief financial officer,as appropriate, to allow timely decisions regarding required disclosure.

 

We believe that the consolidated financial statements included in thisReport fairly present, in all material respects, our consolidated financialposition and results of operations as of and for the three and nine monthsended September 30, 2008.

 

*(b)**                              **Changesin internal control over financial reporting.*

 

As of September 30, 2008, our management, with the participationof our chief executive officer and chief financial officer, evaluated ourinternal control over financial reporting. Based on that evaluation, our CEOand CFO concluded that there were no changes in our internal control overfinancial reporting that occurred during the three months ended September 30,2008 that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

 

**PART II: OTHER INFORMATION**

 

**Item 1. Legal Proceedings**

 

We are involved in certain litigation matters asdiscussed elsewhere in this Report. For more detailed information on litigationmatters outstanding please see Note 10 of the Notes to Unaudited InterimConsolidated Financial Statements in Part I, Item 1 of this Report.From time to time, we are involved in various other litigation mattersinvolving ordinary and routine claims incidental to our business. Managementcurrently believes that the outcome of these proceedings, either individuallyor in the aggregate, will not have a material adverse effect on our business,results of operations or financial conditions.

 

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**Item 1A. Risk Factors**

 

Youshould carefully consider the risks described in this Report and all of theother reports that we file from time to time with the Securities and ExchangeCommission (“SEC”), in evaluating and understanding us and our business.Additional risks not presently known or that we currently deem immaterial mayalso impact our business operations and the risks identified in this Report mayadversely affect our business in ways we do not currently anticipate. Ourfinancial condition or results of operations also could be materially adverselyaffected by any of these risks. Other than as described in the risk factors below,there have been no material changes to the risk factors disclosed in Part I.Item 1A.”Risk Factors” of our Annual Report on Form 10-K for the yearended December 31, 2007, as filed with the SEC on March 17, 2008.

 

***Our satellites have a limited life and somehave failed, which causes our network to be compromised and which materiallyand adversely affects our business, prospects and profitability.***

 

Sincethe first Old Globalstar satellites were launched in 1998, ten satellites havefailed in orbit and we expect others to fail in the future. Eight of thesesatellite failures have been attributed to anomalies of the S-band antenna. Theninth satellite’s failure was attributed to an anomaly of the satellite commandreceiver. The tenth satellite’s failure was attributed to a failure of one ofits two solar array wings and a failure in a branch module in the flightcomputer. In-orbit failure may result from various causes, including componentfailure, loss of power or fuel, inability to control positioning of thesatellite, solar or other astronomical events, including solar radiation andflares, and space debris. We consider a satellite “failed” only when it can nolonger provide any communications service, and we do not intend to undertakeany further efforts to return it to service. Other factors that could affectthe useful lives of our satellites include the quality of construction, gradualdegradation of solar panels and the durability of components. Radiation inducedfailure of satellite components may result in damage to or loss of a satellitebefore the end of its currently expected life.

 

Asa result of the issues described above, some of our in-orbit satellites may notbe fully functioning at any given time. As discussed below, substantially allof our current satellites launched before 2007 have experienced partialfailures and degraded performance of their S-band downlink communicationscapabilities, and we currently believe that by early 2009 none of thesesatellites will be able to support two-way communication services. However,this will not impair their ability to continue to support Simplex datatransmissions in the L-band, and accordingly, we do not classify them as “failed.”

 

Asour constellation has aged, the ability of our satellites to carry two-waycommunications has diminished, and is continuing to diminish, adverselyaffecting the availability of our two-way communications service, which hasadversely affected our results of operations, cash flow and financialcondition. Although we do not incur any direct cash costs related to thefailure of a satellite, if a satellite fails, we record an impairment chargereflecting its net book value. There are some remote tools we use to remedycertain types of problems affecting the performance of our satellites, but thephysical repair of satellites in space is not feasible. We do not insure oursatellites against in-orbit failures, whether such failures are caused byinternal or external factors.

 

*S-band Antenna Amplifier Degradation*

 

Asdescribed further below, the degradation of the S-band antenna amplifier in oursatellites launched prior to 2007, previously disclosed in February 2007,has slowed but is expected to continue. The S-band antenna provides thedownlink from the satellite to a subscriber’s phone or data terminal. Degradedperformance of the S-band antenna reduces the call completion rate for two-wayvoice and data communication between the affected satellites and the subscriberand may reduce the duration of a call. If the S-band antenna on a satelliteceases to be commercially functional, two-way communication is impossible overthat satellite, but not necessarily over the constellation as a whole. The rootcause of the degradation in performance of the S-band antenna amplifiers isunknown, although we believe it may result from irradiation of the satellitesin orbit. The S-band antenna amplifier degradation does not affect adverselyour one-way Simplex data transmission services, which utilize only the L-banduplink from a subscriber’s Simplex terminal to the satellites.

 

Todate, we have managed the degradation of the S-band antenna amplifiers invarious technical ways, as well as by launching our spare satellites, placinginto service spare satellites already in orbit and moving less impairedsatellites to key orbital positions. To address the quality and capacity of ourservice in light of this problem and to prepare for the integration of oureight spare satellites launched in 2007, on February 2, 2007, we completedthe reconfiguration of our satellite constellation to combine two different “Walker”configurations, which continue to operate as a single constellation of 48satellites plus in-orbit spares. This reconfiguration was done to maintain, tothe extent possible, the capacity and quality of service as well as to insertthe spare satellites into the constellation. The eight spare satelliteslaunched are being utilized to augment our existing satellite constellation andlater will be integrated into our second-generation satellite constellation. OnOctober 4, 2007, we completed another reconfiguration of our satelliteconstellation into two further different “Walker” 

 

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configurations.This reconfiguration was done to improve service given the current operatingstatus of our old satellite constellation and the newly launched eightsatellites. We currently expect to launch our second-generation satellitesbeginning in the third quarter of 2009.

 

Inearly 2006, we engaged an expert third-party to undertake a comprehensivereview of the S-band antenna amplifier degradation and its likely impact on theperformance of the constellation as a whole. At that time, based in part on thethird-party report, we concluded that, although there was risk, with theaddition of the eight spare satellites in 2007, the constellation wouldcontinue to provide commercially viable two-way communication services untilthe next generation satellites began to be launched in 2009. However, based ondata collected in 2007 from satellite operations, we concluded in February 2007that the degradation of the S-band functionality for two-way communicationsservice was occurring at a faster rate than previously experienced andanticipated. In response, in consultation with outside experts, we haveimplemented innovative methods, and plan to continue to research additionalmeasures, to attempt to ameliorate this problem, including modifying theconfiguration of our constellation as described above, changing the way ourgateways operate with the satellites and experimenting with new antennas on ourphones, thereby attempting to extend the life of the two-way communicationcapacity of the constellation. We have forecasted the time and duration oftwo-way service coverage at any particular location in our service area, and wehave made this information available without charge to our customers andservice providers, including our wholly owned operating subsidiaries, so thatthey may work with their subscribers to reduce the impact of the serviceinterruptions in their respective service areas. Nonetheless, we expect theS-band antenna amplifier degradation to continue as the satellites age inorbit.

 

Webelieve that if the degradation of the S-band antenna amplifiers continues atthe current rate or further accelerates, and if we are unsuccessful indeveloping additional technical solutions, interruptions of two-waycommunications services will increase, and by some time in early 2009substantially all of our in-orbit satellites launched prior to 2007 will ceaseto be able to support two-way communications services. As the number ofin-orbit satellites (other than the eight spare satellites launched in 2007)with properly functioning S-band antenna amplifiers decreases, even withoptimized placement in orbit of the eight spare satellites, increasingly largercoverage gaps will occur over areas in which we currently provide two-waycommunications service. Two-way communications service will continue to beavailable, but at certain times in any given location it will takesubstantially longer to establish calls and the average duration of calls willbe impacted adversely. This has materially adversely affected our ability toattract new subscribers and maintain our existing subscribers for our two-waycommunications services, equipment sales of two-way communication devices, ARPUand our results of operations and is likely to have a further material adverseeffect on each of these in the future. If our retail subscriber base continuesto decline, our ability to attract and retain subscribers at higher rates whenour second- generation constellation is placed in service may be affectedadversely.

 

Duringthe year ended December 31, 2007, our retail average revenue per unit, orARPU, decreased by 21% to $46.26 from $58.91 in 2006. In addition, our servicerevenue declined from $92.0 million to $78.3 million and oursubscriber equipment sales declined from $44.6 million to $20.1 million.During the nine months ended September 30, 2008, our retail ARPU decreasedby 19% to $37.34 from $46.21 for the nine months ended September 30, 2007.Our service revenue declined from $58.7 million for the nine months ended September 30,2007 to $48.8 million for the nine months ended September 30, 2008 whileour subscriber equipment sales increased from $16.0 million to $18.8 millionover the same period.  We believe thatcustomer reaction to the S-band antenna amplifier degradation and our relatedprice reductions have been the primary cause of these reductions. If we areunable to maintain our customer base for two-way communications service, ourbusiness and profitability may be further materially and adversely affected. Inaddition, after our second-generation satellite constellation becomesoperational, we may face challenges in maintaining our current subscriber basefor two-way communications service because we plan then to increase prices,consistent with market conditions, to reflect our improved two-way service andcoverage.

 

***Recessionary indicators and continuedvolatility in global economic conditions and the financial markets have adverselyaffected and may continue to affect adversely sales of our new SPOT satellitemessenger product and reduce our ability to raise additional capital in orderto complete our second-generation constellation.***

 

The volatility anddisruption to the financial markets has reached unprecedented levels and hassignificantly adversely impacted global economic conditions.  As a result, there have been substantialdeclines in consumer confidence and demand. These conditions could lead to further reduced consumer spending in theforeseeable future, especially for discretionary travel and relatedproducts.  A substantial portion of thepotential addressable market for our SPOT satellite messenger products andservices relates to recreational users, such as mountain climbers, campers,kayakers, sport fishermen and wilderness hikers.  These potential customers may reduce theiractivities due to economic conditions, which could adversely affect ourbusiness, financial condition, results of operations and liquidity.

 

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These conditions alsohave materially impacted liquidity in the capital and credit markets, makingterms for certain financings less attractive or unavailable.  Continued uncertainty may negatively impactour ability to access additional financing or make it difficult or more costlyto raise capital through the issuance of our equity or debt securities.  These disruptions have had and may continueto have a material adverse effect on the market price of our common stock.

 

***Failure to satisfy NASDAQ Global SelectMarket listing requirements may result in our common stock being removed fromlisting on the NASDAQ Global Select Market.***

 

Our Common Stock iscurrently listed on the NASDAQ Global Select Market under the symbol “GSAT.”For continued inclusion on the NASDAQ Global Select Market, we must generallymaintain, among other requirements, either (a) shareholders’ equity of atleast $10 million, a minimum closing bid price of $1.00 per share and a marketvalue of our public float of at least $5 million; or (b) marketcapitalization of at least $50 million, a minimum closing bid price of $1.00per share and a market value of our public float of at least $15 million. On November 4,2008, the closing bid price of our common stock was $0.77 and our public floatwas $92.2 million.  NASDAQ has recentlysuspended enforcement, through January 16, 2009, of the rules requiringa minimum closing bid price and a minimum market value of public float. After January 16,2009, however, if we fail to meet the minimum closing bid price or the minimummarket value standards described above for at least 30 consecutive tradingdays, our Common Stock could be at risk of being removed from listing on theNASDAQ Global Select Market. If our Common Stock were removed from listing onthe NASDAQ Global Select Market, our Common Stock may be transferred to theNASDAQ Capital Market if we satisfy the listing criteria for the NASDAQ CapitalMarket, or trading of our Common Stock may be conducted in the over-the-countermarket in the so-called “pink sheets” or, if available, the NationalAssociation of Securities Dealer’s “Electronic Bulletin Board.” Consequently,broker-dealers may be less willing or able to sell and/or make a market in our CommonStock, which may make it more difficult for shareholders to dispose of, or toobtain accurate quotations for the price of, our Common Stock. Removal of our CommonStock from listing on the NASDAQ Global Select Market may also make it moredifficult for us to raise capital through the sale of our securities.

 

In addition, if our CommonStock is not listed on a U.S. national stock exchange, such as NASDAQ, orapproved for quotation and trading on a national automated dealer quotationsystem or established automated over-the-counter trading market, holders of our5.75% Convertible Senior Notes will have the option to require us to repurchasethe notes, which we will not have sufficient financial resources to do.

 

**Item 6. Exhibits**

** **
| **Number** | ** ** | **Description**                                                                                                   |
|------------|------------|-------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                              |
| 10.1† |       | Purchase Agreement  between Globalstar, Inc. and Ericsson Federal Inc. effective as of  October 1, 2008 |
|       |       |                                                                                                              |
| 10.2       |       | Letter from Thermo  Funding Company LLC dated September 29, 2008                                             |
|       |       |                                                                                                              |
| 31.1       |       | Section 302  Certification of the Chief Executive Officer                                                    |
|       |       |                                                                                                              |
| 31.2       |       | Section 302  Certification of the Chief Financial Officer                                                    |
|       |       |                                                                                                              |
| 32.1       |       | Section 906  Certifications                                                                                  |

 

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†              Portions of the exhibit have been omitted pursuant to arequest for confidential treatment filed with the Commission. The omittedportions of the exhibit have been filed with the Commission.

 

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SIGNATURES

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
|                    | GLOBALSTAR, INC. |
|-------------------------|------------------|
|                    |             |   |
|                    | By:              | /s/ JAMES MONROE III |
| Date: November 10, 2008 |             | James Monroe III |
|                    |             | Chairman and Chief  Executive Officer |
|                    |             |   |
|                    | By:              | /s/ FUAD AHMAD |
| Date: November 10, 2008 |             | Fuad Ahmad |
|                    |             | Senior Vice President  and Chief Financial Officer |

 

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