Heritage Global Inc. - Quarter Report: 2007 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007

o TRANSITION REPORT PURSUANT TO 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 R No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Exchange Act Rule 12b-2).

Large Accelerated Filer £ Accelerated Filer £ Non-Accelerated Filer R

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No R

As of November 5, 2007, there were 23,095,010 shares of common stock, $0.01 par value, outstanding.

TABLE OF CONTENTS

Part I.	Financial Information

Item 1.	Financial Statements

	Unaudited Condensed Consolidated Balance Sheets as of September 30, 2007 and December 31, 2006	3

	Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2007 and 2006	4

	Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Deficit for the period ended September 30, 2007	5

	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2007 and 2006	6

	Notes to Unaudited Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34

Item 4.	Controls and Procedures	34

Part II.	Other Information	35

Item 1.	Legal Proceedings	35

Item 1A.	Risk Factors	35

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35

Item 3.	Defaults Upon Senior Securities	35

Item 4.	Submission of Matters to a Vote of Security Holders	35

Item 5.	Other Information	35

Item 6.	Exhibits	36

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements.

C2 GLOBAL TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
(In thousands of dollars, except share and per share amounts)	2007			2006
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	8		$	3
Other current assets		16			70
Total current assets		24			73
Other assets:
Intangible assets, net (Note 5)		25			40
Goodwill (Note 5)		173			173
Investments (Note 6)		575			1,100
Total assets	$	797		$	1,386

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued liabilities (Note 5)	$	511		$	550
Convertible note payable, net of unamortized discount (Note 7)		—			1,299
Note payable to a related party (Note 7)		2,003			6
Total liabilities		2,514			1,855

Commitments and contingencies

Stockholders’ deficit:
Preferred stock, $10.00 par value, authorized 10,000,000 shares, issued and outstanding 612; liquidation preference of $612 at September 30, 2007 and December 31, 2006		6			6
Common stock, $0.01 par value, authorized 300,000,000 shares, issued and outstanding 23,094,850 at September 30, 2007 and 23,084,850 at December 31, 2006		231			231
Additional paid-in capital		274,636			274,499
Accumulated deficit		(276,590	)		(275,205	)

Total stockholders’ deficit		(1,717	)		(469	)

Total liabilities and stockholders’ deficit	$	797		$	1,386

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

C2 GLOBAL TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

		Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands of dollars, except per share amounts)		2007			2006			2007			2006

Revenue	$	—		$	—		$	—		$	—



Operating costs and expenses:
Selling, general and administrative		318			306			911			1,047
Depreciation and amortization		5			5			15			15

Total operating costs and expenses		323			311			926			1,062

Operating loss		(323	)		(311	)		(926	)		(1,062	)

Other income (expense):
Interest expense - related party (Note 7)		(52	)		(2,053	)		(135	)		(6,621	)
Interest expense - third party		—			605			(12	)		(378	)
Other income (expense)		3			6			(289	)		122

Total other expense		(49	)		(1,442	)		(436	)		(6,877	)

Loss from continuing operations		(372	)		(1,753	)		(1,362	)		(7,939	)
Income (loss) from discontinued operations (net of $0 tax) (Note 8)		(3	)		(3	)		(23	)		4,348

Net loss	$	(375	)	$	(1,756	)	$	(1,385	)	$	(3,591	)

Weighted average shares outstanding (in thousands)		23,095			19,237			23,095			19,237
Net income (loss) per common share (Note 2)
Loss from continuing operations	$	(0.02	)	$	(0.09	)	$	(0.06	)	$	(0.42	)
Income from discontinued operations		—			—			—			0.23

Net loss per common share	$	(0.02	)	$	(0.09	)	$	(0.06	)	$	(0.19	)

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

C2 GLOBAL TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

For the period ended September 30, 2007

(in thousands of dollars, except share amounts)

(unaudited)

										Additional
	Preferred stock					Common stock				paid-in		Accumulated
	Shares			Amount		Shares		Amount		capital		deficit

Balance at December 31, 2005		618		$	6		19,237,135	$	192	$	189,162	$	(267,302	)
Conversion of Series N preferred stock to common stock		(6	)		—		240		—		—		—
Conversion of related party debt to common stock		—			—		3,847,475		39		3,347		—
Forgiveness of related party debt		—			—		—		—		80,196		—
Transfer of warrant to equity		—			—		—		—		430		(227	)
Beneficial conversion feature on certain convertible notes payable to related party		—			—		—		—		1,225		—
Compensation cost related to stock options		—			—		—		—		139		—
Net loss		—			—		—		—		—		(7,676	)
Balance at December 31, 2006		612			6		23,084,850		231		274,499		(275,205	)
Conversion of third party debt to common stock		—			—		10,000		—		7		—
Compensation cost related to stock options		—			—		—		—		130		—
Net loss		—			—		—		—		—		(1,385	)
Balance at September 30, 2007		612		$	6		23,094,850	$	231	$	274,636	$	(276,590	)

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

C2 GLOBAL TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Nine months ended September 30,
	2007			2006
Cash flows from operating activities:
Net loss	$	(1,385	)	$	(3,591	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss (income) from discontinued operations		23			(4,348	)
Depreciation and amortization		15			15
Amortization of discount and debt issuance costs on notes payable to a related party		—			1,036
Amortization of discount and debt issuance costs on convertible note payable		8			222
Accrued interest added to notes payable to a related party		135			5,585
Non-cash cost of prepayment of third party debt		224			—
Stock compensation expense		130			95
Mark to market adjustment of warrant to purchase common stock		—			(78	)
		(850	)		(1,064	)
Increase (decrease) in operating assets and liabilities:
Other assets		(8	)		181
Accounts payable and accrued liabilities		(39	)		(1,143	)
Net cash used in operating activities by continuing operations		(897	)		(2,026	)
Net cash used in operating activities by discontinued operations		(23	)		(164	)
Net cash used in operating activities		(920	)		(2,190	)

Cash flows from investing activities:
Redemption of portfolio investments		1,100			—
Purchase of portfolio investments		(575	)		—
Net cash used in investing activities of continuing and discontinued operations		525			—

Cash flows from financing activities:
Increase in notes payable to a related party		2,862			1,883
Payment of notes payable to a related party		(1,000	)		—
Release of restricted cash to pay convertible note payable		—			1,324
Repayment of convertible note payable		(1,462	)		(1,324	)
Net cash provided by financing activities of continuing operations		400			1,883
Increase (decrease) in cash and cash equivalents		5			(307	)
Cash and cash equivalents at beginning of period		3			327
Cash and cash equivalents at end of period	$	8		$	20


Supplemental schedule of non-cash investing and financing activities:
Disposition of telecommunications business in exchange for assumption of liabilities	$	—	$	4,324
Discount in connection with convertible notes payable to related parties		—		1,225

Supplemental cash flow information:
Taxes paid		6		4
Interest paid		21		247

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

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 consolidated financial statements include the accounts of C2 Global Technologies Inc. and its wholly-owned subsidiaries, including C2 Communications Technologies Inc. and C2 Investments Inc. These entities, on a combined basis, are referred to as “C2”, the “Company”, or “we” in these unaudited condensed consolidated financial statements. Our unaudited condensed consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the assets, liabilities, revenues, and expenses of all majority-owned subsidiaries over which C2 exercises control. All significant intercompany accounts and transactions have been eliminated upon consolidation.

C2 owns certain patents, including two foundational patents in voice over internet protocol (“VoIP”) technology - U.S. Patent Nos. 6,243,373 and 6,438,124 (together the “VoIP Patent Portfolio”), which it seeks to license. Subsequent to the disposition of its Telecommunications business in September 2005, as discussed in Note 8 to these unaudited condensed consolidated financial statements, licensing of intellectual property constitutes the primary business of the Company. C2’s target market consists of carriers, equipment manufacturers, service providers and end users in the internet protocol (“IP”) telephone market who are using C2’s patented VoIP technologies by deploying VoIP networks for phone-to-phone communications. The Company has engaged, and intends to continue to engage, in licensing agreements with third parties domestically and internationally. At present, no royalties are being paid to the Company. The Company plans to obtain licensing and royalty revenue from its target market by enforcing its patents, with the assistance of outside counsel, in order to realize value from its intellectual property.

In the third quarter of 2007, the Company began investing in Internet-based e-commerce businesses, when it acquired minority positions in MyTrade.com, Inc., Buddy Media, Inc. and LIMOS.com LLC. These investments are discussed in more detail in Note 6.

Management believes that the unaudited interim data includes all adjustments necessary for a fair presentation. The December 31, 2006 condensed consolidated balance sheet, as included herein, is derived from the audited consolidated financial statements, but does not include all disclosures required by GAAP. The September 30, 2007 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, 2006, 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, 2006 contained an explanatory paragraph regarding the uncertainty of the Company’s ability to continue as a going concern.

The results of operations for the nine-month period ended September 30, 2007 are not necessarily indicative of those to be expected for the entire year ending December 31, 2007.

Note 2 - Summary of Significant Accounting Policies

Net earnings (loss) per share

Basic earnings (loss) 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, since they are assumed to be exercised or converted, except when their effect would be anti-dilutive. As the Company had a loss from continuing operations for the nine-month periods ended September 30, 2007 and 2006, diluted loss per share is not presented.

Potential common shares that were not included in the computation of loss per share, because they would have been anti-dilutive, are as follows:

	September 30,
	2007		2006

Assumed conversion of Series N preferred stock		24,480		24,480
Assumed conversion of note payable to a related party		—		3,890,641
Assumed conversion of convertible note payable		—		2,172,460
Assumed exercise of options and warrant to purchase shares of common stock		1,975,749		2,108,826
		2,000,229		8,196,407

Use of estimates

The preparation of financial statements in conformity with GAAP 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, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates include revenue recognition, 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 significantly impact 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.

Intangible assets and goodwill

The Company accounts for intangible assets in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. 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 the fair value of the Company as a whole, with the Company’s valuation being based upon its market capitalization. If the carrying amount of the assets exceeds the Company’s estimated fair value, goodwill impairment may be present. The Company measures the goodwill impairment loss based upon the fair value of the underlying assets and liabilities, including any unrecognized intangible assets, and estimates the implied fair value of goodwill. An impairment loss is recognized to the extent that the Company’s recorded goodwill exceeds the implied fair value of goodwill.

Goodwill is tested for impairment annually, and will be tested for impairment between annual tests if an event occurs or circumstances change that more likely than not would indicate the carrying amount may be impaired. No impairment was present upon the performance of these tests in 2006 and 2005. 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, judgments on the validity of the Company’s VoIP Patent Portfolio, or other factors not known to management at this time.

Investments

Investments are accounted for under the methods appropriate to each type of investment.

Equity securities that are not readily marketable, and equity securities having underlying common stock that is also not readily marketable, are accounted for under the cost method. This is due to the fact that the Company currently plans to hold the investments for an indefinite period of time with the objective of realizing long-term capital appreciation. The Company’s ownership interests do not allow it to exercise significant influence over the entities in which it has invested. The Company monitors these investments for impairment by considering factors such as the economic environment and market conditions, as well as the operational performance of, and other specific factors relating to, the business underlying the investments. The fair values of the securities are estimated quarterly using the best available information as of the evaluation date, including data such as 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. The Company will record an other than temporary impairment in the carrying value of the investments should the Company conclude that such a decline has occurred.

Impairments, dividends and realized gains and losses on equity securities are included in other income in the consolidated statements of operations. See Note 6 for further discussion of the Company’s investments.

Liabilities

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 accrual 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

The Company calculates stock-based compensation in accordance with SFAS No. 123, Accounting for Stock-Based Compensation, as revised December 2004 (“SFAS No. 123(R)”), which it was required to adopt in the first quarter of 2006. SFAS No. 123(R) superseded Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations (“APB No. 25”), and requires that all stock-based compensation, including options, be expensed at fair value, as of the grant date, over the vesting period. Companies are required to use an option pricing model (e.g. Black-Scholes or Binomial) to determine compensation expense. See Note 4 for further discussion of the Company’s stock-based compensation.

Income taxes

The Company records deferred taxes in accordance with SFAS No. 109, Accounting for Income Taxes (“SFAS No. 109”). This statement requires recognition of deferred tax assets and liabilities for temporary differences between the tax bases of assets and liabilities and the amounts at which they are carried in the financial statements, based upon the enacted tax rates in effect for the year in which the differences are expected to reverse. The Company establishes a valuation allowance when necessary to reduce deferred tax assets to the amount expected to be realized.

The Company periodically assesses the value of its deferred tax asset, which has been generated by a history of net operating and net capital losses, 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, taking into consideration any limitations that may exist on its use of its net operating and net capital loss carryforwards.

In July 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a company's financial statements in accordance with SFAS No. 109, and prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted the provisions of FIN 48 effective January 1, 2007. The adoption of FIN 48 had no material effect on the financial position, operations or cash flow of the Company. See Note 9 for further discussion of the Company’s income taxes.

New Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value under GAAP, expands the required disclosures regarding fair value measurements, and applies to other accounting pronouncements that either require or permit fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and for interim periods within those fiscal years, with early adoption encouraged. SFAS No. 157 is to be applied prospectively, with a limited form of retrospective application for several financial instruments. The Company elected to adopt SFAS No. 157 at January 1, 2007, in order to conform to the adoption of a similar Canadian accounting pronouncement by its parent, Counsel Corporation. The Company’s adoption of SFAS No. 157 has not had a material effect on its financial position, operations or cash flows.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment of FASB Statement No. 115 (“SFAS No. 159”). SFAS No. 159 provides the option to measure selected financial assets and liabilities at fair value, and requires the fair values of those assets and liabilities to be shown on the face of the balance sheet. It also requires the provision of additional information regarding the reasons for electing the fair value option and the effect of the election on current period earnings. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, with early adoption permitted if SFAS No. 157 is also adopted. SFAS No. 159 is to be applied prospectively. The Company has not elected early adoption of SFAS No. 159, and has not yet evaluated the impact that SFAS No. 159 will have on its financial statements when adopted.

Note 3 - Liquidity and Capital Resources

As a result of our substantial historical operating losses and negative cash flows from operations, at September 30, 2007 we had a stockholders’ deficit of $1,717 (December 31, 2006 - $469) and negative working capital of $2,490 (December 31, 2006 - $1,782). The $708 increase in the working capital deficit was primarily due to net advances of $1,862 from our majority stockholder, Counsel Corporation (together with its subsidiaries, “Counsel”), and the capitalization of $135 interest on those advances. During the first nine months of 2007, Counsel advanced a total of $2,862, and the Company repaid $1,000 of principal from the proceeds of the redemption of the AccessLine portfolio investment, which is discussed in more detail in Note 6 of these unaudited condensed consolidated financial statements. The advances from Counsel were partially offset by the repayment of the $1,471 convertible note (the “Note”) owing to a third party lender at December 31, 2006. The Note’s repayment also resulted in the elimination of its associated $60 deferred financing costs and $166 debt discount, further increasing the working capital deficit.

As a result of the Note repayment on January 10, 2007, as discussed in Note 7, the Company had no third party debt at September 30, 2007, compared to the $1,471 owed at December 31, 2006. Prior to its repayment, the Note was secured by all the assets of the Company and guaranteed by Counsel through its original maturity of October 2007.

Related party debt owing to our 93% common stockholder, Counsel, is $2,003 at September 30, 2007 compared to $6 at December 31, 2006. Interest on the related party debt is capitalized, at the end of each quarter, and added to the principal amount outstanding. This related party debt was scheduled to mature on October 31, 2007 but has been extended until December 31, 2007. Until December 31, 2006, the debt was supported by Counsel’s Keep Well agreement with C2, which required Counsel to fund, through long-term intercompany advances or equity contributions, all capital investment, working capital or other operational cash requirements. The Keep Well was not formally extended beyond its December 31, 2006 maturity, but Counsel has indicated that it will fund the Company’s minimal cash requirements until at least December 31, 2007.

The Company has not realized revenues from continuing operations since 2004, and there is significant doubt about the Company’s ability to obtain additional financing to fund its operations without the support of Counsel. Additionally, management believes that the Company does not, at this time, have an ability to obtain additional financing from third parties in order to pursue expansion through acquisition. The Company must therefore realize value from its intellectual property or capital gains from its portfolio investments, as discussed in Note 1, in order to continue as a going concern. Although the Company commenced litigation in June 2006 in order to realize value from its intellectual property, there is no certainty that the Company’s litigation will be successful.

Note 4 - Stock-Based Compensation

At September 30, 2007, the Company had several stock-based compensation plans, which are described more fully in Note 17 to the audited consolidated financial statements contained in our most recently filed Annual Report on Form 10-K. The Company accounts for these plans under the recognition and measurement principles of SFAS No. 123(R), which it adopted on January 1, 2006.

The Company’s stock-based compensation expense for the three and nine months ended September 30, 2007, respectively, is $44 and $130, as compared to $38 and $95 for the same periods ended September 30, 2006. Basic and diluted net loss per share for the three months ended September 30, 2007 was not affected by the adoption of SFAS No. 123(R). Basic and diluted net loss per share for the nine months ended September 30, 2007 was increased by $0.01. The adoption of SFAS No. 123(R) had no effect on the Company’s Statement of Cash Flows for the nine months ended September 30, 2007 and 2006, respectively, as there were no exercises of stock options during the first nine months of either year, and therefore no stock option-related cash flows were generated.

The fair value compensation costs relating to stock options in the first nine months of 2007 and 2006 were determined using historical Black-Scholes input information at grant dates between 2003 and 2007. These inputs included expected volatility between 79% and 98%, risk-free interest rates between 3.12% and 5.07%, expected terms of 4.75 years, and an expected dividend yield of zero.

As of September 30, 2007, the total unrecognized stock-based compensation expense related to unvested stock options was $212, which is expected to be recognized over a weighted average period of approximately 14 months.

The tables below present information regarding all stock options outstanding at September 30, 2007 and 2006:

	Options			Weighted Average Exercise Price
Outstanding at December 31, 2006		1,096,326		$	19.52
Granted		30,000		$	0.70
Expired		(150,577	)	$	78.00
Outstanding at September 30, 2007		975,749		$	9.88

Options exercisable at September 30, 2007		507,436		$	18.08

	Options			Weighted Average Exercise Price
Outstanding at December 31, 2005		727,026		$	37.50
Granted		455,000		$	0.82
Expired		(73,200	)	$	72.31
Outstanding at September 30, 2006		1,108,826		$	20.17

Options exercisable at September 30, 2006		469,701		$	45.70

No options were forfeited or exercised during the nine months ending September 30, 2007 or 2006.

The aggregate intrinsic value of options outstanding at September 30, 2007 was $0, based on the Company’s closing stock price of $0.41 as of the last business day of the period ended September 30, 2007. Intrinsic value is the amount by which the fair value of the underlying stock exceeds the exercise price of the options. At September 30, 2007, all of the outstanding options had exercise prices greater than $0.41.

The tables below present information regarding unvested stock options outstanding at September 30, 2007 and 2006:

	Options			Weighted Average Grant Date Fair Value
Unvested at December 31, 2006		596,625		$	0.63
Granted		30,000		$	0.46
Vested		(155,812	)	$	0.55
Expired		(2,500	)	$	0.00
Forfeited		—			—
Unvested at September 30, 2007		468,313		$	0.65

	Options			Weighted Average Grant Date Fair Value
Unvested at December 31, 2005		226,187		$	1.15
Granted		455,000		$	0.50
Vested		(42,062	)	$	0.67
Forfeited		—			—
Unvested at September 30, 2006		639,125		$	0.72

The total fair value of options vesting during the three and nine months ending September 30, 2007 was $80 and $86, respectively. The total fair value of options vesting during the three and nine months ending September 30, 2006 was $24 and $28, respectively.

Note 5 - Composition of Certain Financial Statements Captions

Intangible assets consisted of the following:

	September 30, 2007
	Amortization period		Cost		Accumulated amortization			Net
Intangible assets subject to amortization:
Patent rights		60 months	$	100	$	(75	)	$	25

	December 31, 2006
	Amortization period		Cost		Accumulated amortization			Net
Intangible assets subject to amortization:
Patent rights		60 months	$	100	$	(60	)	$	40

Amortization expense relating to patent rights was $5 for each of the three month periods ended September 30, 2007 and 2006, and $15 for each of the nine month periods ended September 30, 2007 and 2006.

The Company’s goodwill relates to an investment in a subsidiary company that holds the rights to some of the Company’s patents.

Accounts payable and accrued liabilities consisted of the following:

		September 30, 2007		December 31, 2006
Regulatory and legal fees	$	62	$	53
Accounting, auditing and tax consulting		97		126
Telecommunications and related costs		91		77
Sales and other taxes		62		72
Remuneration and benefits		74		101
Accrued interest		—		17
Other		125		104

Total accounts payable and accrued liabilities	$	511	$	550

Note 6 - Investments

The Company’s investments as of September 30, 2007 and December 31, 2006 consisted of the following:

		September 30, 2007		December 31, 2006
AccessLine Communications	$	—	$	1,100
MyTrade.com, Inc.		75		—
Buddy Media, Inc.		100		—
LIMOS.com LLC		400		—

Total investments	$	575	$	1,100

MyTrade.com, Inc.

On August 23, 2007, the Company, through its wholly owned subsidiary C2 Investments Inc., completed an investment in MyTrade.com, Inc. (“MyTrade.com”). MyTrade.com is a website providing investors and potential investors of all experience levels with tickerized aggregate investment data and insight from across the internet in a customized interface. The Company’s investment consists of 75,000 shares of convertible Series A Preferred Stock (8% per annum cumulative dividend), with a total purchase price of $75, representing approximately 12.5% of MyTrade.com’s preferred stock, or approximately 3.57% of MyTrade.com on an as-converted basis. The Series A preferred shares vote on an as-converted basis with the common stock, are convertible at the Company’s option or mandatorily convertible in connection with an initial public offering, and are otherwise redeemable at the holder’s option over an 18 month period at any time after five years from the date of closing. The material terms of the Company’s Stockholders’ Agreement and Subscription Agreement are standard for early investments in development stage companies and include right of first offer, refusal rights, co-sale rights, limited anti-dilution protection, dividend preference and liquidation preference. The Series A preferred shares have standard piggyback registration rights with customary expiration provisions and are subject to a contractual 180 day market stand-off.

Buddy Media, Inc.

On September 12, 2007, the Company, through its wholly owned subsidiary C2 Investments Inc., completed an investment in Buddy Media, Inc. (“Buddy Media”). Buddy Media is a leading developer of applications for emerging new media platforms, including Facebook, MySpace and other social media sites. The Company’s investment consists of 303,030 shares of convertible Series A Preferred Stock, with a total purchase price of $100. At the time of the Company’s investment, this represented approximately 7% of Buddy Media’s preferred stock, or approximately 2.62% of Buddy Media on an as-converted basis. Subsequent to September 30, 2007, the Company’s ownership was reduced to approximately 2.49% on an as-converted basis, due to investment in Buddy Media by an unrelated third party. The Series A preferred shares vote on an as-converted basis with the common stock, are convertible by a vote of the majority of the Series A preferred stockholders or mandatorily convertible in connection with an initial public offering, and are redeemable in certain circumstances, including a liquidation or sale of Buddy Media. They are entitled to dividends in the event that common stock holders also receive dividends. The material terms of the Company’s Stockholders’ Agreement and Subscription Agreement are standard for early investments in development stage companies and include drag along rights, right of first offer, refusal rights, co-sale rights, limited anti-dilution protection, dividend preference and liquidation preference. The Series A preferred shares have standard piggyback registration rights with customary expiration provisions and are subject to a contractual 180 day market stand-off.

LIMOS.com LLC

On September 21, 2007, the Company, through its wholly owned subsidiary C2 Investments Inc., completed an investment in AZ Limos LLC (name subsequently changed to LIMOS.com LLC, “LIMOS.com”). LIMOS.com was incorporated in July 2007 in order to acquire the assets and operations of Limos.com (“Limos”), a private company with an established reputation as a premier provider of qualified leads for licensed limousine operators. The Company’s investment consists of 400,000 units of LIMOS.com, with a total purchase price of $400, representing a 16% ownership interest in LIMOS.com. The Company’s investment was part of a $2,500 capital raise by LIMOS.com.

LIMOS.com acquired the assets and operations of Limos for a purchase price of $4,300, $2,300 of which was provided by the $2,500 capital raise and $2,000 of which was provided by financing (the “Loan”) from a third party lender (the “Lender”). The Loan bears an effective interest rate of 10.5% per annum and is secured by all the assets of LIMOS.com. All investors in LIMOS.com have pledged their ownership interests as security for the Loan, and certain of the investors have guaranteed $750 of the Loan. The Company’s majority stockholder, Counsel, has guaranteed $250 of the Loan on the Company’s behalf.

Contemporaneously with the Company’s investment in LIMOS.com and Counsel’s guaranty, Counsel and the Lender entered into a Priorities Agreement. Under the terms of the existing related party note payable, which is discussed in more detail in Note 3, Note 7 and Note 10 of these unaudited condensed consolidated financial statements, the Company had pledged all of its assets to Counsel as security for the related party note. The Priorities Agreement subordinates Counsel’s claim to the Company’s investment in LIMOS.com in favor of the Lender.

An affiliated entity in which Counsel holds a 50% ownership interest (the “Affiliate”) is entitled to earn a 2% management fee, based on the invested capital of LIMOS.com, in return for managing the operations of LIMOS.com. In addition, the Affiliate will hold two of the four seats on LIMOS.com’s Board of Directors. The Company’s Chief Executive Officer, who is also Counsel’s Chief Executive Officer, is a director of the Affiliate. As well, certain third party investors have a 20% carried interest in LIMOS.com, which shall be payable after all investors have received an annual 10% return on their capital from earnings generated by LIMOS.com and after all investors have received the return in full of their invested capital.

All of the investments described above were funded by Counsel through advances under the related party note payable that is discussed in Note 3, Note 7 and Note 10.

The Company’s ownership interests in MyTrade.com, Buddy Media and LIMOS.com do not allow it to exercise significant influence over their operations, and the Company intends to hold the investments for an indefinite period of time. The investments are therefore accounted for under the cost method. At each balance sheet date, the Company estimates the fair value of the securities using the best available information as of the evaluation date. Because none of the investments are shares that are traded on an open market, their valuation must be based on data such as the quoted market prices of comparable public companies, recent financing rounds of the investee, and other investee-specific information. The Company will record an other than temporary impairment of the investment in the event the Company concludes that such impairment has occurred. Based on the Company’s analysis, there has been no impairment in the fair value of the above investments between the dates on which they were acquired and September 30, 2007.

The Company’s investment at December 31, 2006 consisted of a convertible preferred stock holding in AccessLine Communications Corporation (“AccessLine”), a privately-held corporation. AccessLine provides hosted communications and managed voice services for Fortune 100 corporations and technology services partners. The Company’s investment consisted of 7,121,585 shares of convertible Series D preferred stock valued at $0.15446 per share, or $1,100 in total. The Series D preferred stock was mandatorily redeemable on June 23, 2008, at $0.15446 per share plus all accrued and unpaid dividends. On September 14, 2007, AccessLine was acquired by Telanetix, Inc. for a combination of cash and shares. In conjunction with the acquisition, the Company agreed to accept the payment of $1,100 on September 14, 2007 as full payment of the redemption of its Series D preferred stock.

Note 7 - Debt

The Company’s outstanding debt consists of the following:

	September 30, 2007						December 31, 2006
	Gross debt		Discounts		Reported debt		Gross debt		Discounts (1)			Reported debt
Note payable to Counsel	$	2,003	$	—	$	2,003	$	6	$	—		$	6
Convertible note payable to third party		—		—		—		1,471		(172	)		1,299
		2,003		—		2,003		1,477		(172	)		1,305
Less current portion		2,003		—		2,003		1,477		(172	)		1,305
Long-term debt, less current portion	$	—	$	—	$	—	$	—	$	—		$	—

(1) Beneficial conversion feature, imputed interest and costs associated with raising debt facilities are added to the gross debt balances over the applicable amortization periods.

	Payment due by period
Contractual obligations:	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Note payable to a related party	$	2,003	$	2,003	$	—	$	—	$	—

Counsel is the controlling stockholder and sole debt holder of the Company. At December 29, 2006, the aggregate amount of the outstanding related party debt was $83,582, including accrued and unpaid interest to that date. On December 29, 2006, C2 negotiated an agreement with Counsel under which, effective December 30, 2006, $3,386 of the debt was converted into 3,847,475 common shares of C2 at a price of $0.88 per share. At the same time, the $80,196 remaining balance of the debt was forgiven by Counsel. The debt forgiveness was recorded as a capital contribution by Counsel in the consolidated financial statements for the year ending December 31, 2006.

The convertible note payable (the “Note”) that was outstanding at December 31, 2006 was repaid effective January 10, 2007, as discussed below. Counsel had guaranteed the Note through its original maturity in October 2007, and had also subordinated its debt position and pledged its ownership interest in C2 in favor of the third party lender.

Note payable to a related party

The related party note payable to Counsel bears interest at 10% per annum and is currently scheduled to mature on December 31, 2007, having been extended from its most recent maturity date of October 31, 2007. The note is subject to acceleration in certain circumstances including certain events of default. Interest on the related party note accrues to principal quarterly and, accordingly, the Company has no cash payment obligations to Counsel prior to the debt’s maturity. During the first nine months of 2007, Counsel advanced $2,862 and the Company repaid $1,000 of principal from the proceeds of the AccessLine preferred share redemption discussed in Note 6. Accrued interest added to principal during the first nine months of 2007 was $135. Previously, Counsel, via a “Keep Well” agreement that matured on December 31, 2006, had agreed to fund the cash requirements of C2. Although this agreement was not extended beyond its maturity date, Counsel has indicated that it will fund the Company’s minimal cash requirements until at least December 31, 2007.

For further discussion of the note payable and other transactions with Counsel, see Note 3 and Note 10.

Convertible note payable to a third party

On October 14, 2004, the Company issued the Note with a detachable warrant to a third party lender, in the principal amount of $5,000, due October 14, 2007. The Note provided that the principal amount outstanding bore interest at the prime rate as published in the Wall Street Journal plus 3% (but not less than 7% per annum) decreasing by 2% (but not to less than 0%) for every 25% increase in the Market Price (as defined therein) above the fixed conversion price following the effective date of the registration statement covering the common stock issuable upon conversion of the Note. Interest was payable monthly in arrears. Principal was payable at the rate of approximately $147 per month, in cash or, in certain circumstances, in registered common stock. In the event the monthly payment was paid in cash, the Company paid 102% of the amount due. In accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities and Emerging Issues Task Force Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, at the inception of the Note the Company analyzed the various embedded derivative elements of the debt and concluded that all of the individual elements should be characterized as debt for accounting purposes and that the embedded derivative elements had nominal value. The value of the embedded derivative elements of the debt was reassessed quarterly on a mark-to-market basis, and remained nominal.

In connection with the Note, the Company recorded a debt discount of $656, comprising $430 relating to the warrant allocation and $226 of financing costs, which was deducted from the amount advanced on closing. The debt discount was being amortized over the term of the debt using the effective interest method through a charge to the statement of operations.

On January 10, 2007, as a result of negotiations between the Company and the third party lender, all outstanding obligations owed by the Company to the lender were settled. The third party lender converted a portion of the Note, pursuant to its terms, into 10,000 shares of common stock of the Company, and the Company prepaid the balance of the Note in full by paying 105% of the amount then due. The Company’s cost to prepay the Note was $293, calculated as follows:

Amount paid to third party lender	$	1,388
Balance of Note owing at January 10, 2007, net of $8.8 converted to common shares		(1,315	)
Accrued interest owing for period January 1 - 10, 2007		(4	)
Net premium paid		69
Premium related to excess of $0.88 conversion price over $0.70 market price: 10,000 shares x $0.18		(2	)
Write-off unamortized discount and financing costs		226
Cost to prepay Note	$	293

The prepayment cost of $293 was approximately equal to the total of the interest expense and discount amortization that the Company would have incurred by holding the debt to its contractual maturity of October 14, 2007.

Warrant to purchase common stock

In addition to the Note, the Company issued a common stock purchase warrant (the “Warrant”) to the third party lender, which entitles the third party lender to purchase up to one million shares of common stock, subject to adjustment. The Warrant entitles the holder to purchase the stock through the earlier of (i) October 13, 2009 or (ii) the date on which the average closing price for any consecutive ten trading dates shall equal or exceed 15 times the Exercise Price. The Exercise Price shall equal $1.00 per share as to the first 250,000 shares, $1.08 per share for the next 250,000 shares and $1.20 per share for the remaining 500,000 shares. The Exercise Price is 125%, 135% and 150% of the average closing price for the ten trading days immediately prior to the date of the Warrant, respectively.

At its issue date of October 14, 2004 the Warrant was classified as a liability in the Company’s consolidated financial statements, due to the fact that it was linked to a registration payment arrangement and thus met the conditions for this classification under the GAAP in effect at that date, although the Company did not expect to make any payments relating to the registration payment arrangement. Until the end of the third quarter of 2006, the value of the Warrant was reassessed quarterly on a mark-to-market basis, based on the price of the Company’s common stock at the end of the quarter.

Effective October 1, 2006, upon the Company’s adoption of FASB Staff Position No. EITF 00-19-2, Accounting for Registration Payment Arrangements (“FSP EITF 00-19-2”), the Warrant was reclassified to stockholders’ equity in the Company’s consolidated financial statements. This reclassification, which is discussed in more detail in the Company’s Annual Report on Form 10-K for the year ending December 31, 2006, had the following impact on the Company’s financial position: long-term liabilities were reduced by $203, the fair value of the Warrant at October 1, 2006, and additional paid-in capital was increased by $430, the fair value of the Warrant when issued. The difference between these two amounts, $227, was recorded as a charge to accumulated deficit. At the date of adoption of FSP EITF 00-19-2, and at September 30, 2007, the Company’s assessment was that payments relating to the registration payment arrangement were not probable. The Company has therefore not recorded any liability in connection with such a payment.

Note 8 - Discontinued Operations

Disposition of the Telecommunications Business

Commencing in 2001, the Company entered the Telecommunications business. The assets of the Company’s Telecommunications segment were owned through a wholly-owned subsidiary, Acceris Communications Corp. (name changed to WXC Corp. (“WXCC”) in October 2005).

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 WXCC to Acceris Management and Acquisition LLC (“AMA”), an arm’s length company. In addition, on May 19, 2005, the parties executed a Management Services Agreement (“MSA”), Security Agreement, Note, Proxy and Guaranty. Upon receipt of the requisite approvals, including shareholder approval, the 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, as well as the Telecommunications operations for the year ended December 31, 2005 and prior years, were reported in discontinued operations in the Company’s consolidated financial statements.

On September 30, 2005, in conjunction with the closing of the asset sale transaction and the expiration of the MSA, referenced above, the Company and AMA entered into a second Management Services Agreement (“MSA2”) under which the Company agreed to continue to provide services in certain states where AMA, at closing, had not obtained authorization to provide telecommunications services. For the period October 1, 2005 to March 31, 2006, the Company was charged a management fee by AMA that was equal to the revenue earned from providing these services. Both the revenue and the management fee were recorded in discontinued operations.

On March 28, 2006, the Company sold all the shares of WXCC to a third party. As a result of the sale, the Company was relieved of $3,763 of obligations that had previously been classified as liabilities of discontinued operations. The Company recognized a gain of $3,645 on the sale, net of closing costs of $118, which was included in income from discontinued operations in the Company’s consolidated statement of operations.

On June 30, 2006, the same third party that had purchased the WXCC shares agreed to acquire all the shares of I-Link Communications Inc., another wholly-owned subsidiary of the Company. As a result of the sale, the Company was relieved of $711 of obligations that had previously been classified as liabilities of discontinued operations. The Company recognized a gain of $665 on the sale, net of closing costs of $46, which was included in income from discontinued operations in the Company’s consolidated statement of operations.

Note 9 - Income Taxes

The Company recognized no income tax benefit from its losses in the nine months ended September 30, 2007 or 2006 because of the uncertainty surrounding the realization of the related deferred tax asset.

The Company adopted the provisions of FIN 48 effective January 1, 2007. As a result of the implementation of FIN 48, the Company recorded a reduction in its deferred tax asset of approximately $13,100, attributable to unrecognized tax benefits of $24,000 associated with prior years’ tax losses, which are not expected to be available primarily due to change of control usage restrictions, and a reduction in the rate of the tax benefit associated with all of its tax attributes. Due to the Company’s historic policy of applying a valuation allowance against its deferred tax assets, the effect of the above was an offsetting reduction in the Company’s valuation allowance. Accordingly, the above reduction had no net impact on the Company’s financial position, operations or cash flow.

In the unlikely event that these tax benefits are recognized in the future, there should be no impact on the Company’s effective tax rate, unless recognition occurs at a time when all of the Company’s historic tax loss carryforwards have been utilized and the associated valuation allowance against the Company’s deferred tax assets has been reversed. In such circumstances, the amount recognized at that time should result in a reduction in the Company’s effective tax rate.

The Company’s policy is to recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. Because the Company has tax loss carryforwards in excess of the unrecognized tax benefits, the Company did not accrue for interest and penalties related to unrecognized tax benefits either upon the adoption of FIN 48 or in the current period.

It is reasonably possible that the total amount of the Company’s unrecognized tax benefits will significantly increase or decrease within the next 12 months. These changes may be the result of future audits, the application of “change in ownership” rules leading to further restrictions in tax losses arising from changes in the capital structure of the Company and/or that of its parent company Counsel, reductions in available tax loss carryforwards through future merger, acquisition and/or disposition transactions, failure to continue a significant level of business activity or other circumstances not known to management at this time. Any such additional limitations could require the Company to pay income taxes on its future earnings and record an income tax expense to the extent of such liability, despite the existence of tax loss carryforwards. At this time, an estimate of the range of reasonably possible outcomes cannot be made.

The Company has a history of tax losses arising from 1991 to the present. All loss taxation years remain open for audit pending their application against income in a subsequent taxation year. In general, the statute of limitations expires 3 years from the date that a Company files a tax return where it applies prior year tax loss carryforwards against income in a subsequent year. In 2006, the Company applied historic tax loss carryforwards against debt forgiveness income. The Company’s remaining tax loss carryforwards at the end of 2006 comprised approximately $51,000 of unrestricted net operating tax losses, $35,000 of restricted tax losses subject to an annual usage restriction of $2,500 per annum until 2008 and $1,700 per annum thereafter, and $34,000 of unrestricted capital losses.

In the first quarter of 2006, as discussed in Note 4, the Company adopted SFAS No. 123(R). Effective December 31, 2006, as provided in FASB Staff Position (FSP) No. FAS 123(R)-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards (“FSP 123(R)-3”), the Company elected to apply “the short cut method”, as outlined in FSP 123(R)-3, as the methodology for recognizing any related windfall tax benefits as a credit to additional paid-in capital. The adoption of SFAS No. 123(R) and “the short cut method” had no immediate impact from an income tax perspective, since SFAS No. 123(R) specifically prohibits the recognition of any windfall tax benefits that have not been realized in cash or in the form of a reduction of income taxes payable. The Company, to date, has not realized such benefits either in cash or in the form a of a reduction in income taxes payable due to the continued availability of net operating tax loss carryforwards. The adoption of the “short cut method” will therefore only have application in the event of the Company incurring an income tax liability at a future date.

Note 10 - Related Party Transactions

During the nine months ended September 30, 2007, Counsel advanced net $1,862 to the Company, and converted $135 of interest payable to principal. The loan from Counsel is currently scheduled to mature on December 31, 2007 and accrues interest at 10%, with interest compounding quarterly. The loan is subject to an accelerated maturity in certain circumstances. For further discussion of the loan transactions with Counsel, see Note 3 and Note 7.

The Chief Executive Officer (“CEO”) of C2 is an employee of Counsel. As CEO of C2, he is entitled to an annual salary of $138, plus a discretionary bonus of 100% of the base salary. No bonus was paid for the year ended December 31, 2006. Such compensation is expensed by C2.

In December 2004, C2 entered into a Management Services Agreement (the “Agreement”) with Counsel. Under the terms of the Agreement, the Company agreed to make payment to Counsel for the past and future services to be provided to the Company by certain Counsel personnel for the calendar years of 2004 and 2005. The basis for such services charged was 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. In December 2005 and May 2007, C2 entered into similar agreements with Counsel for services to be provided by Counsel in 2006 and 2007, respectively, with the allocation determined on the same basis as the Agreement. For the first nine months of both 2007 and 2006, the allocated cost was $169. The amounts due under the Agreement are payable within 30 days following the respective year end, subject to applicable restrictions. Any unpaid fee amounts 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.

Note 11 - 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 four 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, Counsel Communications LLC, Counsel Corporation and four 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 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 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. In February 2006, the plaintiffs in both this action and the derivative action described above changed attorneys. On July 31, 2007, the trial date for both actions was moved to June 6, 2008.

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 advances to C2. 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 17^th 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.

In connection with the Company’s efforts to enforce its patent rights, C2 Communications Technologies Inc., a wholly-owned subsidiary of the Company, filed a patent infringement lawsuit against AT&T, Inc., Verizon Communications, Inc., Qwest Communications International, Inc., Bellsouth Corporation, Sprint Nextel Corporation, Global Crossing Limited, and Level 3 Communications, Inc. The complaint was filed in the Marshall Division of the United States District Court for the Eastern District of Texas on June 15, 2006. The complaint alleges that the above companies’ 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”. The complaint seeks an injunction, monetary damages and costs. There is no assurance that the Company will be successful in this litigation. In April 2007, a trial date of August 4, 2008 was set for the lawsuit. In June 2007, the complaint against Bellsouth Corporation was dismissed without prejudice.

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 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(All dollar amounts are presented in thousands of U.S. dollars, unless otherwise indicated, except per share amounts)

The following discussion and analysis 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 Annual Report on Form 10-K for the year ended December 31, 2006, filed with the Securities and Exchange Commission (“SEC”) on March 16, 2007.

Forward Looking Information

This Quarterly Report on Form 10-Q (the “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, that 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 noted in the Company’s Annual Report on Form 10-K 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. In August 2005, the Company changed its name 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 in the third quarter of 2005, as discussed below. In the second quarter of 2006, the Company opened an office in Texas.

C2 owns certain patents, detailed below under “Company History” and “Intellectual Property”, including two foundational patents in voice over internet protocol (“VoIP”) technology - U.S. Patent Nos. 6,243,373 and 6,438,124 (together the “VoIP Patent Portfolio”), which it seeks to license. Subsequent to the disposition of its Telecommunications business, licensing of intellectual property constitutes the primary business of the Company. C2’s target market consists of carriers, equipment manufacturers, service providers and end users in the internet protocol (“IP”) telephone market who are using C2’s patented VoIP technologies by deploying VoIP networks for phone-to-phone communications. The Company has engaged, and intends to continue to engage, in licensing agreements with third parties domestically and internationally. At present, no royalties are being paid to the Company. The Company plans to obtain licensing and royalty revenue from its target market by enforcing its patents. In this regard, in the third quarter of 2005, the Company retained legal counsel with expertise in the enforcement of intellectual property rights, and on June 15, 2006, C2 Communications Technologies Inc., a wholly-owned subsidiary of the Company, filed a patent infringement lawsuit against AT&T, Inc., Verizon Communications, Inc., Qwest Communications International, Inc., Bellsouth Corporation, Sprint Nextel Corporation, Global Crossing Limited, and Level 3 Communications, Inc. The complaint was filed in the Marshall Division of the United States District Court for the Eastern District of Texas, and alleges that these companies’ VoIP services and systems infringe C2’s U.S. Patent No. 6,243,373, entitled “Method and Apparatus for Implementing a Computer Network/Internet Telephone System”. The complaint seeks an injunction, monetary damages, and costs. In April 2007, a trial date of August 4, 2008 was set for the lawsuit. In June 2007, the complaint against Bellsouth Corporation was dismissed without prejudice.

On December 30, 2006, the Company issued 3,847,475 shares of its common stock at $0.88 per share to Counsel LLC, an indirectly wholly-owned subsidiary of Counsel Corporation (together with its subsidiaries “Counsel”), the Company’s majority shareholder. The shares were issued in exchange for Counsel’s conversion of $3,386 of debt owing by C2 to Counsel. On the same date, Counsel forgave the balance of the debt then owed by C2, which had been scheduled to mature on October 31, 2007. The aggregate amount of debt forgiveness to C2 was $80,196, including accrued and unpaid interest to that date. As a result of these transactions, Counsel’s percentage ownership of C2’s outstanding common stock increased from approximately 91% to approximately 93%.

On January 10, 2007, the Company and the third party lender holding the convertible note payable by the Company (the “Note”), agreed to settle all outstanding obligations owed by the Company. In connection with this agreement, the third party lender converted a portion of the Note, which had originally been scheduled to mature on October 14, 2007, into 10,000 shares, and the Company paid $1,388 to discharge the remaining balance of the debt. As discussed in Note 7 of the unaudited condensed consolidated financial statements included in this Report, the Company incurred a net loss of $293 in connection with the debt prepayment. The $1,388 was funded by Counsel and added to the related party debt owing to Counsel.

Company History

In 1994, we began operating as an Internet service provider and quickly identified that the emerging 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 and hardware, and leased telecommunications lines. The goal was to create a platform with the quality and reliability necessary for voice transmission.

In 1997, we began 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 U.S. 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. Shortly after the issuance of our core C2 Patent, we disposed of our domestic U.S. VoIP network in a transaction 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 property rights and patents.

In 2003, we added to our VoIP patent holdings when we acquired U.S. Patent No. 6,243,373, titled “Method and Apparatus for Implementing a Computer Network/Internet Telephone System” (the “VoIP Patent”), which included a corresponding foreign patent and related international patent applications. The VoIP Patent, together with the existing C2 Patent and related international patents and patent applications, form our international VoIP Patent Portfolio that covers the basic process and technology that enable 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 is summarized in the patent’s abstract, which, in pertinent part, 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.” As part of the consideration for the acquisition of the VoIP Patent, the vendor is entitled to receive 35% of the net earnings from our VoIP Patent Portfolio.

Revenue and contributions from Technologies operations up to December 31, 2004 were based on the sales and deployment of our VoIP solutions, which we ceased directly marketing in 2005, rather than on the receipt of licensing fees and royalties. We expect to generate licensing and royalty revenue in this business as we gain recognition of the underlying value in our VoIP Patent Portfolio through the enforcement of our intellectual property rights, as discussed above under “Overview and Recent Developments”.

On June 30, 2006, the same third party that had purchased the WXCC shares agreed to acquire all the shares of ILC from the Company. As a result of the sale, the Company was relieved of $711 of obligations that had previously been classified as liabilities of discontinued operations. The Company recognized a gain of $665 on the sale, net of closing costs of $46, which was included in income from discontinued operations in the Company’s consolidated statement of operations.

Intellectual Property

In the fourth quarter of 2005, the Company was awarded patents for the VoIP Patent from the People’s Republic of China and in Canada, and also received a Notice of Allowance in Canada for the C2 Patent. The Canadian patent was subsequently granted on October 10, 2006. In the third quarter of 2006, the Company was awarded a patent for the VoIP Patent from Hong Kong, and in the fourth quarter of 2006, the European Patent Office advised that it intends to grant C2 a European patent that is equivalent to the VoIP Patent. A decision to grant a European patent was published on March 21, 2007 and in June 2007 the Company applied for the validation of the patent in fifteen European countries.

In addition to the C2 and VoIP Patents, which cover the foundation of any VoIP system, our patent portfolio includes:

Private IP Communication Network Architecture (U.S. Patent No. 7,215,663 granted May 8, 2007) - This invention relates generally to multimedia communications networks. The patent’s 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 teleconferencing problems:

Delay Synchronization in Compressed Audio Systems - This invention eliminates popping and clicking when switching between parties 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 a conferencing setting, so that individuals on the conference call can each adjust their own gain levels without signal degradation.

Below is a summary of the Company’s issued and pending patents:

Type	Title	Number	Status

VoIP Architecture	Computer Network/Internet	U.S. No. 6,243,373	Issued: June 5, 2001
	Telephone System (“VoIP		Expires: November 1, 2015
	Patent”)
		Australia No. 716096	Issued: June 1, 2000
			Expires: October 29, 2016

		People’s Republic of	Issued: December 14, 2005
		China No. ZL96199457.6	Expires: October 29, 2016

		Canada No. 2,238,867	Issued: October 18, 2005
			Expires: October 29, 2016

		Hong Kong	Issued: August 11, 2006
		No. HK1018372	Expires: October 29, 2016

		Europe No. 0873637	Granted March 21, 2007

	Internet Transmission	U.S. No. 6,438,124	Issued: August 20, 2002
	System(“C2 Patent”)		Expires: July 22, 2018

		People’s Republic of	Issued: May 21, 2004
		China No. ZL97192954.8	Expires: February 5, 2017

		Canada No. 2,245,815	Issued: October 10, 2006
			Expires: February 5, 2017

	Private IP Communication	U.S. No. 7,215,663	Issued: May 8, 2007
	Network Architecture		Expires: June 12, 2017

Conferencing	Delay Synchronization in	U.S. No. 5,754,534	Issued: May 19, 1998
	Compressed Audio System		Expires: May 6, 2016

	Volume Control Arrangement	U.S. No. 5,898,675	Issued: April 27, 1999
	for Compressed Information		Expires: April 29, 2016
	Signal Delays

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 driven 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; and

	·	growing deregulation of communications services markets in the United States and in other 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”), equipment suppliers (“ESs”) and end users license our patents. 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.

VoIP has become a widespread and accepted telecommunications technology, with a variety of applications in the telecommunications and other industries. While we and many others believe that we will see continued 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.

Government Regulation

As a result of, and subsequent to, the disposition of our Telecommunications business, we are no longer subject to various regulatory requirements, at the federal, state and local levels, which were applicable to our operations in prior years.

Recent legislation in the United States, including the Sarbanes-Oxley Act of 2002, has increased regulatory and compliance costs as well as the scope and cost of work provided to us by our independent registered public accountants and legal advisors. Based on the current timetable, the Company will be subject to Section 404 reporting for the fiscal year ending December 31, 2007. As implementation guidelines continue to evolve, we expect to incur costs, which may or may not be material, in order to comply with legislative requirements or rules, pronouncements and guidelines by regulatory bodies, thereby reducing profitability.

Critical Accounting Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our unaudited condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States. This requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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. 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. On an on-going basis, management evaluates its estimates and judgments, including those related to intangible assets, contingencies, collectibility of receivables and litigation. Actual results could differ from these estimates.

The critical accounting estimates used in the preparation of our unaudited condensed consolidated financial statements are discussed in our Annual Report on Form 10-K for the year ended December 31, 2006. To aid in the understanding of our financial reporting, a summary of significant accounting policies is provided in Note 2 of the unaudited condensed consolidated financial statements included in Item 1 of this Report. 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 that are continuous in nature.

Management’s Discussion of Financial Condition

Liquidity and Capital Resources

As a result of our substantial historical operating losses and negative cash flows from operations, at September 30, 2007 we had a stockholders’ deficit of $1,717 (December 31, 2006 - $469) and negative working capital of $2,490 (December 31, 2006 - $1,782). The $708 increase in the working capital deficit was primarily due to net advances of $1,862 from Counsel, and the capitalization of $135 interest on those advances. During the first nine months of 2007, Counsel advanced a total of $2,862 and the Company repaid $1,000 of principal from the proceeds of the redemption of the AccessLine portfolio investment, which is discussed in Note 6 of the unaudited condensed consolidated financial statements. The advances from Counsel were partially offset by the repayment of the $1,471 convertible note (the “Note”) owing to a third party lender at December 31, 2006. The Note’s repayment also resulted in the elimination of its associated $60 deferred financing costs and $166 debt discount, further increasing the working capital deficit.

As a result of the Note repayment on January 10, 2007, as discussed in Note 7 of the unaudited condensed consolidated financial statements, the Company had no third party debt at September 30, 2007, compared to the $1,471 owed at December 31, 2006. Prior to its repayment, the Note was secured by all the assets of the Company and guaranteed by Counsel through its original maturity of October 2007.

At December 29, 2006, the aggregate amount of the outstanding related party debt was $83,582, including accrued and unpaid interest to that date. On December 29, 2006, C2 negotiated an agreement with Counsel under which, effective December 30, 2006, $3,386 of the debt was converted into 3,847,475 common shares of C2 at a price of $0.88 per share. At the same time, the $80,196 remaining balance of the debt was forgiven by Counsel. The debt forgiveness was recorded as a capital contribution by Counsel in the consolidated financial statements for the year ending December 31, 2006.

The Company has not realized revenues from continuing operations since 2004, and there is significant doubt about the Company’s ability to obtain additional financing to fund its operations without the support of Counsel. Additionally, management believes that the Company does not, at this time, have an ability to obtain additional financing from third parties in order to pursue expansion through acquisition. The Company must therefore realize value from its intellectual property, as discussed in Note 1 of the unaudited condensed consolidated financial statements, in order to continue as a going concern. Although the Company commenced litigation in June 2006 in order to realize this value, there is no certainty that the Company’s litigation will be successful. 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, 2006 contains an explanatory paragraph regarding the uncertainty of the Company’s ability to continue as a going concern.

A summary of the Company’s debt is as follows:

			September 30, 2007						December 31, 2006
	Maturity Date		Gross debt		Discounts		Reported debt		Gross debt		Discounts (1)			Reported debt
Convertible note payable		October 14, 2007(2)	$	—	$	—	$	—	$	1,471	$	(172	)	$	1,299

Note payable to a related party		December 31, 2007		2,003		—		2,003		6		—			6

Total outstanding debt			$	2,003	$	—	$	2,003	$	1,477	$	(172	)	$	1,305

(1)

Beneficial conversion feature, imputed interest and costs associated with raising debt facilities are added to the gross debt balances over the applicable amortization periods.

(2)

Refers to original maturity date. As discussed in Note 7 to the unaudited condensed consolidated financial statements, the note was prepaid in full effective January 10, 2007.

Working Capital

Cash and cash equivalents were $8 at September 30, 2007 as compared to $3 at December 31, 2006.

Our working capital deficit increased $708 to $2,490 as of September 30, 2007, from $1,782 as of December 31, 2006. The increase was primarily due to net advances of $1,862 from Counsel and the capitalization of $135 interest on those advances, which were partially offset by the repayment of the $1,471 Note owing at December 31, 2006. As well, the Note repayment resulted in the elimination of $60 of deferred financing costs and a $166 debt discount that were associated with the Note, which further increased the working capital deficit. Although Counsel has indicated that it will fund the Company’s minimal cash requirements until at least December 31, 2007, the Company’s long-term viability is dependent upon success in the pursuit of licensing arrangements and/or the ability to raise additional funds to meet its business objectives.

Cash flows from operating activities

Cash used in operating activities (excluding discontinued operations) during the nine months ended September 30, 2007 was $897, as compared to cash used of $2,026 during the same period in 2006. The Company’s loss from continuing operations decreased $6,577 to $1,362 in 2007, compared to $7,939 in 2006. The decrease is primarily due to a reduction of $6,486 in the interest expense on the Company’s related party debt, from $6,621 in 2006 to $135 in 2007. This was due to the December 30, 2006 conversion of $3,386, and forgiveness of $80,196, of related party debt outstanding at that date, as discussed in Note 7 of the unaudited condensed consolidated financial statements. As well, during the first nine months of 2006 the Company recorded an expense of $1,036 relating to the amortization of a discount on related party debt; due to the debt forgiveness, there was no similar expense in 2007. Interest on third party debt was reduced by $366, from $378 in 2006 to $12 in 2007, due to the repayment in full of the third party debt in January 2007. In 2007, the Company had a loss of $23 from discontinued operations, compared to income of $4,348 in 2006. Most of the 2007 loss was due to accruals of $14 for network liabilities that were retained when the telecommunications operations were sold in 2005, as discussed in Note 8 of the unaudited condensed consolidated financial statements, with the remainder being attributable to miscellaneous regulatory fees and taxes. The 2006 income was primarily due to the gains on the sale of the Company’s shares in WXCC and ILC, as also discussed in Note 8.

The most significant change in non-cash items during the nine months ended September 30, 2007, as compared to the same period in 2006, was the $5,450 reduction of accrued interest added to related party debt, from $5,585 to $135, due to the debt forgiveness noted above. During the first nine months of 2007, the Company recorded a $224 non-cash cost to repay the Note, as discussed in Note 7, primarily related to the write-off of unamortized deferred financing costs and debt discount. As well, accounts payable and accrued liabilities decreased by $39, primarily due to payment of accrued legal and accounting fees.

Cash flows from investing activities

Net cash of $525 was provided by investing activities of continuing operations during the nine months ended September 30, 2007. As discussed in Note 6 of the unaudited condensed consolidated financial statements, the Company received $1,100 upon the redemption of its AccessLine preferred share investment, and invested $575 in shares of three Internet-based e-commerce businesses. No cash was provided by or used in investing activities during the nine months ended September 30, 2006.

Cash flows from financing activities

Financing activities provided net cash of $400 during the nine months ended September 30, 2007, as compared to $1,883 for the same period in 2006.

Counsel advanced $2,862, and the Company repaid $1,000 of principal, for net advances of $1,862 during the first nine months of 2007. Net advances in the first nine months of 2006 were $1,883. The 2007 advances were largely used to fund the January repayment in full of the third party Note that was outstanding at December 31, 2006. As approximately nine months remained in the Note’s term when it was repaid, total repayments during the first nine months of 2007 and 2006 were very similar, being $1,462 and $1,324, respectively. Actual cash requirements were quite different, however, as in the third quarter of 2005, the Company had placed $1,800 into a restricted account in favor of the Note holder, as replacement security for the security released in conjunction with the disposition of the Telecommunications operations. During 2006 the Note holder applied these restricted funds to the monthly principal payments due on the Note. As a result, the payments made during the first nine months of 2006 did not require funding from Counsel.

The remainder of the advances from Counsel during the first nine months of 2007 were used to fund operating expenses such as legal, accounting, directors’ fees and insurance. Following the disposition of the Telecommunications business in September 2005, and the repayment of the Note in January 2007, the Company’s operating cash requirements have substantially decreased.

Management’s Discussion of Results of Operations

Technologies revenue is derived from licensing and related services revenue. Utilizing our patented technology, VoIP enables telecommunications customers to originate a phone call on a traditional handset, transmit any part of that call via the Internet, and then terminate the call over the traditional telephone network. Our VoIP Patent Portfolio is an international patent portfolio covering the basic process and technology that enables VoIP communications. The Company has engaged, and intends to engage, in licensing agreements with third parties domestically and internationally. At present, no royalties are being paid to the Company. The Company plans to obtain licensing and royalty revenue from its target market by enforcing its patents, with the assistance of outside counsel, in order to realize value from its intellectual property. In this regard, in the third quarter of 2005, the Company retained legal counsel with expertise in the enforcement of intellectual property rights, and on June 15, 2006 C2 Communications Technologies Inc., a wholly-owned subsidiary of the Company, filed a patent infringement lawsuit against AT&T, Inc., Verizon Communications, Inc., Qwest Communications International, Inc., Bellsouth Corporation, Sprint Nextel Corporation, Global Crossing Limited, and Level 3 Communications, Inc. The complaint was filed in the Marshall Division of the United States District Court for the Eastern District of Texas, and alleges that these companies’ 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”. The complaint seeks an injunction, monetary damages and costs.

Revenue and contributions from this business to date have been based on the sales and deployments of our VoIP solutions, which we are no longer directly marketing, rather than on the receipt of licensing fees and royalties. The timing and size of various projects has resulted in a continued pattern of fluctuating financial results. We expect to generate licensing and royalty revenue in this business as we gain recognition of the underlying value in our VoIP Patent Portfolio through the enforcement of our intellectual property rights. In connection with the 2003 acquisition of U.S. Patent No. 6,243,373, the Company agreed to remit, to the former owner of the patent, 35% of the net proceeds from future revenue derived from the licensing of the VoIP Patent Portfolio. Net proceeds are defined as revenue from licensing the VoIP Patent Portfolio less costs necessary to obtain the licensing arrangement. To date, no payments have been made to the former owner of the patent. As we earn patent licensing revenues, we expect to incur the associated costs.

Three-Month Period Ended September 30, 2007 Compared to Three-Month Period Ended September 30, 2006

Technologies revenues were $0 during the three months ended September 30 in both 2007 and 2006.

Selling, general, administrative and other expense was $318 during the three months ended September 30, 2007, as compared to $306 for the three months ended September 30, 2006. The significant items included:

Compensation expense was $78 in the third quarter of 2007, compared to $72 in the third quarter of 2006. The quarterly salary earned by the CEO of C2 remained unchanged at $34; however, stock-based compensation expense increased by $6, from $38 in 2006 to $44 in 2007.

Legal expenses in the third quarter of 2007 were $63, compared to $10 in the third quarter of 2006. In 2007, $50 was related to the Company’s patents and technology investments, while the remainder was related to general corporate matters. In the third quarter of 2006, the Company’s gross legal expenses were reduced by refunds totaling $8 in previously paid expenses, and the reversal of accruals totaling $24.

Accounting and tax consulting expenses were $47 in the third quarter of 2007, compared to $77 in the third quarter of 2006. The decrease reflects the reduced complexity of the Company’s operations following the disposition of the Telecommunications business in the third quarter of 2005.

Fees paid to the members of our Board of Directors were $26 in the third quarter of 2007, essentially unchanged from $28 in the third quarter of 2006.

Management fees charged by our controlling stockholder, Counsel, were $56 in the second quarter of both 2007 and 2006.

Directors and officers insurance expense was $37 in both 2007 and 2006.

Depreciation and amortization - This expense was $5 in the third quarter of both 2007 and 2006, and relates to the amortization of the cost of the VoIP Patent.

The changes in other income (expense) are primarily related to the following:

Related party interest expense was $52 in the third quarter of 2007, as compared to $2,053 in the third quarter of 2006. The decrease of $2,001 is primarily due to the decrease in the balance owing to Counsel. At September 30, 2007, the balance of the related party debt was $2,003, as compared to a balance of $81,114 at September 30, 2006. As discussed in Note 7 of the unaudited condensed consolidated financial statements, at December 30, 2006 Counsel converted a portion of its debt into 3,847,475 shares of the Company’s common stock, and forgave the balance then owing. It should also be noted that related party interest expense in the third quarter of 2006 included $130 of amortization of the beneficial conversion feature (“BCF”) related to Counsel’s ability to convert a portion of its debt to equity. The BCF was fully amortized in 2006, prior to the debt forgiveness by Counsel, and therefore there has been no corresponding expense in 2007.

There was no third party interest expense during the third quarter of 2007, as compared to a credit of $605 during the third quarter of 2006. All of the 2006 interest expense related to the Note and the warrant to purchase common stock, both held by the Company’s third party lender. As discussed in Note 7, the Note was prepaid in full effective January 10, 2007. In the third quarter of 2006, the combined interest expense and discount amortization were $141, and the Company recorded a credit of $746 as a mark to market adjustment on the warrant to purchase common stock. The 2006 mark to market adjustment on the warrant was based on the closing price of the Company’s common stock on the last day of each quarter. As discussed in Note 7, in the fourth quarter of 2006 the warrant was transferred to stockholders’ equity and therefore no mark to market adjustments have been required in 2007.

In the third quarter of 2007, the Company had other income of $3, as compared to other income of $6 during the third quarter of 2006.

Discontinued operations - In the third quarter of 2007, the Company reported a loss of $3 from discontinued operations (net of tax of $0), identical to a loss of $3 (net of tax of $0) reported in the third quarter of 2006. The expense in both years relates to taxes and regulatory fees.

Nine-Month Period Ended September 30, 2007 Compared to Nine-Month Period Ended September 30, 2006

Technologies revenues were $0 during the nine months ended September 30 in both 2007 and 2006.

Selling, general, administrative and other expense was $911 during the nine months ended September 30, 2007 as compared to $1,047 for the nine months ended September 30, 2006. The significant items included:

Compensation expense was $233 in the first nine months of 2007, compared to $156 in the first nine months of 2006. The salary earned by the CEO of C2 remained unchanged at $103; however, stock-based compensation expense increased by $35, from $95 in 2006 to $130 in 2007. In 2006 the Company incurred compensation expense of $27 for a Technologies employee; there was no corresponding expense in 2007 as the employee was terminated in the second quarter of 2006. Also, in the first quarter of 2006, the Company recorded a credit of $69 relating to the reversal of bonus expense accrued in 2005 that was subsequently determined not to be warranted; there were no similar transactions in 2007.

Legal expenses in the first nine months of 2007 were $106, compared to $144 in the first nine months of 2006. The greater expense in 2006 primarily relates to the termination or settlement of litigation that had commenced in prior years; there were no similar items in 2007. Also, in 2007 there was less activity associated with the outstanding direct and derivative actions against the Company.

Accounting and tax consulting expenses were $116 in the first nine months of 2007, compared to $312 in the first nine months of 2006. The decrease reflects the reduced complexity of the Company’s operations following the disposition of the Telecommunications business in the third quarter of 2005.

Fees paid to the members of our Board of Directors were $79 in the first nine months of both 2007 and 2006.

Management fees charged by our controlling stockholder, Counsel, were $169 in the first nine months of both 2007 and 2006.

Directors and officers insurance expense was $113 in both 2007 and 2006.

In the second quarter of 2007, the Company incurred expenses of $60 with respect to filing fees for patents being issued in various European countries. There was no corresponding expense in 2006.

Depreciation and amortization - This expense was $15 in the first nine months of both 2007 and 2006, and relates to the amortization of the cost of the VoIP Patent.

The changes in other income (expense) are primarily related to the following:

Related party interest expense was $135 in the first nine months of 2007, as compared to $6,621 in the first nine months of 2006. The decrease of $6,486 is primarily due to the decrease in the balance owing to Counsel. At September 30, 2007, the balance of the related party debt was $2,003, as compared to a balance of $81,114 at September 30, 2006. As discussed in Note 7 of the unaudited condensed consolidated financial statements, at December 30, 2006 Counsel converted a portion of its debt into 3,847,475 shares of the Company’s common stock, and forgave the balance then owing. It should also be noted that related party interest expense in the first nine months of 2006 included $1,036 of amortization of the BCF related to Counsel’s ability to convert a portion of its debt to equity. The BCF was fully amortized in 2006, prior to the debt forgiveness by Counsel, and therefore there has been no corresponding expense in 2007.

Third party interest expense was $12 during the first nine months of 2007, as compared to $378 during the first nine months of 2006. All of the interest expense related to the Note and the warrant to purchase common stock, both held by the Company’s third party lender. As discussed in Note 7, the Note was prepaid in full effective January 10, 2007, and therefore the 2007 expense consists of interest and discount amortization for only ten days. In the first nine months of 2006, the combined interest expense and discount amortization were $532, and the Company recorded a credit of $78 as a mark to market adjustment on the warrant to purchase common stock. The 2006 mark to market adjustment on the warrant was based on the closing price of the Company’s common stock on the last day of each quarter. As discussed in Note 7, in the fourth quarter of 2006 the warrant was transferred to stockholders’ equity and therefore no mark to market adjustments have been required in 2007.

In the first nine months of 2007, the Company had other expense of $289, as compared to income of $122 during the first nine months of 2006. The 2007 expense is primarily composed of the $293 cost to prepay the Note owed to the third party lender, as detailed in Note 7. In the second quarter of 2006, the Company entered into settlement agreements with certain carriers, which resulted in the recovery of $110 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. The remaining income in 2006 related to interest earned on cash deposits.

Discontinued operations - In the first nine months of 2007, the Company reported a loss of $23 from discontinued operations (net of tax of $0), as compared to income of $4,348 (net of tax of $0) reported in the first nine months of 2006. The 2007 loss primarily consists of $14 of network expenses relating to liabilities that were retained when the Telecommunications operations were sold in 2005, with the balance being taxes and regulatory fees. The 2006 income consists of $38 of income related to Telecommunications operations for the nine-month period, and the $4,310 total gains recognized on the sale of the shares of WXCC and ILC, as discussed in Note 8 of the unaudited condensed consolidated financial statements.

Inflation. Inflation did not have a significant impact on our results during the last fiscal quarter.

Off-Balance Sheet Transactions. We have not engaged in material off-balance sheet transactions.

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. Due to the minimal amount of our cash and 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 do not believe that we are subject to material market risk on our fixed rate debt with Counsel in the near term, which is our only outstanding debt.

We did not have any foreign currency hedges or other derivative financial instruments as of September 30, 2007. 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, our Chief Executive Officer and Chief Financial Officer (the “Certifying Officers”) conducted evaluations of our disclosure controls and procedures. As defined under Rules 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 our disclosure controls and procedures were effective.

Further, there were no changes in our internal control over financial reporting during the third fiscal quarter of 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Please see Note 11 of the unaudited condensed consolidated financial statements, which are included in Part I of this Report, and hereby incorporated by reference into this Part II, for a discussion of the Company’s legal proceedings.

Item 1A. Risk Factors

Other than with respect to the risk factor reported below, there have been no significant changes to the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2006, as filed with the SEC on March 16, 2007.

Certain of our recently-acquired portfolio investments are particularly subject to risk of loss

The preferred share investments that the Company made in MyTrade.com and Buddy Media during the third quarter of 2007 are in development stage companies that have yet to provide a return to shareholders. There can be no assurance that the Company will either recover the value of its initial investments or earn a positive return.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

Item 5. Other Information.

None.

Item 6. - Exhibits.

(a) Exhibits

Exhibit No.			Identification of Exhibit
10.1			Promissory Note for $672,961.16 dated September 30, 2007 between C2 Global Technologies Inc. and Counsel Corporation.

10.2			Promissory Note for $56,250.00 dated September 30, 2007 between C2 Global Technologies Inc. and Counsel Corporation.

10.3			Promissory Note for $73,295.21 dated September 30, 2007 between C2 Global Technologies Inc. and Counsel Corporation.

10.4			The Pledge Agreement dated as of September 21, 2007 (1).

10.5			The Priorities Agreement dated as of September 21, 2007 (1).

31.1			Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted under Section 302 of the Sarbanes-Oxley Act of 2002

31.2			Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted under Section 302 of the Sarbanes-Oxley Act of 2002

32.1			Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2			Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(1)			Incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on September 26, 2007

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 6, 2007	By:	/s/ Allan C. Silber
		Allan C. Silber Chairman of the Board and Chief Executive Officer


	By:	/s/ Stephen A. Weintraub
		Stephen A. Weintraub Chief Financial Officer and Corporate Secretary