Exhibit 99.1

360networks Corporation

CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010 and 2009

360networks Corporation
Consolidated Statements of Income

		Year ended December 31,
		2010				2009
Revenue		$	76,128,419			$	67,114,601
Direct operating costs			31,225,855				28,454,938
Selling, general and administrative			26,624,095				24,592,162
Stock based compensation			514,177				1,159,751
Provision for bad debt			191,250				311,970
Depreciation and accretion			7,765,411				7,879,165
Restructuring expense			216,303				88,870
Operating income			9,591,328				4,627,745
Net gain on settlements			37,000				9,725,000
Net gain on sale or transfer of assets			23,401,172				23,126
Interest expense			(79,415	)			(80,645	)
Interest and dividend income			1,911,078				262,675
Other income			3,256,065				1,075,515
Income before income taxes			38,117,228				15,633,416
Provision for income taxes			531,760				77,240
Net income		$	37,585,468			$	15,556,176
Earnings per share
Basic		$	3.63			$	1.54
Diluted		$	3.18			$	1.34

See accompanying notes

360networks Corporation
Consolidated Statements of Cash Flows

		Year ended December 31
		2010				2009
Operating activities
Net income for the period		$	37,585,468			$	15,556,176
Add (deduct) items to reconcile to net cash from operating activities
Stock based compensation			514,177				1,159,751
Provision for bad debts			145,896				285,612
Depreciation and accretion			7,765,411				7,879,165
Net gain on settlements			(37,000	)			(9,725,000	)
Net gain on sale of assets			(23,401,172	)			(23,126	)
Net gain on extinguishment of liabilities			(4,551,623	)			—
Loss on unsecured creditor settlement			1,475,691				—
Loss on sale of investments			21,622				3,216
Changes in operating working capital items			10,803,853				(5,302,452	)
Cash provided by operating activities			30,322,323				9,833,342
Investing activities
Additions to property and equipment			(23,067,713	)			(9,064,413	)
Purchase of investments			(11,044,905	)			(8,000,000	)
Proceeds from sale of investments			—				324,293
Proceeds from sale of assets			907,746				23,126
Change in restricted cash			109,275				193,225
Payments on note receivable			160,689				149,856
Cash used by investing activities			(32,934,908	)			(16,373,913	)
Financing activities
Payment on capital leases			(79,358	)			(43,658	)
Repurchase of issued and outstanding stock			(492,425	)			(330,138	)
Exercise of stock options			1,786				92,970
Cash used by financing activities			(569,997	)			(280,826	)
Net change in cash and cash equivalents			(3,182,582	)			(6,821,397	)
Cash and cash equivalents-beginning of period			12,404,949				19,226,346
Cash and cash equivalents-end of period		$	9,222,367			$	12,404,949

See accompanying notes

360networks Corporation
Consolidated Balance Sheets

		Year ended December 31,
		2010				2009
ASSETS
Current assets
Cash and cash equivalents		$	9,222,367			$	12,404,949
Accounts receivable			4,142,024				14,269,888
Note receivable, current portion			172,305				160,689
Other			1,860,552				1,491,906
			15,397,248				28,327,432
Restricted cash			357,500				466,775
Investments			43,533,302				8,185,209
Restricted investments			14,917,186				—
Note receivable			997,634				1,169,939
Property and equipment			73,855,994				61,682,009
Intangible assets			260,817				281,655
Deferred charge			4,236,037				—
		$	153,555,718			$	100,113,019
LIABILITIES
Current liabilities
Accounts payable		$	10,531,507			$	6,210,542
Wages payable			5,177,391				3,952,322
Leases payable, current portion			35,699				43,658
Income tax payable			525,161				28,190
Other accrued liabilities			17,176,009				22,251,707
Deferred revenue, current portion			3,279,361				2,935,786
			36,725,128				35,422,205
Deferred revenue			35,873,832				36,365,739
Other long-term liabilities			288,951				3,657,680
			72,887,911				75,445,624
STOCKHOLDERS’ EQUITY
Capital stock			75,709,898				75,708,112
Other capital accounts			45,865,178				27,452,020
Retained deficit			(40,907,269	)			(78,492,737	)
			80,667,807				24,667,395
		$	153,555,718			$	100,113,019

See accompanying notes

360networks Corporation
Consolidated Changes in Stockholders’ Equity

		Common Shares								Other Capital Accounts
														Accumulated
														other
		Number of								Additional paid in				comprehensive
		shares				Amount				Capital				income				Retained Deficit				Total
Balance, December 31, 2008			10,661,730			$	75,636,404			$	25,144,980			$	1,555,405			$	(94,048,913	)		$	8,287,876
Share options exercised			39,836				92,970																92,970
Repurchase of issued and outstanding common stock			(21,680	)			(21,262	)			(308,876	)											(330,138	)
Issuance of restricted stock			237,500								225,058
Amortization of deferred stock based compensation											407,488												1,159,751
Other stock based compensation											527,205
Comprehensive income
Net income for the 12 months ended December 31, 2009																			15,556,176				15,556,176
Other comprehensive income
Unrealized loss on available-for-sale equity securities															(167,387	)							(167,387	)
Foreign currency translation															68,147								68,147
Total comprehensive income																							15,556,176
Balance, December 31, 2009			10,917,386				75,708,112				25,995,855				1,456,165				(78,492,737	)		$	24,667,395
Share options exercised			3,207				1,786																1,786
Repurchase of vested stock options			—				—				(492,425	)											(492,425	)
Issuance of restricted stock			104,283
Amortization of deferred stock based compensation											514,177												514,177
Comprehensive income
Net income for the 12 months ended December 31, 2010																			37,585,468				37,585,468
Other comprehensive income
Reclassification of realized gain on available-for-sale securities															105,147								105,147
Unrealized gain on available-for-sale equity securities															15,525,867								15,525,867
Foreign currency translation															2,760,392								2,760,392
Total comprehensive income																							55,976,874
Balance, December 31, 2010			11,024,876			$	75,709,898			$	26,017,607			$	19,847,571			$	(40,907,269	)		$	80,667,807

See accompanying notes

360networks Corporation
Notes to Consolidated Financial Statements

1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

360networks Corporation and its subsidiaries (the Company) provide fiber optic network communications products and related services to both telecommunication carriers and commercial enterprises. The Company provides these services primarily in the western United States and prior to November 19, 2004, in Canada.

In June 2001, the Company’s former parent company, 360networks, Inc., and certain of its subsidiaries voluntarily filed for creditors protection under the Companies’ Creditors Arrangement Act (Canada) (CCAA) in the Supreme Court of British Columbia, Canada, or under Chapter 11 of the U.S. Bankruptcy Code. In November 2002, the Company and certain of its subsidiaries successfully completed their financial restructuring in Canada and the United States and emerged from creditor protection.

As of November 12, 2002, the Company adopted fresh-start reporting pursuant to the guidance provided by the American Institute of Certified Public Accountants. In connection with the adoption of fresh-start reporting, a new entity was created for financial reporting purposes. The effective date of the Company’s emergence from bankruptcy protection is considered to be the close of business on November 11, 2002, for financial reporting purposes.

Basis of presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) and include the accounts of the Company and its wholly-owned subsidiaries. These consolidated financial statements also include all adjustments that, in the opinion of management, are necessary to present fairly the Company’s financial position at December 31, 2010 and 2009, and its results of operations and cash flows for the years ended December 31, 2010 and 2009. All significant inter-company transactions and balances have been eliminated on consolidation.

Use of estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and revenues and expenses for the periods reported. Actual results could differ from those estimates.

Examples of significant estimates and assumptions are the estimated useful lives of assets, the recoverability of tangible assets, the composition of deferred income tax assets and deferred income tax liabilities, the accruals for payroll and other employee-related liabilities, the accruals for restructuring and workforce reduction costs, the fair values applicable to asset retirement obligations and the fair values used to allocate the acquisition costs applicable to the assets and liabilities acquired.

360networks Corporation
Notes to Consolidated Financial Statements

Cash and cash equivalents

Cash and cash equivalents consist of cash on deposit and highly liquid short-term interest bearing securities with terms at the date of purchase of three months or less, which are generally held to maturity.

Accounts receivable

Accounts receivable are stated at the amount management expects to collect on outstanding balances. Receivables from customers are due 30 days after issuance of the invoice. Delinquent accounts are charged to the receivable provision when it is determined that the account will not be collected and the account is sent to collection. The final determination of the account’s status is made at a minimum of 45 days past due. Management provides for probable uncollectible amounts through a provision for bad debts and an allowance for doubtful accounts based on its assessment of the current status of the accounts.

Restricted cash

Restricted cash represents cash applicable to letters of credit, cash held in escrow, and other deposits.

Investments

The Company’s policy for investment securities is as follows:

Securities available for sale: Securities not classified as held to maturity or trading are classified as available for sale. Available for sale securities are stated at fair value, with any unrealized gains and losses reported as a separate component of stockholders’ equity.

Trading securities: Trading securities consist of debt and equity securities that are bought and held principally for the purpose of selling in the near term and are reported at fair value, with unrealized gains and losses included in earnings. The Company did not hold any trading securities during 2010 or 2009.

Securities held to maturity: Debt securities for which the Company has the positive intent and ability to hold to maturity are classified as held to maturity. Held to maturity securities are stated at amortized cost. The Company did not hold any held to maturity securities during 2010 or 2009.

Property and equipment

Fiber optic network assets constructed for the Company’s own use are recorded at cost, which includes direct expenditures on materials and labor and an allocation of indirect costs and interest. Acquired network assets, including the use of dark fiber and conduit under indefeasible rights of use (IRU), are recorded at cost. Other property and equipment is recorded at cost.

Property and equipment are depreciated using the following rates and methods:

•

Fiber optic network assets — straight-line basis ranging from 20 to 25 years.

•

Operating equipment — straight-line basis ranging from 2 to 10 years.

•

Buildings — straight-line basis ranging from 15 to 20 years.

•

Leasehold improvements — straight-line basis over the term of the lease.

Network assets under construction and land are not subject to depreciation.

360networks Corporation
Notes to Consolidated Financial Statements

Fiber optic network assets include rights of way, conduit, fiber, shelters, and point of presence racks. Operating equipment includes network equipment, other equipment necessary to operate the network, and furniture, fixtures and office equipment. Repairs and maintenance costs are charged to operations when incurred.

The Company’s policy is to depreciate and amortize its long-lived assets over their remaining useful lives and to write down such assets if the net carrying value is not recoverable from future cash flows. The assessment as to whether a write down is required is based on the Company’s estimates of future cash flows and the Company’s assumptions about the use of the assets. When the Company determines the carrying value is not recoverable, the assets are written down to their estimated fair value.

Intangible assets

As-built drawings are being amortized on a straight-line basis over 20 years. This amortization period is based on the expected life of the intangible asset.

The Company reviews the carrying amount of intangible assets annually for impairment. The determination of impairments is based on a comparison of undiscounted estimated future cash flows anticipated to be generated during the remaining life of the asset to the net carrying value of the asset. If impairment is determined, the intangible asset is written down to estimated fair value.

Asset retirement obligations

The Company recognizes a liability for asset retirement obligations in the period in which the obligation is incurred if a reasonable estimate of fair value can be made. The associated retirement costs are capitalized as part of the carrying value of the long-lived assets and amortized over the period of the useful life of the asset. The obligation is increased annually by accretion that is charged to the statement of operations and reduced to reflect assets that have been disposed of during the year.

Revenue recognition — network and communication services

Network services revenue primarily includes revenue from network capacity leased to others and related network and maintenance services. Revenue from communication services is derived from private line, data and local telecommunication services. Revenues from these services are recognized based either on customer usage as measured by the Company’s switches or by contractual agreements.

360networks Corporation
Notes to Consolidated Financial Statements

Revenues are recognized monthly as services are provided. Advance payments on maintenance contracts are included in deferred revenue.

Certain IRUs of dark fiber and other assets are accounted for as operating leases or service arrangements depending on the whether the customer has the exclusive right to use the assets. Revenue is recognized on both operating leases and service arrangements on a straight-line basis over the term of the contract. The Company also leases facilities to customers for placement of equipment. Revenues on these facilities are recognized on a straight-line basis over the term of the lease arrangement. Payments received in advance of revenue recognition are included in deferred revenue.

Under dark fiber and capacity contracts, the Company is required to operate and maintain the network in accordance with industry standards. Under these contracts, customers are charged for certain operating and maintenance fees for the term of each contract. This revenue is recognized over the life of the contract. These contracts require the Company to provide certain service level commitments. If the Company does not meet the required service levels, it may be obligated to provide credits, usually in the form of free service for a short period of time. Services provided under these credits are not included in revenue.

Revenue recognition — infrastructure

Infrastructure revenue includes revenue from construction, operations and maintenance contracts, and sales or leases of dark fiber and related assets when the customer retains title of the assets after the transaction is complete. Advances received on contracts in excess of billings are reflected as deferred revenue. The Company does not recognize any revenue on joint-build construction projects where the Company and the counterparty share in the risks and rewards of the project. Cash received applicable to joint-build construction projects is recorded as a recovery of the construction costs incurred by the Company. Construction related revenue was not material during 2010 and 2009.

Sales of dark fiber and/or conduit and grants of IRU where the customer obtains title to specific assets are accounted for as a sale when acceptance has occurred, title has passed to the customer, collection is reasonably assured, and the Company has no continuing involvement with the assets, other than providing operating and maintenance services for a fee. When there is a continuing involvement with the assets, the transaction is accounted for as a service arrangement and the revenue is recognized over the expected life of the assets unless the contracted term is shorter. Advances received on such contracts are reflected as deferred revenue.

Accounting practices and guidance with respect to IRU revenue recognition has evolved over the years. Any future changes in the accounting treatment may affect the current recognition of revenues and related costs.

360networks Corporation
Notes to Consolidated Financial Statements

Gains and losses on settlements, terminations or modifications of contracts

The Company recognizes a gain on a termination of a contract when the customer or supplier and the Company have reached a settlement/termination agreement, the Company has received the consideration required under the settlement/termination agreement or the Company is no longer obligated to provide additional products or services to the counterparty under the original agreement. Gains on settlement and/or termination of contracts are recognized as nonoperating income.

The Company recognizes a loss on a termination of a contract when it is probable that the customer or supplier and the Company will reach an agreement and the amount of the loss can be reasonably estimated. Subsequent adjustments may be made when the Company has entered into a contract termination or settlement agreement. In general, these transactions are entered into in order to reduce costs in future periods. These losses are accounted for as losses on settlements.

Transactions that are generally of an ongoing operating nature are not accounted for as losses on settlements. Examples of such transactions are:

•

Settlements applicable to the granting of current price adjustments, concession and/or rebates under the original revenue contract are accounted for as a reduction of revenue.

•

Assets returned by customers to whom they were originally sold to or constructed for are accounted for as a reduction in revenue and an increase in assets at the lower of cost or fair value at the date the assets are returned.

•

Cost incurred in situations where the Company is obligated to provide additional product and services for no further consideration are accounted for as operating costs.

•

Uncollectable customer receivables when a customer has entered creditor protection or similar financial restructuring proceedings are accounted for as a bad debt expense.

Operating costs

Costs applicable to network infrastructure sales and sales-type leases, particularly dark fiber and conduit, consist of direct costs such as the conduit, fiber optic cable, construction of regeneration facilities, labor and an allocation of indirect costs such as rights-of-way, site restoration, equipment costs, insurance and interest charges. These costs are allocated proportionately to individual fiber strands based on the number of fiber strands installed on a particular route.

Operating costs applicable to providing network services include only the direct costs of operating, provisioning and maintaining the network. These costs also include lease costs, rights-of-way costs, access charges, and other third party circuit costs directly attributable to the network.

360networks Corporation
Notes to Consolidated Financial Statements

Nonmonetary exchange transactions

The Company is a party to nonmonetary exchange transactions when the Company sells fiber assets, IRUs, capacity, or services or enters into operating leases with a counter party from which the Company receives assets or services in order to complete and complement its network. The Company accounts for such exchanges of telecommunications capacity irrespective of the form of the transaction based on the fair value of the assets given up. When these exchanges result in the Company paying net monetary consideration, such consideration is recorded as an additional cost of the fiber assets. When these exchanges result in the Company receiving net monetary consideration that is significant, the monetary portion is recognized as revenue, and the related cost of the assets disposed of is recorded as cost of sales.

Stock based compensation

The Company accounts for its stock based compensation using the fair value method. The Company recognizes an expense over the term of each vesting period.

Foreign currency translation and transactions

Transactions in currencies other than the U.S. dollar are recorded at the exchange rate at the transaction date. Changes in exchange rates applicable to foreign currency denominated assets and liabilities result in gains and losses, which are included in the statement of operations.

Assets and liabilities of the Company’s subsidiaries and operations that have a functional currency other than the U.S. dollar are translated into U.S. dollars at the year end exchange rate. Revenues and expenses for these businesses are translated at average exchange rates effective during the year. Gains and losses resulting from foreign currency translations are included in other capital. Although the Company no longer has foreign operations, it maintains bank accounts, holds investments, and incurs professional service costs that result in translation adjustments.

Income taxes

Income taxes are accounted for using the liability method, which requires the recognition of taxes payable or refundable for the current period and deferred tax liabilities and assets for future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. The measurement of current and deferred tax liabilities and assets is based on provisions of enacted tax laws; the effects of future changes in tax laws or rates are not anticipated. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance, where, based on available evidence, the probability of realization of the deferred tax asset does not meet a more likely than not criterion.

The Company records uncertain tax positions if the outcome was considered probable and could reasonably be estimated. As of December 31, 2010 and 2009, the Company had no accrued amounts related to uncertain tax positions.

360networks Corporation
Notes to Consolidated Financial Statements

Earnings per share

Basic earnings per share is computed using the weighted-average number of shares outstanding during each period. Diluted earnings per share is computed by using the treasury stock method to include the dilutive effect of common stock that would be issued assuming the exercise of outstanding stock options, stock based compensation awards, warrants and other dilutive securities, unless the result would be antidilutive. The treasury stock method assumes that proceeds from in-the-money stock options are used to repurchase outstanding common shares.

Accumulated other comprehensive income

Accumulated other comprehensive income consists of net income, foreign currency translation adjustments and unrealized gains and losses arising from available for sale equity securities as follows:

		2010				2009
Foreign currency translation adjustment			4,321,704				1,561,312
Unrealized gains (losses) from available for sale securities			15,525,867				(105,147	)
			19,847,571				1,456,165

Net gain on transfer of assets

During 2010, the Company entered into a transaction with Trilogy Energy Trust (Trilogy) wherein the Company received shares of Trilogy in exchange for restructuring 360’s wholly-owned subsidiary, 360networks (CDN fiber) ltd. This transaction is described in detail in note 5 (a) and resulted in a nonoperating gain of $23,450,076 being recorded in the consolidated statement of income.

Subsequent events:

Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are available to be issued. The Company recognizes in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. The Company’s financial statements do not recognize subsequent events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after the balance sheet date and before financial statements are available to be issued. Note 16 provides disclosure of certain subsequent events that did not result in recognition in the financial statements.

The Company has evaluated subsequent events through July 13, 2011, which is the date the financial statements are available to be issued.

360networks Corporation
Notes to Consolidated Financial Statements

2 RESTRUCTURING LIABILITIES

The Company has liabilities related primarily to operating lease commitments that do not provide economic benefit to the Company and have not been terminated. The Company continues to incur costs in the form of monthly payments. A liability is recognized and measured at fair value in the year the lease ceases to be used in operations. The initial recognition of the liability and subsequent adjustment to the fair value of the lease obligation are charged to restructuring expense. The detail of the Company’s restructuring liability accruals are:

		Year ended December 31,
		2010				2009
Balance beginning of period		$	3,284,706			$	3,977,012
Accrual for total anticipated restructuring expenses			216,304				88,870
Less payments and settlements completed in the year			(670,951	)			(781,176	)
Balance end of period		$	2,830,059			$	3,284,706

3 SETTLEMENTS

The Company reached a settlement agreement in December 2009 on its bankruptcy claim against Asia Global Crossing for $11,750,000. Historically, this claim had been reviewed annually for impairment and due to the uncertain outcome of the claim and adverse rulings in similar cases the carrying value of the asset had been written down to $2,000,000 in 2008.

The Company recorded income from this claim settlement of $9,725,000 and recorded a receivable of $11,750,000 in 2009. This receivable was paid in full in February 2010.

360networks Corporation
Notes to Consolidated Financial Statements

4 ASSET RETIREMENT OBLIGATIONS

The Company has asset retirement obligations related to certain fiber, conduit and other facilities that are primarily included in fiber optic network assets. Under certain rights-of-way arrangements, the Company is required to remove the fiber and conduit upon termination of the arrangement. Other rights-of-way arrangements permit the Company to abandon its underground assets upon termination of the arrangement if permission is obtained from the counter party to the arrangement. In addition, under certain lease agreements for facilities, the Company is required to remove equipment and other assets and restore the leased property to its original condition. Management determined no additional obligations arose in 2010 and 2009 related to plant additions.

Management reviews the assumptions that create the asset retirement obligation estimate on an annual basis for reasonableness and applicability. Based upon prevailing industry practice and knowledge, the Company reduced their estimate regarding the future probability in 2010 to remove equipment, fiber and other assets upon termination of leases and right-of-ways.

The Company has estimated the fair value of asset retirement obligations on expected future cash outlays and an imputed interest rate from 11.00% to 13.10%.

These obligations are not secured by any assets of the Company.

		Year ended December 31,
		2010				2009
Balance beginning of period		$	3,594,196			$	3,191,400
Changes due to:
Accretion and other adjustments			(3,333,029	)			402,796
Balance end of period		$	261,167			$	3,594,196

360networks Corporation
Notes to Consolidated Financial Statements

5 STATEMENT OF OPERATIONS COMPONENTS

		Year ended December 31,
		2010				2009
Revenue
Network and communication services		$	62,160,754			$	53,655,717
Infrastructure			13,967,665				13,458,884
		$	76,128,419			$	67,114,601
Operating costs
(excluding depreciation)
Network services		$	31,136,128			$	28,351,172
Infrastructure			89,727				103,766
		$	31,225,855			$	28,454,938
Depreciation, accretion and restructuring expense
Depreciation and accretion		$	7,765,411			$	7,879,165
Restructuring expense			249,607				377,345
		$	8,015,018			$	8,256,510
Net gain on settlements
Proceeds
Receivables settlements award		$	37,000			$	11,750,000
Disposals
Accrued liabilities incurred			—				(25,000	)
Property, plant, and equipment			—				(2,000,000	)
		$	37,000			$	9,725,000
Net gain (loss) on sale of assets
Proceeds (a)		$	23,646,230			$	23,126
Carrying value			(245,058	)			—
		$	23,401,172			$	23,126
Other income (expense)
Accrual releases (b)		$	4,551,623			$	1,016,988
Realized gains			—				15,393
Other (c)			(1,295,558	)			43,134
		$	3,256,065			$	1,075,515

360networks Corporation
Notes to Consolidated Financial Statements

(a) During the respective periods, the Company sold certain investment securities and surplus assets that were either held for sale or were no longer in service.

On February 5, 2010, 360networks (fiber holdco) ltd. completed the restructure of 360networks (CDN fiber) ltd., a Canadian Limited Liability Corporation. The restructure involved an exchange of 100% of the shares of 360networks (CDN fiber) ltd. with outstanding stock of Trilogy Energy Trust (Trilogy), a publicly traded energy trust based in Canada not previously affiliated with 360networks. The provisions of the transaction include 360networks receiving 4,165,653 shares of the new entity (Trilogy) and holdback of 2,185,884 shares of Trilogy stock as a contingency for possible changes in the value of the 360networks (CDN fiber) ltd stock occuring after 2010. The remaining 1,979,769 shares were released during 2010 and have been recognized as income in the statement of operations.

The value of the 360networks (CDN fiber) ltd stock to Trilogy was attributed to approximately $730 million of tax loss pools that could be available to offset future Trilogy income under applicable Canadian tax law. The net value of the Trilogy shares at the date of the transaction was $30,081,390. Given the complex and contingent nature of the transition, 360networks has estimated that $22,493,426 of the Trilogy stock proceeds is recognizable in 2010 based on management’s estimate of fulfillment of the conditions outlined the final arrangement agreement. The remaining value of the Trilogy shares will be recognized in the statement of operations in the years after 2012 when provisions of the arrangement agreement requiring the holdback have been met.

(b) Historically, the Company has recognized disputed and/or estimated liabilities, and as updated information becomes available the Company adjusts their accruals. These accruals were evaluated and reduced during 2010 and 2009.

(c) During 2010, the Company has recognized nonoperating expenses due to the payment of unsecured creditor claims allowed under the First Amended Joint Plan of Reorganization (the Plan) filed by 360networks (USA) inc. and certain affiliates (Debtors), in November 2002.

360networks Corporation
Notes to Consolidated Financial Statements

6 EARNINGS PER SHARE

For the years ended December 31, 2010, and December 31, 2009, the weighted average number of common shares includes 365,545 reserved shares that were not yet issued.

At December 31, 2010, and December 31, 2009, certain outstanding stock options were dilutive. For the years ended December 31, 2010 and December 31, 2009, the weighted-average number of common shares has been adjusted for dilutive outstanding stock options and unvested stock issued to employees.

		Year ended December 31,
		2010				2009
Basic earnings per share
Net income for the period		$	37,585,468			$	15,556,176
Weighted average number of common shares			10,351,336				10,124,030
Basic earnings per common share		$	3.63			$	1.54
Diluted earnings per share
Net income for the period		$	37,585,468			$	15,556,176
Weighted average number of common shares			11,817,099				11,649,104
Diluted earnings per common share		$	3.18			$	1.34

360networks Corporation
Notes to Consolidated Financial Statements

7 SUPPLEMENTAL CASH FLOW INFORMATION

		Year ended December 31,
		2010				2009
Changes in operating working capital items
Accounts receivable		$	10,048,120			$	(2,017,932	)
Prepaid expenses and other assets			(368,646	)			(243,845	)
Accounts payable and other accrued liabilities			775,742				(2,303,446	)
Income taxes payable			496,970				160,085
Deferred revenue			(148,333	)			(897,314	)
		$	10,803,853			$	(5,302,452	)
Cash paid for income taxes		$	552,712			$	48,112
Cash paid for interest			79,415				80,645
Noncash investing activities
Changes in unrealized gain (loss) on securities available for sale		$	15,631,015			$	(167,387	)
Change in unrealized foreign currency translation			2,760,392				68,147
Reduction in fixed assets due to changes in ARO assumptions			(1,863,746	)			—
Reconciliation of activities from Trilogy stock exchange:
Value of shares received			32,703,742				—
Valuation allowance			(7,587,963	)			—
Closing costs			(2,622,352	)			—
Proceeds from sale of fiber			1,200,000				—
Net book value of fiber			(243,351	)			—
Net gain			23,450,076				—

360networks Corporation
Notes to Consolidated Financial Statements

8 BALANCE SHEET COMPONENTS

		December 31,				December 31,
		2010				2009
Accounts receivable
Trade		$	4,937,056			$	3,982,403
Other			847,111				11,726,380
Allowance for doubtful accounts			(1,642,143	)			(1,438,895	)
		$	4,142,024			$	14,269,888
Restricted cash
Deposits		$	357,500			$	466,775
		$	357,500			$	466,775
Note receivable
Note receivable (a)		$	1,169,939			$	1,330,628
Less current portion			(172,305	)			(160,689	)
		$	997,634			$	1,169,939
Investments
Securities available for sale (b)		$	43,533,302			$	8,185,209
Securities Available for sale-restricted (b)			14,917,186				—
		$	58,450,488			$	8,185,209
Property and equipment
Fiber optic network assets (c)
Assets in service		$	77,756,487			$	58,716,223
Assets under lease to customers (d)			14,903,027				14,903,027
Assets not in service (e)			—				409,603
Land building and leasehold improvements			7,147,656				6,057,488
Equipment			8,840,663				10,282,345
Network assets under construction			7,840,134				5,107,023
			116,487,967				95,475,709
Less: accumulated depreciation (f)			(42,631,973	)			(33,793,700	)
Property and equipment — net		$	73,855,994			$	61,682,009
Intangible assets
Trademark		$	11,754			$	13,433
As-built drawing			249,063				268,222
		$	260,817			$	281,655
Deferred charge
Deferred charge-net (g)		$	4,236,037			$	—
		$	4,236,037			$	—

360networks Corporation
Notes to Consolidated Financial Statements

		December 31,				December 31,
		2010				2009
Accounts payable
Accounts payable
Trade		$	7,041,327			$	3,399,988
Other			3,490,180				2,810,554
		$	10,531,507			$	6,210,542
Other accrued liabilities
Property and capital taxes		$	697,325			$	1,562,801
Restructuring			2,830,059				3,284,706
Pre-petition (h)			173,376				1,588,731
Rights of way and other (i)			13,475,249				15,815,469
		$	17,176,009			$	22,251,707
Deferred revenue
Deferred revenue (j)		$	39,153,193			$	39,301,525
Less current portion			(3,279,361	)			(2,935,786	)
		$	35,873,832			$	36,365,739
Other long-term liabilities
Long term lease obligation		$	27,785			$	63,484
Asset retirement obligations			261,166				3,594,196
		$	288,951			$	3,657,680

360networks Corporation
Notes to Consolidated Financial Statements

360networks Corporation
Notes to Consolidated Financial Statements

9 INCOME TAXES

The components of income before income taxes are:

		Year ended December 31,
		2010				2009
United States		$	16,238,895			$	7,500,714
Canada			21,878,333				8,132,702
		$	38,117,228			$	15,633,416

The components of the expense for current income taxes are:

		Year ended December 31,
		2010				2009
United States		$	40,618			$	77,240
Canada			491,142				—
		$	531,760			$	77,240

The components of the provision for deferred income taxes are:

		Year ended December 31,
		2010				2009
United States		$	—			$	—
Canada			—				—
		$	—			$	—

360networks Corporation
Notes to Consolidated Financial Statements

The provision for income taxes differs from the amount computed by applying the statutory income tax rate to net income (loss) before taxes due to nondeductible items, foreign tax rate differences, and the effect of the valuation allowance.

Significant components of the Company’s deferred tax asset and liability are estimated below.

		Year ended December 31,
		2010				2009
Current
Deferred tax assets
Expenses not deducted for tax in current year		$	1,250,924			$	1,332,540
Capital loss carryforward			3,205,313
Valuation allowance			(1,250,924	)			(1,332,540	)
			3,205,313				—
Deferred tax liabilities
Investment basis difference			(3,205,313	)			(1,332,540	)
Total current		$	—			$	—
Long-term
Deferred tax assets
Tax loss carry forwards			185,527,606				182,577,159
Property and equipment			94,535,613				271,899,229
Capital loss carry forwards			21,083,253				4,829,412
Deferred revenue			15,598,463				36,284,123
Suspended capital losses			72,879,576				113,085,044
Investments and other			241,869				475,632
Valuation allowance			(356,517,685	)			(609,150,599	)
			33,348,695				—
Deferred tax liabilities							—
Intercompany debt basis			(33,348,695	)			—
Total long-term		$	—			$	—

360networks Corporation
Notes to Consolidated Financial Statements

At December 31, 2010, the Company has operating loss carryforwards applicable to Canada and the United States available to reduce taxable income of $466,724,807 that expire as follows:

Year ended December 31,		2011				2012				2013				2014				2015				Thereafter
Canada		$	—			$	—			$	—			$	2,818,253			$	—			$	7,288,854
United States		$	—			$	—			$	—			$	—			$	—			$	456,617,700

Of the $456,617,700 of U.S. loss carry forwards beyond 2014, $228,000,000 is subject to certain restrictions.

Due to uncertainty regarding the ability to utilize the deferred tax assets, a full valuation allowance has been provided against the Company’s net deferred tax assets in the financial statements.

As a result of the adopting fresh start reporting, any reversal in future periods of the valuation allowances established upon emergence will be first applied to reduce the carrying amount of intangible assets and secondly as an adjustment to shareholders’ equity.

10 401(k) RETIREMENT AND SAVINGS PLAN

The Company sponsors a qualified 401(k) plan covering all employees who have reached 21 years of age and two or more months of service. The 401(k) plan provides for discretionary employer contributions and a mandatory matching of 50% of employees’ contributions limited to 6% of basic annual compensation. Participants’ interest become fully vested after three years and may be withdrawn upon termination or upon attaining age 65, whichever occurs first. The Company’s matching and discretionary contributions totaled $341,971 and $309,982 for the years ended December 31, 2010 and 2009, respectively.

360networks Corporation
Notes to Consolidated Financial Statements

11 CAPITAL STOCK

The Company is authorized to issue an unlimited number of common voting shares and an unlimited number of preferred nonvoting shares, issuable in series.

The Company issued 3,207 and 39,836 common shares upon the exercise of stock options in 2010 and 2009 respectively. In 2010, the Company issued 104,283 (237,500 in 2009) restricted common shares for distribution to certain employees.

During 2009, the Company purchased and cancelled 21,680 issued and outstanding common shares at a price of $8.20.

		Issued and
Common Shares		outstanding				Reserved				Total
Balance December 31, 2008			10,296,185				365,545				10,661,730
Shares repurchased			(21,680	)			—				(21,680	)
Restricted shares issued to certain employees			237,500				—				237,500
Shares issued upon exercise of stock options			39,836				—				39,836
Balance December 31, 2009			10,551,841				365,545				10,917,386
Restricted shares issued to certain employees			104,283								104,283
Shares issued upon exercise of stock options			3,207								3,207
Balance December 31, 2010			10,659,331				365,545				11,024,876

360networks Corporation
Notes to Consolidated Financial Statements

12 STOCK BASED COMPENSATION

The Company has a Long-Term Incentive and Share Award Plan that permits the grant of share based awards including stock options, share appreciation rights, restricted shares, performance shares, performance units, dividend equivalents and other share based awards to employees and directors. At December 31, 2008, 393,458 common shares were reserved for awards under the plan. The Company elected to issue restricted shares in lieu of stock options in 2010 and 2009. Stock awards and stock options that have been granted vest over a period of two to four years and have terms ranging from eight to ten years.

Stock options

During 2010, 3,625 of these options were forfeited (2009 — 17,500 options) resulting in a reduction in stock-based compensation expense that was immaterial.

360networks Corporation
Notes to Consolidated Financial Statements

The following table summarizes stock option activity for the years ended December 31, 2010 and December 31, 2009.

														Weighted
														average
						Weighted				Weighted				minimum								Weighed
		Number of				average				average				value of				Number of				average
		options				remaining				exercise				options				options				exercise
		outstanding				option life				price				granted				exercisable				price
Balance December 31, 2008			2,324,546				7.2			$	4.18			$	0.92				1,623,718			$	3.12
Option granted			—							$	0.00
Options forfeited			(17,500	)						$	7.36
Options purchased			(37,885	)						$	3.84
Options exercised			(39,836	)						$	2.33
Balance December 31, 2009			2,229,325				6.2			$	4.19			$	0.88				1,884,701			$	3.64
Option granted			—							$	0.00
Options forfeited			(3,625	)						$	3.02
Options purchased			(84,547	)						$	5.82
Options exercised			(3,207	)						$	0.56
Balance December 31, 2010			2,137,944				5.2			$	4.22			$	0.86				2,014,345			$	3.99

The following tables summarize information about stock options outstanding at December 31, 2010.

		Options Outstanding												Exercisable Options
						Weighted-												Weighted-
		Number				Average				Weighted-				Number				Average				Weighted-
		Outstanding				Remaining				Average				Exercisable				Remaining				Average
		at End of				Contractual				Exercise				at End of				Contractual				Exercise
		Year				Life				Price				Year				Life				Price
Option exercise price
$1.04			479,810				3.5			$	1.04				479,810				3.5			$	1.04
$3.00			513,009				4.5			$	3.00				513,759				4.5			$	3.00
$3.75			472,150				5.5			$	3.75				472,150				5.5			$	3.75
$7.50			449,475				6.5			$	7.50				399,564				6.5			$	7.50
$8.20			223,500				7.5			$	8.20				149,063				7.5			$	8.20
Outstanding at end of year			2,137,944				5.2			$	4.22				2,014,346				5.1			$	3.99

360networks Corporation
Notes to Consolidated Financial Statements

		Exercise				Contractual
		Price				Term (Yrs)				Intrinsic Value (1)
Weighted average options outstanding at December 31, 2010		$	4.22				5.23			$	11,298,114
Weighted average options exercisable at December 31, 2010			3.99				5.11				11,106,399
Options exercised in 2010											(3,207	)
Options exercised in 2009											(39,836	)

The following table summarizes the Company’s unvested stock option activity with respect to the years ended December 31, 2010 and 2009:

						Weighted-Average
		Shares				Grant-Date Fair Value
Unvested at December 31, 2008			701,028				1.51
Vested			(337,932	)			1.38
Forfeited			(17,500	)			1.71
Unvested at December 31, 2009			345,596			$	1.38
Vested			(217,623	)			1.69
Forfeited			(3,625	)			0.33
Unvested at December 31, 2010			124,348			$	1.69

Options for 99,403 shares granted from 2007 to 2008 will vest during 2011.

Restricted Shares

During 2010, the Company issued 104,283 (2009-237,500) restricted shares under the terms of the Long-Term Incentive and Share Award Plan. The following tables summarize information about the restricted shares outstanding at December 31, 2010.

										Remaining
		Number of shares				Shares subject to				vesting
Shares issued subject to vesting		outstanding				vesting				period
Balance December 31, 2008			120,250				115,875				3.4
Shares issued during the year			237,500				237,500
Shares vested during the year							(30,063	)
Balance December 31, 2009			357,250				322,813				3.1
Shares issued during the year			104,283				104,283
Shares vested during the year							(115,946	)
Balance December 31, 20010			461,533				311,150				2.6