Earthlink 2007 Annual Report Download - page 173

HELIO, INC. and HELIO LLC
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Description of Business and Basis of Presentation
HELIO, Inc. is a Delaware corporation formed on January 27, 2005 as a joint venture between EarthLink, Inc. ("EarthLink") and SK
Telecom Co., Ltd. and its subsidiaries and/or affiliates ("SKT") (collectively, the "Partners") for the purposes of developing and marketing
branded wireless telecommunication services, including but not limited to handsets, voice services, data services, stand-alone and other wireless
services within the United States of America. HELIO, Inc. is the sole general managing partner of HELIO LLC, a Delaware limited liability
company ("HELIO LLC" or the "Operating Company"). HELIO LLC is the operating company of HELIO, Inc. and is owned by the Partners'
respective ownership interests in HELIO, Inc. The financial statement presentation of the operating results, balance sheets and cash flows of
HELIO, Inc. and HELIO LLC (collectively, the "Company") are presented on a combined basis as of and for the period from inception to
December 31, 2005 and the years ended December 31, 2006 and 2007. The Partners owned approximately 100%, 95.5% and 96.3% of the
Company at December 31, 2005, 2006 and 2007, respectively.
As of December 31, 2007, HELIO, Inc. had 5,561,272 shares of Class A Common Stock issued and outstanding and 2 shares of Class B
Common Stock issued and outstanding. As of December 31, 2007, HELIO LLC had 124,401,683 Convertible Preferred Membership Units
issued and outstanding, of which 83,492,592 units were held by SKT and 40,909,091 were held by Earthlink. In addition, HELIO, Inc. held
5,561,272 Common Membership Units (collectively, the "Membership Units"). Each of the Membership Units may be exchanged, at the option
of the holder, at any time and from time-to-time, for validly issued, fully paid and non-assessable shares of HELIO, Inc.'s Class A Common
Stock. The number of shares of Class A Common Stock obtained from such an exchange of Membership Units is determined by multiplying the
number of Membership Units to be exchanged by the Unit Exchange Rate then in effect (as more fully described in Note 10). Also see Note 10
for a description of the Company's capitalization and voting rights.
The Company is a non-facilities-based mobile virtual network operator ("MVNO") offering mobile communications services and handsets
to U.S. consumers. As a MVNO, the Company does not own licensed frequency spectrum; rather, it leases and resells its wireless services
through outside wireless carriers' networks. During the period from inception to December 31, 2005, the Company's primary operations revolved
around the sale and servicing of its EarthLink® Wireless member and handset brand operations that were contributed by EarthLink in
conjunction with the formation of the Company (Note 2). In April 2006, the Company commenced operations and launched its core services and
device sales under its HELIO™ brand.
Since its inception and through December 31, 2007, the Company received funding from its Partners and affiliates in the aggregate amount
of $600.0 million, which was comprised of cash and assets with an aggregate value of $470.0 million and convertible promissory notes totaling
$130.0 million (of which $70.0 million in principal amount and $0.5 million in accrued interest was converted into preferred membership units
in November 2007). From March 2005 through August 2007, and under the terms of the Partners January 2005 original formation agreements,
the Partners contributed cash and assets with an aggregate value of $440.0 million (SKT contributed cash of $220.0 million and EarthLink
contributed cash of $180.0 million and assets valued at $40.0 million), of which $39.0 million was contributed in the year ended December 31,
2007. In addition, the Company has received approximately $8.2 million of funding from outside investors.
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