Heritage Global Inc. - Quarter Report: 2011 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, 2011

¨ 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

Counsel RB Capital Inc.

(Exact name of registrant as specified in its charter)

FLORIDA		59-2291344
State or other jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

700 – 1 Toronto St., Toronto, ON M5C 2V6

(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 þ No ¨

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 þ No ¨

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 þ	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 þ

As of November 10, 2011, there were 27,109,305 shares of common stock, $0.01 par value, outstanding.

TABLE OF CONTENTS

Part I.	Financial Information

Item 1.	Financial Statements

	Unaudited Condensed Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010	3

	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2011 and 2010	4

	Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity for the period ended September 30, 2011	5

	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010	6

	Notes to Unaudited Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31

Item 4.	Controls and Procedures	31

Part II.	Other Information

Item 1.	Legal Proceedings	32

Item 1A.	Risk Factors	32

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32

Item 3.	Defaults Upon Senior Securities	32

Item 4.	Removed and Reserved	32

Item 5.	Other Information	32

Item 6.	Exhibits	33

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements.

COUNSEL RB CAPITAL INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of U.S. dollars, except share and per share amounts)

(unaudited)

	As of September 30, 2011			As of December 31, 2010

ASSETS
Current assets:
Cash and cash equivalents	$	7,917		$	2,608
Amounts receivable (net of allowance for doubtful accounts of $186; 2010 - $168)		1,209			203
Receivable from a related party		—			392
Deposits		509			771
Inventory – equipment		2,248			2,594
Deferred income tax		2,488			2,228
Other current assets		203			63
Total current assets		14,574			8,859
Other assets:
Inventory – real estate		1,773			1,573
Asset liquidation investments		461			3,548
Investments		2,758			2,706
Property, plant and equipment		19			—
Goodwill		505			—
Total assets	$	20,090		$	16,686

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	688		$	2,555
Income taxes payable		252			198
Debt payable to third parties		2,362			4,485
Debt payable to a related party		92			—
Total liabilities		3,394			7,238

Commitments and contingencies

Equity:
Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and outstanding 592 Class N shares at September 30, 2011 and December 31, 2010, liquidation preference of $592 at September 30, 2011 and December 31, 2010		6			6
Common stock, $0.01 par value, authorized 300,000,000 shares; issued and outstanding 27,109,305 shares at September 30, 2011 and 25,960,080 shares at December 31, 2010		271			259
Additional paid-in capital		278,288			275,641
Accumulated deficit		(261,869	)		(266,458	)
Total equity		16,696			9,448
Total liabilities and equity	$	20,090		$	16,686

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

COUNSEL RB CAPITAL INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands of US dollars, except per share amounts)	2011			2010			2011			2010

Revenue:
Asset liquidation
Asset sale proceeds	$	1,190		$	195		$	13,415		$	2,695
Commissions and other		959			145			1,203			366
Total asset liquidation revenue		2,149			340			14,618			3,061

Operating costs and expenses:
Asset liquidation		900			243			7,036			2,079
Inventory maintenance		(6	)		(16	)		1,547			(32	)
Patent licensing and maintenance		5			12			75			19
Selling, general and administrative		1,069			548			3,017			1,559
Expenses paid to related parties		143			113			441			338
Total operating costs and expenses		2,111			900			12,116			3,963
		38			(560	)		2,502			(902	)
Earnings of equity accounted asset liquidation investments		478			1,370			2,195			4,408
Operating income		516			810			4,697			3,506
Other income (expenses):
Other income		8			153			24			28
Interest expense – third party		(45	)		(48	)		(181	)		(246	)
Interest expense – related party		—			—			—			(64	)
Total other income (expenses)		(37	)		105			(157	)		(282	)
Income from continuing operations before the undernoted		479			915			4,540			3,224
Income tax expense (recovery)		(416	)		(110	)		(36	)		271
Earnings (loss) of other equity accounted investments (net of $0 tax)		(35	)		(93	)		13			58
Net income and comprehensive income		860			932			4,589			3,011
Net income and comprehensive income attributable to non-controlling interest		—			(283	)		—			(990	)
Net income and comprehensive income attributable to controlling interest	$	860		$	649		$	4,589		$	2,021

Weighted average common shares outstanding (in thousands)		27,088			22,718			26,739			22,718
Weighted average preferred shares outstanding (in thousands)		1			1			1			1

Earnings per share – basic:
Common shares	$	0.03		$	0.03		$	0.17		$	0.09
Preferred shares	$	1.27		$	1.14		$	6.86		$	3.55

Earnings per share –diluted:
Common shares	$	0.03		$	0.03		$	0.17		$	0.09
Preferred shares	$	1.26		$	1.14		$	6.79		$	3.55

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

COUNSEL RB CAPITAL INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

For the period ended September 30, 2011

(in thousands of US dollars, except share amounts)

(unaudited)

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

Balance at December 31, 2008		594		$	6		22,745,536		$	227	$	274,761		$	(270,023	)	$	—		$	4,971
Capital contribution		—			—		—			—		—			—			237			237
Purchase and cancellation of preferred and common stock		(2	)		—		(27,456	)		—		(126	)		—			—			(126	)
Compensation cost related to stock options		—			—		—			—		71			—			—			71
Net loss		—			—		—			—		—			(1,264	)		65			(1,199	)
Balance at December 31, 2009		592			6		22,718,080			227		274,706			(271,287	)		302			3,954
Issuance of common stock		—			—		3,242,000			32		—			—			(32	)		—
Distribution to non-controlling interest		—			—		—			—		—			—			(766	)		(766	)
Transfer from non-controlling interest to controlling interest		—			—		—			—		889			—			(889	)		—
Compensation cost related to stock options		—			—		—			—		46			—			—			46
Net income		—			—		—			—		—			4,829			1,385			6,214
Balance at December 31, 2010		592			6		25,960,080			259		275,641			(266,458	)		—			9,448
Issuance of common stock		—			—		1,122,950			12		1,995			—			—			2,007
Issuance of options		—			—		—			—		460			—			—			460
Exercise of options		—			—		26,275			—		16			—			—			16
Compensation cost related to stock options		—			—		—			—		176			—			—			176
Net income		—			—		—			—		—			4,589			—			4,589
Balance at September 30, 2011		592		$	6		27,109,305		$	271	$	278,288		$	(261,869	)	$	—		$	16,696

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

COUNSEL RB CAPITAL INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(In thousands of US dollars)	Nine months ended September 30,
	2011			2010
Cash flows from operating activities:
Net income	$	4,589		$	3,011
Adjustments to reconcile net income to net cash provided by operating activities:
Accrued interest added to principal of third party debt		13			10
Amortization of financing costs on debt payable to third party		32			80
Stock-based compensation expense		176			43
Earnings of other equity accounted investments		(13	)		(58	)
Provision for doubtful accounts		40			—
Depreciation and amortization		1			—
Writedown of inventory		—			(123	)

Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable		(554	)		807
Decrease in note receivable		—			653
Increase in lease receivable		(181	)		—
Decrease in deposits		262			300
Decrease in inventory		146			631
Decrease (increase) in asset liquidation investments		3,087			(335	)
Increase in other assets		(190	)		(253	)
Decrease (increase) in deferred income tax assets		(260	)		141
Decrease in accounts payable and accrued liabilities		(1,867	)		(363	)
Increase in income taxes payable		54			120
Net cash provided by operating activities		5,335			4,664

Cash flows from investing activities:
Investment in other equity accounted investments		(42	)		(305	)
Cash distributions from other equity accounted investments		3			292
Cash portion of business acquisition		(175	)		—
Net cash used in investing activities		(214	)		(13	)

Cash flows from financing activities:
Proceeds from issuance of common shares, net of share issuance costs		1,824			—
Proceeds from exercise of options to purchase common shares		16			—
Proceeds of debt payable to third parties		3,814			7,597
Repayment of debt payable to third parties		(5,950	)		(9,659	)
Proceeds of debt payable to a related party		1,282			1,551
Repayment of debt payable to a related party		(798	)		(3,115	)
Net cash provided by (used in) financing activities		188			(3,626	)
Increase in cash and cash equivalents		5,309			1,025
Cash and cash equivalents at beginning of period		2,608			93
Cash and cash equivalents at end of period	$	7,917		$	1,118

Supplemental schedule of non-cash investing and financing activities:
Issuance of common stock in exchange for assets of acquired business	$	184		$	—
Issuance of options to purchase common stock in exchange for assets of acquired business		460			—

Supplemental cash flow information:
Taxes paid		202			21
Interest paid		117			79

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

COUNSEL RB CAPITAL INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(in thousands, except share and per share amounts and where specifically indicated)

Note 1 –Basis of Presentation

These unaudited condensed consolidated financial statements include the accounts of Counsel RB Capital Inc. together with its subsidiaries, including Counsel RB Capital LLC (“Counsel RB”), Equity Partners CRB LLC, C2 Communications Technologies Inc., and C2 Investments Inc. These entities, collectively, are referred to as “CRBCI”, the “Company”, “we” or “our” in these condensed consolidated financial statements. Our unaudited condensed consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) as outlined in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and include the assets, liabilities, revenues, and expenses of all subsidiaries over which CRBCI exercises control. All significant intercompany accounts and transactions have been eliminated upon consolidation.

We have prepared the condensed consolidated financial statements included herein, without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). In our opinion, these condensed consolidated 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. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K and Annual Report on Form 10-K/A for the year ended December 31, 2010, filed with the SEC on March 31, 2011 and August 31, 2011, respectively.

Certain items in the condensed consolidated statement of operations and comprehensive income for the nine months ended September 30, 2010 have been reclassified to conform to current year presentation. These changes had no effect on previously reported net income and comprehensive income, or stockholders’ equity.

The results of operations for the nine-month period ended September 30, 2011 are not necessarily indicative of those operating results to be expected for any subsequent interim period or for the entire year ending December 31, 2011.

Note 2 –Acquisition of EP USA, LLC

On June 23, 2011, Counsel RB, through its wholly-owned subsidiary Equity Partners CRB LLC (“CRB”), acquired 100% of the business of EP USA, LLC (d/b/a Equity Partners) (“Equity Partners”), a boutique investment banking firm and leading provider of financial solutions for distressed businesses and properties. The acquisition of Equity Partners is consistent with CRBCI’s strategy to significantly expand and diversify the services provided by Counsel RB. In connection with the acquisition, CRBCI entered into employment and consulting agreements with the previous owners and employees of Equity Partners.

The cost of the acquisition was satisfied by the payment of $175 in cash, the issuance of 122,950 CRBCI common shares valued at $1.50 per share and the granting of options to purchase 230,000 CRBCI common shares with a fair value of $1.9992 per option. Additionally, one of the previous owners was issued a put option from CRBCI that expired without exercise in September 2011, and another entered into a lock-up agreement with respect to his shares and options that will expire in 2013. The acquisition included other terms and conditions that are customary for agreements of this nature.

The following table summarizes the consideration paid for Equity Partners and the amounts of the assets acquired and liabilities assumed recognized:

At September 30, 2011
	$
Consideration
Cash		175
Equity instruments:
122,950 CRBCI common shares		184
230,000 options to purchase CRBCI common shares		460
Fair value of total consideration		819

Acquisition related costs (included in selling, general, and administrative expenses in CRBCI’s condensed consolidated statement of operations for the nine months ended September 30, 2011)		46

Recognized amounts of identifiable assets acquired and liabilities assumed
Accounts receivable		312
Property, plant and equipment		2
Goodwill		505
Total identifiable net assets		819

The fair value of the 122,950 CRBCI common shares issued as part of the consideration was determined using the closing price of the shares on June 22, 2011. The fair value of the 230,000 options to purchase CRBCI common shares was determined using the Black-Scholes Option Pricing Model. Inputs to the model included an expected volatility of 323%, a risk-free interest rate of 2.10%, an expected life of 4.75 years, and an expected dividend yield of zero.

The fair value of the accounts receivable is the value as reported in the above table, and includes an allowance of $0.

The fair value of the goodwill, as reported above, is provisional pending final determination of the valuation of the assets.

The only transactions recognized separately from the acquisition were approximately $46 of professional fees incurred by the Company, which have been expensed in the nine months ended September 30, 2011.

Note 3 – Summary of Significant Accounting Policies

Use of estimates

The preparation of the Company’s consolidated 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. Management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.

Significant estimates include the assessment of collectability of revenue recognized, amounts receivable valuation, inventory valuation, investment valuation, valuation of assets acquired, valuation of deferred income tax assets, valuation of goodwill, liabilities, 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.

The critical accounting policies used in the preparation of our audited consolidated financial statements are discussed in our Annual Report on Form 10-K for the year ended December 31, 2010. There have been no changes to these policies in the first nine months of 2011.

Recent Accounting Pronouncements

In July 2010, the FASB issued Accounting Standards Update 2010-20, Receivables (“ASU 2010-20”). ASU 2010-20 amends an entity’s disclosures about its receivables by requiring more detailed and disaggregated disclosures about the credit quality of an entity’s financing receivables and its allowance for credit losses. Financing receivables are defined as contractual rights to receive money on demand or on fixed or determinable dates, which rights are recognized as an asset in the entity’s statement of financial position. The objective is to improve financial statement users’ understanding of 1) the nature of the credit risk associated with an entity’s financing receivables, and 2) the entity’s assessment of that risk in estimating its allowance for credit losses as well as changes in the allowance and the reasons for those changes. For information as of the end of a reporting period, ASU 2010-20 is effective for the first interim or annual reporting period ending on or after December 15, 2010. For information about activity during a reporting period, ASU 2010-20 is effective for the first interim or annual reporting period beginning after December 15, 2010. The Company has therefore included the disclosures required by ASU 2010-20 in Note 4.

In April 2011, the FASB issued Accounting Standards Update 2011-02, A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring (“ASU 2011-02”). ASU 2011-02 clarifies when a loan modification or restructuring is considered a troubled debt restructuring, and was issued due to the FASB’s belief that the complexity of the evaluation, together with the increased volume of loan modifications, required additional clarification. ASU 2011-02 is effective for the first interim or annual reporting period beginning on or after June 15, 2011. It must be applied retrospectively to modifications occurring at or right after the beginning of the annual period of adoption. The adoption of ASU 2011-02 by the Company had no effect on its financial statements.

Future Accounting Pronouncements

In May 2011, the FASB issued Accounting Standards Update 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 results from joint efforts by the FASB and the International Accounting Standards Board (“IASB”) to develop converged guidance on how to measure fair value and what disclosures to provide about fair value measurements. Although ASU 2011-04 is largely consistent with the existing US GAAP fair value measurement principles, it expands existing disclosure requirements and makes other amendments. ASU 2011-04 is effective for interim or annual reporting periods ending on or after December 15, 2011, with early adoption not permitted. The Company is currently evaluating the impact of adopting ASU 2011-04.

In June 2011, the FASB issued Accounting Standards Update 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 revises the manner in which entities present comprehensive income in their financial statements, by removing the existing presentation options under US GAAP and requiring entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. Under the two-statement approach, the first statement would include components of net income, which is consistent with the income statement format used today, and the second statement would include components of other comprehensive income (“OCI”). ASU 2011-05 does not change the items that must be reported in OCI. ASU 2011-05 is effective for interim or annual reporting periods beginning after December 15, 2011, with early adoption permitted. The guidance must be applied retrospectively for all periods presented in the financial statements. The Company is currently evaluating the impact of adopting ASU 2011-05.

In September 2011, the FASB issued Accounting Standards Update 2011-08, Testing Goodwill for Impairment (“ASU 2011-08”). ASU 2011-08 amends the goodwill impairment testing guidance in Accounting Standards Codification (“ASC”) 350-20, by providing the option to perform a qualitative assessment before calculating the fair value of the reporting unit (i.e.: before performing Step 1 of the goodwill impairment test). If it is determined, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount, the existing two-step impairment test would be required. If it is determined that the fair value more likely than not exceeds the carrying value, further testing would not be required. ASU 2011-08 does not change the calculation of goodwill or its assignment to reporting units. It also does not change the requirement to test goodwill annually for impairment, or to test for impairment between annual tests if warranted by events or circumstances. However, it does revise the examples of events and circumstances that should be considered. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company did not early adopt ASU 2011-08 in the third quarter of 2011, and is evaluating the impact of its adoption.

Note 4 – Amounts Receivable

The Company’s amounts receivable are primarily related to the operations of Counsel RB and its subsidiary, Equity Partners. They are composed of both amounts receivable assumed by Counsel RB as a component of an asset acquisition, and amounts receivable resulting from asset sales or from services provided by Counsel RB personnel. The initial value of an amount receivable corresponds to the fair value of the underlying goods or services. To date all receivables have been classified as current and, due to their short-term nature, any decline in fair value would be due to issues involving collectability. At each financial statement date the collectability of each outstanding amount receivable is evaluated, and an allowance is recorded if the book value exceeds the amount that is deemed collectable. Collectability is determined on the basis of payment history.

To date the Company has recorded only one interest-bearing note receivable, in the amount of $225. This note was acquired when Counsel RB commenced operations in the second quarter of 2009. It is in default and on non-accrual status. An allowance of $146 was recorded in the fourth quarter of 2010, and a further allowance of $40 was recorded in the second quarter of 2011. Therefore the Company’s recorded investment in financing receivables on non-accrual status is $39 at September 30, 2011. At this time, the Company does not expect to collect interest on this note and therefore does not anticipate that it will resume accruing interest receivable.

In the first quarter of 2011, the Company acquired a lease receivable in the amount of $248, which is being reduced by monthly payments of $12 that began in April. The lease receivable began accruing interest on April 1, 2011.

At September 30, 2011 the Company has no investment in non-interest bearing financing receivables that are past due. The Company’s single past due receivable, which had a balance of $5 at March 31, 2011, was paid in full during the second quarter.

Counsel RB’s amounts receivable consist of three major categories: receivables from Joint Venture partners, receivables from asset sales, and fees and retainers relating to the business of Equity Partners.

To date, the Company has not experienced any significant collectability issues with respect to either the receivables from Joint Venture partners or the receivables from asset sales. Given this experience, together with the ongoing business relationships between the Company and its partners, the Company has not yet been required to develop a policy for formal credit quality assessment The Equity Partners business has similarly not required formal credit quality assessments. As the Company’s asset liquidation business continues to develop, more comprehensive credit assessments may be required.

During the first nine months of 2011, there were no changes in the Company’s accounting policies for financing receivables, and therefore no related change in the current-period provision for credit losses. During the same period, there were no purchases, sales or reclassifications of financing receivables. There were no troubled debt restructurings during the first nine months of 2011.

Amounts receivable consisted of the following at September 30, 2011 and December 31, 2010:

	September 30, 2011		December 31, 2010
Accounts receivable (net of allowance for doubtful accounts of $0; 2010 - $22)	$	989	$	124
Notes receivable (net of allowance for doubtful accounts of $186; 2010 - $146)		39		79
Lease receivable		181		—
	$	1,209	$	203

Note 5 – Stock-based Compensation

At September 30, 2011 the Company had six stock-based compensation plans, which are described more fully in Note 14 to the audited consolidated financial statements contained in the Company’s most recently filed Annual Report on Form 10-K.

The Company’s total compensation cost related to stock options is $110 and $176 for the three and nine months ended September 30, 2011, respectively, as compared to $8 and $43 for the three and nine months ended September 30, 2010. The increase in 2011 is due to options granted to employees and officers of both the Company and its parent, Counsel Corporation (together with its subsidiaries, “Counsel”), as detailed below. The fair value compensation costs of unvested stock options in the first nine months of 2011 and 2010 were determined using the Black-Scholes Option Pricing Model for grant dates between 2006 and 2011. Historical inputs to the model included expected volatility between 79% and 323%, risk-free interest rates between 1.49% and 5.07%, expected lives of 4.75 or 6.25 years, and an expected dividend yield of zero. The Company’s estimated forfeiture rate of its stock options is nil.

During the quarter ended September 30, 2011, 30,000 options that had been issued to directors of the Company in 2004 were exercised in exchange for total cash payments of $17. The Company recognized a tax benefit of $44 associated with these exercises. No options were exercised during the three and nine months ending September 30, 2010 and therefore no tax benefit from stock-based compensation was recognized. The Company’s stock-based compensation had no effect on its cash flows during the three and nine months ended September 30, 2010.

During the first quarter of 2011, as detailed in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, as filed with the SEC, the Company issued a total of 1,540,000 options to officers, employees and directors. During the second quarter of 2011, as detailed in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, as filed with the SEC, the Company issued a total of 880,000 options to the previous owners of Equity Partners, the President of the Company, and officers of Counsel.

On September 21, 2011, 100,000 options, having an exercise price of $2.40 and a fair value of $2.399, were granted to an employee of the Company. 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 320%, a risk-free interest rate of 1.49%, an expected term of 4.75 years, and an expected dividend yield of zero.

With the exception of the 40,000 options granted to the Company’s directors in the first quarter of 2011, no similar grants were made during the first nine months of 2010.

The following summarizes the changes in common stock options for the nine months ended September 30, 2011 and 2010, respectively:

	Options			Weighted Average Exercise Price
Outstanding at December 31, 2010		728,246		$	0.89
Granted		2,520,000		$	1.88
Exercised		(30,000	)	$	0.83
Expired		(37,048	)	$	3.87
Outstanding at September 30, 2011		3,181,198		$	1.64

Options exercisable at September 30, 2011		831,198		$	1.07

	Options			Weighted Average Exercise Price
Outstanding at December 31, 2009		994,027		$	6.02
Granted		40,000		$	0.08
Expired		(305,781	)	$	17.47
Outstanding at September 30, 2010		728,246		$	0.89

Options exercisable at September 30, 2010		630,746		$	0.98

Note 6 – Earning (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 the instruments are assumed to be exercised or converted, except when their effect would be anti-dilutive. For the three months ended September 30, 2011, the effect of including the Company’s potential common shares had no effect on basic EPS per common share, and reduced basic EPS per preferred share by $0.01. For the nine months ended September 30, 2011, the effect of including the Company’s potential common shares had no effect on basic EPS per common share, and reduced basic EPS per preferred share by $0.07. For the three and nine months ended September 30, 2010, the net effect of including the Company’s potential common shares did not change the EPS amount, and therefore diluted EPS equals basic EPS.

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

	September 30,
	2011		2010

Assumed exercise of options to purchase shares of common stock		66,350		648,246

Note 7 – Composition of Certain Financial Statement Items

Accounts payable and accrued liabilities

Accounts payable and accrued liabilities consisted of the following at September 30, 2011 and December 31, 2010:

	September 30, 2011		December 31, 2010
Regulatory and legal fees	$	84	$	612
Distributions payable to former non-controlling interest		—		766
Accounting, auditing and tax consulting		193		118
Due to Joint Venture partners		58		178
Asset liquidation expense		24		—
Customer deposits		47		313
Patent licensing and maintenance		48		118
Sales and other taxes		84		81
Remuneration and benefits		91		228
Other		59		141

Total accounts payable and accrued liabilities	$	688	$	2,555

Note 8 – Investments

The Company’s investments as at September 30, 2011 and December 31, 2010 consisted of the following:

	September 30, 2011		December 31, 2010

Knight’s Bridge Capital Partners Internet Fund No. 1 GP LLC	$	18	$	18
Polaroid		2,740		2,688

Total investments	$	2,758	$	2,706

Knight’s Bridge Capital Partners Internet Fund No. 1 GP LLC (“Knight’s Bridge GP”)

The Company accounts for its investment under the equity method. For the year ended December 31, 2010, the Company recorded $17 as its share of Knight’s Bridge GP’s earnings, and received cash distributions of $17. During the first nine months of 2011, the Company recorded $3 as its share of Knight’s Bridge GP’s earnings, and received $3 of cash distributions. Based on the Company’s analysis of Knight’s Bridge GP’s financial statements and projections as at September 30, 2011, the Company concluded that there has been no other than temporary impairment in the fair value of its investment, and that its book value is the best estimate of its fair value.

Polaroid

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. 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 totaled 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. The Management LP is a wholly-owned subsidiary of the Company’s majority shareholder, Counsel.

The Company’s investment in the LLC has two components:

CRBCI invested $530 to acquire 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. Following cash distributions of $46 in 2009 and $56 in 2010, and additional investments of $54 in 2010 and $11 in 2011, the Company’s cumulative cash investment totals $493.

CRBCI invested $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 parties related to Counsel. The $2,091 was Counsel’s share of the LP’s investment and was funded by Counsel. Subsequent to making the investment in the LP, Counsel sold, to CRBCI, the economic benefit of its indirect investment in Polaroid. CRBCI is also responsible for reimbursing Counsel for its share of the management fees, which are 2% of the investment. The economic interest entitles CRBCI 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. Following additional investments of $11 in 2009, $263 in 2010, and $31 in the first nine months of 2011, and cash distributions of $186 and $233 in 2009 and 2010, respectively, the Company’s cumulative cash investment totals $1,977.

The Company accounts for its investments in the LLC under the equity method. For the years ended December 31, 2009 and 2010, the Company recorded $246 and $14, respectively, as its share of earnings. During the first nine months of 2011, the Company recorded $10 as its share of the LLC’s earnings (2010 - $55).

At December 31, 2010, the Company used a discounted cash flow methodology to estimate that its investment in Polaroid had a fair value of approximately $3,348. The Company has concluded, based on Polaroid’s operating results for the first nine months of 2011, and projections for future quarters, that there has been no material change to the estimated fair value.

Summarized financial information – Equity accounted asset liquidation investments

The table below details the results of operations, for the nine months ended September 30, 2011 and 2010, attributable to CRBCI from the Joint Ventures in which it was invested during those periods.

	2011		2010

Gross revenues	$	3,474	$	15,729

Gross profit	$	2,098	$	4,441

Income from continuing operations	$	2,195	$	4,408

Net income	$	2,195	$	4,408

Net income after non-controlling interest	$	2,195	$	3,306

Note 9 – Debt

	September 30, 2011		December 31, 2010

Revolving credit facility	$	2,362	$	4,485

Related party debt		92		—
		2,454		4,485
Less current portion		2,454		4,485
Long-term debt, less current portion	$	—	$	—

Revolving credit facility

Counsel RB has 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”) and most recently amended as of March 1, 2011, in order to finance the acquisition of eligible property and equipment for purposes of resale. The Credit Facility bears interest at the greater of prime rate + 1.0% or 4.5%, and the maximum borrowing available under the Credit Facility is US $10,000, subject to Counsel RB maintaining a 1:2 ratio of capital funds, i.e. the sum of Counsel RB’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, which serve as collateral. Effective March 1, 2011, a monthly fee is payable with respect to unused borrowing (“Unused Line Fee”). The Unused Line Fee is equal to the product of 0.50% per annum multiplied by the difference between $10,000 and the average loan amount outstanding during the month. The Credit Facility also contains other terms and provisions customary for agreements of this nature, and has been guaranteed by both the Company and Counsel. At September 30, 2011 and December 31, 2010 the Company was in compliance with all covenants of the Facility.

Debt payable to a related party

During the first nine months of 2011, Counsel made net advances of $484 to the Company under an existing demand loan facility (the “Counsel Loan”) that bears interest at 10%. The primary reason for the advances was to fund the Company’s head office operations. At December 31, 2010 the balance of the Counsel Loan, including accrued interest, was $0, as the Company had advanced net $392 to Counsel. For further discussion of the related party debt and other transactions with Counsel, see Note 12.

Note 10 – Patent Participation Fee

In the fourth quarter of 2003, CRBCI acquired a VoIP patent from a third party. Consideration provided 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 CRBCI 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.

Note 11 – Income Taxes

In the third quarter of 2011, the Company recognized a current income tax recovery of $17 and a deferred income tax recovery of $399, decreasing the aggregate current income tax expense and increasing the deferred income tax recovery for the nine months ended September 30, 2011 to $223 and $259, respectively. The net deferred income tax recovery for the year is primarily due to a change in the estimate of the tax effect of available tax loss carryforwards expected to be utilized. The $2,488 net deferred income tax asset balance at September 30, 2011 reflects the tax benefit of available tax losses considered “more likely than not” to be utilized during the remainder of 2011 and first nine months of 2012. The Company recognized a current income tax expense of $131 and a deferred income tax expense of $140 in the nine months ended September 30, 2010.

As at September 30, 2011, the unrecognized tax benefit determined pursuant to the Topic 740 of the ASC, Income Taxes, is $12,059. There has been no change in the third quarter of 2011 in the estimate of the balance of unrecognized tax benefits previously determined.

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

The Company’s policy is to recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. Because the Company has tax loss carryforwards in excess of the unrecognized tax benefits, the Company did not accrue for interest and penalties related to unrecognized tax benefits either upon the initial derecognition of uncertain tax positions 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 activities, or other circumstances not known to management at this time. At this time, an estimate of the range of reasonably possible outcomes cannot be made.

The Company incurred annual tax losses from 1991 through 2005. All loss taxation years remain open for audit pending the application of the respective tax losses 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 and in 2010, respectively. The 2008 through 2010 taxation years remain open for audit.

The Company’s estimated remaining federal tax loss carryforwards at September 30, 2011 are comprised of approximately $54,500 of unrestricted net operating tax losses, $28,500 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 $400 of unrestricted capital losses. The unrestricted capital loss will expire at the end of 2011.

The Company is 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 prior years ceased to be available to the Company following their sale. Therefore, it is possible that the Company may not have tax loss carryforwards available to shield future income which is attributable to a particular state from being subject to tax in that particular state. Accordingly, the Company records a provision for state taxes payable based on its estimated annual taxable income for state tax purposes.

Note 12 – Related Party Transactions

Transactions with Counsel

At September 30, 2011 the Company had debt owing to Counsel in the amount of $92, as compared to an amount receivable from Counsel of $392 at December 31, 2010. The loan was advanced pursuant to an existing demand loan facility (the “Counsel Loan”). The Counsel Loan, which was originally entered into during the fourth quarter of 2003, accrues interest at 10% per annum compounded quarterly from the date funds are advanced. The Counsel Loan has been amended several times, most recently during the second quarter of 2009 when it was converted into a demand loan. The Counsel Loan is secured by the assets of the Company and is subject to certain events of default.

Counsel Management Services

Since December 2004, CRBCI and Counsel have entered into successive annual management services agreements (the “Agreement”). Under the terms of the Agreement, CRBCI agrees to pay Counsel for ongoing services provided to CRBCI by 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 CRBCI. 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 CRBCI, 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. For the nine months ended September 30, 2011 and 2010, the amount charged to the Company pursuant to the Agreement was $270. In addition, during the nine months ended September 30, 2011, $52 was charged to the Company for Counsel services relating to the operations of Counsel RB. There was no similar charge in 2010.

Transactions with Other Related Parties

The Company leases office space in White Plains, NY and Los Angeles, CA as part of the operations of Counsel RB. The premises in White Plains are owned by an entity that is controlled by a Co-CEO of Counsel RB and the Company. During the first nine months of 2011 and 2010, the Company paid rent of $100 and $59, respectively, to the entity. The premises in Los Angeles are owned partly by an entity that is controlled by the other Co-CEO of Counsel RB and the Company. During the first nine months of 2011 and 2010, the Company paid rent of $19 and $9, respectively, to the entity.

Note 13 – Segment Reporting

Beginning in 2005, the Company operated in a single business segment, Patent Licensing. With the commencement of Counsel RB’s operations in the second quarter of 2009, the Company diversified into a second segment, Asset Liquidation. For the nine months ending September 30, 2011 and 2010, only the Asset Liquidation segment had revenues and assets sufficiently significant to require separate reporting.

There are no material inter-segment revenues. The Company’s business is conducted principally in the U.S. The table below presents information about the Asset Liquidation segment of the Company as of and for the three and nine months ended September 30, 2011 and 2010:

	For the Three Months Ended
	September 30, 2011			September 30, 2010
	Asset Liquidation			Asset Liquidation
Revenues from external customers	$	2,149		$	340
Earnings of equity accounted asset liquidation investments		478			1,370
Other income		1			153
Interest expense		(45	)		(48	)
Segment income (pre-tax)		828			1,132
Investment in equity accounted asset liquidation investments		461			4,278
Segment assets		7,384			7,977

	For the Nine Months Ended
	September 30, 2011			September 30, 2010
	Asset Liquidation			Asset Liquidation
Revenues from external customers	$	14,618		$	3,061
Earnings from equity accounted asset liquidation investments		2,195			4,408
Other income		15			28
Interest expense		(181	)		(246	)
Segment income (pre-tax)		5,282			3,988

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

	Three months ended September 30, 2011			Three months ended September 30, 2010			Nine months ended September 30, 2011			Nine months ended September 30, 2010

Total other income and earnings from equity accounted investments for reportable segments	$	479		$	1,523		$	2,210		$	4,436
Unallocated other income and earnings (losses) from equity investments from corporate accounts		(28	)		(93	)		22			58
	$	451		$	1,430		$	2,232		$	4,494

Total interest expense for reportable segments	$	45		$	48		$	181		$	246
Unallocated interest expense from related party debt		—			—			—			64
	$	45		$	48		$	181		$	310

Total depreciation and amortization for reportable segments	$	1		$	—		$	1		$	—
Other unallocated depreciation from corporate assets		—			—			—			—
	$	1		$	—		$	1		$	—

Total segment income (pre-tax)	$	828		$	1,132		$	5,282		$	3,988
Other income (expense)		(28	)		(93	)		22			58
Other corporate expenses (primarily corporate level interest, general and administrative expenses)		(356	)		(217	)		(751	)		(764	)
Income tax expense (recovery)		(416	)		(110	)		(36	)		271
Net income from continuing operations	$	860		$	932		$	4,589		$	3,011

	As at		As at
	September 30, 2011		September 30, 2010

Segment assets	$	7,384	$	7,977
Intangible assets not allocated to segments		—		—
Other assets not allocated to segments(1)		12,706		2,845
	$	20,090	$	10,822

(1)

Other assets not allocated to segments are corporate assets such as cash, non-trade

accounts receivable, prepaid insurance, investments and deferred income tax assets.

Note 14 – Commitments and Contingencies

At September 30, 2011, CRBCI has no commitments other than its accounts payable and accrued liabilities, the Unused Line Fee on its third party debt, and the leases on its offices in New York, California and Maryland, which expire on December 31, 2015, September 30, 2013 and April 30, 2012, respectively. The annual lease obligations are as shown below:

2011	$	42
2012	$	159
2013	$	154
2014	$	141
2015	$	148

In the normal course of its business, CRBCI may be subject to contingent liabilities with respect to assets sold either directly or through Joint Ventures. At September 30, 2011 CRBCI does not expect any of these liabilities, individually or in the aggregate, to have a material adverse effect on its assets or operations.

The Company is involved in various other legal matters arising out of its operations in the normal course of business, none of which are expected, individually or in the aggregate, to have a material adverse effect on the Company.

Note 15 – Subsequent Events

The Company has evaluated events subsequent to September 30, 2011 for disclosure. There have been no material subsequent 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 for the nine months ended September 30, 2011, 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, 2010, 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, History and Recent Developments

Counsel RB Capital Inc. (“CRBCI”, “we” or the “Company”) was incorporated in the State of Florida in 1983 under the name “MedCross, Inc.” The Company’s name was changed to “I-Link Incorporated” in 1997, to “Acceris Communications Inc.” in 2003, to “C2 Global Technologies Inc.” in 2005, and to “Counsel RB Capital Inc.” effective January 20, 2011. The most recent name change reflects the significance of the asset liquidation business carried out by the Company’s wholly-owned subsidiary, Counsel RB Capital LLC (“Counsel RB”), which commenced operations in the second quarter of 2009.

In 1994, we began operating as an Internet service provider, and soon turned to designing and building an internet protocol (“IP”) telecommunications platform consisting of proprietary software and hardware, and leased telecommunications lines. In 1997, we began offering enhanced services over a mixed IP-and-circuit-switched network platform and 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 Public Switched Telephone Network (“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, which represented the first nationwide, commercially viable VoIP platform of its kind. In 2001, the Company entered the Telecommunications business, through a wholly-owned subsidiary, WXC Corp. 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. It 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. On May 1, 2003, shortly after the issuance of the C2 Patent, we disposed of our domestic U.S. VoIP network. The sale included the physical assets required to operate our nationwide network using our patented VoIP technology, included a fully paid non-exclusive perpetual license to our proprietary software-based network convergence solution for voice and data, and removed essentially all operations that did not pertain to this convergence solution. As part of the sale, we retained all of our intellectual property rights and patents.

In 2003, we added to our VoIP patent holdings when we acquired U.S. Patent No. 6,243,373, “Method and Apparatus for Implementing a Computer Network/Internet Telephone System” (the “VoIP Patent”), which included a corresponding foreign patent and related international patent applications. The vendor of the VoIP Patent was granted a first priority security interest in the patent in order to secure CRBCI’s obligations under the associated purchase agreement. The VoIP Patent, together with the 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 CRBCI’s patented technology. The comprehensive nature of the VoIP Patent is summarized in the patent’s abstract, which, in pertinent part, describes the technology as follows: “A method and apparatus are provided for communicating audio information over a computer network. A standard telephone connected to the PSTN may be used to communicate with any other PSTN-connected telephone, where a computer network, such as the Internet, is the transmission facility instead of conventional telephone transmission facilities.” As part of the consideration for the acquisition of the VoIP Patent, the vendor is entitled to receive 35% of the net earnings from our VoIP Patent Portfolio.

The Company’s objective is to obtain ongoing licensing and royalty revenue from the target market for its patents. 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. CRBCI’s target market consists of carriers, equipment manufacturers, service providers and end users in the IP telephone market who are using CRBCI’s patented VoIP technologies by deploying VoIP networks for phone-to-phone communications.

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. In the third quarter of 2005, the Company retained legal counsel with expertise in the enforcement of intellectual property rights, and in June 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 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 CRBCI was paid $17,625 in aggregate, whereby CRBCI granted the defendants non-exclusive, perpetual, worldwide, fully paid up, royalty free licenses under any of CRBCI’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 fourth quarter of 2009, the complaint against Matrix Telecom, Windstream Corporation and Telephone and Data Systems, Inc. was dismissed without prejudice. Also in the fourth quarter of 2009, the case was transferred to the Eastern District of Texas. A trial date has not been set.

In the third quarter of 2007, the Company began investing in Internet-based e-commerce businesses by acquiring minority positions in several companies. It has since sold several of those interests, realizing gains in each case. The Company’s most significant investment took place in the second quarter of 2009, when it 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. CRBCI’s interest is managed by Knight’s Bridge Capital Management L.P., an affiliate of the Company’s majority shareholder and parent, Counsel Corporation (together with its subsidiaries, “Counsel”). The Company’s objective with respect to its investments is to realize long-term capital appreciation as the value of the underlying businesses is developed and recognized. The Company’s investments are discussed in more detail in Note 8 of the unaudited condensed consolidated financial statements included in Item 1 of this Report.

In February 2009 the Company established Counsel RB, which commenced operations in the second quarter of 2009, allowing the Company to diversify into a new operating segment. Counsel RB has become a leader in capital asset solutions, which involve finding, acquiring and monetizing distressed and surplus assets. In addition to acquiring turnkey manufacturing facilities and used industrial machinery and equipment, Counsel RB arranges traditional asset disposition sales, including liquidation and auction sales, and its objective is to be the leading resource for clients requiring capital asset solutions. Counsel RB’s operations constitute the Company’s Asset Liquidation operating segment and are discussed in more detail in Note 2 of the audited consolidated financial statements filed with the SEC. Counsel RB was originally owned 75% by the Company and 25% by Counsel RB’s Co-CEOs. In November 2010, the Company acquired the Co-CEOs’ 25% interest in exchange for approximately 3.2 million common shares of the Company.

On March 16, 2011 the Company completed a private placement of 1 million shares of common stock at an issue price of $1.83 per share, and incurred related share issue costs of approximately $27. The shares were purchased by an institutional investor.

On June 23, 2011 Counsel RB, through its wholly-owned subsidiary Equity Partners CRB LLC (“CRB”), acquired 100% of the business of EP USA, LLC (d/b/a Equity Partners) (“Equity Partners”), a boutique investment banking firm and leading provider of financial solutions for distressed businesses and properties. The purchase price consisted of $175 in cash, 122,950 CRBCI common shares valued at $1.50 per share, and options to purchase 230,000 CRBCI common shares with a Black-Scholes fair value of $1.9992 per option. Equity Partners was founded in 1988, and works with financially distressed companies and properties to arrange customized financial solutions in the form of debt/refinancing or equity investments, to create joint venture relationships, or to organize going concern sales of a business or property. Its services are intended to allow distressed businesses to remain intact in order to maintain their going concern values, which typically are significantly higher than their liquidation values. The acquisition is consistent with CRBCI’s strategy to expand and diversify the services provided by Counsel RB. The Company has worked with Equity Partners in the past, and the Company’s management foresees synergies and added value, since both businesses serve a variety of clients at different stages of the distressed business and surplus asset continuum. As part of the acquisition, CRBCI entered into employment and consulting agreements with the previous owners and employees of Equity Partners.

The Company’s segments are discussed in more detail in Note 13 of the unaudited condensed consolidated financial statements.

Industry and Competition

Asset Liquidation

Our asset liquidation business, Counsel RB, is involved primarily in 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. In acquiring assets for resale, 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.

Counsel RB’s business strategy includes the option of partnering with one or more additional purchasers, pursuant to a partnership, joint venture or limited liability company agreement (collectively, “Joint Ventures”). These Joint Ventures allow Counsel RB to have access to more opportunities, and to mitigate some of the competition from the market’s larger participants. Counsel RB’s objective is to be the leading resource for clients requiring capital asset solutions. To achieve this objective, it plans to strengthen its core competencies, create a full-service industrial auction division, develop an asset-based debtor in possession (“DIP”) facility and build out a valuation practice to provide equipment appraisals to companies and financial institutions. As part of this process, Counsel RB has recently hired several key employees with equipment and real estate expertise as well as experience in business development and client relations. Additionally, as noted above under “Overview, History and Recent Developments”, in June 2011 Counsel RB acquired 100% of the business of Equity Partners.

Patent Licensing

The communications services industry continues to evolve, both domestically and internationally, providing significant opportunities and risks to the participants in these markets. Technological advances, along with the growing deregulation of communications services markets in the United States and in other countries around the world, have resulted in a proliferation of new services and products and rapid increases in network capacity. There is also significant price competition.

Historically, the communications services industry transmitted voice and data over separate networks using different technologies, such as circuit switching. VoIP technology can replace the traditional telephone network, and is more efficient than a dedicated circuit network, because it is not restricted by the one-call, one-line limitation of a traditional telephone network. In addition, VoIP technology enables the provision of enhanced services such as unified messaging.

Our objective is 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 believe that there will be continued proliferation of this technology in the coming years and that this proliferation will occur within the context of our patents, there is no certainty that this will occur, and that it will occur in a manner that requires organizations to license our patents.

Government Regulation

Recent legislation in the United States, including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act of 2010, has increased public companies’ regulatory and compliance costs as well as the scope and cost of work provided by independent registered public accountants and legal advisors. The Company became subject to Sarbanes-Oxley Section 404 reporting as of December 31, 2007. As implementation guidelines continue to evolve, we expect to continue to incur costs, which may or may not be material, in order to comply with legislative requirements or rules, pronouncements and guidelines by regulatory bodies.

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 based on historical experience and various other factors that are considered to be reasonable under the circumstances. These 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 these estimates.

Significant estimates required for the preparation of the unaudited condensed consolidated financial statements included in this Report were those related to revenue recognition, amounts receivable valuation, allowance for doubtful accounts, inventory valuation, investment valuation, valuation of assets acquired, deferred income tax assets, valuation of goodwill, liabilities and stock-based compensation. These estimates are considered significant because of the significance of the financial statement items to which they relate, or because they require judgment and estimation due to the uncertainty involved in measuring, at a specific point in time, events that are continuous in nature.

Management’s Discussion of Financial Condition

Liquidity and Capital Resources

Liquidity

At September 30, 2011 the Company’s working capital was $11,180, as compared to working capital of $1,621 at December 31, 2010. The primary contributors to the increase were a $5,309 increase in cash and cash equivalents , a $1,867 decrease in accounts payable and a $2,123 decrease in debt payable to third parties. During the first nine months of 2011, the Company’s primary sources of cash, exclusive of borrowings under Counsel RB’s revolving credit facility, were Counsel RB’s gross profit of $8,230, and net $1,824 received as proceeds from the private placement of 1.0 million common shares. Cash disbursements, other than the $175 used to acquire Equity Partners, and those related to repayment of debt, were primarily related to operating expenses.

It should be noted that GAAP requires the Company to classify both real estate inventory and asset liquidation investments as non-current, although they are expected to be converted to cash within a year. If these assets were classified as current, the Company would report working capital of $13,414 at September 30, 2011 and working capital of $6,742 at December 31, 2010.

Counsel RB has a revolving credit facility in the amount of up to $10,000 in place to finance its purchases of assets for resale, as discussed in Note 9 of the unaudited condensed consolidated financial statements.

The Company is continuing to pursue licensing and royalty agreements with respect to its patents. Even if the Company does not enter into such agreements within the next twelve months, it expects to generate sufficient cash from Counsel RB’s operations to meet its ongoing operating cash requirements for at least that period of time.

The Company’s non-asset liquidation investments are in companies that are not publicly traded, and therefore these investments are illiquid. Although the Company’s investments were made with the objective of recognizing long-term capital gains, neither the amount nor the timing of such gains can be predicted with any certainty. To date the Company has realized capital gains on its investments in MyTrade.com, LIMOS.com and Buddy Media, Inc., and has not sold any investments at a loss.

Ownership Structure and Capital Resources

At September 30, 2011 the Company had stockholders’ equity of $16,696, as compared to $9,448 at December 31, 2010.

The Company is 76.2% owned by Counsel. At December 31, 2010 the Company was 79.5% owned by Counsel, the Co-CEOs of Counsel RB each owned 6.25% of the Company, and the remaining 8.0% was owned by public stockholders. On March 15, 2011 the Company issued one million common shares through a private placement, representing 3.7% of the then-outstanding common shares. On June 23, in connection with its acquisition of Equity Partners, the Company issued 122,950 common shares. Counsel’s ownership thereby decreased to 76.2%, that of the Co-CEOs to 5.98% each, and that of the remaining public stockholders to 7.65%. In the third quarter of 2011 the Company issued net 26,275 shares in connection with the exercise of stock options, which had a negligible impact on the above ownership percentages.

Cash Position and Cash Flows

Cash and cash equivalents at September 30, 2011 were $7,917 as compared to cash of $2,608 at December 31, 2010, an increase of $5,309.

Cash flows from operating activities Cash provided by operating activities during the nine months ended September 30, 2011 was $5,335, as compared to $4,664 cash provided during the same period in 2010. During the first nine months of 2011 the Company had income of $4,589 from continuing operations, as compared to income of $3,011 for the same period in 2010. In both periods, the operations of Counsel RB were the primary source of cash receipts and disbursements.

The most significant changes in operating activities during the first nine months of 2011 as compared to the first nine months of 2010 were in accounts receivable, asset liquidation investments, accounts payable and deferred income tax assets. Accounts receivable increased by $554 in 2011, as compared to decreasing by $807 in the same period of 2010. Asset liquidation investments decreased by $3,087 in 2011, as compared to increasing by $335 in 2010. Accounts payable decreased by $1,867 in 2011 as compared to decreasing by $363 in 2010. Deferred income tax assets increased by $260 in 2011, as compared to decreasing by $141 in 2010.

Cash flows from investing activities Cash used in investing activities during the nine months ended September 30, 2011 was $214, as compared to $13 cash used during the same period in 2010. In 2011, the most significant transaction was the payment of $175 as part of the cost to acquire Equity Partners. $42 was invested in Polaroid, and $3 of cash distributions were received from the Knight’s Bridge GP. In 2010, $305 was invested in Polaroid, $289 of cash distributions were received from Polaroid, and $3 of cash distributions were received from the Knight’s Bridge GP.

Cash flows from financing activities Cash provided by financing activities was $188 during the nine months ended September 30, 2011, as compared to $3,626 of cash used during the same period in 2010. In 2011, the Company received a total of $1,840 cash, net of share issuance costs, from a private placement of 1,000,000 common shares and the exercise of 30,000 options. During the same period, in connection with the operations of Counsel RB, the Company paid net $2,136 to its third party lender and received $484 net from its parent, Counsel. In 2010, the Company paid net $2,062 to its third party lenders, and paid net $1,564 to Counsel.

Contractual Obligations

The following table summarizes the amounts of payments due, including interest accrued to September 30, 2011 and estimated interest to maturity, under specified contractual obligations outstanding at September 30, 2011. Aside from the estimated taxes payable, as reported in the unaudited condensed consolidated statements, we have no liabilities associated with income taxes that require disclosure.

	Payment due by period
Contractual obligations:	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Revolving credit facility	$	2,437	$	2,437	$	—	$	—	$	—
Debt payable to a related party		92		92		—		—		—
Operating leases		644		162		299		183		—
Total	$	3,173	$	2,691	$	299	$	183	$	—

Management’s Discussion of Results of Operations

Asset liquidation 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 also earns income from its asset liquidation business through its earnings from equity accounted asset liquidation investments. The Company began operating in the asset liquidation segment in the second quarter of 2009 when Counsel RB, which was established in the first quarter of 2009, commenced operations. As reported above, the Company acquired the business of Equity Partners on June 23, 2011. $155 revenue and $253 net loss relating to Equity Partners operations was recorded during the period ending September 30, 2011.

Three-Month Period Ended September 30, 2011 Compared to Three-Month Period Ended September 30, 2010

Asset liquidation revenues were $2,149 in 2011 compared to $340 in 2010, asset liquidation expense was $900 in 2011 compared to $243 in 2010, inventory maintenance expense was a credit of $6 in 2011 compared to a credit of $16 in 2010, and earnings of equity accounted asset liquidation investments were $478 in 2011 compared to $1,370 in 2010. The net earnings of these four items were $1,733 in 2011 compared to $1,483 in 2010. Because Counsel RB conducts its asset liquidation operations both independently and through partnerships, and the ratio of the two is unlikely to remain constant from period to period, the operations must be considered as a whole rather than on a line-by-line basis. As Counsel RB has become more established, its operations have expanded.

Patent licensing and maintenance expense was $5 during the quarter ended September 30, 2011, compared to $12 during the same period in 2010.

Selling, general and administrative expense, including expenses paid to related parties, was $1,212 during the three months ended September 30, 2011, compared to $661 during the same period in 2010. The significant items included:

Compensation expense was $699 in the third quarter of 2011, compared to $358 in the third quarter of 2010. The primary expense in both years was salary and benefits related to Counsel RB, which were $555 in 2011 and $315 in 2010. The increase is due to the growth of Counsel RB’s operations over the past year. With respect to CRBCI’s operations, the salary earned by the President remained unchanged at $34. Stock based compensation was $110 in the third quarter of 2011 and $8 during the third quarter of 2010. This expense increased due to option grants during 2011. In the first and second quarters of 2011, 2,150,000 options were issued to officers and employees of the Company, and to two officers of Counsel. In the third quarter of 2011, 100,000 options were issued to an employee. There were no similar stock option grants during 2010.

Legal expense was $24 in the third quarter of 2011 as compared to $9 in the third quarter of 2010.

Accounting and tax consulting expenses were $44 in the third quarter of 2011 as compared to $48 in the third quarter of 2010.

Directors’ fees were $34 in the third quarter of 2011 and $36 in the third quarter of 2010.

Consulting expense was $92 in the third quarter of 2011 as compared to $12 in the third quarter of 2010, and related solely to the operations of Counsel RB. The increase of $80 is due to the growth of Counsel RB’s operations.

Management fees and salary allocations charged by our controlling stockholder, Counsel, were $107 in the third quarter of 2011 and $90 in the third quarter of 2010. The increase is due to an increase in allocated salaries in connection with the growth of Counsel RB’s operations.

Uncompleted asset liquidation deal expenses were $10 in the third quarter of 2011 as compared to $0 in the third quarter of 2010. The increase is due to the growth of Counsel RB’s operations and the greater number of potential transactions.

Insurance expense, including directors and officers liability insurance, was $26 in the third quarter of both 2011 and 2010.

Office rent was $46 in the third quarter of 2011 as compared to $26 in the third quarter of 2010, and related solely to the operations of Counsel RB. The increase of $20 is due to the growth of Counsel RB’s operations.

Franchise tax was $6 in the third quarter of 2011 as compared to $5 in the third quarter of 2010.

Travel and entertainment expense was $66 in the third quarter of 2011, as compared to $11 in the third quarter of 2010. The majority of the travel related to Counsel RB’s operations, and the increase of $55 is due to the growth of those operations.

Other income (expense) and earnings of other equity accounted investments – the significant items included:

Other income was $8 in the third quarter of 2011, as compared to other income of $153 in the third quarter of 2010. In 2011 it consisted of interest income. In 2010 it consisted of a $153 settlement of legacy litigation involving a joint venture in which Counsel RB had invested.

Third party interest expense was $45 in the third quarter of 2011, as compared to $48 in the third quarter of 2010. All of the expense related to the third party debt owed by Counsel RB.

In the third quarter of 2011, the Company recorded a loss of $35 from its other equity accounted investments, as compared to a loss of $93 in the third quarter of 2010. In 2011 the amount consisted of a $36 loss from Polaroid and $1 income from Knight’s Bridge GP. In 2010 the amount consisted of a $94 loss from Polaroid and $1 of income from Knight’s Bridge GP.

Nine-Month Period Ended September 30, 2011 Compared to Nine-Month Period Ended September 30, 2010

Asset liquidation revenues were $14,618 in 2011 compared to $3,061 in 2010, asset liquidation expense was $7,036 in 2011 compared to $2,079 in 2010, inventory maintenance expense was $1,547 in 2011 compared to a credit of $32 in 2010, and earnings of equity accounted asset liquidation investments were $2,195 in 2011 compared to $4,408 in 2010. The net earnings of these four items were $8,230 in 2011 compared to $5,422 in 2010. Because Counsel RB conducts its asset liquidation operations both independently and through partnerships, and the ratio of the two is unlikely to remain constant from period to period, the operations must be considered as a whole rather than on a line-by-line basis. The earnings in 2011 increased compared to those in 2010 primarily due to one large transaction that generated a gross profit of $3,528. Additionally, as Counsel RB has become more established, its operations have expanded.

Patent licensing and maintenance expense was $75 during the nine months ended September 30, 2011, compared to $19 during the same period in 2010. The increase is primarily due to 2011 costs associated with the re-examination of U.S. Patent No. 6,243,373.

Selling, general and administrative expense, including expenses paid to related parties, was $3,458 during the nine months ended September 30, 2011, compared to $1,897 during the same period in 2010. The significant items included:

Compensation expense was $2,103 in the first nine months of 2011, compared to $1,051 in the first nine months of 2010. The primary expense in both years was salary and benefits related to Counsel RB, which were $1,824 in 2011 and $905 in 2010. The increase is due to the growth of Counsel RB’s operations over the past year. With respect to CRBCI’s operations, the salary earned by the President remained unchanged at $103. Stock based compensation was $176 in the first nine months of 2011 as compared to $43 during the first nine months of 2010. In the first and second quarters of 2011, 2,150,000 options were issued to officers and employees of the Company, and to two officers of Counsel. In the third quarter of 2011, 100,000 options were issued to an employee. There were no similar stock option grants during the first nine months of 2010.

Legal expense was a credit of $158 in the first nine months of 2011, due to negotiated reductions in fees that were billed during 2010. Legal expense was $28 in the first nine months of 2010.

Accounting and tax consulting expenses were $135 in the first nine months of 2011 as compared to $117 in the first nine months of 2010.

Directors’ fees were $101 in the first nine months of 2011 and $100 in the first nine months of 2010.

Consulting expense was $281 in the first nine months of 2011 as compared to $31 in the first nine months of 2010, and related solely to the operations of Counsel RB. The increase of $250 is due to the growth of Counsel RB’s operations.

Management fees and salary allocations charged by our controlling stockholder, Counsel, were $322 in the first nine months of 2011 and $270 in the first nine months of 2010. The increase is due to an increase in allocated salaries in connection with the growth of Counsel RB’s operations.

Uncompleted asset liquidation deal expenses were $55 in the first nine months of 2011 as compared to $5 in the first nine months of 2010. The increase is due to the growth of Counsel RB’s operations and the greater number of potential transactions.

Insurance expense, including directors and officers liability insurance, was $72 in the first nine months of 2011 as compared to $68 in the first nine months of 2010.

Office rent was $136 in the first nine months of 2011 as compared to $70 in the first nine months of 2010, and related solely to the operations of Counsel RB. The increase of $66 is due to the growth of Counsel RB’s operations.

Franchise tax was $36 in the first nine months of 2011 as compared to $28 in the first nine months of 2010.

Travel and entertainment expense was $175 in the first nine months of 2011, as compared to $40 in the first nine months of 2010. The majority of the travel related to Counsel RB’s operations, and the increase of $135 is due to the growth of those operations.

In the second quarter of 2011, the Company recorded a provision of $39 on accounts and notes receivable related to Counsel RB’s operations. There were no similar transactions during 2010.

Other income (expense) and earnings of other equity accounted investments – the significant items included:

Other income was $24 in the first nine months of 2011, as compared to other income of $28 in the first nine months of 2010. In 2011, $12 was the refund of a retainer, and the remainder was interest income. In 2010 the amount primarily consisted of income from a $153 settlement of legacy litigation involving a joint venture in which Counsel RB had invested, largely offset by a $123 writedown of Counsel RB’s real estate inventory.

Third party interest expense was $181 in the first nine months of 2011, as compared to $246 in the first nine months of 2010. All of the expense related to the third party debt owed by Counsel RB.

Related party interest expense was $0 in the first nine months of 2011, as compared to $64 in the first nine months of 2010. All of the 2010 expense related to the Company’s loan from its parent, Counsel, which was repaid in full during the third quarter of 2010.

In the first nine months of 2011, the Company recorded income of $13 from its other equity accounted investments, as compared to income of $58 in the first nine months of 2010. In 2011 the income consisted of $10 from Polaroid and $3 from Knight’s Bridge GP. In 2010 the income consisted of $54 from Polaroid and $4 from Knight’s Bridge GP.

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

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Our exposure to market risk is limited to interest rate sensitivity, which is affected by changes in the general level of 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 lender’s prime rate + 1.0%, or a minimum of 4.5%. Assuming that the debt amount on the revolving credit facility at September 30, 2011 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 $24 for that twelve-month period. We do not believe that, in the near term, we are subject to material market risk on our debt.

We did not have any foreign currency hedges as of September 30, 2011. We do not enter into financial instruments for trading or speculative purposes and do not currently utilize derivative financial instruments. Our operations are conducted primarily in the United States and as such are not subject to material foreign currency exchange rate risk.

Item 4. Controls and Procedures.

As of the end of the period covered by this Quarterly Report, our Chief Executive Officer and Chief Financial Officer (the “Certifying Officers”) conducted evaluations of our disclosure controls and procedures. As defined 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 2011 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

There have been no material changes to the legal proceedings discussed in our Annual Report on Form 10-K for the year ended December 31, 2010, as filed with the SEC on March 31, 2011.

Item 1A. Risk Factors

There have been no material changes to the Risk Factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2010, as filed with the SEC on March 31, 2011.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Removed and Reserved.

Item 5. Other Information.

None.

Item 6. Exhibits.

(a) Exhibits

Exhibit No.	Identification of Exhibit

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

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** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

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.

	Counsel RB Capital Inc.

Date: November 14, 2011	By:	/s/ Allan C. Silber
		Allan C. Silber Chairman of the Board and President (Principal Executive Officer)

Date: November 14, 2011	By:	/s/ Stephen A. Weintraub
		Stephen A. Weintraub Chief Financial Officer and Corporate Secretary (Principal Financial Officer)