Heritage Global Inc. - Quarter Report: 2009 September (Form 10-Q)

Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2009

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 0-17973

C2 Global Technologies Inc.

(Exact name of registrant as specified in its charter)

FLORIDA

(State or other jurisdiction of

Incorporation or Organization)

59-2291344

(I.R.S. Employer Identification No.)

40 King St. West, Suite 3200, Toronto, ON M5H 3Y2

(Address of Principal Executive Offices)

(416) 866-3000

(Registrant’s Telephone Number)

N/A

(Registrant’s Former Name)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter time period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes R No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o 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	Smaller reporting company £

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 3, 2009, there were 22,718,080 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 at September 30, 2009 and December 31, 2008	3

	Unaudited Condensed Interim Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2009 and 2008	4

	Unaudited Condensed Interim Consolidated Statement of Changes in Stockholders’ Equity for the period ended September 30, 2009	5

	Unaudited Condensed Interim Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2008	6

	Notes to Unaudited Condensed Interim Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39

Item 4T.	Controls and Procedures	39

Part II.	Other Information

Item 1.	Legal Proceedings	40

Item 1A.	Risk Factors	40

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40

Item 3.	Defaults Upon Senior Securities	40

Item 4.	Submission of Matters to a Vote of Security Holders	40

Item 5.	Other Information	40

Item 6.	Exhibits	41

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements.

C2 GLOBAL TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

	September 30,			December 31,
(In thousands of US dollars, except share and per share amounts)	2009			2008

ASSETS
Current assets:
Cash	$	157		$	4,076
Accounts receivable (net of allowance for doubtful accounts of $950; 2008 - $0)		1,779			—
Other current assets		25			77
Inventory (Note 5)		4,828			—
Deferred income tax assets (Note 9)		453			875
Total current assets		7,242			5,028
Other assets:
Goodwill (Note 5)		173			173
Investments (Note 6)		2,867			242
Deferred income tax assets (Note 9)		507			—
Total assets	$	10,789		$	5,443

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities (Note 5)	$	1,247		$	472
Debt payable to third parties (Note 7)		3,028			—
Debt payable to a related party (Note 7)		1,702			—
Total liabilities		5,977			472

Commitments and contingencies (Note 11)

Stockholders’ equity:
Preferred stock, $10.00 par value, convertible, non-redeemable, authorized 10,000,000 shares, issued and outstanding 592 Class N shares at September 30, 2009 and 594 shares at December 31, 2008; liquidation preference of $592 at September 30, 2009 and $594 at December 31, 2008		6			6
Common stock, $0.01 par value, authorized 300,000,000 shares, issued and outstanding 22,718,074 shares at September 30, 2009 and 22,745,530 shares at December 31, 2008		227			227
Additional paid-in capital		274,688			274,761
Accumulated deficit		(270,374	)		(270,023	)

Stockholders’ equity before non-controlling interest		4,547			4,971
Non-controlling interest in subsidiary		265			—
Total equity		4,812			4,971

Total liabilities and stockholders’ equity	$	10,789		$	5,443

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

C2 GLOBAL TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands of US dollars, except per share amounts)	2009			2008			2009			2008

Revenue:
Patent licensing	$	—		$	9,500		$	950		$	17,625
Asset trading		1,948			—			5,050			—
Total revenue		1,948			9,500			6,000			17,625

Operating costs and expenses:
Patent licensing		11			6,097			598			10,589
Asset trading		917			—			3,592			—
Selling, general and administrative		966			312			2,061			868
Depreciation and amortization		—			5			—			15
Total operating costs and expenses		1,894			6,414			6,251			11,472
Operating income (loss)		54			3,086			(251	)		6,153
Other income (expense):
Other income		—			3			22			8
Interest expense – third party		(84	)		—			(112	)		—
Interest expense – related party		(39	)		—			(74	)		(43	)
Total other income (expense)		(123	)		3			(164	)		(35	)
Income (loss) from continuing operations before the undernoted		(69	)		3,089			(415	)		6,118
Income tax expense (recovery) (Note 9)		65			(936	)		12			(6	)
Earnings of equity accounted investments (net of $0 tax) (Note 6)		77			(10	)		97			(3	)
Income (loss) from continuing operations		(57	)		4,015			(330	)		6,121
Loss from discontinued operations (net of $0 tax)		—			(3	)		—			(9	)
Net income (loss) and comprehensive income (loss) before non-controlling interest		(57	)		4,012			(330	)		6,112
Net (income) loss and comprehensive (income) loss attributable to non-controlling interest		(64	)		—			(21	)		—
Net income (loss) and comprehensive income (loss)	$	(121	)	$	4,012		$	(351	)	$	6,112

Weighted average common shares outstanding		22,718			22,745			22,725			22,961
Weighted average preferred shares outstanding		1			1			1			1

Earnings (loss) per share – basic and diluted: (Note 2)

Earnings (loss) from continuing operations
Common shares	$	(0.01	)	$	0.18		$	(0.02	)	$	0.27
Preferred shares	$	N/A		$	7.05		$	N/A		$	10.65

Loss from discontinued operations
Common shares	$	—		$	—		$	—		$	—
Preferred shares	$	N/A		$	N/A		$	N/A		$	N/A

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

C2 GLOBAL TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED INTERIM CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

For the period ended September 30, 2009

(in thousands of US dollars, except number of shares)

(unaudited)

	Preferred stock					Common stock						Additional paid-in			Accumulated Equity			Non- controlling
	Shares			Amount		Shares			Amount			capital			(Deficit)			interest		Total

Balance at December 31, 2007		607		$	6		23,095,010		$	231		$	274,672		$	(275,850	)	$	—	$	(941	)
Conversion of Class N preferred stock to common stock		(13	)		—		520			—			—			—			—		—
Cancellation of common stock		—			—		(350,000	)		(4	)		4			—			—		—
Compensation cost related to stock options		—			—		—			—			85			—			—		85
Net income		—			—		—			—			—			5,827			—		5,827
Balance at December 31, 2008		594			6		22,745,530			227			274,761			(270,023	)		—		4,971
Capital contribution		—			—		—			—			—			—			244		244
Purchase and cancellation of preferred and common stock (Note 11)		(2	)		—		(27,456	)		—			(126	)		—			—		(126	)
Compensation cost related to stock options		—			—		—			—			53			—			—		53
Net income (loss)		—			—		—			—			—			(351	)		21		(330	)
Balance at September 30, 2009		592		$	6		22,718,074		$	227		$	274,688		$	(270,374	)	$	265	$	4,812

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

C2 GLOBAL TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of US dollars)

(unaudited)

	Nine months ended September 30,
	2009			2008
Cash flows from operating activities:
Net income (loss) from continuing operations	$	(330	)	$	6,121
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Accrued interest added to principal of third party debt		34			—
Amortization of financing costs on debt payable to third party		64			—
Accrued interest added to principal of related party debt		74			—
Stock-based compensation expense		53			65
Equity interests in significantly influenced companies		(97	)		3
Gain on sale of investments		(21	)		—
Depreciation and amortization		—			15

Changes in operating assets and liabilities:
Increase in accounts receivable		(1,779	)		—
Increase in inventory		(4,828	)		—
Decrease (increase) in other assets		52			(88	)
Decrease (increase) in deferred income tax assets		(85	)		(6	)
Increase in accounts payable and accrued liabilities		775			1,809
Net cash provided by (used in) operating activities by continuing operations		(6,088	)		7,919
Net cash used in operating activities by discontinued operations		—			(9	)
Net cash provided by (used in) operating activities by continuing and discontinued operations		(6,088	)		7,910

Cash flows from investing activities:
Investment in significantly influenced company		(2,631	)		—
Purchase of portfolio investments		—			(125	)
Sale of portfolio investments		121			—
Cash distributions from significantly influenced company		3			6
Net cash used in investing activities		(2,507	)		(119	)

Cash flows from financing activities:
Proceeds from issuance of debt payable to third parties		2,930			—
Proceeds from issuance of note payable to a related party		1,628			—
Purchase and cancellation of common shares		(126	)		—
Non-controlling interest contribution		244			—
Repayment of notes payable to a related party		—			(2,335	)
Net cash provided by (used in) financing activities		4,676			(2,335	)
Increase (decrease) in cash		(3,919	)		5,456
Cash at beginning of period		4,076			67
Cash at end of period	$	157		$	5,523

Supplemental cash flow information:
Taxes paid	$	96		$	2
Interest paid	$	14		$	43

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

C2 GLOBAL TECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Note 1 – Description of Business and Principles of Consolidation

These unaudited condensed consolidated financial statements include the accounts of C2 Global Technologies Inc. together with its subsidiaries, including C2 Communications Technologies Inc., C2 Investments Inc. and Counsel RB Capital LLC. These entities, on a combined basis, are referred to as “C2”, the “Company”, “we” or “our” in these financial statements. Our unaudited condensed consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), as outlined in the FASB Accounting Standards Codification (“ASC”), 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 (the “VoIP Patent”) and 6,438,124 (the “C2 Patent”) (together the “VoIP Patent Portfolio”), which it licenses. The VoIP Patent, including a corresponding foreign patent and related international patent applications, was acquired from a third party in 2003. At the time of acquisition, the vendor of the VoIP Patent was granted a first priority security interest in the patent in order to secure C2’s obligations under the associated purchase agreement, as discussed in Note 8. The C2 Patent was developed by the Company.

Licensing of intellectual property constitutes the Company’s Patent Licensing operating segment. C2’s target market consists of carriers, equipment manufacturers, service providers and end users in the internet protocol 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. The Company plans to obtain ongoing licensing and royalty revenue from the target market for its patents, with the assistance of outside counsel, in order to realize value from its intellectual property.

On August 27, 2009 the Company’s wholly-owned subsidiary, C2 Communications Technologies Inc., filed a patent infringement lawsuit against PAETEC Corporation, Matrix Telecom, Inc., Windstream Corporation, and Telephone and Data Systems, Inc. The complaint was filed in the United States District Court for the Eastern District of Oklahoma and alleges that the defendants’ services and systems utilizing VoIP infringe the Company’s U.S. Patent No. 6,243,373. The complaint seeks an injunction, monetary damages and costs.

In the second quarter of 2009, the Company entered into a license agreement with C2 Communication Korea, an unrelated third party telecommunications company in the Republic of Korea. The license covers C2’s two existing patents in the Republic of Korea, which correspond to the C2 Patent, and any patents that issue from these patents. The terms of the license include an initial payment of $950, a percentage of the licensee’s net proceeds from the enforcement of the patents, and predetermined minimum amounts payable beginning in the third year of the agreement.

In 2007, the Company began investing in Internet-based e-commerce businesses through its acquisition of minority positions in MyTrade.com, Inc. (sold in the fourth quarter of 2007), Buddy Media, Inc., LIMOS.com LLC (sold in the fourth quarter of 2008), and Knight’s Bridge Capital Partners Internet Fund No. I GP LLC. A portion of the Buddy Media, Inc. investment was sold in the second quarter of 2009 for a net gain of $21. In May 2009, the Company invested $2,621 to indirectly acquire an approximate 5% interest in Polaroid Corporation, pursuant to a Chapter 11 reorganization in a U.S. bankruptcy court. C2’s interest is managed by Knight’s Bridge Capital Management L.P., an affiliate of C2’s parent, Counsel Corporation (together with its subsidiaries, “Counsel”). The Company’s investments are discussed in more detail in Note 6.

In February 2009 the Company established Counsel RB Capital LLC (“Counsel RB”). Counsel RB is owned 75% by the Company and 25% by its Co-CEO’s. It specializes in the acquisition and disposition of distressed and surplus assets throughout the United States and Canada, including industrial machinery and equipment, real estate, inventories, accounts receivable and distressed debt. In addition to purchasing various types of assets, Counsel RB also arranges traditional asset disposition services such as on-site and webcast auctions, liquidations and negotiated sales. Counsel RB commenced operations in the second quarter of 2009.

In June 2009, in order to acquire certain assets, Counsel RB acquired a non-operating asset holding company, Greystone Private Equity LLC (“Greystone”), a subsidiary of Greystone & Co. Holdings LLC (“Greystone Holdings”), for approximately $5,900. The asset acquisition was accomplished by entering into an LLC Membership Interest Purchase Agreement to purchase Greystone, dated as of May 28, 2009, by and between Counsel RB and Greystone Holdings (the “Agreement”). The assets include real estate, equipment, machinery and accounts receivable. The real estate, equipment and machinery are held for sale and Counsel RB began to monetize these assets during the second quarter of 2009. The purchase price for the acquired assets was payable in the following manner: (a) cash payments of approximately $2,900 were paid to or credited by Greystone Holdings on the closing date; and (b) the remaining balance of approximately $3,000 was comprised of (i) a note payable to Greystone Holdings in the principal amount of approximately $1,400, (ii) a credit facility in the amount of approximately $1,400 and (iii) assumption of debt in the amount of $200. The note, credit facility and debt are discussed in more detail in Note 7.

The operations of Counsel RB, together with the investments in Internet-based e-commerce businesses, and the investment in Polaroid, constitute the Company’s Asset Investment and Trading operating segment. The Company’s segments are discussed in more detail in Note 12.

We have prepared the condensed consolidated financial statements included herein, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). In our opinion, these financial statements reflect all adjustments that are necessary to present fairly the results for interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations; however, we believe that the disclosures are appropriate. We recommend that these unaudited condensed consolidated financial statements be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2008, filed with the Securities and Exchange Commission.

The results of operations for the three and nine-month periods ended September 30, 2009 are not necessarily indicative of those to be expected for the entire year ending December 31, 2009.

Note 2 – Summary of Significant Accounting Policies

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), accounts receivable valuation, inventory valuation, valuation of goodwill and intangibles, valuation of deferred income tax assets, liabilities, contingencies surrounding litigation, and stock-based compensation. These estimates have the potential to significantly impact our consolidated 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.

Cash and cash equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company maintains its cash and cash equivalents primarily with financial institutions in Toronto, Canada. Counsel RB holds a minimum operating balance with a financial institution in New York City. These accounts may from time to time exceed federally insured limits. The Company has not experienced any losses on such accounts. At September 30, 2009 and December 31, 2008, the Company did not hold any cash equivalents.

Accounts receivable

The Company’s accounts receivable are composed of accounts receivable related to the Company’s patent licensing segment, and accounts receivable acquired by Counsel RB as a component of an asset acquisition or pursuant to an asset disposition. They are recorded at their fair value at the acquisition or disposition date. At each financial statement date the fair value of the outstanding accounts receivable is evaluated, and an allowance is recorded if the book value exceeds the fair value. At September 30, 2009 the Company recorded an allowance for doubtful accounts of $950 related to a patent licensing fee receivable.

Inventory

The Company’s inventory consists of assets acquired for resale by Counsel RB. They are recorded at the lower of cost and net realizable value. Inventory is normally expected to be sold within a one-year operating cycle.

Intangible assets and goodwill

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 its intangible assets and its goodwill based upon the fair value of the Company as a consolidated entity. Beginning in 2005, the Company’s valuation was based upon its market capitalization. Management believed this to be the most reasonable method at the time, given the absence of a predictable revenue stream and the corresponding inability to use an alternative valuation method for the Company’s patents, such as a discounted cash flow analysis. For the year ended December 31, 2008, given the success that the Company had realized with respect to its patent litigation, the Company was able to use a discounted cash flow analysis to value its patents. If the carrying amount of the Company’s net assets exceeds the Company’s estimated fair value, intangible asset and/or 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 its implied fair value.

Goodwill, in addition to being tested for impairment annually, is tested for impairment between annual tests if an event occurs or circumstances change such that it is more likely than not that the carrying amount of goodwill may be impaired. No impairment was present upon the performance of these tests at December 31, 2008 and 2007, and no events have occurred during 2009 to suggest that the carrying amount of goodwill may be impaired. 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 or other factors not known to management at this time.

Investments

Equity securities that do not have a readily determinable fair value, and equity securities having underlying common stock that also does not have a readily determinable fair value, are accounted for under the cost method when the Company’s ownership interests do not allow it to exercise significant influence over the entities in which it has invested. When the Company’s ownership interests do allow it to exercise significant influence, the investments are accounted for under the equity method.

The Company monitors all of its 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 businesses 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 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 an investment should the Company conclude that such a decline in value has occurred.

Impairments, equity pick-ups, dividends and realized gains and losses on equity securities are reported separately in the condensed consolidated statements of operations. See Note 6 for further discussion of the Company’s investments.

Fair value of financial instruments

The fair value of financial instruments is the amount at which the instruments could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. At September 30, 2009 and December 31, 2008 the carrying values of the Company’s financial instruments, which include cash, accounts receivable, accounts payable and accrued liabilities, debt payable to third parties and a related party, approximate fair value due to their short-term nature.

Although the Company does not employ fair value accounting for any of its assets or liabilities, in assessing the fair values of its financial instruments, the Company applies the valuation principles required by GAAP.

Contingencies

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.

Earnings (loss) per share

The Company is required, in periods in which it has net income, to calculate basic earnings per share (“basic EPS”) using the two-class method. The two-class method is required because the Company’s Class N preferred shares, each of which is convertible to 40 common shares, have the right to receive dividends or dividend equivalents should the Company declare dividends on its common stock. Under the two-class method, earnings for the period, net of any deductions for contractual preferred stock dividends and any earnings actually distributed during the period, are allocated on a pro-rata basis to the common and preferred stockholders. The weighted-average number of common and preferred shares outstanding during the period is then used to calculate basic EPS for each class of shares.

In periods in which the Company has a net loss, basic loss per share is calculated by dividing the loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. The two-class method is not used, because the preferred stock does not participate in losses.

Options, warrants 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. For the periods ended September 30, 2009 and 2008, the net effect of including the Company’s potential common shares is anti-dilutive, and therefore diluted EPS is not presented in these condensed consolidated unaudited financial statements.

Potential common shares are as follows:

	September 30,
	2009		2008

Assumed conversion of Class N preferred stock		23,680		23,880
Assumed exercise of options and warrant to purchase shares of common stock		1,994,027		1,996,999
		2,017,707		2,020,879

Patent licensing revenue

Prior to the second quarter of 2009, patent licensing revenue was in the form of one-time payments for past and future use of the Company’s patented technology. These payments were not contingent upon the occurrence or non-occurrence of any events, and the parties had no further obligations or performance commitments, or any unilateral ability to rescind the agreement. The full payment amounts were recognized as revenue in the quarter in which the agreements were completed. In the second quarter of 2009, the Company entered into a patent license agreement (the “2009 Agreement”) that includes both a one-time initial payment and future royalty payments based on the patent-related earnings of the licensee, subject to minimum annual royalty payments beginning in the third year of the license, decreasing by $50 in each subsequent year. Although the 2009 Agreement differs from previous agreements in that it includes future minimum royalty payments, the terms of the initial payment are very similar to the previous agreements in that this payment does not depend upon the occurrence or non-occurrence of any other event. It represents the licensee’s cost to enter into the agreement. Accordingly, the Company recognized the initial payment as revenue in the second quarter of 2009. In general, patent licensing revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the Company’s price to the customer is fixed or determinable, and collection of the resulting receivable is reasonably assured. Revenues where collectibility is not assured are recognized when the total cash collections to be retained by the Company are finalized.

Asset trading revenue

Asset trading revenue consists of Counsel RB’s proceeds from asset inventory resale. Asset proceeds are derived from auctions and negotiated sales. Revenue is recognized when persuasive evidence of an arrangement exists, the amount of the proceeds is fixed, delivery terms are arranged and collectability is reasonably assured.

Stock-based compensation

The Company calculates stock-based compensation using the fair value method, under which the fair value of the options at the grant date is calculated using the Black-Scholes Option Pricing Model, and subsequently expensed over the appropriate term. The provisions of the Company’s stock-based compensation plans do not require the Company to settle any options by transferring cash or other assets, and therefore the Company classifies the awards as equity. See Note 4 for further discussion of the Company’s stock-based compensation.

Historically, on December 31, 2006 the Company elected a shortcut transition method (the “short cut method”) for accounting for the tax effects of share-based employee compensation. The adoption of the short cut method primarily required the Company to increase its beginning additional paid-in capital (“APIC”) by any windfall tax benefit resulting from the requirement to account for the cost of share-based employee compensation using a grant-date fair value model. However, the adoption of the shortcut method had no impact on the beginning balance of APIC or the cash flow of the Company, since, due to the existence of net operating loss carryforwards, no such tax benefit resulted in cash or a reduction of taxes payable.

Income taxes

The Company recognizes 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 assets, which have 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. See Note 9 for further discussion of the Company’s income taxes.

Segment reporting

Since the second quarter of 2009, the Company has operated in two business segments, patent licensing and asset investment and trading. The patent licensing segment includes all operations relating to licensing of the Company’s intellectual property. The asset investment and trading segment includes the operations of Counsel RB, together with the Company’s investments in Internet-based e-commerce businesses and in Polaroid.

Recent accounting pronouncements

In December 2007, the FASB issued the Business Combinations Topic (“Business Combinations”) of the ASC. Business Combinations replaces previously issued guidance with respect to business combinations. It applies to all transactions and events in which an entity obtains control over one or more other businesses. Business Combinations substantially increases the use of fair value and makes significant changes to the way companies account for business combinations and noncontrolling interests. Some of the more significant requirements are that it requires more assets acquired and liabilities assumed to be measured at fair value as of the acquisition date, liabilities related to contingent consideration to be remeasured at fair value in each subsequent reporting period, acquisition-related costs to be expensed, and noncontrolling interests in subsidiaries to be initially measured at fair value and classified as a separate component of equity. Business Combinations is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited, and is to be applied prospectively, with one exception relating to income taxes. The Company was required to adopt Business Combinations effective January 1, 2009.

As the Company did not acquire any businesses during the first nine months of 2009, the adoption of Business Combinations has had no impact on the Company’s consolidated statements. However, the Company founded Counsel RB and made preliminary investments in it during the first quarter of 2009, before finalizing its investment in the second quarter of 2009. Because the Company holds 75% of Counsel RB, the Company has consolidated Counsel RB in these condensed consolidated financial statements. As a result, the Company’s financial statements report amounts related to the 25% noncontrolling interest, calculated as required by Business Combinations.

In March 2008, the FASB issued new guidance regarding disclosures in the Derivatives and Hedging Topic of the ASC. The guidance does not change the existing scope or accounting, but does require expanded disclosures about an entity’s derivative instruments and hedging activities. The required disclosures include: how and why an entity is using a derivative instrument or hedging activity, how the entity accounts for derivative instruments and hedged items, and how the entity’s financial position, financial performance and cash flows are affected by derivative instruments. The guidance also clarifies that derivative instruments are subject to concentration-of-credit-risk disclosures. It is effective for fiscal years and interim periods beginning after November 15, 2008, with early adoption permitted. The Company was required to adopt the guidance effective January 1, 2009; its adoption has had no impact on the Company’s financial statements.

In April 2008, the FASB issued new guidance regarding the determination of the useful life of intangible assets in the Intangibles – Goodwill and Other Topic of the ASC. The guidance amends the list of factors that an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets, both those acquired individually or as part of a group of other assets, and those acquired in business combinations or asset acquisitions. It also expands the disclosure requirements. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Although the guidance regarding an intangible asset’s useful life is to be applied prospectively only to intangible assets acquired after its effective date, the disclosure requirements must be applied prospectively to all intangible assets recognized as of the effective date. The Company was required to adopt the new guidance effective January 1, 2009. As the Company did not acquire any intangible assets during the first nine months of 2009, its adoption has had no impact on its operations or cash flows.

In May 2008, the FASB issued new guidance regarding the accounting for convertible debt securities in the Debt Topic of the ASC. Specifically, the guidance addresses the accounting for convertible debt securities that, upon conversion, may be settled by the issuer fully or partially in cash. It does not change the accounting for traditional types of convertible debt securities that do not have a cash settlement feature, and does not apply if, under existing GAAP for derivatives, the embedded conversion feature must be accounted for separately from the rest of the instrument. The guidance became effective for fiscal years and interim periods beginning after December 15, 2008. It is to be applied retrospectively to all past periods presented, even if the convertible debt security has matured, been converted or otherwise extinguished as of the effective date. The Company was required to adopt the new guidance effective January 1, 2009; its adoption had no impact on the Company’s financial statements.

In June 2008, the FASB ratified new guidance in the Derivatives and Hedging Topic of the ASC. A consensus was reached on how an entity should evaluate whether an instrument (or an embedded feature) is indexed to its own stock, how the currency in which the instrument is denominated affects the determination of whether the instrument is indexed to a company’s own stock, and how an issuer should account for market-based employee stock option valuation instruments. The guidance became effective for fiscal years and interim periods beginning after December 31, 2008, and must be applied to outstanding instruments as of the beginning of the fiscal year of adoption, with a cumulative-effect adjustment to the opening balance of retained earnings. Early adoption was not permitted. The Company was required to adopt the new guidance effective January 1, 2009; its adoption had no impact on the Company’s financial statements.

In April 2009, the FASB amended the Fair Value of Financial Instruments Subsection of the ASC to require publicly traded companies to make disclosures about fair value of financial instruments for interim reporting periods as well as in annual financial statements. The amendment also requires those disclosures in summarized financial information at interim reporting periods. The amendment is effective for financial statements issued after June 15, 2009, with early application permitted. The Company adopted the amendment in the quarter ending June 30, 2009, and has included the required disclosures in these unaudited condensed consolidated financial statements.

In April 2009, the FASB amended the guidance in the Investments – Debt and Equity Securities Topic of the ASC regarding the recognition and presentation of other than temporary impairments. Entities are now required to reflect impairments that relate to credit losses in earnings, and impairments that relate to other factors in other comprehensive income. The guidance is effective for financial statements issued after June 15, 2009. As the Company does not currently hold any debt securities, the Company’s adoption of the amendment in the quarter ended June 30, 2009 did not have an impact on its financial statements.

In April 2009, the FASB issued guidance in the Fair Value Measurements and Disclosures Topic of the ASC regarding the determination of when a market is not active and whether a transaction is not orderly. The guidance also requires disclosures in interim and annual periods of the inputs and valuation techniques used to measure fair value and a discussion of changes in valuation techniques and related inputs, if any, during the period. The new guidance is effective for financial statements issued after June 15, 2009, with early application permitted. As the Company’s investments are in private companies for which no active market exists, or has existed in the past, its adoption of the new guidance had no impact on its financial statements when it was adopted in the quarter ended June 30, 2009.

In May 2009, the FASB issued the Subsequent Events Topic of the ASC (“Subsequent Events”). Subsequent Events applies to all entities, and provides guidance on management’s assessment of events that occur after the balance sheet date but before the issuance of the financial statements. It distinguishes between subsequent events that should and should not be recognized in the financial statements, requires disclosure of the date through which subsequent events were evaluated, and requires disclosure of certain nonrecognized subsequent events. It requires that management assess subsequent events for both interim and annual reporting periods. Subsequent Events is not expected to significantly change practice because its guidance is similar to that in previously-existing U.S. auditing literature for assessing and disclosing subsequent events. Rather, it represents guidance directed specifically to management. Subsequent Events is effective prospectively for interim or annual financial statements issued after June 15, 2009, and was therefore adopted by the Company in the quarter ended June 30, 2009.

In June 2009, the FASB issued Accounting Standards Update 2009-01, The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162 (“ASU 2009-01”). ASU 2009-01 is intended to be the source of authoritative U.S. GAAP for nongovernmental entities, and all of the content is considered authoritative. As a result, the GAAP hierarchy now includes only two levels of GAAP, authoritative and nonauthoritative. ASU 2009-01 is effective for financial statements issued for interim or annual periods ending after September 15, 2009. ASU 2009-01 does not change existing GAAP, and therefore there was no change to the Company’s financial statements upon its adoption by the Company in the third quarter of 2009.

In August 2009, the FASB issued Accounting Standards Update 2009-05, Fair Value Measurements and Disclosures (Topic 820) (“ASU 2009-05”). ASU 2009-05 clarifies that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using either a valuation technique that uses the quoted price of the identical liability when traded as an asset, or quoted prices for similar liabilities or similar liabilities when traded as assets. Should this information be unavailable, the entity is required to use another valuation technique that is consistent with the principles of Topic 820. ASU 2009-05 is effective in the first interim or annual period after issuance, with early adoption permitted. The Company’s adoption of ASU 2009-05 in the third quarter of 2009 did not have a material impact on its financial statements.

Future accounting pronouncements

In June 2009, the FASB issued new guidance on “Accounting for Transfers of Financial Assets”. It addresses concerns raised by the SEC, members of Congress, and financial statement users about the accounting and disclosures required by existing guidance in the wake of the subprime mortgage crisis and the global credit market deterioration, and is intended to improve the accounting and disclosure for transfers of financial assets. The new guidance is effective for financial asset transfers occurring after the beginning of an entity’s first fiscal year that begins after November 15, 2009, with early adoption prohibited. The Company will therefore adopt it on January 1, 2010. The Company is currently evaluating the impact that the new guidance will have on its financial statements upon adoption.

In June 2009, the FASB updated “Consolidation – Consolidation of Variable Interest Entities” (“Consolidation”). The update amends the consolidation guidance that applies to variable interest entities (“VIEs”), and will significantly affect an entity’s overall consolidation analysis. The amendments to the consolidation guidance affect all entities currently within the scope of Consolidation as well as qualifying special-purpose entities that are outside of its scope. An enterprise will need to reconsider its previous conclusions regarding the entities that it consolidates, as the update involves a shift to a qualitative approach that identifies which entities have the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb its losses or the right to receive benefits from it, as compared to the existing quantitative-based risks and rewards calculation. The update also requires ongoing assessment of whether an entity is the primary beneficiary of a VIE, modifies the presentation of consolidated VIE assets and liabilities, and requires additional disclosures. The updated guidance is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2009, with early adoption prohibited. The Company is currently evaluating the impact that the update will have on its financial statements upon its adoption on January 1, 2010.

In October 2009, the FASB issued Accounting Standards Update 2009-13, Revenue Recognition (“ASU 2009-13”). ASU 2009-13 amends the criteria for separating consideration in multiple-deliverable revenue arrangements, and establishes a hierarchy of selling prices to determine the selling price of each specific deliverable. As part of this, ASU 2009-13 eliminates the residual method for allocating revenue among the elements of an arrangement and requires that consideration be allocated at the inception of an arrangement. As well, it expands disclosure requirements. ASU 2009-13 is effective for fiscal years beginning on or after June 15, 2010, and therefore will be adopted by the Company on January 1, 2011.

The FASB, the EITF and the SEC have issued other accounting pronouncements and regulations during 2008 and 2009 that will become effective in subsequent periods. The Company’s management does not believe that these pronouncements will have a significant impact on the Company’s financial statements at the time they become effective.

Note 3 – Liquidity and Capital Resources

At September 30, 2009 the Company had working capital of $1,265, as compared to working capital of $4,556 at December 31, 2008. The primary contributors to the change were the Company’s use of cash to invest in Polaroid and acquire the Greystone assets, the acquisition of third party debt in connection with financing the asset acquisition, and the acquisition of related party debt in connection with financing the investment in Polaroid. Cash decreased by $3,919, from $4,076 at December 31, 2008 to $157 at September 30, 2009. At December 31, 2008, $875 of deferred income tax assets were included in current assets; at September 30, 2009 $507 of the Company’s deferred income tax assets have been reclassified as non-current. At September 30, 2009, third party debt was $3,028 and related party debt was $1,702. This debt is discussed in more detail in Note 7 and Note 10.

During the first nine months of 2009, the Company recognized $950 in patent licensing revenue, which remained outstanding at September 30, 2009 and against which the Company has taken a full allowance. During the same period, the Company recognized $5,050 in revenue from Counsel RB’s operations, $1,033 of which was outstanding at September 30, 2009. Minimal amounts of cash were received as interest on the Company’s bank deposits or as a distribution from its equity investment in Knight’s Bridge Capital Partners Internet Fund No. I GP LLC. During the first nine months of 2009, the Company repurchased common shares for cancellation for $126, as discussed in Note 11, and remitted $139 relating to a patent participation fee that was outstanding at December 31, 2008. The remainder of the cash disbursements related to recurring operating expenses.

The Company’s liabilities at September 30, 2009 and December 31, 2008 totalled $5,977 and $472, respectively. At September 30, 2009 these were composed of $4,730 of debt and $1,247 of accounts payable and accrued liabilities. At December 31, 2008, the Company’s liabilities consisted solely of accounts payable and accrued liabilities. The Company had no other commitments at September 30, 2009 or December 31, 2008, and no off balance sheet arrangements at either date.

In 2009, the Company continued to pursue licensing and royalty agreements with respect to its patents, and has begun to trade in distressed and surplus assets through Counsel RB’s operations. The Company expects to generate sufficient cash from these activities to meet its ongoing operating cash requirements. Additionally, Counsel RB has a revolving credit facility in place to finance its purchases of assets for resale.

Ownership Structure and Capital Resources

At September 30, 2009 the Company had stockholders’ equity attributable to the Company’s common shareholders of $4,547, as compared to $4,971 at December 31, 2008.

The Company is 90.9% owned by Counsel. The remaining 9.1% is owned by public stockholders.

Beginning in 2001, Counsel invested over $100,000 in C2 to fund the development of C2’s technology and its Telecommunications business, and at December 29, 2006 C2 owed $83,582 to Counsel, including accrued and unpaid interest. On December 30, 2006 Counsel converted $3,386 of this debt into 3,847,475 common shares of C2, and forgave the balance of $80,196. Counsel subsequently provided net advances of $2,151 through December 31, 2007, all of which were repaid, together with accrued interest, in the first quarter of 2008. In the first nine months of 2009, Counsel made net advances of $1,628 and accrued $74 in interest.

Note 4 – Stock-based Compensation

At September 30, 2009, the Company had five stock-based compensation plans, which are described more fully in Note 16 to the audited consolidated financial statements contained in the most recently filed Annual Report on Form 10-K.

The Company’s total compensation cost related to stock options for the three and nine months ended September 30, 2009 is $17 and $53, respectively, as compared to $18 and $65 for the same periods in 2008. The fair value compensation costs of unvested stock options in the first nine months of 2009 and 2008 were determined using the Black-Scholes Option Pricing Model for grant dates between 2005 and 2009. Historical inputs to the model for this period included expected volatility between 79% and 229%, risk-free interest rates between 1.37% and 5.07%, expected life of 4.75 years, and an expected dividend yield of zero.

No tax benefit from stock-based compensation was recognized in the first nine months of either 2009 or 2008, as no options were exercised. The Company’s stock-based compensation had no effect on its cash flows during either period.

On March 31, 2009, 40,000 options, having an exercise price and fair value of $0.15, were granted to the Company’s independent directors in accordance with their compensation plan, which includes a grant of 10,000 options annually to each independent director on March 31 or the next business day. These options are part of the 2003 Stock Options and Appreciation Rights Plan. The inputs to the Black-Scholes Option Pricing Model were an expected volatility of 229%, a risk-free interest rate of 1.37%, an expected term of 4.75 years, and an expected dividend yield of zero. These were the only options granted during the first nine months of 2009. A similar grant of 40,000 options was made during the first nine months of 2008.

The following summarizes the changes in common stock options for the nine months ended September 30, 2009 and 2008, respectively:

	Options			Weighted Average Exercise Price
Outstanding at December 31, 2008		979,027		$	7.73
Granted		40,000		$	0.15
Expired		(25,000	)	$	63.44
Outstanding at September 30, 2009		994,027		$	6.02

Options exercisable at September 30, 2009		795,277		$	7.35

	Options			Weighted Average Exercise Price
Outstanding at December 31, 2007		975,749		$	9.88
Granted		40,000		$	0.90
Expired		(18,750	)	$	63.53
Outstanding at September 30, 2008		996,999		$	8.51

Options exercisable at September 30, 2008		694,499		$	11.87

As of September 30, 2009, the total unrecognized stock-based compensation expense related to unvested stock options was $79, which is expected to be recognized over a weighted average period of approximately 9 months.

At September 30, 2009, the Company’s share price was $0.14. All of the outstanding options had exercise prices greater than $0.14.

The following summarizes the changes in unvested common stock options for the nine months ended September 30, 2009 and 2008, respectively:

	Options			Weighted Average Grant Date Fair Value
Unvested at December 31, 2008		297,500		$	0.54
Granted		40,000		$	0.15
Vested		(138,750	)	$	0.52
Forfeited		—			—
Unvested at September 30, 2009		198,750		$	0.48

	Options			Weighted Average Grant Date Fair Value
Unvested at December 31, 2007		425,813		$	0.51
Granted		40,000		$	0.87
Vested		(163,313	)	$	0.55
Forfeited		—			—
Unvested at September 30, 2008		302,500		$	0.54

The total fair value of options vesting during the three and nine months ended September 30, 2009 was $58 and $72, respectively, as compared to $80 and $90 for the same periods in 2008. The unvested options have no associated performance conditions. Therefore, the Company expects that, barring the departure of individual directors or employees, all of the unvested options will vest according to the standard timetable.

The following summarizes information regarding all stock options outstanding at September 30, 2009 and 2008:

September 30, 2009
Exercise price	Options Outstanding		Weighted Average Remaining Life (years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Remaining Life (years)		Weighted Average Exercise Price
$ 0.15 to $ 1.39		750,000		3.53	$	0.83		551,250		3.12	$	0.88
$ 1.40 to $ 3.00		159,448		0.92	$	2.94		159,448		0.92	$	2.94
$ 6.88 to $ 15.62		2,965		1.27	$	14.99		2,965		1.27	$	14.99
$55.00 to $ 71.26		78,083		0.28	$	57.09		78,083		0.28	$	57.09
$78.00 to $127.50		3,531		0.81	$	111.46		3,531		0.81	$	111.46
		994,027		2.84	$	6.02		795,277		2.38	$	7.35

September 30, 2008
Exercise price	Options Outstanding		Weighted Average Remaining Life (years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Remaining Life (years)		Weighted Average Exercise Price
$ 0.51 to $ 1.39		710,000		4.36	$	0.87		407,500		3.86	$	0.91
$ 1.40 to $ 3.00		159,448		1.92	$	2.94		159,448		1.92	$	2.94
$ 6.88 to $ 15.62		2,965		2.27	$	14.99		2,965		2.27	$	14.99
$48.76 to $ 71.26		121,055		0.98	$	57.54		121,055		0.98	$	57.54
$78.00 to $127.50		3,531		1.81	$	111.46		3,531		1.81	$	111.46
		996,999		3.54	$	8.51		694,499		2.90	$	11.87

Note 5 – Composition of Certain Financial Statements Captions

The Company’s goodwill of $173 relates to an investment in a subsidiary company that holds certain of the Company’s patent rights.

Accounts payable and accrued liabilities consisted of the following:

	September 30, 2009		December 31, 2008
Regulatory and legal fees	$	240	$	51
Accounting, auditing and tax consulting		83		95
Patent licensing costs		15		135
Asset trading costs		636		—
Sales and other taxes		137		62
Remuneration and benefits		85		87
Other		51		42

Total accounts payable and accrued liabilities	$	1,247	$	472

Inventory, which is solely composed of Counsel RB’s assets purchased for resale, consisted of the following:

	September 30, 2009		December 31, 2008
Machinery and equipment	$	3,168	$	—
Real estate		1,660		—

Total inventory	$	4,828	$	—

Note 6 – Investments

The Company’s investments as at September 30, 2009 and December 31, 2008 consisted of the following:

	September 30,		December 31,
	2009		2008
Buddy Media, Inc.	$	124	$	224
Knight’s Bridge Capital Partners Internet Fund No. 1 GP LLC		18		18
Polaroid		2,725		—

Total investments	$	2,867	$	242

Buddy Media, Inc.

On September 12, 2007, the Company acquired 303,030 shares of convertible Series A Preferred Stock of Buddy Media, Inc. (“Buddy Media”) for a total purchase price of $100. Buddy Media, a private company, is a leading developer of applications for emerging new media platforms, such as Facebook, MySpace and other social media sites. On April 15, 2008, the Company acquired 140,636 shares of convertible Series B Preferred Stock of Buddy Media for a total purchase price of $124. The Series B preferred shares are senior to the Series A preferred shares, but otherwise have substantially equivalent terms and conditions, including voting rights on an as-converted basis with the common stock. On June 29, 2009, the Company sold its Series A Preferred Stock to an unrelated third party for net proceeds of $121, thereby recognizing a gain of $21. At all times, the Company’s cumulative investment has remained less than 5% of Buddy Media on an as-converted basis.

The Company accounts for its investment under the cost method. At each balance sheet date, the Company estimates the fair value of the securities using the best available information. Because Buddy Media’s shares are not traded on an open market, their valuation must be based primarily on investee-specific information, which is a Level 3 input as defined by GAAP. 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 its analysis of Buddy Media’s financial statements and projections as at September 30, 2009, the Company concluded that the investment’s cost is the best available estimate of its fair value.

Knight’s Bridge Capital Partners Internet Fund No. 1 GP LLC

The Company acquired a one-third interest in Knight’s Bridge Capital Partners Internet Fund No. 1 GP LLC (“Knight’s Bridge GP”), a private company, effective December 7, 2007, for a total purchase price of $20. The additional two-thirds interest in Knight’s Bridge GP was acquired by parties affiliated with Counsel. Knight’s Bridge GP is the general partner of Knight’s Bridge Capital Partners Internet Fund No. 1 LP (the “Fund”). The Fund holds investments in several non-public Internet-based e-commerce businesses. As the general partner of the Fund, Knight’s Bridge GP manages the Fund, in return for which it earns a 2% per annum management fee with respect to the Fund’s invested capital. Knight’s Bridge GP also has a 20% carried interest on any incremental realized gains from the Fund’s investments.

The Company accounts for its investment under the equity method. During 2008, the Company invested an additional $1 in Knight’s Bridge GP, recorded $5 as its share of Knight’s Bridge GP’s earnings, and received cash distributions of $8. During the first nine months of 2009, the Company recorded $4 as its share of Knight’s Bridge GP’s earnings and received cash distributions of $4.

At each balance sheet date, the Company estimates the fair value of its investment using the best available information as of the evaluation date. Because Knight’s Bridge GP is a closely-held, non-public entity, this valuation must be based primarily on investee-specific information, which is a Level 3 input as defined by GAAP. Knight’s Bridge GP’s value is directly linked to the value of the Fund, which is also a non-public entity, whose value is linked to the value of its investments. The Company will record an other than temporary impairment of its equity investment in Knight’s Bridge GP in the event the Company concludes that such impairment has occurred. It should be noted that at September 30, 2009, the Company’s investment in Knight’s Bridge GP is not material, and its exposure to potential losses from impairment of the Fund’s investments is limited to approximately $2.

Based on the Company’s analysis of Knight’s Bridge GP’s and the Fund’s financial statements and projections as at September 30, 2009, the Company concluded that there has been no impairment in the fair value of its investment, and that its cost is the best estimate of its fair value.

Polaroid

Effective May 5, 2009, the Company invested $2,621 to indirectly acquire an approximate 5% interest in Polaroid Corporation, pursuant to a Chapter 11 reorganization in a U.S. bankruptcy court. The investment was made as part of a joint venture investor group (the “JV Group”) that includes both related parties and non-related parties. The JV Group formed two operating companies (collectively, “Polaroid”) to hold the acquired intellectual property (PLR IP Holdings, LLC) and inventory (PLR Acquisition LLC). The Company, the related parties and two of the unrelated parties formed KPL, LLC (“KPL” or the “LLC”) to pool their individual investments in Polaroid. The pooled investments total approximately $19 million of the aggregate purchase price of approximately $55 million. KPL is managed by a related party, Knight’s Bridge Capital Partners Management, L.P. (the “Management LP”), who acts as the General Partner of the LLC.

C2’s investment in the LLC has two components:

$530 of Class D units. These units are subject to a 2% annual management fee, payable to the General Partner. The units have a 10% per annum preferred return; any profits generated in addition to the preferred return, subsequent to the return of invested capital, are subject to the Management LP’s 20% carried interest. This investment is approximately 1% of Polaroid and approximately 2.7% of the LLC.

$2,091 to acquire Counsel’s rights and obligations as an indirect limited partner (but not Counsel’s limited partnership interest) in Knight’s Bridge Capital Partners Fund I, L.P. (“Knight’s Bridge Fund”), a related party, with respect to the Polaroid investment. The investment in these units is held by Knight’s Bridge Fund in the name of a Canadian limited partnership (the “LP”) comprised of Counsel (95.24%) and several Counsel related parties. The $2,091 is Counsel’s share of the LP’s investment and was funded by Counsel. Subsequent to making the investment in the LP, Counsel sold, to C2, the economic benefit of its indirect investment in Polaroid in return for a loan (under a pre-existing loan facility) bearing interest at 10% per annum. C2 is also responsible for reimbursing Counsel for its share of the management fees, which are 2% of the investment. The economic interest entitles C2 to an 8% per annum preferred return; any profits generated in addition to the preferred return, subsequent to the return of invested capital, are subject to the general partner of the Knight’s Bridge Fund’s 20% carried interest. This investment is approximately 4% of Polaroid and approximately 10.8% of the LLC.

The Company accounts for its investment in the LLC under the equity method. During the second and third quarters of 2009, the Company recorded $93 as its cumulative share of earnings. During the third quarter of 2009, the Company invested an additional $10 as its share of the management fees referenced above.

At September 30, 2009, based on an analysis prepared by the Management LP, the Company estimates that its investment in Polaroid has a fair value of approximately $3,158.

Note 7 – Debt

At September 30, 2009, the Company’s outstanding debt was $4,730. There was no outstanding debt at December 31, 2008. Details of the debt are as follows:

	September 30, 2009
	Gross debt		Financing costs (1)			Reported debt
Promissory Note	$	1,392	$	—		$	1,392
Revolving Credit Facility		1,558		(128	)		1,430
Mortgage Debt		206		—			206
Related party debt		1,702		—			1,702
		4,858		(128	)		4,730
Less current portion		4,858		(128	)		4,730
Long-term debt, less current portion	$	—	$	—		$	—

(1) Costs associated with raising debt facilities are amortized over the period of the related debt.

Promissory note

In connection with Counsel RB’s acquisition of Greystone’s assets in June 2009, Counsel RB issued a promissory note with a principal amount of approximately $1.36 million (the “Promissory Note”) to Greystone Holdings. The Promissory Note bears interest at 6% annually, with both principal and interest payable one year from the date of the issuance of the Promissory Note. Counsel RB may pre-pay the Promisssory Note in full at any time, without penalty. If any payment required under the Promissory Note is not paid when due, or if any default under the Promissory Note occurs, the entire principal amount and accrued but unpaid interest will become immediately due and payable at the option of the holder of the Promissory Note. The Promissory Note contains other terms and provisions customary for agreements of this nature, and has been guaranteed by both the Company and Counsel. At September 30, 2009 the balance of the Promissory Note, including accrued interest, was $1,392.

Revolving credit facility

Also in connection with Counsel RB’s acquisition of Greystone’s assets, Counsel RB arranged a revolving credit facility (the “Credit Facility”) with a U.S. bank under the terms and provisions of a certain Loan and Security Agreement, dated as of June 2, 2009 (the “Loan Agreement”), in order to finance the acquisition of eligible equipment for purposes of resale. The Credit Facility bears interest at the greater of prime rate + 1.5%, or 5%, matures one year from the date of closing of the acquisition, and has an initial balance of approximately US $1.4 million. The maximum borrowing available under the Credit Facility, exclusive of the initial balance, is US $7.5 million, subject to Counsel RB maintaining a 1:2 ratio of capital funds, i.e. the sum of the Company’s tangible net worth plus subordinated indebtedness, as defined in the Loan Agreement, to the outstanding balance. The amount of any advance is determined based upon the value of the eligible assets being acquired. The Credit Facility contains other terms and provisions customary for agreements of this nature, and has been guaranteed by both the Company and Counsel. At September 30, 2009 the balance of the Credit Facility, including accrued interest and net of deferred financing charges, was $1,430.

Mortgage debt

Also in connection with Counsel RB’s acquisition of Greystone’s assets, Counsel RB assumed 25% of a mortgage debt with a U.S. bank (the “Mortgage Debt”). The Mortgage Debt is a demand loan that bears interest at 6.95%, which rate will be adjusted in the event the Mortgage Debt remains outstanding at June 27, 2011. Interest is capitalized to the real estate assets held in inventory. The Mortgage Debt contains other terms and provisions customary for agreements of this nature, and has been guaranteed by both the Company and Counsel. At September 30, 2009 the balance of the Mortgage Debt was $206.

Related party debt

During the first nine months of 2009, Counsel made net advances of $1,628 to the Company under an existing loan facility (the “Counsel Loan”) that bears interest at 10%. The primary reason for the advances was to fund the Company’s investment in Polaroid, as discussed in Note 6. At September 30, 2009 the balance of the Counsel Loan, including accrued interest, was $1,702.

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

Warrant to purchase common stock

On October 14, 2004, the Company issued a note (the “Note”) to a third party lender, in the principal amount of $5,000, which was repaid in full in January 2007. In addition to the Note, the Company issued a common stock purchase warrant (the “Warrant”) to the third party lender, entitling the lender to purchase up to one million shares of common stock, subject to adjustment, at exercise prices ranging from $1.00 to $1.20 per share. The Warrant entitled 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 equalled or exceeded 15 times the exercise price.

The Warrant was classified in equity in the Company’s financial statements. At each financial statement date, the Company assessed whether there were any contingent obligations with respect to the Warrant’s registration payment arrangement. At every assessment date, up to and including September 30, 2009, the Company’s assessment was that payments relating to the registration payment arrangement were not probable, and therefore the Company did not record any liability in connection with such a payment. The Warrant was never exercised, and it expired on October 13, 2009.

Note 8 – Patent Participation Fee

In the fourth quarter of 2003, C2 acquired the VoIP Patent from a third party. Consideration paid was $100 plus a 35% residual payable to the third party relating to the net proceeds from future licensing and/or enforcement actions from the C2 VoIP Patent Portfolio. Net proceeds are defined as amounts collected from third parties net of the direct costs associated with putting the licensing or enforcement in place and related collection costs. Expense of $179 was accrued during the first nine months of 2009, compared to $2,500 during the first nine months of 2008. However, the liability for the 2009 expense has been reversed as a result of the allowance for doubtful accounts which has been recorded with respect to the 2009 patent licensing fees.

Note 9 – Income Taxes

In the third quarter of 2009, the Company recognized a deferred income tax expense of $61 and current income tax expense of $4, resulting in an aggregate net income tax expense of $12 for the nine months ended September 30, 2009. The deferred income tax expense in the third quarter is primarily due to a change in estimate of the tax effect of available tax loss carryforwards expected to be utilized in subsequent taxation years. The Company recorded a deferred income tax recovery of $6 for the nine months ended September 30, 2008.

As at September 30, 2009 the unrecognized tax benefit determined pursuant to the Income Taxes Topic of the ASC is $12,177. There has been no change in the third quarter of 2009 in the estimate of the balance of unrecognized tax benefits previously determined.

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 has not made any accrual for interest and penalties related to unrecognized tax benefits either historically or in the current period.

It is 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 possible outcomes cannot be made.

Prior to 2008, the Company had a history, since 1991, of generating annual tax losses. 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 three years from the date that a company files a tax return applying prior year tax loss carryforwards against income for tax purposes in the later year. The Company applied historic tax loss carryforwards to offset debt forgiveness in 2006 and income for tax purposes in 2008, respectively. The 2006 through 2008 taxation years remain open for audit.

The Company’s estimated remaining federal tax loss carryforwards at September 30, 2009 were comprised of approximately $54,300 of unrestricted net operating tax losses, $33,350 of restricted net operating tax losses subject to an annual usage restriction of $2,500 per annum until 2008 and $1,700 per annum thereafter, and $34,600 of unrestricted capital losses.

The Company historically has been subject to state income tax in multiple jurisdictions. While the Company had net operating loss carryforwards for state income tax purposes in certain states where it previously conducted business, its available state tax loss carryforwards may differ substantially by jurisdiction and, in general, are subject to the same or similar restrictions as to expiry and usage described above. In addition, in certain states the Company’s state tax loss carryforwards that were attributable to certain legacy businesses sold in recent years ceased to be available to the Company following their sale. It is possible that in the future the Company may not have tax loss carryforwards available to shield income earned for state tax purposes, and which is attributable to a particular state, from being subject to tax in that particular state.

Note 10 – Related Party Transactions

The Company has a loan facility (the “Counsel Loan”) with Counsel, under which advances were originally made in 2003. The Counsel Loan bears interest at 10%, compounded quarterly, and any outstanding balance is subject to an accelerated maturity in certain circumstances. During the first nine months of 2009, Counsel made net advances of $1,628 to the Company under the Counsel Loan and accrued interest of $74, resulting in an outstanding balance of $1,702 at September 30, 2009. No amounts were outstanding under the Counsel Loan at September 30, 2008.

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 up to 100% of the base salary. A bonus of $138 was paid for the year ended December 31, 2008. No bonus has been accrued or paid for 2009.

Since December 2004, C2 and Counsel have entered into successive annual management services agreements (the “Agreement”). Under the terms of the Agreement, C2 agrees to make payment to Counsel for ongoing services provided to C2 by certain Counsel personnel. The basis for such services charged is an allocation, based on time incurred, of the cost of the base compensation paid by Counsel to those employees providing services to C2. For the year ended December 31, 2008, the cost was $360. 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 C2, 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. Counsel continued to provide these services during 2009 on the same cost basis as 2008, with the expense for the first nine months of both 2009 and 2008 being $270.

Note 11 – Commitments and Contingencies

Legal Proceedings

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. Approximately 33 stockholders holding approximately 74,000 shares of our stock returned completed appraisal notices indicating that they did not accept our offer. Because we did not agree with the estimates submitted by the dissenting stockholders, we sought a judicial determination of the fair value of their common stock. On June 24, 2004, we filed suit against the dissenting stockholders seeking a declaratory judgment, appraisal and other relief in Florida. On February 4, 2005, the declaratory judgment action was stayed pending the resolution of 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. As a result of the June 2008 settlement of the derivative and securities lawsuits in California, the stay of the Florida declaratory judgment action was lifted. In the first quarter of 2009, the Company completed an agreement with the holders of 27,221 of the 27,536 shares held by the remaining dissenting stockholders, whereby the stockholders agreed to accept $4.60 per share in full payment for their respective shares, for cancellation by the Company, and a release of any other claims that they may have against the Company and Counsel. In the third quarter of 2009, the Company completed a similar agreement with the remaining stockholders, who agreed to accept $5.00 per share under the same terms and conditions as described above, as well as the payment of $1 of legal expenses incurred by the dissenting stockholders.

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.

Commitments

As discussed in Note 7, the Company, together with Counsel, has guaranteed the Promissory Note, the Credit Facility and the Mortgage Debt that were incurred by Counsel RB in connection with its acquisition of the Greystone assets in the second quarter of 2009. As of the date of this Report, neither the Company nor Counsel have been required to make any payments relating to these guarantees.

Note 12 – Segment Reporting

Following the disposition of its Telecommunications segment in the third quarter of 2005, the Company operated in a single business segment, Patent Licensing. Following the commencement of Counsel RB’s operations in the second quarter of 2009, the Company has diversified into a second segment, Asset Investment and Trading.

The Patent Licensing segment relates to the licensing of the Company’s intellectual property, including its VoIP Patent Portfolio, to third party users.

The Asset Investment and Trading segment includes the operations of Counsel RB. It also includes the Company’s investments in Internet based e-commerce businesses, and the Company’s investment in Polaroid. Prior to the second quarter of 2009, the Company’s Asset Investment and Trading segment was not sufficiently material to warrant classification as a separate segment.

There are no material inter-segment revenues. The Company’s business is conducted principally in the U.S. Prior to the second quarter of 2009, foreign operations were not significant; however, during the second quarter of 2009 the Company earned revenue of $950 from Korea. The table below presents information about the segments of the Company as of and for the three and nine months ended September 30, 2009 and 2008:

	For the Three Months Ended September 30, 2009
	Reportable Segments
	Patent Licensing			Asset Investment and Trading		Total
Revenues from external customers	$	—		$	1,948	$	1,948
Other income		—			—		—
Interest expense		—			84		84
Earnings from equity accounted investments		—			77		77
Depreciation and amortization		—			—		—
Segment income (loss) from continuing operations		(391	)		665		274
Investment in equity accounted investees		—			2,743		2,743
Segment assets		24			9,605		9,629

	For the Three Months Ended September 30, 2008
	Reportable Segments
	Patent Licensing		Asset Investment and Trading			Total
Revenues from external customers	$	9,500	$	—		$	9,500
Other income		—		—			—
Interest expense		—		—			—
Loss from equity accounted investments		—		(10	)		(10	)
Depreciation and amortization		5		—			5
Segment income (loss) from continuing operations		3,349		(10	)		3,339
Investment in equity accounted investees		—		411			411
Segment assets		5		639			644

	For the Nine Months Ended September 30, 2009
	Reportable Segments
	Patent Licensing			Asset Investment and Trading		Total
Revenues from external customers	$	950		$	5,050	$	6,000
Other income		—			21		21
Interest expense		—			112		112
Earnings from equity accounted investments		—			97		97
Depreciation and amortization		—			—		—
Segment income (loss) from continuing operations		(42	)		533		491
Investment in equity accounted investees		—			2,743		2,743
Segment assets		24			9,605		9,629

	For the Nine Months Ended September 30, 2008
	Reportable Segments
	Patent Licensing		Asset Investment and Trading			Total
Revenues from external customers	$	17,625	$	—		$	17,625
Other income		—		—			—
Interest expense		—		—			—
Loss from equity accounted investments		—		(3	)		(3	)
Depreciation and amortization		15		—			15
Segment income (loss) from continuing operations		6,943		(3	)		6,940
Investment in equity accounted investees		—		411			411
Segment assets		5		639			644

The following table reconciles reportable segment information to the unaudited condensed consolidated financial statements of the Company:

	Three months ended September 30, 2009			Three months ended September 30, 2008			Nine months ended September 30, 2009			Nine months ended September 30, 2008

Total other income and earnings (loss) from equity accounted investments for reportable segments	$	77		$	(10	)	$	118		$	(3	)
Unallocated other income from corporate accounts		—			3			1			8
	$	77		$	(7	)	$	119		$	5

Total interest expense for reportable segments	$	84		$	—		$	112		$	—
Unallocated interest expense from related party debt		39			—			74			43
	$	123		$	—		$	186		$	43

Total depreciation and amortization for reportable segments	$	—		$	5		$	—		$	15
Other unallocated depreciation from corporate assets		—			—			—			—
	$	—		$	5		$	—		$	15

Total segment income	$	274		$	3,339		$	491		$	6,940
Other income (primarily interest)		—			3			1			8
Other corporate expenses (primarily corporate level interest, general and administrative expenses)		(266	)		(263	)		(810	)		(833	)
Income tax expense (recovery)		65			(936	)		12			(6	)
Net income (loss) from continuing operations	$	(57	)	$	4,015		$	(330	)	$	6,121

Segment assets	$	9,629		$	644		$	9,629		$	644
Intangible assets not allocated to segments		173			173			173			173
Other assets not allocated to segments(1)		1,077			6,630			1,077			6,630
	$	10,879		$	7,447		$	10,879		$	7,447

(1)

Other assets not allocated to segments are corporate assets such as cash, non-trade accounts receivable, prepaid insurance and deferred income tax assets.

Note 13 – Subsequent Events

The Company has evaluated its operations during the period subsequent to September 30, 2009 up to and including November 13, 2009. There have been no material events requiring disclosure in this Report.

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, 2008, filed with the Securities and Exchange Commission (“SEC”).

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, filed with the SEC, 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”, “we” 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, to “Acceris Communications Inc.” in 2003, and to “C2 Global Technologies Inc.” in 2005. The most recent name change reflects a change in the strategic direction of the Company following the disposition of its Telecommunications business in the third quarter of 2005. 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 licenses. All activities relating to the Company’s licensing of the VoIP Patent Portfolio, or its other intellectual property, constitute the Company’s Patent Licensing operating segment. 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.

The Company’s objective is to obtain licensing and royalty revenue from the target market for 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 seven major U.S. telecommunications carriers, which alleged that these companies’ VoIP services and systems infringed C2’s U.S. Patent No. 6,243,373, entitled “Method and Apparatus for Implementing a Computer Network/Internet Telephone System” (the “VoIP Patent”). The complaint sought an injunction, monetary damages, and costs. The litigation resulted in the Company entering into settlement and license agreements in 2008, for which C2 was paid $17,625 in aggregate, whereby C2 granted the defendants non-exclusive, perpetual, worldwide, fully paid up, royalty free licenses under any of C2’s present patents and patent applications, including the VoIP Patent, to make, use, sell or otherwise dispose of any goods and services based on such patents.

On August 27, 2009 C2 Communications Technologies Inc. filed a similar lawsuit against PAETEC Corporation, Matrix Telecom, Inc., Windstream Corporation, and Telephone and Data Systems, Inc. The complaint was filed in the United States District Court for the Eastern District of Oklahoma and also alleges that the defendants’ services and systems utilizing VoIP infringe the Company’s U.S. Patent No. 6,243,373. The complaint seeks an injunction, monetary damages and costs.

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. (“Buddy Media”) and LIMOS.com LLC (“LIMOS.com”). Its investment in MyTrade.com, Inc. was sold in the fourth quarter of 2007. In the fourth quarter of 2007 the Company acquired a one-third interest in Knight’s Bridge Capital Partners Internet Fund No. 1 GP LLC (“Knight’s Bridge GP”). The additional two-thirds interest in Knight’s Bridge GP was acquired by parties affiliated with the Company’s majority stockholder, Counsel Corporation (together with its subsidiaries, “Counsel”). Knight’s Bridge GP was formed to acquire the general partner interests in 2007 Fund 1 LLP (the “Fund”, subsequently renamed Knight’s Bridge Capital Partners Internet Fund No. 1 LP). The Fund holds investments in several Internet-based e-commerce businesses. As the general partner of the Fund, Knight’s Bridge GP manages the Fund, in return for which it earns a 2% per annum management fee with respect to the Fund’s invested capital. Knight’s Bridge GP also has a 20% carried interest on any incremental realized gains from the Fund’s investments. In the second quarter of 2008, the Company increased its investment in Buddy Media but remained a minority shareholder. The Company’s investment in LIMOS.com was sold in the fourth quarter of 2008.

In the second quarter of 2009, the Company sold a portion of its investment in Buddy Media, recognizing a gain of $21 on an initial investment of $100. Also in the second quarter of 2009, the Company invested $2,621 to indirectly acquire an approximate 5% interest in Polaroid Corporation, pursuant to a Chapter 11 reorganization in a U.S. bankruptcy court. C2’s interest is managed by Knight’s Bridge Capital Management L.P., an affiliate of Counsel. The Company’s investments are discussed in more detail in Note 6 of the unaudited condensed consolidated financial statements included in Item 1 of this Report.

In June 2009, in order to acquire certain assets, Counsel RB acquired a non-operating asset holding company, Greystone Private Equity LLC (“Greystone”), a subsidiary of Greystone & Co. Holdings LLC (“Greystone Holdings”), for approximately $5,900. The assets include real estate, equipment, machinery and accounts receivable. The real estate, equipment and machinery are held for sale and Counsel RB began to monetize these assets during the second quarter of 2009. The purchase price for the acquired assets was payable in the following manner: (a) cash payments of approximately $2,900 were paid to or credited by Greystone Holdings on the closing date; and (b) the remaining balance of approximately $3,000 was comprised of (i) a note payable to Greystone Holdings in the principal amount of approximately $1,400, (ii) a credit facility in the amount of approximately $1,400, and (iii) assumption of debt in the amount of $200. The note, credit facility and debt are discussed in more detail in Note 7 of the unaudited condensed consolidated financial statements included in Item 1 of this Report.

Counsel RB’s operations, together with the Company’s investments in Internet-based e-commerce businesses, and its investment in Polaroid, constitute the Company’s Asset Investment and Trading operating segment. The Company’s segments are discussed in more detail in Note 12 of the unaudited condensed consolidated financial statements.

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.

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). This business was sold effective September 30, 2005.

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, which 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 with Buyers United, Inc., 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 the VoIP Patent, which included a corresponding foreign patent and related international patent applications. The vendor of the VoIP Patent was granted a first priority security interest in the patent in order to secure C2’s obligations under the associated purchase agreement. 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 proceeds from the licensing or enforcement of our VoIP Patent Portfolio.

Up to December 31, 2004, revenue related to our intellectual property was based on the sales and deployment of our VoIP solutions, which we ceased directly marketing in 2005. No revenue was due to the receipt of licensing fees and royalties. Revenue in 2008 and 2009 was the result of entering into settlement and license agreements with six major U.S. telecommunications carriers and one foreign carrier, as described above. We expect to generate ongoing 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”.

As discussed above under “Overview and Recent Developments”, in the third quarter of 2007, the Company began investing in Internet-based e-commerce businesses through its acquisitions of minority positions in MyTrade.com, Inc. (sold in the fourth quarter of 2007), Buddy Media, Inc. (partially sold in the second quarter of 2009) and LIMOS.com LLC (sold in the fourth quarter of 2008). It continued its investment activities in the fourth quarter of 2007 with the acquisition of a one-third interest in Knight’s Bridge Capital Partners Internet Fund No. 1 GP LLC. In the second quarter of 2009, the Company invested $2,621 in Polaroid, and in the third quarter it invested an additional $10. At September 30, 2009 the Company’s investment in these businesses totaled $2,867. In October 2009 the Company received distributions of $139 from Polaroid. The Company’s objective is to realize long-term capital appreciation as the value of these businesses is developed and recognized.

As also discussed above under “Overview and Recent Developments”, in February 2009 the Company established Counsel RB. Together with the Company’s investments in Internet-based e-commerce businesses and its investment in Polaroid, the Counsel RB operations have allowed the Company to diversify into a new operating segment, Asset Investment and Trading.

Intellectual Property

Below is a summary of the Company’s patents:

Type	Title	Number	Status

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

		Australia No. 716096	Issued: June 1, 2000 Expires: October 29, 2016

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

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

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

		Europe No. 0873637	Granted March 21, 2007 1

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

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

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

		South Korea No. 847335	Issued: July 14, 2008 Expires: February 5, 2017

		South Korea No. 892950	Issued: April 3, 2009 Expires: February 5, 2017

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

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

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

1 The European patent has been validated in Austria, Belgium, Denmark, Finland, France, Germany, Great Britain, Greece, Ireland, Italy, the Netherlands, Portugal, Spain, Sweden and Switzerland.

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 (U.S. Patent No. 5,754,534 granted May 19, 1998) - 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 (U.S. Patent No. 5,898,675 granted April 27, 1999) - 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.

Industry and Competition

Patent licensing

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

Historically, the communications services industry 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.

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.

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.

Asset liquidation

Our asset trading investment, Counsel RB, operates in the asset liquidation business primarily involving the purchase and sale, including at auction, of industrial machinery and equipment, real estate, inventories, accounts receivable and distressed debt. The market for these assets is highly fragmented. Counsel RB competes with other liquidators, auction companies, dealers and brokers. It competes for potential purchasers with other liquidators and auction companies, as well as with equipment manufacturers, distributors, dealers and equipment rental companies. Some of Counsel RB’s competitors have significantly greater financial and marketing resources and name recognition.

Critical Accounting Policies

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. Significant estimates required for the preparation of the unaudited condensed consolidated financial statements included in Item 1 of this Report were those related to revenue recognition, accounts receivable, inventory, goodwill, investments, deferred income tax assets, liabilities, and contingencies surrounding litigation. These estimates are considered significant 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 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 policies used in the preparation of our consolidated financial statements are discussed in our Annual Report on Form 10-K for the year ended December 31, 2008. To aid in the understanding of our financial reporting, a summary of these policies is provided in Note 2 of the unaudited condensed consolidated financial statements included in Item 1 of this Report.

Contractual obligations

The following table summarizes the amounts of payments due, including accrued interest to September 30, 2009 and estimated interest to maturity, under specified contractual obligations outstanding at September 30, 2009:

	Payment due by period
Contractual obligations:	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Promissory Note	$	1,446	$	1,446	$	—	$	—	$	—
Revolving Credit Facility		1,611		1,611		—		—		—
Mortgage Debt		217		217		—		—		—
Related party debt		1,876		1,876		—		—		—
Total	$	5,150	$	5,150	$	—	$	—	$	—

Management’s Discussion of Financial Condition

Liquidity and Capital Resources

Ownership Structure and Capital Resources

At September 30, 2009 the Company had stockholders’ equity attributable to the Company’s common shareholders of $4,547, as compared to $4,971 at December 31, 2008.

The Company is 90.9% owned by Counsel. The remaining 9.1% is owned by public stockholders.

Cash Position and Cash Flows

Cash at September 30, 2009 was $157 as compared to $4,076 at December 31, 2008, a decrease of $3,919.

Cash provided by or used in operating activities Cash used in operating activities during the nine months ended September 30, 2009 was $6,088, as compared to cash provided of $7,910 during the same period in 2008.

The most significant operating uses of cash during the first nine months of 2009 were the $4,828 increase in Counsel RB’s inventory, and the recording of $1,779 of accounts receivable, primarily relating to Counsel RB operations. The most significant source of cash during the first nine months was an increase of $775 in accounts payable and accrued liabilities, as compared to an increase of $1,809 for the same period in 2008. The change in 2009 includes $718 of Counsel RB’s liabilities, which had no corresponding amount in 2008. The increase in 2008 was primarily due to patent participation fees, of which $1,832 were outstanding at September 2008, as compared to $0 outstanding at September 2009. During the first nine months of 2009 the Company increased its deferred income tax assets by $85, as compared to an increase of $6 during the first nine months of 2008. Additionally, during the first nine months of 2009, $98 of accrued interest was added to third party and related party debt, and $74 of deferred financing costs were amortized. In 2009, the Company recognized income from its equity investments of $97, compared to a loss of $3 in 2008.

Cash used in investing activities Investing activities used net cash of $2,507 and $119 during the nine months ended September 30, 2009 and 2008, respectively. During the first nine months of 2009, the major use of funds in investment activities was the investment of $2,631 in Polaroid. As well, $121 was received as proceeds from the sale of the Company’s Buddy Media Series A preferred shares, and $3 was received as a cash distribution from Knight’s Bridge GP. During the first nine months of 2008, $125 was invested in Buddy Media Series B preferred shares and $6 was received as a cash distribution from Knight’s Bridge GP.

Cash provided by or used in financing activities Financing activities provided net cash of $4,676 during the nine months ended September 30, 2009, as compared to using $2,335 for the same period in 2008. In 2009, $2,930 was provided from notes issued to third parties in connection with Counsel RB’s purchase of the Greystone assets, and $1,628 was provided from a note issued to Counsel in connection with the Company’s investment in Polaroid. As well, $126 was used to purchase and cancel 27,456 and 2 of the Company’s common and preferred shares, respectively. $244 was provided by the non-controlling interest in Counsel RB. The sole financing activity in 2008 was the repayment of the debt owing to Counsel at December 31, 2007.

Management’s Discussion of Results of Operations

Patent licensing revenue is derived from licensing our intellectual property. Our VoIP Patent Portfolio is an international patent portfolio covering the basic process and technology that enables VoIP communications.

Asset trading revenue is earned from the acquisition and subsequent disposition of distressed and surplus assets, including industrial machinery and equipment, real estate, inventories, accounts receivable and distressed debt. It is also earned from more traditional asset disposition services, such as on-site and webcast auctions, liquidations and negotiated sales. The Company began earning revenue in the asset investment and trading segment in the second quarter of 2009 when Counsel RB, its 75%-owned subsidiary that was established in the first quarter of 2009, commenced operations.

Three-Month Period Ended September 30, 2009 Compared to Three-Month Period Ended September 30, 2008

Patent licensing revenues were $0 during the three months ended September 30, 2009 and $9,500 during the same period in 2008. In 2008 the revenues were from a settlement and license agreement entered into with several telecommunications carriers.

Patent licensing expense was $11 during the three months ended September 30, 2009 and $6,097 during the same period in 2008. This expense includes four components: disbursements directly related to patent licensing, contingency fees earned by our legal counsel, ongoing business expenses related to patent licensing, and the participation fee of 35% payable to the vendor of the VoIP Patent.

Asset trading revenues were $1,948 during the three months ended September 30, 2009, relating to the dispositions of assets by Counsel RB. There were no similar revenues in 2008, given that Counsel RB was formed in 2009.

Asset trading expense was $917 during the three months ended September 30, 2009. There was no similar expense in 2008, given that Counsel RB was formed in 2009.

Selling, general and administrative expense was $966 during the three months ended September 30, 2009 as compared to $312 for the three months ended September 30, 2008. The significant items included:

A net $373 expense (composed of an allowance for doubtful accounts of $950, net of a reversal of contingency and participation fees of $577) was taken during the third quarter of 2009, due to difficulties experienced with the collection of the initial payment due under the license agreement that was entered into during the second quarter of 2009. There were no similar items in 2008.

Compensation expense was $327 in the third quarter of 2009, compared to $53 in the third quarter of 2008. The salary earned by the CEO of C2 remained unchanged at $35. Stock-based compensation was almost unchanged, at $17 in the third quarter of 2009 as compared to $18 in the third quarter of 2008. The remaining increase of $275 from 2008 to 2009 is due to $272 in salaries for Counsel RB employees and $3 of employee professional dues.

Legal expense was $12 in the third quarter of 2009, compared to $43 in the third quarter of 2008.

Accounting and tax consulting expenses were $19 in the third quarter of 2009, compared to $28 in the third quarter of 2008.

Directors’ fees were $32 in the third quarter of both 2009 and 2008.

Consulting expense was $39 in the third quarter of 2009 as compared to $0 in the third quarter of 2008. The 2009 expense relates to the operations of Counsel RB.

Management fees charged by our controlling stockholder, Counsel, were $90 in the third quarter of both 2009 and 2008.

Directors and officers liability insurance expense was $12 in the third quarter of 2009 and $37 in the third quarter of 2008. The decrease reflects a decrease in the premium, which became effective in June 2009.

Office rent was $19 in the third quarter of 2009 as compared to $0 in the third quarter of 2008. The 2009 expense relates to office space being rented by Counsel RB.

Depreciation and amortization – This expense was $0 in the third quarter of 2009 as compared to $5 in the third quarter of 2008. The 2008 expense relates to the amortization of the cost of the VoIP Patent, which was fully amortized at December 31, 2008.

Other income (expense) and earnings of equity accounted investments – the changes are related to the following:

In the third quarter of 2009 the Company had $0 other income, as compared to other income of $3 in the third quarter of 2008. The 2008 income consisted of bank interest on cash deposits.

In the third quarter of 2009, third party interest expense was $84, as compared to $0 in 2008. All of the interest expense in 2009 relates to the debt associated with Counsel RB’s second quarter acquisition of the Greystone assets, and includes $49 amortization of deferred finance costs.

In the third quarter of 2009, related party interest expense was $39, as compared to $0 in 2008. The related party loan outstanding at December 31, 2007 was repaid in full during the first quarter of 2008, and the Company incurred no interest expense during the remainder of 2008.

In the third quarter of 2009, earnings from equity investments were $77, consisting of $76 representing the Company’s share of the earnings of Polaroid, and $1 representing the Company’s share of the earnings of Knight’s Bridge GP. The $10 loss in 2008 consisted of $11 representing the Company’s share of the loss of LIMOS.com, partially offset by $1 representing the Company’s share of the earnings of Knight’s Bridge GP.

Nine-Month Period Ended September 30, 2009 Compared to Nine-Month Period Ended September 30, 2008

Patent licensing revenues were $950 during the nine months ended September 30, 2009 and $17,625 during the same period in 2008. In 2009 these revenues were from a license agreement entered into with C2 Communication Korea, and in 2008 from settlement and license agreements entered into with several telecommunications carriers.

Patent licensing expense was $598 during the nine months ended September 30, 2009 and $10,589 during the same period in 2008. This expense includes four components: disbursements directly related to patent licensing, contingency fees earned by our legal counsel, ongoing business expenses related to patent licensing, and the participation fee of 35% payable to the vendor of the VoIP Patent. The decrease is directly related to the decrease in revenue.

Asset trading revenues were $5,050 during the nine months ended September 30, 2009, relating to the dispositions of assets by Counsel RB. There were no similar revenues in 2008, given that Counsel RB was formed in 2009.

Asset trading expense was $3,592 during the nine months ended September 30, 2009. There was no similar expense in 2008, given that Counsel RB was formed in 2009.

Selling, general and administrative expense was $2,061 during the nine months ended September 30, 2009 as compared to $868 for the nine months ended September 30, 2008. The significant items included:

A net $373 expense (composed of an allowance for doubtful accounts of $950, net of a reversal of contingency and participation fees of $577) was taken in 2009, due to difficulties experienced with the collection of the initial payment due under the license agreement that was entered into during the second quarter of 2009. There were no similar items in 2008.

Compensation expense was $837 in the first nine months of 2009, compared to $168 in the first nine months of 2008. The salary earned by the CEO of C2 remained unchanged at $103. Stock-based compensation decreased from $65 in 2008 to $53 in 2009. The remaining increase of $681 from 2008 to 2009 is due to $677 in salaries for Counsel RB employees and $4 of employee professional dues.

Legal expense was $134 in the first nine months of 2009, compared to $78 in the first nine months of 2008. The increase is primarily due to the inclusion of $38 of legal expense incurred by Counsel RB.

Accounting and tax consulting expenses were $59 in the first nine months of 2009, compared to $85 in the first nine months of 2008.

Directors’ fees were $95 in the first nine months of both 2009 and 2008.

Consulting expense was $77 in the first nine months of 2009 as compared to $0 in the first nine months of 2008. The 2009 expense relates to the operations of Counsel RB.

Management fees charged by our controlling stockholder, Counsel, were $270 in the first nine months of both 2009 and 2008.

Directors and officers liability insurance expense was $79 in the first nine months of 2009 and $113 in the first nine months of 2008. The decrease reflects a decrease in the premium, which became effective in June 2009.

Office rent was $44 in the first nine months of 2009 as compared to $0 in the first nine months of 2008. The 2009 expense relates to office space being rented by Counsel RB.

Depreciation and amortization – This expense was $0 in the first nine months of 2009 as compared to $15 in the first nine months of 2008. The 2008 expense relates to the amortization of the cost of the VoIP Patent, which was fully amortized at December 31, 2008.

Other income (expense) and earnings of equity accounted investments – the changes are related to the following:

In the first nine months of 2009 the Company had other income of $22, as compared to income of $8 in 2008. The 2009 income is composed of the $21 gain on the sale of the Company’s Series A preferred share investment in Buddy Media, and $1 of bank interest. The income in 2008 was composed of $6 of interest income and a $2 refund related to prior years’ insurance premiums.

In the first nine months of 2009, third party interest expense was $112, as compared to $0 in 2008. All of the interest expense in 2009 relates to the debt associated with Counsel RB’s second quarter acquisition of the Greystone assets, and includes $64 amortization of deferred finance costs.

In the first nine months of 2009, related party interest expense was $74, as compared to $43 in 2008. The related party loan outstanding at December 31, 2007 was repaid in full during the first quarter of 2008, including the $43 interest accrued during the first quarter, and the Company incurred no interest expense during the remainder of 2008.

In the first nine months of 2009, earnings from equity investments were $97, consisting of $93 representing the Company’s share of the earnings of Polaroid, and $4 representing the Company’s share of the earnings of Knight’s Bridge GP. The $3 loss in 2008 consisted of $7 representing the Company’s share of the loss of LIMOS.com, partially offset by $4 representing the Company’s share of the earnings of Knight’s Bridge GP.

Inflation. Inflation did not have a significant impact on our results during the quarter and nine months ended September 30, 2009.

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 interest rates. Due to the fact that our cash is deposited with major financial institutions, we believe that we are not subject to any material interest rate risk as it relates to interest income. As to interest expense, we have one debt instrument that has a variable interest rate. Our Revolving Credit Facility provides that the principal amount outstanding bears interest at the Israel Development Bank Prime Rate + 1.5%, or a minimum of 5%. Assuming that the debt amount on the Revolving Credit Facility at September 30, 2009 was constant during the next twelve-month period, the impact of a one percent increase in the interest rate would be an increase in interest expense of approximately $16 for that twelve-month period. We do not believe that, in the near term, we are subject to material market risk on either our fixed rate third party or related party debt.

We did not have any foreign currency hedges or other derivative financial instruments as of September 30, 2009. 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 4T. 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 in 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 2009 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 as reported in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, as filed with the SEC on August 7, 2009, 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, 2008, as filed with the SEC on March 18, 2009.

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 $200,000.00 dated September 30, 2009 between C2 Global Technologies Inc. and Counsel Corporation.

10.2		Promissory Note for $90,000.00 dated September 30, 2009 between C2 Global Technologies Inc. and Counsel Corporation.

10.3		Promissory Note for $87,806.64 dated September 30, 2009 between C2 Global Technologies Inc. and Counsel Corporation.

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

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 13, 2009	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