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Heritage Global Inc. - Quarter Report: 2005 September (Form 10-Q)




UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION 
WASHINGTON, D.C. 20549 
 
FORM 10-Q 
 
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2005 
 
OR 
 
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from       to 
 
Commission file number: 0-17973 
 
C2 Global Technologies Inc.
(Exact name of registrant as specified in its charter)
FLORIDA
(State or other jurisdiction of
incorporation or organization)
 
59-2291344
 
(I.R.S. Employer Identification No.)
 
40 King St. West, Suite 3200, Toronto, ON M5H 3Y2
(Address of principal executive offices)
 
(416) 866-3000
(Registrant’s telephone number)
 
N/A
(Registrant’s former name)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter time period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o 
 
Check whether the registrant is an accelerated filed (as defined in Rule 12b-2 of the Act).
Yes o No x 
 
As of October 31, 2005, there were 19,237,135 shares of common stock, $0.01 par value, outstanding.
 



TABLE OF CONTENTS
 
   
Page
Part I.
Financial Information
3
 
 
 
Item 1.
Financial Statements
3
 
 
 
 
Unaudited Condensed Consolidated Balance Sheets as of September 30, 2005 and December 31, 2004 
3
 
 
 
 
Unaudited Condensed Consolidated Statements of Operations
Three and nine months ended September 30, 2005 and 2004
4
     
 
Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Deficit
Period ended September 30, 2005
5
 
 
 
 
Unaudited Condensed Consolidated Statements of Cash Flows
Three and nine months ended September 30, 2005 and 2004
6
 
 
 
 
Notes to Unaudited Condensed Consolidated Financial Statements
7 - 20
 
 
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
21
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
35
 
 
 
Item 4.
Controls and Procedures
35
 
 
 
Part II.
Other Information
36
     
Item 1.
Legal Proceedings
36 
     
Item 4.
Submission of Matters for a Vote of Security Holders
37
     
Item 5.
Other Information
37 
     
Item 6.
Exhibits
38
 
2

 
PART I - FINANCIAL INFORMATION 
 
Item 1 - Financial Statements. 
C2 GLOBAL TECHNOLOGIES INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
             
   
 September 30,
 
 December 31,
 
(In thousands of dollars, except share and per share amounts)
 
 2005
 
 2004
 
ASSETS
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
 
$
94
 
$
44
 
Restricted cash
   
1,800
   
 
Other current assets
   
28
   
1
 
Assets of discontinued operations
   
   
14,965
 
Total current assets
   
1,922
   
15,010
 
Other assets:
           
Furniture, fixtures, equipment and software
   
   
50
 
Intangible assets, net
   
65
   
80
 
Goodwill
   
173
   
173
 
Investments
   
1,100
   
1,100
 
Other assets
   
157
   
211
 
Assets of discontinued operations, less current portion
   
   
7,385
 
Total assets
 
$
3,417
 
$
24,009
 
 
             
LIABILITIES AND STOCKHOLDERS’ DEFICIT
         
Current liabilities:
         
Accounts payable and accrued liabilities
 
$
2,718
 
$
2,010
 
Convertible note payable, net of unamortized discount
   
1,765
   
1,768
 
Liabilities of discontinued operations
   
4,320
   
32,584
 
Total current liabilities
   
8,803
   
36,362
 
Convertible note payable, net of unamortized discount
   
1,465
   
2,630
 
Warrants, convertible to common stock
   
91
   
322
 
Liabilities of discontinued operations, less current portion
   
   
645
 
Subordinated notes payable to a related party, net of unamortized discount
   
67,348
   
46,015
 
 
             
Total liabilities
   
77,707
   
85,974
 
 
             
Commitments and contingencies
         
 
             
Stockholders’ deficit:
         
Preferred stock, $10.00 par value, authorized 10,000,000 shares, issued and outstanding 618 at September 30, 2005 and December 31, 2004, liquidation preference of $618 at September 30, 2005 and December 31, 2004
   
6
   
6
 
Common stock, $0.01 par value, authorized 300,000,000 shares, issued and outstanding 19,237,135 at September 30, 2005 and December 31, 2004
   
192
   
192
 
Additional paid-in capital
   
188,771
   
186,650
 
Accumulated deficit
   
(263,259
)
 
(248,813
)
 
             
Total stockholders’ deficit
   
(74,290
)
 
(61,965
)
 
             
Total liabilities and stockholders’ deficit
 
$
3,417
 
$
24,009
 
 
             
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
3

 
C2 GLOBAL TECHNOLOGIES INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 

 
 
Three Months Ended
 
Nine Months Ended
 
 
 
September 30,
 
September 30,
 
(In thousands of dollars, except per share amounts)
 
2005
 
2004
 
2005
 
2004
 
 
 
 
             
Revenue
 
$
 
$
 
$
 
$
540
 
 
                 
Operating costs and expenses:
                         
Selling, general and administrative
   
490
   
779
   
2,489
   
2,393
 
Research and development
   
88
   
119
   
389
   
225
 
Depreciation and amortization
   
9
   
5
   
27
   
15
 
Total operating costs and expenses
   
587
   
903
   
2,905
   
2,633
 
Operating loss
   
(587
)
 
(903
)
 
(2,905
)
 
(2,093
)
Other income (expense):
                 
Interest expense - related party
   
(1,943
)
 
(1,855
)
 
(7,893
)
 
(6,382
)
Interest expense - third party
   
(112
)
 
   
(302
)
 
(13
)
Interest and other income
   
120
   
21
   
121
   
1,440
 
Total other expense
   
(1,935
)
 
(1,834
)
 
(8,074
)
 
(4,955
)
Loss from continuing operations
   
(2,522
)
 
(2,737
)
 
(10,979
)
 
(7,048
)
Gain (loss) from discontinued operations (net of $0 tax)
   
4,292
   
(4,130
)
 
(3,467
)
 
(9,243
)
Net income (loss)
 
$
1,770
 
$
(6,867
)
$
(14,446
)
$
(16,291
)
Basic and diluted weighted average shares outstanding
(in thousands)
   
19,237
   
19,261
   
19,237
   
19,262
 
Net income (loss) per common share - basic and diluted:
                 
Loss from continuing operations
 
$
(0.13
)
$
(0.14
)
$
(0.57
)
$
(0.36
)
Gain (loss) from discontinued operations
   
0.22
   
(0.22
)
 
(0.18
)
 
(0.48
)
Net gain (loss) per common share
 
$
0.09
 
$
(0.36
)
$
(0.75
)
$
(0.84
)
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
4


C2 GLOBAL TECHNOLOGIES INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
For the period ended September 30, 2005
(in thousands of dollars, except share amounts)
(unaudited)
 
   
Preferred stock
 
Common stock
         
   
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
Additional paid
in capital
 
Accumulated
deficit
 
                           
                           
Balance at December 31, 2003
   
619
 
$
6
   
19,262,095
 
$
192
 
$
182,879
 
$
(226,030
)
Conversion of Class N preferred stock to common stock
   
(1
)
 
   
40
   
             
Cancellation of common stock (1)
   
   
   
(25,000
)
 
   
(21
)
 
 
Beneficial conversion feature on certain convertible notes payable to related party
   
   
   
   
   
3,771
   
 
C2 costs paid by majority stockholder
   
   
   
   
   
16
   
 
Issuance of options to purchase common stock to non-employee
   
   
   
   
   
5
   
 
Net loss
   
   
   
   
   
   
(22,783
)
Balance at December 31, 2004
   
618
 
 
6
   
19,237,135
 
 
192
 
 
186,650
 
 
(248,813
)
Beneficial conversion feature on certain convertible notes payable to related party
   
   
   
   
   
1,120
   
 
Conferral of benefit by majority stockholder
   
   
   
   
   
1,000
   
 
Issuance of options to purchase common stock to non-employee
   
   
   
   
   
1
   
 
Net loss
   
   
   
   
   
   
(14,446
)
Balance at September 30, 2005
   
618
 
$
6
   
19,237,135
 
$
192
 
$
188,771
 
$
(263,259
)
 
(1)
The Company received and cancelled 25,000 common shares of the Company pursuant to the partial settlement of a prior claim against a third party.

The accompanying notes are an integral part of these condensed consolidated financial statements.
 
5


C2 GLOBAL TECHNOLOGIES INC. AND SUBSIDIARIES 
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
(unaudited)
 
   
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
(In thousands of dollars)
 
 2005
 
2004
 
2005
 
2004
 
Cash flows from operating activities:
                         
Net loss from continuing operations
 
$
(2,522
)
$
(2,737
)
$
(10,979
)
$
(7,048
)
Adjustments to reconcile net loss to net cash used in operating activities:
                 
Depreciation and amortization
   
9
   
5
   
27
   
15
 
Amortization of discount on subordinated notes payable to related party
   
340
   
697
   
3,446
   
3,296
 
Amortization of discount on notes payable to third party
   
71
   
   
211
   
 
Accrued interest added to loan principal of related party debt
   
1,603
   
1,158
   
4,447
   
3,086
 
Expense associated with stock options issued to non-employee for services
   
   
(2
)
 
1
   
7
 
Management benefit conferred by majority stockholder
   
   
83
   
   
198
 
Gain on sale of investment in common stock
   
   
   
   
(1,376
)
Loss on disposal of fixed assets
   
38
   
4
   
38
   
4
 
Decrease in allowance for impairment of net assets of discontinued operations
   
   
   
   
(148
)
Mark to market adjustment to warrants
   
(64
)
 
   
(230
)
 
 
 
   
(525
)
 
(792
)
 
(3,039
)
 
(1,966
)
Increase (decrease) in operating assets and liabilities:
                 
Accounts receivable
   
   
   
   
6
 
Other assets
   
(8
)
 
32
   
(28
)
 
31
 
Accounts payable, accrued liabilities and interest payable
   
(37
)
 
(4
)
 
708
   
(546
)
Net cash used in operating activities by continuing operations
   
(570
)
 
(764
)
 
(2,359
)
 
(2,475
)
Net cash used in operating activities by discontinued operations
   
(3,471
)
 
(601
)
 
(12,057
)
 
(4,060
)
Net cash used in operating activities
   
(4,041
)
 
(1,365
)
 
(14,416
)
 
(6,535
)
Cash flows from investing activities:
                 
Cash received from sale of investments in common stock, net
   
   
   
   
3,581
 
Net cash used in investing activities of discontinued operations
   
(81
)
 
(277
)
 
(127
)
 
(670
)
Net cash provided by (used in) investing activities
   
(81
)
 
(277
)
 
(127
)
 
2,911
 
Cash flows from financing activities:
                 
Proceeds from issuance of subordinated notes payable to related party
   
4,349
   
2,265
   
14,561
   
11,704
 
Payment of notes payable to third parties
   
(294
)
 
   
(1,326
)
 
 
Purchase and retirement of common stock
         
(21
)
 
   
(21
)
Costs paid by majority stockholder
   
   
   
   
15
 
Net cash provided by (used in) financing activities of discontinued operations
   
1,959
   
(602
)
 
3,158
   
(8,069
)
Net cash provided by financing activities
   
6,014
   
1,642
   
16,393
   
3,629
 
Increase in cash, cash equivalents and restricted cash
   
1,892
   
   
1,850
   
5
 
Cash, cash equivalents and restricted cash at beginning of period
   
2
   
   
44
   
(5
)
Cash, cash equivalents and restricted cash at end of period
 
$
1,894
 
$
 
$
1,894
 
$
 
 
                         
Supplemental schedule of non-cash investing and financing activities:
                 
Disposition of telecommunications business in exchange for assumption of liabilities
 
$
8,014
 
$
 
$
8,014
 
$
 
Discount in connection with convertible note payable to
                         
related party
   
382
   
291
   
1,120
   
853
 
 
                         
Supplemental cash flow information:
                         
Taxes paid
 
$
16
 
$
 
$
16
 
$
11
 
Interest paid
   
70
   
   
322
   
13
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

 
C2 GLOBAL TECHNOLOGIES INC. AND SUBSIDIARIES 
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
 
Note 1 - Description of Business and Principles of Consolidation 
 
The unaudited condensed consolidated financial statements include the accounts of C2 Global Technologies Inc. (formerly Acceris Communications Inc.), and its wholly-owned subsidiaries Acceris Communications Corp. (“ACC”); I-Link Communications Inc., (“ILC”), Transpoint Holdings Corporation, and membership interest in Local Telcom Holdings, LLC (collectively, “Transpoint”), and C2 Communications Technologies Inc. (formerly Acceris Communications Technologies, Inc.). These entities, on a combined basis, are referred to as “C2”, the “Company”, or “we” in these unaudited condensed consolidated financial statements.
 
The Company was incorporated in the State of Florida in 1983 under the name “MedCross, Inc.” which was changed to “I-Link Incorporated” in 1997 and to “Acceris Communications Inc.” in 2003. In August 2005, subsequent to the receipt of shareholder approval, the Company amended its Articles of Incorporation to effect the name change from “Acceris Communications Inc.” to “C2 Global Technologies Inc.” The new name reflects a change in the strategic direction of the Company in light of the disposition of its Telecommunications business, as discussed below.
 
C2 owns certain voice over Internet Protocol (“VoIP”) patents that it seeks to license, including U.S. Patent Nos. 6,243,373 and 6,438,124 (together the “VoIP Patent Portfolio”). Following the disposition of the Telecommunications assets, discussed in Note 7 to these unaudited condensed consolidated financial statements, licensing of intellectual property constitutes the primary business of the Company.
 
All significant intercompany accounts and transactions have been eliminated upon consolidation.
 
Management believes that the unaudited interim data includes all adjustments necessary for a fair presentation. The December 31, 2004 unaudited condensed consolidated balance sheet, as included herein, is derived from the audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). The September 30, 2005 unaudited condensed consolidated financial statements should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2004, filed with the Securities and Exchange Commission.
 
These unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern and, accordingly, do not include any adjustments that might result from the outcome of this uncertainty. The independent registered public accounting firm’s report on the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2004 contained an explanatory paragraph regarding the Company’s ability to continue as a going concern.
 
The results of operations for the three and nine month periods ended September 30, 2005 are not necessarily indicative of those to be expected for the entire year ending December 31, 2005.
 
Note 2 - Summary of Significant Accounting Policies 
 
Net earnings (loss) per share 
 
Basic earnings per share is computed based on the weighted average number of C2 common shares outstanding during the period. Options, warrants, convertible preferred stock and convertible debt are included in the calculation of diluted earnings per share, except when their effect would be anti-dilutive. As the Company has a net loss for the three month period ended September 30, 2004 and the nine month periods ended September 30, 2005 and 2004, basic and diluted loss per share are the same.
 
7

    
Potential common shares that were not included in the computation of diluted earnings per share, because they would have been anti-dilutive, are as follows:
 
 
September 30,
 
   
2005
 
2004
 
           
Assumed conversion of Series N preferred stock
   
24,720
   
24,760
 
Assumed conversion of related party convertible debt
   
3,559,327
   
2,657,886
 
Assumed conversion of third party convertible debt
   
4,177,808
   
 
Assumed exercise of options and warrants to purchase shares of common stock
   
2,129,246
   
2,353,550
 
 
   
9,891,101
   
5,036,196
 
 
Investments 
 
Dividends and realized gains and losses on equity securities are included in other income in the consolidated statements of operations.
 
Investments are accounted for under the cost method, as the equity securities or the underlying common stock are not readily marketable and the Company’s ownership interests do not allow it to exercise significant influence over these entities. The Company monitors these investments for impairment by considering current factors including economic environment, market conditions, operational performance, and other specific factors relating to the business underlying the investment, and will record impairments in carrying values if appropriate. The fair values of the securities are estimated using the best available information as of the evaluation date, including the quoted market prices of comparable public companies, market price of the common stock underlying the preferred stock, recent financing rounds of the investee, and other investee specific information. See Note 5 for further discussion of the Company’s investment in convertible preferred stock.
 
Use of estimates 
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
Significant estimates include revenue recognition, the allowance for doubtful accounts, purchase accounting (including the ultimate recoverability of intangibles and other long-lived assets), valuation of deferred tax assets, and contingencies surrounding litigation. These policies have the potential to have a significant impact on our financial statements, either because of the significance of the financial statement item to which they relate, or because they require judgment and estimation due to the uncertainty involved in measuring, at a specific point in time, events which are continuous in nature.
 
The Company accounts for intangible assets in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations (“SFAS 141”) and SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). All business combinations are accounted for using the purchase method. Goodwill and intangible assets with indefinite useful lives are not amortized, but are tested for impairment at least annually. Intangible assets are recorded based on estimates of fair value at the time of the acquisition.
 
The Company assesses the fair value of goodwill based upon a discounted cash flow methodology. If the carrying amount of the assets exceeds the estimated fair value determined through the discounted cash flow analysis, goodwill impairment may be present. The Company would measure the goodwill impairment loss based upon the fair value of the underlying assets and liabilities, including any unrecognized intangible assets, and estimate the implied fair value of goodwill. An impairment loss would be recognized to the extent that the business’s recorded goodwill exceeded the implied fair value of goodwill.
 
8

The Company performed its annual goodwill impairment test in the third quarter of 2005. No impairment was present upon the performance of these tests in 2005 and 2004. We cannot predict the occurrence of future events that might adversely affect the reported value of goodwill. Such events may include, but are not limited to, strategic decisions made in response to economic and competitive conditions, and judgments on the validity of the Company’s VoIP Patent Portfolio or due to other factors not known to management at this time.
 
Regularly, the Company evaluates whether events or circumstances have occurred that indicate the carrying value of its other amortizable intangible assets may not be recoverable. When factors indicate the asset may not be recoverable, the Company compares the related future net cash flows to the carrying value of the asset to determine if impairment exists. If the expected future net cash flows are less than carrying value, impairment is recognized to the extent that the carrying value exceeds the fair value of the asset.
 
The Company assesses the value of its deferred tax asset, which has been generated by a history of net operating losses, at least annually, and determines the necessity for a valuation allowance. The Company evaluates which portion, if any, will more likely than not be realized by offsetting future taxable income. The determination of that allowance includes a projection of its future taxable income, as well as consideration of any limitations that may exist on its use of its net operating loss carryforwards.
 
The Company is involved from time to time in various legal matters arising out of its operations in the normal course of business. On a case by case basis, the Company evaluates the likelihood of possible outcomes for this litigation. Based on this evaluation, the Company determines whether a liability is appropriate. If the likelihood of a negative outcome is probable, and the amount is estimable, the Company accounts for the liability in the current period. A change in the circumstances surrounding any current litigation could have a material impact on the financial statements.
 
Stock-based compensation 
 
At September 30, 2005, the Company has several stock-based compensation plans, which are described more fully in Note 18 to the audited consolidated financial statements contained in our most recently filed Form 10-K. The Company accounts for these plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations (collectively, “APB 25”). Stock-based employee compensation cost is not reflected in net loss, as all options granted under these plans had an exercise price equal to the market value of the underlying common stock on the date of grant. In December 2004, the Financial Accounting Standards Board (“FASB”) issued a revision to SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123R”). SFAS No. 123R supersedes APB 25. SFAS No. 123R requires that all stock-based compensation, including options, be expensed at fair value as of the grant date over the vesting period. Companies will be required to use an option pricing model (i.e., Black-Scholes or Binomial) to determine compensation expense, consistent with the model used in the already required disclosures of SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure. In April 2005, the SEC issued a release to amend the effective date of compliance with SFAS No. 123R to the first quarter of the first fiscal year beginning after June 15, 2005. The Company expects to adopt SFAS No. 123R on January 1, 2006.

In accordance with SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS 123”), as amended by SFAS No. 148, see below for a tabular presentation of the pro forma stock-based compensation cost, net loss and loss per share as if the fair value-based method of expense recognition and measurement prescribed by SFAS 123 had been applied to all employee options. Options granted to non-employees (excluding options granted to non-employee members of the Company’s Board of Directors for their services as Board members) are recognized and measured using the fair value-based method prescribed by SFAS 123.

9

 
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
 
2005
 
2004
 
2005
 
2004
 
Net income (loss) as reported
 
$
1,770
 
$
(6,867
)
$
(14,446
)
$
(16,291
)
Deduct:
                 
Employee stock-based compensation cost determined under the fair value-based method for all awards, net of $0 tax
   
(180
)
 
116
   
   
454
 
Pro forma net income (loss)
 
$
1,950
 
$
(6,983
)
$
(14,446
)
$
(16,745
)
 
                         
Net earnings (loss) per share, basic and diluted:
                 
As reported
 
$
0.09
 
$
(0.36
)
$
(0.75
)
$
(0.84
)
Pro forma
 
$
0.10
 
$
(0.36
)
$
(0.75
)
$
(0.87
)
 
Most employees participating in the stock-based compensation plan left the Company in conjunction with the disposition of the Telecommunications segment (described in Note 7 to these unaudited condensed consolidated financial statements). In the third quarter of 2005, 411,725 options expired or were cancelled, leaving 1,129,246 options outstanding at September 30, 2005. Of these options, 133,975 will expire if not exercised by December 31, 2005.
 
New Accounting Pronouncements
 
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections (“SFAS No. 154”). SFAS No. 154 replaces Accounting Principles Board Opinion No. 20, Accounting Changes and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the accounting for and reporting of a change in accounting principle. SFAS No. 154 applies to all voluntary changes in accounting principle and to changes required by an accounting pronouncement when specific transition provisions are not provided. SFAS No. 154 requires retrospective application to prior periods' financial statements for changes in accounting principle, unless it is impractical to determine the period specific or cumulative effect of the change. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.
 
Note 3 - Liquidity and Capital Resources.
 
As a result of our substantial operating losses and negative cash flows from operations, at September 30, 2005 we had a stockholders’ deficit of $74,290 (December 31, 2004 - $61,965) and negative working capital of $6,881 (December 31, 2004 - $21,352). The reduction of the working capital deficit is due primarily to the disposition of the Telecommunications business, as discussed in Note 7 of these unaudited condensed consolidated financial statements.
 
During the third quarter of 2005, the Company financed its continuing operations primarily through advances from a related party of $4,349 (YTD - $14,561), while discontinued operations were primarily financed by the buyer of the Telecommunications assets through advances which, at closing, formed additional consideration for the assets disposed of by the Company in the third quarter of 2005. Related party debt, including accrued interest and net of unamortized discount, owed to the Company’s majority stockholder, Counsel Corporation (“Counsel”), is $67,348 at September 30, 2005, compared to $46,015 at December 31, 2004. This related party debt was extended in conjunction with the disposition of the Telecommunications business and now matures on December 31, 2006. The related party debt is supplemented by a Keep Well agreement from Counsel, which requires Counsel to fund, through long-term intercompany advances or equity contributions, all capital investment, working capital or other operational cash requirements through December 31, 2006.
 
10

The Company has not realized significant revenues from continuing operations during the last two years. The Company’s primary source of funding is pursuant to the Keep Well agreement with its majority stockholder, which expires on December 31, 2006, at which time related party debt, currently $71,109, matures. The Company has no certainty that it will obtain significant revenues from its operations or that its majority stockholder will continue, or will have the ability to continue, to support the business beyond its current commitments. The existence of these uncertainties gives rise to significant doubt about the Company’s ability to continue as a going concern.
 
Note 4 - Composition of Certain Financial Statements Captions
 
Furniture, fixtures, equipment and software consisted of the following:
 
December 31, 2004
 
 
 
 
Cost
 
Accumulated
depreciation
 
 
Net
 
Telecommunications equipment
 
$
37
 
$
(5
)
$
32
 
Computer equipment
   
16
   
(4
)
 
12
 
Software and information systems
   
8
   
(2
)
 
6
 
Total furniture, fixtures, equipment and software
 
$
61
 
$
(11
)
$
50
 
 
Intangible assets consisted of the following:
 
September 30, 2005

   
Amortization
     
Accumulated
     
   
Period
 
Cost
 
amortization
 
Net
 
Patent rights
 
 60 months
 
$
100
 
$
(35
)
$
65
 
 
December 31, 2004
 
   
Amortization
     
Accumulated
     
   
Period
 
Cost
 
amortization
 
Net
 
Patent rights
 
 60 months
 
$
100
 
$
(20
)
$
80
 
 
Amortization expense for each of the three month periods ended September 30, 2005 and 2004 was $5. Amortization expense for each of the nine month periods ended September 30, 2005 and 2004 was $15.
 
11

 
Accounts payable and accrued liabilities consisted of the following:

   
September 30, 2005
 
December 31, 2004
 
Regulatory and legal fees
 
$
762
 
$
998
 
Accounting, audit and tax consulting
   
436
   
35
 
Accrued restructuring costs
   
320
   
 
Advisory fees
   
186
   
 
Obligations to equipment suppliers
   
524
   
524
 
Income and sales taxes
   
112
   
87
 
Payroll and benefits
   
46
   
87
 
Other
   
332
   
279
 
Total accounts payable and accrued liabilities
 
$
2,718
 
$
2,010
 
 
Note 5 - Investments 
 
The Company’s investments as of September 30, 2005 consist of a convertible preferred stock holding in AccessLine Communications Corporation, a privately-held corporation. This stock was received as consideration for a licensing agreement (reflected in technology licensing and related services revenues) in the second quarter of 2003, the estimated fair value of which was determined to be $1,100. The fair value of the securities is estimated using the best available information as of the evaluation date, including the quoted market prices of comparable public companies, recent financing rounds of the investee, and other investee specific information.
 
Prior to June 21, 2004, the Company also held an investment in the common stock of Buyers United Inc. (“BUI”), which investment was acquired as consideration received related to the sale of the operations of ILC (see Note 7 to these unaudited condensed consolidated financial statements). At the time of the sale of the ILC business, the purchase price consideration paid by BUI was in the form of convertible preferred stock, with additional shares of preferred stock received subsequently based on contingent earn out provisions in the purchase agreement. In addition, common stock dividends were earned on the preferred stock holding. On March 16, 2004, the Company converted its preferred stock into 1,500,000 shares of BUI common stock, and sold 750,000 shares at $2.30 per share in a private placement transaction. This sale resulted in a gain of approximately $565, which was included in interest and other income in the three months ended March 31, 2004 and was based on specific identification of the securities sold and their related cost basis. Through several open market transactions during the three months ended June 30, 2004, the Company sold the remaining 808,546 of these shares, resulting in a gain of approximately $811, which was included in interest and other income in the three and six months ended June 30, 2004.
 
12

 
Note 6 - Debt
 
A summary of the Company’s outstanding debt is as follows:
 
   
Maturity date
 
September 30,
2005
 
December 31,
2004
 
       
Gross debt
 
Discounts
 
Reported debt
 
Gross debt
 
Discounts
 
Reported debt
 
Convertible note payable1
   
October 14, 2007
 
$
3,676
 
$
(446
)
$
3,230
 
$
5,003
 
$
(605
)
$
4,398
 
                                             
Subordinated notes payable to a related party2
   
December 31, 2006
   
71,109
   
(3,761
)
 
67,348
   
52,100
   
(6,085
)
 
46,015
 
                                             
Common stock warrants
   
October 14, 2009
   
91
   
   
91
   
322
   
   
322
 
                                             
Total outstanding debt
       
$
74,876
 
$
(4,207
)
$
70,669
 
$
57,425
 
$
(6,690
)
$
50,735
 
 
1 On September 30, 2005, the Company, in conjunction with the completion of the sale of the Telecommunications business described in Note 7 of these unaudited condensed consolidated financial statements, agreed to modification to the security interest in the Company held by the convertible note holder as follows: (a) to release the security interest in the assets being disposed of in the sale of the Telecommunications assets, (b) to convert the security interest of the convertible note to the senior debt position, (c) to place $1,800 into a restricted cash account for the benefit of the convertible note holder, the proceeds of which the convertible note holder is authorized to apply toward scheduled monthly payments under the loan agreement.
 
2 Includes accrued interest, which each quarter is added to the principal amounts outstanding. The related party debt is subordinated to the convertible note payable, which is guaranteed by Counsel. The current debt arrangement with the convertible note holder prohibits the repayment of the Counsel debt prior to the repayment or conversion of the convertible debt.
 
Note 7 - Discontinued Operations 
 
Disposition of the Telecommunications Business
 
Commencing in 2001, the Company entered the Telecommunications segment, acquiring certain assets from the estate of WorldxChange Communications Inc. from bankruptcy. In 2002, the Company also acquired certain assets of the estate of RSL.COM USA Inc. from bankruptcy and in 2003 acquired the shares of Transpoint. The Company entered into an Asset Purchase Agreement, dated as of May 19, 2005, to sell substantially all of the assets and to transfer certain liabilities of the Telecommunications segment of the business to Acceris Management and Acquisition LLC (“AMA” or “Buyer”), an arm’s length Minnesota limited liability company and wholly-owned subsidiary of North Central Equity LLC (“NCE”). In addition, on May 19, 2005, the parties executed a Management Services Agreement (“MSA”), Security Agreement, Note, Proxy and Guaranty. This transaction was completed on September 30, 2005.
 
The sale resulted in a gain on disposition of $6,387, net of disposition and business exit costs. In accordance with GAAP, this gain, and the Telecommunications operations for the three and nine months ended September 30, 2005, as well as for all prior periods included in these unaudited condensed consolidated financial statements, have been reported in discontinued operations.
 
13

At the closing of the asset sale transaction, C2’s controlling shareholder, Counsel, agreed to provide a $585 loan to NCE. This loan is repayable over six months on a straight-line basis, subject to a holdback in the amount of $320 relating to recorded liabilities of C2 that had not been settled at closing. In conjunction with the closing and the expiration of the MSA, referenced above, the Company and AMA entered into a second Management Services Agreement (“MSA2”) under which the Company has agreed to continue to provide services in certain states where the Buyer, at closing, had not obtained authorization to provide telecommunications services. The Company will be charged a management fee equal to the revenue earned from providing these services by the Buyer. The above is a summary description of the MSA2 and by its nature is incomplete.
 
The following tables provide additional information with respect to the assets that were disposed of, the liabilities that were assumed in the described transaction, and the operating results of the discontinued operations:
 
 
Assets and liabilities - Discontinued Operations
 
September 30, 2005
 
December 31, 2004
 
Cash and cash equivalents
 
$
1,184
 
$
414
 
Accounts receivable, net
   
10,288
   
13,079
 
Other current assets
   
1,021
   
1,472
 
 Total current assets
   
12,493
   
14,965
 
               
Furniture, fixtures, equipment and software, net
   
1,766
   
4,102
 
Intangible assets, net
   
809
   
1,324
 
Goodwill
   
947
   
947
 
Other assets
   
617
   
1,012
 
Total assets
   
16,632
   
22,350
 
               
Senior secured revolving credit facility
   
5,431
   
4,725
 
Accounts payable and accrued liabilities
   
12,710
   
25,299
 
Unearned revenue
   
622
   
959
 
Subordinated note payable
   
4,000
   
-
 
Current portion of notes payable to third parties
   
199
   
160
 
Obligations under capital leases
   
-
   
1,441
 
 Total current liabilities
   
22,962
   
32,584
 
               
Notes payable to third parties, less current portion
   
500
   
645
 
Total liabilities
   
23,462
   
33,229
 
               
Net liabilities
 
$
6,830
 
$
10,879
 
 
14

 
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
Statements of Income - Discontinued Operations
 
2005
 
2004
 
2005
 
2004
 
                   
Revenues
 
$
20,222
 
$
27,390
 
$
63,715
 
$
88,532
 
                           
Operating costs and expenses:
                         
Telecommunications network expense1 
   
12,358
   
15,349
   
39,454
   
47,461
 
Selling, general and administrative
   
8,466
   
13,213
   
27,560
   
40,436
 
Provision for doubtful accounts
   
552
   
941
   
2,216
   
3,908
 
Depreciation and amortization
   
626
   
1,515
   
2,988
   
4,862
 
Total operating costs and expenses
   
22,002
   
31,018
   
72,218
   
96,667
 
Operating loss
   
(1,780
)
 
(3,628
)
 
(8,503
)
 
(8,135
)
Other income (expense):
                         
Interest expense
   
(326
)
 
(707
)
 
(1,393
)
 
(2,187
)
Interest and other income
   
11
   
205
   
42
   
1,079
 
Total other income (expense)
   
(315
)
 
(502
)
 
(1,351
)
 
(1,108
)
Loss before gain on sale of business
   
(2,095
)
 
(4,130
)
 
(9,854
)
 
(9,243
)
                           
Gain on sale of business (net of $0 tax)
   
6,387
   
-
   
6,387
   
-
 
                           
Net income (loss) - discontinued operations (net of $0 tax)
 
$
4,292
 
$
(4,130
)
$
(3,467
)
$
(9,243
)

1 Exclusive of depreciation expense on telecommunications network assets of $166 and $1,222 for the three months ended September 30, 2005 and 2004, respectively, and $1,545 and $3,861 for the nine months ended September 30, 2005 and 2004, respectively, included in depreciation and amortization.
 
The gain on the sale of the Telecommunications business was determined as follows:
       
Consideration received:
     
Assumption of liabilities by buyer
 
$
23,462
 
Less: Book value of assets disposed
   
(16,632
)
     
6,830
 
         
Less:
       
Investment banker fees associated with disposition
   
(279
)
Other costs associated with disposition
   
(164
)
         
Net gain on sale of business
 
$
6,387
 

15

 
Following the sale, the Company retained the following discontinued liabilities:

Liabilities of Discontinued Operations
 
September 30, 2005
 
Legal and regulatory
 
$
2,998
 
Telecom and related
   
384
 
Income and sales taxes
   
395
 
Other
   
543
 
Total liabilities
 
$
4,320
 
 
Sale of assets of ILC
 
On December 6, 2002, the Company entered into an agreement to sell substantially all of the assets and customer base of ILC to BUI. The sale included the physical assets required to operate C2’s nationwide network using its patented VoIP technology (constituting the core business of ILC) and a license in perpetuity to use C2’s proprietary software platform. The sale closed on May 1, 2003 and provided for a post-closing cash settlement between the parties. The sale price consisted of 300,000 shares of Series B convertible preferred stock (8% dividend) of BUI, subject to adjustment in certain circumstances, of which 75,000 shares were subject to an earn-out provision. The earn-out took place on a monthly basis over a fourteen-month period which began January 2003. The Company recognized the value of the earn-out shares as additional sales proceeds when earned. During the year ending December 31, 2003, 64,286 shares of the contingent consideration were earned and were included as a component of gain (loss) from discontinued operations. The fair value of the 225,000 shares (non-contingent consideration to be received) of BUI convertible preferred stock was determined to be $1,350 as of December 31, 2002. As of December 31, 2003, the combined fair value of the original shares (225,000) and the shares earned from the contingent consideration (64,286 shares) was determined to be $1,916. The value of the shares earned from the contingent consideration was included in the calculation of gain from discontinued operations for the year ended December 31, 2003. As additional contingent consideration was earned, it was recorded as a gain from discontinued operations. In the first quarter of 2004, the Company recorded a gain from discontinued operations of $104. This gain was due to the receipt in January 2004 of the remaining 10,714 shares of common stock as contingent consideration, which is recorded as additional gain from discontinued operations.
 
Upon closing of the sale, BUI assumed all operational losses from December 6, 2002. Accordingly, the gain of $529 for the year ended December 31, 2003 included the increase in the sales price for the losses incurred since December 6, 2002. In the year ended December 31, 2002, the Company recorded a loss from discontinued operations related to ILC of $12,508. No income tax provision or benefit was recorded on discontinued operations.
 
Note 8 - Other Income  
 
During the third quarter of 2005, the Company entered into settlement agreements with certain carriers, which resulted in the recovery of receivables that were fully reserved against when acquired in 2001 as part of the acquisition of the assets of WorldxChange Communications Inc. from bankruptcy. As a result of these agreements, $160 was received, and has been recorded in interest and other income in the accompanying unaudited condensed consolidated financial statement of operations for the three and nine months ended September 30, 2005. Subsequent to the end of the third quarter, the Company entered into two additional settlement agreements of a similar nature, which will result in $910 being recorded as other income in the fourth quarter of 2005.
 
Note 9 - Exchange of Assets for Royalty Agreement
 
At the end of September 2005, the Company entered into a 12 year royalty agreement with a company controlled by an employee, and also provided for continued consulting services from the employee until April 30, 2006. The Company advanced a loan of $140, with repayment contingent upon future royalties. Additionally, the Company contributed furniture, fixtures, equipment and software with a book value of $38 and assigned an operating lease obligation to the employee’s company. At the end of the current reporting period, due to the absence of certainty pertaining to any future economic benefit from the loan, the Company has expensed the loan.
 
16

 
Note 10 - Income Taxes
 
     The Company recognized no income tax benefit from the losses generated in the nine months ended September 30, 2005 and 2004 because of the uncertainty surrounding the realization of the related deferred tax asset. Pursuant to Section 382 of the Internal Revenue Code, annual usage of the Company’s net operating loss carryforwards, prior to the sale of the Company’s Telecommunications business, was limited to approximately $6,700 per annum until 2008 and $1,700 per annum thereafter as a result of previous cumulative changes of ownership resulting in a change of control of the Company. After the completion of this transaction, the annual usage of the Company’s net operating loss carryforwards is further limited to approximately $2,500 per annum until 2008 and $1,700 per annum thereafter. These rules in general provide that an ownership change occurs when the percentage shareholdings of 5% direct or indirect shareholders of a loss corporation have in aggregate increased by more than 50 percentage points during the immediately preceding three years. Restrictions in net operating loss carry forwards occurred in 2001 as a result of the acquisition of the Company by Counsel. Further restrictions may have occurred as a result of subsequent changes in the share ownership and capital structure of the Company and Counsel. There is no certainty that the application of these rules may not reoccur resulting in further restrictions on the Company’s income tax loss carry forwards existing at a particular time. In addition, further restrictions or reductions in net operating loss carryforwards may occur through future merger, acquisition and/or disposition transactions. Any such additional limitations could require the Company to pay income taxes in the future and record an income tax expense to the extent of such liability despite the existence of loss carryforwards.
 
Note 11 - Related Party Transactions
 
     During the nine months ended September 30, 2005, Counsel advanced $14,561 and converted $4,447 of interest payable to principal. All loans from Counsel mature on December 31, 2006 and accrue interest at rates ranging from 9% to 10%, with interest compounding quarterly. Some of the loans are subject to an accelerated maturity in certain circumstances. At September 30, 2005, the closing of the sale of the Telecommunications business, which is discussed in more detail in Note 7 to these unaudited condensed consolidated financial statements, invoked the accelerated provisions of these loans. Counsel, in conjunction with the sale, waived the acceleration rights invoked by virtue of the sale and continues to retain its acceleration rights related to future events. On May 16, 2005, Counsel agreed, subject to the completion of the disposition of the Telecommunications operations, to extend its Keep Well through December 31, 2006 and to extend its related party loans through the same period. The Keep Well requires Counsel to fund, through long-term intercompany advances or equity contributions, all capital investment, working capital or other operational cash requirements.
 
     Allan Silber, the Chief Executive Officer (“CEO”) of C2, is an employee of Counsel. As CEO of C2, until June 30, 2005 he was entitled to an annual salary of $275 and a discretionary bonus of up to 100% of the base salary. Effective July 1, 2005, to reflect the reduced complexity of C2’s business following the disposition of the Telecommunications operations, Mr. Silber agreed to reduce his annual base salary to $138 going-forward, plus a discretionary bonus of 100% of the base salary. Such compensation is expensed and paid by C2.
 
The Company entered into a Management Services Agreement (the “Agreement”) with Counsel, dated December 23, 2004. Under the terms of the Agreement, the Company agreed to make payment to Counsel for the past and future services to be provided by Counsel personnel (excluding Allan Silber, Counsel’s Chairman, President and CEO and the Company’s Chairman and CEO) to the Company for the calendar years of 2004 and 2005. The basis for such services charged is an allocation, on a cost basis, based on time incurred, of the base compensation paid by Counsel to those employees providing services to the Company. The cost of such services was $280 for the year ended December 31, 2004. Services for 2005 are being determined on the same basis. For each fiscal quarter, Counsel provides the details of the charge for services by individual, including respective compensation and their time allocated to the Company. For the first nine months of 2005, the cost was $338. In accordance with the terms of the convertible note payable, amounts owing to Counsel cannot be repaid while amounts remain owing under the convertible note payable. The foregoing fees for 2004 and 2005 are due and payable within 30 days following the respective year ends, subject to applicable restrictions. Any unpaid fee amounts will bear interest at 10% per annum commencing on the day after such year end. In the event of a change of control, merger or similar event of the Company, all amounts owing, including fees incurred up to the date of the event, will become due and payable immediately upon the occurrence of such event. The Agreement does not guarantee the personal services of any specific individual at the Company throughout the term of the agreement and the Company will have to enter into a separate personal services arrangement with such individual should their specific services be required. During the first nine months of 2005, the Company did not enter into any such agreements.
 
17

 
Counsel entered into compensation arrangements with one of its executive officers relating to the retention of the personal services of the executive through the disposition of C2’s Telecommunications business. Counsel also entered into a contract with the executive related to the disposition of C2’s Telecommunications business. The fair value of these contracts is $1,000 and has been recorded by the Company as a conferral of a $1,000 benefit to the Company from its controlling shareholder, as required under GAAP. The amount has been reported as an expense of the discontinued operations, and has been credited to contributed surplus. There are no economic consequences to C2 as the result of this conferral of benefit.
 
Note 12 - Commitments and Contingencies 
 
Legal Proceedings
 
On April 16, 2004, certain stockholders of the Company (the “Plaintiffs”) filed a putative derivative complaint in the Superior Court of the State of California in and for the County of San Diego, (the “Complaint”) against the Company, WorldxChange Corporation (sic), Counsel Communications LLC, and Counsel Corporation as well as certain present and former officers and directors of the Company, some of whom also are or were directors and/or officers of the other corporate defendants (collectively, the “Defendants”). The Complaint alleges, among other things, that the Defendants, in their respective roles as controlling stockholder and directors and officers of the Company committed breaches of the fiduciary duties of care, loyalty and good faith and were unjustly enriched, and that the individual Defendants committed waste of corporate assets, abuse of control and gross mismanagement. The Plaintiffs seek compensatory damages, restitution, disgorgement of allegedly unlawful profits, benefits and other compensation, attorneys’ fees and expenses in connection with the Complaint. The Company believes that these claims are without merit and intends to continue to vigorously defend this action. There is no assurance that this matter will be resolved in the Company’s favor and an unfavorable outcome of this matter could have a material adverse impact on its business, results of operations, financial position or liquidity.
 
C2 and several of C2’s current and former executives and board members were named in a securities action filed in the Superior Court of the State of California in and for the County of San Diego (the “Court”) on April 16, 2004, in which the plaintiffs made claims nearly identical to those set forth in the Complaint in the derivative suit described above. The Company believes that these claims are without merit and intends to vigorously defend this action. There is no assurance that this matter will be resolved in the Company’s favor and an unfavorable outcome of this matter could have a material adverse impact on its business, results of operations, financial position or liquidity. At a September 2, 2005 case management conference, the Court set June 16, 2006 as the trial date for this action and indicated that a trial regarding the derivative action described above would immediately follow.
 
In connection with the Company’s efforts to enforce its patent rights, C2 Communications Technologies Inc., our wholly owned subsidiary, filed a patent infringement lawsuit against ITXC Corp. (“ITXC”) in the United States District Court of the District of New Jersey on April 14, 2004. The complaint alleges that ITXC’s VoIP services and systems infringe the Company’s U.S. Patent No. 6,243,373, entitled “Method and Apparatus for Implementing a Computer Network/Internet Telephone System.” On May 7, 2004, ITXC filed a lawsuit against C2 Communications Technologies Inc., and the Company, in the United States District Court for the District of New Jersey for infringement of five ITXC patents relating to VoIP technology, directed generally to the transmission of telephone calls over the Internet and the completion of telephone calls by switching them off the Internet and onto a public switched telephone network. The Company believes that the allegations contained in ITXC’s complaint are without merit and the Company intends to continue to provide a vigorous defense to ITXC’s claims. There is no assurance that this matter will be resolved in the Company’s favor and an unfavorable outcome of this matter could have a material adverse impact on its business, results of operations, financial position or liquidity.
 
18

 
At our Adjourned Meeting of Stockholders held on December 30, 2003, our stockholders, among other things, approved an amendment to our Articles of Incorporation, deleting Article VI thereof (regarding liquidations, reorganizations, mergers and the like). Stockholders who were entitled to vote at the meeting and advised us in writing, prior to the vote on the amendment, that they dissented and intended to demand payment for their shares if the amendment was effectuated, were entitled to exercise their appraisal rights and obtain payment in cash for their shares under Sections 607.1301 - 607.1333 of the Florida Business Corporation Act (the “Florida Act”), provided their shares were not voted in favor of the amendment. In January 2004, we sent appraisal notices in compliance with Florida corporate statutes to all stockholders who had advised us of their intention to exercise their appraisal rights. The appraisal notices included our estimate of fair value of our shares, at $4.00 per share on a post-split basis. These stockholders had until February 29, 2004 to return their completed appraisal notices along with certificates for the shares for which they were exercising their appraisal rights. Approximately 33 stockholders holding approximately 74,000 shares of our stock returned completed appraisal notices by February 29, 2004. A stockholder of 20 shares notified us of his acceptance of our offer of $4.00 per share, while the stockholders of the remaining shares did not accept our offer. Subject to the qualification that, in accordance with the Florida Act, we may not make any payment to a stockholder seeking appraisal rights if, at the time of payment, our total assets are less than our total liabilities, stockholders who accepted our offer to purchase their shares at the estimated fair value will be paid for their shares within 90 days of our receipt of a duly executed appraisal notice. If we should be required to make any payments to dissenting stockholders, Counsel will fund any such amounts through the purchase of shares of our common stock. Stockholders who did not accept our offer were required to indicate their own estimate of fair value, and if we do not agree with such estimates, the parties are required to go to court for an appraisal proceeding on a individual basis, in order to establish fair value. Because we did not agree with the estimates submitted by most of the dissenting stockholders, we have sought a judicial determination of the fair value of the common stock held by the dissenting stockholders. On June 24, 2004, we filed suit against the dissenting stockholders seeking a declaratory judgment, appraisal and other relief in the Circuit Court for the 17th Judicial District in Broward County, Florida. On February 4, 2005, the declaratory judgment action was stayed pending the resolution of the direct and derivative lawsuits filed in California. This decision was made by the judge in the Florida declaratory judgment action due to the similar nature of certain allegations brought by the defendants in the declaratory judgment matter and the California lawsuits described above. On March 7, 2005, the dissenting shareholders appealed the decision of the District Court judge to the Fourth District Court of Appeals for the State of Florida, which denied the appeal on June 21, 2005. When the declaratory judgment matter resumes, there is no assurance that this matter will be resolved in our favor and an unfavorable outcome of this matter could have a material adverse impact on our business, results of operations, financial position or liquidity.
 
The Company is involved in various other legal matters arising out of its operations in the normal course of business, none of which are expected, individually or in the aggregate, to have a material adverse effect on the Company.
 
Note 13 - Agent Warrant Program 
 
     During the first quarter of 2004, the Company launched the Acceris Communications Inc. Platinum Agent Program (the “Agent Warrant Program”). The Agent Warrant Program provided for the issuance, to participating independent agents, of warrants to purchase up to 1,000,000 shares of the Company’s common stock. The Agent Warrant Program was established to encourage and reward consistent, substantial and persistent production by selected commercial agents in the telecommunications business serving the Company’s domestic markets and to strengthen the Company’s relationships with these agents by granting long-term incentives in the form of the warrants to purchase the Company’s common stock at current price levels. The Agent Warrant Program was administered by the Compensation Committee of the Board of Directors of the Company.
 
19

     The Company discontinued its Agent Warrant Program during the third quarter of 2005. The Company accounted for the warrants issued under the plan under the provisions of the FASB’s Emerging Issue Task Force’s (“EITF”) Issue No. 96-18, and, accordingly, no expense has been recognized in the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2005.
 
20

 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 
 
The following discussion should be read in conjunction with the information contained in the unaudited condensed consolidated financial statements of the Company and the related notes thereto, appearing elsewhere herein, and in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in the Company’s Form 10-K for the year ended December 31, 2004, filed with the Securities and Exchange Commission (“SEC”). All numbers are in thousands of dollars except for share and per share data.
 
Forward Looking Information 
 
     This report contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended, which are based on management’s exercise of business judgment as well as assumptions made by and information currently available to, management. When used in this document, the words “may”, "will”, “anticipate”, “believe”, “estimate”, “expect”, “intend” and words of similar import, are intended to identify any forward-looking statements. You should not place undue reliance on these forward-looking statements. These statements reflect our current view of future events and are subject to certain risks and uncertainties as in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission, and as noted below. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results could differ materially from those anticipated in these forward-looking statements. We undertake no obligation, and do not intend, to update, revise or otherwise publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of any unanticipated events. Although we believe that our expectations are based on reasonable assumptions, we can give no assurance that our expectations will materialize. 
 
Overview and Recent Developments
 
C2 Global Technologies Inc. (“C2” or the “Company”) was incorporated in the State of Florida in 1983 under the name “MedCross, Inc.” which was changed to “I-Link Incorporated” in 1997 and to “Acceris Communications Inc.” in 2003. Subsequent to the receipt of shareholder approval of the proposed name change at the 2005 Annual Shareholder Meeting held on August 5, 2005, the Company amended its Articles of Incorporation to effect the name change from “Acceris Communications Inc.” to “C2 Global Technologies Inc.” The new name reflects a change in the strategic direction of the Company in light of the disposition of its Telecommunications business, as discussed below.
 
C2 owns certain voice over Internet Protocol (“VoIP”) patents which it seeks to license, including U.S. Patent Nos. 6,243,373 and 6,438,124 (together the “VoIP Patent Portfolio”). Following the sale of the Telecommunications assets, described below, licensing of intellectual property constitutes the primary business of the Company.
 
The Company achieved two major milestones in the quarter ended September 30, 2005 that are expected to contribute to the long term success of C2:
 
·  
Completed the disposition of the Telecommunications business, recording a net gain on sale of $6,387 and the accompanying extinguishment of $23,462 of third party obligations. The completion of this transaction resulted in the extension of related party debt through to December 31, 2006, and the securing of funding to pursue our business strategy through the same date, via a Keep Well agreement with our controlling shareholder, Counsel Corporation (“Counsel”).
 
·  
Was awarded patents in VoIP technology from the People’s Republic of China and in Canada, corresponding to U.S. Patent No. 6,243,373.
 
21

Company History
 
In 1994, we began operating as an Internet service provider and quickly identified that the emerging Internet Protocol (“IP”) environment was a promising basis for enhanced service delivery. We soon turned to designing and building an IP telecommunications platform consisting of proprietary software, hardware and leased telecommunications lines. The goal was to create a platform with the quality and reliability necessary for voice transmission.
 
In 1997, we started offering enhanced services over a mixed IP-and-circuit-switched network platform. These services offered a blend of traditional and enhanced communication services and combined the inherent cost advantages of an IP-based network with the reliability of the existing Public Switched Telephone Network (“PSTN”).
 
In August 1997, we acquired MiBridge, Inc. (“MiBridge”), a communications technology company engaged in the design, development, integration and marketing of a range of software telecommunications products that support multimedia communications over the PSTN, local area networks (“LANs”) and IP networks. The acquisition of MiBridge permitted us to accelerate the development and deployment of IP technology across our network platform.
 
In 1998, we first deployed our real-time IP communications network platform. With this new platform, all core operating functions such as switching, routing and media control became software-driven. This new platform represented the first nationwide, commercially viable VoIP platform of its kind. Following the launch of our software-defined VoIP platform in 1998, we continued to refine and enhance the platform to make it even more efficient and capable for our partners and customers.
 
In 2002, the U.S. Patent and Trademark Office issued a patent (No. 6,438,124, the “C2 Patent”) for the Company’s Voice Internet Transmission System. Filed in 1996, the C2 Patent reflects foundational thinking, application, and practice in the VoIP Services market. The C2 Patent encompasses the technology that allows two parties to converse phone-to-phone, regardless of the distance, by transmitting voice/sound via the Internet. No special telephone or computer is required at either end of the call. The apparatus that makes this technically possible is a system of Internet access nodes, or Voice Engines (VoIP Gateways). These local Internet Voice Engines provide digitized, compressed, and encrypted duplex or simplex Internet voice/sound. The end result is a high-quality calling experience whereby the Internet serves only as the transport medium and as such, can lead to reduced toll charges. In conjunction with the issuance of our core C2 Patent, we disposed of our domestic U.S. VoIP network in a transaction with Buyers United, Inc. (“BUI”), which closed on May 1, 2003. The sale included the physical assets required to operate our nationwide network using our patented VoIP technology (constituting the core business of the I-Link Communications Inc. (“ILC”) business) and included a fully paid non-exclusive perpetual license to our proprietary software-based network convergence solution for voice and data. The sale of the ILC business removed essentially all operations that did not pertain to our proprietary software-based convergence solution for voice and data. As part of the sale, we retained all of our intellectual and property rights and patents.
 
In 2003, we added to our VoIP Patent Portfolio when we acquired U.S. Patent No. 6,243,373 (the “VoIP Patent”), which included a corresponding foreign patent and related international patent applications. The VoIP Patent, together with the existing C2 Patent and its related international patent applications, form our international VoIP Patent Portfolio that covers the basic process and technology that enables VoIP communication as it is used in the market today. Telecommunications companies that enable their customers to originate a phone call on a traditional handset, transmit any part of that call via IP, and then terminate the call over the traditional telephone network, are utilizing C2’s patented technology.
 
The comprehensive nature of the VoIP Patent, which is titled “Method and Apparatus for Implementing a Computer Network/Internet Telephone System”, is summarized in the patent’s abstract, which describes the technology as follows: “A method and apparatus are provided for communicating audio information over a computer network. A standard telephone connected to the PSTN may be used to communicate with any other PSTN-connected telephone, where a computer network, such as the Internet, is the transmission facility instead of conventional telephone transmission facilities.” In conjunction with the acquisition of the VoIP Patent, we agreed to give the vendor 35% of the net earnings from our VoIP Patent Portfolio.
 
22

Intellectual property
 
In addition to the C2 and VoIP Patents, which cover the foundation of any VoIP system, our VoIP architecture patent portfolio includes:
 
Private IP Communication Network Architecture (Pending) - A disclosed Internet Linked Network Architecture delivers telecommunication type services across a network utilizing digital technology. The unique breadth and flexibility of telecommunication services offered by the Internet Linked Network Architecture flow directly from the network over which they are delivered and the underlying design principles and architectural decisions employed during its creation.
 
C2 also owns intellectual property that solves VoIP conferencing problems:
 
Delay Synchronization in Compressed Audio Systems - This invention eliminates objectionable popping and clicking when switching between parties (conferees) in a communications conferencing system employing signal compression techniques to reduce bandwidth requirements.
 
Volume Control Arrangement for Compressed Information Signals - This invention allows for modifying amplitude, frequency or phase characteristics of an audio or video signal in a compressed signal system without altering the encoder or decoder employed by each conferee in communications information conferencing.
 
Below is a summary of the Company’s issued and pending patents:
 
Type
 
Title
 
Number
 
Status
             
VoIP Architecture
 
Computer Network/Internet Telephone System
 
U.S. No. 6,243,373
Australia No. 716096
People’s Republic of China Application No. 96199457.6
Canada No. 2,238,867
 
Issued
             
   
Internet Transmission System
 
U.S. No. 6,438,124
People’s Republic of China No. ZL97192954.8
 
Issued
             
   
Private IP Communication Network Architecture
 
Confidential
 
Pending
             
Conferencing
 
Delay Synchronization in Compressed Audio System
 
U.S. No. 5,754,534
 
Issued
             
   
Volume Control Arrangement for Compressed Information Signal Delays
 
U.S. No. 5,898,675
 
Issued
             
Fax
 
Facsimile Transmission System
 
Confidential
 
Pending
 
Together, these patented technologies have been successfully deployed and commercially proven in a nationwide IP network and in C2’s unified messaging service, Application Program Interface and software licensing businesses. The Company is engaged in licensing discussions with third parties domestically and internationally. At present, no royalties are being paid to the Company. We plan to enforce our patents, including retaining outside counsel, to realize value from our intellectual property by offering licenses to service providers, equipment companies and end-users who are deploying VoIP networks for phone-to-phone communications. In this regard, the Company has entered into a contingency arrangement with a third party with expertise in the enforcement of intellectual property rights.
 
23

Disposition of the Telecommunications Business
 
Commencing in 2001, the Company entered the Telecommunications segment, acquiring certain assets from the estate of WorldxChange Communications Inc. from bankruptcy. In 2002, the Company also acquired certain assets of the estate of RSL.COM USA Inc. from bankruptcy and in 2003 acquired the shares of Transpoint. The Company entered into an Asset Purchase Agreement (“APA”), dated as of May 19, 2005, to sell substantially all of the assets and to transfer certain liabilities of the Telecommunications segment of the business to Acceris Management and Acquisition LLC (“AMA” or “Buyer”), a Minnesota limited liability company and wholly-owned subsidiary of North Central Equity LLC (“NCE”). In addition, on May 19, 2005, the parties executed a Management Services Agreement (“MSA”), Security Agreement, Note, Proxy and Guaranty. This transaction was completed on September 30, 2005.
 
The sale resulted in a gain on disposition of $6,387, net of disposition and business exit costs. In accordance with GAAP, this gain, and the Telecommunications operations for the three and nine months ended September 30, 2005, as well as for all prior periods included in these unaudited condensed consolidated financial statements, have been reported in discontinued operations.
 
At the closing of the asset sale transaction, C2’s controlling shareholder, Counsel, agreed to provide a $585 loan to NCE. This loan is repayable over six months on a straight-line basis, subject to a holdback in the amount of $320 relating to recorded liabilities of C2 that had not been settled at closing. In conjunction with the closing and the expiry of the MSA, referenced above, the Company and AMA entered into a second Management Services Agreement (“MSA2”) under which the Company has agreed to continue to provide services in certain states where the Buyer, at closing, had not obtained authorization to provide telecommunications services. The Company will be charged a management fee equal to the revenue earned from providing these services by the Buyer. The above is a summary description of the MSA2 and by its nature is incomplete. It is qualified in its entirety by the text of the MSA2, a copy of which is attached to this quarterly report as Exhibit 10.5.
 
The following tables provide additional information with respect to the assets that were disposed of, the liabilities that were assumed in the described transaction, and the operating results of the discontinued operations:
 
24

 
 
Assets and liabilities - Discontinued Operations
 
September 30, 2005
 
December 31, 2004
 
Cash and cash equivalents
 
$
1,184
 
$
414
 
Accounts receivable, net
   
10,288
   
13,079
 
Other current assets
   
1,021
   
1,472
 
 Total current assets
   
12,493
   
14,965
 
               
Furniture, fixtures, equipment and software, net
   
1,766
   
4,102
 
Intangible assets, net
   
809
   
1,324
 
Goodwill
   
947
   
947
 
Other assets
   
617
   
1,012
 
Total assets
   
16,632
   
22,350
 
               
Senior secured revolving credit facility
   
5,431
   
4,725
 
Accounts payable and accrued liabilities
   
12,710
   
25,299
 
Unearned revenue
   
622
   
959
 
Subordinated note payable
   
4,000
   
-
 
Current portion of notes payable to third parties
   
199
   
160
 
Obligations under capital leases
   
-
   
1,441
 
 Total current liabilities
   
22,962
   
32,584
 
               
Notes payable to third parties, less current portion
   
500
   
645
 
Total liabilities
   
23,462
   
33,229
 
               
Net liabilities
 
$
6,830
 
$
10,879
 
 
25


 
 
Three months ended September 30,
 
Nine months ended September 30,
 
Statements of Income - Discontinued Operations
 
2005
 
2004
 
2005
 
2004
 
                   
Revenues
 
$
20,222
 
$
27,390
 
$
63,715
 
$
88,532
 
                           
Operating costs and expenses:
                         
Telecommunications network expense1 
   
12,358
   
15,349
   
39,454
   
47,461
 
Selling, general and administrative
   
8,466
   
13,213
   
27,560
   
40,436
 
Provision for doubtful accounts
   
552
   
941
   
2,216
   
3,908
 
Depreciation and amortization
   
626
   
1,515
   
2,988
   
4,862
 
Total operating costs and expenses
   
22,002
   
31,018
   
72,218
   
96,667
 
Operating loss
   
(1,780
)
 
(3,628
)
 
(8,503
)
 
(8,135
)
Other income (expense):
                         
Interest expense
   
(326
)
 
(707
)
 
(1,393
)
 
(2,187
)
Interest and other income
   
11
   
205
   
42
   
1,079
 
Total other income (expense)
   
(315
)
 
(502
)
 
(1,351
)
 
(1,108
)
Loss before gain on sale of business
   
(2,095
)
 
(4,130
)
 
(9,854
)
 
(9,243
)
                           
Gain on sale of business (net of $0 tax)
   
6,387
   
-
   
6,387
   
-
 
                           
Net income (loss) - discontinued operations (net of $0 tax)
 
$
4,292
 
$
(4,130
)
$
(3,467
)
$
(9,243
)

1 Exclusive of depreciation expense on telecommunications network assets of $166 and $1,222 for the three months ended September 30, 2005 and 2004, respectively, and $1,545 and $3,861 for the nine months ended September 30, 2005 and 2004, respectively, included in depreciation and amortization.
 
The gain on the sale of the Telecommunications business was determined as follows:
       
Consideration received:
     
Assumption of liabilities by buyer
 
$
23,462
 
Less: Book value of assets disposed
   
(16,632
)
     
6,830
 
Less:
       
Investment banker fees associated with disposition
   
(279
)
Other costs associated with disposition
   
(164
)
         
Net gain on sale of business
 
$
6,387
 
 
26

Following the sale, the Company retained the following discontinued liabilities:

Liabilities of Discontinued Operations
 
September 30, 2005
 
Legal and regulatory
 
$
2,998
 
Telecom and related
   
384
 
Income and sales taxes
   
395
 
Other
   
543
 
Total liabilities
 
$
4,320
 
 
Industry
 
Historically, the communications services industry has transmitted voice and data over separate networks using different technologies. Traditional carriers have typically built telephone networks based on circuit switching technology, which establishes and maintains a dedicated path for each telephone call until the call is terminated.
 
The communications services industry continues to evolve, both domestically and internationally, providing significant opportunities and risks to the participants in these markets. Factors that have been driving this change include:
 
 
entry of new competitors and investment of substantial capital in existing and new services, resulting in significant price competition
       
 
 
technological advances resulting in a proliferation of new services and products and rapid increases in network capacity
 
         
 
The Telecommunications Act of 1996, as amended (“1996 Act”); and
 
         
 
growing deregulation of communications services markets in the United States and in selected countries around the world
 
 
VoIP is a technology that can replace the traditional telephone network. This type of data network is more efficient than a dedicated circuit network because the data network is not restricted by the one-call, one-line limitation of a traditional telephone network. This improved efficiency creates cost savings that can be either passed on to the consumer in the form of lower rates or retained by the VoIP provider. In addition, VoIP technology enables the provision of enhanced services such as unified messaging.
 
Competition
 
We are seeking to have telecommunications service providers (“TSPs”) and equipment suppliers (“ESs”) license our technology and patent rights based on our work to date in VoIP technology, which commenced in 1994. In this regard, our competition is existing technology, outside the scope of our patents, which allows TSPs and ESs to deliver communication services to their customers. Several carriers have also recently announced that they are seeking injunction or licensing arrangements for third parties relating to their VoIP patents.
 
VoIP is in the early stage of adoption by telecommunications companies. While we and many others believe that we will see the proliferation of this technology in the coming years, and while we believe that this proliferation will occur within the context of our patents, there is no certainty that this will occur and that it will occur in a manner that requires organizations to license our patents.
 
Risk Factors
 
Many factors could cause actual results to differ materially from our forward-looking statements. Several of these factors, which are more fully discussed in our Annual Report on Form 10-K for the year ended December 31, 2004, filed with the SEC, include, without limitation: 
 
1)  
Our ability to license our intellectual property in the area of VoIP;
 
27

2)  
Adoption of new, or changes in, accounting principles;
 
3)  
The ability of our controlling shareholder to fund our operations, as contracted, through December 31, 2006; and
 
4)  
Other risks referenced from time to time in our filings with the SEC and other regulatory bodies.
 
Critical Accounting Estimates 
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to intangible assets, contingencies, collectibility of receivables and litigation. Management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
 
The critical accounting estimates used in the preparation of our consolidated financial statements are discussed in our Annual Report on Form 10-K for the year ended December 31, 2004. To aid in the understanding of our financial reporting, a summary of significant accounting policies are described in Note 2 of the unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q. These policies have the potential to have a significant impact on our financial statements, either because of the significance of the financial statement item to which they relate, or because they require judgment and estimation due to the uncertainty involved in measuring, at a specific point in time, events which are continuous in nature.
 
28

 
Contractual Obligations
 
        The following table summarizes the amounts of payments due under specified contractual obligations as of September 30, 2005: 
 
 
 
Payments Due by Period
 
Contractual Obligations
 
Less than
1 Year
 
1 - 3 Years
 
4 - 5
Years
 
More than
5 Years
 
Long-term debt obligations, excluding interest
 
$
1,765
 
$
73,020
 
$
 
$
 
                           
Common stock warrants
   
   
   
91
       
                           
Operating lease obligations
   
4
   
   
   
 
 
                         
Total
 
$
1,769
 
$
73,020
 
$
91
 
$
 
 
Management’s Discussion of Financial Condition
 
Liquidity and Capital Resources
 
As a result of our substantial operating losses and negative cash flows from operations, at September 30, 2005 we had a stockholders’ deficit of $74,290 (December 31, 2004 - $61,965) and negative working capital of $6,881 (December 31, 2004 - $21,352). The reduction of the working capital deficit is due primarily to the disposition of the Telecommunications net liabilities, as discussed above.
 
During the third quarter of 2005, the Company financed its continuing operations primarily through advances from a related party of $4,349 (YTD - $14,561), while discontinued operations were primarily financed by the buyer of the Telecommunications assets through advances which, at closing, formed additional consideration for the assets disposed of by the Company in the third quarter of 2005. Related party debt, including accrued interest and net of unamortized discount, owed to the Company’s majority stockholder, Counsel, is $67,348 at September 30, 2005, compared to $46,015 at December 31, 2004. This related party debt was extended in conjunction with the disposition of the Telecommunications business and now matures on December 31, 2006. The related party debt is supplemented by a Keep Well agreement from Counsel, which requires Counsel to fund, through long-term intercompany advances or equity contributions, all capital investment, working capital or other operational cash requirements through December 31, 2006.
 
29

 
A summary of the Company’s outstanding debt is as follows:
 
   
Maturity date
 
September 30,
2005
 
December 31,
2004
 
       
Gross debt
 
Discounts
 
Reported debt
 
Gross debt
 
Discounts
 
Reported debt
 
Convertible note payable1
   
October 14, 2007
 
$
3,676
 
$
(446
)
$
3,230
 
$
5,003
 
$
(605
)
$
4,398
 
                                             
Subordinated notes payable to a related party2
   
December 31, 2006
   
71,109
   
(3,761
)
 
67,348
   
52,100
   
(6,085
)
 
46,015
 
                                             
Common stock warrants
   
October 13, 2009
   
91
   
   
91
   
322
   
   
322
 
                                             
Total outstanding debt
       
$
74,876
 
$
(4,207
)
$
70,669
 
$
57,425
 
$
(6,690
)
$
50,735
 
 
1 On September 30, 2005, the Company, in conjunction with the completion of the sale of the Telecommunications business described in Note 7 of these unaudited condensed consolidated financial statements, agreed to modification to the security interest in the Company held by the convertible note holder as follows: (a) to release the security interest in the assets being disposed of in the sale of the Telecommunications assets, (b) to convert the security interest of the convertible note to the senior debt position, (c) to place $1,800 into a restricted cash account for the benefit of the convertible note holder, the proceeds of which the convertible note holder is authorized to apply toward scheduled monthly payments under the loan agreement.
 
2 Includes accrued interest, which each quarter is added to the principal amounts outstanding. The related party debt is subordinated to the convertible note payable, which is guaranteed by Counsel. The current debt arrangement with the convertible note holder prohibits the repayment of the Counsel debt prior to the repayment or conversion of the convertible debt.
 
Working Capital
 
Cash, cash equivalents and restricted cash as of September 30, 2005 were $1,894 compared to $44 at December 31, 2004.
 
Our working capital deficit decreased $14,471 to $6,881 as of September 30, 2005, from $21,352 as of December 31, 2004. The reduction of the working capital deficit is due to the disposition of the Telecommunications business as discussed above. We believe our existing capital resources are adequate to finance our operations until December 31, 2006. However, our long-term viability is dependent upon successful operation of our business, our ability to pursue licensing arrangements in the marketplace and our ability to manage and raise additional funds to meet our business objectives.
 
Cash flows from operating activities
 
Cash used in operating activities (excluding non-cash working capital and discontinued operations) during the three months ended September 30, 2005 was $525, as compared to cash used of $792 during the same period in 2004. The reduction is primarily due to a reduction in net losses from continuing operations in the reporting period due to a reduction in the scale of the operations of the business.
 
30

 
Cash used in operating activities (excluding non-cash working capital and discontinued operations) during the nine months ended September 30, 2005 was $3,039, as compared to cash used of $1,966 during the same period in 2004. Net cash used in operating activities (excluding discontinued operations) during the nine months ended September 30, 2005 was $2,359, as compared to $2,475 during the same period in 2004. The net loss from continuing operations increased by $3,931. This was offset by an increase in interest added to related party debt of $1,361 and increased amortization of debt discounts in the amount of $361. Accounts payable decreased by $546 in the first nine months of 2004, but increased by $708 during the first nine months of 2005, for a net increase of $1,254. As well, in the first nine months of 2004 the Company recorded a gain on the sale of investment in common stock of $1,376; there were no similar items in the first nine months of 2005.
 
Cash flows from investing activities
 
Net cash used by investing activities (excluding discontinued operations) during the three months ended September 30, 2005 and 2004 was $0.
 
Net cash used by investing activities (excluding discontinued operations) during the nine months ended September 30, 2005 was $0, as compared to net cash provided of $3,581 for the same period in 2004. In 2004, net cash provided related to $3,581 in proceeds received from the sale of common stock in BUI. There were no similar sales of investments in the first nine months of 2005.
 
Cash flows from financing activities
 
Financing activities (excluding discontinued operations) provided net cash of $4,055 during the three months ended September 30, 2005, as compared to $2,244 for the same period in 2004. The increase in the current quarter related primarily to the Company requiring additional cash to place into a restricted account in favor of the convertible note holder. The cash was required as replacement security for the security released in conjunction with the disposition of the Telecommunication operations which occurred in the current reporting period, as discussed above.
 
Financing activities (excluding discontinued operations) provided net cash of $13,235 during the nine months ended September 30, 2005, as compared to $11,698 for the same period in 2004. The difference of $1,537 is due to an increase of $2,857 in proceeds from the issuance of subordinated notes payable to a related party, offset by $1,326 in payments of notes to third parties. There were no third party notes outstanding for the first nine months of 2004, and therefore there were no similar transactions in 2004.
 
31

 
Management’s Discussion of Results of Operations 
 
The following table displays the Company’s unaudited consolidated quarterly results of operations for the seven quarters ended September 30, 2005, as well as for the nine months ended September 30, 2004 and 2005.
  
   
2004
(unaudited)
 
2005
(unaudited)
 
Nine months ended September 30, 2004
 
Nine months ended September 30, 2005
 
 
 
Q1
 
Q2
 
Q3
 
Q4
 
Q1
 
Q2
 
Q3
 
(unaudited)
 
(unaudited)
 
                                       
Revenues:
                                     
Technologies
 
$
450
 
$
90
 
$
 
$
 
$
 
$
 
$
 
$
540
 
$
 
Total revenues
   
450
   
90
   
   
   
   
   
   
540
   
 
Operating costs and expenses:
                                                       
Selling, general, administrative and other
   
845
   
769
   
779
   
1,574
   
837
   
1,162
   
490
   
2,393
   
2,489
 
Research and development
   
   
106
   
119
   
217
   
150
   
151
   
88
   
225
   
389
 
Depreciation and amortization
   
5
   
5
   
5
   
5
   
9
   
9
   
9
   
15
   
27
 
Total operating costs and expenses
   
850
   
880
   
903
   
1,796
   
996
   
1,322
   
587
   
2,633
   
2,905
 
Operating income (loss)
   
(400
)
 
(790
)
 
(903
)
 
(1,796
)
 
(996
)
 
(1,322
)
 
(587
)
 
(2,093
)
 
(2,905
)
                                                         
Other income (expense):
                                                       
Interest expense
   
(2,832
)
 
(1,708
)
 
(1,855
)
 
(2,159
)
 
(2,631
)
 
(3,509
)
 
(2,055
)
 
(6,395
)
 
(8,195
)
Other income
   
609
   
810
   
21
   
48
   
   
1
   
120
   
1,440
   
121
 
Total other income (expense)
   
(2,223
)
 
(898
)
 
(1,834
)
 
(2,111
)
 
(2,631
)
 
(3,508
)
 
(1,935
)
 
(4,955
)
 
(8,074
)
Loss from continuing operations
   
(2,623
)
 
(1,688
)
 
(2,737
)
 
(3,907
)
 
(3,627
)
 
(4,830
)
 
(2,522
)
 
(7,048
)
 
(10,979
)
Gain (loss) from discontinued operations,
net of $0 tax
   
1,415
   
(6,528
)
 
(4,130
)
 
(2,585
)
 
(4,481
)
 
(3,278
)
 
4,292
   
(9,243
)
 
(3,467
)
Net income (loss)
 
$
(1,208
)
$
(8,216
)
$
(6,867
)
$
(6,492
)
$
(8,108
)
$
(8,108
)
$
1,770
 
$
(16,291
)
$
(14,446
)
 
Three-Month Period Ended September 30, 2005 Compared to Three-Month Period Ended September 30, 2004 
 
The business has narrowed its focus, commencing with the third quarter of 2005, to licensing its intellectual property. In the future, revenue is expected to be derived from licensing intellectual property to third parties.
 
Selling, general, administrative and other expense, was $490 during the third quarter of 2005 as compared to $779 for the third quarter of 2004. The significant changes included:
 
·  
Compensation expense was $35 in the third quarter of 2005, as compared to $69 in the third quarter of 2004.

·  
Legal expenses in the third quarter of 2005 were $42, as compared to $379 in the third quarter of 2004. The decrease was primarily related to less activity in the Company’s litigation with ITXC for patent infringement, as the parties made efforts toward a settlement, as well as less activity associated with the direct and derivative actions against the Company.

·  
Accounting and tax consulting expenses were $69 in the third quarter of both 2005 and 2004.

·  
Restructuring expenses totaled $152 in the third quarter of 2005, relating to severance costs paid to former employees. There were no similar expenses in the third quarter of 2004.

32

 
Research and development (“R&D”) costs - The Company ceased its investment in R&D in the third quarter of 2005 in conjunction with its decision to focus all business efforts on the realization of licensing fees associated with its intellectual property.
 
Depreciation and amortization - This expense was $9 in the third quarter of 2005, as compared to $5 during the third quarter of 2004.
 
The changes in other income (expense) are primarily related to the following:
 
·  
Interest expense - Related party interest expense totaled $1,943 in the third quarter of 2005, as compared to $1,855 in the third quarter of 2004. The increase of $88 is the net effect of two factors. Interest expense increased by $436 due to the quarterly capitalization of interest on the loans and additional advances. This increase was offset by a decrease of $348 in the quarterly amortization of the beneficial conversion feature related to the related party’s ability to convert its debt to equity. Included in related party interest expense in the third quarter of 2005 is $340 of amortization of the beneficial conversion feature (“BCF”), on $17,868 of debt convertible at $5.02 per share. In the third quarter of 2004, amortization of the BCF was $688 on $16,346 of debt convertible at $6.15 per share.
 
Third party interest expense totaled $112 in the third quarter of 2005, as compared to $nil in the third quarter of 2004. The increase is attributed to $175 of interest expense on the convertible note payable to Laurus Master Fund, Ltd., which was entered into in October 2004, partially offset by a mark to market adjustment on the related Laurus warrants of $64.
 
·  
Other income - In the third quarter 2005, other income totaled $120, as compared to $21 during the third quarter of 2004. In the third quarter of 2005, the Company entered into settlement agreements with certain carriers, which resulted in the recovery of $160 of receivables that were fully reserved against when acquired in 2001 as part of the acquisition of the assets of WorldxChange Communications Inc. from bankruptcy. This was reduced by a loss of $38 on the transfer of furniture, fixtures, equipment and software to a former employee in conjunction with entry into a multi-year royalty agreement. Subsequent to the end of the third quarter, the Company entered into two additional settlement agreements of the same nature, which will result in $910 being recorded as other income in the fourth quarter.
 
Discontinued operations - In the third quarter of 2005, the Company reported a $4,292 gain from discontinued operations (net of tax of $0), as compared to a loss of $4,130 (net of tax of $0) reported in the third quarter of 2004. The 2005 gain consists of a $2,095 loss related to Telecommunications operations for the quarter, and the $6,387 gain recognized on the disposition of these operations, as discussed in Note 7 to the accompanying unaudited condensed consolidated financial statements. The 2004 loss consists solely of the operations of the Telecommunications segment during the third quarter of 2004.
 
Nine-Month Period Ended September 30, 2005 Compared to Nine-Month Period Ended September 30, 2004
 
The business has narrowed its focus, commencing with the third quarter of 2005, to licensing its intellectual property. In the future, revenue is expected to be derived from licensing intellectual property to third parties. Technologies revenues were $0 in the first nine months of 2005 compared to $540 in the first nine months of 2004. The revenues in 2004 relate to a contract that was entered into with a Japanese company in 2003.
 
Selling, general, administrative and other expense was $2,489 during the first nine months of 2005, as compared to $2,393 for the first nine months of 2004. The significant changes included:
 
·  
Compensation expense was $173 in the first nine months of 2005, as compared to $287 in the first nine months of 2004.

33

·  
Legal expenses in the first nine months of 2005 were $971, as compared to $1,079 in the first nine months of 2004. The decrease was primarily related to less activity in the Company’s litigation with ITXC for patent infringement, as the parties made efforts toward a settlement of matters, as well as less activity associated with the direct and derivative actions against the Company.

·  
Accounting and tax consulting expenses were $207 in the first nine months of both 2005 and 2004.

·  
Restructuring expenses totaled $152 in the first nine months of 2005, relating to severance costs paid to former employees in the third quarter of 2005. There were no similar expenses in the first nine months of 2004.
 
Research and development (“R&D”) costs - The Company ceased its investment in R&D in the third quarter of 2005 in conjunction with its decision to focus all business efforts on the realization of licensing fees associated with its intellectual property.
 
Depreciation and amortization - This expense was $27 in the first nine months of 2005, as compared to $15 during the first nine months of 2004.
 
The changes in other income (expense) are primarily related to the following:
 
·  
Interest expense - Related party interest expense totaled $7,893 for the nine months ended September 30, 2005, as compared to $6,382 for the nine months ended September 30, 2004. The increase of $1,511 is the combined effect of two factors. Interest expense increased by $1,305 due to the quarterly capitalization of interest on the loans and additional advances. Additionally, there was an increase of $206 in the amortization of the beneficial conversion feature related to the related party’s ability to convert its debt to equity. Included in related party interest expense in the first nine months of 2005 is $3,446 of amortization of the BCF, on $17,868 of debt convertible at $5.02 per share. In the first nine months of 2004, amortization of the BCF was $3,240 on $16,346 of debt convertible at $6.15 per share.
 
Third party interest expense totaled $302 in the first nine months of 2005, as compared to $13 in the first nine months of 2004. The increase is attributed to $532 of interest expense on the convertible note payable to Laurus Master Fund Ltd., which was entered into in October 2004, partially offset by a mark to market adjustment on the related Laurus warrants of $230.
 
·  
Other income - This totaled $121 for the first nine months of 2005, as compared to $1,440 during the first half of 2004. In the third quarter of 2005, the Company entered into settlement agreements with certain carriers, which resulted in the recovery of $160 of receivables that were fully reserved against when acquired in 2001 as part of the acquisition of the assets of WorldxChange Communications Inc. from bankruptcy. This was offset by a loss of $38 when fixed assets were transferred to a former employee in return for future royalty revenues, and a loss of $2 relating to forfeiture of security deposits on vacated premises. During the first nine months of 2004, approximately $1,376 related to our sale of BUI common stock.
 
Discontinued operations - In the nine months ended September 30, 2005, the Company reported a $3,467 loss from discontinued operations, as compared to the $9,243 loss reported in the nine months ended September 30, 2004. The 2005 loss consists of a $9,854 loss related to Telecommunications operations for the nine months, and the $6,387 gain recognized on the disposition of these assets, as discussed in Note 7 to the accompanying unaudited condensed consolidated financial statements. The 2004 loss consists of a $104 gain related to the sale of the ILC business, and $9,347 loss from the Telecommunications operations for the nine months.
 
Inflation. Inflation did not have a significant impact on our results during the last fiscal quarter.
 
Off-Balance Sheet Transactions. The Company does not engage in material off-balance sheet transactions.
 
34

 Item 3. Quantitative and Qualitative Disclosures about Market Risk.
 
Our exposure to market risk is limited to interest rate sensitivity, which is affected by changes in the general level of United States interest rates. Our cash equivalents are invested with high quality issuers and we limit the amount of credit exposure to any one issuer. Due to the short-term nature of the cash equivalents, we believe that we are not subject to any material interest rate risk as it relates to interest income. As to interest expense, we have one debt instrument that has a variable interest rate. Our variable interest rate convertible note provides that the principal amount outstanding bears interest at the prime rate as published in the Wall St. Journal (“WSJ interest rate”, 6.75% at September 30, 2005) plus 3% (but not less than 7.0% in total), decreasing by 2% (but not less than 0%) for every 25% increase in the Market Price (as defined therein) above the fixed conversion price of $0.88 following the effective date (January 18, 2005) of the registration statement covering the common stock issuable upon conversion. Assuming the debt amount on the variable interest rate convertible note at September 30, 2005 was constant during the next twelve-month period, the impact of a one percent increase in the interest rate would be an increase in interest expense of approximately $37 for that twelve-month period. In respect of the variable interest rate convertible note, should the price of the Company’s common stock increase and maintain a price equal to 125% of $0.88 for a twelve month period, the Company would benefit from a reduced interest rate of 2%, resulting in lower interest costs of up to approximately $74 for that twelve-month period. We do not believe that we are subject to material market risk on our fixed rate debt with Counsel in the near term.
 
We did not have any foreign currency hedges or other derivative financial instruments as of September 30, 2005. We do not enter into financial instruments for trading or speculative purposes and do not currently utilize derivative financial instruments. Our operations are conducted primarily in the United States and as such are not subject to material foreign currency exchange rate risk.
 
Item 4. Controls and Procedures. 
 
As of the end of the period covered by this Quarterly Report, the Chief Executive Officer and Chief Financial Officer of the Company (the “Certifying Officers”) conducted evaluations of the Company’s disclosure controls and procedures. As defined under Sections 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the Certifying Officers, to allow timely decisions regarding required disclosure. Based on this evaluation, the Certifying Officers have concluded that the Company’s disclosure controls and procedures were effective to ensure that material information is recorded, processed, summarized and reported by management of the Company on a timely basis in order to comply with the Company’s disclosure obligations under the Exchange Act, and the rules and regulations promulgated thereunder.
 
Further, there were no changes in the Company’s internal control over financial reporting during the third fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
35

 
PART II - OTHER INFORMATION
 
Item 1. Legal Proceedings
 
On April 16, 2004, certain stockholders of the Company (the “Plaintiffs”) filed a putative derivative complaint in the Superior Court of the State of California in and for the County of San Diego, (the “Complaint”) against the Company, WorldxChange Corporation (sic), Counsel Communications LLC, and Counsel Corporation as well as certain present and former officers and directors of the Company, some of whom also are or were directors and/or officers of the other corporate defendants (collectively, the “Defendants”). The Complaint alleges, among other things, that the Defendants, in their respective roles as controlling stockholder and directors and officers of the Company committed breaches of the fiduciary duties of care, loyalty and good faith and were unjustly enriched, and that the individual Defendants committed waste of corporate assets, abuse of control and gross mismanagement. The Plaintiffs seek compensatory damages, restitution, disgorgement of allegedly unlawful profits, benefits and other compensation, attorneys’ fees and expenses in connection with the Complaint. The Company believes that these claims are without merit and intends to continue to vigorously defend this action. There is no assurance that this matter will be resolved in the Company’s favor and an unfavorable outcome of this matter could have a material adverse impact on its business, results of operations, financial position or liquidity.
 
The Company and several of its current and former executives and board members were named in a securities action filed in the Superior Court of the State of California in and for the County of San Diego (the “Court”) on April 16, 2004, in which the plaintiffs made claims nearly identical to those set forth in the Complaint in the derivative suit described above. The Company believes that these claims are without merit and intends to vigorously defend this action. There is no assurance that this matter will be resolved in the Company’s favor and an unfavorable outcome of this matter could have a material adverse impact on its business, results of operations, financial position or liquidity. At a September 2, 2005 case management conference, the Court set June 16, 2006 as the trial date for this action and indicated that a trial regarding the derivative action described above would immediately follow.
 
In connection with the Company’s efforts to enforce its patent rights, C2 Communications Technologies Inc., our wholly owned subsidiary, filed a patent infringement lawsuit against ITXC Corp. (“ITXC”) in the United States District Court of the District of New Jersey on April 14, 2004. The complaint alleges that ITXC’s VoIP services and systems infringe the Company’s U.S. Patent No. 6,243,373, entitled “Method and Apparatus for Implementing a Computer Network/Internet Telephone System.” On May 7, 2004, ITXC filed a lawsuit against C2 Communications Technologies Inc., and the Company, in the United States District Court for the District of New Jersey for infringement of five ITXC patents relating to VoIP technology, directed generally to the transmission of telephone calls over the Internet and the completion of telephone calls by switching them off the Internet and onto a public switched telephone network. The Company believes that the allegations contained in ITXC’s complaint are without merit and the Company intends to continue to provide a vigorous defense to ITXC’s claims. There is no assurance that this matter will be resolved in the Company’s favor and an unfavorable outcome of this matter could have a material adverse impact on its business, results of operations, financial position or liquidity.
 
At our Adjourned Meeting of Stockholders held on December 30, 2003, our stockholders, among other things, approved an amendment to our Articles of Incorporation, deleting Article VI thereof (regarding liquidations, reorganizations, mergers and the like). Stockholders who were entitled to vote at the meeting and advised us in writing, prior to the vote on the amendment, that they dissented and intended to demand payment for their shares if the amendment was effectuated, were entitled to exercise their appraisal rights and obtain payment in cash for their shares under Sections 607.1301 - 607.1333 of the Florida Business Corporation Act (the “Florida Act”), provided their shares were not voted in favor of the amendment. In January 2004, we sent appraisal notices in compliance with Florida corporate statutes to all stockholders who had advised us of their intention to exercise their appraisal rights. The appraisal notices included our estimate of fair value of our shares, at $4.00 per share on a post-split basis. These stockholders had until February 29, 2004 to return their completed appraisal notices along with certificates for the shares for which they were exercising their appraisal rights. Approximately 33 stockholders holding approximately 74,000 shares of our stock returned completed appraisal notices by February 29, 2004. A stockholder of 20 shares notified us of his acceptance of our offer of $4.00 per share, while the stockholders of the remaining shares did not accept our offer. Subject to the qualification that, in accordance with the Florida Act, we may not make any payment to a stockholder seeking appraisal rights if, at the time of payment, our total assets are less than our total liabilities, stockholders who accepted our offer to purchase their shares at the estimated fair value will be paid for their shares within 90 days of our receipt of a duly executed appraisal notice. If we should be required to make any payments to dissenting stockholders, Counsel will fund any such amounts through the purchase of shares of our common stock. Stockholders who did not accept our offer were required to indicate their own estimate of fair value, and if we do not agree with such estimates, the parties are required to go to court for an appraisal proceeding on an individual basis, in order to establish fair value. Because we did not agree with the estimates submitted by most of the dissenting stockholders, we have sought a judicial determination of the fair value of the common stock held by the dissenting stockholders. On June 24, 2004, we filed suit against the dissenting stockholders seeking a declaratory judgment, appraisal and other relief in the Circuit Court for the 17th Judicial District in Broward County, Florida. On February 4, 2005, the declaratory judgment action was stayed pending the resolution of the direct and derivative lawsuits filed in California. This decision was made by the judge in the Florida declaratory judgment action due to the similar nature of certain allegations brought by the defendants in the declaratory judgment matter and the California lawsuits described above. On March 7, 2005, the dissenting shareholders appealed the decision of the District Court judge to the Fourth District Court of Appeals for the State of Florida, which denied the appeal on June 21, 2005. When the declaratory judgment matter resumes, there is no assurance that this matter will be resolved in our favor and an unfavorable outcome of this matter could have a material adverse impact on our business, results of operations, financial position or liquidity.
 
36

 
The Company is involved in various other legal matters arising out of its operations in the normal course of business, none of which are expected, individually or in the aggregate, to have a material adverse effect on the Company.
 
Item 4.  Submission of Matters to a Vote of Security Holders
 
(a)  Our annual meeting of stockholders was held on August 5, 2005.
 
(b)  Henry Y. L. Toh, Allan Silber and Hal B. Heaton were elected as our Class II directors each to serve for three years or until their successors are duly elected and qualified.

(c)  In addition to the election of directors, there were three additional matters presented to the stockholder vote at the annual meeting: approval of the sale of substantially all of our assets; approval of the name change amendment to our Articles of Incorporation; and ratification of auditor appointment. The following table is a tabulation of the final votes for each of the matters presented at the annual meeting:
 
   
Affirmative /
 
Withheld
     
Broker
 
   
Votes
 
Negative Votes
 
Abstentions
 
Non-votes
 
                           
Election of Henry Y. L. Toh
   
18,758,463
   
17,621
   
-
   
-
 
                           
Election of Allan Silber
   
18,766,334
   
9,750
   
-
   
-
 
                           
Election of Hal Heaton
   
18,760,718
   
15,366
   
-
   
-
 
                           
Approval of the sale of substantially all assets
   
17,611,624
   
10,511
   
4,785
   
1,149,164
 
                           
Approval of the name change amendment
   
18,757,295
   
15,530
   
3,258
   
-
 
                           
Ratification of BDO Seidman LLP as the Company’s independent auditors
   
18,768,116
   
7,054
   
913
   
-
 
 
(d)   n/a.
 
Item 5. Other Information
 
At the November 8, 2005 Board of Directors meeting, Catherine A. Moran was appointed to serve as Vice President of Accounting and Corporate Controller of the Company.  Ms. Moran holds the same position at Counsel Corporation, the Company's majority stockholder.  Ms. Moran joined Counsel Corporation in February 2004.  There is no arrangement or understanding between the newly appointed officer and any other persons pursuant to which she was appointed as discussed above.  Nor are there any family relationships between such person and any executive officers and directors.  Further, there are no transactions involving the Company and the newly appointed officer which transaction would be reportable pursuant to Item 404 of Regulation S-K promulgated under the Securities Act of 1933, as amended.
 
37

 
Item 6. - Exhibits.
 
(a) Exhibits
 
Exhibit No.
Identification of Exhibit
   
10.1
Promissory Note for $4,198,865.30 dated September 30, 2005 between C2 Global Technologies Inc. and Counsel Corporation.
   
10.2
Promissory Note for $112,500.00 dated September 30, 2005 between C2 Global Technologies Inc. and Counsel Corporation.
   
10.3
Promissory Note for $37,999.28 dated September 30, 2005 between C2 Global Technologies Inc. and Counsel Corporation.
   
10.4
First Amendment to Asset Purchase Agreement dated September 30, 2005, by and among Acceris Communications Inc., Acceris Communications Corp., Counsel Corporation, Acceris Management and Acquisition LLC, and North Central Equity LLC
   
10.5
Management Services Agreement (With Respect to Specified State Customer Bases) dated September 30, 2005, by and among Acceris Communications Inc., Acceris Communications Corp., Counsel Corporation, Acceris Management and Acquisition LLC, and North Central Equity LLC
   
10.6
Amended and Restated Master Security Agreement dated September 30, 2005, by and among C2 Global Technologies Inc. and certain of its subsidiaries, and Laurus Master Fund, Ltd.
   
10.7
Cash Collateral Deposit Agreement dated September 30, 2005, by and between C2 Global Technologies Inc. and Laurus Master Fund, Ltd.
   
31.1
Certification pursuant to Rule 13a-14(a) and 15d-14(a) required under Section 302 of the Sarbanes-Oxley Act of 2002
   
31.2
Certification pursuant to Rule 13a-14(a) and 15d-14(a) required under Section 302 of the Sarbanes-Oxley Act of 2002
   
32.1
Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   
32.2
Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 
38

 
SIGNATURES 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunder duly authorized.
 
 
 
C2 Global Technologies Inc.
 
 
 
 
Date: November 10, 2005
 
 
By:
 
 
/s/ Allan C. Silber
Allan C. Silber
Chief Executive Officer and Chairman
 
 
 
 
 
             
   
 
By:
 
 
/s/ Gary M. Clifford
Gary M. Clifford
Chief Financial Officer
 
39