Earthlink 2007 Annual Report Download - page 174

HELIO, INC. and HELIO LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
1. Description of Business and Basis of Presentation (Continued)
In September 2007 and as more fully described in Note 9, the Company issued 10% convertible promissory notes to SKT and EarthLink in
the aggregate principal amounts of $30.0 million each (total cash proceeds of $60.0 million). In October and November 2007, the Company
issued 10% convertible promissory notes to SKT in the aggregate principal amounts of $30.0 million and $40.0 million, respectively (total cash
proceeds of $70.0 million). In November 2007, the Partners amended their January 2005 formation agreements, whereby SKT agreed to
contribute up to an additional $270.0 million in funding through December 2009 (the "Amended Joint Venture Agreement"). In November 2007,
SKT exchanged convertible promissory notes in the principle amount of $70.0 million plus accrued interest of $0.5 million into 23,492,592
preferred membership units at an exchange rate of $3.00 per unit (the "November 2007 Exchange").
In December 2007 and in accordance with the terms of the Amended Joint Venture Agreement, SKT provided written notice to the
Company and EarthLink, whereby SKT committed to contribute $80.0 million of its remaining $270.0 million commitment by June 2008 (the
"Trigger Event"). As a result of the Trigger Event, EarthLink forfeited 9,090,909 of its then outstanding preferred membership units (which were
immediately cancelled by the Company). Through December 2007, aggregate cash contributions under the Amended Joint Venture Agreement
totaled $100.0 million, which included the November 2007 Exchange and additional cash contributions of $30.0 million in December 2007. As
of December 31, 2007, SKT and EarthLink owned approximately 65% and 31% of the Company, respectively.
Through December 31, 2007, the Company's primary source of liquidity was funding received from its Partners and outside investors. The
Company will need additional capital to meet its operating requirements. Since the Company's inception, cumulative cash flow used from
combined operating and investing activities, excluding marketable securities activities, was approximately $523.0 million and cumulative cash
funding received from its Partners and outside investors was $568.2 million. At December 31, 2007, unrestricted cash and cash equivalents
available to the Company was approximately $45.1 million and working capital was approximately $3.5 million. To date, the Company has been
operating at an operating loss. Over the next twelve months, management anticipates that it will continue to incur substantial losses from its
operating and investing activities, and the Company may or may not have sufficient working capital and or outside financings available to meet
its planned operating activities over the same period. To address future planned working capital deficiencies in fiscal 2008, management plans
on securing sufficient cash financing from its Partners, and/or potential outside investors; however, management cannot be certain as to the
likelihood of generating sufficient cash flows to meet planned working capital requirements during this period. These combined factors raise
doubt as to the ability of the Company to continue as a going concern. The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.
The combined financial statements include the accounts of HELIO, Inc. and HELIO LLC, both of which are jointly controlled by the
Partners and are under common management. The Partners have the unilateral ability to implement major operating and financial policies for
HELIO, Inc. and HELIO LLC. All significant intercompany transactions are eliminated in the combination process. The combined financial
statements include certain expenses from SKT and EarthLink pursuant to various related party agreements. As more fully discussed in Note 17,
these expenses are considered to be a reasonable reflection of the value of services provided for and/or the benefits received by the Company.
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