Exhibit 99.1  HELIO, INC. and HELIO LLC INDEX TO COMBINED FINANCIAL STATEMENTS  PageReport of Independent
  Auditors
  
  2Combined Balance Sheets as
  of December 31, 2006 and 2007
  
  3Combined Statements of
  Operations for the period inception (January 27, 2005) to
  December 31, 2005, and the years ended December 31, 2006 and 2007
  
  4Combined Statements of
  Stockholders and Partners Equity for the period inception (January 27,
  2005) to December 31, 2005, and the years ended December 31, 2006
  and 2007
  
  5Combined Statements of
  Cash Flows for the period inception (January 27, 2005) to
  December 31, 2005, and the years ended December 31, 2006 and 2007
  
  7Notes to Combined
  Financial Statements
  
  9


REPORT OF INDEPENDENT AUDITORS  The Board of Directors and Stockholders of HELIO, Inc.
and HELIO LLC  We have
audited the accompanying combined balance sheets of HELIO, Inc. and
affiliate (collectively the Company) as of December 31, 2007 and 2006,
and the related combined statements of operations, stockholders and partners
equity, and cash flows for the years ended December 31, 2007 and 2006, and
for the period January 27, 2005 (inception) through December 31,
2005. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audits.  We
conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. We were not engaged to perform an audit of the
Companys internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Companys
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.  In our
opinion, the financial statements referred to above present fairly, in all
material respects, the combined financial position of HELIO, Inc. and
affiliate at December 31, 2007 and 2006 and the combined results of its
operations and its cash flows for the years ended December 31, 2007 and
2006, and for the period January 27, 2005 (inception) through December 31,
2005 in conformity with U.S. generally accepted accounting principles.  The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As more fully described in Note 1, the
Company has incurred substantial recurring operating losses since inception and
management anticipates that it will continue to incur substantial losses from
its operating and investing activities, and the Company may not have sufficient
working capital and or outside financings available to meet its planned
operating activities over the next twelve months. These conditions raise
substantial doubt about the Companys ability to continue as a going concern.
Managements plans in regard to these matters also are described in
Note 1. The 2007 combined financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.  As discussed in Note 2 to
the combined financial statements, effective January 1, 2006, the Company
changed its accounting for stock-based compensation in connection with the
adoption of Statement of Financial Accounting Standards No. 123 (R), Share-Based
Payment.   /s/ Ernst & Young
  LLPLos Angeles, CaliforniaFebruary 26, 2008


HELIO, INC. and HELIO LLC COMBINED BALANCE SHEETS (in thousands, except share/unit data)  December 31,
  
  December 31,2006
  
  2007ASSETSCurrent assets:Cash and cash equivalents
  
  $
  111,066
  
  $
  45,148Marketable securities
  
  27,917
  
  Accounts receivable, net of allowance of
  $5,543 and $10,866 as of December 31, 2006 and 2007, respectively
  
  10,191
  
  29,216Prepaid expenses
  
  13,556
  
  5,263Inventory
  
  11,725
  
  23,729Restricted cash
  
  7,850
  
  6,850Other current assets
  
  1,709
  
  868Total current assets
  
  184,014
  
  111,074Restricted
  cash  long term
  
  5,647
  
  5,734Property and equipment
  
  50,456
  
  40,556Other intangible assets
  
  21,031
  
  8,970Goodwill
  
  3,449
  
  3,449Other long term assets
  
  373
  
  290Total assets
  
  $
  264,970
  
  $
  170,073LIABILITIES AND STOCKHOLDERS AND PARTNERS
  EQUITYCurrent liabilities:Accounts payable
  
  $
  13,330
  
  $
  30,439Accrued expenses
  
  44,892
  
  54,377Due to Partners
  
  17,864
  
  4,299Member deposits and credit fees
  
  2,730
  
  10,849Deferred revenue
  
  2,803
  
  7,575Total current liabilities
  
  81,619
  
  107,539Convertible notes payable and interest
  payable due to Partners
  
  
  
  62,642Other non-current liabilities
  
  2,123
  
  1,390Total liabilities
  
  83,742
  
  171,571Commitments and contingenciesStockholders and partners equity:Convertible
  preferred membership units (100,000,000 authorized; 100,000,000 and
  124,401,683 issued and outstanding and convertible into Class A Common
  Stock at a 1:1 conversion rate at December 31, 2006 and 2007,
  respectively)
  
  401,000
  
  540,478Serial
  preferred stock ($0.01 par value; 20,000,000 authorized; -0- shares issued
  and outstanding at December 31, 2006 and 2007)
  
  
  
  Class B
  common stock ($0.01 par value; 2 shares authorized, issued and outstanding at
  December 31, 2006 and 2007)
  
  
  
  Class A common stock ($0.01 par value;
  230,000,002 shares authorized; 5,337,900, and 5,561,272 shares issued and
  outstanding at December 31, 2006 and 2007, respectively)
  
  54
  
  56Additional paid-in capital
  
  13,952
  
  18,308Accumulated deficit
  
  (233,778
  )
  (560,340
  )Total stockholders and partners equity
  
  181,228
  
  (1,498
  )Total liabilities and stockholders and
  partners equity
  
  $
  264,970
  
  $
  170,073  The accompanying notes are an integral part of these combined financial
statements.  3


HELIO, INC. and HELIO LLC COMBINED STATEMENTS OF OPERATIONS (In thousands)  Period of Inception
  (January 27, 2005) to
  December 31,
  2005
  
  Year ended
  December 31,
  2006
  
  Year ended
  December 31,
  2007Revenue:Service revenue
  
  $
  13,154
  
  $
  32,030
  
  $
  115,334Equipment sales and other revenue
  
  3,211
  
  14,550
  
  55,654Total revenue
  
  16,365
  
  46,580
  
  170,988Cost of sales:Cost of services
  
  9,512
  
  27,903
  
  70,907Cost of equipment sales
  
  8,474
  
  33,401
  
  96,673Total cost of sales
  
  17,986
  
  61,304
  
  167,580Gross (loss) margin
  
  (1,621
  )
  (14,724
  )
  3,408Operating expenses:Operations and member service
  
  14,283
  
  69,788
  
  99,105Sales and marketing
  
  8,686
  
  77,319
  
  159,193General and administrative
  
  21,025
  
  37,466
  
  65,697Stock compensation
  
  43
  
  1,969
  
  2,065Impairment charge on intangible assets
  
  
  
  
  
  3,131Restructuring charges
  
  
  
  
  
  2,413Total operating expenses
  
  44,037
  
  186,542
  
  331,604Operating loss before other expense/income
  
  (45,658
  )
  (201,266
  )
  (328,196
  )Other (expense)/income:Interest expense
  
  
  
  
  
  (3,127
  )Interest income and other
  
  3,635
  
  9,511
  
  4,761Loss before provision for income taxes
  
  (42,023
  )
  (191,755
  )
  (326,562
  )Provision for income taxes
  
  
  
  
  
  Net loss
  
  $
  (42,023
  )
  $
  (191,755
  )
  $
  (326,562
  )  The accompanying notes are an integral part of these combined financial
statements.  4


HELIO, INC. and HELIO LLC COMBINED STATEMENTS OF STOCKHOLDERS AND PARTNERS
EQUITY (In thousands,
except share/unit data)  TotalConvertible Preferred
  
  Class B
  
  Class A
  
  
  
  
  
  StockholdersMembership Units
  
  Common Stock
  
  Common Stock
  
  Additional
  
  Accumulated
  
  and PartnersUnits
  
  Amount
  
  Shares
  
  Amount
  
  Shares
  
  Amount
  
  Paid-in Capital
  
  Deficit
  
  EquityBalance,
  Inception (January 27, 2005)
  
  
  
  $
  
  
  
  
  $
  
  
  
  
  $
  
  
  $
  
  
  $
  
  
  $
  Issuance of
  Convertible Preferred Membership Units to the Partners in exchange for
  $440,000 funding commitment of cash and contributed assets (see Note 10)
  
  100,000,000
  
  244,000
  
  
  
  
  
  
  
  
  
  
  
  
  
  244,000Issuance of
  Class B Common Stock to the Partners in March 2005
  
  
  
  
  
  2
  
  
  
  
  
  
  
  
  
  
  
  Warrant issued in
  2005 to a Partner to purchase 1,995,000 shares of the Companys Class A
  Common Stock at $1.71 per share
  
  
  
  
  
  
  
  
  
  
  
  
  
  43
  
  
  
  43Supplemental
  compensation paid on behalf of certain employees by a Partner
  
  
  
  
  
  
  
  
  
  
  
  
  
  1,621
  
  
  
  1,621Net loss
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  (42,023
  )
  (42,023
  )Balance
  at December 31, 2005
  
  100,000,000
  
  $
  244,000
  
  2
  
  $
  
  
  
  
  $
  
  
  $
  1,664
  
  $
  (42,023
  )
  $
  203,641Funding received
  from the Partners under original $440,000 capital commitment (see Note 10)
  
  
  
  157,000
  
  
  
  
  
  
  
  
  
  
  
  
  
  157,000Exercise of
  employee stock options during 2006
  
  
  
  
  
  
  
  
  
  7,500
  
  
  
  13
  
  
  
  13Stock expense
  pertaining to vested portion of a warrant issued in 2005 to a Partner to
  purchase 1,995,000 shares of the Companys Class A Common Stock at $1.71
  per share
  
  
  
  
  
  
  
  
  
  
  
  
  
  623
  
  
  
  623Employee stock
  compensation expense
  
  
  
  
  
  
  
  
  
  
  
  
  
  1,372
  
  
  
  1,372Supplemental
  compensation paid on behalf of certain employees by a Partner
  
  
  
  
  
  
  
  
  
  
  
  
  
  1,213
  
  
  
  1,213Issuance of
  650,000 shares of Class A Common Stock to a Partner in 2006 valued at
  $1.71 per share
  
  
  
  
  
  
  
  
  
  650,000
  
  7
  
  1,105
  
  
  
  1,112Warrant issued to
  a Partner in 2006 to purchase 65,000 shares of the Companys Class A
  Common Stock at $1.71 per share
  
  
  
  
  
  
  
  
  
  
  
  
  
  5
  
  
  
  5Issuance of
  4,680,400 shares of Series A Common Stock at $1.71 per share
  
  
  
  
  
  
  
  
  
  4,680,400
  
  47
  
  7,957
  
  
  
  8,004Net loss
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  (191,755
  )
  (191,755
  )Balance
  at December 31, 2006
  
  100,000,000
  
  $
  401,000
  
  2
  
  $
  
  
  5,337,900
  
  $
  54
  
  $
  13,952
  
  $
  (233,778
  )
  $
  181,228  The accompanying notes are an integral part of these combined financial
statements.  5


HELIO, INC. and HELIO LLC COMBINED STATEMENTS OF STOCKHOLDERS AND PARTNERS
EQUITY (continued) (In thousands, except share/unit data)  TotalConvertible Preferred
  
  Class B
  
  Class A
  
  
  
  
  
  StockholdersMembership Units
  
  Common Stock
  
  Common Stock
  
  Additional
  
  Accumulated
  
  and PartnersUnits
  
  Amount
  
  Shares
  
  Amount
  
  Shares
  
  Amount
  
  Paid-in Capital
  
  Deficit
  
  EquityBalance
  at December 31, 2006
  
  100,000,000
  
  $
  401,000
  
  2
  
  $
  
  
  5,337,900
  
  $
  54
  
  $
  13,952
  
  $
  (233,778
  )
  $
  181,228Funding received
  from Partners under original $440,000 capital commitment (See Note 10)
  
  
  
  39,000
  
  
  
  
  
  
  
  
  
  
  
  
  
  39,000Funding received
  from SKT (See Note 10)
  
  10,000,000
  
  30,000
  
  
  
  
  
  
  
  
  
  
  
  
  
  30,000Conversion of
  Partner convertible notes payable of $70,000 and $478 of accrued interest
  into 23,492,592 Preferred Membership Units in November 2007 (See Note 9)
  
  23,492,592
  
  70,478
  
  
  
  
  
  
  
  
  
  
  
  
  
  70,478Cancellation of
  member units from Partner (See Note 10)
  
  (9,090,909
  )
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  Exercise of
  employee stock options during 2007
  
  
  
  
  
  
  
  
  
  78,997
  
  1
  
  135
  
  
  
  136Stock expense
  pertaining to vested portion of a warrant issued in 2005 to a Partner to
  purchase 1,995,000 shares of the Companys Class A Common Stock at $1.71
  per share
  
  
  
  
  
  
  
  
  
  
  
  
  
  210
  
  
  
  210Stock expense
  pertaining to vested portion of a warrant issued to a Partner in 2006 to
  purchase 65,000 shares of the Companys Class A Common Stock at $1.71
  per share
  
  
  
  
  
  
  
  
  
  
  
  
  
  8
  
  
  
  8Warrant issued to
  a Partner in 2007 to purchase 407,250 shares of the Companys Class A
  Common Stock at $1.82 per share
  
  
  
  
  
  
  
  
  
  
  
  
  
  4
  
  
  
  4Employee stock
  compensation expense
  
  
  
  
  
  
  
  
  
  
  
  
  
  1,843
  
  
  
  1,843Supplemental
  compensation paid on behalf of certain employees by a Partner
  
  
  
  
  
  
  
  
  
  
  
  
  
  1,498
  
  
  
  1,498Issuance of
  144,375 shares of Class A Common Stock to a Partner in 2007 at $1.82 per
  share
  
  
  
  
  
  
  
  
  
  144,375
  
  1
  
  262
  
  
  
  263Warrant issued to
  a third party in 2007 to purchase 2,348,883 shares of Companys Class A
  common Stock at $10.00 per share
  
  
  
  
  
  
  
  
  
  
  
  
  
  396
  
  
  
  396Net loss
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  (326,562
  )
  (326,562
  )Balance
  at December 31, 2007
  
  124,401,683
  
  $
  540,478
  
  2
  
  $
  
  
  5,561,272
  
  $
  56
  
  $
  18,308
  
  $
  (560,340
  )
  $
  (1,498
  )  The accompanying notes are an integral part of these combined financial
statements.  6


HELIO, INC. and HELIO LLC COMBINED STATEMENTS OF CASH FLOWS (In thousands)  Period of
  Inception
  (January 27,
  2005) to
  December 31,
  
  Year ended
  December 31,
  
  Year ended
  December 31,2005
  
  2006
  
  2007Operating activitiesNet loss
  
  $
  (42,023
  )
  $
  (191,755
  )
  $
  (326,562
  )Adjustments to reconcile net loss to net cash used
  in operating activities:Depreciation and amortization
  
  6,766
  
  21,533
  
  31,612Loss on disposal of property and equipment
  
  
  
  50
  
  54Stock based compensation
  
  43
  
  2,000
  
  2,461Impairment charge on intangible assets
  
  
  
  
  
  3,131Interest expense associated with convertible notes
  payable to partners
  
  
  
  
  
  3,127Other non-cash activities
  
  1,621
  
  2,325
  
  1,761Changes in operating assets and liabilities:Accounts receivable
  
  (1,336
  )
  (8,855
  )
  (19,025
  )Inventory
  
  (3,814
  )
  (7,911
  )
  (12,004
  )Prepaid expenses and other assets
  
  (6,122
  )
  (9,516
  )
  9,281Restricted cash
  
  (7,310
  )
  (6,187
  )
  913Accounts payable
  
  619
  
  12,711
  
  17,109Accrued liabilities
  
  16,443
  
  28,394
  
  17,689Due
  to Partners
  
  297
  
  8,056
  
  (14,765
  )Deferred revenue and other liabilities
  
  2,947
  
  4,709
  
  4,039Net
  cash used in operating activities
  
  (31,869
  )
  (144,446
  )
  (281,179
  )Investing activitiesPurchases of property and equipment
  
  (26,166
  )
  (27,383
  )
  (11,792
  )Purchases of domain names (intangible assets)
  
  (170
  )
  
  
  Purchases of marketable securities
  
  (148,900
  )
  (1,066,917
  )
  (49,650
  )Proceeds from disposition of marketable securities
  
  54,200
  
  1,133,700
  
  77,567Net cash (used in) provided by investing activities
  
  (121,036
  )
  39,400
  
  16,125Financing
  activitiesPartner cash contributions in HELIO LLC in exchange
  for convertible preferred membership units
  
  204,000
  
  157,000
  
  69,000Exercise of employee common stock options
  
  
  
  13
  
  136Proceeds from the issuance of notes payable
  
  
  
  
  
  130,000Issuance of common stock
  
  
  
  8,004
  
  Net cash provided by financing activities
  
  204,000
  
  165,017
  
  199,136Net increase/(decrease) in cash and cash
  equivalents
  
  51,095
  
  59,971
  
  (65,918
  )Cash and cash equivalents, beginning of period
  
  
  
  51,095
  
  111,066Cash and cash equivalents, end of period
  
  $
  51,095
  
  $
  111,066
  
  $
  45,148  The accompanying notes are an integral part of these combined financial
statements.  7


HELIO, INC. and HELIO LLC COMBINED STATEMENTS OF CASH FLOWS (In thousands)  Period of
  Inception
  (January 27,
  2005) to
  December 31,
  
  Year ended
  December
  
  Year ended
  December2005
  
  31, 2006
  
  31, 2007Supplemental Disclosure on Non-cash
  Operating, Investing and Financing Activities:Non-cash operating activitiesSupplemental compensation paid by a Partner
  to certain employees
  
  $
  1,621
  
  $
  1,213
  
  $
  1,498Non-cash investing activitiesAssets and
  goodwill contributed by a Partner in conjunction with the Companys formation
  
  $
  40,000
  
  $
  
  
  $
  Accrued property and equipment purchases
  
  
  
  9,566
  
  1,193Non-cash financing activitiesWarrants issued to a Partner to purchase
  common stock in exchange for services
  
  $
  43
  
  $
  628
  
  $
  222Exchange of Partner convertible notes payable
  in the aggregate principal amount of $70,000 principal and accrued interest
  of $478 into Preferred Membership Units
  
  
  
  
  
  70,478Issuance of common stock to a Partner in
  exchange for services
  
  
  
  1,112
  
  263Issuance of a warrant to purchase common
  stock to a third party in exchange for services
  
  
  
  
  
  396  The accompanying notes are
an integral part of these combined financial statements.  8


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.  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  9


HELIO, INC. and HELIO LLC NOTES TO COMBINED
FINANCIAL STATEMENTS  1. 
Description of Business and Basis of Presentation (continued)  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.  2. 
Summary of Significant Accounting Policies  Use of Estimates in Preparation of
Financial Statements  The preparation of the
financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect
the amounts reflected in the combined financial statements and accompanying
notes.  The Company bases its estimates
on experience, where applicable, and other assumptions that management believes
are reasonable under the circumstances. 
Actual results could differ from those estimates.  Estimates are generally used when accounting
for certain accrued expenses and deferred revenues, allowance for doubtful
accounts, useful lives of property and equipment, inventory return reserves,
amortization periods of intangible assets, legal and tax contingencies, fair
value of intangible assets, goodwill and investments, stock compensation
expense, asset impairment charges and the recording of fair value of assets
upon formation of the joint venture.  10


HELIO, INC. and HELIO LLC NOTES TO COMBINED
FINANCIAL STATEMENTS  2.  Summary of
Significant Accounting Policies (continued)  Segments  The Company manages the business
as one reportable business segment, wireless communications and data services,
which is also a single operating segment. 
The Company operates primarily in the United States of America.  Related
Party Transactions  From time to time, the
Company enters into agreements with its Partners and or related
affiliates.  Management believes these
types of related party transactions are consummated on terms equivalent to
those that prevail in arms-length transactions.  The Company complies with the disclosure
provisions of Statement of Financial Accounting Standards No. 57, Related Party Disclosures.See
Note 17 for further detail on the Companys related party transactions.  Revenue Recognition and Deferred
Revenue  The
Company recognizes revenue in accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 104, Revenue Recognition(SAB 104),and the Emerging Issues Task Force No. 00-21, Revenue Arrangements with Multiple Deliverables (EITF 00-21).  The Company classifies its revenues into two
types of revenue streams: (i) service revenues and (ii) equipment
sales and other revenue.  The Company
also considers the criteria for revenue recognition and rights of return as
prescribed under Statement of Financial Accounting No. 48, Revenue Recognition When Right of Return Exists(SFAS 48).  Service Revenue  Service
revenue generally includes airtime minutes, content (including but not limited
to music, video and games downloads), data usage, messaging and other services,
net of related member account credits. 
The Company earns service revenue by providing its members airtime
minutes, data, messaging and content downloads on its HELIO devices over
dedicated wireless networks.  All
services provided are billed throughout any given month according to the bill
cycle in which a particular member is placed. 
Monthly airtime services are billed at the beginning of each bill cycle
and in advance of services based upon minute rate plans selected by
members.  Monthly airtime minutes that
exceed minute rate plans selected by the member and content downloads are billed
in the billing cycle following usage. 
For members not on unlimited data and messaging service plans, such
service items are billed in the billing cycle following usage.  Service
revenue also includes separate charges for members who roam outside of their
selected coverage area, 411 dialing charges, international calling minutes
and, when applicable, activation fees.  Service
revenue is recognized in the period of use. 
As a result of bill cycle cut-off times, the Company is required to make
estimates for airtime service revenue earned but not yet billed as of the end
of any given month, and for monthly service revenue billed in advance.  Estimates for airtime usage are based upon
historical minutes, messages, and or megabytes of usage.  The Company generally defers any revenue
based upon the portion of unused plan minutes that are billed in advance of
services provided.  Content revenue is
recognized when consumed (downloaded).  Equipment and Other Revenue  Equipment
revenue generally includes device and accessory sales, net of any related device
price subsidies offered to members at the point of sale, and inventory return
reserves.  Devices and accessories are
sold to members through (i) direct sales channels, including but not
limited to direct sales to end-members over the Companys website, telesales
and through the Companys owned retail locations, and (ii) indirect sales
channels, including but not limited to third-party agents and national retail
chains for resale to end-members.  For
direct channels, device and accessory revenue is recognized when an end-member  11


HELIO, INC. and HELIO LLC NOTES TO COMBINED
FINANCIAL STATEMENTS  2.  Summary of
Significant Accounting Policies (continued)  Equipment and Other Revenue (continued)  purchases
a device, net of any upfront subsidy.  In
most cases, direct channel device sales occur at the same time a member
activates the Companys wireless services. 
For indirect channels, device and accessory revenues are recognized upon
shipment, net of any upfront price subsidy, taking into account individual
member rights of returns, historical collections, and member sell-through
history as prescribed under SAB 104 and SFAS 48.  In the event a third-party agent or national
retail chain has the ability to return devices and or has limited history with
the Company, a portion of the related device revenue generally is deferred
until an end-member activates service. 
In mid-2007, the Company was able to demonstrate sufficient historical
sell-through of devices to end members, device returns, and collections in its
third-party agent and national retail channels.  As a result, the Company
reclassified approximately $6.7 million of previously deferred device revenue
into equipment revenue during the year ended December 31, 2007.  The
Company offers a 30-day happiness guarantee to its members, whereby if a member
is unsatisfied with their device or service, they can return their device for a
full refund within 30 calendar days after purchase.  The Company estimates the amount of device
returns in any given period and records a reserve for device sales as an offset
to equipment revenue.  Other
revenue generally includes revenue that is considered non-recurring in nature,
including but not limited to revenue from member device protection plans, early
termination fees, late payment fees, and when applicable, activation fees.  Early termination fees, which are generated
when a member breaks a service contract prior to its completion, are recognized
on a cash basis as collection is not certain.  Activation Fees  The
Company determined that the sale of its wireless services along with its
devices constitutes a revenue arrangement with multiple deliverables under EITF
00-21.The Company accounts for these arrangements as separate units
of accounting, whereby the device and related services can be unbundled from
one another and treated as separate units of accounting.  Activation fees, which are one-time
non-refundable charges to members to activate service, however, do not meet the
criteria as set-forth under EITF 00-21 to be treated as a separate unit of
accounting and are therefore recognized into revenue under the relative fair
value accounting principle, whereby activation fees may be (i) recognized
upfront with the device sale (the delivered item) to the extent the aggregate
device and activation fee proceeds do not exceed the fair value of the device
or (ii) deferred upon activation and recognized evenly over the service
term (the undelivered item) to the extent the aggregate device and activation
fee proceeds exceed the fair value of the device.  For the periods ended December 31, 2005,
2006 and 2007, activation fees of $0.1 million, $2.1 million and $5.0 million,
respectively, were recognized and included in equipment and other revenue in
the Companys combined statements of operations.  Cost of Services and Cost of
Equipment Sales  Cost
of services generally includes the Companys costs of its members airtime,
data and content usage.  Airtime and data
costs are recorded in the period of use. 
As a result of bill cycle cut-off times, the Company is required to make
estimates for airtime and data usage consumed but not yet billed as of the end
of any given month.  Estimates for
airtime usage are based upon historical minutes, messages, and or megabytes of
usage.  The amounts of these cost of
services are based on contractual rates set forth in the Companys carrier
agreements.  Content costs are largely
comprised of costs to outside content providers for usage of specific content
on wireless devices and are recognized when incurred.  12


HELIO, INC. and HELIO LLC NOTES TO COMBINED
FINANCIAL STATEMENTS  2. Summary of Significant Accounting Policies (continued)  Cost of Services and Cost of
Equipment Sales (continued)  Cost
of equipment sales generally includes the cost of the Companys devices and
accessories, excluding device price subsidies (see Equipment
and Other Revenue), which are generally recorded upon device and or
accessory shipment to an end member, third party agent or national retailer.  Other costs included in cost of equipment
sales generally include the cost of shipping accessories and devices to outside
agents and national retailers and device insurance.  Operations
and Member Service Costs  Operations
and member service costs are generally comprised of product development
expenses, including but not limited to outside research and development on
software and products pertaining to the Companys devices and services, information
technology costs, supply chain management and member support.  Product development costs are charged to
expense as incurred.  Sales and Marketing Costs  Sales
and marketing costs are generally comprised of costs of external sales
commissions, co-op advertising, general marketing and media advertising
expenses, lease expenses associated with Company owned retail locations,
amortization of certain intangible assets and website development expenses
(accounted for under the provisions of Emerging Issues Task Force No. 00-2,
Website Development Costs).  Advertising
costs are expensed as incurred and amounted to approximately $1.2 million,
$21.6 million and $47.5 million during the periods ended December 31,
2005, 2006 and 2007, respectively. 
Significant production costs incurred in advance of advertising airing
are capitalized as a prepaid asset until the first airing of the underlying
advertising occurs.  Prepaid advertising
costs of $11.2 million and $2.3 million are included in prepaid expenses in the
Companys combined balance sheets at December 31, 2006 and 2007,
respectively.  General
and Administrative Costs  General
and administrative costs are generally comprised of facilities, professional
legal and outside accounting fees, costs of personnel recruitment and bad debt
expense.  Income Tax  The vast majority of the
Companys operating results and losses since its inception through December 31,
2007 are included in the operating results of HELIO LLC, the operating
company.  HELIO LLC is not a taxable
entity for federal or state income tax purposes.  Rather, these taxes are included in each
Partners federal and state income tax returns. 
To the extent that certain states impose income taxes upon non-corporate
legal entities, the Company generally records a provision (benefit) for these
state income taxes and recognizes deferred tax assets and liabilities based on
differences between the financial reporting and tax bases of assets and
liabilities, applying enacted statutory rates. Pursuant to the provisions of
SFAS No. 109,Accounting For Income Taxes, the
Company generally provides valuation allowances for deferred tax assets for
which it does not consider realization of such assets to be more likely than
not. See Note 13 for further information.  13


HELIO, INC. and HELIO LLC NOTES TO COMBINED
FINANCIAL STATEMENTS  2. Summary of Significant
Accounting Policies (continued)  Member Sales and Use Taxes  The
Company is responsible for billing, collecting and paying various sales and
service usage taxes on behalf of its members. 
The Company accounts for these pass-through tax arrangementsin accordance with Emerging Issues Task Force
No. 06-3, How Taxes Collected from
Customers and Remitted to Governmental Authorities Should Be Presented in the
Income Statement (Gross versus Net Presentation),whereby
the Company records a liability for amounts collected and reports such
taxes on a net basis in its combined statement of operations for such amounts.  Cash and Cash Equivalents  Cash
and cash equivalents consist of cash on hand and marketable securities with
original maturities of three months or less. 
Excluded from cash and cash equivalents are restricted cash of $13.5
million and $12.6 million at December 31, 2006 and 2007,
respectively.  (See Note 6)  Investments in Marketable
Securities  Investments
in marketable securities are accounted for in accordance with SFAS No. 115,
Accounting for Certain Investments in Debt
and Equity Securities.  The
Company has classified all short term investments in marketable securities as
available-for-sale. Available-for-sale securities are carried at fair value,
with any unrealized gains and losses, net of tax, recorded as other
comprehensive income. Realized gains and losses are included in interest income
in the combined statements of operations.  Accounts Receivable, Credit
Fees and Deposits and Allowance for Doubtful Accounts  Accounts
receivable consists principally of trade accounts receivable from members and
are generally unsecured and due within 30 days from the invoice date.  The Company maintains an allowance for
doubtful accounts for estimated losses resulting from the inability of its
members to make timely payments.  In
assessing the adequacy of the allowance for doubtful accounts, management
considers multiple factors including the aging of its receivables, historical
write-offs and the general economic environment. If the financial condition of
the Companys members were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances may be required. Credit losses
relating to these receivables have been within managements expectations.
Expected credit losses are recorded as an allowance for doubtful accounts in
the combined balance sheets.  Estimates
of expected credit losses are based primarily on write-off experience, net of
recoveries, and on the aging of the accounts receivable balances. The
collection policies and procedures of the Company vary by credit class and
payment history of members.  The Companys
allowance for doubtful accounts was $5.5 million and $10.9 million at December 31,
2006 and 2007, respectively.  For the
periods ended December 31, 2005, 2006 and 2007, bad debt expense of $0.5
million, $5.3 million and $24.2 million, respectively, was included in general
and administrative expenses in the Companys Combined Statements of Operations.  During
the year ended December 31, 2006, the Company required certain credit
challenged members to remit either a fully refundable or a non-refundable
deposit at the point of service activation. 
Beginning in November 2007, the Company required only refundable
deposits for all credit challenged members. 
Such deposits and fees are initially deferred and recorded as a
liability upon collection.  In the event members subject to deposits or
credit fees were to become delinquent and or no longer continue to make
payments on amounts when due, the Company offsets these accounts with the
related members deposit or credit fee, as applicable.  Non-refundable
credit fees are recognized as a reduction of bad debt expense upon a member
remaining in good credit standing through their contractual service period,
generally 24 months after a members original in-service date.  Fully
refundable deposits are refunded back to a member upon the member demonstrating
good credit standing with the Company after a certain period of time.  14


HELIO, INC. and HELIO LLC NOTES TO COMBINED
FINANCIAL STATEMENTS  2. Summary of Significant Accounting Policies (continued)  Inventories  Inventories consist
principally of wireless devices and accessories and are valued at the lower of
cost or market value using the first-in, first-out (FIFO) accounting method.
Market value is determined using current replacement cost, however determining
market value of inventories involves numerous judgments, including projections
of inventory returns and current and forecasted sales volumes and demand.  As a result of these analyses and on no less
than a quarterly basis, the Company periodically records charges to cost of
sales and corresponding inventory obsolescence reserves to state its inventory
at fair market value.  Property and Equipment  Property
and equipment are stated at historical cost, less accumulated
depreciation.  Costs of additions and
substantial improvements are capitalized. 
Expenditures for maintenance and repairs are charged to operating
expenses as incurred.  Depreciation
expense is determined using the straight-line method over the estimated useful
lives of the various asset classes, which are generally three years for
hardware and software.  Leasehold
improvements and other are generally depreciated using the straight-line method
over the shorter of their estimated useful lives or the remaining term of the
underlying lease.  Software Development Costs  The Company capitalizes
certain costs incurred in connection with developing or obtaining internal use
software in accordance with American Institute of Certified Public Accountants
Statement of Position No. 98-1,Accounting for the Costs of Computer Software Developed or Obtained for
Internal Useand Emerging Issues Task Force No. 00-2, Website Development Costs.
Capitalized costs include direct development costs associated with internal use
software and website development costs, including internaldirect labor costs and external costs of
materials and services. These capitalized costs are included in property and
equipment in the combined balance sheets and are generally amortized on a
straight-line basis over a period of three years. Costs incurred during the
preliminary project stage, as well as maintenance and training costs are
expensed as incurred.  Costs incurred
in connection with developing or obtaining internal use software to be used,
consumed and or marketed in conjunction with the Companys devices or services
are accounted for pursuant to Statement of Financial Accounting Standards No. 86,
Accounting for the Costs of Computer Software to Be
Sold, Leased, or Otherwise Marketed(SFAS 86).
Under SFAS 86, these software costs are charged to expense up until the point
of technological feasibility.  As the
vast majority, if not all of these software costs are incurred up to the point
of technological feasibility, the Company charges these types of software costs
to expense as incurred.  Goodwill and Purchased Intangible
Assets  In
conjunction with the formation of the Company, EarthLink contributed its
then-existing wireless assets valued by the Partners at $40.0 million (the EarthLink
Wireless Assets).  In fiscal 2005 an
independent third party performed a valuation analysis of the fair value of the
contributed EarthLink Wireless Assets and determined that of the total $40.0
million value, $36.6 million was attributable to intangible assets and the
remaining $3.4 million was classified as goodwill.  The intangible assets primarily consisted of
the implied value of contributed carrier and customer relationships, subscribers,
which includes an agreement between EarthLink and the Company to prospectively
market the Companys services (the Marketing Services), and billing systems
transferred over to the Company upon formation. 
With the exception of the Marketing Services, the Company amortizes its
intangibles on a straight-line basis over the shorter of their contractual
terms or intended useful lives, generally between three to five years,
beginning in March 2005.  In September 2007,
Earthlink announced that it was restructuring and would no longer be providing
funding to the Company, and as a result the Company recorded an impairment
charge of $3.1 million pertaining to the net remaining intangible Marketing
Services  15


HELIO, INC. and HELIO LLC NOTES TO COMBINED
FINANCIAL STATEMENTS  2. Summary of Significant Accounting Policies (continued)  Goodwill and Purchased Intangible
Assets (continued)  obligations
from EarthLink (Note 7).  In accordance
with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets,goodwill
and other indefinite-lived intangible assets are not amortized.  The
Company tests goodwill and indefinite-lived intangible assets for impairment in
accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets(SFAS 142).Under SFAS 142, goodwill and intangible assets are
tested for impairment on an annual basis, or sooner if events or changes in
circumstances indicate that an asset may be impaired, including but not limited
to significant changes in a business climate, legal factors, operating
performance indicators, and or competition.  In
accordance with Emerging Issues Task Force No. 02-7, Unit of Accounting for Testing Impairment of
Indefinite Lived Intangible Assets,the Company tests its goodwill
on an aggregate basis, consistent with the Companys management of its
business.  The Company uses a fair value
approach, incorporating discounted cash flows, to complete the test.  During the periods ended December 31, 2005,
2006 and 2007, the Companys tests indicated its goodwill and other indefinite
life intangible assets were not impaired.  From
inception to December 31, 2005 and for the years ended December 31,
2006 and 2007, the Company recognized amortization expense of approximately
$5.8 million, $9.9 million and $8.9 million (excluding the $3.1 million
impairment charge discussed above), respectively, related to its finite-lived
intangible assets.  Valuation of Long-lived
Assets  Long-lived assets, including
property and equipment and intangible assets with finite lives are reviewed for
impairment in accordance with Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS 144) whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable.  It is reasonably possible that these assets
could become impaired as a result of technological or other industry changes.  In analyzing potential impairments, the
Company uses projections of future cash flows. 
These projections are based upon the Companys views of forecasted
growth rates, anticipated future economic conditions, appropriate discount
rates relative to risk and estimates of residual values.  If the total of the expected future
undiscounted cash flows from the assets is less than its carrying amount, a
loss is recognized for the difference between the fair value and its carrying
amount.  The asset group represents the
lowest level for which identifiable cash flows are largely independent of the
cash flows of other assets and or liabilities.  Leases  The
Company accounts for lease agreements in accordance with Statement of Financial
Accounting Standards No. 13, Accounting
for Leases, which requires categorization of leases at their
inception as either operating or capital leases depending on certain criteria.
The Company recognizes rent expense for operating leases on a straight-line
basis over the lease term.  The Company
records leasehold improvements funded by landlords under operating leases as
leasehold improvements.  16


HELIO,
INC. and HELIO LLC NOTES
TO COMBINED FINANCIAL STATEMENTS  2. Summary of Significant
Accounting Policies (continued)  Stock Based Compensation  In
December 2004, the Financial Accounting Standard Board issued SFAS No. 123(R),
Share Based Payment (SFAS 123(R)),which replaced SFAS No. 123, Stock Based Compensation(SFAS 123) and
superseded Accounting Principles Board (APB) Opinion No. 25, Employee Based Stock Compensation.Prior to the adoption of SFAS
123(R), the Company accounted for its employee stock-based awards using the
intrinsic value method in accordance with APB 25, as allowed under SFAS
123.   Under the intrinsic method, no
employee stock-based compensation was recognized in the Companysstatements of operations prior to January 1,
2006.  Under the modified prospective
transition method as prescribed under SFAS 123(R) and adopted by the
Company effective January 1, 2006, the combined financial statements prior
to 2006 were not restated to reflect, and do not include, the impact of adopting
SFAS 123(R).  The
Company accounts for equity instruments issued to non-employees in accordance
with the provisions of EITF No. 96-18, Accounting
for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services (EITF 96-18). The equity
instruments, consisting of warrants to purchase the Companys common stock, are
valued using the Black-Scholes valuation model, and, as applicable, the
measurement of expense is subject to periodic mark-to-market adjustments in
each reporting period.  Recently Issued Accounting
Pronouncements  In
February 2007, the FASB issued SFAS No. 159, the Fair Value Option for Financial Assets and
Financial Liabilities  including an amendment of FASB Statement No. 115 (SFAS
159).SFAS 159 gives the
Company the irrevocable option to carry most financial assets and liabilities
at fair value, which changes in fair value recognized in earnings.  SFAS 159 is effective for the Companys 2008
fiscal year.The Company is currently assessing the
potential effect of SFAS 159 on its financial statements, and does not believe
that the adoption of SFAS 159 will have a material impact on the Companys
financial position, results of operations or cash flows.  In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (SFAS
157). SFAS 157 provides a common definition of fair value and establishes a
framework to make the measurement of fair value in generally accepted
accounting principles more consistent and comparable. SFAS 157 also requires
expanded disclosures to provide information about the extent to which fair
value is used to measure assets and liabilities, the methods and assumptions
used to measure fair value, and the effect of fair value measures on earnings.
SFAS 157 is effective for the Companys 2008 fiscal year, although early
adoption is permitted. The Company does not believe that the adoption of SFAS
157 will have a material impact on the Companys financial position, results of
operations or cash flows.  In July 2006, the FASB issued FIN No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the
accounting for income taxes by prescribing a minimum probability threshold that
a tax position must meet before a financial statement benefit is recognized.
The minimum threshold is defined in FIN 48 as a tax position that is more
likely than not to be sustained upon examination by the applicable taxing
authority, including resolution of any related appeals or litigation processes,
based on the technical merits of the position. The tax benefit to be recognized
is measured as the largest amount of benefit that is greater than fifty percent
likely of being realized upon ultimate settlement. FIN 48 must be applied to
all existing tax positions upon initial adoption. The cumulative effect of
applying FIN 48 at adoption, if any, is to be reported as an adjustment to
opening retained earnings for the year of adoption. FIN 48 is effective for the
Companys 2007 fiscal year.  The adoption
of FIN 48 did not have a material impact on the Companys financial position,
results of operations or cash flows. 
(See Note 13.)  17


HELIO,
INC. and HELIO LLC NOTES
TO COMBINED FINANCIAL STATEMENTS  2. Summary of Significant
Accounting Policies (continued)  Reclassifications  Certain
reclassifications have been made to prior year amounts to conform to current
year presentation.  3.   Cash, Cash
Equivalents and Marketable Securities  Cash, cash equivalents and marketable securities
consist of the following (in thousands):  December 31,
  
  December 31,2006
  
  2007Cash, money market and certificates of
  deposit
  
  $
  111,066
  
  $
  45,148Total cash and cash equivalents
  
  111,066
  
  45,148Marketable securities:Auction rate securities and other
  
  27,917
  
  Total marketable securities
  
  27,917
  
  Total cash, cash equivalents, and
  marketable securities
  
  $
  138,983
  
  $
  45,148  The
Company has not experienced any realized gains or losses on its investments in
the periods presented.  The table above
summarizes the estimated fair value of the Companys marketable securities (in
thousands).  4. 
Property and Equipment  Property
and equipment is recorded at cost and consisted of the following (in
thousands):  December 31,
  
  December 31,2006
  
  2007Software
  
  $
  46,513
  
  $
  52,943Hardware
  
  9,925
  
  12,155Leasehold improvements and other
  
  6,627
  
  10,74963,065
  
  75,847Less: accumulated depreciation
  
  (12,609
  )
  (35,291
  )Total property and equipment
  
  $
  50,456
  
  $
  40,556  Estimated
useful lives for property and equipment range from three to five years.
Depreciation expense, which is included in operations and member service, sales
and marketing and general and administrative expenses in the Companys
statement of operations, depending on the nature and use of the asset, was $0.9
million, $11.7 million and $22.7 million for the periods ended December 31,
2005, 2006 and 2007, respectively.  18


HELIO,
INC. and HELIO LLC NOTES
TO COMBINED FINANCIAL STATEMENTS  5.  Inventory  The
Companys inventory is comprised of the following (in thousands):  December 31,
  
  December 31,2006
  
  2007Devices (net of $2.7 million and $3.1
  million reserves, respectively)
  
  $
  11,123
  
  $
  22,521Accessories (net of $0.5 million and $0.6
  million reserves, respectively)
  
  602
  
  1,208Total inventory
  
  $
  11,725
  
  $
  23,729  6.  Restricted Cash  The
Company is required to maintain certain cash deposits in certificate of deposit
accounts in connection with various lease and operating arrangements, which the
Company classifies as restricted cash. 
As of December 31, 2006 and 2007, the Company had aggregate
restricted cash balances of approximately $13.5 million and $12.6 million,
respectively.  Classification between
current and long-term restricted cash on the Companys combined balance sheet
is based upon the underlying terms and restrictions of each lease and operating
agreement.  7.  Goodwill, Contributed
and Purchased Intangibles  Contributed and Purchased
Intangible Assets and Goodwill  The
following table presents the components of the Companys identifiable
intangible assets and goodwill included in the accompanying Combined Balance
Sheets (in thousands):  December 31,
  
  December 31,2006
  
  2007Carrier and customer relationships
  
  $
  25,316
  
  $
  25,316Subscribers
  
  8,665
  
  8,665Other
  
  2,740
  
  2,740Identified Intangible Assets
  
  36,721
  
  36,721Less: Impairment
  
  
  
  (3,131
  )Less: Accumulated amortization
  
  (15,690
  )
  (24,620
  )Subtotal
  
  21,031
  
  8,970Goodwill
  
  3,449
  
  3,449Total intangible assets and goodwill
  
  $
  24,480
  
  $
  12,419  In
September 2007, Earthlink announced that it was restructuring and would no
longer be providing funding to the Company. 
At such time and based upon discussions with EarthLinks management, the
probability of Earthlink honoring its remaining commitments related to certain
future Subscribers was considered low. 
Accordingly, this circumstance raised substantial doubt as to the
recoverability of EarthLinks remaining subscriber commitment and as a result,
the Company recorded a related impairment charge of $3.1 million to write-down
such remaining subscriber commitment in September 2007.  For the periods ended December 31, 2005,
2006 and 2007, amortization expense associated with the Companys contributed
and purchased intangible assets was $5.8 million, $9.9 million and $8.9 million
(excluding the September 2007 impairment charge of $3.1 million), respectively.  19


HELIO,
INC. and HELIO LLC NOTES
TO COMBINED FINANCIAL STATEMENTS  7.  Goodwill,
Contributed and Purchased Intangibles (continued)  Estimated
future amortization related to the Companys identified finite-lived intangible
assets at December 31, 2007 is as follows (in thousands):  2008
  
  6,0162009
  
  2,784Total
  
  $
  8,800  8.Accrued Expenses  Accrued
expenses of $44.9 million and $54.4 million at December 31, 2006 and 2007,
respectively, were largely comprised of accrued operating and fixed asset
purchases, inventory obligations, member sales and use taxes, advertising and
marketing expenses, payroll and other payroll-related liabilities and agent
commissions.  9.Convertible Promissory Notes  In July 2007, the Company entered into a Note
Purchase and Security Agreement (the Note Agreement) with its Partners,
whereby the Partners committed to issue the Company up to $200.0 million in the
form of secured exchangeable promissory notes for the purpose of funding the
Companys working capital requirements and product development expenses.  In conjunction with the Note Agreement and
during the period July to November 2007, the Company issued 10%
secured exchangeable promissory notes in the aggregate principal amounts of
$130.0 million in favor of EarthLink and SKT (collectively, the Convertible
Promissory Notes).  The Convertible
Promissory Notes bear a simple interest rate of 10% per annum, and mature in July 2010
(the Maturity Date).  Under the
provisions of the Note Agreement and the Convertible Promissory Notes
agreement, any holder of Convertible Promissory Notes may exchange any such
note (or any portion thereof) at any time, through and up to the Maturity Date,
into Preferred Membership Units (at a per unit exchange rate as defined by the
agreements).  In connection with any such
exchange, such holder shall also have the right to receive a payment, at the
time of exchange, of any accrued and unpaid interest with respect to the outstanding
principal amount of the Convertible Note Payable (or portion thereof) so
exchanged, which payment shall be made, at the election of the Company in cash,
membership units, or a combination thereof.  During the year ended December 31, 2007,SKT exchanged Convertible Promissory Notes in the aggregate principal
amount of $70.0 million and $0.5 million of accrued interest into 23,492,592
Preferred Membership Units at an exchange value of $3.00 per unit.  As of December 31, 2007, aggregate Convertible Promissory
Notes payable were $62.6 million, of which $30.0 million principal and $1.3
million accrued interest is due to EarthLink and $30.0 million principal and
$1.3 million accrued interest is due to SKT. 
During the period ended December 31, 2007, theCompany recorded $3.1 million of interest expense associated with the
Convertible Promissory Notes.  10.  Capitalization  Formation of HELIO, Inc.  HELIO, Inc.
was formed in January 2005 and was later capitalized in March 2005
through the issuance of one (1) share of Class B Common Stock to each
of the Partners.   As of December 31,
2007, the Company has the authority to issue 250,000,004 shares of capital
stock, consisting of (i) 230,000,002 shares of Class A Common Stock,
par value $0.01 per share (Class A Common Stock) and 2 (two) shares of Class B
Common Stock, par value $0.01 per share (Class B Common Stock, and
together with Class A Common Stock, Common Stock) and (ii) 20,000,000
shares of Preferred Stock, par value $0.01 per share (Preferred Stock),
issuable in one or more series as defined in the Companys amended and restated
certificate of incorporation (the Certificate of Incorporation).  20


HELIO,
INC. and HELIO LLC NOTES
TO COMBINED FINANCIAL STATEMENTS  10.  Capitalization
(continued)  Formation of HELIO, Inc.
(continued)  In
January and July 2006, the Company issued 1,000,000 and 3,680,400
shares of Class A Common Stock, respectively, for an aggregate purchase
price of approximately $1.7 million and $6.3 million, respectively
(collectively, the 2006 Company Investments).  In
October 2006, the Company issued 650,000 shares of Class A
Common Stock to SKT in exchange for professional services performed and
completed from October 2005 through December 2006 (see Note 17).
  The 650,000 share issuance was valued at $1.1 million and included in
operating expenses in the Companys statement of operations for the year ended December 31,
2006.  In
June 2007, the Company issued 144,375 shares of Class A Common Stock
to SKT in exchange for professional services performed during 2007 (see Note
17).  The share issuance was valued at
$0.3 million and included in operating expenses in the Companys statement of
operations for the year ended December 31, 2007.  As
of December 31, 2005, 2006 and 2007 there was no Preferred Stock issued or
outstanding.  Rights of Common Stock Holders  Except
as provided in the Certificate of Incorporation, the holders of Common Stock
vote together as one class on all matters submitted to a vote of the
stockholders of the Company.   All shares of Common Stock are
identical in all respects and shall entitle the holders thereof to the same
rights and privileges, and shall be subject to the same qualifications, limitations
and restrictions thereof.  Each holder of
Class A Common Stock and Class B Common Stock is entitled to one vote
for each share of stock held on all matters submitted to the holders thereof,
except for matters reserved exclusively to holders of another class of capital
stock.  With respect to matters reserved exclusively to holders of Class A
Common Stock, holders of Class B Common Stock, who also hold shares of Class A
Common Stock, shall be entitled to vote their shares of Class A Common
Stock, but shall not be entitled to any increased voting multiple as may apply
in other cases as more fully described below.  Each
holder of Class B Common Stock shall be entitled to an aggregate number of
votes for all shares of Class B Common Stock held by such holder on all matters
submitted to a vote of the stockholders, except as provided above, equal to the
difference between (i) ten multiplied by the aggregate number of:  ·The shares of Class A Common Stock
obtained if all shares of Class B Common Stock, HELIO LLC Membership Units
(as described below) and shares of Preferred Stock of the holder were then
converted (as described below); and ·The shares of Class A Common Stock held
by such holders of Class B Common Stock;  and
(ii) the shares of Class A Common Stock held by such holders of Class B
Common Stock.  Pursuant
to the Second Amended and Restated Certificate of Incorporation, the initial
number of directors serving on the HELIO, Inc. board of directors shall
consist of the number of Class B Directors as the majority of Class B
Directors may determine from time to time; provided that for so long as (i) SKT
owns any shares of Class B Common Stock, it may elect Class B
Directors as it chooses, (ii) any other holder of Class B Common
Stock that owns at least twenty percent (20%) of the then total outstanding
shares (assuming conversion of all Class B Common Stock, Preferred Stock
and Membership Units into Class A Common Stock, Total Outstanding Shares),
two Class B Directors will be elected by such holder, and (iii) any
other holder of Class B Common Stock that owns at least ten percent (10%),
but less than twenty percent (20%) of the-then Total Outstanding Shares, one Class B
Director will be elected by such holder. 
If there is no Class B Common Stock
outstanding, there will be no Class B Directors and all directors shall be
elected by, and the number of directors shall be determined by the holders of Class A  21


HELIO,
INC. and HELIO LLC NOTES
TO COMBINED FINANCIAL STATEMENTS  10.  Capitalization
(continued)  Rights of Common Stock Holders
(continued)  Common Stock and Preferred Stock, if any, voting together as
a single class.  For so long as there are
any shares of Class B Common Stock outstanding, upon a Public Offering,
the holders of Class A Common Stock will be entitled to elect up to three (3) independent
Class A Directors as provided hereinafter. If the percentage of Class A
Common Stock held by holders, in the aggregate, other than a holder of Class B
Common Stock (or its Affiliates) is (a) greater than or equal to ten
percent (10%) of the Total Outstanding Shares, but less than or equal to twenty
percent (20%) of the Total Outstanding Shares, then the size of the Board shall
be increased to include one (1) Class A Director; (b) greater
than twenty percent (20%) of the Total Outstanding Shares, but less than or
equal to thirty-three percent (33%) of the Total Outstanding Shares, then the
size of the Board shall be increased to include two (2) Class A
Directors; and (c) greater than thirty-three percent (33%) of the Total
Outstanding Shares, then the size of the Board shall be increased to include
three (3) Class A Directors.  Each
holder of Class A Common Stock other than SKT, has entered into an
irrevocable proxy with each of the Partners, entitling each of the Partners to
vote such holders shares in any vote involving the holders of Class A
Common Stock.  In addition, with respect
to the issuance of 650,000 shares of HELIO, Inc. Class A Common Stock
to SKT, SKT entered into an irrevocable proxy with EarthLink to vote their
respective share of the SKTs 650,000 shares of Class A Common Stock so
issued in any vote involving the holders of Class A Common Stock.  In November 2007 and in conjunction with
the Second Amended and Restated Certificate of Incorporation, EarthLink entered
into a voting agreement with SKT that allows SKT to vote that number of
Earthlink proxy shares in proportion to each of the Partners respective
holdings in the Company.  The irrevocable
proxies terminate upon mutual agreement, the Companys initial public offering
or a change of control of the Company.  Formation and Capitalization of
HELIO LLC  HELIO
LLC (the Operating Company) was formed in January 2005 and was later
capitalized in March 2005 through the issuance of (i) 100,000,000
Membership Units to the Partners (50,000,000 to each Partner) in exchange for a
commitment to contribute capital equally, in the aggregate amount of $440.0
million ($220.0 million by each partner) (the Initial Partners Investment)
and (ii) 2 Membership Units to HELIO, Inc., as described below. 
The purpose of the Operating Company is to operate the Companys business, to
make additional investments and engage in such activities as the Company may
approve and engage in any and all activities and exercise any power permitted
to limited liability companies under the laws of the State of Delaware. The
Company is the sole managing partner of the Operating Company. The Operating
Company was established as a partnership for federal and state income tax
treatment.  In
November 2007, the Partners entered into an Amended and Restated Limited
Liability Company Agreement, whereby SKT agreed to convert certain secured
promissory notes (see Note 9) in the aggregate of $70.0 million plus $0.5
million of accrued interest in exchange for 23,492,592 Preferred Membership
Units at $3.00 per unit (the SKT Required Contribution); and, SKT may also
contribute up to an additional $200.0 million prior to December 31, 2009
(the SKT Contribution Right).  The SKT
Contribution Right is subject to certain terms, including but not limited to (i) the
cancellation of certain Preferred Membership Units, whereby the payment of the
SKT Required Contribution and a written commitment made by SKT to the Operating
Company and EarthLink on or before December 31, 2007 to contribute an
additional $80.0 million (of the $200.0 million SKT Contribution Right) by June 30,
2008 will result in the cancellation of 9,090,909 Preferred Membership Units
outstanding and issued to EarthLink (the Trigger Event), and (ii) the
Operating Company may not issue Preferred Membership Units at a price per share
less than $3.00 per unit, unless SKT and EarthLink agree in writing, or an
independent valuation of the Operating Company determines the fair value of the
Preferred Membership Units is less than $3.00 per unit (as defined), or an
unaffiliated third party, together with SKT, invests 50% or more of the
aggregate SKT contribution.  In December 2007,
SKT contributed an additional $30.0 million in cash in exchange for 10,000,000
Preferred Membership Units at $3.00 per unit, and provided written notice to
the Company and EarthLink, effecting the Trigger Event.  As a result of the Trigger Event,  22


HELIO,
INC. and HELIO LLC NOTES
TO COMBINED FINANCIAL STATEMENTS   10.Capitalization (continued)  Formation and Capitalization of
HELIO LLC (continued)  EarthLink
cancelled and forfeited 9,090,909 of its Preferred Membership Units (book value
of $40.0 million).  As
of December 31, 2007, the following Membership Units were issued and
outstanding by the Operating Company (in thousands, except for Membership
Units):  Member
  
  Cash Contributions
  
  Conversion of
  Secured
  Promissory
  Notes and
  Accrued
  Interest
  
  Non-cash
  Contribution(including
  EarthLink Cancelled
  Shares as a result of the
  Trigger Event)
  
  Membership
  Units Issued and
  Outstanding
  (including
  EarthLink
  Cancelled Shares
  as a result of the
  Trigger Event)
  
  Membership UnitsSKT
  
  $
  250,000
  
  $
  70,478
  
  $
  
  
  83,492,592
  
  Convertible Preferred  UnitsEarthLink
  
  180,000
  
  
  
  
  
  40,909,091
  
  Convertible Preferred  UnitsHELIO, Inc.
  
  8,152
  
  
  
  1,374
  
  5,561,274
  
  Convertible Common  UnitsTotal
  
  $
  438,152
  
  $
  70,478
  
  $
  1,374
  
  129,962,957  During
the period ended December 31, 2006 and 2007, HELIO, Inc. reinvested
approximately $9.1 million and $0.4 million, respectively, into the Operating
Company for an additional 5,337,900 and 223,372, respectively, of Convertible
Common Membership Units, of which approximately $1.4 million or 794,375
convertible common units issuance pertained to certain non-cash services by SKT
exchanged for stock by Helio, Inc. (see Note 17).  Upon
any equity investment made into the Company, such equity investment is
immediately reinvested into the Operating Company.  The 2006 Company
investments were immediately reinvested into the Operating Company and as such,
an additional 4,680,400 shares of Convertible Common Membership Units were
issued by the Operating Company for an aggregate amount of $8.0 million. 
$0.1 million was invested in the Company during 2007, which was immediately
reinvested into the Operating Company and as such, an additional 78,997 shares
of Convertible Common Membership Units were issued.  These investments, when combined, increased
the Companys effective ownership of the Operating Company to approximately
4.3% at December 31, 2007.  Through
December 31, 2007, cumulative funding and promissory notes received by the
Partners totaled $600.0 million, which was comprised of (i) $440.0 million
from the Partners Initial Investment of (comprised of $400.0 million in cash
and $40.0 million in contributed assets), (ii) $130.0 million in the form
of secured promissory notes (including the conversion of $70.0 million in
secured promissory notes and accrued interest of $0.5 million as a result of
the SKT Required Contribution), and (iii) $30.0 million from the SKT
Contribution Right.  23


HELIO,
INC. and HELIO LLC NOTES
TO COMBINED FINANCIAL STATEMENTS  10.  Capitalization
(continued)  Rights of Holders of Membership
Units  All
Membership Units are identical in all respects and entitle the holders thereof
to the same rights and privileges, and shall be subject to the same
qualifications, limitations and restrictions thereof, except as provided in the
Operating Companys Amended and Restated Limited Liability Company
Agreement.  Each Membership Units is
entitled to one vote on all matters to be voted on by the holders of Membership
Units (Members).  Holders of
Convertible Preferred Membership Units are entitled to certain preferential
rights, including but not limited to, preferences with respect to tax
allocations, distributions, and certain other preferences.  Exchange of Membership Units and
Conversion of Class B Common Stock  A
holder of Membership Units may, at the option of the holder, exchange, at any
time and from time-to-time, any or all of its Membership Units for validly
issued, fully paid and non-assessable shares of Class A Common
Stock.  The number of shares of Class A Common Stock obtained from
such an exchange of Membership Units shall be determined by multiplying the
number of Membership Units to be exchanged by the Unit Exchange Rate then in
effect.  The Unit Exchange Rate shall initially be set at one (1). 
In the event there is a stock split, dividend, combination or similar
transactions related to Class A Common Stock in which there is not an
identical dividend, distribution, combination or stock split or similar
transaction related to the Membership Units, the Unit Exchange Rate in effect
immediately after such an event shall equal the Unit Exchange Rate in effect
immediately prior to such a transaction multiplied by (i) the number of
shares of Class A Common Stock outstanding immediately after such an
event, and divided by (ii) the number of shares of Class A Common
Stock outstanding immediately prior to such an event.  At December 31,
2007, the Unit Exchange Rate then in effect was one for one.  A
holder of Class B Common stock is entitled to convert, at any time and
from time-to-time, any or all of shares of Class B Common Stock into
validly issued, fully paid and non-assessable shares of Class A Common Stock. 
The number of shares of Class A Common Stock obtained from the conversion
of Class B Common Stock shall be determined by multiplying the number of Class B
Common Stock to be exchanged by the Class B Conversion Rate then in
effect.  The Class B Conversion Rate shall initially be set at one
for one.  In the event there is a stock split, dividend, combination or
similar transactions related to Class A Common Stock, the holders of Class B
Conversion Rate in effect immediately after such an event shall equal the Class B
Conversion Rate in effect immediately prior to such a transaction multiplied by
(i) the number of shares of Class A Common Stock outstanding
immediately after such an event, and divided by (ii) the number of shares
of Class A Common Stock outstanding immediately prior to such an
event.  At December 31, 2007, the Class B Conversion Rate then
in effect was one for one.  Certain
events trigger an automatic conversion of Class B Common Stock into Class A
Common Stock, such as if a holder of Class B Common Stock, together with
its subsidiaries, ceases to own, directly or indirectly, at least ten percent
(10%) of the total outstanding shares (as defined) and, after written notice
from the other holder(s) of Class B Common Stock fails to acquire sufficient
additional Class A Common Stock, Membership Units or Class B Common
Stock, as the case may be, within thirty (30) days following receipt of such
notice to restore such holders percentage ownership of the Total Outstanding
Shares to at least ten percent (10%).  Upon such an event, the following
automatically occurs:  ·The Class B Common Stock of the party
failing to achieve the minimum ownership percentage described above (the Triggering
Party) shall convert into Class A Common Stock; ·The term of the Class B Directors
appointed by the Triggering Party shall end; ·All rights of the Triggering Party associated
with ownership of the Class B Common Stock shall terminate; and, ·Certain strategic decisions shall be made by
the remaining Class B Directors and any Class A Directors as provided
under the Certificate of Incorporation.  24


HELIO, INC. and HELIO LLC NOTES TO COMBINED FINANCIAL STATEMENTS  10.  Capitalization (continued)  In the event of any
dissolution, liquidation or winding-up of the affairs of the Company, any
assets remaining subsequent to payments or provision of any debts and other
liabilities then outstanding and after making provision for the holders of each
series of Preferred Stock, if any, and according to the terms of the Preferred
Stock, shall be divided among and paid ratably to the holders of the shares of
Common Stock or on an as-converted basis.  Upon completion of a
public offering of shares of the Companys Common Stock, the Company will
receive a number of Membership Units determined by the Unit Exchange Rate then
effect based upon the number of shares of Class A Common Stock sold in
such a public offering.  11.  Stock Compensation  HELIO, Inc. Equity Incentive Plan  In February 2006,
the Company adopted the Amended and Restated Helio, Inc. Equity Incentive
Plan, which is an amendment and restatement of the November 2005 Helio, Inc.
Equity Incentive Plan (the Plan).  The
terms of the Plan provide for grants of non-qualified stock options (NSOs)
and other stock-related awards and performance awards that may be settled in
cash, stock or other property.  Employees,
officers, directors, outside consultants and service providers are eligible for
awards under the Plan. NSOs shall have a term of no more than 10 years
from the date of grant and an exercise price of no less than the estimated fair
market value per share on the date of grant. 
Options granted to an individual who, at the time of grant of such
option, owns stock representing more than 10% of the voting power of all
classes of stock of the Company, shall have an exercise price equal to no less
than 110% of the fair market per share on the date of grant. The vesting period
for NSOs is generally four years from the date of grant, however, certain
employees were issued stock options subject to the Company achieving future,
specific member and Company financial performance milestones (the Performance
Options). The Plan is administered by the Companys board of directors. As of December 31,
2005, there was an aggregate of 10,205,000 shares of Class A Common Stock
reserved for issuance under the Plan.  In
April 2006, the board of directors and stockholders of the Company
approved a 4,000,000 share increase in the number of shares reserved for
issuance under the Plan.  As of December 31,
2007, an aggregate 14,205,000 shares of Class A Common Stock were reserved
for issuance under the Plan.  Stock-Based Compensation Before Adoption of SFAS No. 123(R)  The Companys combined
financial statements as of and for the twelve months ended December 31,
2006 and 2007 reflect the impact of FAS 123(R). Stock-based compensation
expense recognized during the twelve months ended December 31, 2006 and
2007 includes:  ·Compensation expense for stock-based
awards granted to employees subsequent to January 1, 2006 based on the
grant date fair value estimated in accordance with the provisions of FAS No. 123(R) of approximately
$0.4 million and $0.9 million, respectively; and, ·Compensation expense for stock-based
awards granted to employees prior to January 1, 2006 based on the grant
date fair value estimated in accordance with the provisions of FAS No. 123(R) of approximately
$1.0 million and $0.9 million, respectively.  25


HELIO, INC. and HELIO LLC NOTES TO COMBINED FINANCIAL STATEMENTS  11.  Stock Compensation (continued)  No income tax benefit has
been recognized relating to stock-based compensation expense and no tax
benefits have been realized from exercised stock options for the periods ended December 31,
2007, 2006 or 2005. The implementation of FAS 123(R) did not have an
impact on cash flows from financing activities during the twelve months ended December 31, 2007
or 2006.  The Company estimated the
fair value of employee time-based stock options using the Black-Scholes
valuation model. The fair value of these time-based employee stock options is
being amortized on a straight-line basis over the requisite service period of
the awards. The fair value of employee stock options was estimated using the
following weighted-average assumptions:  Period
  inception to
  December 31,
  2005
  
  Year ended
  December 31,
  2006
  
  Year ended
  December 31,
  2007Expected volatility
  
  70
  %
  70
  %
  70
  %Risk-free interest rate
  
  4
  to 5
  %
  4
  to 5
  %
  3
  to 5
  %Dividend yield
  
  0.0
  %
  0.0
  %
  0.0
  %Expected term (in years)
  
  5.0
  
  6.25
  
  6.25  In 2006 and 2007, the
Companys expected term of stock options was based upon the shortcut method
as prescribed under SAB 107 (an expected term based on the mid-point between
the vesting date and the end of the contractual term) as the Company did not
have sufficient historical information to develop reasonable expectations about
future exercise patterns and post-vesting employment termination behavior of
its employees. The use of the shortcut method is permitted through December 31,
2007.  The Company plans to convert to
company-specific experience on January 1, 2008.  The expected stock price volatility for the
Companys stock options was determined by independent valuation experts by
examining and using an average of the historical volatilities of similar
companies and industry peers as the Company did not have any trading history
for the Companys common stock. The Company will continue to analyze the
historical stock price volatility and expected term assumptions as more
historical data for the Companys common stock becomes available. The risk-free
interest rate assumption is based on the U.S. Treasury instruments whose
term was consistent with the expected term of the Companys stock options. The
expected dividend assumption is based on the Companys history and expectation
of dividend payouts. In addition, FAS 123(R) requires
forfeitures to be estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those estimates.  Forfeitures were estimated based on
historical experience and future expectations. Prior to the adoption of
FAS 123(R), the Company accounted for forfeitures as they occurred.  During the periods ended December 31,
2005, 2006 and 2007, the Company granted certain employee Performance Options
of 2,725,000, 75,000 and 549,500, respectively. 
During 2005, 2006 and 2007, 0, 100,000 and 357,000, respectively of the
Performance Options were forfeited.  As
prescribed under FAS 123(R), the Company accounts for its Performance Options
based upon the probability of achieving the specific Performance Options milestones.  For the periods ended December 31, 2007,
2006 and 2005, the certainty of achieving the Performance Options milestones,
which was performed by an independent financial valuation expert, was deemed
less than probable (probable being defined as the likelihood of achieving such
Performance Options milestones under FAS 123(R)), and accordingly there was no
related compensation expense recorded for these Performance Options during
these periods.  The Company will continue
to evaluate the probability of achieving these Performance Options milestones
and as a result, additional stock compensation expense pertaining to these
Performance Options may be recorded in future periods.  26


HELIO, INC. and HELIO LLC NOTES TO COMBINED FINANCIAL STATEMENTS  11.  Stock Compensation (continued)  The table below reflects
the pro forma net loss (and net loss per share) for the period inception to December 31,
2005 (in thousands):  Inception
  (January 27,
  2005) to
  December 31,
  2005Net loss, as reported
  
  $
  (42,023
  )Add: stock-based compensation included in net loss under the
  intrinsic method
  
  43Less: stock-based compensation expense determined under the fair
  value based method for all awards
  
  (891
  )Net loss, pro forma
  
  $
  (42,871
  )  The weighted average deemed
fair value of employee time-vested stock options outstanding was $1.15, $1.16
and $0.96 per share for the periods ended December 31, 2005, 2006, and
2007, respectively. The fair value of these options was estimated at the date
of grant using the Black-Scholes option-pricing model using the same weighted
average assumptions in the above table accordance with the requirements of FAS
123(R) and SAB No. 107, Share-Based
Payment.  Put Option  The Company
provides each employee who was granted stock options (an Optionee) a put
option (the Put), whereby the Optionee has the right to sell any vested
options and vested shares of stock issued pursuant to the exercise of stock
options (the Vested Shares) to the Company at any time after March 31,
2010 (the Put Initiation Date), provided the following conditions are met
(collectively, the Triggering Events):  (i)the Operating Company shall have or
exceed 3.3 million active members; and, (ii)the Operating Company must have been
profitable for at least two (2) consecutive quarters commencing with the
quarter ending December 31, 2009; and (iii)the
fair value of the Operating Companys assets must exceed the amount of the
Operating Companys liabilities, as defined in the agreement.  If an Optionee so
desired to exercise their Put up to the Put Initiation Date and all of the
Triggering Events were met, the purchase price of the Vested Shares shall be
based on a valuation of the Company as calculated by a third party appraisal
firm designated by the Companys board of directors.  As of December 31,
2005, 2006 and 2007, the likelihood of the Triggering Events occurring within
the Put Initiation Date were not certain and accordingly, the Vested Shares
under the Put are included in the equity section of the Companys balance
sheets for these periods.  However, as
facts and circumstances change and it is deemed that the likelihood of the
Triggering Events occurring within areasonable period is deemed probable, as defined under
FAS 123(R),  the Company would be required
to reclassify such Vested Shares from equity to a liability at such time (on a
grant-by-grant basis).  27


HELIO, INC. and HELIO LLC NOTES TO COMBINED FINANCIAL STATEMENTS  11.  Stock Compensation (continued)  Stock Option Activity  The following table
summarizes information about stock option activity from January 27, 2005
(date of inception) through December 31, 2007 (in thousands, except price
per share and remaining contractual life):  Options Outstanding and Exercisable
  
  Options VestedNumber of
  Options
  Outstanding
  
  Range of
  Exercise
  Price Per
  Share
  
  Weighted
  Average
  Exercise
  Price Per
  Share
  
  Weighted-
  Average
  Remaining
  Contractual
  Life
  (in Years)
  
  Number
  Vested
  
  Weighted
  Average
  Exercise
  Price Per
  ShareJanuary 27, 2005 (inception)
  
  
  
  $
  
  $
  Granted
  
  7,236
  
  1.71
  
  1.71Exercised
  
  
  
  
  
  Forfeited
  
  (86
  )
  1.71
  
  1.71Balance at December 31, 2005
  
  7,150
  
  $1.71
  
  $
  1.71
  
  9.88
  
  
  
  $
  1.71Granted
  
  2,723
  
  $1.71$1.82
  
  1.75Exercised
  
  (8
  )
  $1.71
  
  1.71Forfeited
  
  (1,623
  )
  $1.71$1.82
  
  1.71Balance at December 31, 2006
  
  8,242
  
  $1.71$1.82
  
  $
  1.72
  
  9.04
  
  1,391
  
  $
  1.72Granted
  
  3,951
  
  $1.82
  
  1.82Exercised
  
  (78
  )
  $1.71$1.82
  
  1.71Forfeited
  
  (2,057
  )
  $1.71$1.82
  
  1.75Balance at December 31, 2007
  
  10,058
  
  $1.71$1.82
  
  $
  1.75
  
  8.07
  
  2,345
  
  $
  1.72  The following table
summarizes the Company's non-vested stock option activity from the period
inception to December 31, 2007 (in thousands, except price per share and
remaining contractual life): Shares
  
  Weighted
  Average
  Exercise
  Price Per
  ShareOptions Granted
  
  13,910
  
  1.75Vested
  
  (2,355
  )
  1.72Forfeited
  
  (3,766
  )
  1.73Non-vested at December 31, 2007
  
  7,789
  
  1.76  As of December 31, 2007, there was approximately $3.5 million of total
unrecognized compensation cost related to non-vested shares, which is expected
to be recognized over a weighted average period of approximately
2.7 years.  12.  Warrants  In November 2005 and
in conjunction with certain services to be provided to the Company over a four
year period beginning in November 2005 (the SKTI Service Agreement), the
Company issued ten-year warrants to SK Telecom International, Inc. (SKTI),
a related party and affiliate of SK Telecom Co., Ltd., to purchase (i) an
aggregate 1,995,000 shares of the Companys Class A Common Stock (the November 2005
Warrant) at an exercise price of $1.71 per share and (ii) an aggregate
1,800,000 shares of the Companys Class A Common Stock (the Performance
Warrant) at an exercise price of $1.71 per share.  The November 2005 Warrant vests over the
term of the four year SKTI Service Agreement at the rate of 25% each year.  The Performance Warrant
is exercisable under the following performance conditions:  ·One-third (1/3) of the Performance Warrant Shares may
be purchased upon the attainment of the Operating Company of one million
(1,000,000) members; ·An additional one-third (1/3) of the Performance
Warrant Shares may be purchased upon the attainment of the Operating Company of
two million five hundred thousand (2,500,000) members; and, ·The remaining one-third (1/3) of the Performance
Warrant Shares may be purchased upon the attainment by the Operating Company of
two million five hundred thousand (2,500,000) members and at least two (2) consecutive
quarters of positive cash flows.  28


HELIO, INC. and HELIO LLC NOTES TO COMBINED FINANCIAL STATEMENTS  12. 
Warrants (continued)  In October 2006 and
in conjunction with the SKTI Service Agreement, the Company issued a ten-year
warrant to SKTI to purchase 65,000 shares of the Companys Class A Common
Stock at $1.82 per share (the October 2006 Warrant).  The October 2006 Warrant vests over four
years at the rate of 25% each year beginning in October 2006.  In January 2007 and
in conjunction with certain services to be provided to the Company over a four
year period beginning in January 2007, the Company issued ten-year
warrants to SKTI to purchase 105,000 shares of the Companys Class A
Common Stock (the 2007 Performance Warrant) at an exercise price of $1.82 per
share.  The 2007 Performance Warrant is
exercisable under the same terms as the Performance Warrant.  In January 2007, the
Company amended its wireless network services agreement (the Amended Wireless
Network Services Agreement).  In
exchange for the Amended Wireless Network Services Agreement, the Company
issued a ten-year warrant to an outside service provider to purchase 2,348,883
fully vested shares of the Companys Class A Common Stock at an exercise
price of $10.00 per share.  In December 2007 and
in conjunction with the SKTI Service Agreement, the Company issued a ten-year
warrant to SKTI to purchase 407,250 shares of the Companys Class A Common
Stock at $1.82 per share (the December 2007 Warrant).  The December 2007 Warrant vests over
four years at the rate of 25% each year beginning in December 2007.  The Company accounts for
its warrants under EITF 96-18 using the fair value provisions of FAS
123(R).  Under EITF 96-18, the warrants
were valued using the Black-Scholes valuation model and as applicable, the
measurement of expense was subject to periodic mark-to-market adjustments in
each reporting period.   The deemed fair
value of its warrants was calculated with the following assumptions:  Risk-free interest rate
  
  3%-5
  %Expected life in years
  
  5.00-6.25Dividend yield
  
  0
  %Expected volatility
  
  70
  %  During the periods ended December 31,
2005, 2006 and 2007, the Company recognized expense of approximately $0.0
million, $0.6 million and $0.6 million, respectively related to warrants
issued.  During the periods ended December 31,
2005, 2006 and 2007, no expense was recognized for the Performance Warrants as
the likelihood of reaching performance criteria was deemed to be less than
probable. The weighted average deemed fair value of warrants granted for the
periods ended December 31, 2005, 2006 and 2007 was $1.04, $1.25 and $0.36
per share, respectively.  The weighted average
exercise prices and the weighted average remaining contractual life for
warrants issued as of December 31, 2007 were as follows (in thousands):  Warrants Outstanding
  
  Warrants ExercisableWeightedAverage
  
  Weighted
  
  
  
  WeightedRemaining
  
  Average
  
  
  
  AverageNumber
  
  Contractual
  
  Exercise
  
  Number
  
  ExerciseExercise Price
  
  Outstanding
  
  Life
  
  Price
  
  Exercisable
  
  Price$1.71 - $10.00
  
  6,721
  
  8.46
  
  $
  4.62
  
  3,363
  
  $
  7.50  29


HELIO, INC. and HELIO LLC NOTES TO COMBINED FINANCIAL STATEMENTS  13.  Income Taxes  HELIO LLC is not a
taxable entity for federal income tax purposes. 
The allocable share of HELIO LLCs taxable income or loss is included in
its members federal and state income tax returns based upon their respective
ownership interests.  The Companys
information below is prepared based on HELIO, Inc.s effective ownership
interest in HELIO LLC and to the extent that certain states impose income taxes
upon non-corporate legal entities these taxes are also reflected below.  The Company records a
provision (benefit) for federal and state income taxes and generally recognizes
deferred tax assets and liabilities based on differences between the financial
reporting and tax bases of assets and liabilities, applying enacted statutory
rates.  Pursuant to the provisions of
Statement of Financial Accounting Standards No. 109,Accounting For Income Taxes (SFAS 109),
the Company provides valuation allowances for deferred tax assets for which it
does not consider realization of such assets to be more likely than not.  Pursuant to the HELIO LLC
Membership Agreement (the Membership Agreement), losses generated by HELIO
LLC are generally allocated in the following order: (i) to holders of
HELIO LLC Convertible Common Membership units up to member(s) capital account
balance(s), without creating a deficit in the member(s) capital account;
and, (ii) to holders of HELIO LLC convertible preferred membership units
up to member(s) capital account balance(s) and in proportion to their
respective interest, without creating a deficit in the members capital
account.   Under the Membership
Agreement, profits generated by HELIO LLC are generally allocated first to the
holders of Preferred Membership Units to the extent of prior losses, and second
to the holders of Convertible Common Membership units to the extent of prior
losses.  As a result of the Membership
Agreement, HELIO, Inc. was allocated losses from HELIO LLC up to its
investment in HELIO LLC.  For the periods
ended December 31, 2005, 2006 and 2007, the Company was allocated
approximately $0.0 million, $9.1 million and $0.4 million of the income tax
losses generated by HELIO LLC, respectively.  The Company has not recorded any portion of
the deferred taxes attributable to HELIO LLC as it is not presently expected
that any portion of such amounts will be allocated to the Company pursuant to
the terms of the Membership Agreement.  The significant
components of the Companys deferred tax assets and liabilities are as follows
(in thousands):  December 31,
  2006
  
  December 31,
  2007Deferred income tax assets:Tangible and intangible assets
  
  18
  
  17Net operating loss carryforwards
  
  3,802
  
  3,963Less: valuation allowance
  
  (3,820
  )
  (3,980
  )Total deferred income tax assets
  
  $
  
  
  $
    A reconciliation of the
income tax provision (benefit) computed by applying the U.S. federal statutory
rate of 35% to the loss before income taxes and actual income tax expense
(benefit) for the years ending December 31, 2006 and 2007 was as follows:  December 31,
  2006
  
  December 31,
  2007Federal income tax rate
  
  (35.0
  )%
  (35.0
  )%State taxes, net of federal benefit
  
  (5.7
  )%
  (5.7
  )%Effect of partner allocations and other permanent items
  
  38.7
  %
  40.6
  %Change in valuation allowance
  
  2.0
  %
  0.1
  %Total
  
  
  %
  
  %  30


HELIO, INC. and HELIO LLC NOTES TO COMBINED FINANCIAL STATEMENTS  13.  Income Taxes (continued)  At December 31,
2007, the Company had federal and state net operating loss carry forwards of
approximately $9.7 million, which begin to expire on December 31, 2015 for
state purposes and December 31, 2025 for federal tax purposes.  The Company adopted the
provisions of FIN 48 on January 1, 2007. 
The cumulative effect at adoption of this interpretation did not result
in any adjustment to retained earnings. 
At January 1, 2007 and at December 31, 2007, the Company had
no unrecognized tax benefits for purposes of this pronouncement.  The Companys accounting
policy is to recognize interest and penalties related to unrecognized tax
benefits in income tax expense.  At December 31,
2007, the Company had no accrued interest or penalties related to unrecognized
tax benefits.  The Company files income
tax returns in the U.S. and in various state and local jurisdictions.  The Company is subject to U.S. federal and
state income tax examinations by the taxing authorities in all of these
jurisdictions for the years ended December 31, 2005 through December 31,
2007.  No examinations are currently in
process.  The Company does not
expect the amount of its unrecognized tax benefits to significantly increase
within the next twelve months.  14.  Financial Instruments and Concentration of
Risk  The carrying amounts of
cash and cash equivalents, accounts receivable, subscriptions receivable,
prepaid expenses, other current assets and accounts payable are reasonable
estimates of their fair value due to the short-term nature of these
instruments.  The majority of the
Companys wireless airtime services are leased from a third party wireless
network provider.  Any disruption of this
service would have an adverse impact on the Companys member experience and
ongoing operating results.  15.  Commitments and Contingencies  Leases  The Company leases
certain of its facilities and equipment under non-cancelable operating leases
expiring in various years through 2012. The leases generally contain annual
escalation provisions as well as renewal options. The total amount of rental
payments, net of allowances and incentives, is being charged to expense using
the straight-line method over the terms of the leases. In addition to the
rental payments, the Company generally pays a monthly allocation of the
buildings operating expenses. Total rental expense in the periods ended December 31,
2005, 2006 and 2007 for all operating leases amounted to $0.9 million, $3.7
million and $7.5 million, respectively.  31


HELIO, INC. and HELIO LLC NOTES TO COMBINED FINANCIAL STATEMENTS  15.  Commitments and Contingencies (continued)  Leases (continued)  As of December 31,
2007, minimum lease commitments under non-cancelable leases, including office
space, company-owned retail store leases and equipment, are as follows (in thousands):  OperatingLeasesYear Ending December 31:2008
  
  7,9002009
  
  7,0922010
  
  5,1502011
  
  2,0112012
  
  1,954Thereafter
  
  6,088Total minimum future lease payments
  
  $
  30,195  Litigation  From time-to-time, the
Company is involved in litigation relating to claims arising in the normal
course of business. The Company does not believe that any currently pending or
threatened litigation will have a material adverse effect on the Companys
results of operations or financial condition.  16.  401K Plan  The Company has a defined
contribution profit sharing plan covering all full-time employees. Employees
may make pre-tax contributions up to the maximum allowable by the Internal
Revenue Code.  Participants vest in their
employee contributions at the rate of 25% per year beginning at a participants
hire date (as defined).  Employer
contributions of approximately $0.1 million, $0.4 million and $0.7 million were
made to the plan for the periods ended December 31, 2005, 2006 and 2007,
respectively.  17.  Related Party Transactions  The Partners provided
aggregate funding of $204.0 million in cash and $40.0 million in contributed
assets during the period ended December 31, 2005, and aggregate funding of
$157.0 million during the period ended December 31, 2006 to the
Company.  During the period ended December 31,
2007, the Partners provided $39.0 million in cash under the initial
contribution agreement, an aggregate principal amount of $130.0 million under
convertible promissory notes in favor of the Partners, of which $70.0 million
of principal convertible promissory notes was converted into preferred
membership units (see Note 9), and $30.0 million in exchange for preferred
membership units at $3.00 per unit (see Note 10).  In March 2005,
EarthLink and the Company entered into a Master Software Development, Software
License and Services Agreement pursuant to which EarthLink provides the Company
various software development, software license and support services in exchange
for management fees.  The management fees
were determined based on EarthLinks costs to provide such services, and
management believes such fees were reasonable. 
Fees for services provided by EarthLink are reflected in the Companys
statements of operations for the periods ended December 31, 2005, 2006 and
2007 and totaled $3.0 million, $2.3 million, and $1.5 million, respectively.  32


HELIO, INC. and HELIO LLC NOTES TO COMBINED FINANCIAL STATEMENTS  17.  Related Party Transactions (continued)  During the periods ended December 31,
2005, 2006 and 2007, EarthLink purchased wireless devices and services from the
Company.  Fees received from such
products and services are included in the Companys statements of operations
and were $0.9 million for each of the three years ended December 31, 2007.  At December 31, 2006
and 2007 the Company had net payable balances of approximately $0.8 million and
$0.2 million, respectively, outstanding and due to EarthLink.  In March 2005, SKT
and the Company entered into a Master Software Development, Software License
and Services Agreement (the Master Agreement) pursuant to which SKT provides
the Company various software development, software license and support services
in exchange for management fees.  In August 2005,
the Operating Company entered into a software license and services agreement
with SKT for the installation and subsequent licensing of the Companys
wireless data platform and terminal systems pursuant to the Master Agreement
(the Wireless Internet Order). 
Effective October 2005, the Operating Company entered into an
amendment to the Wireless Internet Order (the WI Amendment).  Aggregate fees under the Wireless Internet
Solution Agreement and the WI Agreement were $10.7 million, of which $7.5
million and $3.2 million were paid to SKT during the periods ended December 31,
2005 and 2006 respectively.  Services
under the Wireless Internet Agreement and the WI Agreement commenced in August 2005
and were principally being capitalized as equipment additions as prescribed
under SOP 98-1.  At December 31,
2006, gross capitalized costs of $10.7 million associated with the Wireless
Internet Agreement and the WI Agreement were included in property and equipment
on the Companys balance sheets.  In August 2005, the
Operating Company entered into a software license and services agreement with
SKT for the installation and subsequent licensing of the Companys Customer
Care and Billing System (CCBS) pursuant to the Master Agreement (the CCBS
Order).  Effective October 2005,
the Operating Company entered into an amendment to the CCBS Order (the CCBS
Amendment).  Aggregate fees under the
CCBS Order and CCBS Agreement were $14.1 million, of which $4.2 million, $5.7
million and $4.2 million were paid to SKT during the periods ended December 31,
2005, 2006 and 2007, respectively.  Services
under the CCBS Order and CCBS Agreement commenced in August 2005 and were
principally being capitalized as equipment additions as prescribed under SOP
98-1.  At December 31, 2006 and
2007, gross capitalized costs of $14.1 million and $14.1 million, respectively,
associated with the CCBS Order and CCBS Agreement were reflected in property
and equipment on the Companys balance sheets.  Effective May 2006,
the Operating Company entered into a technical system support and services
agreement with SKT whereby SKT would provide technical and system operational
support on CCBS beginning in May 2006 through December 2006 for an
aggregate fee of $1.7 million (the May 2006 Agreement).  The aggregate $1.7 million in fees for
services under the May 2006 Agreement are included in the Companys
statements of operations for the period ended December 31, 2006, of which
$1.3 million and $0.4 million were paid to SKT during the periods ended December 31,
2006 and 2007 respectively.  Effective August 2006,
the Operating Company entered into a change request agreement with SKT whereby
SKT expanded the scope of technical functionality to the CCBS system under the
then-existing Order, as amended, for an aggregate fee of $2.5 million (the CCBS
1.0 Change Request).  The Company
accounted for the CCBS 1.0 Change Request under SOP 98-1 and capitalized costs
of $2.5 million were included in property and equipment on the Companys
balance sheet at December 31, 2006 and 2007, of which $2.5 million was
paid to SKT during the period ending December 31, 2007.  33


HELIO, INC. and HELIO LLC NOTES TO COMBINED FINANCIAL STATEMENTS  17.  Related Party
Transactions (continued)  Effective August 2006,
the Operating Company entered into a change request agreement with SKT whereby
SKT expanded the scope of technical functionality under the then-existing
Wireless Internet Agreement for an aggregate fee of $5.9 million (the Wireless
Internet 1.0 Agreement).  Services under
the Wireless Internet 1.0 Agreement were completed in December 2006. The
Company accounted for the Wireless Internet 1.0 Agreement under SOP 98-1 and
FAS 86, whereby capitalized costs of $2.8 million were reflected in property
and equipment on the Companys balance sheet at December 31, 2006 and the
remaining amount of $3.1 million was charged to expense during the year ended December 31,
2006.  $5.9 million was paid to SKT
during the period ending December 31, 2007.  Effective August 2006,
the Operating Company entered into a master services and software license
agreement with an affiliate of SKT for added functionality and enhancement
around its original CCBS Agreement (the CCBS 2.0 Agreement).  Aggregate fees under the CCBS 2.0 Agreement
were $2.1 million and services began in September 2006 and continued into
early 2007.  The CCBS 2.0 Agreement was
principally being capitalized as equipment additions as prescribed under SOP
98-1.  At December 31, 2006 and 2007
capitalized costs of $1.7 and $2.1 million, respectively, associated with the
CCBS 2.0 Agreement were included in property and equipment on the Companys
balance sheets.  During the period ending
December 31, 2007, $2.1 million of the CCBS 2.0 Agreement fees has been
paid.  In December 2005,
the Operating Company entered into a sales agreement with SKT authorizing SKT
to serve as an agent of the Operating Company for the purposes of selling
wireless devices in Korea (the SKT Bounty Agreement).  Under the SKT Bounty Agreement, SKT earns a
commission ranging from $50 to $125 for each device sold.  Fees earned by SKT under the SKT Bounty Agreement
were less than $0.1 million in 2006 and $0.2 million in 2007.  In March 2006, the
Operating Company contracted with SKT to provide a four-year agreement for
international telecommunications services, whereby the Operating Company is
required to pay to SKT for service usage (the SKT Telink Agreement).  In return for entering into the SKT Telink
Agreement, SKT provided the Operating Company an aggregate credit in the amount
of $0.3 million, which is being recognized straight-line through December 2009.  As of December 31, 2007, $0.1 million
has been credited by SKT under this agreement. 
Costs incurred under this agreement, net of the credits discussed above,
were $0.1 million and $2.2 million in 2006 and 2007, respectively.  In April 2006, the
Operating Company and SKT entered into a content license agreement whereby SKT
agreed to license certain content and provide services related thereto covering
the period April 2006 through December 2006 (the SKT Content
Agreement).  In December 2006, the
Operating Company and SKT entered into Amendment Number 1 to the SKT Content
Agreement pursuant to which SKT agreed to provide additional content to the
Operating Company in exchange for an additional monthly fee.  In January 2007, the Operating Company
and SKT entered into Amendment Number 2 to the SKT Content Agreement Aggregate
pursuant to which SKT agreed to provide additional content to the Operating
Company in exchange for an additional monthly fee as well as monthly minimum
fees. Fees paid and incurred under the SKT Content Agreement, as amended, were
approximately $0.2 million and $0.4 million in 2006, and $0.3 million and $0.1
million in 2007, respectively.  In August 2006, the
Operating Company entered into a services agreement with SKT to provide various
professional services and operational support activities covering the period October 2005
through December 2006 (the SKT Services Agreement).  In exchange for the SKT Services Agreement,
the Company issued SKT 650,000 shares of the Companys Class A Common
Stock in the fourth quarter of 2006.  The
aggregate value of the 650,000 shares was valued at $1.1 million and was
charged to expense during 2006 as the underlying services were completed in
2006.  In June 2007, the Operating
Company and SKT entered into Amendment Number 1 to the SKT Services Agreement
pursuant to which SKT agreed to provide the same services through December 2007
(with automatic 1-year renewals), in exchange for shares of the Companys Class A
Common Stock.  144,375 shares of the Companys
Class A Common Stock having an aggregate value of approximately $0.3
million was issued in the second quarter of 2007 and charged to expense during
2007 as the underlying services were provided.  34


HELIO, INC. and HELIO LLC NOTES TO COMBINED FINANCIAL STATEMENTS  17.  Related Party
Transactions (continued)  In December 2006,
the Operating Company and SKT entered into a terminal services agreement
whereby SKT agreed to provide certain software development, delivery and
support pertaining to device-specific services to be marketed or otherwise sold
to the Companys end members (the Terminal Services Agreement).  Aggregate fees under the Terminal Services
Agreement were $3.1 million, which include ongoing software and related device
support and troubleshooting for two years beginning in March 2007.  Payment terms under the Terminal Services
Agreement included $2.5 million due upon execution and the remaining $0.7
million due in February 2007. 
Services under the Terminal Services Agreement were completed as of December 31,
2006 and accounted for under FAS 86.  $3.1
million of fees under the Terminal Services Agreement were paid during the
period ending December 31, 2007.  In January 2007, the Operating Company and Cyworld entered into an
agreement whereby Cyworld agreed to provide development for a mobile version of
the Cyworld Korea service application to be offered on devices by the Company
(the Agreement). Aggregate fees including initial development costs and
monthly operation fee the under the Agreement were $0.3 million, which was paid
and charged to expense in 2007.  In March 2007, the
Operating Company and SKT entered into a technical support agreement whereby
SKT would provide technical and system operational support on CCBS, beginning
in January 2007 and continuing through December 2007, for an
aggregate fee of $1.6 million (the March 2007 Agreement).  The aggregate $1.6 million in fees for
services under the March 2007 Agreement are included in the Companys
statements of operations for the period ended December 31, 2007, of which
$1.2 million was paid to SKT during the period ended December 31, 2007.  In June 2007, the
Operating Company and SKT entered into a development agreement whereby SKT
agreed to provide certain software development for a mobile web browser
diagnostic tool to be used by the Company (the Development Agreement).  Aggregate fees under the Development
Agreement were $0.1 million, which was paid and charged to expense in 2007.  In June 2007, the
Operating Company and SKT entered into a services agreement whereby SKT would
provide consulting support on the design of the Companys electronic data
warehouse beginning in June 2007 and continuing through August 2007
for an aggregate fee of $0.1 million (the Data Warehouse Consulting Agreement).
 The aggregate $0.1 million in fees for
support under the Data Warehouse Consulting Agreement are included in the
Companys statements of operations for the period ended December 31, 2007,
all of which was paid to SKT during the period ended December 31, 2007.  Effective June 2007,
the Operating Company entered into a services and software license agreement
with an affiliate of SKT for added functionality and enhancement around its
original CCBS Agreement (the CCBS 3.0 Agreement).  Aggregate fees under the CCBS 3.0 Agreement
were $1.6 million and services began in the second quarter of 2007 and
continued into the third quarter of 2007. 
The CCBS 3.0 Agreement was principally being capitalized as equipment
additions as prescribed under SOP 98-1. 
At December 31, 2007 capitalized costs of $1.6 million associated
with the CCBS 3.0 Agreement were included in property and equipment on the
Companys balance sheets.  During the
period ending December 31, 2007, $0.5 million of the CCBS 3.0 Agreement
fees had been paid.  In July 2007, the
Company entered into two separate $30.0 million convertible notes payable agreements
with EarthLink and SKT.  Both notes are
exchangeable at anytime prior to the maturity date for preferred membership
units in the Company. The conversion may be for the full note amount, or
portion thereof, and may include accrued and unpaid interest amounts.  The
initial exchange price is $3.00 per membership unit and is subject to periodic
adjustment by the Company under certain circumstances (as defined).  In addition, the Company is entitled to make
reductions of the exchange price in certain circumstances, as defined in the
note agreement.  As of December 31,
2007, the convertible notes payable plus accrued interest was $62.6 million.
See Note 9 for additional information.  Effective September 2007,
the Operating Company entered into a services and software license agreement
with an affiliate of SKT for added functionality and enhancement around its
original CCBS Agreement (the CCBS 4.0 Agreement).  Aggregate fees under the CCBS 4.0 Agreement
were $0.9 million and services began in the third quarter of 2007 and continued
through the fourth quarter of 2007.  The
CCBS 4.0 Agreement was principally being capitalized as equipment additions as
prescribed under SOP 98-1.  At December 31,
2007 capitalized costs of $0.9 million associated with the CCBS 4.0  35


HELIO, INC. and HELIO LLC NOTES TO COMBINED FINANCIAL STATEMENTS  17.  Related Party
Transactions (continued)  Agreement were included
in property and equipment on the Companys balance sheets.  During the period ending December 31,
2007, no fees related to CCBS 4.0 have been paid.  In September 2007,
the Company issued a convertible promissory note agreement in the principal
amount of $30.0 million in favor of SKT (the SKT September 2007
Convertible Note).  The SKT September 2007
Convertible Note bears interest at the rate of 10% per year, is exchangeable
into preferred membership units and matures in July 2010.  In November 2007,
the Company issued convertible promissory notes in the principal amounts of
$40.0 million in favor of SKT (the SKT November 2007 Convertible Note).  Terms of the SKT November 2007
Convertible Notes were the same as the SKT September 2007 Convertible
Notes.  In November 2007, the SKT November 2007
Convertible Notes as well as the SKT September 2007 Convertible Notes in
the principal amount of $70.0 million and accrued interest of $0.5 million were
exchanged for 23,492,592 preferred membership units at an exchange rate of
$3.00 per unit. See Note 10 for additional information.  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
where immediately cancelled by the Company).  In December 2007,
SKT contributed $30.0 million in cash in exchange for 10,000,000 Preferred
Membership Units at $3.00 per unit.  18.  Restructuring  In August 2007, the
Companys Board of Directors formally approved a restructuring plan to reduce
the Companys cost structure (the Restructuring).  In conjunction with the Restructuring and as
prescribed by Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities,
the Company recorded a $2.4 million restructuring charge to operations in 2007
consisting of $2.0 million of employee related costs and $0.4 million of
facility related costs.  The Company has
accrued $0.2 million of lease costs at December 31, 2007 for facility
costs to be paid out over the course of the related lease terms.  19.  Subsequent Events
(unaudited)  In
January 2008, the Company entered into an agreement with a third party
(the Sale Agreement).  Under the Sale
Agreement, the Company sold certain propriety naming rights in exchange for
waived service fees and a warrant to purchase stock in a third party.  The value of the Sale Agreement was accounted
for under Accounting Principle Board No. 29, Non-monetary
Exchanges and deemed to be approximately $0.5 million.  In
January 2008,the
Companys Chief Executive Officer, who also is a board member of EarthLink and
the Company, was named Chairman of the
Board and replaced as the Companys Chief Executive Officer.  The terms of this transition are being
negotiated by the parties, but the Company anticipates it will owe its former
Chief Executive Officer approximately $0.6 million in transition expenses
throughout the year ended December 31, 2008, as well as extending the
period of time in which the Companys former Chief Executive Officer may
exercise certain stock options which accelerated upon the Transition Event. In
addition and as part of the Transition Event, the Companys former Chief
Executive Officer received a grant of stock options to purchase up to 1.5
million shares of Class A Common Stock of Helio, Inc., subject to certain
vesting requirements.  In February 2008,
SKT contributed $20 million in cash in exchange for 6,666,666 Preferred
Membership Units at $3.00 per unit.  36


HELIO, INC. and HELIO LLC NOTES TO COMBINED FINANCIAL STATEMENTS  20.  Reconciliation of HELIO, Inc. and HELIO
LLC (Summarized Financial Data)  As discussed more fully
in Note 1, the combined financial statements include the accounts of HELIO, Inc.
and HELIO LLC.  The following presents
the summarized balance sheets and statements of operations for HELIO, Inc.
and HELIO LLC on a stand-alone basis, and any adjustments required to combine
the entities as presented at and for the periods ended December 31, 2005,
2006 and 2007 (in thousands):  At and for the period inception (January 27, 2005) to December 31, 2005CombinedHELIO LLC
  
  HELIO, Inc.
  
  Adjustments
  
  HELIO, Inc.Total assets
  (less due from HELIO, Inc.)
  
  $
  223,947
  
  $
  
  
  $
  
  
  $
  223,947Due from
  HELIO, Inc.
  
  50
  
  
  
  (50
  )(a)
  Total
  assets
  
  $
  223,997
  
  $
  
  
  $
  (50
  )
  $
  223,947Total liabilities
  (less due to HELIO LLC)
  
  $
  20,306
  
  $
  
  
  $
  
  
  $
  20,306Due to HELIO
  LLC
  
  
  
  50
  
  (50
  )(a)
  Total
  liabilities
  
  $
  20,306
  
  50
  
  (50
  )
  20,306Stockholders
  and partners equity
  
  203,691
  
  $
  (50
  )
  
  
  203,641Total
  liabilities and stockholders and partners equity
  
  $
  223,997
  
  $
  
  
  $
  (50
  )(a)
  $
  223,947Net
  Loss
  
  $
  (41,973
  )
  $
  (50
  )
  $
  
  
  $
  (42,023
  )  
 (a)Adjustments represent the
elimination of costs incurred by HELIO, Inc., which are largely for
Delaware state franchise taxes that was subsequently paid for by HELIO LLC on
behalf of HELIO, Inc.  37


HELIO, INC. and HELIO LLC NOTES TO COMBINED FINANCIAL STATEMENTS  20.  Reconciliation of HELIO, Inc. and HELIO
LLC (Summarized Financial Data) (continued)  At and for the year ended December 31, 2006CombinedHELIO LLC
  
  HELIO, Inc.
  
  Adjustments
  
  HELIO, Inc.Total assets
  (less due from HELIO, Inc.)
  
  $
  264,970
  
  $
  9,127
  
  $
  (9,127
  )(b)
  $
  264,970Due from
  HELIO, Inc.
  
  197
  
  
  
  (197
  )(a)
  Total
  assets
  
  $
  265,167
  
  $
  9,127
  
  $
  (9,324
  )
  $
  264,970Total
  liabilities (less due to HELIO LLC)
  
  $
  83,742
  
  $
  
  
  $
  
  
  $
  83,742Due to HELIO
  LLC
  
  
  
  197
  
  (197
  )(a)
  Total
  liabilities
  
  83,742
  
  197
  
  (197
  )
  83,742Stockholders
  and partners equity
  
  181,425
  
  $
  8,930
  
  (9,127
  )(b)
  181,228Total
  liabilities and stockholders and partners equity
  
  $
  265,167
  
  $
  9,127
  
  $
  (9,324
  )(b)
  $
  264,970Net
  Loss
  
  $
  (191,558
  )
  $
  (197
  )
  $
  
  
  $
  (191,755
  )  
 (a)Adjustments represent the
elimination of costs incurred by HELIO, Inc., which are largely for
Delaware state franchise taxes that was subsequently paid for by HELIO LLC on
behalf of HELIO, Inc. (b)Adjustment represents the elimination of HELIO, Inc.s
investment in HELIO LLC. (less than $0.1 million at December 31, 2005)  38


HELIO, INC. and HELIO LLC NOTES TO COMBINED FINANCIAL STATEMENTS  20.  Reconciliation of HELIO, Inc. and HELIO
LLC (Summarized Financial Data) (continued)  At and for the year ended December 31, 2007CombinedHELIO LLC
  
  HELIO, Inc.
  
  Adjustments
  
  HELIO, Inc.Total assets
  (less due from HELIO, Inc and HELIO LLC respectively.)
  
  $
  170,073
  
  $
  9,526
  
  $
  (9,526
  )(d)
  $
  170,073Due from
  HELIO, Inc.
  
  373
  
  
  
  (373
  )(c)
  Due from HELIO
  LLC.
  
  
  
  62,642
  
  (62,642
  )(e)
  Total
  assets
  
  $
  170,446
  
  $
  72,168
  
  $
  (72,541
  )
  $
  170,073Total
  liabilities (less due to HELIO, Inc and Helio LLC respectively)
  
  $
  108,929
  
  $
  62,642
  
  $
  (62,642
  )(e)
  $
  108,929Due to Helio,
  Inc
  
  62,642
  
  
  
  
  
  62,642Due to HELIO
  LLC
  
  
  
  373
  
  (373
  )(c)
  Total liabilities
  
  171,571
  
  63,015
  
  (63,015
  )
  171,571Stockholders
  and partners equity
  
  (1,125
  )
  9,153
  
  (9,526
  )(d)
  (1,498
  )Total
  liabilities and stockholders and partners equity
  
  $
  170,446
  
  $
  72,168
  
  $
  (72,541
  )
  $
  170,073Net
  Loss
  
  $
  (326,387
  )
  $
  (175
  )
  $
  
  
  $
  (326,562
  )  
 (c)Adjustments represent the
elimination of costs incurred by HELIO, Inc., which are largely for
Delaware state franchise taxes that was subsequently paid for by HELIO LLC on
behalf of HELIO, Inc. (d)Adjustment represents the elimination of HELIO, Inc.s
investment in HELIO LLC. (e)Adjustment represents the elimination of cash received
for Partner convertible notes payable by HELIO LLC on behalf of HELIO, Inc.  39