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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 20-F




|  |  | REGISTRATION STATEMENT PURSUANT TO SECTION 12 (b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
|- |  | -----------------------------------------------------------------------------------------------
| 
|X |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE
ACT OF 1934          
| 
|  |  | For the fiscal year ended December 31, 2002                                                    
| 
|  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934      
| 
|  |  | For the transition period from                      to                                         

COMMISSION FILE NUMBER: 0-25626

COUNSEL CORPORATION


(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


PROVINCE OF ONTARIO, CANADA
(JURISDICTION OF INCORPORATION OR ORGANIZATION)

EXCHANGE TOWER, SUITE 1300
130 KING STREET WEST, TORONTO, ONTARIO M5X 1E3
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)



| |  | Securities registered or to be registered pursuant to Section 12 (b) of the
Act:                    
| |  | ----------------------------------------------------------------------------------------------------
|
| |  | None                                                                                                
|
| |  | Securities registered or to be registered or to be registered pursuant to
Section 12 (g) of the Act:

Common Shares without par value
(Title of Class)



| |  | Securities for which there is a reporting obligation pursuant to section 15 (d)
of the Act: None                                                                                                                                                                                                                                                        
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The number of outstanding shares of each of the issuers classes of capital or
common stock as of April 30, 2003 was 21,137,272 Common Shares.                                                                                                                                                                                                          
|
| |  | 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 Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.



| |  |  | Yes       X      No
| |  |  | -------------------



| |  | Indicate by check mark which financial statement item the registrant has
elected to follow.
| |  | -------------------------------------------------------------------------------------------



| |  |  | Item 17      Item 18       X
| |  |  | ----------------------------

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TABLE OF CONTENTS



|                                          |                                                                                                    |  |  |  |  |  |  | 
|----------------------------------------- | -------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                   
|                                          | ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                                     
|                                          | ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE                                                   
|                                          | ITEM 3: KEY INFORMATION                                                                           
|                                          | ITEM 4: INFORMATION ON THE COMPANY                                                                
|                                          | ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                              
|                                          | ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                                
|                                          | ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                                         
|                                          | ITEM 8: FINANCIAL INFORMATION                                                                     
|                                          | ITEM 9: THE OFFER AND LISTING                                                                     
|                                          | ITEM 10: ADDITIONAL INFORMATION                                                                   
|                                          | ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                               
|                                          | ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES:                                  
|PART II                                  
|                                          | ITEM 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                                          
|                                          | ITEM 14: MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS             
|                                          | ITEM 15: CONTROLS AND PROCEDURES                                                                  
|                                          | ITEM 16A: AUDIT COMMITTEE FINANCIAL EXPERT                                                        
|                                          | ITEM 16B: CODE OF ETHICS                                                                          
|                                          | ITEM 16C: PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                  
|PART III                                 
|                                          | ITEM 17: FINANCIAL STATEMENTS                                                                     
|                                          | ITEM 18: FINANCIAL STATEMENTS                                                                     
|                                          | ITEM 19: EXHIBITS                                                                                 
|                                          | Officers Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
|EX-99.1 SARBANES CERTIFICATION OF THE CEO
|EX-99.2 SARBANES CERTIFICATION OF THE CFO



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TABLE OF CONTENTS

|                                                                                      |  |      |    | 
|------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                      |  | Page
|                                                                                      |  |      |    | 
|PART I                                                                                |  |      | 2  | 
|                                                                                      |  |      |    | 
|Item 1: Identity of Directors, Senior Management and Advisers                         |  |      | 3  | 
|Item 2: Offer Statistics and Expected Timetable                                       |  |      | 3  | 
|Item 3: Key Information                                                               |  |      | 3  | 
|Item 4: Information on the Company                                                    |  |      | 6  | 
|Item 5: Operating and Financial Review and Prospects                                  |  |      | 16 | 
|Item 6: Directors, Senior Management and Employees                                    |  |      | 31 | 
|Item 7: Major Shareholders and Related Party Transactions                             |  |      | 37 | 
|Item 8: Financial Information                                                         |  |      | 39 | 
|Item 9: The Offer and Listing                                                         |  |      | 40 | 
|Item 10: Additional Information                                                       |  |      | 41 | 
|Item 11: Quantitative and Qualitative Disclosures About Market Risk                   |  |      | 48 | 
|Item 12: Description of Securities Other than Equity Securities                       |  |      | 49 | 
|                                                                                      |  |      |    | 
|PART II                                                                               |  |      | 49 | 
|                                                                                      |  |      |    | 
|Item 13: Defaults, Dividend Arrearages and Delinquencies                              |  |      | 49 | 
|Item 14: Material Modifications to the Rights of
Security Holders and Use of Proceeds |  |      | 49 | 
|Item 15: Controls and Procedures                                                      |  |      | 49 | 
|Item 16A: Audit Committee Financial Expert                                            |  |      | 50 | 
|Item 16B: Code of Ethics                                                              |  |      | 50 | 
|Item 16C: Principal Accountant Fees and Services                                      |  |      | 50 | 
|                                                                                      |  |      |    | 
|PART III                                                                              |  |      | 50 | 
|                                                                                      |  |      |    | 
|Item 17: Financial
Statements                                                         |  |      | 50 | 
|Item 18: Financial Statements                                                         |  |      | 50 | 
|Item 19: Exhibits                                                                     |  |      | 50 | 




PART I

Unless the context otherwise requires, references herein to the Company, the
Corporation or to Counsel are to Counsel Corporation and its consolidated
subsidiaries.

All amounts are indicated in thousands of US dollars, except for per share
information unless otherwise indicated.

NOTE REGARDING FORWARD LOOKING STATEMENTS

This document contains forward-looking statements that involve risk and
uncertainties. These statements can be identified by the use of forward-looking
terminology such as may, will, expect, anticipate, estimate,
plans, continue, or the negative thereof or other variations thereon or
comparable terminology referring to future events or results. The Companys
actual results could differ materially from those anticipated in these
forward-looking statements as a result of numerous factors. These factors
include, without limitation, the timing of acquisitions and expansion
opportunities, technological change and changes to the business environment
that may impact the Companys capital expenditures and competitive factors that
may impact revenue and operating costs and alter the timing and amount of the
Companys capital expenditures. Any of these factors could cause actual results
to vary materially from current results or the Companys currently anticipated
future results and financial position. The Company wishes to caution readers
not to place undue reliance on such forward-looking statements that speak only
as of the date this annual report was first filed with the Securities and
Exchange Commission. Additional information concerning factors that may cause
actual results to materially differ from those in such forward-looking
statements is contained in Item 3. Key Information  Risk Factors.

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ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.




ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.




ITEM 3: KEY INFORMATION

A.     SELECTED FINANCIAL DATA

The following table presents selected financial data for the Company for
the years ended, or as at, December 31 indicated below. The Companys reporting
currency is the US dollar. This data is derived from the consolidated financial
statements of the Company included in this annual report under Item 18, which
are prepared in accordance with accounting principles generally accepted in
Canada (Canadian GAAP) and are reconciled to accounting principles generally
accepted in the United States (U.S. GAAP) in note 22 of the Companys
consolidated financial statements. The selected financial data should be read
in conjunction with the Companys consolidated financial statements and notes
thereto and the Companys Operating and Financial Review and Prospects set
forth under Item 5.

The following selected historical financial Canadian GAAP data is
presented for the four most recent financial years rather than the five most
recent financial years because the financial data for continuing and
discontinued operations for the earliest year cannot be provided on a restated
basis without unreasonable effort or expense.

|                                             |                              |                     |         |       |       |      |         |       |       |      |         |       |       |   |         |       |      | 
|-------------------------------------------- | ---------------------------- | ------------------- | ------- | ----- | ----- | ---- | ------- | ----- | ----- | ---- | ------- | ----- | ----- | - | ------- | ----- | ---- | 
|                                             |                              |                     |         | 2002  |       | 2001 |         | 2000  |       | 1999
|                                             |                              |                     |         |       |       |      |         |       |       |     
|                                             |                              |                     |         | $     |       |      |         | $     |       |      |         | $     |       |   |         | $    
|Operating revenues                           |                              |                     | 96,590  |       |       |      | 54,030  |       |       |      |        |       |       |   |        |      
|Loss from continuing operations              |                              |                     | (6,478  | )     |       |      | (38,324 | )     |       |      | (7,791  | )     |       |   | (88,253 | )    
|(Loss) earnings from discontinued operations |                              |                     | (18,949 | )     |       |      | (23,889 | )     |       |      | (37,642 | )     |       |   | 136,451 |      
|Net (loss) earnings                          |                              |                     | (25,427 | )     |       |      | (62,213 | )     |       |      | (45,433 | )     |       |   | 48,198  |      
|(Loss) earnings per common share-basic       |                              |                     |         |       |       |      |         |       |       |      |         |       |       |   |         |      
|                                             | From continuing operations   |                     |         | (0.43 | )     |      |         | (1.80 | )     |      |         | (0.43 | )     |   |         | (3.47 | )   
|                                             | From discontinued operations |                     |         | (0.85 | )     |      |         | (1.04 | )     |      |         | (1.52 | )     |   |         | 5.21  |     
|                                             |                              | Net earnings (loss) |         |       | (1.28 | )    |         |       | (2.84 | )    |         |       | (1.95 | ) |         |       | 1.74 | 
|(Loss) earnings per common share-diluted     |                              |                     |         |       |       |      |         |       |       |      |         |       |       |   |         |      
|                                             | From continuing operations   |                     |         | (0.43 | )     |      |         | (1.80 | )     |      |         | (0.43 | )     |   |         | (3.47 | )   
|                                             | From discontinued operations |                     |         | (0.85 | )     |      |         | (1.04 | )     |      |         | (1.52 | )     |   |         | 5.21  |     
|                                             |                              | Net earnings (loss) |         |       | (1.28 | )    |         |       | (2.84 | )    |         |       | (1.95 | ) |         |       | 1.74 | 
|Total assets                                 |                              |                     | 139,540 |       |       |      | 142,322 |       |       |      | 228,863 |       |       |   | 278,890 |      
|Net assets                                   |                              |                     | 8,388   |       |       |      | 35,494  |       |       |      | 104,503 |       |       |   | 156,725 |      
|Capital stock                                |                              |                     | 99,434  |       |       |      | 102,852 |       |       |      | 109,452 |       |       |   | 116,251 |      
|Number of shares (in thousands)              |                              |                     | 21,745  |       |       |      | 22,493  |       |       |      | 23,937  |       |       |   | 25,533  |      
|Dividends declared per share                 |                              |                     |        |       |       |      |        |       |       |      | 0.07    |       |       |   | 1.01    |      

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B. CAPITALIZATION AND INDEBTEDNESS:

Not applicable.

C. REASONS FOR THE OFFER AND USE OF PROCEEDS:

Not applicable.

D. RISK FACTORS

The following important factors, among others, could cause our actual
results to differ materially from those anticipated in forward-looking
statements made in this annual report or presented elsewhere by management from
time to time. To full appreciate the risks factors the reader is encouraged to
read this document in full.

Credit risk

The Companys financial assets that are exposed to credit risk consist
primarily of cash and cash equivalents, accounts receivable, and loans
receivable. Cash and cash equivalents are on deposit at major financial
institutions. The Companys retail communications subscribers are primarily
residential subscribers and are not concentrated in any specific geographic
region of the United States. The Companys wholesale communications customers
are primarily based in Utah, U.S.A. with no single customer accounting for
greater than 10% of 2002 revenue. An allowance for doubtful accounts is
established based upon the overall credit worthiness of specific customers.

Interest rate risk

Interest rate risk arises due to the exposure to the effects of future
changes in the prevailing level of interest rates. The Company is exposed to
interest rate risk arising from fluctuations in interest rates primarily on its
revolving credit facility, and on its mortgages depending on prevailing rates
at renewal.

Market value risk

The Companys business model for the real estate segment involves the
leveraging of acquired assets with third party debt, normally in the form of
mortgages. The debt level attributed to a particular property is normally
determined as a percentage of market value for the asset at the time the asset
is leveraged up. Should market values decline for a particular property, the
ability of the Company to replace the debt at renewal at previous levels and on
favourable terms could be in doubt.

Foreign exchange risk

Foreign exchange risk arises to the extent of net assets invested in
Canadian dollars and operations derived from those Canadian dollar investments.
The Company does not attempt to hedge its net asset investment in Canadian
Dollars. The consolidated financial statements are expressed in U.S. dollars as
it is the currency of the primary economic environment in which the Company
conducts its operations.

Acquisitions and integration

Counsel pursues a strategy of acquiring businesses in order to achieve
growth, scale and ultimately, profitability. If Counsel is unable to find
suitable acquisitions or the funding to complete them, the Company may not
realize on its strategic goals. Likewise, the speed and effectiveness with
which the Company is able to integrate acquired companies into existing
businesses and realize anticipated synergies could have a significant
short-term impact on profitability.

In recent years, Counsel has focused on acquiring telecommunications
companies from bankruptcy proceedings. The displacement of the overall
communications industry, coupled with the acquisition of businesses that has
sought protection under bankruptcy laws adds additional elements of risk over
that of the acquisition of an existing profitable business.

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Disposition of investments

An integral part of Counsels strategy is the ability to sell acquired
businesses once a targeted level of growth has been achieved. There can be no
guarantee that Counsel will be able to find a buyer once a decision to sell has
been made. Changes in capital markets, economic environments and other factors
could delay a sale or substantially reduce the planned selling price, thereby
reducing profitability and planned sources of future funding.

In addition, Counsel has certain self-sustaining operations, the disposal
of which could result in deferred exchange gains or losses being included in
income. The deferred gain or loss could materially alter the accounting gain
or loss that might otherwise have been recorded.

Volatile telecommunications market

During the last several years, the telecommunications industry has been
very volatile as a result of over capacity, which has lead to price erosion and
bankruptcies. If the Company cannot control subscriber and customer attrition
through maintaining competitive services and pricing, revenue could decrease
significantly. Likewise, by maintaining competitive pricing policies, the
revenue per minute earned by the Company may decrease significantly. Both
scenarios could result in the Company not meeting profitability targets.

Telecommunications billing

Acceris Communications Partners business includes the operations from
long distance and other voice services to small businesses and the
consumer/residential market (A&R business). This business relies on an
enterprise billing solution to bill customers. If that technology fails to
operate as expected, there is a risk that revenue could be lost or customers
could be billed incorrectly.

Telecommunications trends

Acceris Communications Solutions provides customized, integrated wireline
communications solutions for voice and data. Acceris Communications Partners
also provides a number of wireline products and services. Recent studies have
shown that wireless communications are increasing in acceptance and are eroding
wireline revenue. If this trend continues, communications revenue could be
materially impacted.

Technology changes

Acceris Communications Technologies licenses a fully developed technology
platform to third party users that facilitates the convergence of traditional
telecommunications equipment and internet protocol technologies. New
technologies may emerge that would make the Companys product offering
obsolete. This could impact the results of Counsel due to impairments to
intangible assets if it does not achieve budgeted sales.

Government regulation

The telecommunications industry is subject to government regulation at
federal, state and local levels. Any change in current government regulation
regarding telecommunications pricing, system access, consumer protection, or
other relevant legislation could have a material impact on the results of
operations. See the Business overview portion of this annual report for a more
detail discussion on government regulations in the telecommunications industry.

Recent legislation in the U.S. (the Sarbanes-Oxley Act of 2002) is
increasing the scope and cost of work provided to Counsel by its auditors and
legal advisors. Many guidelines have not yet been finalized and there is a
risk that Counsel will incur significant costs in the future to comply with
legislative requirements, thereby reducing profitability.

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Key employees

The Company has certain employees that it considers to be key. Many of
these employees are involved in executing the strategy for the planned results
discussed above. If these key employees cease to be employed with Counsel,
planned results could be delayed or might not materialize. The Company
mitigates this risk through the use of employment contracts, the formalization
of the Companys strategy and business plans and by ensuring the existence of
timely knowledge exchange and collaboration.

Litigation and insurance

The Company, from time to time, is involved in various claims, legal
proceedings and complaints arising in the ordinary course of business. The
Company is not aware of any pending or threatened proceedings that would have a
material adverse effect on the consolidated financial condition or future
results of the Company.

Counsel maintains insurance coverage that includes liability coverage to
protect the Company from claims made against it. Recent events have made
liability insurance more expensive while at the same time have reduced the
scope of coverage. The Companys ability to maintain adequate insurance
coverage at a reasonable cost may be impacted by market conditions beyond the
control of the Company.




ITEM 4: INFORMATION ON THE COMPANY

A. HISTORY AND DEVELOPMENT OF THE COMPANY

421367 Ontario Limited, the predecessor to Counsel Corporation, was
incorporated under the laws of the province of Ontario by Articles of
Incorporation dated August 2, 1979. It changed its name to Counsel Financial
Services Limited by Articles of Amendment, effective October 26, 1979 and
changed its name to Counsel Trustco Corporation by Articles of Amendment
effective July 15, 1982. The corporation amalgamated with its wholly owned
subsidiary, 475848 Ontario Limited (formerly Counsel Management Limited), by
Articles of Amalgamation effective December 31, 1984. By Articles of
Amendment, effective May 22, 1986, the Corporation changed its name to Counsel
Corporation. By Articles of Amendment, effective May 5, 1987, the Corporation
subdivided each of its issued and unissued common shares on a 3 for 2 basis.
The corporation amalgamated with its wholly owned subsidiary, Counsel
Healthcare Assets Inc., by Articles of Amalgamation effective December 31, 1998
and retained the name Counsel Corporation. By Articles of Amendment effective
June 9, 1999, the Corporation simplified its capital structure by replacing its
authorized classes and series of preferred with one class of preferred shares,
none of which are currently outstanding, and changing the authorized number of
its common shares to an unlimited number.

The registered and principal office of the Corporation is located at
Exchange Tower, Suite 1300, P.O. Box 435, 130 King Street West, Toronto,
Ontario, M5X 1E3, and its telephone number is (416) 866-3000.

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The following chart indicates the principal subsidiaries of the
Corporation, their jurisdiction of incorporation and the percentage of voting
securities thereof which are owned directly or indirectly by the Corporation as
at December 31, 2002:

(FLOWCHART)

*     On January 2, 2003, the Corporation acquired the minority interest of Counsel
Communications LLC (Counsel Communications), which owns all of the
Corporations shares of I-Link Incorporated (Acceris/I-link). Acceris/I-Link
(OTCBB: ILNK) is a San Diego based public company, which holds all of Counsels
communications holdings. As a result, the Corporations ownership in Counsel
Communications and its effective ownership in Acceris/I-link increased to 100%
and 68.1%, respectively. Additionally, at Acceris/I-links next shareholders
meeting, amongst other things, the Company intends on asking the Acceris/I-link
shareholders to approve a proposal to change its name to Acceris Communications
Inc. (Acceris/I-Link). Counsel has negotiated a debt restructuring agreement,
that will see approximately $30 million of its senior debt investment in
Acceris/I-link be converted into common shares of Acceris/I-link, this will
have the affect of increasing Counsels ownership in Acceris/I-link to
approximately 86%. This transaction is expected to occur once certain
amendments are made to the Acceris/I-link articles of incorporation, which is
expected to be approved at its next shareholders meeting.

The Corporation is a diversified company engaged primarily in the
ownership and development of companies that provide services and products in
the United States and Canada. In 2002, the Corporation focused on acquiring and
building businesses in two specific sectors: communications in the United
States and real estate in Canada. In 2002, the Corporation adopted a formal
plan of disposal for its long-term care business. In 2000 and 2001, the
Corporation was also engaged in the medical products and technology services
sectors.

In June 1998, the Corporation acquired a 61% interest in Sage BioPharma,
Inc. (Sage), which is engaged in providing hormonal therapy products in the
United States. In November 1998, the Corporation completed the acquisition of
an 82.5% interest in FARO Pharmaceuticals, Inc. (FARO), which was focused on
the market for below threshold drugs  specific drugs with less than
approximately $50,000 in annual sales that larger drug companies do not have
the inclination to promote. Sage was merged into a wholly-owned subsidiary of
FARO on December 31, 1999. The merged company was continued as FARO with
Counsel owning 78.3% of the combined company. In the second quarter of 2000
Counsel adopted a formal plan to disposal for FAROs pharmaceutical products
business and this was accomplished on April 30, 2001 with the sale of the
assets related to this business. In November 2001, the Corporation acquired
the FARO shares held by FAROs minority shareholders, which resulted in its
interest in Sage increasing to 90.4%. During the third quarter of 2002, the
Corporation adopted a formal plan of disposal for its medical products business
segment and, effective October 4, 2002, disposed of its interest in Sage.

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In October 1999, Counsel entered the technology sector through the
acquisition of a 25.2% interest in Impower, Inc. (Impower), which was
increased to 33.6% during 2000. Impower, a private company, provides
transaction-based Internet direct marketing and electronic database management
products and services. In 2000 Counsel continued to expand in the technology
sector with the acquisition of: a 28.5% interest in Proscape Technologies, Inc.
(Proscape), which was increased to 36% during that year; a 26% interest in
IBT Technologies, Inc. (IBT) which was increased to 27.7% during that year; a
32.5% interest in Core Communications Corporation (Core), which was diluted
to 12.9% during that year, and has subsequently been diluted to approximately
5%. Proscape, a private company, develops, markets and supports marketing and
sales information software systems for middle market and Fortune 1000
companies. IBT, a private company, was an application service provider that
developed, deployed and supported media-rich e-learning products and services
delivered over the Internet for business training and post-secondary
educational applications. Core, a private company, provides managed network
services for high-speed data communications in hotel and convention meeting
spaces. In February 2001, the Corporation increased its ownership of Proscape
from 36.0% to 56.5% for $2,900. In the fourth quarter of 2001 the Corporation
decided to cease further funding of Proscape and, consequently, Proscape has
made alternative arrangements for funding which has reduced the Companys
interest to below 20% (currently approximately 9%). In August 2001, Impower
made a voluntary filing under Chapter 11 of the U.S. bankruptcy legislation to
seek protection from its creditors. Impower was reorganized and emerged from
Chapter 11 in 2002, resulting in the Corporation receiving a 17.5% fully
diluted interest in Impower as well as $550 of preferred stock. The Corporation
increased its interest in IBT from 27.7% to 49.5% as a result of investments of
$1,800 and $700 in May and September 2001, respectively. In December 2001, IBT
made a voluntary filing under Chapter 7 of the U.S. bankruptcy legislation and
the Corporation has written off its entire equity investment in IBT. In 2002,
the Corporation decided to cease further investment in the technology sector
and no longer has any significant influence with respect to Core, Proscape and
Impower. Consequently, its interests in these companies are classified as
portfolio investments on its consolidated balance sheet.

In the long-term care sector, the Corporation leases and operates seven
nursing homes in Canada and owns three nursing homes in the United States and
five retirement centres in Canada. Prior to September 2001, the Corporation
owned six nursing homes in the United States. In September 2001, the
Corporations three nursing homes in Florida were sold for gross proceeds of
$7,000, resulting in a pre-tax gain of $3,400. During the fourth quarter of
2002, the Corporation adopted a formal plan of disposal for its long-term care
facilities. There facilities are now classified as discontinued operations, the
Corporation expects to record a gain on the sale of these facilities.

In February 2000, Counsel formed Counsel Communications to focus on
acquiring, consolidating and operating Internet telephony and other
telecommunications-related businesses. In February 2001, Counsel Communications
acquired Nexbell Communications Inc. (Nexbell), a packet telephony
infrastructure provider that deployed a network of points of presence to
deliver Internet protocol (IP) voice and fax services. On March 1, 2001,
Counsel Communications acquired a 65% interest in I-Link Incorporated
(I-Link/Acceris), a publicly traded provider of enhanced IP voice and data
communications services. On April 17, 2001, this interest was increased to
approximately 70% when Acceris/I-Link acquired Nexbell in a stock for stock
transaction. In December 2001, Nexbell was sold to an unrelated party.

In June 2001 Acceris/I-Link entered the dial-around long distance business
through WorldxChange Corp. (WorldxChange), a wholly owned subsidiary.
WorldxChange purchased certain assets and assumed certain liabilities of
WorldxChange Communications, Inc. from a bankruptcy proceeding. WorldxChange
is a facilities-based telecommunications carrier that provides international
and domestic long-distance service to retail customers. Telecommunication
services provided by WorldxChange initially consisted primarily of a
dial-around product that allows a customer to make a call from any phone by
dialing a 10-10-XXX prefix. Historically, WorldxChange marketed its services
through consumer mass marketing techniques, including direct mail and direct
response television and radio. In 2002, WorldxChange amended its channel
strategy, de-emphasized the direct mail channel and devoted its efforts to
pursue more profitable methods of attracting and retaining customers.
Currently WorldxChange utilizes commercial agents as well as a network of
independent commission agents recruited through its multi-level marketing
programs, as its primary sales channels.

Effective November 1, 2001, Counsel Communications acquired Springwell
Capital Partners, LLC (Springwell), a merchant banking firm specializing in
the communications industry, which reduced the Companys interest in Counsel
Communications to 88.3%. At the same time, Counsel Communications was renamed
Counsel Springwell Communications, LLC. In the fourth quarter of 2002 the
Corporation ended its affiliation with Springwell and, effective January 2,
2003, acquired the minority interest in Counsel Springwell, which was renamed
Counsel Communications LLC.

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On December 6, 2002, Acceris/I-Link entered into an agreement to sell
substantially all of the assets and customer base of I-Link Communications Inc.
(ILC), a wholly owned subsidiary, to Buyers United Inc. (BUI). The sale
includes the physical assets required to operate Acceris/I-Links nationwide
network using patented voice over IP (VoIP) technology (constituting the core
business of ILC) and a non-exclusive license in perpetuity to use
Acceris/I-Links proprietary software platform. The sale closed in the second
quarter of 2003.

On December 10, 2002, WorldxChange completed the purchase of the
Enterprise and Agent business of RSL Com U.S.A. Inc. (RSL) from a bankruptcy
proceeding. The acquisition included the assets used by RSL to provide long
distance voice and data services, including frame relay, to small and medium
size businesses (Direct business), and the assets used to provide long
distance and other voice services to small businesses and the
consumer/residential market (A&R business), together with the existing
customer base of the Enterprise and Agent business. WorldxChange expects that
this acquisition will advance its commercial agent business, increase network
utilization and provide an entry into the management of information technology
services for enterprise clients.

Today, Acceris/I-Link remains focused on delivering voice and data
services and solutions to its partners and customers. With over eight years
experience developing VoIP technologies, Acceris/I-Link continues to offer a
proven and time-tested solution for companies to use its technology to reduce
telecommunication costs and/or to enter the enhanced communications market. At
present, Acceris/I-Link continues to actively market its voice and data
services and solutions through wholesale and retail channels, and licenses its
enhanced services platform to partners and service providers who wish to offer
voice services without incurring high development costs.

The Corporation entered the real estate sector in 2002 when it completed
the acquisition of five-retail income-producing properties, consisting of
approximately 730,000 square feet of leaseable area and 13 acres of land for
development. These properties are located primarily in Ontario, Canada.

Over the past three years, the following major events influenced the
development of the Corporations business:

Medical and Pharmaceutical Products



| |  |  | Effective May 23, 2000, the Corporation adopted a formal plan
to dispose of the pharmaceutical products business of FARO through
the disposition of its rights, including trademarks, copyrights and
regulatory filings, in three branded prescription pharmaceutical
products acquired from Glaxo Wellcome Inc. in 1998 and provided for
an estimated loss of $32,400 in 2000 after income tax recovery of
$19,000.   
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | On April 30, 2001, FARO completed the sale of the Glaxo
products for proceeds of $67,000 consisting of $54,000 paid on
closing, $8,000 paid 60 days subsequent to the closing and a further
$5,000 payable within 30 days of the first anniversary of the
closing, subject to specified levels of inventories on hand at the
date of closing and sales returns and rebates relating to operations
prior to the closing.
|
| |  |  | In November 2001, the Corporation acquired the minority
interest in FARO for $6,800. The cost of this acquisition was
provided in the estimated loss set up in 2000 in connection with the
discontinuation of the Corporations pharmaceutical products
business.                                                                                                                                                      
|
| |  |  | In the third quarter of 2002, the Corporation adopted a formal
plan of disposal for its medical products business and, accordingly,
disposed of its interest in Sage, effective October 4, 2002. It
incurred a loss on disposition of $463.                                                                                                                                                                            

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Technology Services



| |  |  | On October 22, 1999, the Corporation acquired a 25.2% interest
in Impower, an Internet direct marketing company, for $10,000. On
June 22, 2000, the Corporation increased its interest in Impower to
33.6% for cash consideration of $5,109.                                                                                                                                                                                                             
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | On January 20, 2000, the Corporation acquired a 28.5% interest
in Proscape, a provider of business-to-business fact-based,
enterprise sales and marketing information software systems, for
$4,000. On October 24, 2000 the Corporation increased its interest in
Proscape to 36% for $1,140 and on February 16, 2001 this was further
increased to 56.5% for cash consideration of $2,859.                                                              
|
| |  |  | On March 28, 2000, the Corporation acquired a 26% interest in
IBT, which delivers media-rich course content over the Internet for
business training and post-secondary educational applications, for
$4,000 and a further 1% interest was acquired on August 15, 2000 for
$222.                                                                                                                                                                          
|
| |  |  | On March 28, 2000, the Corporation acquired a 32.5% interest in
Core, which provides high speed Internet access solutions and other
communication services to trade shows, convention, seminars and
conferences, for $1,500, plus acquisition costs of $333. On December
29, 2000 Core successfully completed an equity financing in which the
Corporation did not participate, resulting in the dilution of the
Corporations interest in Core to 12.9%.
|
| |  |  | On August 3, 2001, Impower made a voluntary filing under
Chapter 11 of the U.S. bankruptcy legislation to seek protection from
its creditors, which resulted in the Corporation determining that its
investment in Impower was impaired and writing off its entire equity
investment.                                                                                                                                                                    
|
| |  |  | On May 31 and September 6, 2001, the Corporation acquired
additional interests in IBT for cash consideration of $1,817 and
$684, respectively, thereby increasing its interest in IBT to 49.5%.
In December 2001 IBT made a voluntary filing under Chapter 7 of the
U.S. bankruptcy legislation, which resulted in the Corporation
determining that its investment in IBT was impaired and writing off
its entire equity investment.                     
|
| |  |  | In the fourth quarter of 2001, the Corporation decided to cease
further funding of Proscape and, consequently, Proscape has made
alternative arrangements for funding which has reduced the
Corporations interest in Proscape to approximately 9% on a diluted
basis.                                                                                                                                                                                   
|
| |  |  | In 2002, Impower was reorganized and emerged from Chapter 11.
Pursuant to the reorganization, the Corporation received a 17.5%
fully diluted equity interest in Impower as well as $550 of preferred
shares.                                                                                                                                                                                                                                             

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Communications



| |  |  | In February 2000, Counsel formed Counsel Communications to
focus on acquiring, consolidating and operating Internet telephony
and other telecommunications-related businesses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | In August 2000, the Corporation entered into an agreement to
acquire a majority interest in Nexbell, a designated Cisco Powered
Network member in the VoIP category and in February 2001, this
purchase was completed with the acquisition of 97.5% of Nexbell for
cash consideration of $1,540.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  |  | On March 1, 2001, the Corporation acquired a 65.2% interest in
Acceris/I-Link, an enhanced Internet Protocol voice and data
communications services provider, for cash consideration of $5,113
and agreed to invest $10,000 in the form of three-year debt
convertible into common shares at a conversion rate of $0.56 per
share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  |  | On April 17, 2001, Acceris/I-Link acquired Nexbell in exchange
for the issuance of 17.5 million shares of Acceris/I-Link to the
Corporation, thereby increasing the Corporations interest in
Acceris/I-Link to 70.5% on a primary basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  |  | On June 4, 2001, Acceris/I-Link acquired certain net assets of
WorldxChange, a 10-10-XXX dial-around business, for cash
consideration of $13,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  |  | On September 6, 2001, all outstanding shares of
Acceris/I-Links Class C, preferred stock automatically converted
into shares of common stock in accordance with their terms.
Acceris/I-Link issued additional common stock in satisfaction of this
conversion and its obligations to pay dividends to the conversion
date, resulting in the dilution of the Corporations interest to
68.1%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  |  | Effective November 1, 2001, Counsel Communications acquired
Springwell a merchant banking firm specializing in the communications
industry, in exchange for an 11.7% interest in Counsel
Communications, at which time Counsel Communications was renamed
Counsel Springwell Communications LLC. This had the effect of
reducing the Corporations interest in Acceris/I-Link to 60.2%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  |  | During the quarter ended September 30, 2001, Acceris/I-Link
performed a recoverability analysis, based on undiscounted cash
flows, with respect to the goodwill recorded on its acquisition of
Nexbell. This analysis resulted in an impairment charge of $8,040 as
a consequence of projected losses associated with Nexbells prime
product and the decision to adopt a plan to discontinue this product.
Subsequently, in December 2001, Nexbell was sold to an unrelated
party for a gain of $589.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  |  | In the fourth quarter of 2002, the Corporation ended its
affiliation with Springwell Capital Partners and, effective January
2, 2003, acquired the minority interest in Counsel Springwell, which
was renamed Counsel Communications LLC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  |  | On December 6, 2002, Acceris/I-Link entered into an agreement
to sell substantially all of the assets and customer base of ILC, a
wholly owned subsidiary, to BUI. The sale includes the physical
assets required to operate Acceris/I-Links nationwide network using
patented VoIP technology (constituting the core business of ILC) and
a non-exclusive license in perpetuity to use Acceris/I-Links
proprietary software platform. The sale price consists of $3,000 of
convertible preferred shares of BUI, a public company, which, subject
to adjustment in certain circumstances, are convertible into 1.5
million common shares, or approximately a 12% ownership interest in
BUI (diluted, after conversion). The sale closed in the second
quarter of 2003. The sale of the ILC network and assets is expected
to significantly reduce Acceris/I-Links operational, personnel and
overhead costs. In addition, by retaining ownership of its
proprietary technology and patents, Acceris/I-Link will be in a
position to realize on their intrinsic value.

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| |  |  | On December 10, 2002, WorldxChange completed the purchase of
the Enterprise and Agent business of RSL in order to advance its
commercial agent business, increase network utilization and provide
an entry into the management of information technology services for
enterprise clients. WorldxChange paid a purchase price of $7,500 in
cash plus a non-interest bearing note for $1,000, which matures on
March 31, 2004 and is subject to certain closing balance sheet
adjustments, and has agreed to pay up to an additional $2,000 in
consideration due on March 31, 2004, which is contingent upon the
achievement of certain revenue levels by the Direct business for the
year 2003. The actual amount due will be prorated based upon 2003
direct business revenues between $25,000 ($0 amount payable) to
$35,000 ($2,000 payable). The cash element of the purchase price of
$7,500 was financed by a loan from Acceris/I-Link to WorldxChange
that is due June 30, 2004. Acceris/I-Links loan to WorldxChange was
financed by a convertible loan to Acceris/I-Link from a wholly owned
subsidiary of the Corporation. The loan from the Corporations
subsidiary is convertible into common stock of Acceris/I-Link at the
exchange rate of $0.084 per share, which rate represents the average
closing price of Acceris/I-Links common stock for the twenty trading
days preceding December 10, 2002.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Real Estate



| |  |  | On July 3 and July 10, 2002, The Corporation completed the
acquisition of five income producing properties comprising
approximately 730,000 square feet of leaseable area and approximately
13 acres of vacant land zoned for retail development in Canada. The
purchase price amounted to the Canadian dollar equivalent of $35,500,
including closing costs of $1,000. These acquisitions were funded by
the assumption of $20,000 of first mortgage debt on the properties
and $15,500 of cash.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Further details of material acquisitions and dispositions may be found in notes
3 and 17 to the audited Consolidated Financial Statements for the year ended
December 31, 2002.

B.     BUSINESS OVERVIEW

Counsel is a diversified company focused on acquiring and building
businesses using its financial and operational expertise. Today Counsel
operates active business primarily in the communications and real estate
sectors.

In 2002, 96.5% (2001  100%) of the Corporations revenues from continuing
operations were generated by its communications segments. The communications
sector has undergone a period of unprecedented dislocation and change over the
past few years, creating opportunities perfectly suited to the Corporations
value-added financial and operating skills. In addition, industry challenges
have produced a number of well-valued acquisition candidates with which the
Corporation can build its existing communications platform. As a result,
management believes that the Corporations communications business presents a
compelling proposition to create and increase value and has taken a number of
steps to capitalize on these opportunities.

During 2002, the Corporation worked on restructuring its communications
business to provide more operating and financial control while reducing costs
through more streamlined and integrated processes. Besides the ILC divestiture
and the RSL acquisition, new and experienced leadership teams were installed
that possessed proven track records of building successful telecommunications
companies. A highly focused marketing program was launched, with an emphasis
on meeting the communications needs of carefully targeted business and consumer
markets in specific regions. Systems platforms were upgraded and
under-performing assets and operations were sold or curtailed.

Counsels goal is to become a pre-eminent builder of communications
businesses in North America. At the beginning of 2003, it introduced a new name
and brand for its business  Acceris Communications.At Acceris/I-Links next
shareholders meeting it intends to ask shareholders to approve a proposal to
change its name to Acceris Communications Inc. Acceris/I-Links mission is to
provide businesses and consumers with competitively priced voice, data and
enhanced communications services via direct and indirect channels, delivering
industry-leading customer care and customized solutions supported by a
state-of-the-art, full-function back office. In the fourth quarter of 2002,
Acceris/I-Link was reorganized into three complementary strategic business
units:

Acceris Communications Partnersis a combination of the WorldxChange
assets acquired in June 2001 and the A&R business of RSL, which was acquired in
December 2002. Acceris Communications Partners is a facilities-based provider
of circuit-switched long distance telecommunication services to end users.
Acceris Communications Partners,

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through WorldxChange, initially approached the market through a
combination of direct mailings (primarily of a dial-around product that allows
a customer to make a call from any phone by dialing a 10-10-XXX prefix) and
multi-level marketing (MLM). In 2002, Acceris Communications Partners
amended its channel strategy, de-emphasizing the direct mail channel and
devoting its efforts to the agent channel. It is focused on two distinct agent
channels: MLM and commercial agent. In addition, Acceris Communications
Partners expanded its product offerings in 2002 to focus on 1+ switched (1+ is
when a customer can pick up the phone and directly dial a long distance number
by pushing 1- area code-phone number), dedicated circuits, and data. Further,
the company began to offer a 1+ calling plan to its existing customer base in
the dial around business (10-10-XXX prefix). This segment accounted for
approximately 95% of the communications revenue from continuing operations in
2002 and is expected to be the largest contributor to revenue in 2003, but at a
lesser percentage as Acceris Communications Solutions contributes a larger
proportion. There were no customers in 2002 that accounted for over 10% of this
segments revenues, which revenues were generated in the United States.

Acceris Communications Solutionsis the Enterprise business of RSL, which
was acquired in December 2002. Acceris Communications Solutions provides
customized, integrated communications solutions for voice and data. Its
innovative approach to networking, connectivity and telecommunications products
and services leverages technology to improve the way its customers do business.
Its solutions help its customers increase revenues and reduce the total cost of
technology ownership. What differentiates Acceris Communications Solutions from
other network providers is that it will work with its customers to develop a
customized solution that is designed and implemented specifically for the way
they do business. As this business was acquired in December 2002, this segment
accounted for approximately 2% of the communications revenue from continuing
operations in 2002. The revenue contribution from this source will increase
significantly in 2003 as it operates for a full year in 2003. In 2002, Acceris
Communications Solutions two largest customers accounted for 12% and 10%
respectively of the revenues of this segment, which revenues were generated in
the United States. Acceris Communications Solutions markets to its customer
base on a direct basis.

Acceris Communications Technologiesis the former technology licensing and
development business of Acceris/I-Link. Acceris Communications Technologies
offers a fully developed network convergence solution for voice and data. Over
the last five years, Acceris Communications Technologies has sold several
technology licenses in international markets based on its IP communications
technology, which is supported by three patents. Acceris Communications
Technologies refined its technology over the last five years by proving and
resolving quality of service integration while developing numerous enhanced
features that create incremental revenue for communications providers. This
maturing of the technology was enabled by the building and operation of an IP
network across the United States. This segment accounted for approximately 3%
of the communications revenue from continuing operations in 2002. The revenue
contribution from this source is expected to increase in 2003, as the Company
intends on expanding its existing customer base and expanding revenue
opportunities with its historical customer base. Its contribution as a
percentage of total revenue will remain relatively consistent with 2002. There
were three customers in 2002 each of which accounted for over 10% of the total
revenues and which, combined, accounted for 100% of this segments revenues,
which revenues were with US subsidiaries of international companies. However,
as of the end of 2002 these companies were no longer customers. Acceris
Communications Technologies markets to its customers on a direct basis. The
revenue and earnings of this business segment is project centric, which can
create significant shifts in revenue and earnings between financial reporting
periods.

Real estate,which commenced operations in 2001, is comprised of the
Companys investments in six income producing properties in Canada, five of
which were acquired in 2002. The leasable area of the portfolio is
approximately 776,000 square feet with occupancy of 94% at December 31, 2002.

Patents and licensing

Acceris/I-Link has three issued patents and utilizes the technology
underlying those patents in providing its products and services. It has also
licensed certain portions of that technology to third parties. It has several
patent applications that are currently pending before the United States Patent
and Trademark Office. In August 2002, its voice internet transmission system
patent (VoIP Patent) was issued. The VoIP Patent joins Acceris/I-Links two
other IP patents, filed in 1996, which are related to the delivery of high
quality conference calls with compressed signals. Together, these patented
technologies have been successfully deployed and commercially proven in a
nationwide IP network and in Acceris/I-Links unified messaging service,
application programming interface, and software licensing businesses.
Acceris/I-Link plans to further leverage these patents as it packages an IP
solution for the growing enterprise and applications markets. While using the
technology underlying the VoIP Patent in its business, Acceris/I-Link is also
investigating whether and to what extent the VoIP Patent is licensable to third
parties.

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Competition

The Acceris Communications Partners and Acceris Communications Solutions
businesses face competition from numerous telecommunications organizations
offering service in the United States. Providers include such large
organizations as AT&T, Sprint and Verizon, as well as numerous small, less
widely known, service providers.

The Acceris Communications Partners business, consistent with its
competitors, sees significant attrition in its customer base over short periods
of time. In order to attract new customers and minimize attrition, it must
develop and market product offerings that appeal to people demanding long
distance services originating in the United States. Factors that influence the
highly mobile customer base include, among other things, premium quality of
service, enhanced features offerings and premium customer service, at value
pricing. Long-term success in the Acceris Communications Partners market is
sustained by attracting new customers and developing customer loyalty.

The Acceris Communications Solutions business differs significantly from
the Acceris Communications Partners business. In this business, customers tend
to remain with one service provider for many years. This longer term retention
results in recurring revenue streams, which result from the ability to offer
specific solutions to each individual customer. Acceris Communications
Solutions differentiates itself from its competitors by offering customized,
integrated solutions that enhance its customers productivity and, ultimately,
improve profitability.

Acceris Communications Technologies offers an internally developed
patented technology solution that operates in both a convergence and IP world.
Acceris Communications Technologies provides a 100% software solution for VoIP
deployment. The solution, unlike some competition, does not rely on hardware
to provide switching, conference or enhanced services. Additionally, the
solution provides an open Application Programming Interface (API), to enable
development of a wide variety of voice applications and services. Prior to late
2002, Acceris/I-Link had offered these products internationally and marketed
its enhanced service products to customers on a retail basis. Commencing in
late 2002, Acceris/I-Link decided to focus on providing software based IP
solutions to United States domestic carriers, which assists those companies by
reducing their internal costs and/or allows them to offer enhanced service
products (such as One-number) to retail customers. This change in strategy led
to the sale of the ILC assets and customer base to BUI. Acceris/I-Link does
not see any direct competition to its current technology although there are
many competitors with certain portions of its technology, but not as an entire
package. Its competition would include the traditional switched telephony
infrastructure providers, such as Nortel and Lucent, which Acceris/I-Links
technology displaces. While Acceris/I-Links competition offers products with
similar features, its competitive product is software based versus hardware
based and as such can be deployed at a significantly lower cost. Also, the
software nature of Acceris/I-Links product makes it easier and more
economically feasible to develop additional features and services to meet
ever-changing customer needs.

Government Regulation

General:Many of the services that Acceris/I-Link provides are subject to
the provisions of the U.S. Telecommunications Act of 1996 (the 1996 Act), the
regulations promulgated thereunder, as well as the applicable laws and
regulations of the various states administered by the relevant state
authorities. While the recent trend in the U.S., for both federal and state
regulation of telecommunication service providers has been toward less
regulation rather than more, the Federal Communications Commission (FCC) and
relevant state authorities continue to regulate telecommunication carriers and
the terms and conditions under which telecommunication services are provided.

Federal:The FCC modifies its regulations of telecommunication carriers
from time to time. In March 2001, the FCC issued an order requiring
non-dominant carriers to remove their international exchange service tariffs
from the FCC by January 28, 2002. Acceris/I-Link believes it is in compliance
with the FCCs detariffing orders and that achieving such compliance did not
have a significant impact.

In 1997, the FCC issued an order implementing those provisions of the 1996
Act, which promote universal telephone service (the USF Order). The USF
Order requires interstate telecommunication carriers to contribute toward a
fund for schools and libraries, a fund for rural health care and a fund to
develop regions characterized by low income levels and high telecommunication
costs (collectively USF). Acceris/I-Links USF contributions are assessed
based on certain end user telecommunication revenues, which are calculated in
accordance with the FCCs legislative rules. The amounts contributed to USF
may be billed to end-users and Acceris/I-Link has elected to pass those charges
to its end user customers. If Acceris/I-Link continues to bill these amounts to
its end-user customers, its customers may choose to purchase similar services
from competitors. If Acceris/I-Link elects not to bill these amounts to its
end-user customers in the future, its profit margins may be less.

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During the past year, the FCC increased the USF contribution percentages.
Originally in May 2001 and subsequently in February 2002, the FCC proposed
changes to the USF regulations that, if adopted, would alter the basis on which
Acceris/I-Link determines its USF contributions and the ability and means by
which such contributions may be recovered from its customers. For example,
although the FCC has not proposed to prevent carriers from passing USF charges
through to customers, the FCC has recently ruled that it will limit the extent
to which carrier costs for administering USF charges may be passed through to
customers. In addition, the FCC is considering alternative mechanisms under
which it will assess USF charges to carriers. Although certain proposals may
benefit Acceris/I-Link, the outcome of these proceedings cannot be predicted.
It remains possible that the FCC could adopt a USF contribution mechanism that
would have a negative effect upon Acceris/I-Links operations.

State:In addition to regulation by the FCC, the majority of the states
require Acceris/I-Link to register or apply for certification prior to
initiating intrastate interexchange telecommunications services. To date,
Acceris/I-Links subsidiaries, ILC and WorldxChange, are authorized through
certification to provide intrastate interexchange telecommunications services
and, in certain states, local exchange services. These subsidiaries are
subject to the obligations that the applicable state laws place on all
similarly certificated carriers including the regulation of services, the
payment of regulatory fees and the preparation and submission of reports. If
state regulators or legislators change current regulations or adopt new
regulations it may negatively impact Acceris/I-Links ability to provide
telecommunication services.

The following table illustrates the revenue and approximate percentage of
total revenue recognized by the Company in each of its principal business
categories included in continuing operations for each of the last three
completed fiscal years:

|                                                                                            |  |                        |        |      |  |      |      |   |  |   |        |   |  |  |      |  |  |  |   |  |  |  |   | 
|------------------------------------------------------------------------------------------- |  | ---------------------- | ------ | ---- |  | ---- | ---- | - |  | - | ------ | - |  |  | ---- |  |  |  | - |  |  |  | - | 
|Principal Business Category - Continuing Operations                                         |  | Consolidated Revenues*
|                                                                                            |  |                       
|                                                                                            |  | 2002                   |        | 2001 |  | 2000
|                                                                                            |  |                        |        |      |  |     
|                                                                                            |  | $                      |        | %    |  | $    |      | % |  | $ |        | %
|Acceris Communications Partners (telecommunications
services and products)                  |  |                        | 88,863 |      |  |      | 92.0 |   |  |   | 49,289 |   |  |  | 91.2 |  |  |  |  |  |  |  |  | 
|Acceris Communications Solutions (voice and data
solutions for enterprise customers)        |  |                        | 1,547  |      |  |      | 1.6  |   |  |   |       |   |  |  |     |  |  |  |  |  |  |  |  | 
|Acceris Communications Technologies (voice and data
network convergence software
solutions) |  |                        | 2,837  |      |  |      | 2.9  |   |  |   | 4,730  |   |  |  | 8.8  |  |  |  |  |  |  |  |  | 
|Real Estate                                                                                 |  |                        | 3,343  |      |  |      | 3.5  |   |  |   | 11     |   |  |  |     |  |  |  |  |  |  |  |  | 

All of the Corporations consolidated revenues from its communications
segments were generated in the United States. All of the revenues from real
estate were generated in Canada.

The following table illustrates the revenue and approximate percentage of
total revenue recognized by the Company in each of its principal business
categories included in discontinued operations for each of the last three
completed fiscal years:

|                                                      |  |                        |        |      |  |      |      |   |  |   |        |   |  |  |      |  |  |  |        |  |  |  |      | 
|----------------------------------------------------- |  | ---------------------- | ------ | ---- |  | ---- | ---- | - |  | - | ------ | - |  |  | ---- |  |  |  | ------ |  |  |  | ---- | 
|Principal Business Category - Discontinued Operations |  | Consolidated Revenues*
|                                                      |  |                       
|                                                      |  | 2002                   |        | 2001 |  | 2000
|                                                      |  |                        |        |      |  |     
|                                                      |  | $                      |        | %    |  | $    |      | % |  | $ |        | %
|Long-term care operations                             |  |                        | 32,629 |      |  |      | 75.0 |   |  |   | 31,604 |   |  |  | 60.7 |  |  |  | 32,045 |  |  |  | 69.4 | 
|Communications operations                             |  |                        | 7,806  |      |  |      | 18.0 |   |  |   | 16,803 |   |  |  | 32.3 |  |  |  |       |  |  |  |     | 
|Medical products and services                         |  |                        | 3,051  |      |  |      | 7.0  |   |  |   | 3,641  |   |  |  | 7.0  |  |  |  | 14,147 |  |  |  | 30.6 | 

The Corporations long-term care revenue is primarily generated in Canada,
while the communications and medical products and services revenue was
generated in the United States.

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C. ORGANIZATIONAL STRUCTURE:

See A. HISTORY AND DEVELOPMENT OF THE COMPANY above.

D. PROPERTY, PLANTS AND EQUIPMENT

The Company has commitments under long term operating leases that
approximate $13,800 over the next five years (see note 12 to the audited
consolidated annual financial statements). Most of this amount relates to seven
nursing homes in Ontario, Canada, containing 1,127 licensed beds, which it
leases from an unrelated partnership. The balance relates primarily to its
communications equipment leased at WorldxChange and leased office premises,
primarily head office locations in Toronto, Ontario, and subsidiary offices in
Draper, Utah; San Diego, California and Pittsburgh, Pennsylvania.

Acceris/I-Link leases approximately 26,300 square feet of space for office
and other facilities in Draper, Utah pursuant to commercial leases with
original terms of five to seven years. These leases expire between 2003 and
2005 subject to a right to extend for an additional five years. The current
aggregate base rent is approximately $28 per month. Acceris/I-Link also leases
several other co-location facilities throughout the United States to house its
Communication Engines. Such spaces vary in size and length of term. Of the
26,300 square feet leased, Acceris/I-Link subleases approximately 12,000 square
feet on a month-to-month basis at approximately $14 per month, which is
equivalent to the cost. In February 2003, Acceris/I-Link was released from
this lease (12,000 square feet) and cancelled its related sublease agreement.
In December 2002, Acceris/I-Link entered into an agreement wherein it was
released from the lease of approximately 14,300 square feet (approximately $14
per month) subject to the closing of its sale of certain assets to BUI, which
is anticipated to close in the second quarter of 2003.

WorldxChange rents approximately 24,000 square feet of office space in San
Diego, California under a five-year commercial lease dated August 1, 1997,
which was extended to March 2003, at a cost of approximately $25 per month.
WorldxChange also leases several other co-location facilities throughout the
United States to house its network equipment. Such spaces vary in size and
length of term.

WorldxChange also rents approximately 46,000 square feet of office space
in Pittsburgh, Pennsylvania under a lease dated December 11, 2002 and expiring
on June 30, 2005, at a cost of approximately $54 per month. A $200 irrevocable
letter of credit is in place until December 2004 as security for the lease.

Included in assets of discontinued operations is the long-term care
business. The long-term care business consists of four retirement homes with
297 assisted living units in southern Ontario, a retirement home with 128
assisted living facilities in Kelowna, British Columbia and three nursing homes
with 484 beds in Texas. All of these properties are leased under long-term
leases to Advocat Inc., a company which provides long term care services to
nursing home patients and residents of assisted living facilities in the United
States and Canada. The retirement homes are subject to mortgages totaling $11.7
million, bearing interest at rates from 7.9% to 8.6% and maturing on various
dates through 2006. The Texas properties are unencumbered. The Company has no
material plans to construct, expand or improve these facilities.

The real estate business consists of six real estate properties with
approximately 776,000 square feet of leasable area, which are encumbered by
approximately $22,000 of debt. The Company may construct, expand or improve
these facilities to maximize returns on its investment in real estate. The
Company owns land held for development and expects to acquire additional land
that its intends to develop in the near term, costs associated with these
developments are unknown at this time.

The Company is not aware of any environmental issues that may affect its
utilization of these assets.




ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis should be read in conjunction with
the audited consolidated financial statements of the Company and notes thereto.
See Item 18. Financial Statements. The consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in
Canada and the guidance of the Canadian Institute of Public and Private Real
Estate companies (CIPREC). Note 22 of the financial statements includes a
reconciliation of the Canadian GAAP net loss to the net loss determined under
U.S. GAAP.

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Definitions

The Companys analysis of financial results focuses on operating income
(loss) and net earnings (loss). Operating income (loss) and net earnings (loss)
are set out in the Companys audited consolidated statement of operations.
Operating income (loss) is defined as earnings from continuing operations
before other gains, other losses and impairments, interest, taxes, equity in
losses and minority interests. It is important to note that operating income
(loss) is not a measure of performance under Canadian or U.S. GAAP. Operating
income (loss) should not be considered in isolation or as a substitute for net
earnings (loss) prepared in accordance with Canadian or U.S. GAAP or as a
measure of operating performance or profitability. Operating income does not
have a standardized meaning prescribed by generally accepted accounting
principles and is not necessarily comparable to similar measures presented by
other companies. Operating income/loss is reconciled to net earnings/loss in
the body of the Companys financial statement.

Certain comparative figures have been reclassified to conform to the
current years presentation.

Overview

Counsel is a diversified company focused on acquiring and building
businesses in two specific sectors: communications in the United States and
real estate in Canada.

The Company marked its entry into the communications sector in March 2001
when it acquired a majority equity position in Acceris/I-Link. Acceris/I-Link
is a supplier of voice, data and enhanced communications products and services.
Acceris/I-Link operates as a facilities based telecommunications carrier
providing long distance voice services to retail customers in the United States
and long distance voice and data services to small to medium sized businesses
in the United States. Acceris/I-Link also licenses a fully developed network
convergence solution for voice and data based on its Internet Protocol
communications technology.

The Company entered the real estate sector in 2002, when it completed the
acquisition of five income producing properties, consisting of approximately
730,000 square feet.

Counsel has continued to focus its business strategy by exiting or
completing formal plans of disposal to exit all other operating segments in
2002. In 2002, the Company decided to cease funding its portfolio investments,
exited the medical products and services segment, allowed dilution to occur in
its technology business and has adopted a formal plan to exit its seniors
living business by way of sale of its long-term care facilities, which it
expects to occur in 2003.

In 2002, Acceris/I-Link, the Companys communications platform, completed
a formal plan of disposal for its domestic VoIP network business. The sale of
this business unit is currently under contract to BUI. The Company completed
the sale of this business in the second quarter of 2003.

As part of the refocusing of Counsel in 2002, the Company closed its New
York office and ended its affiliation with Springwell. Many difficult
decisions were taken in 2002 that are expected to assist the Company to return
to profitability in 2003.

A summary of significant events during the year:



| |  |  | Resolved the Bergen Brunswig Corporation (Bergen) claim
against the Company on the 1999 sale of Stadtlander Drug Company
with the claim being dismissed. Resolving this matter eliminated a
significant burden on the Companys management, allowing it to
focus on the execution of its strategy.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Disposed of the remaining shares of Bergen for a gain of $26,573.                                                                                                                                                                                                                                   
|
| |  |  | Exited the medical products and services segment.                                                                                                                                                                                                                                                   
|
| |  |  | Ceased further investment in the technology sector.                                                                                                                                                                                                                                                 
|
| |  |  | Initiated a formal plan of disposal for its long-term care facilities.                                                                                                                                                                                                                              
|
| |  |  | Reorganized its communications platform.                                                                                                                                                                                                                                                            
|
| |  |  | Entered the real estate development and commercial income producing
property segment with its acquisition of five income-producing
properties and a development property.                                                                                                                           

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| |  |  | Strengthened its management team with the addition of a new
Chief Financial Officer, an Executive Vice President and a new
Director of Taxation.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------

Critical Accounting Policies

The financial statements of Counsel are prepared in conformity with a
framework of generally accepted accounting policies selected by management and
approved by the Audit Committee of the Board of Directors. These policies are
set out in Note 2 to the consolidated financial statements. Certain of the
policies are more significant than others and are therefore considered critical
accounting policies. Accounting policies are considered critical if they rely
on a substantial amount of judgment (use of estimates) in their application or
if they result from a choice between accounting alternatives and that choice
has a material impact on our reported results or financial position. The
policies identified as critical to Counsel are discussed below.

Use of estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during
the reporting periods.

The most significant estimates relate to the application of purchase
accounting, the assessment of recoverability of customer and loans receivables,
portfolio investments, and the cash-flows expected to be derived from long
lived assets including property under development, income producing properties,
property, plant and equipment and intangible assets. Management makes
significant estimates related to the measurement of obligations and the timing
of the related cash flows, particularly related to accrued liabilities and
future income tax liabilities. Such timing and measurement uncertainty could
have a material effect on the reported results of operations and the financial
position of the Company.

Actual results could differ materially from those estimates in the near
term.

Revenue recognition

Telecommunication services

Revenue is generally recognized when persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered, the Companys
price to the customer is fixed or determinable, and collection of the resulting
receivable is reasonably assured. Revenue is derived from telecommunications
usage, based on minutes of use. Revenue derived from usage is recognized as
services are provided, based on agreed upon usage rates. Revenue is recorded
net of estimated customer credits.

Managements estimate of customer credits is based primarily on the
historical experience of the Company or, for new services, the history of other
telecommunications carriers for similar services. This estimate is subject to
significant change in the future based on the nature of the customers and the
Companys processes for limiting usage to customers with a higher collection
risk.

Technology licensing

Revenue from the sale of software licenses is recognized when a
non-cancellable agreement is in force, the license fee is fixed or
determinable, acceptance has occurred and collectibility is reasonably assured.
Maintenance and support revenue is recognized ratably over the term of the
related agreements. When a license of technology requires continued support or
involvement of the Company, contract revenue is spread over the period of the
required support or involvement. In the event that collectibility is in
question, revenue (deferred or recognized) is recorded only to the extent of
cash receipts.

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Valuation of portfolio investments

Portfolio investments represent investments in publicly traded and
privately held companies. These investments are accounted for using the cost
method. Under the cost method, the investment is initially recorded at cost;
earnings from such investments are only recognized to the extent received or
receivable. Provisions for loss in value are recorded if a decline in value is
considered to be other than temporary. Neither unrealized gains nor recoveries
in valuation, if any, are reflected in the consolidated financial statements.

Valuation of intangible assets

Effective 2002, companies are no longer permitted to amortize goodwill on
a periodic or routine basis. Instead, the carrying value of goodwill must be
assessed at least annually based on a comparison of a reporting units carrying
amount, including goodwill, to the fair value of the reporting unit. Under
Canadian GAAP, goodwill is to be tested for impairment within six months of
adoption as of the beginning of the fiscal year.

Intangible assets are recorded at fair value upon acquisition and
finite-life intangible assets are amortized on a straight-line basis over the
estimated useful life of one to five years (See Note 9 in the December 31, 2002
financial statements).

On an ongoing basis, management reviews the carrying value of intangible
assets and the amortization of finite-life intangible assets, taking into
consideration any events and circumstances that might have impaired their
carrying value. The Company assesses impairment by determining whether the
unamortized intangible asset balance can be recovered through projected
undiscounted future cash flows. If the net recoverable amount, calculated as
the sum of the expected future cash flows, undiscounted and without interest
charges, is less than the net book value, the excess of the net book value over
the net recoverable value is charged to operations in the period in which such
impairment is determined by management.

Valuation of income producing properties

Income producing properties are carried at the lower of depreciated cost
and net recoverable amount. A write-down to net recoverable amount is
recognized when a propertys undiscounted cash flows are less than its carrying
value. Projections of future cash flows take into account the specific business
plan for each property and managements best estimate of the most probable set
of economic conditions anticipated to prevail in the market. The use of net
recoverable amount to assess the carrying value at which a property is reported
assumes the property will be held for the long term. Otherwise, the net
realizable value method is used. Estimated net realizable value represents the
estimated selling price reduced by any costs expected until final disposition,
assuming reasonable market conditions.

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A. OPERATING RESULTS

Consolidated Results of Operations

The following table sets out the Companys consolidated results of
operations for each of the three years and eight quarters ended December 31,
2002 under the basis of presentation utilized in its Canadian GAAP financial
statements.

|                                                                                          |                                               |                                       |        |           |       |         |         |        |       |      |         |         |        |      |         |        |        |      |        |        |        |       |         |        |        |   |        |        |        |   |         |        |        |   |         |         |       |   |         |         |        |   |         |         |        |  
|----------------------------------------------------------------------------------------- | --------------------------------------------- | ------------------------------------- | ------ | --------- | ----- | ------- | ------- | ------ | ----- | ---- | ------- | ------- | ------ | ---- | ------- | ------ | ------ | ---- | ------ | ------ | ------ | ----- | ------- | ------ | ------ | - | ------ | ------ | ------ | - | ------- | ------ | ------ | - | ------- | ------- | ----- | - | ------- | ------- | ------ | - | ------- | ------- | ------ | -
|                                                                                          |                                               |                                       |        | Unaudited |       | Audited
|                                                                                          |                                               |                                       |        |           |       |        
|                                                                                          |                                               |                                       |        | 2001      |       | 2001    |         | 2001   |       | 2001 |         | 2002    |        | 2002 |         | 2002   |        | 2002 |        | 2000   |        | 2001  |         | 2002  
|                                                                                          |                                               |                                       |        | Q1        |       | Q2      |         | Q3     |       | Q4   |         | Q1      |        | Q2   |         | Q3     |        | Q4   |        | Total  |        | Total |         | Total 
|                                                                                          |                                               |                                       |        |           |       |         |         |        |       |      |         |         |        |      |         |        |        |      |        |        |        |       |         |       
|                                                                                          |                                               |                                       |        | $         |       | $       |         | $      |       | $    |         | $       |        | $    |         | $      |        | $    |        | $      |        | $     |         | $     
|Revenues                                                                                  |                                               |                                       |        |           |       |         |         |        |       |      |         |         |        |      |         |        |        |      |        |        |        |       |         |        |        |   |        |        |        |   |         |        |        |   |         |         |       |   |         |         |        |   |         |        
|                                                                                          | United States                                 |                                       |        |           |       |         |         |        |       |      |         |         |        |      |         |        |        |      |        |        |        |       |         |        |        |   |        |        |        |   |         |        |        |   |         |         |       |   |         |         |        |   |         |         |       
|                                                                                          |                                               | Acceris Partners                      |        |           |      |         |         |        | 5,932 |      |         |         | 20,971 |      |         |        | 22,386 |      |        |        | 22,811 |       |         |        | 20,984 |   |        |        | 19,834 |   |         |        | 25,234 |   |         |         |      |   |         |         | 49,289 |   |         |         | 88,863 |  
|                                                                                          |                                               | Acceris Solutions                     |        |           |      |         |         |        |      |      |         |         |       |      |         |        |       |      |        |        |       |       |         |        |       |   |        |        |       |   |         |        | 1,547  |   |         |         |      |   |         |         |       |   |         |         | 1,547  |  
|                                                                                          |                                               | Acceris Technologies                  |        |           | 470   |         |         |        | 1,420 |      |         |         | 1,420  |      |         |        | 1,420  |      |        |        | 1,581  |       |         |        | 888    |   |        |        | 321    |   |         |        | 47     |   |         |         |      |   |         |         | 4,730  |   |         |         | 2,837  |  
|                                                                                          |                                               |                                       |        |           |       |         |         |        |       |      |         |         |        |      |         |        |        |      |        |        |        |       |         |        |        |   |        |        |        |   |         |        |        |   |         |         |       |   |         |         |        |   |         |        
|                                                                                          |                                               |                                       | 470    |           |       |         | 7,352   |        |       |      | 22,391  |         |        |      | 23,806  |        |        |      | 24,392 |        |        |       | 21,872  |        |        |   | 20,155 |        |        |   | 26,828  |        |        |   |        |         |       |   | 54,019  |         |        |   | 93,247  |        
|                                                                                          | Canada                                        |                                       |        |           |       |         |         |        |       |      |         |         |        |      |         |        |        |      |        |        |        |       |         |        |        |   |        |        |        |   |         |        |        |   |         |         |       |   |         |         |        |   |         |         |       
|                                                                                          |                                               | Real estate                           |        |           |      |         |         |        |      |      |         |         |       |      |         |        | 11     |      |        |        | 75     |       |         |        | 78     |   |        |        | 1,486  |   |         |        | 1,704  |   |         |         |      |   |         |         | 11     |   |         |         | 3,343  |  
|                                                                                          |                                               |                                       |        |           |       |         |         |        |       |      |         |         |        |      |         |        |        |      |        |        |        |       |         |        |        |   |        |        |        |   |         |        |        |   |         |         |       |   |         |         |        |   |         |        
|                                                                                          |                                               |                                       | 470    |           |       |         | 7,352   |        |       |      | 22,391  |         |        |      | 23,817  |        |        |      | 24,467 |        |        |       | 21,950  |        |        |   | 21,641 |        |        |   | 28,532  |        |        |   |        |         |       |   | 54,030  |         |        |   | 96,590  |        
|Operating costs and expenses:                                                             |                                               |                                       |        |           |       |         |         |        |       |      |         |         |        |      |         |        |        |      |        |        |        |       |         |        |        |   |        |        |        |   |         |        |        |   |         |         |       |   |         |         |        |   |         |        
|                                                                                          | Telecommunication costs (net of depreciation) |                                       |        |          |       |         |         | 5,315  |       |      |         | 15,728  |        |      |         | 14,503 |        |      |        | 13,273 |        |       |         | 12,237 |        |   |        | 10,973 |        |   |         | 14,453 |        |   |         |        |       |   |         | 35,546  |        |   |         | 50,936  |       
|                                                                                          | Income producing properties                   |                                       |        |          |       |         |         |       |       |      |         |        |        |      |         |       |        |      |        |       |        |       |         |       |        |   |        | 502    |        |   |         | 946    |        |   |         |        |       |   |         |        |        |   |         | 1,448   |       
|                                                                                          | Selling, general and administrative           |                                       |        | 3,183     |       |         |         | 7,340  |       |      |         | 11,496  |        |      |         | 22,331 |        |      |        | 12,392 |        |       |         | 9,865  |        |   |        | 10,675 |        |   |         | 14,127 |        |   |         | 6,300   |       |   |         | 44,350  |        |   |         | 47,059  |       
|                                                                                          | Research and development                      |                                       |        | 896       |       |         |         | 524    |       |      |         | 435     |        |      |         | 307    |        |      |        | 382    |        |       |         | 465    |        |   |        | 317    |        |   |         | 235    |        |   |         |        |       |   |         | 2,162   |        |   |         | 1,399   |       
|                                                                                          | Provision for doubtful accounts               |                                       |        |          |       |         |         | 131    |       |      |         | 305     |        |      |         | 403    |        |      |        | 1,357  |        |       |         | 1,251  |        |   |        | 1,118  |        |   |         | 2,605  |        |   |         |        |       |   |         | 839     |        |   |         | 6,331   |       
|                                                                                          | Depreciation and amortization                 |                                       |        | 636       |       |         |         | 1,978  |       |      |         | 3,674   |        |      |         | 2,561  |        |      |        | 1,684  |        |       |         | 1,592  |        |   |        | 1,760  |        |   |         | 2,079  |        |   |         | 205     |       |   |         | 8,849   |        |   |         | 7,115   |       
|                                                                                          |                                               |                                       |        |           |       |         |         |        |       |      |         |         |        |      |         |        |        |      |        |        |        |       |         |        |        |   |        |        |        |   |         |        |        |   |         |         |       |   |         |         |        |   |         |        
|Operating loss before undernoted items                                                    |                                               |                                       | (4,245 | )         |       |         | (7,936  | )      |       |      | (9,247  | )       |        |      | (16,288 | )      |        |      | (4,621 | )      |        |       | (3,460  | )      |        |   | (3,704 | )      |        |   | (5,913  | )      |        |   | (6,505  | )       |       |   | (37,716 | )       |        |   | (17,698 | )      
|Gains and other income:                                                                   |                                               |                                       |        |           |       |         |         |        |       |      |         |         |        |      |         |        |        |      |        |        |        |       |         |        |        |   |        |        |        |   |         |        |        |   |         |         |       |   |         |         |        |   |         |        
|                                                                                          | Short-term investments                        |                                       |        | 8,726     |       |         |         | 2,173  |       |      |         | 26,861  |        |      |         | 5,000  |        |      |        | 26,621 |        |       |         | 879    |        |   |        | 162    |        |   |         | 405    |        |   |         | 28,256  |       |   |         | 42,760  |        |   |         | 28,067  |       
|                                                                                          | Portfolio investment                          |                                       |        |          |       |         |         |       |       |      |         |        |        |      |         | 64     |        |      |        |       |        |       |         |       |        |   |        |       |        |   |         |       |        |   |         | 3,693   |       |   |         | 64      |        |   |         |        |       
|                                                                                          | Sale of subsidiary                            |                                       |        |          |       |         |         |       |       |      |         |        |        |      |         | 589    |        |      |        |       |        |       |         |       |        |   |        |       |        |   |         |       |        |   |         |        |       |   |         | 589     |        |   |         |        |       
|                                                                                          | Retirement of debt                            |                                       |        |          |       |         |         |       |       |      |         |        |        |      |         | 1,093  |        |      |        |       |        |       |         |       |        |   |        |       |        |   |         |       |        |   |         |        |       |   |         | 1,093   |        |   |         |        |       
|                                                                                          | Other                                         |                                       |        |          |       |         |         |       |       |      |         |        |        |      |         |       |        |      |        |       |        |       |         |       |        |   |        |       |        |   |         | 782    |        |   |         |        |       |   |         |        |        |   |         | 782     |       
|Impairments and other losses:                                                             |                                               |                                       |        |           |       |         |         |        |       |      |         |         |        |      |         |        |        |      |        |        |        |       |         |        |        |   |        |        |        |   |         |        |        |   |         |         |       |   |         |         |        |   |         |        
|                                                                                          | Portfolio investments                         |                                       |        |          |       |         |         | (7,036 | )     |      |         | (8,379  | )      |      |         | (3,925 | )      |      |        |       |        |       |         |       |        |   |        | (640   | )      |   |         |       |        |   |         | (2,581  | )     |   |         | (19,340 | )      |   |         | (640    | )     
|                                                                                          | Write-down of short-term investments          |                                       |        |          |       |         |         | (1,833 | )     |      |         | (122    | )      |      |         | (2     | )      |      |        | (136   | )      |       |         | (2,656 | )      |   |        | (1,139 | )      |   |         | (80    | )      |   |         | (22,031 | )     |   |         | (1,957  | )      |   |         | (4,011  | )     
|                                                                                          | Other                                         |                                       |        |          |       |         |         |       |       |      |         |        |        |      |         |       |        |      |        |       |        |       |         | (64    | )      |   |        | 501    |        |   |         | (1,159 | )      |   |         | (850    | )     |   |         |        |        |   |         | (722    | )     
|Equity interests in significantly influenced
companies                                    |                                               |                                       | (2,286 | )         |       |         | (2,535  | )      |       |      | (761    | )       |        |      |        |        |        |      |       |        |        |       |        |        |        |   |       |        |        |   |        |        |        |   | (9,547  | )       |       |   | (5,582  | )       |        |   |        |        
|Interest income                                                                           |                                               |                                       | 1,271  |           |       |         | 518     |        |       |      | 327     |         |        |      | 529     |        |        |      | 123    |        |        |       | 146     |        |        |   | 83     |        |        |   | 49      |        |        |   | 2,520   |         |       |   | 2,645   |         |        |   | 401     |        
|Interest expense                                                                          |                                               |                                       | (268   | )         |       |         | (869    | )      |       |      | (676    | )       |        |      | (704    | )      |        |      | (654   | )      |        |       | (713    | )      |        |   | (834   | )      |        |   | (801    | )      |        |   | (752    | )       |       |   | (2,517  | )       |        |   | (3,002  | )      
|                                                                                          |                                               |                                       |        |           |       |         |         |        |       |      |         |         |        |      |         |        |        |      |        |        |        |       |         |        |        |   |        |        |        |   |         |        |        |   |         |         |       |   |         |         |        |   |         |        
|Earnings (loss) before income taxes,
non-controlling interest and
discontinued operations |                                               |                                       | 3,198  |           |       |         | (17,518 | )      |       |      | 8,003   |         |        |      | (13,644 | )      |        |      | 21,333 |        |        |       | (5,868  | )      |        |   | (5,571 | )      |        |   | (6,717  | )      |        |   | (7,797  | )       |       |   | (19,961 | )       |        |   | 3,177   |        
|                                                                                          |                                               |                                       |        |           |       |         |         |        |       |      |         |         |        |      |         |        |        |      |        |        |        |       |         |        |        |   |        |        |        |   |         |        |        |   |         |         |       |   |         |         |        |   |         |        
|Income taxes                                                                              |                                               |                                       | 2,477  |           |       |         | 2,952   |        |       |      | 9,211   |         |        |      | 5,261   |        |        |      | 11,005 |        |        |       | 465     |        |        |   | 438    |        |        |   | (2,253  | )      |        |   | 6       |         |       |   | 19,901  |         |        |   | 9,655   |        
|Non-controlling interest                                                                  |                                               |                                       | (325   | )         |       |         | (930    | )      |       |      | (244    | )       |        |      | (39     | )      |        |      |       |        |        |       |        |        |        |   |       |        |        |   |        |        |        |   |        |         |       |   | (1,538  | )       |        |   |        |        
|                                                                                          |                                               |                                       |        |           |       |         |         |        |       |      |         |         |        |      |         |        |        |      |        |        |        |       |         |        |        |   |        |        |        |   |         |        |        |   |         |         |       |   |         |         |        |   |         |        
|Earnings (loss) from continuing operations                                                |                                               |                                       | 1,046  |           |       |         | (19,540 | )      |       |      | (964    | )       |        |      | (18,866 | )      |        |      | 10,328 |        |        |       | (6,333  | )      |        |   | (6,009 | )      |        |   | (4,464  | )      |        |   | (7,791  | )       |       |   | (38,324 | )       |        |   | (6,478  | )      
|Discontinued operations:                                                                  |                                               |                                       |        |           |       |         |         |        |       |      |         |         |        |      |         |        |        |      |        |        |        |       |         |        |        |   |        |        |        |   |         |        |        |   |         |         |       |   |         |         |        |   |         |        
|                                                                                          | Medical operations                            |                                       |        | (797      | )     |         |         | (1,077 | )     |      |         | (1,838  | )      |      |         | (1,607 | )      |      |        | (843   | )      |       |         | 3      |        |   |        | (799   | )      |   |         | (1,213 | )      |   |         | (3,838  | )     |   |         | (5,319  | )      |   |         | (2,852  | )     
|                                                                                          | Communications                                |                                       |        | (1,284    | )     |         |         | (4,674 | )     |      |         | (13,275 | )      |      |         | (4,197 | )      |      |        | (3,099 | )      |       |         | (4,580 | )      |   |        | (1,463 | )      |   |         | (3,366 | )      |   |         |        |       |   |         | (23,430 | )      |   |         | (12,508 | )     
|                                                                                          | Long-term care operations                     |                                       |        | (217      | )     |         |         | 13     |       |      |         | 3,304   |        |      |         | (1,043 | )      |      |        | 4      |        |       |         | 76     |        |   |        | 3      |        |   |         | (1,007 | )      |   |         | 252     |       |   |         | 2,057   |        |   |         | (924    | )     
|                                                                                          | Pharmaceutical products operations            |                                       |        |          |       |         |         |       |       |      |         |        |        |      |         | 4,519  |        |      |        |       |        |       |         | (410   | )      |   |        | (88    | )      |   |         | (209   | )      |   |         | (32,419 | )     |   |         | 4,519   |        |   |         | (707    | )     
|                                                                                          | Pharmacy services operations                  |                                       |        |          |       |         |         |       |       |      |         |        |        |      |         | (1,716 | )      |      |        |       |        |       |         |       |        |   |        |       |        |   |         | (1,958 | )      |   |         | (1,035  | )     |   |         | (1,716  | )      |   |         | (1,958  | )     
|                                                                                          | Home health care operations                   |                                       |        |          |       |         |         |       |       |      |         |        |        |      |         |       |        |      |        |       |        |       |         |       |        |   |        |       |        |   |         |       |        |   |         | (602    | )     |   |         |        |        |   |         |        |       
|                                                                                          |                                               |                                       |        |           |       |         |         |        |       |      |         |         |        |      |         |        |        |      |        |        |        |       |         |        |        |   |        |        |        |   |         |        |        |   |         |         |       |   |         |         |        |   |         |        
|Net earnings (loss)                                                                       |                                               |                                       | (1,252 | )         |       |         | (25,278 | )      |       |      | (12,773 | )       |        |      | (22,910 | )      |        |      | 6,390  |        |        |       | (11,244 | )      |        |   | (8,356 | )      |        |   | (12,217 | )      |        |   | (45,433 | )       |       |   | (62,213 | )       |        |   | (25,427 | )      
|                                                                                          |                                               |                                       |        |           |       |         |         |        |       |      |         |         |        |      |         |        |        |      |        |        |        |       |         |        |        |   |        |        |        |   |         |        |        |   |         |         |       |   |         |         |        |   |         |        
|Weighted average number of                                                                |                                               |                                       |        |           |       |         |         |        |       |      |         |         |        |      |         |        |        |      |        |        |        |       |         |        |        |   |        |        |        |   |         |        |        |   |         |         |       |   |         |         |        |   |         |        
|                                                                                          | common shares outstanding (in thousands)      |                                       |        | 23,460    |       |         |         | 22,906 |       |      |         | 22,903  |        |      |         | 22,858 |        |      |        | 22,411 |        |       |         | 22,312 |        |   |        | 22,131 |        |   |         | 21,928 |        |   |         | 24,860  |       |   |         | 23,030  |        |   |         | 22,195  |       
|                                                                                          | Basic (loss) earnings per share from:         |                                       |        |           |       |         |         |        |       |      |         |         |        |      |         |        |        |      |        |        |        |       |         |        |        |   |        |        |        |   |         |        |        |   |         |         |       |   |         |         |        |   |         |         |       
|                                                                                          |                                               | Continuing operations                 |        |           | 0.01  |         |         |        | (0.89 | )    |         |         | (0.08  | )    |         |        | (0.86  | )    |        |        | 0.43   |       |         |        | (0.32  | ) |        |        | (0.31  | ) |         |        | (0.24  | ) |         |         | (0.43 | ) |         |         | (1.80  | ) |         |         | (0.43  | )
|                                                                                          |                                               | Discontinued operations               |        |           | (0.10 | )       |         |        | (0.24 | )    |         |         | (0.51  | )    |         |        | (0.18  | )    |        |        | (0.18  | )     |         |        | (0.20  | ) |        |        | (0.11  | ) |         |        | (0.35  | ) |         |         | (1.52 | ) |         |         | (1.04  | ) |         |         | (0.85  | )
|                                                                                          |                                               |                                       |        |           |       |         |         |        |       |      |         |         |        |      |         |        |        |      |        |        |        |       |         |        |        |   |        |        |        |   |         |        |        |   |         |         |       |   |         |         |        |   |         |        
|                                                                                          |                                               | Net basic (loss) earnings per share   |        |           | (0.09 | )       |         |        | (1.13 | )    |         |         | (0.59  | )    |         |        | (1.04  | )    |        |        | 0.25   |       |         |        | (0.52  | ) |        |        | (0.42  | ) |         |        | (0.59  | ) |         |         | (1.95 | ) |         |         | (2.84  | ) |         |         | (1.28  | )
|                                                                                          |                                               |                                       |        |           |       |         |         |        |       |      |         |         |        |      |         |        |        |      |        |        |        |       |         |        |        |   |        |        |        |   |         |        |        |   |         |         |       |   |         |         |        |   |         |        
|                                                                                          | Diluted (loss) earnings per share from:       |                                       |        |           |       |         |         |        |       |      |         |         |        |      |         |        |        |      |        |        |        |       |         |        |        |   |        |        |        |   |         |        |        |   |         |         |       |   |         |         |        |   |         |         |       
|                                                                                          |                                               | Continuing operations                 |        |           | 0.01  |         |         |        | (0.89 | )    |         |         | (0.08  | )    |         |        | (0.86  | )    |        |        | 0.21   |       |         |        | (0.32  | ) |        |        | (0.31  | ) |         |        | (0.24  | ) |         |         | (0.43 | ) |         |         | (1.80  | ) |         |         | (0.43  | )
|                                                                                          |                                               | Discontinued operations               |        |           | (0.05 | )       |         |        | (0.24 | )    |         |         | (0.51  | )    |         |        | (0.18  | )    |        |        | (0.08  | )     |         |        | (0.20  | ) |        |        | (0.11  | ) |         |        | (0.35  | ) |         |         | (1.52 | ) |         |         | (1.04  | ) |         |         | (0.85  | )
|                                                                                          |                                               |                                       |        |           |       |         |         |        |       |      |         |         |        |      |         |        |        |      |        |        |        |       |         |        |        |   |        |        |        |   |         |        |        |   |         |         |       |   |         |         |        |   |         |        
|                                                                                          |                                               | Net diluted (loss) earnings per share |        |           | (0.04 | )       |         |        | (1.13 | )    |         |         | (0.59  | )    |         |        | (1.04  | )    |        |        | 0.13   |       |         |        | (0.52  | ) |        |        | (0.42  | ) |         |        | (0.59  | ) |         |         | (1.95 | ) |         |         | (2.84  | ) |         |         | (1.28  | )
|                                                                                          |                                               |                                       |        |           |       |         |         |        |       |      |         |         |        |      |         |        |        |      |        |        |        |       |         |        |        |   |        |        |        |   |         |        |        |   |         |         |       |   |         |         |        |   |         |        

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Operating losses

The Company suffered significant operating losses from continuing
operations in each of the last three years.

In 2000, operating losses of $6,500 were attributable to the cost of
providing management services to the Companys operating and portfolio
investments, including the businesses reported as discontinued operations in
the current years presentation. The Company does not follow the practice of
allocating corporate management services costs to its operating units.

In 2001, operating losses increased primarily as a result of the Companys
entry into the communications sector. The Company acquired a majority equity
position in a VoIP technology licensing convergence business, Acceris/I-Link, a
public company, and acquired certain assets out of the bankruptcy of
WorldxChange Communications, a long distance telephone services provider.

In 2002, operating losses declined as WorldxChange began to generate
positive operating income and technology licensing was restructured to reduce
its cost structure. The impact of these changes was enhanced by the Companys
entry, in the third quarter of 2002, into the profitable real estate segment.
Offsetting these improvements was the operating loss incurred as a result of
the December 2002 acquisition of certain assets out of the RSL USA Inc.
bankruptcy, an operation from which the Company expects to generate operating
income in 2003.

In 2003, while there can be no assurance, all three communications
segments, defined below, are expected to produce positive operating income and
the Companys real estate business is expected to continue to generate positive
operating income.

In 2002, the segments from continuing operations under communications are:
Acceris Communications Partners, Acceris Communications Solutions, and Acceris
Communications Technologies. The Company also presents real estate and
corporate as reportable segments. Each segment is discussed below.

More specific information regarding the Companys operating results is set
forth below in Segment Analysis.

Gains and other income

In 2002, the Company completed the liquidation of its shares of
AmeriSourceBergen Corp. (Bergen) and realized a gain of $26,573 (2001 -
$42,578; 2000  $27,153). These shares were received as partial consideration
for the sale of the Companys pharmacy services operations in January 1999, for
which the Company recorded impairment charges of $142,084 in 1999 and $21,888
in 2000 in respect of these shares.

There have been no significant sales of portfolio investments in the past
two years. In 2000, the Company sold one investment recording a gain of
$3,647. It is the Companys strategy to monetize its portfolio investments,
once sufficient liquidity returns to the markets of its investments. Liquidity
is not expected in 2003.

In 2001, the Company sold a subsidiary, Nexbell Communications Inc.
(Nexbell), to an unrelated party. At the time of the sale, Nexbells
liabilities exceeded its assets and accordingly, the amount of such excess,
totaling $589, was recorded as a gain on sale of the subsidiary.

In 2001, a gain on the extinguishment of debt was recorded. Nexbell was in
default on two leases and at the time of settlement the Company was liable for
$1,273. The liability was settled for $180, resulting in a gain on the
retirement of debt in the amount of $1,093.

In 2002, other gains of $782 were recorded due to the settlement of
certain liabilities.

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Impairments and other losses

The Company makes investments in equities of publicly traded companies,
categorized as short-term investments. Investments are carried at the lower of
cost and market value. The Company recorded impairments on short-term
investments of $4,011 in 2002, $1,957 in 2001 and $22,031 in 2000. The most
significant impairment in 2000 pertains to Bergen, which totaled $21,888. The
Company received Bergen shares as partial consideration for the sale of its
pharmacy services operations. The Companys ability to liquidate its Bergen
shares was subject to the sale agreement, which phased in permitted sales over
an 18-month period following the sale.

The Company invested in early stage technology companies prior to 2002.
The reduction in financing available to early stage organizations has affected
the growth potential of the various investments. As a result of recurring
losses on these investments, the Company recorded impairment charges. The
Company no longer provides funding to any of its portfolio investments. The
Company has recorded impairments of certain portfolio investments of $640 in
2002, $19,340 in 2001 and $2,581 in 2000. The Company plans to monetize these
portfolio investments, on acceptable terms, as liquidity comes back to these
companies markets. Liquidity is not expected in 2003.

The Company recorded other losses of $722 in 2002 pertaining primarily to
the termination of its affiliation with Springwell. In 2000, the Company
recorded losses of $850 relating to acquisition investigation costs for
transactions for which the Company did not close.

Interest income and expense

Interest income was consistent in 2000 and 2001, declining in 2002. In
2001, the Company made advances to fund acquisitions of its communications
platform and to fund the operations of its subsidiaries. In 2002, the Company
continued funding the operations of its communications platform, including the
funding of the RSL acquisition and acquired a real estate business. These
acquisitions and investments reduced the cash position of the Company,
resulting in a reduction of interest income.

Interest expense was $752 in 2000, $2,517 in 2001 and $3,002 in 2002. The
increase in 2001 is primarily due to the mid-year acquisition of a long
distance services business by Acceris/I-Links wholly owned subsidiary,
WorldxChange, particularly the inclusion of the interest charges on capital
leases at WorldxChange. The increase in 2002 reflects a full year inclusion of
interest on the capital leases at WorldxChange, the addition of an asset backed
credit facility, and interest on mortgages and debt assumed on entry into the
real estate segment. The convertible debentures of Counsel are a hybrid
financial instrument, which contains both debt and equity elements. Under
Canadian GAAP, the majority of the interest costs associated with the
debentures is recorded as a charge to equity and thus excluded from interest
expense reported by the Company (See note 11(d) to the consolidated financial
statements of the Company).

Income taxes

The Company has significant operating and capital losses available to
reduce future income tax expense. A significant amount of the future income
tax assets resulting from these losses have been offset by a valuation
allowance due to the uncertainties associated with their utilization, given the
large losses by the Company in recent years. Much of the income tax expense
recorded in 2000, 2001, and 2002 has been on account of future income taxes of
the Company, with particular emphasis on valuation allowances pertaining to
future benefits. There is significant uncertainty as to when such liabilities
will convert to cash liabilities or will be determined as no longer required by
the Company.

Equity in losses of significantly influenced companies

In 2000 and 2001, the Company had several investments over which it had
significant influence. In 2002, the Company ceased to have significant
influence over all of these investments and adopted the cost method of
accounting due to this change in circumstance. The equity interests in 2000
and 2001 resulted in charges to the Company due to the fact that significantly
influenced companies were not profitable.

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Discontinued operations

The Company disposes of operating segments from time to time.

In the second quarter of 2002, the Company settled the final payment due
under the definitive agreement with the purchaser regarding the disposition of
its pharmaceutical products business in 2001. During the course of the
settlement, the purchaser disputed certain payments regarding inventories as
set out in the agreement. The Company has assessed the impact of this dispute
and has written down its receivable from the purchaser to reflect the related
collection risk.

In the second quarter of 2002, the Company completed the sale of its
investment in shares of Bergen which were received as partial consideration for
the sale of its pharmacy services business in 1999. Losses from discontinued
operations for the pharmacy services business in 2000, 2001 and 2002, relate
primarily to litigation costs to settle the dispute with Bergen.

In the third quarter of 2002, the Company adopted a formal plan of
disposal and entered into an agreement for the disposition of its medical
products segment, which closed on October 4, 2002.

During the fourth quarter of 2002, the Company adopted formal plans of
disposal for its long-term care facilities as well as the VoIP network
operations of its communications business. The Company expects to sell the
long-term care facilities in 2003, while on December 10, 2002 the Company
entered into an agreement to sell its VoIP network operations to BUI. This
transaction is expected to close in the second quarter of 2003.

Net loss

The Company suffered a significant net loss in each of the last three
years. Net losses were $45,453, $62,213 and $25,427 in 2000, 2001 and 2002
respectively. In 2000, losses primarily related to write-downs on the Bergen
shares acquired on the sale of the pharmacy services operations and the
operating results of the pharmaceutical products business. In 2001, losses
primarily related to write-down of early stage technology and Internet
companies (portfolio investments) and to the operating losses of the Companys
communications platform. In 2002, continued operating losses of the
communications platform contributed to much of the net loss. Gains on the sale
of short-term investments, primarily Bergen shares, were $27,153 in 2000,
$42,578 in 2001 and $26,573 in 2002 and significantly reduced the net loss from
operations over the last three years. All shares of Bergen were disposed of by
the end of 2002. Short-term investments have unrealized gains as at December
31, 2002 of $1,591.

The Company expects to generate net income in 2003. The Company sold,
curtailed, and reorganized its unprofitable operations in 2002, has plans in
place to make its December 2002 acquisition of the enterprise business of RSL
self funding within 12 months, expects all of its operating segments to be
contributing positively to operating income in 2003 and to realize a gain on
the disposition of its long-term care facilities.

Segment Analysis

The continuing operating segments of the Company for communications are:
Acceris Communications Partners, Acceris Communications Solutions and Acceris
Communications Technologies. Real estate and corporate segments are reported
and analyzed separately. The Company believes that providing business segment
operations on a rolling eight quarter basis supplemented by commentary provides
meaningful information for users of the consolidated financial statements.

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Acceris Communications Partners

|                             |                                     |  |           |   |         |  |       |       |      |  |        |        |      |  |        |        |      |  |        |        |       |  |        |        |  |  |        |        |  |  |        |        |  |  |   |   |  |  |        |        |  |  |        |        | 
|---------------------------- | ----------------------------------- |  | --------- | - | ------- |  | ----- | ----- | ---- |  | ------ | ------ | ---- |  | ------ | ------ | ---- |  | ------ | ------ | ----- |  | ------ | ------ |  |  | ------ | ------ |  |  | ------ | ------ |  |  | - | - |  |  | ------ | ------ |  |  | ------ | ------ | 
|                             |                                     |  | Unaudited |   | Audited
|                             |                                     |  |           |   |        
|                             |                                     |  | 2001      |   | 2001    |  | 2001  |       | 2001 |  | 2002   |        | 2002 |  | 2002   |        | 2002 |  | 2000   |        | 2001  |  | 2002  
|                             |                                     |  | Q1        |   | Q2      |  | Q3    |       | Q4   |  | Q1     |        | Q2   |  | Q3     |        | Q4   |  | Total  |        | Total |  | Total 
|                             |                                     |  |           |   |         |  |       |       |      |  |        |        |      |  |        |        |      |  |        |        |       |  |       
|                             |                                     |  | $         |   | $       |  | $     |       | $    |  | $      |        | $    |  | $      |        | $    |  | $      |        | $     |  | $     
|Revenue                      |                                     |  |           |   |         |  |       |       |      |  |        |        |      |  |        |        |      |  |        |        |       |  |        |        |  |  |        |        |  |  |        |        |  |  |   |   |  |  |        |        |  |  |        |       
|                             | United States                       |  |           |  |         |  |       | 5,932 |      |  |        | 20,971 |      |  |        | 22,386 |      |  |        | 22,811 |       |  |        | 20,984 |  |  |        | 19,834 |  |  |        | 25,234 |  |  |   |  |  |  |        | 49,289 |  |  |        | 88,863 | 
|                             |                                     |  |           |   |         |  |       |       |      |  |        |        |      |  |        |        |      |  |        |        |       |  |        |        |  |  |        |        |  |  |        |        |  |  |   |   |  |  |        |        |  |  |        |       
|                             |                                     |  |          |   |         |  | 5,932 |       |      |  | 20,971 |        |      |  | 22,386 |        |      |  | 22,811 |        |       |  | 20,984 |        |  |  | 19,834 |        |  |  | 25,234 |        |  |  |  |   |  |  | 49,289 |        |  |  | 88,863 |       
|Operating costs and expenses |                                     |  |           |   |         |  |       |       |      |  |        |        |      |  |        |        |      |  |        |        |       |  |        |        |  |  |        |        |  |  |        |        |  |  |   |   |  |  |        |        |  |  |        |       
|                             | Telecommunication costs             |  |           |  |         |  |       | 5,315 |      |  |        | 15,728 |      |  |        | 14,503 |      |  |        | 13,273 |       |  |        | 12,237 |  |  |        | 10,973 |  |  |        | 13,262 |  |  |   |  |  |  |        | 35,546 |  |  |        | 49,745 | 
|                             | Selling, general and administrative |  |           |  |         |  |       | 961   |      |  |        | 5,880  |      |  |        | 13,717 |      |  |        | 7,698  |       |  |        | 6,179  |  |  |        | 5,717  |  |  |        | 9,212  |  |  |   |  |  |  |        | 20,558 |  |  |        | 28,806 | 
|                             | Provision for doubtful accounts     |  |           |  |         |  |       | 131   |      |  |        | 305    |      |  |        | 403    |      |  |        | 1,357  |       |  |        | 1,251  |  |  |        | 1,118  |  |  |        | 2,572  |  |  |   |  |  |  |        | 839    |  |  |        | 6,298  | 
|                             | Depreciation and amortization       |  |           |  |         |  |       | 328   |      |  |        | 1,149  |      |  |        | 809    |      |  |        | 980    |       |  |        | 977    |  |  |        | 966    |  |  |        | 1,133  |  |  |   |  |  |  |        | 2,286  |  |  |        | 4,056  | 
|                             |                                     |  |           |   |         |  |       |       |      |  |        |        |      |  |        |        |      |  |        |        |       |  |        |        |  |  |        |        |  |  |        |        |  |  |   |   |  |  |        |        |  |  |        |       
|Operating income/(loss)      |                                     |  |          |   |         |  | (803  | )     |      |  | (2,091 | )      |      |  | (7,046 | )      |      |  | (497   | )      |       |  | 340    |        |  |  | 1,060  |        |  |  | (945   | )      |  |  |  |   |  |  | (9,940 | )      |  |  | (42    | )     

Acceris Communications Partners business includes the operations acquired
by WorldxChange in June 2001 and the assets used to provide long distance and
other voice services to small businesses and the consumer/residential market
(A&R business) of RSL, which were acquired in December 2002. Acceris
Communications Partners is facilities based telecommunications provider in the
retail long distance market. In 2000, the Company did not operate in this
segment.

Acceris Communications Partners accounted for $88,863 of
telecommunications services revenue in 2002 and $49,289 in 2001.

Comparing Acceris Communication Partners 2002 revenue to annualized 2001
revenue shows an increase in revenue. Understanding the change in revenue
requires a more detailed review as presented below. Telecommunications
services revenue is the result of three primary elements, specifically, volume
of minutes, rate per minute and the number of customers.

In 2002, the Acceris Communications Partners business experienced an
increase of approximately 12% in the volume of minutes over its network
compared to 2001 on an annualized basis. This increased network utilization
was offset by a 23% decrease in the average rate per minute due to significant
price decreases in the long distance market throughout most of 2002. Similar
decreases are not expected to continue in 2003. The average number of active
customers in 2002 increased over 2001 by 3%. Part of the source of that
increase began in the fourth quarter of 2001, when Acceris Communications
Partners embarked on an aggressive direct advertising campaign, which resulted
in increases in the number of customers on the network in late 2001 and into
the first half of 2002. While the investment in direct advertising increased
revenue, its contribution was not profitable. Accordingly, in early 2002, the
direct advertising campaign ceased and more profitable methods of attracting
and retaining customers were pursued. The alternative methods being used to
attract profitable customers was the decision to focus on and grow the
commercial agent and multi-level marketing (MLM) channels, while also
expanding the product offerings to include 1+ long distance services, content
provisioning, wholesale carriage, and conference call services. The
acquisition of the A&R business of RSL is expected to act as an accelerator to
the commercial agent strategy.

While there can be no assurance, Acceris Communications Partners expects
to show increasing revenue in 2003. The Company believes the increase will be
achieved by (1) increasing the customer base, which in turn increases network
utilization and (2) the effect of a full year inclusion of the A&R business of
RSL. The expected increase in customer base will come from the customer
attraction and retention programs in place, the completing and maturing of the
channel transition coupled with potential acquisitions, and by broadening the
Companys product offerings.

Acceris Communications Partners telecommunication costs were $49,745 in
2002 and $35,546 in 2001. The increase in 2002 compared to 2001 relates
primarily to inclusion of a full year of WorldxChange operations as opposed to
seven months in 2001. On an annualized basis, telecommunications network
expense decreased from 2001 to 2002. The decrease on an annualized basis
correlates with a 16% increase in telecommunications services revenue margin
(telecommunication services revenue net of telecommunication network expense)
in 2002 over 2001, primarily relating to improved network efficiency derived
from reductions in operating costs and efficiencies relating to more scaled
utilization of the network. As outlined in the revenue discussions, price
erosion was pervasive throughout 2002;

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however, this erosion was mitigated by price protection clauses in
contracts with underlying carriers that also reduce the Companys carrier
costs. In 2003, it is expected that network expense will directly correlate
with telecommunication services revenue and that the telecommunications
services margin will remain consistent with 2002.

Acceris Communications Partners selling, general and administrative
expense was $28,806 in 2002 up from $20,558 in 2001. The increase in 2002
compared to 2001 primarily relates to a full year of operations of Acceris
Communications Partners in 2002 as compared to seven months of operations in
2001. Selling, general and administrative expense will increase in 2003 due to
the inclusion of the A&R business of RSL, which was acquired in December 2002.
Selling, general and administrative expense for 2002 includes advertising costs
of $1,590 as compared to $7,266 in 2001. The decrease in advertising costs in
2002 compared to 2001 relates to the curtailment, in the first quarter of 2002,
of a direct advertising program that commenced in 2001. The program was
curtailed, because the returns from the program did not justify the investment.
Subsequent to the curtailment of the direct advertising program in early
2002, management focused its attention on the reorganization of its channel
strategy by placing greater emphasis on the commercial agent and MLM channels.
The transition in strategy reduced advertising costs but introduced a higher
level of sales commissions.

Acceris Communications Partners provision for doubtful accounts was
$6,298 in 2002 compared with $839 in 2001. The increase in 2002 over 2001
primarily relates to a full year of revenue from Acceris Communications
Partners in 2002 compared with seven months of operations in 2001. Other than
the increase to a full year of operations, the provision increase in 2002
relates to a change in channels resulting in more direct billing of customers,
which incurs a larger percentage of uncollectible accounts.

Acceris Communications Solutions

|                             |                                     |  |           |   |         |  |      |   |      |  |      |   |      |  |      |   |      |  |       |   |       |  |       |   |  |  |   |   |  |  |       |       |  |  |   |   |  |  |   |   |  |  |       |       | 
|---------------------------- | ----------------------------------- |  | --------- | - | ------- |  | ---- | - | ---- |  | ---- | - | ---- |  | ---- | - | ---- |  | ----- | - | ----- |  | ----- | - |  |  | - | - |  |  | ----- | ----- |  |  | - | - |  |  | - | - |  |  | ----- | ----- | 
|                             |                                     |  | Unaudited |   | Audited
|                             |                                     |  |           |   |        
|                             |                                     |  | 2001      |   | 2001    |  | 2001 |   | 2001 |  | 2002 |   | 2002 |  | 2002 |   | 2002 |  | 2000  |   | 2001  |  | 2002 
|                             |                                     |  | Q1        |   | Q2      |  | Q3   |   | Q4   |  | Q1   |   | Q2   |  | Q3   |   | Q4   |  | Total |   | Total |  | Total
|                             |                                     |  |           |   |         |  |      |   |      |  |      |   |      |  |      |   |      |  |       |   |       |  |      
|                             |                                     |  | $         |   | $       |  | $    |   | $    |  | $    |   | $    |  | $    |   | $    |  | $     |   | $     |  | $    
|Revenue                      |                                     |  |           |   |         |  |      |   |      |  |      |   |      |  |      |   |      |  |       |   |       |  |       |   |  |  |   |   |  |  |       |       |  |  |   |   |  |  |   |   |  |  |       |      
|                             | United States                       |  |           |  |         |  |      |  |      |  |      |  |      |  |      |  |      |  |       |  |       |  |       |  |  |  |   |  |  |  |       | 1,547 |  |  |   |  |  |  |   |  |  |  |       | 1,547 | 
|                             |                                     |  |           |   |         |  |      |   |      |  |      |   |      |  |      |   |      |  |       |   |       |  |       |   |  |  |   |   |  |  |       |       |  |  |   |   |  |  |   |   |  |  |       |      
|                             |                                     |  |          |   |         |  |     |   |      |  |     |   |      |  |     |   |      |  |      |   |       |  |      |   |  |  |  |   |  |  | 1,547 |       |  |  |  |   |  |  |  |   |  |  | 1,547 |      
|Operating costs and expenses |                                     |  |           |   |         |  |      |   |      |  |      |   |      |  |      |   |      |  |       |   |       |  |       |   |  |  |   |   |  |  |       |       |  |  |   |   |  |  |   |   |  |  |       |      
|                             | Telecommunication costs             |  |           |  |         |  |      |  |      |  |      |  |      |  |      |  |      |  |       |  |       |  |       |  |  |  |   |  |  |  |       | 1,191 |  |  |   |  |  |  |   |  |  |  |       | 1,191 | 
|                             | Selling, general and administrative |  |           |  |         |  |      |  |      |  |      |  |      |  |      |  |      |  |       |  |       |  |       |  |  |  |   |  |  |  |       | 777   |  |  |   |  |  |  |   |  |  |  |       | 777   | 
|                             | Provision for doubtful accounts     |  |           |  |         |  |      |  |      |  |      |  |      |  |      |  |      |  |       |  |       |  |       |  |  |  |   |  |  |  |       | 33    |  |  |   |  |  |  |   |  |  |  |       | 33    | 
|                             | Depreciation and amortization       |  |           |  |         |  |      |  |      |  |      |  |      |  |      |  |      |  |       |  |       |  |       |  |  |  |   |  |  |  |       | 158   |  |  |   |  |  |  |   |  |  |  |       | 158   | 
|                             |                                     |  |           |   |         |  |      |   |      |  |      |   |      |  |      |   |      |  |       |   |       |  |       |   |  |  |   |   |  |  |       |       |  |  |   |   |  |  |   |   |  |  |       |      
|Operating loss               |                                     |  |          |   |         |  |     |   |      |  |     |   |      |  |     |   |      |  |      |   |       |  |      |   |  |  |  |   |  |  | (612  | )     |  |  |  |   |  |  |  |   |  |  | (612  | )    

Acceris Communications Solutions is comprised of the operations of the
former Enterprise business of RSL acquired in December 2002. In 2001 and 2000,
the Company did not operate in this segment.

Revenue of $1,547 has been included in 2002 for the period from December
11, 2002 through December 31, 2002. While in bankruptcy, the Enterprise
business of RSL found it very difficult to attract new customers. Despite
competitive pricing, prospective customers were unwilling to make significant
and long-term contractual commitments given RSLs financial uncertainty. This
financial uncertainty also affected the existing customer base as their
contracts expired, resulting in higher than normal customer attrition rates
compared to the pre-bankruptcy operations of RSL. Price competition is
expected to continue in 2003, however the Company believes that the
contribution margin from revenue in this segment will remain comparable with
2002.

While in bankruptcy, the Enterprise business of RSL concentrated on
maintaining its customer base. Since the acquisition of the business, the
Company has focused on stabilizing the existing customer base and has
instituted a customer acquisition plan, which is expected to take several
months for significant customer acquisitions to materialize, due to the long
sales cycle in its market. Steady growth in revenue from current sales efforts
is expected to materialize in the second half of 2003 and beyond.

It is expected that Acceris Communications Solutions will be self-funding
beyond its acquisition capitalization. Like Acceris Communications Partners,
in order to obtain working capital, Acceris Communications Solutions plans to
enter into an asset backed debt facility, utilizing its accounts receivable and
underlying assets as collateral.

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Acceris Communications Solutions accounted for $1,191 of the total network
expense in 2002. It is anticipated that its telecommunications network expense
will increase in 2003 at a slower rate than its revenue growth thus increasing
telecommunications services margins.

Acceris Communications Solutions accounted for $777 of selling, general
and administrative expense in 2002. It is anticipated that this expense will
remain constant on an annualized basis in 2003.

Acceris Communications Solutions recorded a provision for doubtful
accounts of $33 in 2002. Acceris Communications Solutions anticipates that its
2003 provision for doubtful accounts as a percentage of revenue will remain
consistent with 2002.

Acceris Communications Technologies

|                             |                                     |  |           |     |         |  |        |       |      |  |        |       |      |  |        |       |      |  |       |       |       |  |        |     |  |  |        |     |  |  |        |       |  |  |   |   |  |  |         |       |  |  |        |       | 
|---------------------------- | ----------------------------------- |  | --------- | --- | ------- |  | ------ | ----- | ---- |  | ------ | ----- | ---- |  | ------ | ----- | ---- |  | ----- | ----- | ----- |  | ------ | --- |  |  | ------ | --- |  |  | ------ | ----- |  |  | - | - |  |  | ------- | ----- |  |  | ------ | ----- | 
|                             |                                     |  | Unaudited |     | Audited
|                             |                                     |  |           |     |        
|                             |                                     |  | 2001      |     | 2001    |  | 2001   |       | 2001 |  | 2002   |       | 2002 |  | 2002   |       | 2002 |  | 2000  |       | 2001  |  | 2002  
|                             |                                     |  | Q1        |     | Q2      |  | Q3     |       | Q4   |  | Q1     |       | Q2   |  | Q3     |       | Q4   |  | Total |       | Total |  | Total 
|                             |                                     |  |           |     |         |  |        |       |      |  |        |       |      |  |        |       |      |  |       |       |       |  |       
|                             |                                     |  | $         |     | $       |  | $      |       | $    |  | $      |       | $    |  | $      |       | $    |  | $     |       | $     |  | $     
|Revenue                      |                                     |  |           |     |         |  |        |       |      |  |        |       |      |  |        |       |      |  |       |       |       |  |        |     |  |  |        |     |  |  |        |       |  |  |   |   |  |  |         |       |  |  |        |      
|                             | United States                       |  |           | 470 |         |  |        | 1,420 |      |  |        | 1,420 |      |  |        | 1,420 |      |  |       | 1,581 |       |  |        | 888 |  |  |        | 321 |  |  |        | 47    |  |  |   |  |  |  |         | 4,730 |  |  |        | 2,837 | 
|                             |                                     |  |           |     |         |  |        |       |      |  |        |       |      |  |        |       |      |  |       |       |       |  |        |     |  |  |        |     |  |  |        |       |  |  |   |   |  |  |         |       |  |  |        |      
|                             |                                     |  | 470       |     |         |  | 1,420  |       |      |  | 1,420  |       |      |  | 1,420  |       |      |  | 1,581 |       |       |  | 888    |     |  |  | 321    |     |  |  | 47     |       |  |  |  |   |  |  | 4,730   |       |  |  | 2,837  |      
|Operating costs and expenses |                                     |  |           |     |         |  |        |       |      |  |        |       |      |  |        |       |      |  |       |       |       |  |        |     |  |  |        |     |  |  |        |       |  |  |   |   |  |  |         |       |  |  |        |      
|                             | Selling, general and administrative |  |           |    |         |  |        | 1,874 |      |  |        | 2,402 |      |  |        | 4,646 |      |  |       | 1,002 |       |  |        | 968 |  |  |        | 942 |  |  |        | 1,350 |  |  |   |  |  |  |         | 8,922 |  |  |        | 4,262 | 
|                             | Research and development            |  |           | 896 |         |  |        | 524   |      |  |        | 435   |      |  |        | 307   |      |  |       | 382   |       |  |        | 465 |  |  |        | 317 |  |  |        | 235   |  |  |   |  |  |  |         | 2,162 |  |  |        | 1,399 | 
|                             | Depreciation and amortization       |  |           | 281 |         |  |        | 1,243 |      |  |        | 2,111 |      |  |        | 1,437 |      |  |       | 558   |       |  |        | 559 |  |  |        | 536 |  |  |        | 470   |  |  |   |  |  |  |         | 5,072 |  |  |        | 2,123 | 
|                             |                                     |  |           |     |         |  |        |       |      |  |        |       |      |  |        |       |      |  |       |       |       |  |        |     |  |  |        |     |  |  |        |       |  |  |   |   |  |  |         |       |  |  |        |      
|Operating loss               |                                     |  | (707      | )   |         |  | (2,221 | )     |      |  | (3,528 | )     |      |  | (4,970 | )     |      |  | (361  | )     |       |  | (1,104 | )   |  |  | (1,474 | )   |  |  | (2,008 | )     |  |  |  |   |  |  | (11,426 | )     |  |  | (4,947 | )    

Acceris Communications Technologies is the former technology services
segment of Acceris/I-Link, which licenses a fully developed technology platform
to third party users that facilitates the convergence of traditional
telecommunications equipment and internet protocol technologies. The Company
entered this segment via the acquisition of Acceris/I-Link in March 2001.

Revenue from Acceris Communications Technologies was $2,837 in 2002 and
$4,730 in 2001. Revenue in 2002 and 2001 was largely from a $10,000 licensing
agreement entered with a single customer that was recognized over a twenty-four
month period, which ended in May 2002. When examining the technology licensing
market it is important to appreciate that revenue is project based and, as
such, revenue will vary from year to year based on timing of technology
licensing, development projects and payments. The primary decrease in revenue
in 2002 from 2001 was due to the expiry of the revenue recognition period
relating to the $10,000 licensing agreement.

Historically, Acceris Communications Technologies has focused its sales on
international markets while focusing domestically on its own network
development. In December 2002, the Company entered into an agreement to sell
the domestic network operations conducted in a subsidiary of Acceris/I-Link,
I-Link Communications Inc. (ILC) to BUI as part of a formal plan of disposal
pursuant to a refocusing of strategy by management. The sale closed in the
second quarter of 2003. While the operations of ILC have been sold, the
Company has retained ownership of the technology that was licensed to BUI.
While the licensing to BUI was the first domestic licensing of the domestic
technology, in January 2003, the Company entered into a second domestic
licensing agreement and expects to sell several additional licenses throughout
2003.

Acceris Communications Technologies selling, general and administrative
expense includes overhead for the technology licensing business and corporate
head office related expenses, related to the communications business. These
costs were $8,922 in 2001, and $4,262 in 2002. 2002 costs exceeded 2001 due to
the full year inclusion of the March 2001 acquisition of this business. Costs
are expected to decrease in 2003 as a result of the fourth quarter 2002
significant downsizing at the segments corporate head office in Draper, Utah.

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##### Table of Contents



Acceris Communications Technologies incurred research and development
costs of $1,399 in 2002 compared with $2,162 in 2001. The decrease is a result
of the consolidation of research operations and the curtailment of research and
development activities in order to concentrate on sales and marketing of
existing products. With the sale of the ILC business, the Company has stopped
research and development activities and expects there will be minimal research
and development activities in 2003 as concentration on sales of existing
products continues.

Acceris Communications Technologies had no bad debts in any year presented
due to the nature of the revenue.

Real estate

|                             |                               |  |           |   |         |  |      |   |      |  |      |   |      |  |      |    |      |  |       |    |       |  |       |    |  |  |       |       |  |  |       |       |  |  |   |   |  |  |    |    |  |  |       |       | 
|---------------------------- | ----------------------------- |  | --------- | - | ------- |  | ---- | - | ---- |  | ---- | - | ---- |  | ---- | -- | ---- |  | ----- | -- | ----- |  | ----- | -- |  |  | ----- | ----- |  |  | ----- | ----- |  |  | - | - |  |  | -- | -- |  |  | ----- | ----- | 
|                             |                               |  | Unaudited |   | Audited
|                             |                               |  |           |   |        
|                             |                               |  | 2001      |   | 2001    |  | 2001 |   | 2001 |  | 2002 |   | 2002 |  | 2002 |    | 2002 |  | 2000  |    | 2001  |  | 2002 
|                             |                               |  | Q1        |   | Q2      |  | Q3   |   | Q4   |  | Q1   |   | Q2   |  | Q3   |    | Q4   |  | Total |    | Total |  | Total
|                             |                               |  |           |   |         |  |      |   |      |  |      |   |      |  |      |    |      |  |       |    |       |  |      
|                             |                               |  | $         |   | $       |  | $    |   | $    |  | $    |   | $    |  | $    |    | $    |  | $     |    | $     |  | $    
|Revenue                      |                               |  |           |   |         |  |      |   |      |  |      |   |      |  |      |    |      |  |       |    |       |  |       |    |  |  |       |       |  |  |       |       |  |  |   |   |  |  |    |    |  |  |       |      
|                             | Canada                        |  |           |  |         |  |      |  |      |  |      |  |      |  |      | 11 |      |  |       | 75 |       |  |       | 78 |  |  |       | 1,486 |  |  |       | 1,704 |  |  |   |  |  |  |    | 11 |  |  |       | 3,343 | 
|                             |                               |  |           |   |         |  |      |   |      |  |      |   |      |  |      |    |      |  |       |    |       |  |       |    |  |  |       |       |  |  |       |       |  |  |   |   |  |  |    |    |  |  |       |      
|                             |                               |  |          |   |         |  |     |   |      |  |     |   |      |  | 11   |    |      |  | 75    |    |       |  | 78    |    |  |  | 1,486 |       |  |  | 1,704 |       |  |  |  |   |  |  | 11 |    |  |  | 3,343 |      
|Operating costs and expenses |                               |  |           |   |         |  |      |   |      |  |      |   |      |  |      |    |      |  |       |    |       |  |       |    |  |  |       |       |  |  |       |       |  |  |   |   |  |  |    |    |  |  |       |      
|                             | Income producing properties   |  |           |  |         |  |      |  |      |  |      |  |      |  |      |   |      |  |       |   |       |  |       |   |  |  |       | 502   |  |  |       | 946   |  |  |   |  |  |  |    |   |  |  |       | 1,448 | 
|                             | Depreciation and amortization |  |           |  |         |  |      |  |      |  |      |  |      |  |      | 3  |      |  |       | 16 |       |  |       | 16 |  |  |       | 107   |  |  |       | 60    |  |  |   |  |  |  |    | 3  |  |  |       | 199   | 
|                             |                               |  |           |   |         |  |      |   |      |  |      |   |      |  |      |    |      |  |       |    |       |  |       |    |  |  |       |       |  |  |       |       |  |  |   |   |  |  |    |    |  |  |       |      
|Operating income             |                               |  |          |   |         |  |     |   |      |  |     |   |      |  | 8    |    |      |  | 59    |    |       |  | 62    |    |  |  | 877   |       |  |  | 698   |       |  |  |  |   |  |  | 8  |    |  |  | 1,696 |      

Counsel purchased five income-producing properties in the third quarter of
the current year, which were immediately accretive to earnings.

Revenue generated by the real estate segment in 2002 was $3,343. This
revenue was generated by six income-producing properties, five of which were
acquired in the third quarter of 2002 for $35,512. The leasable area of these
properties is 776,000 square feet with occupancy of 94% at December 31, 2002.
The real estate segment has generated positive operating and net income since
acquisition and is self-funding. During fiscal 2003, the Company plans to
acquire additional properties.

Corporate operating costs and expenses

|                             |                                     |  |           |       |         |  |        |       |      |  |        |       |      |  |        |       |      |  |        |       |       |  |        |       |  |  |        |       |  |  |        |       |  |  |        |       |  |  |         |        |  |  |         |        | 
|---------------------------- | ----------------------------------- |  | --------- | ----- | ------- |  | ------ | ----- | ---- |  | ------ | ----- | ---- |  | ------ | ----- | ---- |  | ------ | ----- | ----- |  | ------ | ----- |  |  | ------ | ----- |  |  | ------ | ----- |  |  | ------ | ----- |  |  | ------- | ------ |  |  | ------- | ------ | 
|                             |                                     |  | Unaudited |       | Audited
|                             |                                     |  |           |       |        
|                             |                                     |  | 2001      |       | 2001    |  | 2001   |       | 2001 |  | 2002   |       | 2002 |  | 2002   |       | 2002 |  | 2000   |       | 2001  |  | 2002  
|                             |                                     |  | Q1        |       | Q2      |  | Q3     |       | Q4   |  | Q1     |       | Q2   |  | Q3     |       | Q4   |  | Total  |       | Total |  | Total 
|                             |                                     |  |           |       |         |  |        |       |      |  |        |       |      |  |        |       |      |  |        |       |       |  |       
|                             |                                     |  | $         |       | $       |  | $      |       | $    |  | $      |       | $    |  | $      |       | $    |  | $      |       | $     |  | $     
|Revenue                      |                                     |  |           |       |         |  |        |       |      |  |        |       |      |  |        |       |      |  |        |       |       |  |        |       |  |  |        |       |  |  |        |       |  |  |        |       |  |  |         |        |  |  |         |       
|                             | Canada                              |  |           |      |         |  |        |      |      |  |        |      |      |  |        |      |      |  |        |      |       |  |        |      |  |  |        |      |  |  |        |      |  |  |        |      |  |  |         |       |  |  |         |       | 
|                             | United States                       |  |           |      |         |  |        |      |      |  |        |      |      |  |        |      |      |  |        |      |       |  |        |      |  |  |        |      |  |  |        |      |  |  |        |      |  |  |         |       |  |  |         |       | 
|                             |                                     |  |           |       |         |  |        |       |      |  |        |       |      |  |        |       |      |  |        |       |       |  |        |       |  |  |        |       |  |  |        |       |  |  |        |       |  |  |         |        |  |  |         |       
|Operating costs and expenses |                                     |  |           |       |         |  |        |       |      |  |        |       |      |  |        |       |      |  |        |       |       |  |        |       |  |  |        |       |  |  |        |       |  |  |        |       |  |  |         |        |  |  |         |       
|                             | Selling, general and administrative |  |           | 3,183 |         |  |        | 4,505 |      |  |        | 3,214 |      |  |        | 3,968 |      |  |        | 3,692 |       |  |        | 2,718 |  |  |        | 4,016 |  |  |        | 2,788 |  |  |        | 6,300 |  |  |         | 14,870 |  |  |         | 13,214 | 
|                             | Depreciation and amortization       |  |           | 355   |         |  |        | 407   |      |  |        | 414   |      |  |        | 312   |      |  |        | 130   |       |  |        | 40    |  |  |        | 151   |  |  |        | 258   |  |  |        | 205   |  |  |         | 1,488  |  |  |         | 579    | 
|                             |                                     |  |           |       |         |  |        |       |      |  |        |       |      |  |        |       |      |  |        |       |       |  |        |       |  |  |        |       |  |  |        |       |  |  |        |       |  |  |         |        |  |  |         |       
|Operating loss               |                                     |  | (3,538    | )     |         |  | (4,912 | )     |      |  | (3,628 | )     |      |  | (4,280 | )     |      |  | (3,822 | )     |       |  | (2,758 | )     |  |  | (4,167 | )     |  |  | (3,046 | )     |  |  | (6,505 | )     |  |  | (16,358 | )      |  |  | (13,793 | )     

Head office costs, which are included in selling, general and
administrative expense, amounted to $6,300 in 2000. Costs increased in 2001 due
to the Company taking a control position in Proscape Technologies Inc.
(Proscape), a company that develops, markets and supports marketing and sales
information systems, and the affiliation with Springwell to oversee the
Companys investments in communications. In 2002, costs were reduced to $13,214
as the Company closed its New York office, curtailed its relationship with
Springwell and ceased consolidating the operating costs of Proscape due to the
dilution of the Companys ownership to a minority position. It is anticipated
that head office costs will continue to decrease in 2003, primarily due to
experiencing a full year of savings from both the New York office closure and
the wind down of the Springwell relationship.

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B. LIQUIDITY AND CAPITAL RESOURCES

Sources of funding

The Company remains financially sound with $12,100 in cash equivalents and
short-term investments. Management expects the Company to be generating
positive operating income and net earnings in 2003 based on the assumptions
outlined in the various segmented results discussed previously.

Management will continue to monetize its position in its short-term and
portfolio investments on acceptable terms in order to provide capital to
complete acquisitions in support of the Companys communications and real
estate platforms and for general corporate purposes. In 2003, management
expects to monetize its investment in long-term care facilities on favourable
terms.

The proceeds from the sale of long-term care facilities, cash and cash
equivalents and short-term investments, as well as anticipated operating
profits, are expected to provide Counsel with adequate near term financing. In
the event that proposed transactions do not materialize or actual results vary
materially from expected results, Counsel would need to obtain additional
funding from capital or debt markets or through the sale of other assets. At
present, Counsel has a debt facility in place, at WorldxChange. The
WorldxChange facility is an asset-based facility, which has covenants in place
that prevent WorldxChange from up streaming funds to Counsel, except in limited
situations.

There is no certainty that management has the ability to raise sufficient
debt or equity in the current markets, or that management can monetize its
investments on a timely basis to fund a cash settlement of the Companys
convertible debentures when they become due on October 31, 2003.

Uses of funding

During 2001, the Company changed its focus and commenced investing in
United States based communications and Canadian based real estate. Currently,
all other lines of business are under formal plans of disposal. Over the past
two years the most significant use of funds was the acquisition of businesses
in the communications and real estate sectors.

Significant outflows included funding acquisitions to expand the
telecommunications business and subsequently funding operating losses through
2001 and 2002. The purchase of the telecommunications business began with the
purchase of Acceris/I-Link in 2001. The Company acquired Acceris/I-Link for
cash consideration of $5,113. Subsequently, the Company purchased net assets
related to the dial-around long distance business of WorldxChange for cash
consideration of $13,000, which is the reportable segment Acceris
Communications Partners. It is expected that this business will generate cash
and positive net income in 2003. In 2002 the Company purchased the Enterprise
and A&R business of RSL for cash consideration of $7,500.

In the third quarter of 2002, the Company purchased five income-producing
properties, which marked its strategic entry into the Canadian real estate
business. The Company invested approximately $15,000 in cash. These
properties were immediately accretive to cash flow and net income.

The Company acquired short-term investments totalling 2001  $3,183 and
2002  $9,748.

Financing

With the repayment of a $40,000 note in 2001, the Company limited its
general corporate debt to its convertible debentures, which are discussed in
more detail below. All new indebtedness in 2001 and 2002 was a result of
acquisition financing. Other than the convertible debentures, all indebtedness
is at the operating company level and the cost of this debt is expected to be
funded by operating cash flows during 2003.

Stock purchase loans

The Company has provided stock purchase loans to certain employees and
former employees of the Company. The collateral for these loans is the common
shares of the Company and personal guarantees. If the price of the Companys
common stock were to decrease substantially, there is a risk that employees and
former employees may not have the resources to pay loans as they come due.

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Property, plant and equipment

Investment in property, plant and equipment for the year ended December
31, 2002 was $1,739 (2001  $1,163; 2000  $73). The Company expects to invest
approximately $3,400 in property, plant and equipment during fiscal 2003.
Funding for these investments is expected to come from cash on hand and
operating cash flows. The significant spending for property plant and equipment
in 2003 is expected to occur in the communications platform to address network
development and integration initiatives.

Dividends

There are no restrictions on the repayment of advances or payment of
dividends by any of the Companys subsidiaries other than WorldxChange, which
has certain restrictions as a result of a three-year loan and security
agreement, consisting of an accounts receivable based revolving credit facility
that it entered into in December 2001. WorldxChange borrows against this
facility for certain of its Local Exchange Carrier (LEC) receivables;
borrowings are subject to customer aging tests, capital expenditure limits, and
earnings tests. On July 20, 1999, the Company paid a special dividend of C$1.50
per share primarily related to the realization of value on the successful sale
of Stadtlander. As a result of the dividend, the conversion price of the
Companys convertible debentures was reduced to $11.726 per share from $13.875.
On April 30, 2000 the Company paid a dividend in kind of all of its shares of
American HomePatient Inc. to complete the disposition of this discontinued
operation, which resulted in a further reduction of the debenture conversion
price to $11.472.

Counsel does not currently pay a dividend and is not planning on paying a
dividend in the foreseeable future.

Normal course issuer bids

On December 12, 2002, the Company renewed its normal course issuer bids
through the facilities of The Toronto Stock Exchange to purchase up to
1,089,000 common shares or 5% of the outstanding common shares of the Company,
and $2,128 face value of convertible debentures during the 12-month period
beginning December 16, 2002 and ending on October 31, 2003 for the convertible
debentures and on December 15, 2003 for its common shares.

During 2002, pursuant to normal course issuer bids, the Company acquired
748,000 (2001  1,444,000; 2000  1,688,000) common shares for cancellation.
The excess of the average issue price over the repurchase price was credited to
contributed surplus. During 2002, $1,886 was credited to contributed surplus
(2001  $3,878; 2000  $2,220).

During 2002, pursuant to normal course issuer bids, the Company purchased
for cancellation $200 (2001  $5,740) of debentures for cash consideration of
$138 (2001  $3,180) reducing the liability component of the debentures
payable by $9 (2001  $720). The fair value of the debentures as at December
31, 2002 was $27,882 (2001  $23,519). As a result of the cancellation of
repurchased convertible debentures, the outstanding face amount as at December
31, 2002 was $42,561 (2001  $42,761).

C.     RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

The Company has had no significant research and development expenditures
over the past three years, other than the research and development
done by Acceris/I-Link. Acceris/I-Links research and development expenditures
decreased in 2002 over 2001 (by $800, from $2,200 to $1,400) primarily as a
result of its decision to consolidate its research operations and its decision
to curtail research and development activities to concentrate its financial
resources on sales and marketing of existing products.

D.     TREND INFORMATION

The Company does not know of any significant trends, uncertainties,
demands, commitments, or events that would have a material effect on the
Companys financial condition, other than those disclosed in this report.

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E. OFF-BALANCE SHEET ARRANGEMENTS

The Company has guaranteed the repayment of certain mortgages amounting to
$33,506. Seven of these mortgages, amounting to $25,678, are payable by a
limited partnership in which the Company has a 50% equity interest. The
Companys investment in this limited partnership has a carrying value of $nil.
In 1984 the Company sold seven long-term care facilities to the limited
partnership. The Company continued to act as guarantor for the repayment of
these mortgages which were assumed by the limited partnership. The limited
partnership is in compliance with the terms of the mortgages, and accordingly,
the Company has not recognized any liability that may arise under the
guarantees provided. The Companys guarantee for these mortgages expires in
2004. The Company believes that the value of the facilities, which have been
provided as collateral for the guarantees, is in excess of the amount of the
mortgages and, on a sale or liquidation, would be sufficient to reimburse the
Company for any payments that become due under these guarantees.

In addition, the Company has provided a guarantee for the repayment of a
mortgage of $7,828 payable by another limited partnership. In 1985 the Company
sold a long-term care facility to the limited partnership. The mortgage on the
facility was assumed by the partnership and continued to be guaranteed by the
Company. The Company receives a fee for this guarantee. The Company has no
equity interest in the partnership; however, it does receive an annual
incentive fee from the partnership based on the partnerships financial
performance and is entitled to participate in the proceeds of a sale or
refinancing of the facility. The Companys guarantee for this mortgage expires
in 2015. The limited partnership is in compliance with the terms of the
mortgage, and accordingly, the Company has not recognized any liability that
may arise under this guarantee. The Company believes that the value of the
facility, which has been provided as collateral for the guarantee, is in excess
of the amount of the mortgage and, on a sale or liquidation, would be
sufficient to reimburse the Company for any payments that become due under this
guarantee.

F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

The following table summarizes all of the outstanding obligations of the
Companys continuing and discontinued operations by year that they become due.
The Company expects to fund these obligations from operating income, cash on
hand, the renewal of mortgages, loans, debentures, and the monetization of
existing assets.

|                                                        |  |      |        |      |  |      |        |      |  |      |        |            |  |       |       |  |  |  |       |  |  |  |        |  |  |  |         | 
|------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ | ---------- |  | ----- | ----- |  |  |  | ----- |  |  |  | ------ |  |  |  | ------- | 
|Contractual obligations                                 |  | 2003 |        | 2004 |  | 2005 |        | 2006 |  | 2007 |        | Thereafter |  | Total
|                                                        |  |      |        |      |  |      |        |      |  |      |        |            |  |      
|                                                        |  | $    |        | $    |  | $    |        | $    |  | $    |        | $          |  | $    
|Usage Commitments *                                     |  |      | 14,184 |      |  |      | 923    |      |  |      |       |            |  |       |      |  |  |  |      |  |  |  |       |  |  |  | 15,107  | 
|Operating lease obligations                             |  |      | 5,332  |      |  |      | 4,947  |      |  |      | 1,834  |            |  |       | 1,078 |  |  |  | 467   |  |  |  | 186    |  |  |  | 13,844  | 
|Operating facility expiry                               |  |      | 9,086  |      |  |      |       |      |  |      |       |            |  |       |      |  |  |  |      |  |  |  |       |  |  |  | 9,086   | 
|Mortgage and loan obligations  continuing operations   |  |      | 3,630  |      |  |      | 1,723  |      |  |      | 736    |            |  |       | 998   |  |  |  | 655   |  |  |  | 18,416 |  |  |  | 26,158  | 
|Mortgage and loan obligations  discontinued operations |  |      | 181    |      |  |      | 363    |      |  |      | 6,640  |            |  |       | 4,537 |  |  |  |      |  |  |  |       |  |  |  | 11,721  | 
|Convertible debentures obligation**                     |  |      | 42,561 |      |  |      |       |      |  |      |       |            |  |       |      |  |  |  |      |  |  |  |       |  |  |  | 42,561  | 
|Capital lease obligations                               |  |      | 3,036  |      |  |      | 3,015  |      |  |      | 1,514  |            |  |       |      |  |  |  |      |  |  |  |       |  |  |  | 7,565   | 
|                                                        |  |      |        |      |  |      |        |      |  |      |        |            |  |       |       |  |  |  |       |  |  |  |        |  |  |  |         | 
|Total                                                   |  |      | 78,010 |      |  |      | 10,971 |      |  |      | 10,724 |            |  |       | 6,613 |  |  |  | 1,122 |  |  |  | 18,602 |  |  |  | 126,042 | 
|                                                        |  |      |        |      |  |      |        |      |  |      |        |            |  |       |       |  |  |  |       |  |  |  |        |  |  |  |         | 



|*  |  | Communication subsidiaries have various agreements with
U.S. national carriers to lease local access spans and to
purchase carrier services. The agreements contain minimum usage
commitments with termination penalties up to 100% of the
remaining commitment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|** |  | The Company has convertible debentures, which are publicly
traded (TSX: CXS.DB.U). At the end of 2002, the outstanding
debentures had a market value of $27,882 and a face value of
$42,561. The convertible debentures mature on October 31, 2003.
The Company is considering a number of options relating to the
convertible debentures besides repayment for cash at maturity.
In addition to its right to repay the debentures with common
stock, these options include arranging an extension of the term
of the debentures, issuing other debt to replace the debentures,
and settling the obligation with a combination of cash, debt
and/or common shares. While the Company believes it can deal
with its maturing debentures without issuing a significant
number of common shares at what management believes is currently
a low price for the common shares, resulting from current market
conditions and the Companys financial performance, there is no
certainty that this will occur.
Under Canadian GAAP, the Company accounts for such a financial
instrument as a hybrid because of its debt and equity attributes.
At December 31, 2002, $44,652 of the instrument is included in
shareholders equity, while $2,515 of the instrument is included
in liabilities of the Company.

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In addition, the Company has provided a keep well letter to its
communications platform company, Acceris/I-Link. Under this letter, the
Company is obligated to fund the ongoing operations of Acceris/I-Link through
March 2004. The Company expects that funding, if any, under this agreement
will be minimal since the unprofitable portion of Acceris/I-Links operations
were substantially eliminated in 2002 and the acquisition of RSL is expected to
be self-funding in 2003.

G. SAFE HARBOUR

See Note Regarding Forward Looking Statements on page 2.




ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. DIRECTORS AND SENIOR MANAGEMENT

|                     |  |                                                
|-------------------- |  | -----------------------------------------------
|NAME                 |  | POSITION                                       
|                     |  |                                                
|Allan C. Silber      |  | Chairman, President and Chief Executive Officer
|Anthony F. Griffiths |  | Director                                       
|Tim Heeney           |  | Director                                       
|Norman Hill          |  | Director                                       
|William H. Lomicka   |  | Director                                       
|Philip Reichmann     |  | Director                                       
|Gary Clifford        |  | Chief Financial Officer                        
|Kelly Murumets       |  | Executive Vice President                       
|Stephen A. Weintraub |  | Senior Vice President and Secretary            
|Gary Taylor          |  | Director of Taxation                           

The terms of office of all directors expire at the next annual meeting or
until their successors are elected or appointed.

Allan C. Silber, 54, was one of the founders of the Company in 1979. He
has been Chairman and Chief Executive Officer since that time. Mr. Silber
attended McMaster University and received a Bachelor of Science degree from the
University of Toronto.

Anthony F. Griffiths, 72 has been a director of the Company since June 26,
2002. He has been an independent consultant and corporate director since 1993.
He is a director and Chairman of Slater Steel Inc., Russel Metals Inc. and
Brazilian Resources, Inc. He is also a director of a number of other public
companies including ShawCor Ltd., Vitran Corporation, Calian Technologies Ltd.,
Fairfax Financial Holdings Limited, Leitch Technology Corp., Lindsey Morden
Group Inc., IMI International Medical Innovations Inc., Alliance Atlantis
Communications Inc., The Hub Group Limited, Trojan Technologies Inc. and
Odyssey Re Holdings Corp.

Tim Heeney, 36 became a director of the Company on June 17, 2003. He is a
Partner with the law firm Goodmans LLP, a position he has held since 1999.
Prior to becoming a Partner, Mr. Heeney was an Associate with Goodmans LLP
since 1994.

Norman Hill, 76, has been a director of the Company since March 1984. He
has been President of Norman Hill Realty Inc., a real estate broker, for more
than ten years.

William H. Lomicka, 66, has been a director of the Company since June 26,
2002. Mr. Lomicka is Chairman of Coulter Ridge Capital, Inc. a private
investment firm, a position he has held since 1999. Between 1989 and 1999 he
was President of Mayfair Capital, Inc., a private investment firm. Mr. Lomicka
is a director of Pomeroy Computer Resources and is also on the board of
advisors of Tucson Ventures.

Philip Reichmann, 45, has been a director of the Company since November
1984. He has been Chief Executive Officer of O&Y Properties Corporation since
February 1997 and President of O&Y Properties Inc., a real estate management
company, for over five years.

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Gary Clifford, 34, joined the Company in November 2002. Prior to his
involvement with Counsel, Mr. Clifford was employed by Leitch Technology
Corporation as Director of Finance/Controller (1998 to 2000), Vice President
Corporate Development (2000 to 2001) and Vice President Operations (2001 to
2002).

Kelly Murumets, 39, joined the Company in February 2002. Over the past
fifteen years, prior to her involvement with Counsel, Ms. Murumets was a
management consultant and advisor to clients throughout North America. As a
Vice President and Client Manager of Managerial Design Corporation, she worked
with companies to establish business strategies, build teams and implement
those strategies throughout their organizations.

Stephen Weintraub, 55, joined the Company in June 1983 as Vice President
Finance. He has been Secretary since February 1987 and Senior Vice President
since September 1989.

Gary Taylor, 33, joined the Company in October 2002. Prior to his
involvement with Counsel Mr. Taylor was employed with PricewaterhouseCoopers
LLP as a Senior Manager in the tax consulting department.

B.     COMPENSATION

The following table sets forth information concerning the annual and long
term compensation earned for services rendered to the Corporation and its
subsidiaries during 2002 in respect of each of the individuals who were at any
time during the fiscal year ending December 31, 2002, the Chief Executive
Officer and the other four most highly compensated executive officers of the
Corporation (the named executive officers):

|                                            |  |                     |         |                     |  |              |         |                 |  |              |           |                  |  |           |   |  |  |  |            | 
|------------------------------------------- |  | ------------------- | ------- | ------------------- |  | ------------ | ------- | --------------- |  | ------------ | --------- | ---------------- |  | --------- | - |  |  |  | ---------- | 
|                                            |  |                     |         |                     |  |              |         |                 |  |              |           |                  |  | Long Term |   |  |  | 
|(In Canadian dollars)                       |  | Annual Compensation |         | Compensation Awards |  |              |         |                
|                                            |  |                     |         |                     |  |              |         |                
|                                            |  |                     |         |                     |  |              |         |                 |  | Other Annual |           | Securities Under |  |           |   | 
|                                            |  | Salary              |         | Bonus               |  | Compensation |         | Options Granted |  | All Other   
|Name and Principal Position                 |  | ($)                 |         | ($)                 |  | ($)          |         | (#)             |  | Compensation
|                                            |  |                     |         |                     |  |              |         |                 |  |             
|ALLAN SILBER                                |  |                     |         |                     |  |              |         |                 |  |              |           |                  |  |           |   |  |  |  |            | 
|Chairman and Chief Executive
Officer        |  |                     | 580,000 |                     |  |              | 928,000 |                 |  |              | 41,260(1) |                  |  |           |  |  |  |  | --         | 
|                                           
|NORMAN CHIRITE(2)                           |  |                     |         |                     |  |              |         |                 |  |              |           |                  |  |           |   |  |  |  |            | 
|Managing Director                           |  |                     | 431,860 |                     |  |              | 447,564 |                 |  |              | 44,428(1) |                  |  |           |  |  |  |  | --         | 
|                                           
|SAMUEL SHIMER                               |  |                     |         |                     |  |              |         |                 |  |              |           |                  |  |           |   |  |  |  |            | 
|Managing Director,
Counsel Corporation (US) |  |                     | 431,860 |                     |  |              | 196,300 |                 |  |              | 50,933(1) |                  |  |           |  |  |  |  | --         | 
|                                           
|GARY WASSERSON (3)                          |  |                     |         |                     |  |              |         |                 |  |              |           |                  |  |           |   |  |  |  |            | 
|Managing Director,
Counsel Corporation (US) |  |                     | 863,720 |                     |  |              |        |                 |  |              | 24,739(1) |                  |  |           |  |  |  |  | --         | 
|                                           
|HELEN SELTZER (4)                           |  |                     |         |                     |  |              |         |                 |  |              |           |                  |  |           |   |  |  |  |            | 
|President, I-Link Incorporated              |  |                     | 419,862 |                     |  |              | 215,930 |                 |  |              | 2,626     |                  |  |           |  |  |  |  | 269,913(5) | 



---

|(1) |  | This amount reflects imputed interest on interest free loans provided
under the Corporations securities purchase programs described under Item
7B  Related Party Transactions.                                                                                                                                                       
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Norman Chirite joined the Corporation on May 24, 2001 and ceased to be a
Managing Director effective December 31, 2002.                                                                                                                                                                                                                
|   
|(3) |  | Gary Wasserson joined the Corporation on February 1, 2000.                                                                                                                                                                                                                                                                             
|   
|(4) |  | Helen Seltzer served as the Chief Executive Officer of I-Link
Incorporated, a subsidiary of the Corporation, from January 3, 2002
through December 19, 2002 at an annual salary of US$275,000 and a
discretionary bonus entitlement of up to 100% of her annual base salary.
In 2002, she was guaranteed a minimum bonus of US$137,500.
|   
|(5) |  | This amount represents Helen Seltzers severance payment.                                                                                                                                                                                                                                                                              

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Options

No options to purchase shares of the Corporation or its subsidiaries were
granted to the named executive officers during the financial year ended
December 31, 2002.

Employment Agreements

The Corporation entered into an employment agreement with Allan Silber
dated as of February 1, 1994. This agreement was amended by an amendment
agreement dated as of January 3, 1997. Under this employment agreement, as
amended, Mr. Silber is entitled to receive in 1997, and each of the two
following financial years, a predetermined base salary of C$575,000. After
1999, the base salary shall be reviewed annually and may be increased at the
discretion of the Compensation Committee. For 2002, it was set at $580,000.
Mr. Silber is also entitled to receive a bonus, calculated with reference to
the satisfaction of certain objectives, in an amount determined by the
Compensation Committee provided it not exceed his base salary. His base salary
for purposes of calculating his bonus includes the base annual amount received
in 1997 pursuant to his consulting agreement with American HomePatient, Inc.,
which provided for a base monthly fee of US$20,000. In addition, pursuant to
his employment agreement in 1997, Mr. Silber was granted options to acquire
1,350,000 common shares of the Corporation. These options expired January 3,
2003. Pursuant to the employment agreement, as amended, in the event of his
termination by the Corporation, Mr. Silber shall be paid an amount equal to the
aggregate of the base salary and any bonuses paid to Mr. Silber in respect of
the two full calendar years immediately preceding the date of termination. Mr.
Silber has the option of terminating his agreement and receiving the
termination payment if any person, other than Allan Silber or a person who does
not deal at arms length with Allan Silber, acquires control of the
Corporation. The Corporation may terminate the employment of Mr. Silber for
cause without the requirement to pay the prescribed termination amount.

On January 3, 2002, Acceris/I-Link, the Corporation and Helen Seltzer
entered into an agreement whereby Ms. Seltzer became Acceris/I-links Chief
Executive Officer. The term of the agreement was four years at an annual base
salary of $275. Ms. Seltzer was eligible for a discretionary bonus in an
amount to be determined by the Board of Directors of WorldxChange up to 100% of
her annual salary. In 2002, she was guaranteed a minimum bonus of $137. Ms.
Seltzer also entered into an agreement on January 3, 2002 with Counsel
Communications and the Corporation. Under that agreement, Ms. Seltzer was
issued approximately 0.2% of the common units of Counsel Communications, which
common units vest over a four-year period commencing on January 3, 2003. In
addition to serving as Chief Executive Officer of Acceris/I-Link, Ms. Seltzer
agreed to serve as a member of the Management Executive Committee of Counsel
Communications LLC. Ms. Seltzer also had the right to participate in the
Corporations 2001 Executive Stock Purchase Plan. Ms. Seltzer was terminated
as Acceris/I-links Chief Executive Officer on December 19, 2002. As of the
date hereof, all obligations under Ms. Seltzers employment agreement have been
satisfied.

Effective October 31, 2001, Counsel Corporation (US), a wholly owned
subsidiary of the Corporation, entered into an employment agreement with Gary
Wasserson whereby Mr. Wasserson became a Managing Director of Counsel
Corporation (US). The agreement expires on December 31, 2003 and is
automatically extended annually unless prior notice of termination is
delivered. Mr. Wasserson is entitled to an annualized base salary of $550
until June 30, 2003 and $275 thereafter. For each calendar year commencing
with the year ending December 31, 2003, Mr. Wasserson is eligible to receive
bonus compensation in an amount up to $138 for the year ending December 31,
2003 and up to 100% of his then base salary of each calendar year thereafter.
Mr. Wasserson also has the right to participate in the Corporations 2001
Executive Stock Purchase Plan.

C. BOARD PRACTICES

Compensation Committee

Decisions on compensation of the Corporations senior executives are made
by the compensation committee of the Corporations board of directors (the
Compensation Committee). All members of the Compensation Committee are
non-employee directors. It is the responsibility of the Compensation Committee
to assure the Board that the executive compensation programs are reasonable and
appropriate, meet their stated purpose and effectively serve the needs of the
Corporations shareholders and the Corporation. For 2002, directors Philip
Reichmann, Norman Hill and William Lomicka comprised the Boards Compensation
Committee.

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The Corporation believes that the executive compensation program should
align the interests of shareholders and executives. The Corporations primary
objective is to maximize shareholder value. The Compensation Committee seeks to
forge a strong link between the Corporations strategic business goals and its
compensation goals.

The Corporations executive compensation program is consistent with the
Corporations overall philosophy for all management levels. The Corporation
believes that the more employees are aligned with the Corporations strategic
objectives, as stated below, the greater the Corporations success on both a
short term and long term basis.

The Corporations executive compensation program has been designed to
support the overall Corporation strategy and objective of creating shareholder
value by:



| |  |  | emphasizing pay for performance by having a significant portion
of executive compensation at risk;                                                                                                                             
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | directly aligning the interest of executives with the long term
interest of shareholders by awarding stock options at current market
prices which have value to the executives only through stock
appreciation over the long run;
|
| |  |  | providing compensation opportunities that attract and retain
talented and committed executives on a long term basis; and                                                                                                         
|
| |  |  | appropriately balancing the Corporations short term and long
term business, financial and strategic goals.                                                                                                                      

The Corporations strategic goals are:



| |  |  | profitability: to maximize financial returns to its shareholders;                                                              
| | - |  | -------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | growth: to expand the operations of the Corporation in such a
manner as not to imperil the achievement of other objectives; and
|
| |  |  | stability: to be seen as a desirable employer and a responsible
corporate citizen.                                             

Currently, the Corporations executive compensation program is comprised
of three components: base salary, annual cash incentive (bonus) and long term
incentive opportunity through stock options and share purchase loans. The
annual executive pay targets (base salary plus incentive) are intended to be
market competitive with similar companies when the Corporation or the
individual business units meet or exceed their respective annual operating
goals. Additional compensation may be awarded based on achievement of specific
extraordinary projects or assignments.

Base Salary  Unless determined pursuant to their employment agreements,
the base salaries of the Corporations executive officers are evaluated
annually. In evaluating appropriate pay levels and salary increases for
Corporation executives, the Compensation Committee considers achievement of the
Corporations strategic goals, level of responsibility, individual performance,
internal equity and external pay practices.

Annual Incentives   Annual incentive (bonus) awards are designed to focus
management attention on key operational goals for the current fiscal year.
Corporation executives may earn a bonus based upon achievement of their
specific operational goals and achievement by the Corporation or business unit
of its financial targets.

Long Term Incentives  The Corporations long term incentive compensation
program consists of stock options and share purchase loans which are related to
improvement in long term shareholder value. Stock option grants and share
purchase loans provide an incentive that focuses the executives attention on
managing the Corporation from the perspective of an owner with an equity stake
in the business. These grants and loans also focus operating decisions on long
term results that benefit the Corporation and long term shareholders. As a
result of the Sarbanes-Oxley Act of 2002, the Corporation no longer provides
share purchase loans to its employees.

The option grants to executive officers offer the right to purchase common
shares at their fair market value on the date of the grant. These options will
have value only if the Corporations share price increases. The number of
shares covered by each grant is intended to reflect the executives level of
responsibility and past and anticipated contributions to the Corporation.

Pursuant to the Corporations Employee Share Purchase Loan Plan,
designated employees are eligible to receive an interest free loan from the
Corporation of 80% of the cost of acquisition of the shares purchased by the

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employee on the open market. The shares are pledged to the Corporation as
security for the loan. All employees of the Corporation and its affiliates
other than Allan Silber are eligible to participate. The maximum number of
shares that may be purchased by an individual employee is equal to 125% of the
employees outstanding stock options of the Corporation subject to a maximum
loan amount of $600 per employee. Each loan is repayable on the earliest (1) of
five years from the date it is advanced, (2) the date the shares purchased are
sold, and (3) the date the employment of the employee with the Corporation or
its affiliates is terminated. If the employee sells the shares purchased with
the loan before the third anniversary of their acquisition, the employee is
required to pay the Corporation an amount equal to 10% per annum of the loan
for the period during which it was outstanding, plus 50% of the gain realized
by the employee on the sale of the shares.

Pursuant to the Corporations 2001 Executive Stock Purchase Plan (the
2001 Plan) designated executive employees are eligible to receive an interest
free loan from the Corporation of 80% of the cost of acquisition of the shares
purchased by the employee on the open market, provided that the maximum
aggregate amount lent under the 2001 Plan shall not exceed $4,000. The shares
are pledged to the Corporation as security for the loan. All executive
employees of the Corporation and its affiliates other than Allan Silber are
eligible to participate. Each loan is repayable on the earliest of (1) ten
years from the date it is advanced, (2) the date the shares purchased are sold,
and (3) 30 days following the date the employment of the employee with the
Corporation or its affiliates is terminated, provided that 20% of each loan
shall payable on each of the sixth, seventh, eighth, ninth and tenth
anniversaries of the date of advance. If the employee sells the shares
purchased with the loan before the third anniversary of their acquisition, the
employee is required to pay the Corporation an amount equal to 10% per annum of
the loan for the period during which it was outstanding, plus 50% of the gain
realized by the employee on the sale of the shares. For each share purchased by
an executive employee pursuant to the 2001 Plan, the Corporation will award the
employee one-half of an optioin pursuant to the Corporations 1997 Stock Option
Plan.

As a result of the implementation of the Sarbanes-Oxley Act of 2002, no
new loans may be made pursuant to the Employee Share Purchase Loan Plan or the
2001 Executive Stock Purchase Plan.

In addition, executive officers of the Corporation may be granted options
to acquire shares of the Corporations subsidiaries and significantly
influenced companies. The rationale for such grants is similar to that for
option grants of the Corporations shares and the quantum reflects the
executives expected level of involvement in the particular subsidiary or
significantly influenced company.

Audit Committee

During 2002, the Audit Committee was comprised of three directors: Anthony
F. Griffiths, Norman Hill and William Lomicka, all of whom were unrelated
directors. Each member of the committee is financially literate. Annual
financial statements of the Corporation are reviewed by the Audit Committee and
form the basis of a report thereon to the entire Board. The Audit Committee is
also responsible for monitoring the Corporations internal accounting controls
and for reviewing the performance and the remuneration of the Corporations
independent auditors. The Audit Committee has unrestricted access to the
Corporations auditors without the presence of management.

Compensation of Directors

The Corporation pays fees to directors (stated in absolute dollars) who
are not officers of the Corporation or its subsidiaries. Effective January 1,
1992 such fees were established at $1,000 per board meeting, $500 per committee
meeting and an annual retainer of $12,000. Effective July 1, 2002, these fees
were increased to $1,500 per board meeting, $750 per committee meeting and an
annual retainer of $15,000. In addition, in 2002, each outside director was
granted 25,000 options pursuant to the Corporations 1992 Stock Option Plan.

D. EMPLOYEES

As at December 31, 2002, the Corporation and its subsidiaries employed
approximately 1,500 employees, of which approximately 360 were employed by
Acceris/I-Link and its subsidiaries, approximately 1,100 were employed at the
seven Canadian nursing homes leased by the Corporation, which form part of the
Corporations discontinued long-term care operations, and 40 were employed by
the Corporation in its real estate operations and at its head office.

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E. SHARE OWNERSHIP

The following table sets out the approximate number of shares of the
Company beneficially owned or over which control or direction is exercised by
the directors and named executive officers as of April 30, 2003. The table does
not reflect shares, which may be acquired pursuant to the exercise of options.

|                     |  |               |           |                           |  |  |      | 
|-------------------- |  | ------------- | --------- | ------------------------- |  |  | ---- | 
|                     |  | Number of     |           | Percentage of Outstanding
|Name                 |  | Common Shares |           | Common Shares            
|                     |  |               |           |                          
|Allan C. Silber      |  |               | 4,177,311 | (1)                       |  |  | 19.8 | 
|Anthony F. Griffiths |  |               | 40,000    |                           |  |  | *    | 
|Norman Hill          |  |               | 231,550   |                           |  |  | 1.1  | 
|William H. Lomicka   |  |               | 36,700    |                           |  |  | *    | 
|Philip Reichmann     |  |               | 28,100    | (2)                       |  |  | *    | 
|Tim Heeney           |  | NIL           |           | NIL                      
|Samuel Shimer        |  |               | 669,011   |                           |  |  | 3.2  | 
|Gary Wasserson       |  |               | 330,000   |                           |  |  | 1.6  | 



---

|*   |  | Less than 1%.                                                                                                                                                                                                     
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) |  | Allan Silber owns 184,150 Common Shares and CXS Holdings Inc., a
company controlled by Allan Silber, owns 3,993,161 shares. In addition,
Allan Silbers spouse and children own 2,262,868 shares.                 
|   
|(2) |  | Philip Reichmann is a member of the Albert Reichmann family, which
directly and beneficially owns PF&R Holdings Inc., a private
corporation, which owns 1,000,000 common shares in the capital of the
Corporation.

STOCK OPTIONS

Under the 1992 Director, Officer and Employee Stock Option Plan, the
Company may grant options to its directors, officers and employees for up to
2,700,000 Common Shares. Under the 1997 Stock Option Plan, the Company may
grant options to its directors, officers, employees and any other person or
company engaged to provide ongoing management or consulting services for the
Company, for up to 4,200,000 Common Shares. Under both plans, the exercise
price of each option equals the market price of the Companys Common Shares on
the date of grant. The maximum term of the grant is six years from the date of
initial vesting of any portion of the grant unless otherwise provided. Unless
otherwise provided, options vest 20% on the date of grant and 20% on each of
the first through fourth anniversaries of the grant date. All unvested options
vest upon a change of control of the Company. At April 30, 2003, a total of
2,129,125 shares were subject to options and 2,198,875 shares were available
for grant.

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The following table sets out details of the options granted to the
directors and named executive officers as at April 30, 2003.

Prices are in Canadian dollars.

|                     |  |                        |         |                      |   |             |       |  |   |               |  | 
|-------------------- |  | ---------------------- | ------- | -------------------- | - | ----------- | ----- |  | - | ------------- |  | 
|                     |  | Number of Shares Under |         |                      |   |             |       |  |   |              
|Name                 |  | Option                 |         | Exercise Price/Share |   | Expiry Date
|                     |  |                        |         |                      |   |            
|Allan C. Silber      |  | NIL                    |         |                      |  |             |       |  |  |              
|                    
|Anthony F. Griffiths |  |                        | 25,000  |                      |   |             | 3.00  |  |   | Sep. 30, 2008
|                    
|Norman Hill          |  |                        | 25,000  |                      |   |             | 3.00  |  |   | Sep. 30, 2008
|                     |  |                        | 3,000   |                      |   |             | 17.95 |  |   | June 9, 2003 
|                     |  |                        | 3,000   |                      |   |             | 16.90 |  |   | June 9, 2004 
|                     |  |                        | 3,000   |                      |   |             | 8.00  |  |   | June 8, 2005 
|                     |  |                        | 3,000   |                      |   |             | 5.60  |  |   | June 13, 2006
|                     |  |                        | 3,000   |                      |   |             | 4.73  |  |   | June 19, 2007
|                    
|William H. Lomicka   |  |                        | 25,000  |                      |   |             | 3.00  |  |   | Sep. 30, 2008
|                    
|Philip Reichmann     |  |                        | 25,000  |                      |   |             | 3.00  |  |   | Sep. 30, 2008
|                     |  |                        | 3,000   |                      |   |             | 17.95 |  |   | June 9, 2003 
|                     |  |                        | 3,000   |                      |   |             | 16.90 |  |   | June 9, 2004 
|                     |  |                        | 3,000   |                      |   |             | 8.00  |  |   | June 8, 2005 
|                     |  |                        | 3,000   |                      |   |             | 5.60  |  |   | June 13, 2006
|                     |  |                        | 3,000   |                      |   |             | 4.73  |  |   | June 19, 2007
|                    
|Tim Heeney           |  | NIL                    |         |                      |  |             |       |  |  |              
|                    
|Samuel Shimer        |  |                        | 75,000  |                      |   |             | 17.40 |  |   | June 20, 2003
|                     |  |                        | 75,000  |                      |   |             | 16.40 |  |   | Dec. 3, 2003 
|                     |  |                        | 150,000 |                      |   |             | 10.40 |  |   | Jan. 4, 2005 
|                     |  |                        | 150,000 |                      |   |             | 2.95  |  |   | Dec. 21, 2011
|                    
|Gary Wasserson       |  |                        | 100,000 |                      |   |             | 5.70  |  |   | Jan. 21, 2006
|                     |  |                        | 150,000 |                      |   |             | 2.95  |  |   | Dec. 21, 2011




ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. MAJOR SHAREHOLDERS

To the knowledge of the Company, no person beneficially owns or exercises
control or direction over more than 5% of the Common Shares (being the only
class of shares of the Company outstanding), except for Allan Silber, Chairman
of the Board and Chief Executive Officer, who beneficially owns or directly or
indirectly controlled 4,177,311 Common Shares of the Company (19.8% of the
outstanding Common Shares) as at April 30, 2003.

There has been no significant change in ownership by any major shareholder
during the past three years.

All shareholders have identical voting rights.

At April 30, 2003, 42.6% of the Common Shares outstanding were held by 47
record holders in the United States.

To the best of the Companys knowledge, the Company is not owned or
controlled by another corporation, by any foreign government or by any other
natural or legal person(s) severally or jointly.

There are no arrangements, known to the Company, the operation of which
may at a subsequent date result in a change in control of the Company.

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B. RELATED PARTY TRANSACTIONS

To the best of the Companys knowledge, there are no proposed material
transactions or material transactions that have occurred in the previous three
financial years in which directors, executive officers, holders of ten percent
of the Companys outstanding shares, or any associate or affiliate of such
person have had a material interest, direct or indirect.

None of the officers or directors of the Company is indebted to the
Company or was indebted to the Company during the past three financial years,
or any of its subsidiaries, except for indebtedness under securities purchase
programs. The following table sets forth information relating to the current
and former directors, executive officers and senior officers or associates of
directors, executive officers and senior officers of the Corporation, who are,
or during the most recently completed financial year were, indebted to the
Corporation (other than routine indebtedness) or to any subsidiaries:

(In Canadian dollars)

|                                                  |  |                |  |                    |           |                |  |                    |           |                     |  |     |            |                          |  |                       |  |  |  | 
|------------------------------------------------- |  | -------------- |  | ------------------ | --------- | -------------- |  | ------------------ | --------- | ------------------- |  | --- | ---------- | ------------------------ |  | --------------------- |  |  |  | 
|                                                  |  |                |  |                    |           |                |  |                    |           |                     |  |     |            | Financially              |  |                       |  | 
|                                                  |  |                |  |                    |           | Largest Amount |  | Amount Outstanding |           | Assisted Securities |  |     |            |                         
|Name and                                          |  | Involvement of |  | Outstanding During |           | as of          |  | Purchased During   |           |                     |  |    
|Principal                                         |  | Corporation or |  | 2002               |           | April 30, 2003 |  | 2002               |           | Security for       
|Position                                          |  | Subsidiary     |  | ($)                |           | ($)            |  | (#)                |           | Indebtedness       
|                                                  |  |                |  |                    |           |                |  |                    |           |                    
|ALLAN SILBER                                      |  |                |  |                    |           |                |  |                    |           |                     |  |     |            |                          |  |                       |  |  |  | 
|Chairman, President and
Chief Executive Officer   |  | Lender         |  | $                  | 1,500,000 |                |  | $                  | 1,500,000 |                     |  | NIL |            | 300,000 common shares(1)
|                                                 
|SAMUEL SHIMER                                     |  |                |  |                    |           |                |  |                    |           |                     |  |     |            |                          |  |                       |  |  |  | 
|Managing Director,
Counsel Corporation (US)       |  | Lender         |  |                    | 1,832,134 |                |  |                    | 1,832,134 |                     |  | NIL |            | 653,011 common shares   
|                                                 
|KELLY MURUMETS                                    |  |                |  |                    |           |                |  |                    |           |                     |  |     |            |                          |  |                       |  |  |  | 
|Executive Vice President                          |  | Lender         |  |                    | 605,119   |                |  |                    | 605,119   |                     |  |     | 250,000(2) |                          |  | 250,000 common shares
|                                                 
|STEPHEN WEINTRAUB                                 |  |                |  |                    |           |                |  |                    |           |                     |  |     |            |                          |  |                       |  |  |  | 
|Senior Vice President
and Secretary               |  | Lender         |  |                    | 457,471   |                |  |                    | 411,559   |                     |  | NIL |            | 162,500 common shares   
|                                                 
|HOWARD WORTZMAN                                   |  |                |  |                    |           |                |  |                    |           |                     |  |     |            |                          |  |                       |  |  |  | 
|Chief Financial
Officer, Counsel Real
Estate Inc. |  | Lender         |  |                    | 453,718   |                |  |                    | 407,806   |                     |  | NIL |            | 157,500 common shares   
|                                                 
|JOSHUA SILBER                                     |  |                |  |                    |           |                |  |                    |           |                     |  |     |            |                          |  |                       |  |  |  | 
|President, Counsel Real
Estate Inc.               |  | Lender         |  |                    | 945,468   |                |  |                    | 945,468   |                     |  | NIL |            | 317,500 common shares   
|                                                 
|GARY WASSERSON                                    |  |                |  |                    |           |                |  |                    |           |                     |  |     |            |                          |  |                       |  |  |  | 
|Managing Director,
Counsel Corporation
(US)       |  | Lender         |  |                    | 889,899   |                |  |                    | 889,899   |                     |  | NIL |            | 300,000 common shares   
|                                                 
|WILLIAM BARKER                                    |  |                |  |                    |           |                |  |                    |           |                     |  |     |            |                          |  |                       |  |  |  | 
|Managing
Director, Counsel
Communications LLC     |  | Lender         |  |                    | 296,633   |                |  |                    |          |                     |  | NIL |            | 100,000 common shares   
|                                                 
|MUFIT CINALI Managing                             |  |                |  |                    |           |                |  |                    |           |                     |  |     |            |                          |  |                       |  |  |  | 
|Director, Counsel
Communications LLC              |  | Lender         |  |                    | 296,633   |                |  |                    |          |                     |  | NIL |            | 100,000 common shares   

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|                                                     |  |                |  |                    |           |                |  |                    |           |                     |  |     |  |                       |  |  |  |  |  | 
|---------------------------------------------------- |  | -------------- |  | ------------------ | --------- | -------------- |  | ------------------ | --------- | ------------------- |  | --- |  | --------------------- |  |  |  |  |  | 
|                                                     |  |                |  |                    |           |                |  |                    |           |                     |  |     |  | Financially           |  |  |  | 
|                                                     |  |                |  |                    |           | Largest Amount |  | Amount Outstanding |           | Assisted Securities |  |     |  |                      
|Name and                                             |  | Involvement of |  | Outstanding During |           | as of          |  | Purchased During   |           |                     |  |    
|Principal                                            |  | Corporation or |  | 2002               |           | April 30, 2003 |  | 2002               |           | Security for       
|Position                                             |  | Subsidiary     |  | ($)                |           | ($)            |  | (#)                |           | Indebtedness       
|                                                     |  |                |  |                    |           |                |  |                    |           |                    
|NORMAN
CHIRITE
Managing
Director                     |  | Lender         |  |                    | 1,598,110 |                |  |                    | 1,598,110 |                     |  | NIL |  | 538,750 common shares
|                                                    
|JENNIFER
DORE
Director,
Counsel Corporation
(US) (3) |  | Lender         |  |                    | 44,496    |                |  |                    | 44,496    |                     |  | NIL |  | 15,000 common shares 
|                                                    
|HELEN
SELTZER
President, I-Link
Incorporated         |  | Lender         |  |                    | 148,316   |                |  |                    |          |                     |  | NIL |  | 50,000 common shares 



---

|(1) |  | These shares were purchased on January 19, 1996 pursuant to the
Corporations Share Purchase Plan. The Corporation loaned the aggregate
purchase price required to purchase 300,000 common shares at the market
price on the date of purchase ($6.50 per share). The loan is non-interest
bearing and due on the later of five years from the date of advance and
the date on which the shares purchased under the plan have a market value
equal or greater than twice the amount of the loan outstanding but, in any
case, no later than the tenth anniversary date of the advance. A trustee
holds all of the shares purchased with the proceeds of the loan as
security for the indebtedness.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | These shares were purchased in February 2002 pursuant to the
Corporations 2001 Executive Stock Purchase Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(3) |  | Ms. Dore was an officer of the Corporations U.S. subsidiary,
Counsel Corporation (US), with the title of Director. She was not a
member of the Board.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

C. INTERESTS OF EXPERTS AND COUNSEL

Not applicable.




ITEM 8: FINANCIAL INFORMATION

A.     CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

Reference is made to ITEM 18: FINANCIAL STATEMENTS for the consolidated
financial statements included in this annual report.

The Company has no fixed policy on dividend distributions. Regular
dividends were last paid on June 30, 1993. Special dividends were paid in 1999
and 2000. The former was related to the successful sale of Stadtlander and the
latter, in shares of American HomePatient Inc., was related to the Companys
decision to exit the home healthcare business. There exists no restriction on
the Companys ability to declare dividends. The declaration and payment of
dividends is decided by the Companys board of directors from time to time
based upon and subject to the Companys earnings, financial requirements and
other conditions prevailing at the time.

B. SIGNIFICANT CHANGES

There have not been any significant changes since the December 31, 2002
annual financial statements.

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##### Table of Contents






ITEM 9: THE OFFER AND LISTING

A. OFFER AND LISTING DETAILS

The Common Shares of the Company are listed and posted for trading on The
Toronto Stock Exchange under the symbol CXS and are quoted and traded on The
NASDAQ SmallCap Market under the symbol CXSN. The Common Shares of the
Company were listed and posted for trading on The Toronto Stock Exchange on
June 20, 1986. The Common shares of the Company commenced trading on the NASDAQ
National Market on April 24, 1995.

The following table sets forth the high and low sale prices per share of
the Common Shares of the Company as reported on The Toronto Stock Exchange
(TSX) and The NASDAQ Stock Market (NASDAQ) for the periods indicated:

|     |                |  |       |      |        |  |      |      |     |  |       |      |  |  |      |      | 
|---- | -------------- |  | ----- | ---- | ------ |  | ---- | ---- | --- |  | ----- | ---- |  |  | ---- | ---- | 
|     |                |  | TSX   |      | NASDAQ
|     |                |  |       |      |       
|     |                |  | HIGH  |      | LOW    |  | HIGH |      | LOW
|     |                |  |       |      |        |  |      |      |    
|     |                |  | Cdn.$ |      | Cdn.$  |  | US$  |      | US$
|1998 |                |  | 22.35 |      |        |  | 5.35 |      |     |  | 15.88 |      |  |  | 3.50 |     
|1999 |                |  | 13.90 |      |        |  | 2.05 |      |     |  | 9.38  |      |  |  | 1.44 |     
|2000 |                |  | 10.40 |      |        |  | 2.50 |      |     |  | 9.38  |      |  |  | 1.63 |     
|2001 |                |  |       |      |        |  |      |      |     |  |       |      |  |  |      |     
|     | First quarter  |  |       | 3.35 |        |  |      | 2.25 |     |  |       | 2.13 |  |  |      | 1.46 | 
|     | Second quarter |  |       | 4.95 |        |  |      | 2.40 |     |  |       | 3.26 |  |  |      | 1.50 | 
|     | Third quarter  |  |       | 4.75 |        |  |      | 2.70 |     |  |       | 3.10 |  |  |      | 1.60 | 
|     | Fourth quarter |  |       | 3.10 |        |  |      | 2.34 |     |  |       | 1.97 |  |  |      | 1.51 | 
|2002 |                |  |       |      |        |  |      |      |     |  |       |      |  |  |      |     
|     | First quarter  |  |       | 3.98 |        |  |      | 2.70 |     |  |       | 2.58 |  |  |      | 1.76 | 
|     | Second quarter |  |       | 3.84 |        |  |      | 2.80 |     |  |       | 2.50 |  |  |      | 1.80 | 
|     | Third quarter  |  |       | 3.01 |        |  |      | 2.35 |     |  |       | 2.00 |  |  |      | 1.44 | 
|     | Fourth quarter |  |       | 2.90 |        |  |      | 2.15 |     |  |       | 1.90 |  |  |      | 1.36 | 
|2003 |                |  |       |      |        |  |      |      |     |  |       |      |  |  |      |     
|     | January        |  |       | 2.75 |        |  |      | 2.45 |     |  |       | 1.78 |  |  |      | 1.63 | 
|     | February       |  |       | 2.49 |        |  |      | 1.97 |     |  |       | 1.65 |  |  |      | 1.35 | 
|     | March          |  |       | 2.60 |        |  |      | 2.45 |     |  |       | 1.78 |  |  |      | 1.62 | 
|     | April          |  |       | 2.53 |        |  |      | 2.34 |     |  |       | 1.74 |  |  |      | 1.60 | 
|     | May            |  |       | 2.44 |        |  |      | 2.30 |     |  |       | 1.75 |  |  |      | 1.63 | 

B. PLAN OF DISTRIBUTION:

Not applicable.

C. MARKETS

See A. above.

D. SELLING SHAREHOLDERS:

Not applicable.

E. DILUTION:

Not applicable.

F. EXPENSES OF THE ISSUE:

Not applicable.

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ITEM 10: ADDITIONAL INFORMATION

A. SHARE CAPITAL

Not applicable.

B. ARTICLES OF INCORPORATION AND BY-LAWS

Counsel is a corporation amalgamated under the Business Corporations Act
(Ontario). There are no restrictions on the business that the Company may carry
on.

The Companys articles provide that the Board of Directors shall consist
of such number of directors, being a minimum of five and a maximum of twenty,
as may be from time to time determined by resolution of the Board of Directors.
Directors who have any interest, directly or indirectly, in any contract in
which the Company is or is to be a party, other than a contract or transaction
limited solely to his remuneration as a director, officer or employee, must
declare his interest. A quorum of four directors is required to transact
business. The board may exercise all powers and do all acts and things as may
be exercised or done by the Company and are not by the By-Laws or statute
expressly required to be done by the Company at meetings of shareholders. The
board may borrow money upon credit, issue sell or pledge debt obligations and
charge, mortgage or pledge the assets of the Company. Directors must be over
18, and not an undischarged bankrupt or mentally incompetent person. There is
no retirement age or shareholding qualification for directors. A majority of
the directors must be Canadian citizens. Directors terms are for one year and
are not staggered.

The authorized share capital of the Company consists of an unlimited
number of Common Shares and an unlimited number of Preferred Shares issuable in
series. The holders of Common Shares are entitled to dividends, if as and when
declared by the directors, to one vote per Common Share at meetings of the
holders of Common Shares of the Company and, upon liquidation, to receive such
assets of the Company as are distributable to the holders of the Common Shares.
The Preferred Shares may be issued in one or more series, and the directors are
authorized to fix the number of Preferred Shares in each series and to
determine the designation, rights, privileges, restrictions and conditions
attached to the Preferred Shares of each series. The Preferred Shares are
entitled to a priority over the Common Shares in respect of the payment of
dividends and distribution of assets upon liquidation of the Company. Under the
Business Corporations Act (Ontario) a special resolution of the shareholders is
required to amend the rights of any class of shares. There is no limitation on
who may be a shareholder.

The directors of the Company must call an annual meeting of shareholders
not later than 15 months after holding the last preceding annual meeting and
may at any time call a special meeting of shareholders. In addition, the
holders of not less than 5% of the issued shares of the Company may requisition
the Board of Directors to call a meeting of shareholders. For the purpose of
determining shareholders entitled to receive notice of the meeting of
shareholders, the directors may fix in advance a date as the record date for
that determination of shareholders, but that record date shall not precede by
more than 50 days or less than 21 days the date on which the meeting is to be
held. If a shareholder becomes a shareholder after the setting of the record
date, such person will be entitled to vote at the meeting if he can produce a
properly endorsed share certificate, or can otherwise establish that he owns
the shares, and demands, not later than 10 days before the meeting, that his
name be included among those eligible to vote at the meeting.

C. MATERIAL CONTRACTS

The Company does not have any material contracts that are required to be
disclosed other than those set-out in this document.

D. EXCHANGE CONTROLS

There are no laws, governmental decrees or regulations in Canada that
restrict the export or import of capital or which affect the remittance of
dividends, interest or other payments to non-resident holders of the Companys
Shares, other than specific embargoes enacted by regulations under the United
Nations Act (Canada) and withholding tax requirements. See Item 10 -
Taxation.

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There are no limitations under the laws of Canada or the Province of
Ontario, or in the Amended Articles of Amalgamation of the Company, with
respect to the right of non-resident or foreign owners to hold or vote the
Common Shares of the Company other than those imposed by the Investment Canada
Act (Canada) (the Investment Act).

The following summarizes the principal features of the Investment Act for
non-residents other than WTO investors (defined in section 14.1(b) of the
Investment Act as being individual investors who are nationals of, or have the
right of permanent residence in, a Member of the World Trade Organization and
corporate investors who are either WTO investor-controlled in fact, or
two-thirds of whose board of directors is comprised of any combination of
Canadians and WTO investors) who propose to acquire Common Shares of the
Company. The Investment Act prohibits implementation of a reviewable
investment by an individual, government (or agency thereof), company,
partnership, trust or joint venture which is not a Canadian (as defined in
the Investment Act (a non-Canadian)) or a WTO investor, unless after review
the minister responsible for the Investment Act (the Minister) is satisfied
that the investment is likely to be of net benefit to Canada. A reviewable
investment under the Investment Act is characterized as an investment for
control of a Canadian business with assets valued at cdn$5,000,000 or more, or
in the case where the total assets of the Canadian business are less than half
of the total assets acquired, the Canadian business assets are cdn$50,000,000
or more. Notwithstanding the above limits, an investment can become a
reviewable investment if an order for review is made by the Federal cabinet on
the grounds that the investment is related to Canadas cultural heritage or
national identity.

An investment in Common Shares of the Company by a WTO investor would only
be reviewable under the Investment Act if it was an investment to acquire
control of the Company and the value of the assets of the Company equals or
exceeds an amount determined annually by the Minister pursuant to a formula
specified in the Investment Act (cdn$192,000,000 for 2000).

A non-Canadian, whether a WTO investor or otherwise, would acquire control
of the Company for the purposes of the Investment Act if he acquired a majority
of the Common Shares of the Company. The acquisition of less than a majority,
but one-third or more, of the Common Shares of the Company would be presumed to
be an acquisition of control of the Company unless it could be established that
the Company was not controlled in fact by the acquirer through the ownership of
Common Shares.

Certain transactions in relation to Common Shares of the Company would be
exempt from the Investment Act, including:



| | 1. |  | The acquisition of Shares by a person in the ordinary course of
the persons business as a trader or dealer in securities;                                                                                                                                            
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | The acquisition of control of the Company in connection with
the realization of security granted for a loan or other financial
assistance and not for any purpose related to the provisions of the
Investment Act; and                                                
|
| | 3. |  | The acquisition of control of the Company by reason of an
amalgamation, merger, consolidation or corporate reorganization
following which the ultimate direct or indirect control in fact of
the Company, through the ownership of voting interests, remain
unchanged.

The Investment Act further contains provisions which require notification
to be given under the Investment Act in the circumstances where a
non-Canadian (as defined in the Investment Act) acquires control of the
Company notwithstanding that such investment is not a reviewable investment as
described above.

In addition to the foregoing, certain transactions involving the Company
and its security holders may be subject to notification and review under the
Competition Act (Canada). In general, in order for a transaction to be
notifiable, the parties together with their affiliates (defined to include
parent, subsidiary and sister companies) must have assets in Canada or gross
revenues from sales in, from or into Canada that exceed cdn$400,000,000.
Assuming this threshold is met, additional thresholds based on the type of
transaction must be met before notification is required. If a transaction is
ultimately notifiable, the parties must provide the Commissioner of Competition
(theCommissioner) with detailed information about the transaction and the
parties, and observe a waiting period prior to closing the transaction.
However, in the event that the Commissioner determines that a proposed
transaction may result in a substantial lessening of competition, the
Commissioner may bring a proceeding before the Competition Tribunal to enjoin
the transaction or to seek other remedies.

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E. TAXATION

The following is a general summary only and should not be considered as
income tax advice or relied upon for tax planning purposes.

CERTAIN CANADIAN FEDERAL INCOME TAX CONSEQUENCES

The following is a general summary of certain Canadian federal income tax
considerations generally applicable to a holder of the Companys Shares who is
not a resident of Canada for the purposes of the Income Tax Act (Canada) (the
Act) and who holds the Companys shares as capital property. Specifically,
this summary deals with a U.S. resident shareholder of the Companys Shares.
The discussion does not address all potentially relevant federal income tax
matters and it does not address consequences peculiar to persons subject to
special provisions of federal income tax law.

The summary is based on the current provisions of the Act and the
regulations there under and the Companys understanding of the current
published administrative practices of the Canada Customs and Revenue Agency
(CCRA), and press announcements released by CCRA. This summary takes into
account proposals to amend the Act announced prior to the date hereof (although
no assurances can be given that such changes will be enacted in the form
presented or at all), but does not otherwise take into account or anticipate
any other changes in law, whether by judicial, governmental or legislative
action or decision nor does it take into account any provincial, territorial,
local or foreign tax considerations. Accordingly, holders and prospective
holders of the Companys Shares should consult their own tax advisors about the
federal, provincial, territorial, local and foreign tax consequences of
purchasing, owning and disposing of such Shares. Finally this summary does not
consider the tax implications to certain categories of taxpayers including, but
not limited to, tax-exempt organizations, qualified retirement plans,
individual retirement accounts and other tax-deferred accounts, financial
institutions, insurance companies and real estate investment trusts.

The Act provides in subsection 212(2) that dividends and other
distributions which are deemed to be dividends and which are paid or credited
or are deemed to be paid or credited by a Canadian resident company to a
non-resident of Canada shall be subject to non-resident withholding tax equal
to 25 percent of the gross amount of the dividend or deemed dividend.

Provisions in the Act relating to dividend and deemed dividend payments
and gains realized by non-residents of Canada who are residents of the United
States are subject to the Canada-United States Income Tax Convention (1980), as
amended (the 1980 Convention).

Article X of the 1980 Convention as amended by the Third Protocol to the
1980 Convention provides that the rate of Canadian non-resident withholding tax
on dividends paid to a U.S. company that beneficially owns at least 10% of the
voting stock of the Company shall not exceed 5 percent of the dividends.
Otherwise, and except in the case of dividends received by a resident of the
United States who carries on business in Canada through a Canadian permanent
establishment and the shares in respect of which the dividends are paid are
effectively connected with that permanent establishment, the rate of
non-resident withholding tax shall not exceed 15 percent of the dividend. Where
the dividends are received by a United States person carrying on business in
Canada through a Canadian permanent establishment and the shares in respect of
which the dividends are paid are effectively connected with that permanent
establishment the dividends are generally subject to Canadian tax as business
profits, generally without limitation under the 1980 Convention.

In respect of any dividend payments, the Company appoints a disbursing
agent to make distributions to a holder of the Companys Shares. To the extent
that a holder of the Companys Shares in not a resident of Canada for tax
purposes, subsection 215(3) of the Act provides that where an amount on which
withholding tax is payable was paid or credited to an agent on behalf of the
person (the Holder of the Companys Shares) entitled to payment without the
appropriate withholding tax having been deducted, the agent shall deduct and
remit the appropriate amount of the tax to the tax authorities on behalf of
such person.

Subsections 2(3) and 115(1) of the Act provide that a non-resident person
is subject to tax in Canada at the rates generally applicable to residents of
Canada on any taxable capital gain arising on the disposition of taxable
Canadian properties other than treaty-protected properties. Taxable
Canadian property of a taxpayer includes shares of a company which are listed
on a prescribed stock exchange if such non-resident, persons with whom the non-

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resident did not deal at arms length, or the non-resident together with
such persons, owned 25 percent or more of the issued shares of any class of the
capital stock of the Company at any time in the 60 month period immediately
preceding the date of disposition of the shares. For purposes of this
computation, such holders (or non-arms length persons) are considered to own
shares which they have an interest in or an option to acquire. Subsections 2(3)
and 115(1) also provide that a non-resident person is subject to tax in Canada
on taxable capital gains arising on the disposition of shares that constitute
capital property used in carrying on a business in Canada. The taxable portion
of a capital gain is equal to one-half of the amount by which the proceeds of
disposition of such shares, net of any reasonable costs associated with the
disposition of such shares, exceeds the adjusted cost base to the holder of the
shares. A taxpayers treaty-protected property at any time means property any
income or gain from the disposition of which by the taxpayer at that time
would, because of a tax treaty with another country, be exempt from Canadian
income tax.

Article XIII of the 1980 Convention provides that gains realized by a
United States resident on the disposition of shares of a Canadian company may
not generally be taxed in Canada unless the value of those shares is derived
principally from real property situated in Canada or the shares form part of
the business property of a permanent establishment which the United States
shareholder has or had in Canada within the 12 month period preceding the date
of disposition. Subject to certain exceptions, where a U.S. shareholder who is
an individual ceases to be a resident of Canada, a deemed disposition for
proceeds equal to the fair market value of the property at that time may arise
at the time of the cessation of Canadian residence where the U.S. shareholder
was during the 20 consecutive years preceding the disposition a resident in
Canada for at least 120 months and the particular property was owned at the
time the individual ceased to be a resident of Canada.

CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

The following is a general discussion of certain possible United States
federal income tax consequences, under current law, generally applicable to a
U.S. Holder (as defined below) of the Companys Shares. This discussion does
not address all potentially relevant federal income tax matters and it does not
address consequences peculiar to persons subject to special provisions of
federal income tax law, such as those described below as excluded from the
definition of a U.S. Holder. In addition, this discussion does not cover any
state, local or foreign tax consequences. (See  Taxation  Certain Canadian
Federal Income Tax Consequences above.)

The following discussion is based upon the Internal Revenue Code of 1986,
as amended (the Code), Treasury Regulations, published Internal Revenue
Service (IRS) rulings, published administrative positions of the IRS and
court decisions that are currently applicable, any or all of which could be
materially and adversely changed, possibly on a retroactive basis, at any time.
This discussion does not consider the potential effects, both adverse and
beneficial, of any recently proposed legislation which, if enacted, could be
applied, possibly on a retroactive basis, at any time. This discussion is for
general information only and it is not intended to be, nor should it be
construed to be, legal or tax advice to any holder or prospective holder of the
Companys Shares and no opinion or representation with respect to the United
States federal income tax consequences to any such holder or prospective holder
is made. Accordingly, holders and prospective holders of the Companys Shares
should consult their own tax advisors about the federal, state, local, and
foreign tax consequences of purchasing, owning and disposing of the Companys
Shares.

U.S. HOLDERS

As used herein, a U.S. Holder means a holder of the Companys Shares who
is a citizen or individual resident of the United States, a corporation created
or organized in or under the laws of the United States or of any political
subdivision thereof or a trust or estate whose income is taxable in the United
States irrespective of source. This summary does not address the tax
consequences to, and U.S. Holder does not include, persons subject to specific
provisions of federal income tax law, such as tax-exempt organizations,
qualified retirement plans, individual retirement accounts and other
tax-deferred accounts, financial institutions, insurance companies, real estate
investment trusts, regulated investment companies, broker-dealers, nonresident
alien individuals, persons or entities that have a functional currency other
than the U.S. dollar, shareholders who hold the Companys Shares as part of a
straddle, hedging or a conversion transaction, and shareholders who acquired
their stock through the exercise of employee stock options or otherwise as
compensation for services. This summary is limited to U.S. Holders who own the
Companys Shares as capital assets. This summary does not address the
consequences to a person or entity holding an interest in a shareholder or the
consequences to a person of the ownership, exercise or disposition of any
options, warrants or other rights to acquire the Companys Shares.

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DISTRIBUTIONS ON THE COMPANYS SHARES

U.S. Holders receiving dividend distributions (including constructive
dividends) with respect to the Companys Shares are required to include in
gross income for United States federal income tax purposes the gross amount of
such distributions equal to the U.S. dollar value of such dividends on the date
of receipt (based on the exchange rate on such date) to the extent that the
Company has current or accumulated earnings and profits, without reduction for
any Canadian income tax withheld from such distributions. Such Canadian tax
withheld may be credited, subject to certain limitations, against the U.S.
Holders United States federal income tax liability or, alternatively, may be
deducted in computing the U.S. Holders United States federal taxable income by
those who itemize deductions. (See more detailed discussion at  Foreign Tax
Credit below.) To the extent that distributions exceed current or accumulated
earnings and profits of the Company, they will be treated first as a return of
capital up to the U.S. Holders adjusted basis in the Companys Shares and
thereafter as gain from the sale or exchange of the Companys Shares.
Preferential tax rates for long-term capital gains are applicable to a U.S.
Holder which is an individual, estate or trust. There are currently no
preferential tax rates for long-term capital gains for a U.S. Holder which is a
corporation.

In the case of foreign currency received as a dividend that is not
converted by the recipient into U.S. dollars on the date of receipt, a U.S.
Holder will have a tax basis in the foreign currency equal to its U.S. dollar
value on the date of receipt. Generally any gain or loss recognized upon a
subsequent sale or other disposition of the foreign currency, including the
exchange for U.S. dollars, will be ordinary income or loss.

Dividends paid on the Companys Shares will not generally be eligible for
the dividends received deduction provided to corporations receiving dividends
from certain United States corporations. A U.S. Holder which is a corporation
may, under certain circumstances, be entitled to a 70% deduction of the United
States source portion of dividends received from the Company (unless the
Company qualifies as a foreign personal holding company or a passive foreign
investment company, as defined below) if such U.S. Holder owns shares
representing at least 10% of the voting power and value of the Company. The
availability of this deduction is subject to several complex limitations which
are beyond the scope of this discussion.

Dividends paid, and the proceeds of a sale of the Companys Shares, in the
U.S. through a U.S. or U.S. related paying agent (including a broker) will be
subject to U.S. information reporting requirements and may also be subject to
U.S. backup withholding tax, unless the paying agent is furnished with a duly
completed and signed Form W-9 or the U.S. Holder is otherwise exempt. Any
amounts withheld under the U.S. backup withholding tax rules will be allowed as
a refund or a credit against the U.S. Holders U.S. federal income tax
liability, provided the required information is furnished to the IRS.

FOREIGN TAX CREDIT

A U.S. Holder who pays (or has withheld from distributions) Canadian
income tax with respect to the ownership of the Companys Shares may be
entitled, at the option of the U.S. Holder, to either a deduction or a tax
credit for such foreign tax paid or withheld. Generally, it will be more
advantageous to claim a credit because a credit reduces United States federal
income taxes on a dollar-for-dollar basis, while a deduction merely reduces the
taxpayers income subject to tax. This election is made on a year-by-year basis
and applies to all foreign taxes paid by (or withheld from) the U.S. Holder
during that year. There are significant and complex limitations which apply to
the credit, among which is the general limitation that the credit cannot exceed
the proportionate share of the U.S. Holders United States income tax liability
that the U.S. Holders foreign source taxable income bears to his / her or its
worldwide taxable income. In the determination of the application of this
limitation, the various items of income and deduction must be classified into
foreign and domestic sources. Complex rules govern this classification process.
In addition, this limitation is calculated separately with respect to specific
classes of income such as passive income, high withholding tax interest,
financial services income, shipping income, and certain other
classifications of income. Dividends distributed by the Company will generally
constitute passive income or, in the case of certain U.S. Holders, financial
services income for these purposes. The availability of the foreign tax credit
and the application of the limitations on the credit are fact specific, and
holders and prospective holders of the Companys Shares should consult their
own tax advisors regarding their individual circumstances.

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DISPOSITION OF THE COMPANYS SHARES

A U.S. Holder will recognize a gain or loss upon the sale of the Companys
Shares equal to the difference, if any, between (i) the amount of cash plus the
fair market value of any property received, and (ii) the shareholders tax
basis in the Companys Shares. This gain or loss will be a capital gain or loss
if the Companys Shares are a capital asset in the hands of the U.S. Holder,
which will be a short-term or long-term capital gain or loss depending upon the
holding period of the U.S. Holder. Gains and losses are netted and combined
according to special rules in arriving at the overall capital gain or loss for
a particular tax year. Deductions for net capital losses are subject to
significant limitations. For U.S. Holders which are individuals, any unused
portion of such net capital loss may be carried over to be used in later tax
years until such net capital loss is thereby exhausted. For U.S. Holders that
are corporations (other than corporations subject to Subchapter S of the Code),
an unused net capital loss may be carried back three years from the loss year
and carried forward five years from the loss year to be offset against capital
gains until such net capital loss is thereby exhausted.

OTHER CONSIDERATIONS

In the following circumstances, the above sections of this discussion may
not describe the United States federal income tax consequences resulting from
the holding and disposition of the Companys Shares:

FOREIGN PERSONAL HOLDING COMPANY

If at any time during a taxable year more than 50% of the total combined
voting power or the total value of the Companys outstanding shares is owned,
directly or indirectly, by five or fewer individuals who are citizens or
residents of the United States and 60% or more of the Companys gross income
for such year was derived from certain passive sources, the Company may be
treated as a foreign personal holding company. In that event, U.S. Holders
that hold the Companys Shares would be required to include in gross income for
such year their allocable portions of such passive income to the extent the
Company does not actually distribute such income.

PASSIVE FOREIGN INVESTMENT COMPANY

As a foreign corporation with U.S. Holders, the Company could potentially
be treated as a passive foreign investment company (PFIC), as defined in
Section 1297 of the Code, depending upon the percentage of the Companys income
which is passive, or the percentage of the Companys assets which produce
passive income.

Under the applicable rules of the Code, the Company will be treated as a
PFIC for any taxable year during which either (i) 75% or more of its gross
income is passive income or (ii) 50% or more of the average quarterly value of
its assets consists of assets that produce, or are held for the production of,
passive income. For this purpose, passive income generally includes dividends,
interest, royalties, rent (other than rents and royalties derived in the active
conduct of a trade or business) and gains from the sale or exchange of assets
that produce passive income. In determining whether or not it is a PFIC, the
Company will be treated as owning its proportionate share of the assets, and as
receiving directly its proportionate share of the income, of any corporation
(US or foreign) in which it owns, directly or indirectly, at least 25% of the
capital stock by value.

U.S. Holders owning shares of a PFIC are required to allocate any excess
distribution or gain realized on the sale or other disposition of the PFIC pro
rata over such U.S. holders entire holding period for such shares. An excess
distribution generally is defined as the excess of the distribution with
respect to the shares of the PFIC in any taxable year over 125% of the average
annual distributions a U.S. shareholder has received from the PFIC during the
shorter of the three preceding years, or such shareholders holding period for
the shares. For purposes of the foregoing rules, a U.S. shareholder that uses
the shares of a PFIC as security for a loan will be treated as having disposed
of such shares. Any gain or excess distribution allocated to a prior taxable
year (other than a year prior to the first post-1986 year for which a
particular company became a PFIC) will effectively be taxed at the highest
federal income tax rate in effect for such prior year with respect to ordinary
income subject to an interest charge based on the value of deferral of tax for
the period during which the shares of the PFIC are owned. The balance of any
gain, or excess distribution, recognized by a US shareholder of the PFIC will
be treated as ordinary income for the current year.

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However, if the U.S. Holder makes a timely election to treat a PFIC as a
qualified electing fund (QEF) with respect to such shareholders interest
therein, the above-described rules generally will not apply. Instead, the
electing U.S. Holder would include annually in his gross income his pro rata
share of the PFICs ordinary earnings and net capital gain regardless of
whether such income or gain was actually distributed. A U.S. Holder of a QEF
can, however, elect to defer the payment of United States federal income tax on
such income inclusions although an interest charge will be imposed.

In addition, taxpayers owning (actually or constructively) marketable
stock in a PFIC will be permitted to elect to mark that stock to market
annually, rather than be subject to the rules described above. Amounts included
in or deducted from income under this regime (and actual gains and losses
realized upon disposition, subject to certain limitations) will be treated as
ordinary. Special rules apply to U.S. Holders who own their interests in a PFIC
through intermediate entities or persons.

The Company believes that it was not a PFIC for its fiscal years ended on
or before December 31, 2002. Because of the subjective nature of the above
tests, there can be no assurance that the IRS will not challenge the Companys
determination concerning PFIC status, or that it will be able to satisfy the
record-keeping requirements, which are imposed on QEFs. Furthermore, the
Company can provide no assurance that it will not otherwise become a PFIC in
respect of any future taxable year.

CONTROLLED FOREIGN CORPORATION

If more than 50% of the voting power of all classes of stock or the total
value of the stock of the Company is owned, directly or indirectly, by citizens
or residents of the United States, United States domestic partnerships and
corporations or estates or trusts other than foreign estates or trusts, each of
whom owns 10% or more of the total combined voting power of all classes of
stock of the Company (United States shareholders), the Company could be
treated as a controlled foreign corporation (CFC) under subpart F of the
Code. This classification would result in many complex tax consequences one of
which is the inclusion of certain income of a CFC in the gross income of its
United States shareholders. The United States generally taxes the United States
shareholders of a CFC currently on their pro rata shares of the subpart F
income of the CFC. In effect, the Code treats those United States shareholders
as having received a current distribution out of the CFCs subpart F income.
Such shareholders also are subject to current U.S. tax on their pro rata shares
of the CFCs earnings invested in U.S. property. The foreign tax credit may
reduce the U.S. tax on these amounts. In addition, under Section 1248 of the
Code, a gain from the sale or exchange of stock by a holder of the Companys
Shares who is or was a United States shareholder at any time during the five
year period ending with the sale or exchange is treated as ordinary dividend
income to the extent of earnings and profits of the Company attributable to the
stock sold or exchanged. Note that the overlap between the PFIC and CFC rules
is generally eliminated for United States shareholders of a CFC. Where a
foreign corporation is both a PFIC and a CFC, the foreign corporation is
generally treated as a non-PFIC with respect to United States shareholders of
the CFC. Because of the complexity of subpart F, and because it is not clear
that subpart F would apply to the holders of the Companys Shares, a more
detailed review of these rules is outside of the scope of this discussion.

F. DIVIDENDS AND PAYING AGENTS

Not applicable.

G. STATEMENTS BY EXPERTS

Not applicable.

H. DOCUMENTS ON DISPLAY

The documents concerning the Company referred to in this annual report may
be inspected at the Companys office in Toronto, Ontario. The Companys
Investor Relations and Corporate Communications Department may be reached at
(416) 866-3000. Documents filed with the Securities and Exchange Commission may
also be read and copied at the SECs public reference room at Room 1024,
Judiciary Plaza Building, 450 Fifth Street, N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms.

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ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At December 31, 2002, the Company had continuing operations cash and cash
equivalents, being short-term market investments with original maturities of
three months or less, of $9,000. In addition, the Company had loans receivable
of $6,500. Included in the $6,500 is $5,900 of share purchase loans with a
fair market value of $4,400 at the end of 2002. The Company holds such
financial instruments for investment purposes only and not for trading or
speculative purposes.

The Companys risks relative to these securities are credit risk and
interest rate risk. Regarding credit risk, the Company mitigates such risk by
investing cash and cash equivalents only in federal or provincial government
securities or investment grade corporate obligations in the form of commercial
paper or bankers acceptances. The Company assesses the credit status of the
entities to which mortgages and other advances are made to minimize credit
risk.

Regarding interest rate risk, exposure results from changes in short term
interest rates. These risks are mitigated for cash and cash equivalents by the
short-term nature of the portfolio.

The Company also holds short-term investments with a carrying value of
$3,100 and a fair market value of approximately $4,700 as at December 31, 2002.
For U.S. GAAP, these investments are recorded as marketable securities 
available for sale.

The Company has no derivative financial instruments.

The following table sets out information about the Companys debt
obligations from continuing and discontinued operations.

December 31, 2002

|                                                   |  |                        |        |      |  |      |       |      |  |      |       |            |  |       |       |            |  |   |      |   |  |   |        |   |  |   |        |   |  |   |        | 
|-------------------------------------------------- |  | ---------------------- | ------ | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ---------- |  | ----- | ----- | ---------- |  | - | ---- | - |  | - | ------ | - |  | - | ------ | - |  | - | ------ | 
|                                                   |  | Expected Maturity Date |        |      |  |      |       |      |  |      |       |            |  |      
|                                                   |  |                        |        |      |  |      |       |      |  |      |       |            |  |      
|                                                   |  | 2003                   |        | 2004 |  | 2005 |       | 2006 |  | 2007 |       | Thereafter |  | Total |       | Fair Value
|                                                   |  |                        |        |      |  |      |       |      |  |      |       |            |  |       |       |           
|                                                   |  | $                      |        | $    |  | $    |       | $    |  | $    |       | $          |  | $     |       | $         
|Fixed
rate instruments                             |  |                        |        |      |  |      |       |      |  |      |       |            |  |       |       |            |  |   |      |   |  |   |        |   |  |   |        |   |  |   |        | 
|Mortgages and loans payable                        |  | $                      | 1,631  |      |  | $    | 1,723 |      |  | $    | 736   |            |  | $     | 998   |            |  | $ | 655  |   |  | $ | 16,706 |   |  | $ | 22,449 |   |  | $ | 22,449 | 
|Weighted average interest rate                     |  |                        | 7.56   | %    |  |      | 8.92  | %    |  |      | 7.30  | %          |  |       | 7.68  | %          |  |   | 7.37 | % |  |   | 7.45   | % |  |   | 7.58   | % |  |   |        | 
|Convertible debentures (i)                         |  | $                      | 42,561 |      |  |      |      |      |  |      |      |            |  |       |      |            |  |   |     |   |  |   |       |   |  | $ | 42,561 |   |  | $ | 27,882 | 
|Weighted average interest rate                     |  |                        | 6.00   | %    |  |      |       |      |  |      |       |            |  |       |       |            |  |   |      |   |  |   |        |   |  |   |        |   |  |   |        | 
|Discontinued operations mortages and loans payable |  | $                      | 181    |      |  | $    | 363   |      |  | $    | 6,640 |            |  | $     | 4,537 |            |  | $ | 0    |   |  | $ | 0      |   |  | $ | 11,721 |   |  | $ | 11,721 | 
|Weighted average interest rate                     |  |                        | 8.43   | %    |  |      | 8.43  | %    |  |      | 8.14  | %          |  |       | 8.51  | %          |  |   |      |   |  |   |        |   |  |   | 8.29   | % |  |   |        | 
|Capital lease obligations                          |  | $                      | 3,036  |      |  | $    | 3,015 |      |  | $    | 1,514 |            |  |       |      |            |  |   |     |   |  |   |       |   |  | $ | 7,565  |   |  | $ | 7,565  | 
|Weighted average interest rate                     |  |                        | 7.00   | %    |  |      | 7.00  | %    |  |      | 7.00  | %          |  |       |       |            |  |   |      |   |  |   |        |   |  |   | 7.00   | % |  |   |        | 
|Variable
rate instruments                          |  |                        |        |      |  |      |       |      |  |      |       |            |  |       |       |            |  |   |      |   |  |   |        |   |  |   |        |   |  |   |        | 
|Mortgages and loans payable                        |  | $                      | 1,999  |      |  |      |      |      |  |      |      |            |  |       |      |            |  |   |     |   |  | $ | 1,710  |   |  | $ | 3,709  |   |  | $ | 3,709  | 
|Weighted average interest rate                     |  |                        | 13.25  | %    |  |      |       |      |  |      |       |            |  |       |       |            |  |   |      |   |  |   | 5.50   | % |  |   | 9.68   | % |  |   |        | 
|Revolving credit facility                          |  | $                      | 9,086  |      |  |      |      |      |  |      |      |            |  |       |      |            |  |   |     |   |  |   |       |   |  | $ | 9,086  |   |  | $ | 9,086  | 
|Weighted average interest rate                     |  |                        | 6.50   | %    |  |      |       |      |  |      |       |            |  |       |       |            |  |   |      |   |  |   |        |   |  |   | 6.50   | % |  |   |        | 
|                                                   |  |                        |        |      |  |      |       |      |  |      |       |            |  |       |       |            |  |   |      |   |  |   |        |   |  |   |        |   |  |   |        | 
|Total                                              |  | $                      | 58,494 |      |  | $    | 5,101 |      |  | $    | 8,890 |            |  | $     | 5,535 |            |  | $ | 655  |   |  | $ | 18,416 |   |  | $ | 97,091 |   |  | $ | 82,412 | 
|                                                   |  |                        |        |      |  |      |       |      |  |      |       |            |  |       |       |            |  |   |      |   |  |   |        |   |  |   |        |   |  |   |        | 

(i)  Represents the face value of convertible debentures outstanding at
December 31, 2002.

Foreign currency exposure

The Companys reporting currency is the US dollar because it is the
currency of the primary economic environment in which the Company conducts its
operations. The Company does not actively engage in hedging or other
activities to control the risk of its foreign currency exposure to fluctuations
in the value of the Canadian dollar.

Included within loans and mortgages from continuing and discontinued
operations are amounts repayable in Canadian dollars. These amounts are
reported below in U.S. dollars equivalents, as this is the reporting currency
of the Company:

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|           |       |      |        |               |     |                  |      |              |      |               |       |  |      |                  |  |  |       |      |   |  |      |  
|---------- | ----- | ---- | ------ | ------------- | --- | ---------------- | ---- | ------------ | ---- | ------------- | ----- |  | ---- | ---------------- |  |  | ----- | ---- | - |  | ---- | -
|Continuing |       |      |        |               |     | Weighted average |      | Discontinued |      |               |       |  |      | Weighted average
|operations |       | US$  |        | interest rate |     | operations       |      | US$          |      | interest rate
|           |       |      |        |               |     |                  |      |              |      |              
|           |       | 2003 |        |               | 642 |                  |      |              | 7.30 | %             |       |  | 2003 |                  |  |  | 181   |      |   |  | 8.43 | %
|           |       | 2004 |        |               | 688 |                  |      |              | 7.30 | %             |       |  | 2004 |                  |  |  | 363   |      |   |  | 8.43 | %
|           |       | 2005 |        |               | 736 |                  |      |              | 7.30 | %             |       |  | 2005 |                  |  |  | 6,640 |      |   |  | 8.14 | %
|           |       | 2006 |        |               | 700 |                  |      |              | 7.33 | %             |       |  | 2006 |                  |  |  | 4,537 |      |   |  | 8.51 | %
|           |       | 2007 |        |               | 655 |                  |      |              | 7.37 | %             |       |  | 2007 |                  |  |  |      |      |   |  | 0.00 | %
|Thereafter |       |      | 18,416 |               |     |                  | 7.27 | %            |      | Thereafter    |       |  |     |                  |  |  | 0.00  | %   
|           |       |      |        |               |     |                  |      |              |      |               |       |  |      |                  |  |  |       |      |   | 
|           | Total |      |        | 21,837        |     |                  |      | 7.28         | %    |               | Total |  |      | 11,721           |  |  |       | 8.29 | %
|           |       |      |        |               |     |                  |      |              |      |               |       |  |      |                  |  |  |       |      |   | 




ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES:

Not applicable.




PART II




ITEM 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

As of the date of this report there has not been a material default in the
payment of principal, interest, a sinking or purchase fund installment or any
other material default made by the Company.




ITEM 14: MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Not applicable.




ITEM 15: CONTROLS AND PROCEDURES

In accordance with Item 307 of Regulation S-K promulgated under the
Securities Act of 1933, as amended, and within 90 days of the date of this
Annual Report on Form 20-F, the Chief Executive Officer and Chief Financial
Officer of the Company (the Certifying Officers) have conducted evaluations
of the Companys disclosure controls and procedures. As defined under Sections
13a-14(c) and 15d-14(c) 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 issue in the
reports that it files or submits under the Exchange Act is accumulated and
communicated to the issuers management, including its principal executive
offer or officers and principal financial officer or officers, or persons
performing similar functions, as appropriate to allow timely decisions
regarding required disclosure.

As of June 13, 2003, the date of the evaluation of the Companys internal
controls and disclosure controls and procedures, the Certifying Officers have
reviewed the Companys disclosure controls and procedures and have concluded
that those disclosure controls and procedures were effective. In compliance
with Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350), each of
the Certifying Officers executed an Officers Certification included in this
Annual Report on Form 20-F.

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ITEM 16A: AUDIT COMMITTEE FINANCIAL EXPERT

The Company has determined that it does not have an audit committee
financial expert on its Audit Committee. The Company has been unable to
attract such a person.




ITEM 16B: CODE OF ETHICS

The Company has adopted a code of conduct that applies to the Chief
Executive Officer and all other officers and employees. A copy of the code of
conduct has been included as Exhibit B to this annual report.




ITEM 16C: PRINCIPAL ACCOUNTANT FEES AND SERVICES

Following is the aggregate fees billed in each of the last two fiscal
years for professional services rendered by the principal accountant for the
audit of the Companys annual consolidated financial statements:

|                   |  |      |       |      |  |   |     | 
|------------------ |  | ---- | ----- | ---- |  | - | --- | 
|                   |  | 2002 |       | 2001
|                   |  |      |       |     
|                   |  | $    |       | $   
|Audit fees         |  | $    | 1,065 |      |  | $ | 525 | 
|Audit related fees |  |      | 137   |      |  |   | 146 | 
|Tax fees           |  |      | 107   |      |  |   | 219 | 
|Other fees         |  |      |      |      |  |   |    | 
|                   |  |      |       |      |  |   |     | 
|Total              |  | $    | 1,309 |      |  | $ | 890 | 
|                   |  |      |       |      |  |   |     | 




PART III




ITEM 17: FINANCIAL STATEMENTS

Not applicable.




ITEM 18: FINANCIAL STATEMENTS

See pages F-1 through
F-50 incorporated herein by
reference.




ITEM 19: EXHIBITS

The list of Exhibits filed as part of this annual report are set forth
below, and are incorporated herein by this reference.

|             |  |                                                       |  |  |      | 
|------------ |  | ----------------------------------------------------- |  |  | ---- | 
|Exhibit A    |  | Counsel Corporation Consolidated Financial Statements |  |  | F-1  | 
|Exhibit B    |  | Counsel Corporation Code of Conduct                   |  |  | B-1  | 
|Exhibit C    |  | Counsel Corporation List of Subsidiaries              |  |  | C-1  | 
|Exhibit 99.1 |  | 906 Certification                                     |  |  | 99.1 | 
|Exhibit 99.2 |  | 906 Certification                                     |  |  | 99.2 | 

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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.

| |  |                     |  |                                                                         
| |  | ------------------- |  | ------------------------------------------------------------------------
| |  | COUNSEL CORPORATION
|
| |  |                     |  |                                                                         
|
| |  | By:                 |  | /s/ Stephen WeintraubStephen Weintraub
Senior Vice President & Secretary

Date: June 27, 2003

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CERTIFICATIONS

Officers Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

I, Alan Silber, Chief Executive Officer of Counsel Corporation, certify that:



| | 1. |  | I have reviewed this annual report on Form 20-F of Counsel
Corporation;                                                                                                                                                                                                                                                
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this annual report does not contain any untrue
statements of a material fact or omit to state a material fact necessary
to make the statement made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by the annual report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;                  
|
| | 4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls procedures (as defined
in the Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                 

| |  |    |  |                                                                                                                                                                                                                                                                                             
| |  | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a) |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this annual report is being prepared;
| |  |    |  |                                                                                                                                                                                                                                                                                             
| |  | b) |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of the date within 90 days
prior to the filing date of this annual report (the Evaluation
Date); and                                                                                                
| |  |    |  |                                                                                                                                                                                                                                                                                             
| |  | c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date.                                                                                                                        



| | 5. |  | The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the audit committee of the registrants board of directors (or persons
performing the equivalent function):
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |    |  |                                                                                                                                                                                                                                                                                               
| |  | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a) |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data
and have identified for the registrants auditors any material
weaknesses in internal controls; and
| |  |    |  |                                                                                                                                                                                                                                                                                               
| |  | b) |  | any fraud, whether or not material, that involves
management of other employees who have a significant role in the
registrants internal controls; and                                                                                                                                        



| | 6. |  | The registrants other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|      |  |               |  |                                                   
|----- |  | ------------- |  | --------------------------------------------------
|Date: |  | June 30, 2003 |  | /s/ Alan SilberAlan Silber
Chief Executive Officer

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Officers Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

I, Gary Clifford, Chief Financial Officer of Counsel Corporation, certify that:



| | 1. |  | I have reviewed this annual report on Form 20-F of Counsel
Corporation;                                                                                                                                                                                                                                                
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this annual report does not contain any untrue
statements of a material fact or omit to state a material fact necessary
to make the statement made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by the annual report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;                  
|
| | 4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls procedures (as defined
in the Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                 

| |  |    |  |                                                                                                                                                                                                                                                                                             
| |  | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a) |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this annual report is being prepared;
| |  |    |  |                                                                                                                                                                                                                                                                                             
| |  | b) |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of the date within 90 days
prior to the filing date of this annual report (the Evaluation
Date); and                                                                                                
| |  |    |  |                                                                                                                                                                                                                                                                                             
| |  | c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date.                                                                                                                        



| | 5. |  | The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the audit committee of the registrants board of directors (or persons
performing the equivalent function):
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |    |  |                                                                                                                                                                                                                                                                                               
| |  | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | d) |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data
and have identified for the registrants auditors any material
weaknesses in internal controls; and
| |  |    |  |                                                                                                                                                                                                                                                                                               
| |  | e) |  | any fraud, whether or not material, that involves
management of other employees who have a significant role in the
registrants internal controls; and                                                                                                                                        



| | 6. |  | The registrants other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|      |  |               |  |                                                        
|----- |  | ------------- |  | -------------------------------------------------------
|Date: |  | June 30, 2003 |  | /s/  Gary CliffordGary Clifford
Chief Financial Officer

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EXHIBIT A

COUNSEL CORPORATION
INDEX TO FINANCIAL STATEMENTS

|                                                            |  |      |     | 
|----------------------------------------------------------- |  | ---- | --- | 
|                                                            |  | Page
|                                                            |  |     
|Report of PricewaterhouseCoopers LLP, Chartered Accountants |  |      | F-2 | 
|Consolidated Balance Sheet                                  |  |      | F-3 | 
|Consolidated Statement of Shareholders Equity              |  |      | F-4 | 
|Consolidated Statement of Operations                        |  |      | F-5 | 
|Consolidated Statement of Cash Flows                        |  |      | F-6 | 
|Notes to Consolidated Financial Statements                  |  |      | F-7 | 

F-1



---



##### Table of Contents





AUDITORS REPORT

TO THE SHAREHOLDERS OF COUNSEL CORPORATION


We have audited the consolidated balance sheets
of Counsel Corporation as at December 31, 2002 and 2001 and
the consolidated statements of operations, shareholders
equity and cash flows for the years then ended. These financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in Canada and the United
States of America. Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation.


In our opinion, these consolidated financial
statements present fairly, in all material respects, the
financial position of the Company as at December 31, 2002
and 2001 and the results of its operations and its cash flows
for the years then ended in accordance with Canadian generally
accepted accounting principles.


The consolidated financial statements for the
year ended December 31, 2000, prior to the reclassification
of discontinued operations as described in Note 17 and the
restatement of certain information reported under United States
generally accepted accounting principles as described in Note
22, were audited by other auditors who expressed an opinion
without reservation on those statements in their report dated
March 26, 2001.





CHARTERED ACCOUNTANTS


March 25, 2003

F-2




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##### Table of Contents



CONSOLIDATED BALANCE SHEETS

As at December 31 (In thousands of U.S.
dollars)

|                                                                                              |  |      |         |      |  |  |         |  |  | 
|--------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  |  | ------- |  |  | 
|                                                                                              |  | 2002 |         | 2001 |  | 
|                                                                                              |  | $    |         | $    |  | 
|                                                                                              |  |     
|                                                                                              |  |     
|Assets                                                                                        |  |      |         |      |  |  |         |  |  | 
|CURRENT ASSETS                                                                                |  |      |         |      |  |  |         |  |  | 
|Cash and cash equivalents                                                                     |  |      | 9,004   |      |  |  | 23,066  |  |  | 
|Short-term investments (note 4)                                                               |  |      | 3,071   |      |  |  | 8,932   |  |  | 
|Accounts receivable (net of allowance for
    doubtful accounts
    of $4,596; 2001  $1,863) |  |      | 22,184  |      |  |  | 19,376  |  |  | 
|Income taxes recoverable                                                                      |  |      | 3,329   |      |  |  | 2,202   |  |  | 
|Future income tax assets (note 16)                                                            |  |      | 274     |      |  |  | 970     |  |  | 
|Prepaid expenses and deposits                                                                 |  |      | 6,991   |      |  |  | 4,815   |  |  | 
|Assets of discontinued operations (note 17)                                                   |  |      | 2,239   |      |  |  | 8,306   |  |  | 
|                                                                                              |  |     
|                                                                                              |  |      | 47,092  |      |  |  | 67,667  |  |  | 
|LONG-TERM ASSETS                                                                              |  |      |         |      |  |  |         |  |  | 
|Income producing properties (note 5(a))                                                       |  |      | 34,919  |      |  |  | 2,081   |  |  | 
|Properties under development (note 5(b))                                                      |  |      | 3,063   |      |  |  | 352     |  |  | 
|Loans receivable (note 6)                                                                     |  |      | 6,473   |      |  |  | 7,305   |  |  | 
|Portfolio investments (note 7)                                                                |  |      | 4,420   |      |  |  | 4,219   |  |  | 
|Property, plant and equipment (note 8)                                                        |  |      | 12,657  |      |  |  | 15,393  |  |  | 
|Intangible assets (note 9)                                                                    |  |      | 9,318   |      |  |  | 9,699   |  |  | 
|Assets of discontinued operations (note 17)                                                   |  |      | 21,598  |      |  |  | 32,172  |  |  | 
|Goodwill (note 9)                                                                             |  |      |        |      |  |  | 3,434   |  |  | 
|                                                                                              |  |     
|                                                                                              |  |      | 139,540 |      |  |  | 142,322 |  |  | 
|                                                                                              |  |     
|Liabilities                                                                                   |  |      |         |      |  |  |         |  |  | 
|CURRENT LIABILITIES                                                                           |  |      |         |      |  |  |         |  |  | 
|Accounts payable                                                                              |  |      | 7,725   |      |  |  | 5,435   |  |  | 
|Accrued liabilities (note 10)                                                                 |  |      | 22,215  |      |  |  | 26,269  |  |  | 
|Current portion of deferred revenue                                                           |  |      | 958     |      |  |  | 1,986   |  |  | 
|Revolving credit facility (note 11(b))                                                        |  |      | 9,086   |      |  |  | 6,996   |  |  | 
|Current portion of mortgages and loans payable
    (note 11(a))                               |  |      | 3,630   |      |  |  | 2,302   |  |  | 
|Current portion of capital leases (note 12)                                                   |  |      | 2,714   |      |  |  | 3,034   |  |  | 
|Convertible debentures payable (note 13)                                                      |  |      | 2,515   |      |  |  |        |  |  | 
|Liabilities of discontinued operations (note 17)                                              |  |      | 7,269   |      |  |  | 8,789   |  |  | 
|                                                                                              |  |     
|                                                                                              |  |      | 56,112  |      |  |  | 54,811  |  |  | 
|LONG-TERM LIABILITIES                                                                         |  |      |         |      |  |  |         |  |  | 
|Mortgages and loans payable (note 11(a))                                                      |  |      | 22,528  |      |  |  | 3,848   |  |  | 
|Capital leases (note 12)                                                                      |  |      | 4,146   |      |  |  | 6,986   |  |  | 
|Convertible debentures payable (note 13)                                                      |  |      |        |      |  |  | 4,801   |  |  | 
|Future income tax liabilities (note 16)                                                       |  |      | 36,550  |      |  |  | 23,282  |  |  | 
|Liabilities of discontinued operations (note 17)                                              |  |      | 11,816  |      |  |  | 13,100  |  |  | 
|                                                                                              |  |     
|                                                                                              |  |      | 131,152 |      |  |  | 106,828 |  |  | 
|Commitments, contingencies, guarantees and
    concentrations (note 12)                       |  |      |         |      |  |  |         |  |  | 
|Shareholders Equity                                                                          |  |      | 8,388   |      |  |  | 35,494  |  |  | 
|                                                                                              |  |     
|                                                                                              |  |      | 139,540 |      |  |  | 142,322 |  |  | 
|                                                                                              |  |     

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

On behalf of the Board of Directors:

Allan C. Silber, Director    William H. Lomicka,
Director


F-3




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##### Table of Contents



CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

For the years ended December 31 (In
thousands of U.S. dollars)

|                                                                                            |  |               |        |        |  |              |         |            |  |           |        |               |  |  |        |   |  |  |          |   |  |  |         |   |  | 
|------------------------------------------------------------------------------------------- |  | ------------- | ------ | ------ |  | ------------ | ------- | ---------- |  | --------- | ------ | ------------- |  |  | ------ | - |  |  | -------- | - |  |  | ------- | - |  | 
|                                                                                            |  |               |        |        |  |              |         |            |  |           |        |              
|                                                                                            |  | Capital Stock |        |        |  | Equity       |         |            |  |           |        |              
|                                                                                            |  |               |        |        |  | component of |         |            |  |           |        |              
|                                                                                            |  |               |        |        |  | convertible  |         | Retained   |  | Total     |        |              
|                                                                                            |  | Number of     |        |        |  | Contributed  |         | debentures |  | earnings  |        | Shareholders |  | 
|                                                                                            |  | common        |        | Amount |  | surplus      |         | payable    |  | (Deficit) |        | Equity        |  | 
|                                                                                            |  | shares        |        |        |  |              |         |            |  |           |        |               |  | 
|                                                                                            |  | (In 000s)    |        | $      |  | $            |         | $          |  | $         |        |               |  | 
|                                                                                            |  |               |        |        |  |              |         |            |  |           |        | $             |  | 
|                                                                                            |  |              
|                                                                                            |  |              
|Balance  December 31, 1999                                                                 |  |               | 25,533 |        |  |              | 116,251 |            |  |           |       |               |  |  | 42,293 |   |  |  | (1,819   | ) |  |  | 156,725 |   |  | 
|Common shares issued                                                                        |  |               | 92     |        |  |              | 143     |            |  |           |       |               |  |  |       |   |  |  |         |   |  |  | 143     |   |  | 
|Common shares purchased for cancellation                                                    |  |               | (1,688 | )      |  |              | (6,942  | )          |  |           | 2,220  |               |  |  |       |   |  |  | (8       | ) |  |  | (4,730  | ) |  | 
|Accretion of equity component of debentures
    payable                                     |  |               |       |        |  |              |        |            |  |           |       |               |  |  | 3,017  |   |  |  | (3,017   | ) |  |  |        |   |  | 
|Gain on retirement of debentures payable net of
    income taxes of $131                    |  |               |       |        |  |              |        |            |  |           | 491    |               |  |  | (1,268 | ) |  |  |         |   |  |  | (777    | ) |  | 
|Gain on issuances of stock by significantly
    influenced corporations                     |  |               |       |        |  |              |        |            |  |           |       |               |  |  |       |   |  |  | 366      |   |  |  | 366     |   |  | 
|Dividends                                                                                   |  |               |       |        |  |              |        |            |  |           |       |               |  |  |       |   |  |  | (1,791   | ) |  |  | (1,791  | ) |  | 
|Net loss                                                                                    |  |               |       |        |  |              |        |            |  |           |       |               |  |  |       |   |  |  | (45,433  | ) |  |  | (45,433 | ) |  | 
|                                                                                            |  |              
|Balance  December 31, 2000                                                                 |  |               | 23,937 |        |  |              | 109,452 |            |  |           | 2,711  |               |  |  | 44,042 |   |  |  | (51,702  | ) |  |  | 104,503 |   |  | 
|Common shares purchased for cancellation                                                    |  |               | (1,444 | )      |  |              | (6,600  | )          |  |           | 3,878  |               |  |  |       |   |  |  |         |   |  |  | (2,722  | ) |  | 
|Accretion of equity component of debentures
    payable                                     |  |               |       |        |  |              |        |            |  |           |       |               |  |  | 3,159  |   |  |  | (3,159   | ) |  |  |        |   |  | 
|Gain on retirement of debentures payable net of
    income taxes of $613                    |  |               |       |        |  |              |        |            |  |           | 2,294  |               |  |  | (5,368 | ) |  |  |         |   |  |  | (3,074  | ) |  | 
|Net loss                                                                                    |  |               |       |        |  |              |        |            |  |           |       |               |  |  |       |   |  |  | (62,213  | ) |  |  | (62,213 | ) |  | 
|                                                                                            |  |              
|Balance  December 31, 2001                                                                 |  |               | 22,493 |        |  |              | 102,852 |            |  |           | 8,883  |               |  |  | 41,833 |   |  |  | (117,074 | ) |  |  | 36,494  |   |  | 
|Adjustment to goodwill related to the adoption of
    new accounting pronouncement (note 2) |  |               |       |        |  |              |        |            |  |           |       |               |  |  |       |   |  |  | (1,000   | ) |  |  | (1,000  | ) |  | 
|                                                                                            |  |              
|Restated balance  December 31,
    2001                                                    |  |               | 22,493 |        |  |              | 102,852 |            |  |           | 8,883  |               |  |  | 41,833 |   |  |  | (118,074 | ) |  |  | 35,494  |   |  | 
|Common shares purchased for cancellation                                                    |  |               | (748   | )      |  |              | (3,418  | )          |  |           | 1,886  |               |  |  |       |   |  |  |         |   |  |  | (1,532  | ) |  | 
|Accretion of equity component of debentures
    payable                                     |  |               |       |        |  |              |        |            |  |           |       |               |  |  | 3,029  |   |  |  | (3,029   | ) |  |  |        |   |  | 
|Gain on retirement of debentures payable net of
    income taxes of $15                     |  |               |       |        |  |              |        |            |  |           | 63     |               |  |  | (210   | ) |  |  |         |   |  |  | (147    | ) |  | 
|Net loss                                                                                    |  |               |       |        |  |              |        |            |  |           |       |               |  |  |       |   |  |  | (25,427  | ) |  |  | (25,427 | ) |  | 
|                                                                                            |  |              
|Balance  December 31, 2002                                                                 |  |               | 21,745 |        |  |              | 99,434  |            |  |           | 10,832 |               |  |  | 44,652 |   |  |  | (146,530 | ) |  |  | 8,388   |   |  | 
|                                                                                            |  |              

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

F-4




---



##### Table of Contents



CONSOLIDATED STATEMENTS OF OPERATIONS

For the years ended December 31 (In
thousands of U.S. dollars, except per share amounts)

|                                                                                              |  |      |         |      |  |      |         |   |  |  |         |   |  | 
|--------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  |  | ------- | - |  | 
|                                                                                              |  | 2002 |         | 2001 |  | 2000 |         |  
|                                                                                              |  | $    |         | $    |  | $    |         |  
|                                                                                              |  |     
|                                                                                              |  |     
|Revenues                                                                                      |  |      |         |      |  |      |         |   |  |  |         |   |  | 
|Telecommunication services                                                                    |  |      | 90,410  |      |  |      | 49,289  |   |  |  |        |   |  | 
|Communication technology licensing                                                            |  |      | 2,837   |      |  |      | 4,730   |   |  |  |        |   |  | 
|Income producing properties                                                                   |  |      | 3,343   |      |  |      | 11      |   |  |  |        |   |  | 
|                                                                                              |  |     
|                                                                                              |  |      | 96,590  |      |  |      | 54,030  |   |  |  |        |   |  | 
|                                                                                              |  |     
|Operating costs and expenses                                                                  |  |      |         |      |  |      |         |   |  |  |         |   |  | 
|Telecommunication costs
    (exclusive of depreciation shown below)                           |  |      | 50,936  |      |  |      | 35,546  |   |  |  |        |   |  | 
|Income producing properties                                                                   |  |      | 1,448   |      |  |      |        |   |  |  |        |   |  | 
|Selling, general and administrative                                                           |  |      | 47,059  |      |  |      | 44,350  |   |  |  | 6,300   |   |  | 
|Research and development                                                                      |  |      | 1,399   |      |  |      | 2,162   |   |  |  |        |   |  | 
|Provision for doubtful accounts                                                               |  |      | 6,331   |      |  |      | 839     |   |  |  |        |   |  | 
|Depreciation and amortization                                                                 |  |      | 7,115   |      |  |      | 8,849   |   |  |  | 205     |   |  | 
|                                                                                              |  |     
|                                                                                              |  |      | 114,288 |      |  |      | 91,746  |   |  |  | 6,505   |   |  | 
|                                                                                              |  |     
|Operating loss before undernoted
    items                                                    |  |      | (17,698 | )    |  |      | (37,716 | ) |  |  | (6,505  | ) |  | 
|Gains and other income                                                                        |  |      |         |      |  |      |         |   |  |  |         |   |  | 
|Sale of short-term investments                                                                |  |      | 28,067  |      |  |      | 42,760  |   |  |  | 28,256  |   |  | 
|Portfolio investments                                                                         |  |      |        |      |  |      | 64      |   |  |  | 3,693   |   |  | 
|Sale of subsidiary                                                                            |  |      |        |      |  |      | 589     |   |  |  |        |   |  | 
|Debt retirement                                                                               |  |      |        |      |  |      | 1,093   |   |  |  |        |   |  | 
|Other                                                                                         |  |      | 782     |      |  |      |        |   |  |  |        |   |  | 
|Impairments and other losses                                                                  |  |      |         |      |  |      |         |   |  |  |         |   |  | 
|Write-down of short-term investments                                                          |  |      | (4,011  | )    |  |      | (1,957  | ) |  |  | (22,031 | ) |  | 
|Write-down of portfolio investments                                                           |  |      | (640    | )    |  |      | (19,340 | ) |  |  | (2,581  | ) |  | 
|Other                                                                                         |  |      | (722    | )    |  |      |        |   |  |  | (850    | ) |  | 
|                                                                                              |  |     
|Earnings (loss) before the
    undernoted                                                     |  |      | 5,778   |      |  |      | (14,507 | ) |  |  | (18     | ) |  | 
|Equity in losses of significantly influenced
    companies                                    |  |      |        |      |  |      | (5,582  | ) |  |  | (9,547  | ) |  | 
|Interest income                                                                               |  |      | 401     |      |  |      | 2,645   |   |  |  | 2,520   |   |  | 
|Interest expense (note 11 (d))                                                                |  |      | (3,002  | )    |  |      | (2,517  | ) |  |  | (752    | ) |  | 
|                                                                                              |  |     
|Earnings (loss) before income taxes,
    non-controlling interest and discontinued operations |  |      | 3,177   |      |  |      | (19,961 | ) |  |  | (7,797  | ) |  | 
|(Provision for) recovery of income taxes
    (note 16)                                        |  |      | (9,655  | )    |  |      | (19,901 | ) |  |  | 6       |   |  | 
|Non-controlling interest                                                                      |  |      |        |      |  |      | 1,538   |   |  |  |        |   |  | 
|                                                                                              |  |     
|Loss from continuing operations                                                               |  |      | (6,478  | )    |  |      | (38,324 | ) |  |  | (7,791  | ) |  | 
|Loss from discontinued operations(note 17)                                                    |  |      | (18,949 | )    |  |      | (23,889 | ) |  |  | (37,642 | ) |  | 
|                                                                                              |  |     
|Net loss                                                                                      |  |      | (25,427 | )    |  |      | (62,213 | ) |  |  | (45,433 | ) |  | 
|                                                                                              |  |     
|Basic and diluted net loss per share(note 20)                                                 |  |      |         |      |  |      |         |   |  |  |         |   |  | 
|Loss from continuing operations                                                               |  |      | (0.43   | )    |  |      | (1.80   | ) |  |  | (0.43   | ) |  | 
|Loss from discontinued operations                                                             |  |      | (0.85   | )    |  |      | (1.04   | ) |  |  | (1.51   | ) |  | 
|                                                                                              |  |     
|Basic and diluted net loss per share                                                          |  |      | (1.28   | )    |  |      | (2.84   | ) |  |  | (1.95   | ) |  | 
|                                                                                              |  |     
|Weighted average number of common shares
    outstanding(in thousands)                        |  |      | 22,195  |      |  |      | 23,030  |   |  |  | 24,860  |   |  | 
|                                                                                              |  |     

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

F-5




---



##### Table of Contents



CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended December 31 (In
thousands of U.S. dollars)

|                                                                                                                   |                                                               |      |         |         |   |      |         |         |   |  |         |         |   |  | 
|------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------- | ---- | ------- | ------- | - | ---- | ------- | ------- | - |  | ------- | ------- | - |  | 
|                                                                                                                   |                                                               | 2002 |         | 2001    |   | 2000 |         |        
|                                                                                                                   |                                                               | $    |         | $       |   | $    |         |        
|                                                                                                                   |                                                               |     
|                                                                                                                   |                                                               |     
|Cash provided by (used in)                                                                                         |                                                               |      |         |         |   |      |         |         |   |  |         |         |   | 
|OPERATING ACTIVITIES                                                                                               |                                                               |      |         |         |   |      |         |         |   |  |         |         |   | 
|Loss from continuing operations                                                                                    |                                                               |      | (6,478  | )       |   |      | (38,324 | )       |   |  | (7,791  | )       |   | 
|Non-cash items included in loss                                                                                    |                                                               |      |         |         |   |      |         |         |   |  |         |         |   | 
|                                                                                                                   | Future income taxes                                           |      |         | 10,701  |   |      |         | 19,154  |   |  |         | 1,567   |   |  | 
|                                                                                                                   | Amortization of deferred revenue                              |      |         | (1,643  | ) |      |         | (3,197  | ) |  |         |        |   |  | 
|                                                                                                                   | Depreciation of property, plant and equipment                 |      |         | 4,110   |   |      |         | 4,119   |   |  |         | 170     |   |  | 
|                                                                                                                   | Amortization of goodwill and intangible assets                |      |         | 3,005   |   |      |         | 4,730   |   |  |         | 35      |   |  | 
|                                                                                                                   | Gain on sale of short-term investments                        |      |         | (28,067 | ) |      |         | (42,760 | ) |  |         | (28,256 | ) |  | 
|                                                                                                                   | Write-down of short-term investments                          |      |         | 4,011   |   |      |         | 1,957   |   |  |         | 22,031  |   |  | 
|                                                                                                                   | Gain on sale of portfolio investments                         |      |         |        |   |      |         | (64     | ) |  |         | (3,693  | ) |  | 
|                                                                                                                   | Write-down of portfolio investments                           |      |         | 640     |   |      |         | 19,340  |   |  |         | 2,581   |   |  | 
|                                                                                                                   | Sale of other assets                                          |      |         | (782    | ) |      |         | (589    | ) |  |         |        |   |  | 
|                                                                                                                   | Other impairments and losses                                  |      |         | 722     |   |      |         |        |   |  |         | 850     |   |  | 
|                                                                                                                   | Gain on retirement of debt                                    |      |         |        |   |      |         | (1,093  | ) |  |         |        |   |  | 
|                                                                                                                   | Equity interests in significantly influenced
    corporations |      |         |        |   |      |         | 5,582   |   |  |         | 9,547   |   |  | 
|                                                                                                                   | Accretion of liability component of debentures
    payable    |      |         | 289     |   |      |         | 528     |   |  |         | 732     |   |  | 
|                                                                                                                   | Non-controlling interest                                      |      |         |        |   |      |         | (1,538  | ) |  |         |        |   |  | 
|Changes in non-cash working capital related to
    operations                                                      |                                                               |      |         |         |   |      |         |         |   |  |         |         |   | 
|(Increase) decrease in accounts receivable                                                                         |                                                               |      | 5,893   |         |   |      | (3,102  | )       |   |  | (1,363  | )       |   | 
|(Increase) decrease in income taxes recoverable                                                                    |                                                               |      | (1,127  | )       |   |      | 379     |         |   |  | 1,020   |         |   | 
|(Increase) decrease in loans receivable, prepaid
    expenses and deposits                                         |                                                               |      | (3,523  | )       |   |      | (13,465 | )       |   |  | (10,243 | )       |   | 
|Increase (decrease) in accounts payable and
    accrued liabilities                                                |                                                               |      | 732     |         |   |      | 4,425   |         |   |  | (3,770  | )       |   | 
|                                                                                                                   |                                                               |     
|Cash used in continuing operations                                                                                 |                                                               |      | (11,517 | )       |   |      | (43,918 | )       |   |  | (16,583 | )       |   | 
|Cash provided by (used in) discontinued operations                                                                 |                                                               |      | 280     |         |   |      | (18,904 | )       |   |  | 2,949   |         |   | 
|                                                                                                                   |                                                               |     
|                                                                                                                   |                                                               |      | (11,237 | )       |   |      | (62,822 | )       |   |  | (13,634 | )       |   | 
|                                                                                                                   |                                                               |     
|INVESTING ACTIVITIES                                                                                               |                                                               |      |         |         |   |      |         |         |   |  |         |         |   | 
|Acquisition of communications businesses (net of
    cash acquired of $287 and $811 in 2002 and 2001 respectively) |                                                               |      | (8,275  | )       |   |      | (18,842 | )       |   |  |        |         |   | 
|Acquisition of income producing properties                                                                         |                                                               |      | (15,505 | )       |   |      | (737    | )       |   |  |        |         |   | 
|Purchase of short-term investments                                                                                 |                                                               |      | (9,748  | )       |   |      | (3,183  | )       |   |  | (1,137  | )       |   | 
|Purchase of portfolio investments                                                                                  |                                                               |      | (503    | )       |   |      | (50     | )       |   |  | (3,700  | )       |   | 
|Purchase of property, plant and equipment                                                                          |                                                               |      | (1,739  | )       |   |      | (1,163  | )       |   |  | (73     | )       |   | 
|Investment in property under development                                                                           |                                                               |      | (87     | )       |   |      |        |         |   |  |        |         |   | 
|Investment in significantly influenced
    corporations                                                            |                                                               |      |        |         |   |      | (2,516  | )       |   |  | (15,982 | )       |   | 
|Proceeds on sale of short-term investments                                                                         |                                                               |      | 40,767  |         |   |      | 58,885  |         |   |  | 54,334  |         |   | 
|Proceeds on sale of portfolio investments                                                                          |                                                               |      |        |         |   |      |        |         |   |  | 5,621   |         |   | 
|Proceeds on sale of property, plant and equipment                                                                  |                                                               |      | 692     |         |   |      |        |         |   |  |        |         |   | 
|Discontinued operations                                                                                            |                                                               |      | (2,105  | )       |   |      | 70,780  |         |   |  |        |         |   | 
|                                                                                                                   |                                                               |     
|                                                                                                                   |                                                               |      | 3,497   |         |   |      | 103,174 |         |   |  | 39,063  |         |   | 
|                                                                                                                   |                                                               |     
|FINANCING ACTIVITIES                                                                                               |                                                               |      |         |         |   |      |         |         |   |  |         |         |   | 
|Net draws on revolving credit facility                                                                             |                                                               |      | 2,090   |         |   |      | 6,997   |         |   |  |        |         |   | 
|Repayment of mortgages and loans payable                                                                           |                                                               |      | (989    | )       |   |      |        |         |   |  |        |         |   | 
|Repayment of note payable                                                                                          |                                                               |      |        |         |   |      | (40,000 | )       |   |  |        |         |   | 
|Capital lease repayments                                                                                           |                                                               |      | (3,160  | )       |   |      | (1,043  | )       |   |  |        |         |   | 
|Common shares purchased for cancellation                                                                           |                                                               |      | (1,532  | )       |   |      | (2,722  | )       |   |  | (4,730  | )       |   | 
|Retirement of debentures payable                                                                                   |                                                               |      | (141    | )       |   |      | (3,180  | )       |   |  | (877    | )       |   | 
|Proceeds from exercise of stock options                                                                            |                                                               |      |        |         |   |      |        |         |   |  | 84      |         |   | 
|Repayment of liability component of debentures
    payable                                                         |                                                               |      | (2,566  | )       |   |      | (2,749  | )       |   |  | (3,000  | )       |   | 
|Discontinued operations                                                                                            |                                                               |      | (1,269  | )       |   |      | (29,645 | )       |   |  | 24,452  |         |   | 
|                                                                                                                   |                                                               |     
|                                                                                                                   |                                                               |      | (7,567  | )       |   |      | (72,342 | )       |   |  | 15,929  |         |   | 
|                                                                                                                   |                                                               |     
|Increase (decrease) in cash and cash
    equivalents                                                               |                                                               |      | (15,307 | )       |   |      | (31,990 | )       |   |  | 41,358  |         |   | 
|Cash and cash equivalents 
    beginning of period                                                                |                                                               |      | 25,357  |         |   |      | 57,347  |         |   |  | 15,989  |         |   | 
|                                                                                                                   |                                                               |     
|Cash and cash equivalents  end of
    period                                                                      |                                                               |      | 10,050  |         |   |      | 25,357  |         |   |  | 57,347  |         |   | 
|Less: cash and cash equivalents 
    discontinued operations                                                      |                                                               |      | 1,046   |         |   |      | 2,291   |         |   |  | 6,513   |         |   | 
|                                                                                                                   |                                                               |     
|Cash and cash equivalents 
    continuing operations                                                              |                                                               |      | 9,004   |         |   |      | 23,066  |         |   |  | 50,834  |         |   | 
|                                                                                                                   |                                                               |     
|Supplementary information(note 21)                                                                                 |                                                               |      |         |         |   |      |         |         |   |  |         |         |   | 

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

F-6




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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002, 2001 and 2000 (In
thousands of U.S. dollars, except per share amounts)


1 DESCRIPTION OF THE BUSINESS

Counsel Corporation (the Company or
Counsel) is a diversified company focused on
acquiring and building businesses in two specific sectors:
communications in the United States and real estate in Canada.

The Company engages in the communications sector
through its investment in I-Link Incorporated
(I-Link). I-Link is a supplier of voice, data and
enhanced communications products and services. Through direct
and indirect subsidiaries, I-Link operates as a facilities based
telecommunications carrier providing long distance voice
services to retail customers in the United States, and long
distance voice and data services to small to medium sized
businesses in the United States. I-Link also licenses a fully
developed network convergence solution for voice and data based
on its Internet Protocol communications technology. The Company
entered this sector in March 2001.


The Company entered the real estate sector during
the third quarter of 2002 through the acquisition of five retail
shopping centres in Canada (see note 3).


To gain a full appreciation of all the assets
currently under management, a review of discontinued operations
is required. During 2002, the Company adopted formal plans of
disposal for its medical products business segment, long-term
care business segment and a communications network segment (see
note 17).


2 SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

Basis of presentation

These consolidated financial statements have been
prepared in accordance with Canadian generally accepted
accounting principles (Canadian GAAP). In the case
of the Company, these principles conform in all material
respects with United States generally accepted accounting
principles (U.S. GAAP), except as described in
note 22.

The Companys accounting policies and its
financial disclosures related to its real estate operating
segment are in accordance with the recommendations of the
Canadian Institute of Public and Private Real Estate Companies
(CIPREC).


These consolidated financial statements include
the accounts of the Company and all companies which it controls.
The Companys principal operating subsidiaries comprising
continuing operations and its respective ownership interest in
each subsidiary as at December 31, 2002, 2001 and 2000 are
as follows:


|                                        |  |      |       |      |  |      |       |  |  |  |       |  |  | 
|--------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  |  | ----- |  |  | 
|                                        |  | 2002 |       | 2001 |  | 2000 |       | 
|                                        |  | %    |       | %    |  | %    |       | 
|                                        |  |     
|                                        |  |     
|Counsel Corporation (US)                |  |      | 100.0 |      |  |      | 100.0 |  |  |  | 100.0 |  |  | 
|Counsel Communications LLC (i)          |  |      | 88.4  |      |  |      | 88.4  |  |  |  | 100.0 |  |  | 
|I-Link (i)                              |  |      | 60.2  |      |  |      | 60.2  |  |  |  |      |  |  | 
|Proscape Technologies Inc. (Proscape) |  |      | (ii)  |      |  |      | 56.5  |  |  |  | (ii)  |  |  | 

F-7 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS




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|    |                                                                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | On January 2, 2003, the Company acquired the
    minority interest of Counsel Communications LLC, which owns all
    of the Companys shares of I-Link. As a result, the
    Companys ownership in Counsel Communications LLC and its
    effective ownership in I-Link increased to 100% and 68.4%
    respectively.



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(ii) | On March 15, 2002, the Companys
    ownership percentage in Proscape was significantly diluted as a
    result of Proscape completing a financing in which the Company
    did not participate. As a result, Proscape has been accounted
    for as a portfolio investment (note 7) since that date, and the
    Company ceased consolidating Proscape as of that date. The
    Companys interest in Proscape was approximately 12% and
    36% at December 31, 2002 and December 31, 2000,
    respectively.

Intercompany balances and transactions are
eliminated on consolidation.

Use of estimates

The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting periods.

The most significant estimates made by management
relate to the application of purchase accounting, the assessment
of recoverability of customer and loans receivables, portfolio
investments, and the cash-flows expected to be derived from long
lived assets including Property under development, Income
producing properties, property, plant and equipment and
intangible assets. Management make significant estimates related
to the measurement of obligations and the timing of the related
cash flows, particularly as it relates to accrued liabilities
and future income tax liabilities. Such timing and measurement
uncertainty could have a material affect on the reported results
of operations and the financial position of the Company.


Actual results could differ materially from those
estimates in the near term.


Comparative figures

Certain comparative figures have been
reclassified to conform to the 2002 presentation.

Non-controlling interest

The Company owns less than 100% of some of its
subsidiaries. Non-controlling interest is the accounting
mechanism that eliminates from the Companys earnings, the
profit or loss attributable to minority partners. As at
December 31, 2002, no minority interest is recorded in the
consolidated balance sheet of the Company because the equity
interest of minority partners is in a deficit position and
minority shareholders have no obligation to fund losses.
Comparatively, as at December 31, 2002, $161
(2001  $702) of non-controlling interest is carried
in the liabilities of discontinued operations.

Revenue recognition



| |                           
| | --------------------------
| | Telecommunication services

Revenue is generally recognized when persuasive
evidence of an arrangement exists, delivery has occurred or
services have been rendered, the Companys price to the
customer is fixed or determinable, and collection of the
resulting receivable is reasonably assured. Revenue is derived

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS F-8




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##### Table of Contents



from telecommunications usage, based on minutes
of use. Revenue derived from usage is recognized as services are
provided, based on agreed upon usage rates. Revenue is recorded
net of estimated customer credits.


Managements estimate of customer credits is
based primarily on the historical experience of the Company or,
for new services, the history of other telecommunications
carriers for similar services. This estimate is subject to
significant change in the future based on the nature of the
customers and the Companys processes for limiting usage to
customers with a higher collection risk.




| |                     
| | --------------------
| | Technology licensing

Revenue from the sale of software licenses is
recognized when a non-cancellable agreement is in force, the
license fee is fixed or determinable, acceptance has occurred
and collectibility is reasonably assured. Maintenance and
support revenues are recognized rateably over the term of the
related agreements. When a license of I-Link technology requires
continued support or involvement of the Company, contract
revenues are spread over the period of the required support or
involvement. In the event that collectibility is in question,
revenue (deferred or recognized) is recorded only to the extent
of cash receipts.



| |            
| | -----------
| | Real estate

Revenue from real estate rentals is recognized as
due and collection is reasonably assured. Leases with tenants
have been accounted for by the Company as operating leases as
substantially all of the risks and benefits of ownership have
been retained by the Company. Income producing property revenue
includes percentage participating rent and recoveries of
operating expenses.



| |               
| | --------------
| | Long-term care

Revenue from long-term care includes revenue from
the Companys nursing and retirement facilities and revenue
from operating leases for certain facilities. Revenue from the
Companys retirement and nursing facilities is recognized
when services are provided or when rent becomes due. Revenue
from operating leases is recognized on a straight-line basis
over the term of the lease. All long-term care revenue is
included in the results of discontinued operations.



| |                 
| | ----------------
| | Medical products

Revenue from the sale of medical products is
recognized upon shipment and transfer of title. All medical
product revenue is included in the results of discontinued
operations.

Cash and cash equivalents

Cash and cash equivalents comprise cash and
highly liquid investments with original maturities of three
months or less. As at December 31, 2002, there are no cash
equivalents. At December 31, 2001 there were cash
equivalents of $12,546 consisting of short-term deposits and
money market investments.

F-9 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS




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##### Table of Contents



Short-term investments

Short-term investments represent liquid
investments in publicly traded companies. These investments are
carried at the lower of cost and market value, and accordingly,
unrealized gains are not reflected in these consolidated
financial statements. Unrealized losses in value are charged to
operations as a write-down of investments. Any subsequent
recoveries are not reflected in the Companys financial
statements until the short-term investment is sold.

Portfolio investments

Portfolio investments represent long-term
investments in publicly traded and privately held companies.
These investments are accounted for using the cost method. Under
the cost method, the investment is initially recorded at cost;
earnings from such investments are only recognized to the extent
received or receivable. Provisions for loss in value are
recorded if a decline in value is considered to be other than
temporary. Neither unrealized gains nor recoveries in valuation,
if any, are reflected in these consolidated financial statements.

Property, plant and equipment

Long-term care facilities, now included in assets
of discontinued operations, are recorded at the lower of cost
and estimated net recoverable amount. Depreciation is provided
using the sinking fund method, which provides for a depreciation
charge of an annual amount increasing on a compounded basis of
5% per annum.

Other property, plant and equipment are recorded
at cost with depreciation being provided over their estimated
useful lives as follows:


|                                         |  |                                                                                                                         
|---------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------
|Furniture, fixtures and office equipment |  | straight-line or accelerated method over periods
    from 3 to 7 years and declining balance method at 20% per
    annum
|Leasehold improvements                   |  | straight-line over the shorter of the term of the
    lease or estimated useful life of the asset                       
|Telecommunications network equipment     |  | straight-line over 3 to 5 years                                                                                         
|Software and information systems         |  | straight-line over 1 to 3 years                                                                                         

Assets held under capital leases are depreciated
using the above rates.

Property, plant and equipment are carried at the
lower of depreciated cost and net recoverable amount. A
write-down to net recoverable amount is recognized when
projected undiscounted cash flows are less than the carrying
value.


Income producing properties

Income producing properties are recorded at cost.
Depreciation is provided on the sinking fund basis over the
estimated useful lives of the properties to a maximum of
30 years. The sinking fund method provides for a
depreciation charge of an annual amount increasing on a
compounded basis of 5% per annum. Depreciation is determined in
relation to each propertys carrying value, remaining
estimated useful life and residual value.

Income producing properties are carried at the
lower of depreciated cost and net recoverable amount. A
write-down to net recoverable amount is recognized when a
propertys projected


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS F-10




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##### Table of Contents



undiscounted cash flows are less than its
carrying value. Projections of future cash flows take into
account the specific business plan for each property and
managements best estimate of the most probable set of
economic conditions anticipated to prevail in the market. The
use of net recoverable amount to assess the amount at which a
property is carried in the accounts assumes the property will be
held for the long term. Otherwise, the net realizable value
method is used. Estimated net realizable value represents the
estimated selling price reduced by any costs expected until
final disposition.


Properties under development

Properties under development are recorded at cost
and reduced for impairment where applicable. Properties are
classified as properties under development until the properties
are substantially completed and available for immediate sale, at
which time, they are classified as properties held for sale or
as income producing properties. The cost of real estate under
development includes the acquisition cost of land,
pre-development expenses, interest, realty taxes and other
expenses directly related to the property.

Tenant improvements and inducements

Tenant improvements are deferred and amortized on
a straight-line basis over the term of the respective lease.

Maintenance and repair costs

Maintenance and repair costs are charged to
operations as incurred. Planned major maintenance activities,
significant building improvements, replacements and major
renovations, all of which improve or extend the useful life of
the properties, are capitalized and amortized over their
estimated useful lives.

Goodwill and intangible assets

Effective January 1, 2002, the Company
adopted the new provisions of the Canadian Institute of
Chartered Accountants Handbook Section 3062 Goodwill
and Other Intangible Assets (CICA HB 3062).
Under CICA HB 3062, goodwill is no longer amortized but is
reviewed at least annually for impairment. Under CICA HB 3062,
goodwill is required to be tested for impairment within six
months of the beginning of the fiscal year of adoption. As of
June 30, 2002, the Company completed the assessment of the
quantitative impact of the transitional impairment test on its
goodwill and other intangible assets. An impairment of $1,000
was charged to retained earnings as of January 1, 2002
relating to the impaired goodwill of Sage BioPharma Inc.
(Sage).

F-11 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS




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##### Table of Contents



The table below discloses the pro forma effect
had the years ended December 31, 2001 and 2000 been subject to
CICA HB 3062:

|                                                                         |  |      |         |      |  |      |         |   |  |  |         |   |  | 
|------------------------------------------------------------------------ |  | ---- | ------- | ---- |  | ---- | ------- | - |  |  | ------- | - |  | 
|                                                                         |  | 2002 |         | 2001 |  | 2000 |         |  
|                                                                         |  | $    |         | $    |  | $    |         |  
|                                                                         |  |     
|                                                                         |  |     
|Loss from continuing operations                                          |  |      | (6,478  | )    |  |      | (38,324 | ) |  |  | (7,791  | ) |  | 
|Goodwill amortization expense                                            |  |      |        |      |  |      | (2,385  | ) |  |  | (2,999  | ) |  | 
|                                                                         |  |     
|Adjusted loss from continuing operations                                 |  |      | (6,478  | )    |  |      | (35,939 | ) |  |  | (4,792  | ) |  | 
|                                                                         |  |     
|Adjusted basic and diluted loss from continuing
    operations per share |  |      | (0.43   | )    |  |      | (1.70   | ) |  |  | (0.31   | ) |  | 
|                                                                         |  |     
|Net loss as reported                                                     |  |      | (25,427 | )    |  |      | (62,213 | ) |  |  | (45,433 | ) |  | 
|Goodwill amortization expense                                            |  |      |        |      |  |      | (3,791  | ) |  |  | (7,381  | ) |  | 
|                                                                         |  |     
|Adjusted net loss                                                        |  |      | (25,427 | )    |  |      | (58,422 | ) |  |  | (38,052 | ) |  | 
|                                                                         |  |     
|Adjusted basic and diluted loss per share                                |  |      | (1.28   | )    |  |      | (2.67   | ) |  |  | (1.65   | ) |  | 
|                                                                         |  |     

Goodwill represents the excess of the purchase
consideration over the fair value of net identifiable assets of
businesses acquired. Prior to the adoption of
CICA HB 3062, goodwill was being amortized on a
straight-line basis over its estimated useful life which ranged
from five to forty years.

Intangible assets are recorded at fair value upon
acquisition and are amortized on a straight-line basis over
their estimated useful life of one to five years (Note 9).


On an ongoing basis, management reviews the
carrying value and amortization of intangible assets taking into
consideration any events and circumstances that might have
impaired their carrying value. The Company assesses impairment
by determining whether the carrying value exceeds the fair
value, determined as the consideration that would be agreed upon
in an arms length transaction. If the fair value is
determined to be less than the net book value, the excess of the
net book value over the fair value is charged to operations in
the period in which such impairment is determined by management.


Software development expenditures

Costs incurred in the research, design and
development of software for sale are expensed until
technological feasibility is established, after which, the
remaining software development costs are capitalized.
Amortization commences when the product is available for general
release to customers. Amortization is computed using the
straight-line method over the estimated remaining useful life of
the product, which generally does not exceed two years. The
Company periodically compares the unamortized portion of
capitalized software development costs to the undiscounted net
recoverable amount of the related product. The undiscounted net
recoverable amount is the estimated future gross revenues from
that product reduced by the estimated future costs of completing
and disposing of that product. The amount by which the
unamortized capitalized costs exceed the net recoverable amount
is reflected as an impairment loss.

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS F-12




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##### Table of Contents



Research and development
expenditures

Research costs, other than capital expenditures
that do not have alternative uses, are expensed as incurred.
Development costs are expensed as incurred unless they meet the
criteria under Canadian generally accepted accounting principles
for deferral and amortization. The Company has not deferred any
such development costs to date.

Advertising costs

Advertising production costs are expensed the
first time the advertisement is run. Media (television and
print) placement costs are expensed in the month the advertising
appears.

Foreign currency translation

These consolidated financial statements are
expressed in U.S. dollars because it is the currency of the
primary economic environment in which the Company conducts its
operations.

Monetary assets and liabilities denominated in
currencies other than the U.S. dollar are translated at year-end
exchange rates. Revenues and expenses denominated in foreign
currencies are translated at average exchange rates during the
year. The resulting gains and losses are included in the results
of operations, except exchange gains and losses arising from the
translation of the Companys self-sustaining Canadian
operations.


Assets and liabilities of self-sustaining
Canadian entities are translated into U.S. dollars at the
exchange rates prevailing at the year-end. Revenues and expenses
for these operations are translated at average exchange rates
during the year. Net exchange adjustments arising on translation
of self-sustaining Canadian entities are charged or credited
directly to shareholders equity and shown as cumulative
unrealized translation adjustments. When there is a reduction in
the Companys net investment in a self-sustaining
operation, a proportionate amount of the cumulative translation
account is included in the determination of the consolidated
results of operations.


Effective January 1, 2002, the Company
adopted CICA revised Handbook section 1650, Foreign
Currency Translation which requires the immediate
recognition in income of the unrealized foreign currency
exchange gains and losses on long-term monetary items with a
fixed or ascertainable life as opposed to unrealized gains and
losses being deferred and amortized over the remaining term of
the long-term monetary items. The adoption of
CICA HB 1650 did not have an effect on the
Companys consolidated financial statements.


Loans receivable

Loans receivable are written down to net
realizable value when, in the opinion of management, there is
reasonable doubt as to the ultimate collectibility of a portion
of principal and interest. Accrual of interest income is
suspended if collection of a loan becomes doubtful.

Debt issue costs

Costs incurred in connection with obtaining debt
financing are deferred and amortized as a component of interest
expense, over the term to maturity of the related debt
obligation.

F-13 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS




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##### Table of Contents



Income taxes

The Company follows the liability method of
accounting for income taxes. Under this method, future income
tax assets and liabilities are determined based on differences
between the financial reporting and income tax bases of assets
and liabilities, and are measured using the substantially
enacted tax rates for years when the differences are expected to
reverse. The Company provides a valuation allowance to reduce
future income tax assets when it appears more likely than not
that some or all of the future income tax assets will not be
realized.

Stock-based compensation plans

Effective January 1, 2002, the Company
adopted Section 3870 of the CICA Handbook,
Stock-based Compensation and Other Stock-based
Payments (CICA HB 3870).
CICA HB 3870 addresses the recognition, measurement
and disclosure of stock-based compensation and other stock-based
payments made in exchange for goods and services. It sets out a
fair value based method of accounting that is required for
certain, but not all, stock-based transactions. The adoption of
CICA HB 3870 did not have an impact on the
Companys consolidated financial statements.

The Company and its subsidiary, I-Link, have
stock-based compensation plans that are described in
note 15. No compensation expense is recognized for these
plans when stock options are granted to employees and directors.
Any consideration paid by employees and directors on exercising
of stock options or purchase of common shares is credited to
capital stock.


Financial instruments

The Companys convertible debentures are
presented in these consolidated financial statements in their
component parts measured at their respective fair values at the
time of issue. The debt component has been calculated as the
present value of the required interest payments discounted at a
rate approximating the interest rate that would have been
applicable to non-convertible debt at the time the debentures
were issued. Interest expense is determined on the debt
component; such component being reduced by the required interest
payments. The difference between the debt component and the face
value of the debentures at the date of issuance is classified as
equity. The equity component of the debentures, net of the value
ascribed to the holders conversion option, is increased
over the term to the full face value by charges to retained
earnings (deficit).

The carrying amounts reported on the consolidated
balance sheets for cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities approximate
their fair values because of the immediate or short-term
maturity of these financial instruments. The fair values of
other financial instruments are disclosed in notes 4, 6, 7, 11
and 13. The fair values of short-term investments are estimated
based on quoted market values at year-end. Other fair value
amounts are estimated based upon discounted future cash flows
using discount rates that reflect current market conditions for
financial instruments with similar terms and risks. Fair value
estimates are not necessarily indicative of the amounts the
Company might pay or receive in actual market transactions.


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS F-14




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##### Table of Contents





| |            
| | -----------
| | Credit risk

The Companys financial assets that are
exposed to credit risk consist primarily of cash and cash
equivalents, accounts receivable, and loans receivable. Cash and
cash equivalents are on deposit at major financial institutions.
The Companys retail communications subscribers are
primarily residential subscribers and are not concentrated in
any specific geographic region of the United States. The
Companys wholesale communications customers are primarily
based in Utah, U.S.A. with no single customer accounting for
greater than 10% of 2002 revenues. An allowance for doubtful
accounts is established based upon the overall credit worthiness
of specific customers.

The Company evaluates the collectibility of its
accounts receivable on an ongoing basis, based upon various
factors including the financial condition and payment history of
major customers, an overall review of collections experience on
other accounts and economic factors or events expected to affect
the Companys future collections.




| |                   
| | ------------------
| | Interest rate risk

Interest rate risk arises due to the exposure to
the effects of future changes in the prevailing level of
interest rates. The Company is exposed to interest rate risk
arising from fluctuations in interest rates primarily on its
revolving credit facility, and on its mortgages depending on
prevailing rates at renewal.



| |                  
| | -----------------
| | Market value risk

The Companys business model for real estate
involves the leveraging of acquired assets with third party
debt, normally in the form of mortgages. This debt level
attributed to a particular property is normally determined as a
percentage of market value for the asset at the time the
mortgage proceeds are received. Should market values decline for
a particular property, the ability of the Company to replace the
debt at renewal, at previous levels and on favourable terms,
could be in doubt.



| |                      
| | ---------------------
| | Foreign exchange risk

Foreign exchange risk arises to the extent of net
assets invested in Canadian dollars and operations derived from
those Canadian dollar investments.

Discontinued operations

In 2002, the Company adopted the new provisions
of the CICA Handbook Section 3475 Disposal of
Long-lived Assets and Discontinued Operations
(CICA HB 3475). Under
CICA HB 3475, the accrual of future losses on the date
that the criteria for recognition as a discontinued operation
are met is not permitted. The Company completed the assessment
of the quantitative impact of adoption of CICA HB 3475
on prior interim periods of the current year and has determined
there is no impact. In compliance with CICA HB 3475,
the Company has not applied the new provisions retroactively to
operations that were discontinued in prior periods.

F-15 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS




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##### Table of Contents



Basic and diluted earnings per share

Basic and diluted earnings per share is
calculated using the treasury stock method. Under the treasury
stock method, earnings per share data are computed as if the
options were exercised at the beginning of the year (or at the
time of issuance, if later) and as if the funds obtained from
exercise were used to purchase common shares of the Company at
the average market price during the year.

Business combinations

The CICA issued Handbook Section 1581,
Business Combinations
(CICA HB 1581), which requires the
purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminates the
pooling-of-interests method. The adoption of
CICA HB 1581 effective January 1, 2002 did not
have an impact on the Companys consolidated financial
statements.

Recently issued accounting
pronouncements



| |                     
| | --------------------
| | Hedging transactions

In December 2001, the CICA issued Accounting
Guideline 13 (AcG 13) Hedging
Relationships, which will be effective for years beginning
on or after July 1, 2003. AcG 13 addresses the
identification, designation, documentation, and effectiveness of
hedging transactions for the purposes of applying hedge
accounting. It also establishes conditions for applying, and
deals with the discontinuance of hedge accounting. The adoption
of this guideline is not expected to have an impact on the
Company.



| |                                
| | -------------------------------
| | Impairment of long-lived assets

In November 2002, the CICA issued Handbook
Section 3063, Impairment of long-lived assets
(CICA HB 3063). The new Section provides
guidance on the recognition, measurement and disclosure of the
impairment of long-lived assets. It replaces the write-down
provisions in Handbook Section 3061 Property, Plant
and Equipment. The Section requires an impairment loss for
a long-lived asset (to be held and used) to be recognized when
its carrying amount exceeds the sum of the undiscounted cash
flows expected from its use and eventual disposition; requires
an impairment loss for a long-lived asset (to be held and used)
to be measured as the amount by which its carrying amount
exceeds its fair value; and provides guidance on determining
fair value. CICA HB 3063 is effective for years
beginning on or after April 1, 2003. The Company is
currently evaluating the effects that the adoption of this
standard will have on its financial position and results of
operations.



| |                             
| | ----------------------------
| | Asset retirement obligations

In December 2002, the CICA issued Handbook
Section 3110, Asset Retirement Obligations to
replace the current guidance on future removal and site
restoration costs. The standard is effective for years beginning
on or after January 1, 2004. The standard requires
recognition of a liability at its fair value for the obligation
associated with the retirement of a tangible long-lived asset. A
corresponding asset retirement cost would be added to the
carrying amount of the

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS F-16




---



##### Table of Contents



related asset and amortized to expense over the
useful life of the asset. The Company is currently evaluating
the effects that the adoption of this standard will have on its
financial position and results of operations.




| |           
| | ----------
| | Guarantees

In February 2003, the CICA issued Accounting
Guideline 14 (AcG 14) Disclosure of
Guarantees. The guideline requires disclosure of key
information about certain types of guarantee contracts that may
potentially require the Company to make payments contingent on
specified types of future events. The guideline is effective for
periods beginning on or after January 1, 2003. The Company
will adopt this guideline in the first quarter of 2003.

3 BUSINESS ACQUISITIONS

During 2002 and 2001, several acquisitions, which
were accounted for using the purchase method, were completed by
the Company. The results of operations of these acquisitions
have been included in the consolidated statements from the
acquisition dates.



| |                  
| | -----------------
| | 2002 Acquisitions



| |            
| | -----------
| | Real estate

On July 3 and July 10, 2002, the Company
completed the acquisition of five income producing properties
and approximately 13 acres of vacant land zoned for retail
development in Canada. Real estate represents a new
reportable segment in 2002.

The purchase price amounted to $35,512 including
closing costs of $1,040. These acquisitions were funded by the
assumption of $20,007 of first mortgage debt on the properties
and $15,505 in cash.




| |               
| | --------------
| | Communications

On December 10, 2002, the Company, through
its controlling interest in I-Link, indirectly acquired the
assets of the Enterprise and Agent business of RSL COM U.S.A.
Inc. (RSL), including the assumption of certain
liabilities. The purchase price totalled $9,437 including cash
of $7,500, a non-interest bearing note payable of $1,000, which
was discounted. The preliminary allocation of the purchase price
is as follows: $6,813 of net tangible assets and $2,624 of
intangible assets. The purchase price is subject to adjustment
as set forth in the asset purchase agreement. In addition, the
purchase price and the cost of the acquisition may be increased
by up to an additional $2,000 in cash for contingent purchase
consideration based on revenues of the Enterprise Business for
the calendar year 2003.

2001 Acquisitions



| |                            
| | ---------------------------
| | Nexbell Communications Inc.

On February 22, 2001, the Company acquired a
97.5% interest in Nexbell Communications Inc.
(Nexbell), a packet telephony network company, for
cash consideration of $1,540. The cost of the Companys
acquisition was allocated on the basis of the fair market value
of the assets

F-17 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS




---



##### Table of Contents



acquired of $1,814 and the liabilities assumed of
$9,410. These valuations gave rise to $9,136 of goodwill, which
was being amortized over a period of five years.


During the quarter ended September 30, 2001,
the Company performed a recoverability analysis, based on
undiscounted cash flows, with respect to the goodwill recorded
on its acquisition of Nexbell. The analysis resulted in an
impairment charge of $8,040, which is classified as discontinued
operations, as a consequence of projected losses associated with
Nexbells prime product and the decision to adopt a plan to
discontinue this product.




| |                    
| | -------------------
| | I-Link Incorporated

On March 1, 2001, the Company acquired a
65.2% interest in I-Link, an enhanced Internet Protocol voice
and data communications services provider, for cash
consideration of $5,113. The cost was allocated on the basis of
the fair market value of the assets acquired of $27,695 and the
liabilities assumed of $22,582. Included in the fair market
value of the assets acquired was $13,898 of communications
technology, which is being amortized over a period of five years.

On April 17, 2001, as a result of a merger
between I-Link and Nexbell, the Companys interest in
Nexbell was exchanged for an additional 5.3% interest in I-Link,
resulting in an overall interest in I-Link of 70.5% as at that
date.


On September 6, 2001, all outstanding shares
of I-Links Class C, preferred stock automatically
converted into shares of common stock in accordance with the
terms of the Class C, preferred stock. Accordingly, I-Link
issued additional common stock in satisfaction of this
conversion and its obligation to pay dividends to the conversion
date. This issuance diluted the Companys interest to 68.1%
as at that date.


The Companys interest in I-Link was further
reduced to 60.2% on October 31, 2001. On January 2, 2003,
the Company acquired the remaining minority interest of Counsel
Communications LLC. As a result, the Companys ownership in
Counsel Communications LLC and its effective ownership in I-Link
increased to 100% and 68.4% respectively.


As at December 31, 2002, the Company has
$60,346 in loans receivable from I-Link. The Company is in the
process of converting $29,282, of these loans into equity. Once
this transaction is completed, the Company will own
approximately 85% of I-Link (note 19). Under consolidation
accounting these loans are eliminated in the presentation of
these financial statements.




| |                   
| | ------------------
| | WorldxChange Corp.

On June 4, 2001, through its wholly owned
subsidiary WorldxChange Corp. (WorldxChange), I-Link
acquired certain net assets related to the dial-around long
distance business of WorldxChange Communications Inc. from a
bankruptcy proceeding. Consideration consisted of $13,000 in
cash. The cost of the acquisition was allocated on the basis of
the fair market value of the assets acquired of $16,967 and the
liabilities assumed of $3,286. I-Link also incurred $681 of
acquisition costs.

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS F-18




---



##### Table of Contents



4 SHORT-TERM INVESTMENTS

The Company holds a portfolio of short-term
investments comprised of liquid public company stocks.

|                                        |  |      |        |      |  |  |        |   |  | 
|--------------------------------------- |  | ---- | ------ | ---- |  |  | ------ | - |  | 
|                                        |  | 2002 |        | 2001 |  | 
|                                        |  | $    |        | $    |  | 
|                                        |  |     
|                                        |  |     
|Beginning balance                       |  |      | 1,249  |      |  |  | 447    |   |  | 
|Purchases                               |  |      | 9,748  |      |  |  | 3,183  |   |  | 
|Reclassified from portfolio investments |  |      | 1,102  |      |  |  |       |   |  | 
|Impairments                             |  |      | (4,011 | )    |  |  | (1,957 | ) |  | 
|Dispositions                            |  |      | (5,017 | )    |  |  | (424   | ) |  | 
|                                        |  |     
|                                        |  |      | 3,071  |      |  |  | 1,249  |   |  | 
|AmeriSourceBergen Corp. (Bergen)      |  |      |       |      |  |  | 7,683  |   |  | 
|                                        |  |     
|                                        |  |      | 3,071  |      |  |  | 8,932  |   |  | 
|                                        |  |     

During 2002, the Company recorded gains on the
sale of short-term investments (excluding Bergen) of $1,494
(2001  $182; 2000  $1,103). During 2002,
the Company recorded losses on the impairment of investments of
$4,011 (2001  $1,957; 2000  $144) and as
at December 31, 2002, has unrealized gains of $1,591
(2001  $577; 2000  $340). At
December 31, 2002, the market value of the Companys
short-term investments is $4,662. Comparatively, at
December 31, 2001, the market value of the Companys
short-term investments, excluding Bergen, was $1,826.

Since 1999, the largest component of the
Companys short-term investments was its holding of the
shares of Bergen, which it received as partial consideration for
the sale of its pharmacy services operations in January 1999 to
Bergen Brunswig Corp. The Companys ability to liquidate
shares was, subject to the sale agreement, phased in over an
18 month period following the sale. Subsequent to the
initial share price declines and recognized impairment losses,
the Company decided it was appropriate to hold the securities,
disposing of them in an orderly fashion through to 2002. During
the post impairment period the Company realized $96,304 in gains
as follows:


|     |  |          |         |             |  |       |          |          |  |          |        |        |  |  |          |   |  |  |        |  |  |  |        |  |  | 
|---- |  | -------- | ------- | ----------- |  | ----- | -------- | -------- |  | -------- | ------ | ------ |  |  | -------- | - |  |  | ------ |  |  |  | ------ |  |  | 
|     |  | Opening  |         |             |  |       |          |          |  | Closing  |        |        |  | 
|     |  | carrying |         |             |  |       |          |          |  | carrying |        | Market |  | 
|     |  | value    |         | Impairments |  | Gains |          | Proceeds |  | value    |        | value  |  | 
|     |  | $        |         | $           |  | $     |          | $        |  | $        |        | $      |  | 
|    
|    
|1999 |  |          | 207,035 |             |  |       | (142,084 | )        |  |          |       |        |  |  |         |   |  |  | 64,951 |  |  |  | 64,951 |  |  | 
|2000 |  |          | 64,951  |             |  |       | (21,888  | )        |  |          | 27,153 |        |  |  | (46,833  | ) |  |  | 23,383 |  |  |  | 67,110 |  |  | 
|2001 |  |          | 23,383  |             |  |       |         |          |  |          | 42,578 |        |  |  | (58,278  | ) |  |  | 7,683  |  |  |  | 32,755 |  |  | 
|2002 |  |          | 7,683   |             |  |       |         |          |  |          | 26,573 |        |  |  | (34,256  | ) |  |  |       |  |  |  |       |  |  | 
|     |  |          |         |             |  |       |          |          |  |          |        |        |  |  |          |  
|     |  |          |         |             |  |       | (163,972 | )        |  |          | 96,304 |        |  |  | (139,367 | ) |  |  |        |  |  |  |        |  |  | 
|     |  |          |         |             |  |       |          |          |  |          |        |        |  |  |          |  

F-19 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS




---



##### Table of Contents



5 REAL ESTATE ASSETS

(a) Income producing properties

Income producing properties are as follows at
December 31:

|                         |  |                        |  |      |        |              |  |          |     |          |  |  |        |  |  |  |       |  |  | 
|------------------------ |  | ---------------------- |  | ---- | ------ | ------------ |  | -------- | --- | -------- |  |  | ------ |  |  |  | ----- |  |  | 
|                         |  |                        |  |      |        |              |  |         
|                         |  |                        |  | 2002 |        | 2001         |  |         
|                         |  |                        |  |      |        |              |  |         
|                         |  |                        |  |      |        |              |  |         
|                         |  |                        |  |      |        | Accumulated  |  | Net book |     | Net book |  | 
|                         |  |                        |  | Cost |        | depreciation |  | value    |     | value    |  | 
|Property                 |  | Location               |  | $    |        | $            |  | $        |     | $        |  | 
|                        
|                        
|Portage Place            |  | Peterborough, Ontario  |  |      | 15,855 |              |  |          | 83  |          |  |  | 15,772 |  |  |  |      |  |  | 
|Southland Mall           |  | Winkler, Manitoba      |  |      | 5,983  |              |  |          | 30  |          |  |  | 5,953  |  |  |  |      |  |  | 
|Suncoast Mall            |  | Goderich, Ontario      |  |      | 6,393  |              |  |          | 33  |          |  |  | 6,360  |  |  |  |      |  |  | 
|Willowcreek Mall I       |  | Peterborough, Ontario  |  |      | 3,834  |              |  |          | 20  |          |  |  | 3,814  |  |  |  |      |  |  | 
|Humboldt Mall            |  | Humboldt, Saskatchewan |  |      | 958    |              |  |          | 5   |          |  |  | 953    |  |  |  |      |  |  | 
|1250 Steeles Ave. West I |  | Brampton, Ontario      |  |      | 2,098  |              |  |          | 31  |          |  |  | 2,067  |  |  |  | 2,081 |  |  | 
|                         |  |                        |  |     
|                         |  |                        |  |      | 35,121 |              |  |          | 202 |          |  |  | 34,919 |  |  |  | 2,081 |  |  | 
|                         |  |                        |  |     

Income producing properties have been pledged as
collateral for certain of the mortgages and/or loans outlined in
note 11.

Depreciation for income producing properties for
2002 was $200 (2001  $2; 2000  $nil).


(b) Properties under
development

Properties under development are as follows at
December 31:

|                          |  |                       |  |      |       |      |  |  |     |  |  | 
|------------------------- |  | --------------------- |  | ---- | ----- | ---- |  |  | --- |  |  | 
|                          |  |                       |  | 2002 |       | 2001 |  | 
|Property                  |  | Location              |  | $    |       | $    |  | 
|                         
|                         
|Willowcreek II            |  | Peterborough, Ontario |  |      | 2,624 |      |  |  |    |  |  | 
|1250 Steeles Ave. West II |  | Brampton, Ontario     |  |      | 439   |      |  |  | 352 |  |  | 
|                          |  |                       |  |     
|                          |  |                       |  |      | 3,063 |      |  |  | 352 |  |  | 
|                          |  |                       |  |     

Properties under development have been pledged as
collateral for certain of the mortgages and/or loans outlined in
note 11.

6 LOANS RECEIVABLE

Loans receivable are as follows at
December 31:

|                     |  |      |       |      |  |  |       |  |  | 
|-------------------- |  | ---- | ----- | ---- |  |  | ----- |  |  | 
|                     |  | 2002 |       | 2001 |  | 
|                     |  | $    |       | $    |  | 
|                     |  |     
|                     |  |     
|Share purchase loans |  |      | 5,873 |      |  |  | 5,680 |  |  | 
|Other                |  |      | 600   |      |  |  | 1,625 |  |  | 
|                     |  |     
|                     |  |      | 6,473 |      |  |  | 7,305 |  |  | 
|                     |  |     

The share purchase loans have been granted to
certain key employees and former employees. The loans are
non-interest bearing and are collateralized by the shares
purchased and personal guarantees. At December 31, 2002,
share purchase loans outstanding are for the purchase of

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS F-20




---



##### Table of Contents



3,131,761 (2001  2,921,761) common
shares of the Company having a market value of $5,543
(2001  $5,055). These loans have various maturity
dates ranging from December 17, 2004 to February 25,
2012. As these loans are non-interest bearing, the fair value of
these loans is $4,393 (2001  $4,480).


7 PORTFOLIO INVESTMENTS

Portfolio investments are as follows at
December 31:


|                                |  |      |       |      |  |  |       |  |  | 
|------------------------------- |  | ---- | ----- | ---- |  |  | ----- |  |  | 
|                                |  | 2002 |       | 2001 |  | 
|                                |  | $    |       | $    |  | 
|                                |  |     
|                                |  |     
|Core Communications Corporation |  |      | 1,093 |      |  |  | 1,093 |  |  | 
|Systeam Holdings LLC            |  |      | 1,000 |      |  |  | 1,000 |  |  | 
|HIP Interactive Corp.           |  |      |      |      |  |  | 1,014 |  |  | 
|Proscape Technologies Inc.      |  |      | 902   |      |  |  |      |  |  | 
|Impower Inc.                    |  |      | 775   |      |  |  |      |  |  | 
|DBP Group Holdings Inc.         |  |      | 399   |      |  |  | 399   |  |  | 
|Other                           |  |      | 251   |      |  |  | 713   |  |  | 
|                                |  |     
|                                |  |      | 4,420 |      |  |  | 4,219 |  |  | 
|                                |  |     

During 2002, the Company recognized an impairment
of $640 (2001  $19,340; 2000  $2,581) on
its portfolio investments where the decline in value was
considered other then temporary in nature. The estimated fair
value of the Companys portfolio investments approximates
its carrying value as at December 31, 2002 and 2001.

Core Communications Corporation provides internet
and data communications solutions for the meetings and
hospitality industries.


Systeam Holdings LLC owns an Italian software
development and consulting firm.


HIP Interactive Corp. is a provider of electronic
entertainment, including PC and video games, movies and
proprietary games and accessories.


Proscape develops, markets and supports marketing
and sales information systems for middle market and Fortune
1000 companies. On March 15, 2002, the Companys
ownership percentage in Proscape was significantly diluted as a
result of Proscape completing a financing in which the Company
did not participate. As a result, Proscape has been accounted
for as a portfolio investment since that date, and the Company
ceased consolidating Proscape as of that date.


Impower Inc. provides transaction-based Internet
direct marketing and electronic database management products and
services. At December 31, 2001, the Company had loans
receivable from Impower Inc. and its wholly owned subsidiary
Datamark of $1,025. In 2002, $250 of these loans were repaid
with the remainder being converted to equity in Impower
consisting of voting, non-voting and preferred shares. As such,
these loans were classified as portfolio investments in 2002.


DBP Group Holdings Inc. (formerly ci4net.com
Inc.) provides Internet infrastructure technologies and
operational and management resources.


F-21 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS




---



##### Table of Contents



8 PROPERTY, PLANT AND EQUIPMENT

|                                         |  |      |        |              |  |     |        |   |  |  |        |  |  | 
|---------------------------------------- |  | ---- | ------ | ------------ |  | --- | ------ | - |  |  | ------ |  |  | 
|                                         |  |      |        |             
|                                         |  | 2002 |        |             
|                                         |  |     
|                                         |  |     
|                                         |  |      |        | Accumulated  |  |    
|                                         |  | Cost |        | depreciation |  | Net |        |  
|                                         |  | $    |        | $            |  | $   |        |  
|                                         |  |     
|                                         |  |     
|Telecommunications network equipment     |  |      | 14,432 |              |  |     | (5,015 | ) |  |  | 9,417  |  |  | 
|Furniture, fixtures and office equipment |  |      | 4,281  |              |  |     | (1,615 | ) |  |  | 2,666  |  |  | 
|Leasehold improvements                   |  |      | 343    |              |  |     | (128   | ) |  |  | 215    |  |  | 
|Software and information systems         |  |      | 682    |              |  |     | (323   | ) |  |  | 359    |  |  | 
|                                         |  |     
|                                         |  |      | 19,738 |              |  |     | (7,081 | ) |  |  | 12,657 |  |  | 
|                                         |  |     

|                                         |  |      |        |              |  |     |        |   |  |  |        |  |  | 
|---------------------------------------- |  | ---- | ------ | ------------ |  | --- | ------ | - |  |  | ------ |  |  | 
|                                         |  |      |        |             
|                                         |  | 2001 |        |             
|                                         |  |     
|                                         |  |     
|                                         |  |      |        | Accumulated  |  |    
|                                         |  | Cost |        | depreciation |  | Net |        |  
|                                         |  | $    |        | $            |  | $   |        |  
|                                         |  |     
|                                         |  |     
|Building                                 |  |      | 632    |              |  |     | (23    | ) |  |  | 609    |  |  | 
|Telecommunications network equipment     |  |      | 11,135 |              |  |     | (844   | ) |  |  | 10,291 |  |  | 
|Furniture, fixtures and office equipment |  |      | 4,015  |              |  |     | (1,679 | ) |  |  | 2,336  |  |  | 
|Leasehold improvements                   |  |      | 117    |              |  |     | (58    | ) |  |  | 59     |  |  | 
|Software and information systems         |  |      | 2,133  |              |  |     | (35    | ) |  |  | 2,098  |  |  | 
|                                         |  |     
|                                         |  |      | 18,032 |              |  |     | (2,639 | ) |  |  | 15,393 |  |  | 
|                                         |  |     

Depreciation expense for 2002 was $3,910
(2001  $4,117; 2000  $170).

Included in telecommunications network equipment
is $9,781 in assets under capital leases as at December 31,
2002 (2001  $10,138). Accumulated depreciation on
these leased assets was $3,932 as at December 31, 2002,
(2001  $1,675).


9 INTANGIBLE ASSETS AND
GOODWILL

Details of acquired intangible assets and
goodwill are as follows:

|                                     |  |              |           |             |  |              |        |     |  |  |        |   |  |  |       |  |  | 
|------------------------------------ |  | ------------ | --------- | ----------- |  | ------------ | ------ | --- |  |  | ------ | - |  |  | ----- |  |  | 
|                                     |  |              |           |            
|                                     |  | 2002         |           |            
|                                     |  |             
|                                     |  |             
|                                     |  |              |           | Accumulated |  |             
|                                     |  | Amortization |           | Cost        |  | amortization |        | Net |  | 
|                                     |  | period       |           | $           |  | $            |        | $   |  | 
|                                     |  |             
|                                     |  |             
|Telecommunications technology        |  |              | 60 months |             |  |              | 13,628 |     |  |  | (6,884 | ) |  |  | 6,744 |  |  | 
|Customer contracts and relationships |  |              | 60 months |             |  |              | 1,786  |     |  |  | (20    | ) |  |  | 1,766 |  |  | 
|Agent relationships                  |  |              | 36 months |             |  |              | 588    |     |  |  | (15    | ) |  |  | 573   |  |  | 
|Agent contracts                      |  |              | 12 months |             |  |              | 250    |     |  |  | (15    | ) |  |  | 235   |  |  | 
|                                     |  |              |           |             |  |             
|                                     |  |              |           |             |  |              | 16,252 |     |  |  | (6,934 | ) |  |  | 9,318 |  |  | 
|                                     |  |              |           |             |  |             

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS F-22




---



##### Table of Contents



|                              |  |              |           |      |  |              |        |     |  |  |        |   |  |  |        |  |  | 
|----------------------------- |  | ------------ | --------- | ---- |  | ------------ | ------ | --- |  |  | ------ | - |  |  | ------ |  |  | 
|                              |  |              |           |     
|                              |  | 2001         |           |     
|                              |  |             
|                              |  |             
|                              |  | Amortization |           |      |  | Accumulated  |        |    
|                              |  | period       |           | Cost |  | amortization |        | Net |  | 
|                              |  |             
|                              |  |             
|Telecommunications technology |  |              | 60 months |      |  |              | 13,628 |     |  |  | (3,929 | ) |  |  | 9,699  |  |  | 
|Goodwill                      |  |              |           |      |  |              | 4,271  |     |  |  | (837   | ) |  |  | 3,434  |  |  | 
|                              |  |              |           |      |  |             
|                              |  |              |           |      |  |              | 17,899 |     |  |  | (4,766 | ) |  |  | 13,133 |  |  | 
|                              |  |              |           |      |  |             

Amortization expense for intangible assets for
2002 was $3,005 (2001  $4,730; 2000  $35).

As at December 31, 2002, goodwill is
reported as $nil due to the deconsolidation of Proscape
(note 2), the sale of SageBiopharma Inc. and its inclusion
in discontinued operations (note 17).


10 ACCRUED LIABILITIES

|                                               |  |      |        |      |  |  |        |  |  | 
|---------------------------------------------- |  | ---- | ------ | ---- |  |  | ------ |  |  | 
|                                               |  | 2002 |        | 2001 |  | 
|                                               |  | $    |        | $    |  | 
|                                               |  |     
|                                               |  |     
|Telecommunications network accrued liabilities |  |      | 9,540  |      |  |  | 6,486  |  |  | 
|Sales and other taxes payable                  |  |      | 2,362  |      |  |  | 726    |  |  | 
|Accrued payroll and payroll related expenses   |  |      | 2,647  |      |  |  | 3,629  |  |  | 
|Litigation settlement and related accruals     |  |      | 1,020  |      |  |  | 3,494  |  |  | 
|Accrued interest                               |  |      | 986    |      |  |  | 318    |  |  | 
|Accrued legal fees                             |  |      | 430    |      |  |  | 1,504  |  |  | 
|Other accrued liabilities                      |  |      | 5,230  |      |  |  | 10,112 |  |  | 
|                                               |  |     
|                                               |  |      | 22,215 |      |  |  | 26,269 |  |  | 
|                                               |  |     

11 DEBT



|    |                            
|--- | ---------------------------
|(a) | Mortgages and loans payable

Details of mortgages and loans payable as at
December 31 are as follows:

|                                    |  |            |  |              |       |       |  |         |        |           |  |       |       |         |  |           |       |  |  |  |       |  |  |  |       |  |  | 
|----------------------------------- |  | ---------- |  | ------------ | ----- | ----- |  | ------- | ------ | --------- |  | ----- | ----- | ------- |  | --------- | ----- |  |  |  | ----- |  |  |  | ----- |  |  | 
|                                    |  |            |  |              |       |       |  |         |        |          
|                                    |  |            |  |              |       | 2002  |  | 2001    |        |          
|                                    |  |            |  |              |       |       |  |         |        |          
|                                    |  |            |  |              |       |       |  |         |        |          
|                                    |  |            |  | Effective    |       |       |  | Current |        | Long-term |  |       |       | Current |  | Long-term |       | 
|                                    |  | Maturity   |  | interest     |       | Total |  | portion |        | portion   |  | Total |       | portion |  | portion   |       | 
|                                    |  | date       |  | rate         |       | $     |  | $       |        | $         |  | $     |       | $       |  | $         |       | 
|                                    |  |           
|                                    |  |           
|Portage Place                       |  | Mar. 1/08  |  | 7.04%        |       | 8,536 |  |         | 327    |           |  |       | 8,209 |         |  |           |      |  |  |  |      |  |  |  |      |  |  | 
|Southland Mall                      |  | Sep. 01/08 |  | 7.84%        |       | 4,440 |  |         | 110    |           |  |       | 4,330 |         |  |           |      |  |  |  |      |  |  |  |      |  |  | 
|Suncoast Mall                       |  | Feb. 01/08 |  | 7.10%        |       | 3,844 |  |         | 148    |           |  |       | 3,696 |         |  |           |      |  |  |  |      |  |  |  |      |  |  | 
|Willowcreek Mall                    |  | Dec. 01/09 |  | 8.28%        |       | 3,308 |  |         | 57     |           |  |       | 3,251 |         |  |           |      |  |  |  |      |  |  |  |      |  |  | 
|1250 Steeles Ave. West (i)          |  | Demand     |  | Prime + 1%   |       | 1,709 |  |         |       |           |  |       | 1,709 |         |  |           | 1,696 |  |  |  |      |  |  |  | 1,696 |  |  | 
|                                    |  |            |  |              |       |      
|Canadian $ denominated debt         |  | 21,837     |  |              | 642   |       |  |         | 21,195 |           |  |       | 1,696 |         |  |           |      |  |  |  | 1,696 |  |  | 
|                                    |  |            |  |              |       |      
|Note payable to service provider    |  | Demand     |  | 7.00%        |       | 747   |  |         | 747    |           |  |       |      |         |  |           | 747   |  |  |  | 42    |  |  |  | 705   |  |  | 
|Note payable to network provider    |  | Jul. 1/04  |  | 10.00%       |       | 396   |  |         | 242    |           |  |       | 154   |         |  |           | 613   |  |  |  | 219   |  |  |  | 394   |  |  | 
|Note payable, Winter Harbor (ii)    |  | Demand     |  | Prime + 9%   |       | 1,999 |  |         | 1,999  |           |  |       |      |         |  |           | 1,999 |  |  |  | 1,999 |  |  |  |      |  |  | 
|Note payable to RSL estate          |  | Mar. 31/04 |  | 10%, imputed |       | 881   |  |         |       |           |  |       | 881   |         |  |           |      |  |  |  |      |  |  |  |      |  |  | 
|Corporate debenture                 |  | Nov. 15/06 |  | 8.50%        |       | 298   |  |         |       |           |  |       | 298   |         |  |           | 298   |  |  |  |      |  |  |  | 298   |  |  | 
|Building mortgage payable           |  | Aug. 17/12 |  | 9.84%        |       |      |  |         |       |           |  |       |      |         |  |           | 797   |  |  |  | 42    |  |  |  | 755   |  |  | 
|                                    |  |            |  |              |       |      
|US $ denominated debt               |  | 4,321      |  |              | 2,988 |       |  |         | 1,333  |           |  |       | 4,454 |         |  |           | 2,302 |  |  |  | 2,152 |  |  | 
|                                    |  |            |  |              |       |      
|Total  Mortgages and loans payable |  | 26,158     |  |              | 3,630 |       |  |         | 22,528 |           |  |       | 6,150 |         |  |           | 2,302 |  |  |  | 3,848 |  |  | 
|                                    |  |            |  |              |       |      

F-23 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS




---



##### Table of Contents





|    |                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | On April 8, 2003, the Company entered into
    an agreement to extend the maturity date with the lender to
    April 1, 2004, under the same terms and thus the facility
    has been classified as long-term.



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(ii) | As of September 30, 2001, I-Link was in
    default on an equipment lease. This lease was collateralized by
    a letter of credit issued by an affiliate of Winter Harbor LLC,
    a former majority shareholder of I-Link. On October 11,
    2001, the leasing company drew against the letter of credit in
    the amount of $1,999. At that time, the Company recorded the
    liability related to this draw on the letter of credit in the
    consolidated financial statements. On October 26,
    2001, I-Link received a demand for payment from Winter
    Harbor LLC for the amount of the draw on the letter of credit
    and interest (at prime plus 9%) since October 11, 2001.
    I-Link is evaluating Winter Harbor LLCs demand in light of
    the various agreements entered into among I-Link, Counsel
    Communications LLC and Winter Harbor LLC.

(b) Revolving credit facility

The Company has a facility that enables the
Company to borrow up to a maximum of $20,000 subject to certain
restrictions and borrowing base limitations. The maximum
available borrowing base is determined as a specific percentage
of eligible accounts receivable in WorldxChange, a subsidiary in
which, through I-Link, the Company has an indirect ownership
interest of 60.2% as at December 31, 2002. The balance
outstanding is reduced by the application of payments received
on collection of accounts receivable on a daily basis. The
facility bears interest at United States prime + 1.75% with a
minimum interest rate of 6%. Outstanding balances under the loan
are collateralized by substantially all the assets of
WorldxChange. Additionally, the loan contains certain financial
covenants related to WorldxChange for 2003 and 2004. At
December 31, 2002 borrowings under this facility are $9,086
(2001  $6,996) with $2,634 of unused availability
under the facility. The facility expires in December 2004.

(c) Principal repayments

Principal repayments of debt are due as follows:

|           |  |                 |        |             |  |       |       |  |  |  |        |  |  | 
|---------- |  | --------------- | ------ | ----------- |  | ----- | ----- |  |  |  | ------ |  |  | 
|           |  | Canadian dollar |        | US dollar   |  |       |       | 
|           |  | denominated     |        | denominated |  | Total |       | 
|           |  | debt            |        | debt        |  | debt  |       | 
|           |  |                
|           |  |                
|2003       |  |                 | 642    |             |  |       | 2,988 |  |  |  | 3,630  |  |  | 
|2004       |  |                 | 688    |             |  |       | 1,035 |  |  |  | 1,723  |  |  | 
|2005       |  |                 | 736    |             |  |       |      |  |  |  | 736    |  |  | 
|2006       |  |                 | 700    |             |  |       | 298   |  |  |  | 998    |  |  | 
|2007       |  |                 | 655    |             |  |       |      |  |  |  | 655    |  |  | 
|Thereafter |  |                 | 18,416 |             |  |       |      |  |  |  | 18,416 |  |  | 
|           |  |                
|           |  |                 | 21,837 |             |  |       | 4,321 |  |  |  | 26,158 |  |  | 
|           |  |                

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS F-24




---



##### Table of Contents



The estimated fair value of the Companys
debt approximates its carrying value at December 31, 2002
and 2001.

(d) Interest expense

Interest charges consist of:

|                                                                                        |  |      |        |      |  |      |        |   |  |  |        |   |  | 
|--------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  |  | ------ | - |  | 
|                                                                                        |  | 2002 |        | 2001 |  | 2000 |        |  
|                                                                                        |  | $    |        | $    |  | $    |        |  
|                                                                                        |  |     
|                                                                                        |  |     
|Interest costs:                                                                         |  |      |        |      |  |      |        |   |  |  |        |   |  | 
|Mortgages and loans on income producing
    properties and properties under development |  |      | 783    |      |  |      | 4      |   |  |  |       |   |  | 
|Convertible debentures                                                                  |  |      | 3,317  |      |  |      | 3,688  |   |  |  | 3,749  |   |  | 
|Capital leases                                                                          |  |      | 635    |      |  |      | 329    |   |  |  |       |   |  | 
|Revolving credit line                                                                   |  |      | 447    |      |  |      | 25     |   |  |  |       |   |  | 
|Other                                                                                   |  |      | 956    |      |  |      | 1,631  |   |  |  | 20     |   |  | 
|Less:                                                                                   |  |      |        |      |  |      |        |   |  |  |        |   |  | 
|Interest capitalized to properties under
    development                                |  |      | (107   | )    |  |      | (1     | ) |  |  |       |   |  | 
|Interest on convertible debenture charged to
    equity                                 |  |      | (3,029 | )    |  |      | (3,159 | ) |  |  | (3,017 | ) |  | 
|                                                                                        |  |     
|Interest expense                                                                        |  |      | 3,002  |      |  |      | 2,517  |   |  |  | 752    |   |  | 
|                                                                                        |  |     

12 COMMITMENTS, CONTINGENCIES, GUARANTEES
AND CONCENTRATIONS

(a) Commitments

Future minimum payments required under capital
leases, operating leases and usage commitments consist of the
following as at December 31:

|                                                                           |  |         |       |           |  |                 |        |  |  |  |        |  |  | 
|-------------------------------------------------------------------------- |  | ------- | ----- | --------- |  | --------------- | ------ |  |  |  | ------ |  |  | 
|                                                                           |  | Capital |       | Operating |  | Usage           |        | 
|                                                                           |  | leases  |       | leases    |  | commitments (i) |        | 
|                                                                           |  | $       |       | $         |  | $               |        | 
|                                                                           |  |        
|                                                                           |  |        
|2003                                                                       |  |         | 3,036 |           |  |                 | 5,332  |  |  |  | 14,184 |  |  | 
|2004                                                                       |  |         | 3,015 |           |  |                 | 4,947  |  |  |  | 923    |  |  | 
|2005                                                                       |  |         | 1,514 |           |  |                 | 1,834  |  |  |  |       |  |  | 
|2006                                                                       |  |         |      |           |  |                 | 1,078  |  |  |  |       |  |  | 
|2007                                                                       |  |         |      |           |  |                 | 467    |  |  |  |       |  |  | 
|Thereafter                                                                 |  |         |      |           |  |                 | 186    |  |  |  |        |  |  | 
|                                                                           |  |        
|                                                                           |  |         | 7,565 |           |  |                 | 13,844 |  |  |  | 15,107 |  |  | 
|                                                                           |  |         |       |           |  |                
|Less: Amount representing interest at rates of
    approximately 8% to 12% |  |         | 705   |           |  |                 |        |  |  |  |        |  |  | 
|                                                                           |  |         |       |           |  |                 |        |  |  |  |        |  |  | 
|Present value of net minimum lease payments                                |  |         | 6,860 |           |  |                 |        |  |  |  |        |  |  | 
|Less: current portion                                                      |  |         | 2,714 |           |  |                 |        |  |  |  |        |  |  | 
|                                                                           |  |         |       |           |  |                 |        |  |  |  |        |  |  | 
|Long-term obligations under capital leases                                 |  |         | 4,146 |           |  |                 |        |  |  |  |        |  |  | 
|                                                                           |  |         |       |           |  |                 |        |  |  |  |        |  |  | 



|    |                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | Communication subsidiaries have various
    agreements with U.S. national carriers to lease local
    access spans and to purchase carrier services. The agreements
    contain minimum usage commitments with termination penalties up
    to 100% of the remaining commitment.

F-25 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS




---



##### Table of Contents



(b) Contingencies

The Company, from time to time, is involved in
various claims, legal proceedings and complaints arising in the
ordinary course of business. The Company is not aware of any
pending or threatened proceedings that would have a material
adverse effect on the consolidated financial condition or future
results of the Company.

I-Link had been engaged in legal proceedings with
Red Cube International AG (Red Cube). On
July 9, 2002, an evidentiary hearing was held before a
panel of arbitrators of the American Arbitration Association
(AAA) and an award was issued in favour of I-Link
effective October 7, 2002. The AAA panel dismissed all of
Red Cubes claims with prejudice and determined that it was
Red Cube that had breached the agreements between the parties.
The arbitration panel awarded I-Link $6,700 in damages against
Red Cube. I-Link has recorded a valuation allowance of $6,700 to
reflect uncertainty associated with collectibility of the award.
The amounts awarded will be recorded as income of the Company
when payment is received.


(c) Guarantees

The Company has guaranteed the repayment of
certain mortgages amounting to $33,506. One of these mortgages,
amounting to $25,678, is payable by a limited partnership in
which the Company has a 50% equity interest. The Companys
investment in this limited partnership has a carrying value of
$nil. Long-term care facilities of this limited partnership,
which are leased to the Company, are pledged as collateral. The
Companys guarantee for this mortgage expires in 2004.

In addition, the Company has provided a guarantee
of $7,828 for another mortgage of another limited partnership,
in which the Company has no equity interest, which expires in
2015.


(d) Concentrations

The Company utilizes the services of certain
Local Exchange Carriers (LECs) to bill and collect
from customers. Approximately 93% and 94% of revenues in the
year ended December 31, 2002 and the period from
June 4, 2001 (date of acquisition of WorldxChange) to
December 31, 2001 were derived from customers billed to
LECs. If the LECs were to refuse to provide such services in the
future, the Company would be required to significantly enhance
its billing and collection capabilities in a short amount of
time and its collection experience could be adversely affected
during this transition period.

The Company depends on certain large
telecommunications carriers to provide network services for
significant portions of the Companys telecommunications
traffic. If these carriers were to refuse to provide such
services in the future, the Companys ability to provide
services to its customers would be adversely affected and the
Company might not be able to obtain similar services from
alternative carriers on a timely basis.


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS F-26




---



##### Table of Contents



13 CONVERTIBLE DEBENTURES
PAYABLE

|                                          |  |      |       |      |  |  |       |  |  | 
|----------------------------------------- |  | ---- | ----- | ---- |  |  | ----- |  |  | 
|                                          |  | 2002 |       | 2001 |  | 
|                                          |  | $    |       | $    |  | 
|                                          |  |     
|                                          |  |     
|Liability component of debentures payable |  |      | 2,515 |      |  |  | 4,801 |  |  | 
|                                          |  |     

On October 31, 1996, the Company issued
$50,000 of convertible, unsecured, subordinated debentures
bearing interest at 6% per annum payable semi-annually on
April 30 and October 31 and maturing on
October 31, 2003. The Company may redeem the debentures at
any time on or after November 1, 2001 at par, plus accrued
interest.

The Company may elect to satisfy its obligation
to pay principal upon redemption or at maturity by the issuance
of its own common shares to the holders of the debentures. The
number of shares to be issued is obtained by dividing the face
amount of the debentures by 95% of the weighted average trading
price of the common shares for the 20 consecutive trading days,
ending on the fifth trading day prior to the date of notice of
such election.


The debentures are convertible into common shares
of the Company at the option of the holder at any time prior to
the earlier of the maturity date and the last business day
immediately preceding the date fixed for redemption at a
conversion price of $11.47 per share.


As a result of the debentures being convertible
into common shares of the Company at the option of the holder
and the Companys option to satisfy its obligations to pay
principal upon redemption or maturity by the issuance of its own
common shares, the debentures have both liability and equity
components.


At issuance on October 31, 1996, these
components were as follows:


|                                                                                                                   |  |   |        |  |  |  |  | 
|------------------------------------------------------------------------------------------------------------------ |  | - | ------ |  |  |  |  | 
|                                                                                                                   |  | $ |        |  |  | 
|                                                                                                                   |  |  
|                                                                                                                   |  |  
|Financial liability component  present
    value of future interest obligations at a discount rate of 8.15%       |  |   | 15,852 |  |  |  |  | 
|Principal equity component  present
    value of principal obligation at maturity at a discount rate of
    8.15% |  |   | 28,868 |  |  |  |  | 
|Holder option equity component                                                                                     |  |   | 5,280  |  |  |  |  | 
|                                                                                                                   |  |  
|Face amount                                                                                                        |  |   | 50,000 |  |  |  |  | 
|                                                                                                                   |  |  

During 2002, pursuant to normal course issuer
bids, the Company purchased for cancellation $200
(2001  $5,740) of debentures for cash consideration
of $141 (2001  $3,180) which reduced the liability
component of the debentures payable by $9 (2001 
$720). As a result of the cancellation of repurchased
debentures, the outstanding face amount as at December 31,
2002 is $42,561 (2001  $42,761). The fair value of
the debentures as at December 31, 2002 is $27,882
(2001  $23,519).

On December 12, 2002, the Company renewed
its normal course issuer bid through the facilities of The
Toronto Stock Exchange to purchase up to $2,128 face value of
the debentures, or 5% of the outstanding debentures, from
December 16, 2002 until October 31, 2003, the maturity
date of the debentures.


F-27 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS




---



##### Table of Contents



14 CAPITAL STOCK

The authorized capital stock consists of an
unlimited number of common and preferred shares.

During 2002, pursuant to normal course issuer
bids, the Company acquired 748,000 (2001  1,444,000;
2000  1,688,000) common shares for cancellation for
cash of $1,532 (2001  $2,722; 2000 
$4,730). The excess of the average issue price over the
repurchase price is credited to contributed surplus. During
2002, $1,886 was credited to contributed surplus
(2001  $3,878; 2000  $2,220).


On December 12, 2002, the Company renewed
its normal course issuer bid through the facilities of The
Toronto Stock Exchange to purchase up to 1,089,000 common
shares, or 5% of the outstanding common shares, from
December 16, 2002 through to December 15, 2003.


15 STOCK-BASED COMPENSATION
PLANS

Counsel plans

Under the 1992 Director, Officer and Employee
Stock Option Plan, the Company may grant options to its
directors, officers and employees for up to 2,700,000 common
shares. Under the 1997 Stock Option Plan, the Company may grant
options to its directors, officers, employees and any other
person or company engaged to provide ongoing management or
consulting services for the Company for up to 4,200,000 common
shares. Under both plans, the exercise price of each option
equals the market price of the Companys common shares on
the date of grant. Unless otherwise provided, the maximum term
of the grant is six years from the date of initial vesting of
any portion of the grant and options vest 20% on the date of
grant and 20% on each of the first through fourth anniversaries
of the grant date. All unvested options vest upon a change of
control of the Company.

A summary of the status of the Companys
stock option plans and changes during the years is as follows:


|                                  |  |                |       |          |  |                |       |          |  |                |        |          |  |  |       |  |  |  |       |   |  |  |       |  |  | 
|--------------------------------- |  | -------------- | ----- | -------- |  | -------------- | ----- | -------- |  | -------------- | ------ | -------- |  |  | ----- |  |  |  | ----- | - |  |  | ----- |  |  | 
|                                  |  |                |       |          |  |                |       |         
|                                  |  | 2002           |       | 2001     |  | 2000           |       |         
|                                  |  |                |       |          |  |               
|                                  |  |                |       |          |  |               
|                                  |  |                |       | Weighted |  |                |       | Weighted |  |                |        | Weighted |  | 
|                                  |  |                |       | average  |  |                |       | average  |  |                |        | average  |  | 
|                                  |  | Number         |       | exercise |  | Number         |       | exercise |  | Number         |        | exercise |  | 
|                                  |  | of shares      |       | price    |  | of shares      |       | price    |  | of shares      |        | price    |  | 
|                                  |  | (in thousands) |       | CDN$     |  | (in thousands) |       | CDN$     |  | (in thousands) |        | CDN$     |  | 
|                                  |  |               
|                                  |  |               
|Outstanding  beginning of year   |  |                | 3,181 |          |  |                | 10.03 |          |  |                | 3,192  |          |  |  | 13.04 |  |  |  | 3,570 |   |  |  | 14.11 |  |  | 
|Granted                           |  |                | 608   |          |  |                | 2.81  |          |  |                | 1,045  |          |  |  | 3.20  |  |  |  | 564   |   |  |  | 6.63  |  |  | 
|Exercised                         |  |                |      |          |  |                |      |          |  |                |       |          |  |  |      |  |  |  | (92   | ) |  |  | 2.30  |  |  | 
|Forfeited                         |  |                | (94   | )        |  |                | 9.05  |          |  |                | (1,056 | )        |  |  | 12.38 |  |  |  | (850  | ) |  |  | 14.46 |  |  | 
|                                  |  |                |       |          |  |                |       |          |  |                |        |          |  |  |       |  |  |  |       |   |  |  |       |  |  | 
|Outstanding  end of year         |  |                | 3,695 |          |  |                | 8.87  |          |  |                | 3,181  |          |  |  | 10.03 |  |  |  | 3,192 |   |  |  | 13.04 |  |  | 
|                                  |  |                |       |          |  |                |       |          |  |                |        |          |  |  |       |  |  |  |       |   |  |  |       |  |  | 
|Options exercisable  end of year |  |                | 2,072 |          |  |                | 13.21 |          |  |                | 1,922  |          |  |  | 13.80 |  |  |  | 2,173 |   |  |  | 13.91 |  |  | 
|                                  |  |                |       |          |  |                |       |          |  |                |        |          |  |  |       |  |  |  |       |   |  |  |       |  |  | 

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS F-28




---



##### Table of Contents



The following table summarizes the stock options
outstanding and exercisable as at December 31, 2002:


|                |  |                     |       |                     |  |          |      |                |  |          |      |       |  |  |       |     |  |  |       |       |  |  | 
|--------------- |  | ------------------- | ----- | ------------------- |  | -------- | ---- | -------------- |  | -------- | ---- | ----- |  |  | ----- | --- |  |  | ----- | ----- |  |  | 
|                |  | Options outstanding |       | Options exercisable |  |         
|                |  |                     |       |                    
|                |  |                     |       | Weighted            |  |          |      |               
|                |  |                     |       | average             |  | Weighted |      |                |  | Weighted |      |      
|                |  |                     |       | remaining           |  | average  |      |                |  | average  |      |      
|Range of        |  | Number              |       | contractual         |  | exercise |      | Number         |  | exercise |      |      
|exercise prices |  | outstanding         |       | life                |  | price    |      | exercisable    |  | price    |      |      
|CDN$            |  | (in thousands)      |       | (years)             |  | CDN$     |      | (in thousands) |  | CDN$     |      |      
|                |  |                    
|2.39 to  5.60   |  |                     |       | 1,767               |  |          |      | 6.84           |  |          |      | 3.12  |  |  |       | 236 |  |  |       | 3.79  |  |  | 
|5.90 to 10.40   |  |                     |       | 360                 |  |          |      | 2.36           |  |          |      | 9.08  |  |  |       | 268 |  |  |       | 9.32  |  |  | 
|12.40 to 15.20  |  |                     |       | 950                 |  |          |      | 0.01           |  |          |      | 13.72 |  |  |       | 950 |  |  |       | 13.72 |  |  | 
|16.40 to 18.00  |  |                     |       | 618                 |  |          |      | 0.20           |  |          |      | 17.71 |  |  |       | 618 |  |  |       | 17.71 |  |  | 
|                |  |                     |       |                     |  |          |      |                |  |          |      |       |  |  |       |     |  |  |       |       |  | 
|                |  |                     | 3,695 |                     |  |          | 3.54 |                |  |          | 8.87 |       |  |  | 2,072 |     |  |  | 13.21 |       |  | 
|                |  |                     |       |                     |  |          |      |                |  |          |      |       |  |  |       |     |  |  |       |       |  | 

The Company applies the intrinsic value based
method of accounting for its fixed employee stock compensation
plans. Options are granted with an exercise price that is equal
to the market value of the underlying stock at the date of grant
and accordingly, no compensation expense has been recognized.

As the Company has elected to use the intrinsic
value method, the following disclosures are required to give
pro-forma effects as if the fair value based method of
accounting had been used to account for employee stock
compensation plans.


|                                |  |      |         |      |  |      |         |   |  |  |         |   |  | 
|------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  |  | ------- | - |  | 
|                                |  | 2002 |         | 2001 |  | 2000 |         |  
|                                |  | $    |         | $    |  | $    |         |  
|                                |  |     
|                                |  |     
|Net loss, as reported           |  |      | (25,427 | )    |  |      | (62,213 | ) |  |  | (45,433 | ) |  | 
|Pro forma adjustments           |  |      | (1,995  | )    |  |      | (4,249  | ) |  |  | (580    | ) |  | 
|                                |  |     
|Pro forma net loss for the year |  |      | (27,422 | )    |  |      | (66,462 | ) |  |  | (46,013 | ) |  | 
|                                |  |     
|Pro forma net loss per share    |  |      | (1.37   | )    |  |      | (3.02   | ) |  |  | (1.97   | ) |  | 
|                                |  |     

For purposes of these pro-forma disclosures, the
fair value of each option of the Company was estimated on the
date of the grant using the Black-Scholes option pricing model
with the following weighted average assumptions used for grants
in 2002, 2001 and 2000, respectively: risk-free interest rates
of 5.0%; expected dividend yields of nil%; expected lives of six
years; and expected volatility of 60.0%, 65.5% and 48.7%. The
pro forma disclosures in 2002 and 2001 include the effects of
options issued by I-Link following the acquisition of I-Link by
the Company.

The Black-Scholes model requires highly
subjective assumptions, including volatility and the expected
time until exercise, which greatly affect the calculated values.
Accordingly, management believes that the model does not
necessarily provide a reliable single measure of the fair value
of the Companys stock option awards.


The Company plans to grant additional stock
options each year and as a result, the above pro forma amounts
are not likely to be representative of the effects on reported
net loss for future years.


F-29 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS




---



##### Table of Contents



I-Link plans

At December 31, 2002, I-Link has several
stock-based compensation plans. I-Link applies the intrinsic
value method of APB Opinion No. 25 and related
interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for its fixed option plans.

A summary of the status of I-Links stock
option plans and warrants and changes during the years it was
controlled by Counsel is as follows:


|                                               |  |                |        |          |  |                |      |          |  |  |         |   |  |  |      |  |  | 
|---------------------------------------------- |  | -------------- | ------ | -------- |  | -------------- | ---- | -------- |  |  | ------- | - |  |  | ---- |  |  | 
|                                               |  | 2002           |        | 2001     |  |               
|                                               |  |                |        |          |  |               
|                                               |  |                |        | Weighted |  |                |      | Weighted |  | 
|                                               |  |                |        | average  |  |                |      | average  |  | 
|                                               |  | Number         |        | exercise |  | Number         |      | exercise |  | 
|                                               |  | of shares      |        | price    |  | of shares      |      | price    |  | 
|                                               |  | (in thousands) |        | $        |  | (in thousands) |      | $        |  | 
|                                               |  |               
|Outstanding  beginning of year                |  |                | 28,033 |          |  |                | 2.27 |          |  |  | 45,355  |   |  |  | 2.57 |  |  | 
|Granted                                        |  |                | 95     |          |  |                |     |          |  |  | 20,509  |   |  |  | 0.76 |  |  | 
|Exercised                                      |  |                |       |          |  |                |     |          |  |  |        |   |  |  |     |  |  | 
|Expired                                        |  |                | (2,605 | )        |  |                | 6.34 |          |  |  | (1,643  | ) |  |  | 3.43 |  |  | 
|Forfeited                                      |  |                | (354   | )        |  |                | 4.27 |          |  |  | (36,188 | ) |  |  | 1.42 |  |  | 
|                                               |  |                |        |          |  |                |      |          |  |  |         |   |  |  |      |  |  | 
|Outstanding  end of year                      |  |                | 25,169 |          |  |                | 1.82 |          |  |  | 28,033  |   |  |  | 2.27 |  |  | 
|                                               |  |                |        |          |  |                |      |          |  |  |         |   |  |  |      |  |  | 
|Options and warrants exercisable  end of year |  |                | 25,137 |          |  |                | 1.82 |          |  |  | 27,090  |   |  |  | 2.21 |  |  | 
|                                               |  |                |        |          |  |                |      |          |  |  |         |   |  |  |      |  |  | 

The following table summarizes the stock options
and warrants outstanding and exercisable as at December 31,
2002:

|                |  |                                  |        |                      |  |          |      |                |  |          |      |  |  |  |        |  |  |  |      |  |  | 
|--------------- |  | -------------------------------- | ------ | -------------------- |  | -------- | ---- | -------------- |  | -------- | ---- |  |  |  | ------ |  |  |  | ---- |  |  | 
|                |  |                                  |        | Options and warrants
|                |  | Options and warrants outstanding |        | exercisable         
|                |  |                                  |        |                     
|                |  |                                  |        | Weighted             |  |          |      |               
|                |  |                                  |        | average              |  | Weighted |      |                |  | Weighted |      | 
|                |  |                                  |        | remaining            |  | average  |      |                |  | average  |      | 
|                |  | Number                           |        | contractual          |  | exercise |      | Number         |  | exercise |      | 
|Range of        |  | outstanding                      |        | life                 |  | price    |      | exercisable    |  | price    |      | 
|exercise prices |  | (in thousands)                   |        | (years)              |  | $        |      | (in thousands) |  | $        |      | 
|                |  |                                 
|$0.07 to $ 1.00 |  |                                  | 15,336 |                      |  |          | 0.60 |                |  |          | 0.60 |  |  |  | 15,311 |  |  |  | 0.60 |  |  | 
|$1.13 to $ 3.00 |  |                                  | 2,813  |                      |  |          | 6.32 |                |  |          | 2.61 |  |  |  | 2,813  |  |  |  | 2.61 |  |  | 
|$3.14 to $ 5.87 |  |                                  | 6,403  |                      |  |          | 4.25 |                |  |          | 3.93 |  |  |  | 6,403  |  |  |  | 3.93 |  |  | 
|$6.25 to $13.88 |  |                                  | 617    |                      |  |          | 7.09 |                |  |          | 6.55 |  |  |  | 610    |  |  |  | 6.55 |  |  | 
|                |  |                                  |        |                      |  |          |      |                |  |          |      |  |  |  |        |  |  |  |      |  |  | 
|                |  |                                  | 25,169 |                      |  |          | 2.32 |                |  |          | 1.82 |  |  |  | 25,137 |  |  |  | 1.82 |  |  | 
|                |  |                                  |        |                      |  |          |      |                |  |          |      |  |  |  |        |  |  |  |      |  |  | 

In June 2001, the Company received warrants to
purchase 15,000,000 common shares of I-Link at $1.60 per share.

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS F-30




---



##### Table of Contents



16 INCOME TAXES

The Companys income tax provision
(recovery) differs from the recovery computed at statutory rates
as follows:

|                                                                                                                     |                                                                     |      |       |        |   |      |         |        |  |  |        |        |   |  | 
|-------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | ---- | ----- | ------ | - | ---- | ------- | ------ |  |  | ------ | ------ | - |  | 
|                                                                                                                     |                                                                     | 2002 |       | 2001   |   | 2000 |         |       
|                                                                                                                     |                                                                     | $    |       | $      |   | $    |         |       
|                                                                                                                     |                                                                     |     
|                                                                                                                     |                                                                     |     
|Earnings (loss) before income taxes,
    non-controlling interest and discontinued operations                        |                                                                     |      | 3,177 |        |   |      | (19,961 | )      |  |  | (7,797 | )      |   | 
|                                                                                                                     |                                                                     |     
|Income tax expense (recovery), based on a
    statutory income tax rate of 38.62%
    (2001  41.74%; 2000  43.95%) |                                                                     |      | 1,227 |        |   |      | (8,331  | )      |  |  | (3,426 | )      |   | 
|Increase (decrease) in income taxes resulting
    from:                                                              |                                                                     |      |       |        |   |      |         |        |  |  |        |        |   | 
|                                                                                                                     | Change in valuation allowance relating to
    continuing operations |      |       | 8,542  |   |      |         | 10,270 |  |  |        | 3,830  |   |  | 
|                                                                                                                     | Effect of change in income tax rates                                |      |       | 190    |   |      |         | 5,932  |  |  |        | 126    |   |  | 
|                                                                                                                     | Non-taxable items                                                   |      |       |       |   |      |         | 5,242  |  |  |        | (486   | ) |  | 
|                                                                                                                     | Non-deductible items                                                |      |       | 2,200  |   |      |         | 4,264  |  |  |        |       |   |  | 
|                                                                                                                     | Lower effective tax rate of foreign subsidiaries                    |      |       | (681   | ) |      |         | 267    |  |  |        | 2      |   |  | 
|                                                                                                                     | Large corporations tax provision (recovery) and
    other taxes     |      |       | 160    |   |      |         | 64     |  |  |        | (52    | ) |  | 
|                                                                                                                     | Other                                                               |      |       | (1,983 | ) |      |         | 2,193  |  |  |        |       |   |  | 
|                                                                                                                     |                                                                     |     
|Actual income tax provision (recovery)                                                                               |                                                                     |      | 9,655 |        |   |      | 19,901  |        |  |  | (6     | )      |   | 
|                                                                                                                     |                                                                     |     
|Represented by:                                                                                                      |                                                                     |      |       |        |   |      |         |        |  |  |        |        |   | 
|                                                                                                                     | Current income tax provision (recovery)                             |      |       | (1,206 | ) |      |         | 683    |  |  |        | (1,521 | ) |  | 
|                                                                                                                     | Future income tax provision (recovery)                              |      |       | 10,701 |   |      |         | 19,154 |  |  |        | 1,567  |   |  | 
|                                                                                                                     | Large corporations tax provision (recovery)                         |      |       | 160    |   |      |         | 64     |  |  |        | (52    | ) |  | 
|                                                                                                                     |                                                                     |     
|                                                                                                                     |                                                                     |      | 9,655 |        |   |      | 19,901  |        |  |  | (6     | )      |   | 
|                                                                                                                     |                                                                     |     

An analysis of earnings (loss) before income
taxes, non-controlling interest and discontinued operations by
country is as follows:

|              |  |      |        |      |  |      |         |   |  |  |         |   |  | 
|------------- |  | ---- | ------ | ---- |  | ---- | ------- | - |  |  | ------- | - |  | 
|              |  | 2002 |        | 2001 |  | 2000 |         |  
|              |  | $    |        | $    |  | $    |         |  
|              |  |     
|              |  |     
|Canada        |  |      | (9,488 | )    |  |      | (14,085 | ) |  |  | 6,241   |   |  | 
|United States |  |      | 12,665 |      |  |      | (5,876  | ) |  |  | (14,038 | ) |  | 
|              |  |     
|              |  |      | 3,177  |      |  |      | (19,961 | ) |  |  | (7,797  | ) |  | 
|              |  |     

F-31 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS




---



##### Table of Contents



The Companys income tax provision
(recovery) by country is as follows:

|              |                              |      |        |        |   |      |        |        |  |  |        |        |   |  | 
|------------- | ---------------------------- | ---- | ------ | ------ | - | ---- | ------ | ------ |  |  | ------ | ------ | - |  | 
|              |                              | 2002 |        | 2001   |   | 2000 |        |       
|              |                              | $    |        | $      |   | $    |        |       
|              |                              |     
|              |                              |     
|Canada        |                              |      |        |        |   |      |        |        |  |  |        |        |   | 
|              | Current provision (recovery) |      |        | 160    |   |      |        | 740    |  |  |        | (52    | ) |  | 
|              | Future provision (recovery)  |      |        | (1,190 | ) |      |        | 3,389  |  |  |        | 1,116  |   |  | 
|              |                              |     
|              |                              |      | (1,030 | )      |   |      | 4,129  |        |  |  | 1,064  |        |   | 
|              |                              |     
|United States |                              |      |        |        |   |      |        |        |  |  |        |        |   | 
|              | Current provision (recovery) |      |        | (1,206 | ) |      |        | 7      |  |  |        | (1,521 | ) |  | 
|              | Future provision             |      |        | 11,891 |   |      |        | 15,765 |  |  |        | 451    |   |  | 
|              |                              |     
|              |                              |      | 10,685 |        |   |      | 15,772 |        |  |  | (1,070 | )      |   | 
|              |                              |     
|Total         |                              |      |        |        |   |      |        |        |  |  |        |        |   | 
|              | Current provision (recovery) |      |        | (1,046 | ) |      |        | 747    |  |  |        | (1,573 | ) |  | 
|              | Future provision             |      |        | 10,701 |   |      |        | 19,154 |  |  |        | 1,567  |   |  | 
|              |                              |     
|              |                              |      | 9,655  |        |   |      | 19,901 |        |  |  | (6     | )      |   | 
|              |                              |     

The composition of the Companys net future
income tax assets and liabilities as at December 31 is as
follows:


|                                    |                                                                            |      |     |        |   |  |     |     |   |  | 
|----------------------------------- | -------------------------------------------------------------------------- | ---- | --- | ------ | - |  | --- | --- | - |  | 
|                                    |                                                                            | 2002 |     | 2001   |   | 
|                                    |                                                                            | $    |     | $      |   | 
|                                    |                                                                            |     
|                                    |                                                                            |     
|Current future income tax asset:    |                                                                            |      |     |        |   |  |     |     |   | 
|                                    | Deferred revenue                                                           |      |     | 220    |   |  |     | 146 |   |  | 
|                                    | Basis differences of investments                                           |      |     | 2,823  |   |  |     |    |   |  | 
|                                    | Accrued charges and reserves currently not
    deductible for income taxes |      |     | 562    |   |  |     | 884 |   |  | 
|                                    | Valuation allowance                                                        |      |     | (3,331 | ) |  |     | (60 | ) |  | 
|                                    |                                                                            |     
|Net current future income tax asset |                                                                            |      | 274 |        |   |  | 970 |     |   | 
|                                    |                                                                            |     

|                                          |                                                                                |      |         |         |   |  |         |         |   |  | 
|----------------------------------------- | ------------------------------------------------------------------------------ | ---- | ------- | ------- | - |  | ------- | ------- | - |  | 
|                                          |                                                                                | 2002 |         | 2001    |   | 
|                                          |                                                                                | $    |         | $       |   | 
|                                          |                                                                                |     
|                                          |                                                                                |     
|Long-term future income tax asset:        |                                                                                |      |         |         |   |  |         |         |   | 
|                                          | Deferred revenue                                                               |      |         |        |   |  |         | 936     |   |  | 
|                                          | Accrued charges and reserves currently not
    deductible
    for income taxes |      |         | 2,238   |   |  |         | 1,311   |   |  | 
|                                          | Acquired intangible assets                                                     |      |         | 3,435   |   |  |         | 3,503   |   |  | 
|                                          | Amortization of deferred compensation                                          |      |         | 1,933   |   |  |         | 1,933   |   |  | 
|                                          | Basis differences of property, plant and equipment                             |      |         | 1,708   |   |  |         |        |   |  | 
|                                          | Other                                                                          |      |         | 150     |   |  |         | 450     |   |  | 
|                                          | Net losses available for carry-forward                                         |      |         | 57,332  |   |  |         | 48,113  |   |  | 
|                                          | Valuation allowance                                                            |      |         | (66,796 | ) |  |         | (55,723 | ) |  | 
|                                          |                                                                                |     
|                                          |                                                                                |      |        |         |   |  | 523     |         |   | 
|Long-term future income tax liability:    |                                                                                |      |         |         |   |  |         |         |   | 
|                                          | Basis differences of investments                                               |      |         | (33,045 | ) |  |         | (19,690 | ) |  | 
|                                          | Basis differences of property, plant and equipment                             |      |         | (1,638  | ) |  |         | (1,066  | ) |  | 
|                                          | Other                                                                          |      |         | (1,867  | ) |  |         | (3,049  | ) |  | 
|                                          |                                                                                |     
|Net long-term future income tax liability |                                                                                |      | (36,550 | )       |   |  | (23,282 | )       |   | 
|                                          |                                                                                |     

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS F-32




---



##### Table of Contents



The amount recognized in the consolidated
financial statements for long-term future income tax liabilities
includes estimates made by management. It is reasonably possible
that the amounts recognized could change by a material amount in
the near term.

At December 31, 2002, certain operating
subsidiaries in Canada and certain tax groups in the United
States had federal net operating (non-capital) tax loss
carryforwards available of approximately $145,000 to reduce
future income taxes. These loss carryforwards expire between
2006 and 2022. The utilization of approximately $79,000 of total
net operating loss carryforwards against future taxable income
will be subject to an annual limitation of approximately $2,246
per annum because of the change in ownership tax rules in the
United States associated with the acquisition of I-Link in 2001.
Therefore, as a result of this annual limitation and the
expiration of these net operating loss carryforwards,
approximately $45,000 of the $79,000 net operating loss
carryforwards generally may only be available for utilization.
In addition, certain operating subsidiaries in Canada and tax
groups in the United States have capital losses with no expiry
limit aggregating approximately $10,600 available for
application against future capital gains.


In the United States, certain entities are
subject to U.S. state income tax in multiple jurisdictions.
Available state tax loss carryforwards differ by jurisdiction
and have not been presented.


17 DISCONTINUED OPERATIONS

The Company has a number of discontinued
operations, some of which have been sold while others are the
subject of formal plans of disposal.

Discontinued operations have been presented on a
segmented basis to enhance the readers understanding of
the financial information presented.


Medical products and services (MPS)
represents the discontinued medical products operations,
pharmaceutical products operations, pharmacy services operations
and home health care operations.


F-33 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS




---



##### Table of Contents



A summary of the carrying value of the assets and
liabilities for discontinued operations as at December 31
is as follows:


|                                         |  |      |     |                |  |      |       |       |  |  |        |  |  |  |        |  |  | 
|---------------------------------------- |  | ---- | --- | -------------- |  | ---- | ----- | ----- |  |  | ------ |  |  |  | ------ |  |  | 
|                                         |  |      |     |               
|                                         |  | 2002 |     |               
|                                         |  |     
|                                         |  |     
|                                         |  |      |     | Long-term      |  |     
|                                         |  | MPS  |     | Communications |  | care |       | Total |  | 
|                                         |  | $    |     | $              |  | $    |       | $     |  | 
|                                         |  |     
|                                         |  |     
|Assets                                   |  |      |     |                |  |      |       |       |  |  |        |  |  |  |        |  |  | 
|CURRENT                                  |  |      |     |                |  |      |       |       |  |  |        |  |  |  |        |  |  | 
|Cash and cash equivalents                |  |      | 26  |                |  |      |      |       |  |  | 1,020  |  |  |  | 1,046  |  |  | 
|Accounts receivable                      |  |      | 188 |                |  |      |      |       |  |  | 355    |  |  |  | 543    |  |  | 
|Other assets                             |  |      | 250 |                |  |      |      |       |  |  | 400    |  |  |  | 650    |  |  | 
|                                         |  |     
|                                         |  |      | 464 |                |  |      |      |       |  |  | 1,775  |  |  |  | 2,239  |  |  | 
|                                         |  |     
|LONG-TERM                                |  |      |     |                |  |      |       |       |  |  |        |  |  |  |        |  |  | 
|Mortgage receivable                      |  |      |    |                |  |      |      |       |  |  | 1,528  |  |  |  | 1,528  |  |  | 
|Property, plant and equipment, net       |  |      | 50  |                |  |      | 1,080 |       |  |  | 18,424 |  |  |  | 19,554 |  |  | 
|Telecommunications technology            |  |      |    |                |  |      | 270   |       |  |  |        |  |  |  | 270    |  |  | 
|Goodwill, net                            |  |      |    |                |  |      |      |       |  |  | 246    |  |  |  | 246    |  |  | 
|                                         |  |     
|                                         |  |      | 50  |                |  |      | 1,350 |       |  |  | 20,198 |  |  |  | 21,598 |  |  | 
|                                         |  |     
|                                         |  |      | 514 |                |  |      | 1,350 |       |  |  | 21,973 |  |  |  | 23,837 |  |  | 
|                                         |  |     
|Liabilities                              |  |      |     |                |  |      |       |       |  |  |        |  |  |  |        |  |  | 
|CURRENT                                  |  |      |     |                |  |      |       |       |  |  |        |  |  |  |        |  |  | 
|Accounts payable and accrued liabilities |  |      | 536 |                |  |      |      |       |  |  | 5,976  |  |  |  | 6,512  |  |  | 
|Deferred revenue                         |  |      |    |                |  |      |      |       |  |  | 576    |  |  |  | 576    |  |  | 
|Mortgages and loans payable              |  |      |    |                |  |      |      |       |  |  | 181    |  |  |  | 181    |  |  | 
|                                         |  |     
|                                         |  |      | 536 |                |  |      |      |       |  |  | 6,733  |  |  |  | 7,269  |  |  | 
|                                         |  |     
|LONG-TERM                                |  |      |     |                |  |      |       |       |  |  |        |  |  |  |        |  |  | 
|Deferred revenue                         |  |      |     |                |  |      |       |       |  |  | 115    |  |  |  | 115    |  |  | 
|Mortgages and loans payable              |  |      |    |                |  |      |      |       |  |  | 11,540 |  |  |  | 11,540 |  |  | 
|Non-controlling interest                 |  |      | 161 |                |  |      |      |       |  |  |       |  |  |  | 161    |  |  | 
|                                         |  |     
|                                         |  |      | 161 |                |  |      |      |       |  |  | 11,655 |  |  |  | 11,816 |  |  | 
|                                         |  |     
|                                         |  |      | 697 |                |  |      |      |       |  |  | 18,388 |  |  |  | 19,085 |  |  | 
|                                         |  |     

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS F-34




---



##### Table of Contents



|                                         |  |      |       |                |  |           |       |       |  |  |        |  |  |  |        |  |  | 
|---------------------------------------- |  | ---- | ----- | -------------- |  | --------- | ----- | ----- |  |  | ------ |  |  |  | ------ |  |  | 
|                                         |  |      |       |               
|                                         |  | 2001 |       |               
|                                         |  |     
|                                         |  |     
|                                         |  |      |       |                |  | Long-term |       |       |  | 
|                                         |  | MPS  |       | Communications |  | care      |       | Total |  | 
|                                         |  | $    |       | $              |  | $         |       | $     |  | 
|                                         |  |     
|                                         |  |     
|ASSETS                                   |  |      |       |                |  |           |       |       |  |  |        |  |  |  |        |  |  | 
|CURRENT                                  |  |      |       |                |  |           |       |       |  |  |        |  |  |  |        |  |  | 
|Cash and cash equivalents                |  |      | 733   |                |  |           |      |       |  |  | 1,558  |  |  |  | 2,291  |  |  | 
|Accounts receivable                      |  |      | 320   |                |  |           |      |       |  |  | 129    |  |  |  | 449    |  |  | 
|Other assets                             |  |      | 822   |                |  |           |      |       |  |  | 284    |  |  |  | 1,106  |  |  | 
|Receivable from purchaser, net           |  |      | 4,460 |                |  |           |      |       |  |  |       |  |  |  | 4,460  |  |  | 
|                                         |  |     
|                                         |  |      | 6,335 |                |  |           |      |       |  |  | 1,971  |  |  |  | 8,306  |  |  | 
|                                         |  |     
|LONG-TERM                                |  |      |       |                |  |           |       |       |  |  |        |  |  |  |        |  |  | 
|Mortgage receivable                      |  |      |      |                |  |           |      |       |  |  | 1,516  |  |  |  | 1,516  |  |  | 
|Property, plant and equipment, net       |  |      | 1,335 |                |  |           | 8,553 |       |  |  | 19,280 |  |  |  | 29,168 |  |  | 
|Telecommunications technology            |  |      |      |                |  |           | 270   |       |  |  |       |  |  |  | 270    |  |  | 
|Goodwill, net                            |  |      | 933   |                |  |           |      |       |  |  | 285    |  |  |  | 1,218  |  |  | 
|                                         |  |     
|                                         |  |      | 2,268 |                |  |           | 8,823 |       |  |  | 21,081 |  |  |  | 32,172 |  |  | 
|                                         |  |     
|                                         |  |      | 8,603 |                |  |           | 8,823 |       |  |  | 23,052 |  |  |  | 40,478 |  |  | 
|                                         |  |     
|LIABILITIES                              |  |      |       |                |  |           |       |       |  |  |        |  |  |  |        |  |  | 
|CURRENT                                  |  |      |       |                |  |           |       |       |  |  |        |  |  |  |        |  |  | 
|Accounts payable and accrued liabilities |  |      | 3,061 |                |  |           |      |       |  |  | 4,986  |  |  |  | 8,047  |  |  | 
|Deferred revenue                         |  |      |      |                |  |           |      |       |  |  | 576    |  |  |  | 576    |  |  | 
|Mortgage and loans payable               |  |      |      |                |  |           |      |       |  |  | 166    |  |  |  | 166    |  |  | 
|                                         |  |     
|                                         |  |      | 3,061 |                |  |           |      |       |  |  | 5,728  |  |  |  | 8,789  |  |  | 
|                                         |  |     
|LONG-TERM                                |  |      |       |                |  |           |       |       |  |  |        |  |  |  |        |  |  | 
|Deferred revenue                         |  |      |      |                |  |           |      |       |  |  | 769    |  |  |  | 769    |  |  | 
|Mortgage and loans payable               |  |      |      |                |  |           |      |       |  |  | 11,629 |  |  |  | 11,629 |  |  | 
|Non-controlling interest                 |  |      | 702   |                |  |           |      |       |  |  |       |  |  |  | 702    |  |  | 
|                                         |  |     
|                                         |  |      | 702   |                |  |           |      |       |  |  | 12,398 |  |  |  | 13,100 |  |  | 
|                                         |  |     
|                                         |  |      | 3,763 |                |  |           |      |       |  |  | 18,126 |  |  |  | 21,889 |  |  | 
|                                         |  |     

The composition of earnings (loss) from
discontinued operations for the years ended December 31 is
as follows:


|                                       |                                         |      |         |        |   |      |         |        |   |  |         |         |   |  | 
|-------------------------------------- | --------------------------------------- | ---- | ------- | ------ | - | ---- | ------- | ------ | - |  | ------- | ------- | - |  | 
|                                       |                                         | 2002 |         | 2001   |   | 2000 |         |       
|                                       |                                         | $    |         | $      |   | $    |         |       
|                                       |                                         |     
|                                       |                                         |     
|Medical products and services (MPS): |                                         |      |         |        |   |      |         |        |   |  |         |         |   | 
|                                       | Medical products operations (i)         |      |         | (2,852 | ) |      |         | (5,319 | ) |  |         | (3,838  | ) |  | 
|                                       | Pharmaceutical products operations (ii) |      |         | (707   | ) |      |         | 4,519  |   |  |         | (32,419 | ) |  | 
|                                       | Pharmacy services operations (iii)      |      |         | (1,958 | ) |      |         | (1,716 | ) |  |         | (1,035  | ) |  | 
|                                       | Home health care operations (iv)        |      |         |       |   |      |         |       |   |  |         | (602    | ) |  | 
|Communications operations (v)          |                                         |      | (12,508 | )      |   |      | (23,430 | )      |   |  |        |         |   | 
|Long-term care operations (vi)         |                                         |      | (924    | )      |   |      | 2,057   |        |   |  | 252     |         |   | 
|                                       |                                         |     
|                                       |                                         |      | (18,949 | )      |   |      | (23,889 | )      |   |  | (37,642 | )       |   | 
|                                       |                                         |     

(i) Medical products operations

During the third quarter of 2002, the Company
adopted a formal plan of disposal for its medical products
business segment. Effective October 4, 2002, the Company
disposed of its interest in

F-35 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS




---



##### Table of Contents



Sage BioPharma, Inc., through a sale that raised
net proceeds of $1,400. The Company incurred a loss on
disposition of $463.


A summary of results of the Companys
discontinued medical products operations for the years ended
December 31, 2002, 2001 and 2000 is as follows:


|                                  |  |      |        |      |  |      |        |   |  |  |        |   |  | 
|--------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  |  | ------ | - |  | 
|                                  |  | 2002 |        | 2001 |  | 2000 |        |  
|                                  |  | $    |        | $    |  | $    |        |  
|                                  |  |     
|                                  |  |     
|Revenues                          |  |      | 3,051  |      |  |      | 3,641  |   |  |  | 2,924  |   |  | 
|                                  |  |     
|Loss on sale                      |  |      | (463   | )    |  |      |       |   |  |  |       |   |  | 
|Operating losses                  |  |      | (1,308 | )    |  |      | (5,407 | ) |  |  | (3,838 | ) |  | 
|                                  |  |     
|Loss before income taxes          |  |      | (1,771 | )    |  |      | (5,407 | ) |  |  | (3,838 | ) |  | 
|Income taxes                      |  |      | (1,229 | )    |  |      |       |   |  |  |       |   |  | 
|Non-controlling interest          |  |      | 148    |      |  |      | 88     |   |  |  |       |   |  | 
|                                  |  |     
|Loss from discontinued operations |  |      | (2,852 | )    |  |      | (5,319 | ) |  |  | (3,838 | ) |  | 
|                                  |  |     

(ii) Pharmaceutical products
operations

Effective May 23, 2000, the Company adopted
a formal plan of disposal for the pharmaceutical products
business of FARO Pharmaceuticals Inc. through the disposition of
its rights, including trademarks, copyrights and regulatory
filings in certain pharmaceutical products. On May 1, 2001,
the Company completed its disposition for proceeds of $67,000,
consisting of $54,000 paid on closing, $8,000 paid 60 days
subsequent to the closing and a further $5,000 payable within
30 days of the first anniversary of the closing, subject to
specified levels of inventories on hand at the date of closing
and sales returns and rebates relating to operations prior to
the closing. Accordingly, the Company reflected the results of
operations to May 23, 2000 from this business as
discontinued operations and adjusted the carrying value of its
investment in the pharmaceutical products business to reflect
both the estimated losses from operations subsequent to the
measurement date and the estimated net realizable value of its
investment.

During 2001, the Company successfully reduced
certain costs related to these discontinued operations. This
resulted in a recovery of $4,519, net of related costs of $2,494
and income taxes of $4,487.


In May 2002, the Company settled the final
payment due under the definitive agreement with the purchaser
regarding its disposal of its pharmaceutical products business
in 2001. During the course of the settlement, it became known
that the purchaser disputed certain payments regarding
inventories as set out in the agreement. The Company assessed
the impact of this dispute and wrote down its receivable from
the purchaser to reflect the related collection risk. The loss
from discontinued operations includes expenses totalling $707.


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS F-36




---



##### Table of Contents



A summary of results of the Companys
discontinued pharmaceutical products operations for the years
ended December 31, 2002, 2001 and 2000 is as follows:


|                                                                                                                |  |      |      |      |  |      |       |  |  |  |         |   |  | 
|--------------------------------------------------------------------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ----- |  |  |  | ------- | - |  | 
|                                                                                                                |  | 2002 |      | 2001 |  | 2000 |       | 
|                                                                                                                |  | $    |      | $    |  | $    |       | 
|                                                                                                                |  |     
|                                                                                                                |  |     
|Revenues                                                                                                        |  |      |     |      |  |      |      |  |  |  | 11,223  |   |  | 
|                                                                                                                |  |     
|Loss before income taxes                                                                                        |  |      |     |      |  |      |      |  |  |  | (246    | ) |  | 
|Income taxes                                                                                                    |  |      |     |      |  |      |      |  |  |  | 12      |   |  | 
|Non-controlling interest                                                                                        |  |      |      |      |  |      |       |  |  |  | (197    | ) |  | 
|                                                                                                                |  |     
|Loss from operations                                                                                            |  |      |     |      |  |      |      |  |  |  | (61     | ) |  | 
|Gain (loss) subsequent to measurement date after
    income taxes of $nil
    (2001  $4,487; 2000  ($18,958)) |  |      | (707 | )    |  |      | 4,519 |  |  |  | (32,358 | ) |  | 
|                                                                                                                |  |     
|Earnings (loss) from discontinued operations                                                                    |  |      | (707 | )    |  |      | 4,519 |  |  |  | (32,419 | ) |  | 
|                                                                                                                |  |     

(iii)  Pharmacy services
operations

Effective November 6, 1998, the Company
adopted a formal plan of disposal for its pharmacy services
operations through the disposition of its interest in
Stadtlander Drug Company, Inc. (Stadtlander).
Discontinued pharmacy services operations include the specialty
retail pharmacy business of Stadtlander. The Company sold
Stadtlander to Bergen in January 1999. Subsequent to the
measurement date, the Company has recorded losses of $1,958
(2001  $1,716; 2000  $1,035) after income
tax benefits. These losses are due to the cost of the litigation
settlement pertaining to Bergen.

(iv) Home health care
operations

Effective November 6, 1998, the Company
adopted a formal plan of disposal for its home health care
operations through the disposition of its interest in American
HomePatient Inc. (AHOM). Accordingly, the Company
adjusted the carrying value of its investment in AHOM to reflect
both the estimated future operating losses and estimated net
realizable value of its investment. During 1999, the net
realizable value of the Companys interest in AHOM declined
from its December 31, 1998 level. As a result, management
determined that a sale of the Companys interest in AHOM
did not offer an optimal return to the Companys
shareholders and, as an alternative, the Company sought and
received regulatory approval to distribute the shares as a
dividend in-kind. At December 31, 1999, the Company
adjusted the carrying value of its investment in AHOM, resulting
in an estimated after-tax loss of $14,529. The market value
declined prior to the time the dividend was paid and a further
after-tax loss of $602 was recorded in 2000.

(v) Communications operations

During the fourth quarter, the Companys
subsidiary, I-Link, adopted a formal plan of disposal for
its VoIP network and customers. On December 6,
2002, I-Link entered into an agreement to sell
substantially all of the assets and customer base of I-Link
Communications Inc. (ILC), a wholly owned
subsidiary, to Buyers United Inc. (Buyers United).
The sale includes the physical assets required to operate
I-Links nationwide network using its patented VoIP
technology (constituting

F-37 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS




---



##### Table of Contents



the core business of ILC) and a license in
perpetuity to use I-Links proprietary software platform.
The sale is expected to close in the second quarter of 2003. The
sale proceeds consist of 300,000 shares of Series B
convertible preferred stock (8% dividend) of Buyers United,
subject to adjustment in certain circumstances, of which 75,000
are subject to an earn-out provision (contingent consideration)
based on future events related to ILCs single largest
customer. The earn-out takes place over a fourteen-month period
beginning January 2003, on a monthly basis. The Company will
recognize the value of the earn-out shares when and if earned.
As the value of the consideration received is less than the book
value of the assets sold, the Company recorded an impairment
charge of $1,587 which has been included in the loss from
discontinued operations for 2002.


A summary of the results of the Companys
discontinued communications operations for the years ended
December 31, 2002 and 2001 is as follows:


|                                  |  |      |         |      |  |  |         |   |  | 
|--------------------------------- |  | ---- | ------- | ---- |  |  | ------- | - |  | 
|                                  |  | 2002 |         | 2001 |  | 
|                                  |  | $    |         | $    |  | 
|                                  |  |     
|                                  |  |     
|Revenues                          |  |      | 7,806   |      |  |  | 16,803  |   |  | 
|                                  |  |     
|Loss before income taxes          |  |      | (12,508 | )    |  |  | (23,430 | ) |  | 
|Income taxes                      |  |      |        |      |  |  |        |   |  | 
|                                  |  |     
|Loss from discontinued operations |  |      | (12,508 | )    |  |  | (23,430 | ) |  | 
|                                  |  |     

(vi) Long-term care operations

During the fourth quarter of 2002, the Company
adopted a formal plan of disposal for its long-term care
facilities. The Company expects to record a gain on the sale of
these businesses, which is expected to close in 2003.


A summary of results of the Companys
discontinued long-term care operations for the years ended
December 31, 2002, 2001 and 2000 is as follows:


|                                             |  |      |        |      |  |      |        |  |  |  |        |  |  | 
|-------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  |  | ------ |  |  | 
|                                             |  | 2002 |        | 2001 |  | 2000 |        | 
|                                             |  | $    |        | $    |  | $    |        | 
|                                             |  |     
|                                             |  |     
|Revenues                                     |  |      | 32,629 |      |  |      | 31,604 |  |  |  | 32,045 |  |  | 
|                                             |  |     
|Earnings (loss) before income taxes          |  |      | (847   | )    |  |      | 3,147  |  |  |  | 252    |  |  | 
|Income taxes                                 |  |      | 77     |      |  |      | 1,090  |  |  |  |       |  |  | 
|                                             |  |     
|Earnings (loss) from discontinued operations |  |      | (924   | )    |  |      | 2,057  |  |  |  | 252    |  |  | 
|                                             |  |     

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS F-38




---



##### Table of Contents



18 SEGMENTED INFORMATION

The Company currently operates in two sectors,
communications and real estate.

The communications sector consists of the
Companys subsidiary, I-Link. I-Link operates in three
reportable segments, Acceris Partners, Acceris Solutions and
Acceris Technologies:




| |   |                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Acceris Partners includes the operations of
    WorldxChange (which was formerly reported as the dial-around
    segment), acquired in June 2001, and the former agent and
    residential business of RSL, which was acquired in December
    2002. This segment offers dial-around and 1+ telecommunications
    products.
|
| |  | Acceris Solutions is the former Enterprise
    business of RSL which was acquired in December 2002. This
    segment offers voice and data solutions to enterprise customers.                                                                                                                                               
|
| |  | Acceris Technologies is the former technology
    services segment, acquired in March 2001, which offers a fully
    developed network convergence software solution for voice and
    data. The Company licenses certain developed technology to third
    party users.                                                    

The real estate segment, which commenced
operations in 2001, is comprised of the Companys
investment in six income producing properties in Canada, five of
which were acquired in 2002.

Each segment operates as a strategic business
unit with separate operating management. The Company assesses
performance based on operating income. The accounting policies
for the segments are the same as those described in note 2
to these consolidated financial statements.


As a result of the disposal of certain
communications operations of I-Link as well as the
Companys plan to discontinue its long-term care operations
and medical products business, operating segments relating to
these businesses are no longer disclosed, and prior period
information has been restated to conform to the current period
presentation as discontinued operations. Consequently, the
Company does not have operating segments to report for 2000.


F-39 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS




---



##### Table of Contents



|                                                           |                                                            |          |        |           |  |              |       |        |   |           |        |       |  |  |        |        |  |  |         |        |   |  |         |        |   |  | 
|---------------------------------------------------------- | ---------------------------------------------------------- | -------- | ------ | --------- |  | ------------ | ----- | ------ | - | --------- | ------ | ----- |  |  | ------ | ------ |  |  | ------- | ------ | - |  | ------- | ------ | - |  | 
|                                                           |                                                            |          |        |          
|                                                           |                                                            | 2002     |        |          
|                                                           |                                                            |         
|                                                           |                                                            |         
|                                                           |                                                            | Acceris  |        | Acceris   |  | Acceris      |       | Real   |   |          
|                                                           |                                                            | Partners |        | Solutions |  | Technologies |       | Estate |   | Corporate |        | Total |  | 
|                                                           |                                                            | $        |        | $         |  | $            |       | $      |   | $         |        | $     |  | 
|                                                           |                                                            |         
|                                                           |                                                            |         
|Revenues                                                   |                                                            |          |        |           |  |              |       |        |   |           |        |       |  |  |        |        |  |  |         |        |   |  |         |        |   | 
|                                                           | Canada                                                     |          |        |          |  |              |       |       |   |           |        |      |  |  |        | 3,343  |  |  |         |       |   |  |         | 3,343  |   |  | 
|                                                           | United States                                              |          |        | 88,863    |  |              |       | 1,547  |   |           |        | 2,837 |  |  |        |       |  |  |         |       |   |  |         | 93,247 |   |  | 
|                                                           |                                                            |         
|                                                           |                                                            |          | 88,863 |           |  |              | 1,547 |        |   |           | 2,837  |       |  |  | 3,343  |        |  |  |        |        |   |  | 96,590  |        |   | 
|Operating costs and expenses Telecommunication
    costs   |                                                            |          | 49,745 |           |  |              | 1,191 |        |   |           |       |       |  |  |       |        |  |  |        |        |   |  | 50,936  |        |   | 
|                                                           | Income producing properties                                |          |        |          |  |              |       |       |   |           |        |      |  |  |        | 1,448  |  |  |         |       |   |  |         | 1,448  |   |  | 
|                                                           | Selling, general and administrative                        |          |        | 28,806    |  |              |       | 777    |   |           |        | 4,262 |  |  |        |       |  |  |         | 13,214 |   |  |         | 47,059 |   |  | 
|                                                           | Research and development                                   |          |        |          |  |              |       |       |   |           |        | 1,399 |  |  |        |       |  |  |         |       |   |  |         | 1,399  |   |  | 
|                                                           | Provision for doubtful accounts                            |          |        | 6,298     |  |              |       | 33     |   |           |        |      |  |  |        |       |  |  |         |       |   |  |         | 6,331  |   |  | 
|                                                           | Depreciation and amortization                              |          |        | 4,056     |  |              |       | 158    |   |           |        | 2,123 |  |  |        | 199    |  |  |         | 579    |   |  |         | 7,115  |   |  | 
|                                                           |                                                            |         
|Operating income/(loss) before undernoted items            |                                                            |          | (42    | )         |  |              | (612  | )      |   |           | (4,947 | )     |  |  | 1,696  |        |  |  | (13,793 | )      |   |  | (17,698 | )      |   | 
|Gains and other income:                                    |                                                            |          |        |           |  |              |       |        |   |           |        |       |  |  |        |        |  |  |         |        |   |  |         |        |   | 
|                                                           | Short-term investments                                     |          |        |          |  |              |       |       |   |           |        |      |  |  |        |       |  |  |         | 28,067 |   |  |         | 28,067 |   |  | 
|                                                           | Other                                                      |          |        | 356       |  |              |       |       |   |           |        |      |  |  |        |       |  |  |         | 426    |   |  |         | 782    |   |  | 
|Impairments and other losses:                              |                                                            |          |        |           |  |              |       |        |   |           |        |       |  |  |        |        |  |  |         |        |   |  |         |        |   | 
|                                                           | Loss on sale of short-term investments                     |          |        |          |  |              |       |       |   |           |        |      |  |  |        |       |  |  |         | (4,011 | ) |  |         | (4,011 | ) |  | 
|                                                           | Portfolio investments                                      |          |        |          |  |              |       |       |   |           |        |      |  |  |        |       |  |  |         | (640   | ) |  |         | (640   | ) |  | 
|                                                           | Other                                                      |          |        |          |  |              |       |       |   |           |        |      |  |  |        |       |  |  |         | (722   | ) |  |         | (722   | ) |  | 
|Equity interests in significantly influenced
    companies |                                                            |          |       |           |  |              |      |        |   |           |       |       |  |  |       |        |  |  |        |        |   |  |        |        |   | 
|Interest income                                            |                                                            |          |       |           |  |              | 1     |        |   |           | 38     |       |  |  |       |        |  |  | 362     |        |   |  | 401     |        |   | 
|Interest expense                                           |                                                            |          | (1,160 | )         |  |              | (19   | )      |   |           | (579   | )     |  |  | (676   | )      |  |  | (568    | )      |   |  | (3,002  | )      |   | 
|                                                           |                                                            |         
|Segment earnings (loss)                                    |                                                            |          | (846   | )         |  |              | (630  | )      |   |           | (5,488 | )     |  |  | 1,020  |        |  |  | 9,121   |        |   |  | 3,177   |        |   | 
|                                                           |                                                            |         
|Segment assets as of December 31                           |                                                            |          |        |           |  |              |       |        |   |           |        |       |  |  |        |        |  |  |         |        |   |  |         |        |   | 
|                                                           | Canada                                                     |          |        |          |  |              |       |       |   |           |        |      |  |  |        | 37,982 |  |  |         | 884    |   |  |         | 38,866 |   |  | 
|                                                           | United States                                              |          |        | 8,516     |  |              |       | 2,963  |   |           |        | 9,318 |  |  |        |       |  |  |         | 294    |   |  |         | 21,091 |   |  | 
|                                                           |                                                            |         
|                                                           |                                                            |          | 8,516  |           |  |              | 2,963 |        |   |           | 9,318  |       |  |  | 37,982 |        |  |  | 1,178   |        |   |  | 59,957  |        |   | 
|                                                           |                                                            |         
|Capital expenditures                                       |                                                            |          | 1,649  |           |  |              |      |        |   |           |       |       |  |  |       |        |  |  | 90      |        |   |  | 1,739   |        |   | 
|Other significant non-cash items:                          |                                                            |          |        |           |  |              |       |        |   |           |        |       |  |  |        |        |  |  |         |        |   |  |         |        |   | 
|                                                           | Amortization of deferred revenue                           |          |        |          |  |              |       | (1,643 | ) |           |        |      |  |  |        |       |  |  |         |       |   |  |         | (1,643 | ) |  | 
|                                                           | Future income taxes                                        |          |        |          |  |              |       |       |   |           |        |      |  |  |        |       |  |  |         | 10,701 |   |  |         | 10,701 |   |  | 
|                                                           | Accretion of liability component of debentures
    payable |          |        |          |  |              |       |       |   |           |        |      |  |  |        |       |  |  |         | 289    |   |  |         | 289    |   |  | 

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS F-40




---



##### Table of Contents



|                                                           |                                                            |          |         |           |  |              |   |        |  |           |         |        |   |  |       |       |  |  |         |         |   |  |         |         |   |  | 
|---------------------------------------------------------- | ---------------------------------------------------------- | -------- | ------- | --------- |  | ------------ | - | ------ |  | --------- | ------- | ------ | - |  | ----- | ----- |  |  | ------- | ------- | - |  | ------- | ------- | - |  | 
|                                                           |                                                            |          |         |          
|                                                           |                                                            | 2001     |         |          
|                                                           |                                                            |         
|                                                           |                                                            |         
|                                                           |                                                            | Acceris  |         | Acceris   |  | Acceris      |   | Real   |  |          
|                                                           |                                                            | Partners |         | Solutions |  | Technologies |   | Estate |  | Corporate |         | Total  |   | 
|                                                           |                                                            | $        |         | $         |  | $            |   | $      |  | $         |         | $      |   | 
|                                                           |                                                            |         
|                                                           |                                                            |         
|Revenues                                                   |                                                            |          |         |           |  |              |   |        |  |           |         |        |   |  |       |       |  |  |         |         |   |  |         |         |   | 
|                                                           | Canada                                                     |          |         |          |  |              |   |       |  |           |         |       |   |  |       | 11    |  |  |         |        |   |  |         | 11      |   |  | 
|                                                           | United States                                              |          |         | 49,289    |  |              |   |       |  |           |         | 4,730  |   |  |       |      |  |  |         |        |   |  |         | 54,019  |   |  | 
|                                                           |                                                            |         
|                                                           |                                                            |          | 49,289  |           |  |              |  |        |  |           | 4,730   |        |   |  | 11    |       |  |  |        |         |   |  | 54,030  |         |   | 
|Operating costs and expenses Telecommunication
    costs   |                                                            |          | 35,546  |           |  |              |  |        |  |           |        |        |   |  |      |       |  |  |        |         |   |  | 35,546  |         |   | 
|                                                           | Income producing properties                                |          |         |          |  |              |   |       |  |           |         |       |   |  |       |      |  |  |         |        |   |  |         |        |   |  | 
|                                                           | Selling, general and administrative                        |          |         | 20,558    |  |              |   |       |  |           |         | 8,922  |   |  |       |      |  |  |         | 14,870  |   |  |         | 44,350  |   |  | 
|                                                           | Research and development                                   |          |         |          |  |              |   |       |  |           |         | 2,162  |   |  |       |      |  |  |         |        |   |  |         | 2,162   |   |  | 
|                                                           | Provision for doubtful accounts                            |          |         | 839       |  |              |   |       |  |           |         |       |   |  |       |      |  |  |         |        |   |  |         | 839     |   |  | 
|                                                           | Depreciation and amortization                              |          |         | 2,286     |  |              |   |       |  |           |         | 5,072  |   |  |       | 3     |  |  |         | 1,488   |   |  |         | 8,849   |   |  | 
|                                                           |                                                            |         
|Operating income/(loss) before undernoted items            |                                                            |          | (9,940  | )         |  |              |  |        |  |           | (11,426 | )      |   |  | 8     |       |  |  | (16,358 | )       |   |  | (37,716 | )       |   | 
|Gains and other income:                                    |                                                            |          |         |           |  |              |   |        |  |           |         |        |   |  |       |       |  |  |         |         |   |  |         |         |   | 
|                                                           | Short-term investments                                     |          |         |          |  |              |   |       |  |           |         |       |   |  |       |      |  |  |         | 42,760  |   |  |         | 42,760  |   |  | 
|                                                           | Portfolio investments                                      |          |         |          |  |              |   |       |  |           |         |       |   |  |       |      |  |  |         | 64      |   |  |         | 64      |   |  | 
|                                                           | Sale of subsidiary                                         |          |         |          |  |              |   |       |  |           |         | 589    |   |  |       |      |  |  |         |        |   |  |         | 589     |   |  | 
|                                                           | Retirement of debt                                         |          |         |          |  |              |   |       |  |           |         | 1,093  |   |  |       |      |  |  |         |        |   |  |         | 1,093   |   |  | 
|Impairments and other losses:                              |                                                            |          |         |           |  |              |   |        |  |           |         |        |   |  |       |       |  |  |         |         |   |  |         |         |   | 
|                                                           | Short-term investments                                     |          |         |          |  |              |   |       |  |           |         |       |   |  |       |      |  |  |         | (1,957  | ) |  |         | (1,957  | ) |  | 
|                                                           | Portfolio investments                                      |          |         |          |  |              |   |       |  |           |         |       |   |  |       |      |  |  |         | (19,340 | ) |  |         | (19,340 | ) |  | 
|Equity interests in significantly influenced
    companies |                                                            |          |        |           |  |              |  |        |  |           |        |        |   |  |      |       |  |  | (5,582  | )       |   |  | (5,582  | )       |   | 
|Interest income                                            |                                                            |          |        |           |  |              |  |        |  |           | 81      |        |   |  |      |       |  |  | 2,564   |         |   |  | 2,645   |         |   | 
|Interest expense                                           |                                                            |          | (383    | )         |  |              |  |        |  |           | (476    | )      |   |  | (3    | )     |  |  | (1,655  | )       |   |  | (2,517  | )       |   | 
|                                                           |                                                            |         
|Segment earnings (loss)                                    |                                                            |          | (10,323 | )         |  |              |  |        |  |           | (10,139 | )      |   |  | 5     |       |  |  | 496     |         |   |  | (19,961 | )       |   | 
|                                                           |                                                            |         
|Segment assets as of December 31                           |                                                            |          |         |           |  |              |   |        |  |           |         |        |   |  |       |       |  |  |         |         |   |  |         |         |   | 
|                                                           | Canada                                                     |          |         |          |  |              |   |       |  |           |         |       |   |  |       | 2,433 |  |  |         | 818     |   |  |         | 3,251   |   |  | 
|                                                           | United States                                              |          |         | 12,470    |  |              |   |       |  |           |         | 13,133 |   |  |       |      |  |  |         | 2,105   |   |  |         | 27,708  |   |  | 
|                                                           |                                                            |         
|                                                           |                                                            |          | 12,470  |           |  |              |  |        |  |           | 13,133  |        |   |  | 2,433 |       |  |  | 2,923   |         |   |  | 30,959  |         |   | 
|                                                           |                                                            |         
|Capital expenditures                                       |                                                            |          | 1,117   |           |  |              |  |        |  |           |        |        |   |  |      |       |  |  | 46      |         |   |  | 1,163   |         |   | 
|Other significant non-cash items:                          |                                                            |          |         |           |  |              |   |        |  |           |         |        |   |  |       |       |  |  |         |         |   | 
|                                                           | Amortization of deferred revenue                           |          |         |          |  |              |   |       |  |           |         | (3,197 | ) |  |       |      |  |  |         |        |   |  |         | (3,197  | ) |  | 
|                                                           | Future income taxes                                        |          |         |          |  |              |   |       |  |           |         |       |   |  |       |      |  |  |         | 19,154  |   |  |         | 19,154  |   |  | 
|                                                           | Accretion of liability component of debentures
    payable |          |         |          |  |              |   |       |  |           |         |       |   |  |       |      |  |  |         | 528     |   |  |         | 528     |   |  | 

19 TRANSACTIONS WITH I-LINK

On October 15, 2002 the Company and I-Link,
entered into an Amended and Restated Debt Restructuring
agreement (Amended Agreement), which amended a
July 25, 2002 Agreement. The Amended Agreement was approved
by the I-Link board of directors on October 29, 2002.
Closing of the Amended Agreement is to take place within three
days after obtaining shareholder approval of an amendment to
I-Links articles of incorporation, which is expected to
occur in the second quarter of 2003. The principal terms of the
Amended Agreement are that principal and accrued interest of
$26,591 (as at October 15, 2002) owed by I-Link to the
Company will be

F-41 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS




---



##### Table of Contents



exchanged into common stock of I-Link at $0.18864
per share (representing the average closing price of
I-Links common stock during May 2002). This will result in
the issuance of 140,962,770 shares of I-Link common stock upon
closing, and the Companys equity position increasing to
85.0%.


The Company has made a commitment to fund I-Link
as required until April 30, 2004, through long-term
inter-company advances or equity contributions. The Company will
reimburse I-Link for all costs, fees and expenses, in connection
with the Agreement and Amended Agreement, including Special
Committee costs and costs related to obtaining shareholder
approval of its articles of incorporation.


20 ADDITIONAL LOSS PER SHARE
DISCLOSURES

The following is a reconciliation of the
numerators and denominators used in computing basic and diluted
loss per share.

|                                                                  |  |      |         |      |  |      |         |   |  |  |         |   |  | 
|----------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  |  | ------- | - |  | 
|Basic and diluted loss per share:                                 |  | 2002 |         | 2001 |  | 2000 |         |  
|                                                                  |  |     
|                                                                  |  |     
|Numerator:                                                        |  |      |         |      |  |      |         |   |  |  |         |   |  | 
|Loss from continuing operations                                   |  |      | (6,478  | )    |  |      | (38,324 | ) |  |  | (7,791  | ) |  | 
|Accretion of equity component of debenture payable                |  |      | (3,029  | )    |  |      | (3,159  | ) |  |  | (3,017  | ) |  | 
|                                                                  |  |     
|Loss available to common shareholders 
    continuing operations |  |      | (9,507  | )    |  |      | (41,483 | ) |  |  | (10,808 | ) |  | 
|                                                                  |  |     
|Loss from discontinued operations                                 |  |      | (18,949 | )    |  |      | (23,889 | ) |  |  | (37,642 | ) |  | 
|                                                                  |  |     
|Denominator:                                                      |  |      |         |      |  |      |         |   |  |  |         |   |  | 
|Weighted average common shares
    outstanding (000s)            |  |      | 22,195  |      |  |      | 23,030  |   |  |  | 24,860  |   |  | 
|                                                                  |  |     
|Basic and diluted loss per share from continuing
    operations   |  |      | (0.43   | )    |  |      | (1.80   | ) |  |  | (0.43   | ) |  | 
|                                                                  |  |     
|Basic and diluted loss per share from
    discontinued operations |  |      | (0.85   | )    |  |      | (1.04   | ) |  |  | (1.52   | ) |  | 
|                                                                  |  |     
|Basic and diluted loss per share                                  |  |      | (1.28   | )    |  |      | (2.84   | ) |  |  | (1.95   | ) |  | 
|                                                                  |  |     

For the years ended December 31, 2002, 2001
and 2000, the Company excluded potential common share
equivalents, incremental shares from stock options and shares
issuable upon conversion of convertible debentures, from the
loss per share calculation as they were anti-dilutive.

21 CONSOLIDATED STATEMENTS OF CASH FLOWS
INFORMATION

Supplementary information with respect to the
consolidated statements of cash flows is as follows:

|                                             |                                                                               |      |  |        |   |      |  |        |   |  |  |        |   |  | 
|-------------------------------------------- | ----------------------------------------------------------------------------- | ---- |  | ------ | - | ---- |  | ------ | - |  |  | ------ | - |  | 
|                                             |                                                                               | 2002 |  | 2001   |   | 2000 |  |       
|                                             |                                                                               | $    |  | $      |   | $    |  |       
|                                             |                                                                               |     
|                                             |                                                                               |     
|Cash paid (received) during the period:      |                                                                               |      |  |        |   |      |  |        |   |  |  |        |   | 
|                                             | Interest                                                                      |      |  | 5,401  |   |      |  | 5,564  |   |  |  | 4,122  |   |  | 
|                                             | Income tax                                                                    |      |  | (334   | ) |      |  | (541   | ) |  |  | (1,308 | ) |  | 
|Non-cash investing and financing activities: |                                                                               |      |  |        |   |      |  |        |   |  |  |        |   | 
|                                             | Equipment acquired under capital lease                                        |      |  |       |   |      |  | 9,535  |   |  |  |       |   |  | 
|                                             | Communications shares acquired on exchange of
    investment                  |      |  |       |   |      |  | 11,908 |   |  |  |       |   |  | 
|                                             | Mortgages and loans assumed on acquisition of
    income producing properties |      |  | 20,007 |   |      |  | 1,700  |   |  |  |       |   |  | 

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS F-42




---



##### Table of Contents





|   |                                                                             
|-- | ----------------------------------------------------------------------------
|22 | RECONCILIATION TO UNITED STATES GENERALLY
    ACCEPTED ACCOUNTING PRINCIPLES

The consolidated financial statements of the
Company have been prepared in accordance with Canadian GAAP. The
following adjustments would be required in order to present the
consolidated statements of operations in accordance with
U.S. GAAP:

|                                                           |                                                              |                                                              |     |                         |  |      |         |         |        |   |         |         |        |   |         |         |        |   |  | 
|---------------------------------------------------------- | ------------------------------------------------------------ | ------------------------------------------------------------ | --- | ----------------------- |  | ---- | ------- | ------- | ------ | - | ------- | ------- | ------ | - | ------- | ------- | ------ | - |  | 
|                                                           |                                                              |                                                              |     |                         |  |     
|                                                           |                                                              |                                                              |     | Year ended December 31, |  |     
|                                                           |                                                              |                                                              |     |                        
|                                                           |                                                              |                                                              |     |                        
|                                                           |                                                              |                                                              |     | 2002                    |  | 2001 |         | 2000    |        |  
|                                                           |                                                              | Notes                                                        |     | $                       |  | $    |         | $       |        |  
|                                                           |                                                              |                                                             
|                                                           |                                                              |                                                             
|Loss from continuing operations 
    Canadian GAAP        |                                                              |                                                              |     |                         |  |      | (6,478  | )       |        |   | (38,324 | )       |        |   | (7,791  | )       |        |  
|                                                           | Market value adjustment on trading
    securities  net      |                                                              |     | (a)                     |  |      |         | (23,481 | )      |   |         | (18,417 | )      |   |         | 42,417  |        |   | 
|                                                           | Depreciation of income producing properties                  |                                                              |     | (b)                     |  |      |         | (250    | )      |   |         |        |        |   |         |        |        |   | 
|                                                           | Future income taxes                                          |                                                              |     |                         |  |      |         | 8,688   |        |   |         | 5,666   |        |   |         | (15,179 | )      |   | 
|                                                           | Revenue from income producing properties                     |                                                              |     | (c)                     |  |      |         | 61      |        |   |         |        |        |   |         |        |        |   | 
|                                                           | Interest on equity portion of convertible
    debentures     |                                                              |     | (d)                     |  |      |         | (2,277  | )      |   |         | (2,339  | )      |   |         | (2,268  | )      |   | 
|                                                           | Allocation of corporate costs to discontinued
    operations |                                                              |     | (e)                     |  |      |         |        |        |   |         |        |        |   |         | 512     |        |   | 
|                                                           | Gain on retirement of subsidiary debt                        |                                                              |     |                         |  |      |         |        |        |   |         | (1,093  | )      |   |         |        |        |   | 
|                                                           |                                                              |                                                              |     |                         |  |     
|Earnings (loss) from continuing
    operations  U.S. GAAP |                                                              |                                                              |     |                         |  |      | (23,737 | )       |        |   | (54,507 | )       |        |   | 17,691  |         |        |  
|                                                           |                                                              |                                                              |     |                         |  |     
|Loss from discontinued operations 
    Canadian GAAP      |                                                              |                                                              |     |                         |  |      | (18,949 | )       |        |   | (23,889 | )       |        |   | (37,642 | )       |        |  
|                                                           | Transitional impairment amount of goodwill                   |                                                              |     | (e)                     |  |      |         | (1,000  | )      |   |         |        |        |   |         |        |        |   | 
|                                                           | Long-term care facilities:                                   |                                                              |     | (e)                     |  |      |         |         |        |   |         |         |        |   |         |         |        |   | 
|                                                           |                                                              | Depreciation                                                 |     |                         |  |      |         |         | (904   | ) |         |         | (1,052 | ) |         |         | (1,175 | ) |  | 
|                                                           |                                                              | Gain adjustment as a result of amortization
    methods      |     |                         |  |      |         |         |       |   |         |         | 3,002  |   |         |         |       |   |  | 
|                                                           |                                                              | Interest on financing obligation                             |     |                         |  |      |         |         | (1,694 | ) |         |         | (1,742 | ) |         |         | (1,912 | ) |  | 
|                                                           |                                                              | Adjustment to lease expense on long-term care
    facilities |     |                         |  |      |         |         | 3,248  |   |         |         | 2,697  |   |         |         | 2,866  |   |  | 
|                                                           |                                                              | Allocation of corporate costs to discontinued
    operations |     |                         |  |      |         |         |       |   |         |         |       |   |         |         | (512   | ) |  | 
|                                                           |                                                              |                                                              |     |                         |  |     
|Loss from discontinued operations 
    U.S. GAAP          |                                                              |                                                              |     |                         |  |      | (19,299 | )       |        |   | (20,984 | )       |        |   | (38,375 | )       |        |  
|                                                           |                                                              |                                                              |     |                         |  |     
|Earnings from extraordinary items 
    Canadian GAAP      |                                                              |                                                              |     |                         |  |      |         |         |        |   |         |         |        |   |         |         |        |  
|                                                           | Gain on retirement of convertible debentures                 |                                                              |     | (f)                     |  |      |         | 63      |        |   |         | 2,019   |        |   |         | 491     |        |   | 
|                                                           | Gain on retirement of subsidiary debt                        |                                                              |     |                         |  |      |         |        |        |   |         | 1,093   |        |   |         |        |        |   | 
|                                                           |                                                              |                                                              |     |                         |  |     
|Earnings from extraordinary items 
    U.S. GAAP          |                                                              |                                                              |     |                         |  |      | 63      |         |        |   | 3,112   |         |        |   | 491     |         |        |  
|                                                           |                                                              |                                                              |     |                         |  |     
|Net loss  U.S. GAAP                                       |                                                              |                                                              |     |                         |  |      | (42,973 | )       |        |   | (72,379 | )       |        |   | (20,193 | )       |        |  
|Other comprehensive income items                           |                                                              |                                                              | (g) |                         |  |      | (37     | )       |        |   | 793     |         |        |   | (8,442  | )       |        |  
|                                                           |                                                              |                                                              |     |                         |  |     
|Comprehensive Income (loss)                                |                                                              |                                                              |     |                         |  |      | (43,010 | )       |        |   | (71,586 | )       |        |   | (28,635 | )       |        |  
|                                                           |                                                              |                                                              |     |                         |  |     
|Net loss per share  U.S. GAAP                             |                                                              |                                                              |     |                         |  |      | (1.94   | )       |        |   | (3.14   | )       |        |   | (0.81   | )       |        |  
|                                                           |                                                              |                                                              |     |                         |  |     

F-43 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS




---



##### Table of Contents



The following adjustments would be required in
order to present the consolidated statements of
shareholders equity in accordance with U.S. GAAP:

|                                         |                                                                                   |       |  |      |  |      |         |         |   |  |         |         |   |  | 
|---------------------------------------- | --------------------------------------------------------------------------------- | ----- |  | ---- |  | ---- | ------- | ------- | - |  | ------- | ------- | - |  | 
|                                         |                                                                                   |       |  | 2002 |  | 2001 |         |        
|                                         |                                                                                   | Notes |  | $    |  | $    |         |        
|                                         |                                                                                   |      
|                                         |                                                                                   |      
|Shareholders equity  Canadian
    GAAP |                                                                                   |       |  |      |  |      | 8,388   |         |   |  | 35,494  |         |   | 
|                                         | Share purchase loans                                                              |       |  | (h)  |  |      |         | (5,873  | ) |  |         | (5,680  | ) |  | 
|                                         | Convertible debentures classified as debt                                         |       |  | (d)  |  |      |         | (40,046 | ) |  |         | (37,960 | ) |  | 
|                                         | Sale of long-term care facilities as a financing
    obligation                   |       |  | (e)  |  |      |         | (16,566 | ) |  |         | (19,599 | ) |  | 
|                                         | Unrealized gains on short-term investments net of
    tax of $588 (2001  $8,003) |       |  | (a)  |  |      |         | 1,003   |   |  |         | 17,646  |   |  | 
|                                         | Difference in depreciation method                                                 |       |  | (e)  |  |      |         | (7,790  | ) |  |         | (7,199  | ) |  | 
|                                         | Transitional impairment amount of goodwill not
    charged to equity              |       |  | (e)  |  |      |         |        |   |  |         | 1,000   |   |  | 
|                                         | Deferred financing costs on convertible debentures                                |       |  | (d)  |  |      |         | 546     |   |  |         | 546     |   |  | 
|                                         | Difference in method of revenue recognition for
    income producing properties   |       |  | (c)  |  |      |         | (61     | ) |  |         |        |   |  | 
|                                         |                                                                                   |       |  |      |  |     
|Shareholders equity 
    U.S. GAAP     |                                                                                   |       |  |      |  |      | (60,399 | )       |   |  | (15,752 | )       |   | 
|                                         |                                                                                   |       |  |      |  |     

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS F-44




---



##### Table of Contents



The following is a restatement of balance sheet
categories to reflect the application of U.S. GAAP:


|                      |                                                |      |         |          |   |  |         |          |   |  | 
|--------------------- | ---------------------------------------------- | ---- | ------- | -------- | - |  | ------- | -------- | - |  | 
|                      |                                                | 2002 |         | 2001     |   | 
|                      |                                                | $    |         | $        |   | 
|                      |                                                |     
|                      |                                                |     
|Assets                |                                                |      |         |          |   |  |         |          |   | 
|CURRENT ASSETS        |                                                |      |         |          |   |  |         |          |   | 
|                      | Cash and cash equivalents                      |      |         | 9,004    |   |  |         | 23,066   |   |  | 
|                      | Marketable securities  available for
    sale |      |         | 4,662    |   |  |         | 34,581   |   |  | 
|                      | Accounts receivable                            |      |         | 22,184   |   |  |         | 19,376   |   |  | 
|                      | Income taxes recoverable                       |      |         | 3,329    |   |  |         | 2,202    |   |  | 
|                      | Future income tax assets                       |      |         | 274      |   |  |         | 970      |   |  | 
|                      | Prepaid expenses and deposits                  |      |         | 7,537    |   |  |         | 5,361    |   |  | 
|                      | Assets of discontinued operations              |      |         | 2,289    |   |  |         | 10,574   |   |  | 
|                      |                                                |     
|                      |                                                |      | 49,279  |          |   |  | 96,130  |          |   | 
|LONG-TERM ASSETS      |                                                |      |         |          |   |  |         |          |   | 
|                      | Income producing properties                    |      |         | 34,669   |   |  |         | 2,081    |   |  | 
|                      | Properties under development                   |      |         | 3,063    |   |  |         | 352      |   |  | 
|                      | Loans receivable                               |      |         | 600      |   |  |         | 1,025    |   |  | 
|                      | Portfolio investments                          |      |         | 4,420    |   |  |         | 4,219    |   |  | 
|                      | Property, plant and equipment                  |      |         | 12,657   |   |  |         | 15,393   |   |  | 
|                      | Intangible assets                              |      |         | 9,318    |   |  |         | 9,699    |   |  | 
|                      | Assets of discontinued operations              |      |         | 22,709   |   |  |         | 31,866   |   |  | 
|                      | Goodwill                                       |      |         |         |   |  |         | 3,434    |   |  | 
|                      |                                                |     
|                      |                                                |      | 136,715 |          |   |  | 164,199 |          |   | 
|                      |                                                |     
|Liabilities           |                                                |      |         |          |   |  |         |          |   | 
|CURRENT LIABILITIES   |                                                |      |         |          |   |  |         |          |   | 
|                      | Accounts payable and accrued liabilities       |      |         | 29,940   |   |  |         | 31,454   |   |  | 
|                      | Current portion of deferred revenue            |      |         | 1,019    |   |  |         | 1,218    |   |  | 
|                      | Revolving credit facility                      |      |         | 9,086    |   |  |         | 6,996    |   |  | 
|                      | Current portion of mortgages and loans payable |      |         | 3,630    |   |  |         | 2,302    |   |  | 
|                      | Current portion of capital leases              |      |         | 2,714    |   |  |         | 3,034    |   |  | 
|                      | Convertible debentures payable                 |      |         | 42,561   |   |  |         |         |   |  | 
|                      | Liabilities of discontinued operations         |      |         | 8,517    |   |  |         | 10,823   |   |  | 
|                      |                                                |     
|                      |                                                |      | 97,467  |          |   |  | 55,827  |          |   | 
|LONG-TERM LIABILITIES |                                                |      |         |          |   |  |         |          |   | 
|                      | Mortgages and loans payable                    |      |         | 22,528   |   |  |         | 3,848    |   |  | 
|                      | Capital leases                                 |      |         | 4,146    |   |  |         | 6,986    |   |  | 
|                      | Convertible debentures payable                 |      |         |         |   |  |         | 42,761   |   |  | 
|                      | Future income tax liabilities                  |      |         | 35,422   |   |  |         | 31,285   |   |  | 
|                      | Liabilities of discontinued operations         |      |         | 37,551   |   |  |         | 39,244   |   |  | 
|                      |                                                |     
|                      |                                                |      | 197,114 |          |   |  | 179,951 |          |   | 
|Shareholders Equity  |                                                |      |         |          |   |  |         |          |   | 
|                      | Capital stock                                  |      |         | 89,088   |   |  |         | 92,611   |   |  | 
|                      | Additional paid-in capital                     |      |         | 7,983    |   |  |         | 6,097    |   |  | 
|                      | Accumulated comprehensive income               |      |         | 4,076    |   |  |         | 4,113    |   |  | 
|                      | Accumulated deficit                            |      |         | (161,546 | ) |  |         | (118,573 | ) |  | 
|                      |                                                |     
|                      |                                                |      | (60,399 | )        |   |  | (15,752 | )        |   | 
|                      |                                                |     
|                      |                                                |      | 136,715 |          |   |  | 164,199 |          |   | 
|                      |                                                |     

F-45 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS




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##### Table of Contents



Accumulated comprehensive income for the Company
includes the cumulative unrealized gains or losses on securities
available for sale and cumulative foreign currency translation
adjustments. The effect on the Companys results is as
follows:

|                                                                                     |  |      |       |      |  |      |       |   |  |  |        |   |  | 
|------------------------------------------------------------------------------------ |  | ---- | ----- | ---- |  | ---- | ----- | - |  |  | ------ | - |  | 
|                                                                                     |  | 2002 |       | 2001 |  | 2000 |       |  
|                                                                                     |  | $    |       | $    |  | $    |       |  
|                                                                                     |  |     
|                                                                                     |  |     
|Accumulated comprehensive income 
    beginning of year                             |  |      | 4,113 |      |  |      | 3,320 |   |  |  | 11,762 |   |  | 
|                                                                                     |  |     
|Unrealized gains (losses) on available for sale
    securities                       |  |      | 196   |      |  |      | (411  | ) |  |  | (6,872 | ) |  | 
|Reclassification adjustments for gains on sale
    for available for sale securities |  |      |      |      |  |      |      |   |  |  | (2,306 | ) |  | 
|Foreign currency translation                                                         |  |      | (233  | )    |  |      | 1,204 |   |  |  | 736    |   |  | 
|                                                                                     |  |     
|Other comprehensive income items                                                     |  |      | (37   | )    |  |      | 793   |   |  |  | (8,442 | ) |  | 
|                                                                                     |  |     
|Accumulated comprehensive income  end
    of year                                   |  |      | 4,076 |      |  |      | 4,113 |   |  |  | 3,320  |   |  | 
|                                                                                     |  |     

The composition of accumulated comprehensive
income is as follows:

|                                                               |  |      |       |      |  |      |       |   |  |  |       |  |  | 
|-------------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  |  | ----- |  |  | 
|                                                               |  | 2002 |       | 2001 |  | 2000 |       |  
|                                                               |  | $    |       | $    |  | $    |       |  
|                                                               |  |     
|                                                               |  |     
|Unrealized gains (losses) on available for sale
    securities |  |      |      |      |  |      | (196  | ) |  |  | 215   |  |  | 
|Cumulative foreign currency translation account                |  |      | 4,076 |      |  |      | 4,309 |   |  |  | 3,105 |  |  | 
|                                                               |  |     
|Accumulated comprehensive income  end
    of year             |  |      | 4,076 |      |  |      | 4,113 |   |  |  | 3,320 |  |  | 
|                                                               |  |     

Summary of accounting policy
differences:

(a) Short-term investments

Statement of Financial Accounting Standards
No. 115, Accounting for Certain Investments in Debt and
Equity Securities, requires that available for sale securities
(short-term investments) be carried at market value with
unrealized gains and losses net of income taxes included in
results of operations. As a result, under U.S. GAAP, net
loss for the year would have increased $23,481 in 2002
(2001  $18,417; 2000  $(42,417)) as the
gains on sale recorded for Canadian GAAP in the year had already
been recognized for U.S. GAAP.

(b) Depreciation of income producing
properties

Accounting Research Bulletin No. 43 requires
that the Company depreciate income producing properties using
the straight-line method. As a result, under U.S. GAAP, net
loss for the year would have increased $250 in 2002
(2001  $ nil; 2000  $ nil) while income
producing properties would have decreased by a corresponding
amount.

(c) Revenue from income producing
properties

U.S. GAAP requires the Company recognize
rental revenue on a straight-line basis, whereby the known
amount of cash to be received under a lease is recognized into
income over the term of the respective lease. The amount by
which straight-line rental revenue exceeds minimum rents
collected in accordance with the lease agreement is recorded as
deferred rent. As a result, under

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS F-46




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##### Table of Contents



U.S. GAAP, net loss for the year would have
decreased $61 in 2002 (2001  $ nil; 2000 
$ nil) while deferred rent would have decreased by a
corresponding amount.




|    |                                                         
|--- | --------------------------------------------------------
|(d) | Interest on equity portion of convertible
    debentures

Under Canadian GAAP, CICA HB Section 3860,
Financial Instruments, requires the separate presentation of the
debt and equity components of a debt instrument, when such a
debt instrument can be settled by the issuance of capital stock
and is convertible into equity of the Company by the issuer.
Interest related to the equity component is charged to
Shareholders equity through the accretion of equity
component of debentures payable. Under Emerging Issues Task
Force (EITF) 90-91, Convertible Bonds with Issuer
Option to Settle for Cash upon Conversion, allocation of
compound financial instruments is not acceptable. As a result,
under U.S. GAAP, net loss for the year would have increased
by $2,277 in 2002 (2001  $2,339; 2000 
$2,268) while retained earnings would have decreased by a
corresponding amount.

(e) Discontinued operations

The disposition of certain long-term care
facilities by the Company in a previous year was recorded as a
sale for Canadian GAAP purposes. This transaction is accounted
for as a financing rather than a sale for U.S. GAAP
purposes due to the Companys continuing involvement in the
properties.

U.S. GAAP requires that the Company
depreciate long-term care facilities using the straight-line
method. As a result, under U.S. GAAP, net loss for the year
would have decreased $904 in 2002 (2001  $1,052;
2000  $1,175) while assets from discontinued
operations would have increased by a corresponding amount.


EITF 87-24 does not permit the allocation of
overhead to discontinued operations. As a result, under
U.S. GAAP, earnings from continuing operations would have
decreased $ nil in 2002 (2001  $ nil;
2000  $512) while earnings from discontinued
operations would have increased by a corresponding amount.


In 2001, the Company restated its previously
reported consolidated financial statements with respect to
U.S. GAAP to correct the accounting treatment for the
disposition of certain long-term care facilities recorded in a
previous year. The restatement of U.S. GAAP balances
reduces the previously reported net loss for the year ended
December 31, 2000 by $493; increases long-term assets as at
December 31, 2000 by $10,068; increases current liabilities
as at December 31, 2000 by $955; increases long-term
liabilities as at December 31, 2000 by $29,522; and
recognizes a credit balance of $3,105 in the cumulative foreign
currency translation account as at December 31, 2000.




| |                               
| | ------------------------------
| | Goodwill and intangible assets

Commencing January 1, 2002, new generally
accepted accounting principles in Canada and the United States,
for intangible assets with an indefinite life and goodwill apply
to the Company. Thus, U.S. GAAP pronouncement Statement of
Financial Accounting Standards 142, Goodwill and Other
Intangible Assets (FAS 142), requires the
effect of adoption to be recorded as a change in accounting
principles, charged to earnings, in the period the change is
effected. Under

F-47 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS




---



##### Table of Contents



Canadian GAAP (note 2), the transitional
amount is charged to retained earnings (CICA HB 3062).


As of June 30, 2002, the Company completed
the assessment of the quantitative impact of the transitional
impairment test on its goodwill and other intangible assets. An
impairment of $1,000 was determined relating to the impaired
goodwill of SageBiopharma Inc.


The table below discloses the pro-forma effect
had the years ended December 31, 2001 and 2000 been subject
to FAS 142:


|                                                                                    |  |      |         |      |  |      |         |   |  |  |        |   |  | 
|----------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  |  | ------ | - |  | 
|                                                                                    |  | 2002 |         | 2001 |  | 2000 |         |  
|                                                                                    |  | $    |         | $    |  | $    |         |  
|                                                                                    |  |     
|                                                                                    |  |     
|Earnings (loss) from continuing
    operations  U.S. GAAP                          |  |      | (23,737 | )    |  |      | (54,507 | ) |  |  | 17,691 |   |  | 
|Goodwill amortization expense                                                       |  |      |        |      |  |      | (2,385  | ) |  |  | (2,999 | ) |  | 
|                                                                                    |  |     
|Adjusted earnings (loss) from continuing
    operations  U.S. GAAP                 |  |      | (23,737 | )    |  |      | (52,122 | ) |  |  | 20,690 |   |  | 
|                                                                                    |  |     
|Adjusted basic and diluted earnings (loss) per
    share from continuing operations |  |      | (1.07   | )    |  |      | (2.26   | ) |  |  | 0.83   |   |  | 
|                                                                                    |  |     

|                                              |  |      |         |      |  |      |         |   |  |  |         |   |  | 
|--------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  |  | ------- | - |  | 
|                                              |  | 2002 |         | 2001 |  | 2000 |         |  
|                                              |  | $    |         | $    |  | $    |         |  
|                                              |  |     
|                                              |  |     
|Net loss as reported  U.S. GAAP              |  |      | (42,973 | )    |  |      | (72,104 | ) |  |  | (20,193 | ) |  | 
|Goodwill amortization expense                 |  |      |        |      |  |      | (3,791  | ) |  |  | (7,381  | ) |  | 
|                                              |  |     
|Adjusted net loss                             |  |      | (42,973 | )    |  |      | (68,313 | ) |  |  | (12,812 | ) |  | 
|                                              |  |     
|Adjusted basic and diluted net loss per share |  |      | (1.94   | )    |  |      | (2.97   | ) |  |  | (0.52   | ) |  | 
|                                              |  |     

(f) Extraordinary items

Under Canadian GAAP, CICA HB Section 3480,
Extraordinary Items only permits items to be
disclosed as extraordinary when they do not depend primarily on
the decisions or determinations by management or owners.
Accordingly, the Company has not reported any items as
extraordinary.

Statement of Financial Accounting Standards
No. 4, (SFAS 4) requires that when the Company
retires its convertible debentures for less than face value, the
gain is included in the determination of earnings as an
extraordinary item. Under CICA HB 3860, Financial Instruments,
the equity component is included in contributed surplus.


As a result, under U.S. GAAP, earnings from
extraordinary items would have increased by $63 in 2002
(2001  $2,019; 2000  $491) while
contributed surplus would have decreased by a corresponding
amount.


The Company also realized a gain on the
retirement of subsidiary debt in 2001.


(g) Comprehensive income

Statement of Financial Accounting Standards
No. 115, Accounting for Certain Investments in Debt and
Equity Securities, requires that available for sale securities,
which include any security for

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS F-48




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##### Table of Contents



which the Company has no immediate plans to sell
but which may be sold in the future (portfolio investments), be
carried at market value based on quoted market prices. Realized
gains and losses, net of income taxes, including declines in
value judged to be non-temporary are included in the
determination of earnings. Unrealized gains and losses are
recorded, net of income taxes, as a separate component of
comprehensive income.


Under Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income, all
changes in shareholders equity other than transactions
with shareholders are included in comprehensive loss regardless
of whether they are considered to be results of operations for
the period.


Under U.S. GAAP, changes in the cumulative
translation account are included in other comprehensive income.
Under Canadian GAAP, there is no concept of comprehensive income.


(h) Share purchase loans

EITF 85-1, Classifying Notes Received for Capital
Stock, requires that employee share purchase loans be presented
as a deduction from capital stock. As a result, under
U.S. GAAP, capital stock would have decreased $5,873 in
2002 (2001  $5,680; 2000  $2,595) while
loans receivable would have decreased by a corresponding amount.

(i) Stock-based compensation

Under Canadian GAAP, compensation cost is not
recorded for stock-based compensation to employees. Under
U.S. GAAP, the Company follows the intrinsic value method
to measure stock-based compensation to employees in accordance
with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and its
interpretations. Under the intrinsic value method, the
compensation cost would be measured as the difference, if any,
between the fair value of the underlying stock on the date of
grant and the exercise price of the option. For the years ended
December 31, 2002, 2001 and 2000, no compensation costs
resulted under U.S. GAAP.

As the Company has elected to use the intrinsic
value method, the following fair value disclosures are required
under Statement of Financial Accounting Standards No. 123,
Accounting for Stock-based Compensation
(SFAS 123). Had compensation cost for the
employee stock option plans been determined based upon fair
value at the grant date for awards under this plan consistent
with the methodology prescribed under SFAS 123, the
Companys net loss and net loss per share would have
changed to the pro forma amounts indicated below:


|                                |  |      |         |      |  |      |         |   |  |  |         |   |  | 
|------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  |  | ------- | - |  | 
|                                |  | 2002 |         | 2001 |  | 2000 |         |  
|                                |  | $    |         | $    |  | $    |         |  
|                                |  |     
|                                |  |     
|Net loss  U.S. GAAP            |  |      | (42,973 | )    |  |      | (72,104 | ) |  |  | (20,193 | ) |  | 
|Adjustments for SFAS 123        |  |      | (1,995  | )    |  |      | (4,249  | ) |  |  | (580    | ) |  | 
|                                |  |     
|Pro forma net loss for the year |  |      | (44,968 | )    |  |      | (76,353 | ) |  |  | (20,773 | ) |  | 
|                                |  |     
|Pro forma net loss per share    |  |      | (2.03   | )    |  |      | (3.32   | ) |  |  | (0.84   | ) |  | 
|                                |  |     

F-49 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS




---



##### Table of Contents



The Company plans to grant additional stock
options each year. As a result, the above pro forma adjustments
for SFAS 123 are not likely to be representative of the
effects on reported net loss for future years.




|    |                                                        
|--- | -------------------------------------------------------
|(j) | Impact of recently issued accounting
    pronouncements

Under the U.S. Securities and Exchange
Commission Staff Accounting Bulletin 74
(SAB 74), the Company is required to disclose
information related to new accounting standards that have not
yet been adopted.

In April 2002, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections (SFAS
145). SFAS 145 is effective for fiscal years beginning on
or after May 15, 2002. SFAS 145 will eliminate SFAS 4. SFAS
4 requires the presentation of debt extinguishment as an
extraordinary item. Gains from debt extinguishment will now be
reported by the Company in the results of continuing and
discontinued operations. The impact for the year ended
December 31, 2002 would be to decrease earnings from
extraordinary items by $63 (2001  $3,112;
2000  $491) and increase earnings from discontinued
operations by a corresponding amount.


In June 2002, FASB issued No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities. SFAS 146 will be effective for exit or
disposal activities initiated after December 31, 2002. SFAS
146 addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies EITF
Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a
Restructuring). The principal difference between
SFAS 146 and EITF No. 94-3 relates to the requirements
for recognition of a liability. SFAS requires that a liability
for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. Previously, EITF
No. 94-3 required the recognition of liabilities at the
date of an entitys commitment to an exit plan. The Company
has not yet determined the impact, if any, of adopting
SFAS 146.


On August 15, 2001, the FASB issued SFAS
No. 143, Accounting for Asset Retirement
Obligations (SFAS 143). SFAS 143
establishes accounting standards for the recognition and
measurement of an asset retirement obligation and its associated
asset retirement cost. SFAS 143 is effective
January 1, 2003 and is not expected to have a material
impact on the Companys results of operations or financial
condition.


In October 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS 144).
SFAS 144 requires that long-lived assets that are to be
disposed of by sale be measured at the lower of book value or
fair value less costs to sell. All provisions of SFAS 144
were adopted on January 1, 2002 for U.S. GAAP
reporting purposes and did have an impact on the Companys
results of operations and financial position.


NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS F-50




---



##### Table of Contents



EXHIBIT B

COUNSEL CORPORATION
CODE OF CONDUCT
(all amounts shown in absolute dollars)

Counsel Corporation, and its subsidiaries (collectively referred to as
Counsel or the Company) are committed to conducting the Companys business
in accordance with all applicable federal, provincial, state and local laws,
honesty in our business dealings, prudent use of our assets and resources,
sound growth and achievement of business objectives and fair treatment of our
employees. We are committed to achieving and maintaining the highest level of
integrity and ethics in our dealings with our employees, customers, suppliers,
shareholders and the public. For the purposes of these business and ethical
conduct standards (Standards), the Company considers its officers, directors,
employees, agents and consultants to be Employees and each an Employee.

As Employees we are responsible for fully implementing the business
practices and corporate policies of Counsel. These Standards are presented to
govern the conduct of all our Employees. The Standards are directed to all
Counsel Employees as well as our business alliance partners.

CONFLICTS OF INTEREST

It is very important that every Employee avoid any situation which involves a
conflict with his/her duty to the Company and the interests of the Company and
its shareholders. We expect our Employees to exercise good judgment, honesty
and high ethical standards at all times. Adherence to these Standards should
prevent the occurrence of conflicts of interest. Employees should be
particularly sensitive to possible conflicts with suppliers, brokers or any
vendors which could arise from engaging in business dealings with, or accepting
gifts or compensation from, others. If the Employee is in doubt, the Corporate
Secretary should be consulted. The Corporate Secretary and the Chairman of the
Audit Committee of the Board of Directors are identified in the Key Contact
Section, attached as Schedule A to this Code of Conduct. Should questions
arise regarding the appropriate handling of your responsibilities under this
Code of Conduct, please contact either of these persons; and, definitely,
contact the Chairman of the Audit Committee if and whenever you have concerns
about the prompt and responsive handling of any matter of concern to you.

Playing favorites or having conflicts of interest, in practice or
appearance, runs counter to the fair treatment to which we are all entitled.
Each Employee should avoid any relationship, influence or activity that might
impair, or have the appearance of impairing, his/her ability to make objective
and fair decisions when performing his/her job. Conflict of interest laws and
regulations must be fully and carefully observed. When in doubt, review
Company policies and procedures, and share the facts of the situation with the
Corporate Secretary.

Here are some ways a conflict of interest could arise:



| |  |  | Employment by a competitor or potential competitor,
regardless of the nature of the employment, while employed by
the Company.                                                                                                                                                                       
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Acceptance of gifts, cash or in kind, from those seeking to do business with the Company.                                                                                                                                                                                                            
|
| |  |  | Placement of business with a firm owned or controlled by an Employee or his/her family.                                                                                                                                                                                                              
|
| |  |  | Ownership of, or substantial interest in, a company
which is a competitor of or a supplier to the Company.                                                                                                                                                                                           
|
| |  |  | Acting as a consultant to a Company customer or
supplier without the Companys express prior written approval.
Approval is required for any Employees services as director,
officer, employee, or consultant to any company which is a
supplier or a customer having business dealings with Counsel.

B-1



---



##### Table of Contents



In order to preserve the Companys reputation for honesty and integrity,
the management of our Company must be advised of any matters which might be
considered sensitive. Any such notification should be addressed to the
Corporate Secretary. Each Employee has a duty to ensure that proprietary
information relating to the Company or any entity or person with which the
Company does business is not disclosed to anyone without proper authorization.
Every Employee has a duty to keep proprietary documents protected and secure,
particularly when dealing with suppliers, customers and competitors.

FINANCIAL REPORTING

The Companys senior financial officers (e.g., chief financial officer,
controller, principal accounting officer and any person performing similar
functions) as well as any person whose responsibilities include financial
reporting duties (Finance Personnel) have a heightened obligation to perform
their duties in a diligent, honest and ethical manner. This duty of honesty
extends to the full, fair, accurate, timely and understandable disclosure of
information relating to the Companys financial condition and results of
operation in its periodic reports and compliance with all applicable government
rules and regulations. The primary responsibility for financial reporting,
internal control, and compliance with laws, regulations, and ethics rests with
executive management.

If Finance Personnel discover, or have reason to believe, that there is an
actual or potential conflict of interest between their personal and
professional relationships, they must report this information in a prompt
fashion to the Corporate Secretary or the Companys Audit Committee. Examples
of information which should be reported include but are not limited to: (i)
internal control deficiencies such as failure to conduct quarterly reviews of
those controls, or control overrides (such as situations in which Company
officials responsible for a certain function have avoided performing such
function or their decisions are overridden); (ii) fraud by management or by
Employees with significant roles in financial reporting or internal controls
(regardless of materiality); (iii) utilization of proprietary Company
information by Company and non-Company personnel for the benefit of persons or
entities other than the Company; and (iv) provision of non-auditing services by
the Companys auditors without the prior consent of the Companys Audit
Committee.

The Companys Audit Committee has important oversight responsibilities that
relate to the Companys financial reporting, internal controls, compliance with
applicable laws and regulations and Company ethics. In this capacity, the
Audit Committee has the power to authorize investigations that are within the
scope of its responsibilities, including conducting interviews or discussions
with Employees and other persons whose views may be helpful to them. In its
oversight capacity, the Audit Committee also monitors internal control
processes by reviewing reports issued by external auditors and other
information to gain reasonable assurance that the Company is in compliance with
pertinent laws and regulations, is conducting its affairs ethically, and is
maintaining effective controls against conflict of interest and fraud. If you
have any concerns regarding the Companys financial reporting, internal
controls, compliance with applicable laws and regulations and compliance of
Company Employees with this Code of Conduct, you should contact the Corporate
Secretary or the Chairman of the Audit Committee directly.

GIFTS, GRATUITIES AND ENTERTAINMENT

Customer and Supplier (including Governmental) Personnel

The purchase of supplies, materials and services from vendors, suppliers
and subcontractors must be accomplished in a fair and non-discriminatory
process based solely on quality, performance, price and customer criteria (in
cases where purchases are made for customers).

Counsel specifically prohibits offering, attempting to give, soliciting or
receiving any form of bribe or kickback. These are criminal acts. Since the
mere receipt of a request to engage in such activity may be a reportable event
under the law, all Employees should immediately seek advice from the Corporate
Secretary if any such request is received. Similarly, any dealings with
affiliated persons of the Company or of any officer of the Company must be
reviewed by the Corporate Secretary.

Furnishing meals, refreshments, modest gifts/honorariums (see below) and
entertainment in conjunction with business discussions is a commonly accepted
business practice. Counsel permits its Employees, within reason, to

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engage in such practices. The furnishing of meals, refreshments or
entertainment and the making of modest gifts/honorariums, however, should not
violate good common sense and the standards of conduct of the recipients
organization, and must be consistent with past practices and standards
established from time to time by the Company.

Employees who make, and supervisors who approve, expenditures for meals,
refreshments or entertainment, must use discretion and care to ensure that such
expenditures are in the proper course of business and cannot reasonably be
construed as bribes or improper inducements.

Modest gifts/honorariums should only be given in order to commemorate a
specific holiday or special event. In no event should the value of such
individual items exceed $150.00 without the prior approval of the Corporate
Secretary or Chief Financial Officer. Detailed records of all such gifts and
their business purpose should be maintained for at least three years.
Employees should at all times be mindful of the need to avoid the appearance of
gift giving for the purpose of inducing favorable treatment.

Employees may accept meals, refreshments or entertainment in connection
with business discussions, provided, that they are not excessive as to cost or
frequency. It is the personal responsibility of every Employee to ensure that
his/her acceptance of such meals, refreshments or entertainment is within
prevailing Company Standards and could not reasonably be construed as an
attempt by the offering party to secure favorable treatment or create an
appearance of impropriety.

Employees may not accept gifts, including travel and accommodations, which
have a retail or exchange value of $150.00 or more from an individual or firm
doing or seeking to do business with the Company. Exceptions may be granted on
an individual basis; however, Employees must immediately report the gift to
their supervisor and the Corporate Secretary and request a waiver of this rule.

In any circumstance where an Employee is offered meals, refreshments,
entertainment or gifts and the offering may create an appearance of
impropriety, regardless of the value thereof, the Employee should disclose the
offering to his/her supervisor and the Corporate Secretary in writing.

Except for loans by recognized banks and financial institutions which are
available generally at market rates and terms, no Employee or member of his/her
family may accept any loan, guarantee of loan or payment from an individual or
firm doing or seeking to do business with Counsel; nor is it permissible to
accept any service, accommodation or travel of any value whatsoever, unless the
primary purpose of such is the performance of the Companys business.

Gifts or Payments to Foreign Officials

Counsel will scrupulously adhere to the letter and spirit of the U.S.
Foreign Corrupt Practices Act, which prohibits, among other things, giving
money or items of value to a foreign official or instrumentality for the
purpose of influencing a foreign government. The Act further prohibits giving
money or items of value to any person or firm, such as a consultant or
marketing representative, when there is a reason to believe that it will be
passed on to a foreign government official for this purpose. All questions
concerning compliance with the Foreign Corrupt Practices Act should be referred
to the Corporate Secretary.

Gifts or Payments in General



| |  |  | All approved expenditures for meals, refreshments and
entertainment must be fully documented and recorded on the books of
the Company in strict compliance with established policies and
procedures.                                        
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Employees are required to report to their supervisors any
instance in which they are offered money, gifts which have retail or
exchange value of $150.00 or more or anything else of value by a
supplier or prospective supplier to Counsel.
|
| |  |  | Laws and regulations pertaining to entertainment, gifts and
payments may be and are complicated. Questions regarding
interpretations of specific policies should be submitted to the
Corporate Secretary.                                   

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POLITICAL CONTRIBUTIONS

The Company may not make any remuneration of money or offer to do so
directly or indirectly to any government official or politician in Canada, the
United States or abroad for the purpose of influencing such officials or
politicians actions. Our Employees are expected not to use Company funds or
facilities or services for any political purpose in contravention of this
policy.

This policy shall not apply to purely individual contributions by
Employees. However, the use of Company funds to fund an Employee contribution,
or the reimbursement of an Employee contribution is strictly prohibited.

ANTITRUST

The antitrust laws of Canada and the United States are calculated to
promote free and open competition. It is incumbent upon Employees to seek
guidance and instructions from supervisors, and if necessary, from the
Corporate Secretary whenever any questions relating to their compliance with
those laws and regulations arise. All Employees are expected to conduct
themselves in a manner designed to promote the Companys compliance with the
antitrust laws, and no Employee shall discuss with any competitor: prices or
terms of sale; division of territories or markets; allocation of customers; or
boycotts of customers or suppliers.

INTEGRITY OF COMPANY RECORDS

Financial Information and Records

It is Company policy to comply with accepted accounting rules and controls at
all times. All Company records must accurately reflect the transactions they
record. In particular, this policy requires the following:



| |  |  | No undisclosed or unrecorded fund or asset of the Company shall
be established for any purpose;                                                                                                                                                                                                                       
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | No false or misleading entries shall be made in the books or
records of the Company for any reason and no Employee shall assist in
any arrangement that results in any such entry;                                                                                                                                    
|
| |  |  | No payment or expenditure of the Company shall be approved
without adequate supporting documentation or made with intention or
understanding that any Party of such payment or expenditure is to be
used, directly or indirectly, for any purpose other than that
expressly described by the supporting documentation;
|
| |  |  | Any Employee having information concerning any unrecorded fund
or asset or any prohibited act shall promptly report such matter to
the Corporate Secretary;                                                                                                                                                           
|
| |  |  | Medical claims of Employees contain confidential information.
Such claims shall be treated in a manner to retain that
confidentiality and in a manner consistent with Company policy and
procedures; and                                                                                                              
|
| |  |  | The Companys internal and outside accountants must maintain
all audit and review work product for five (5) years from the end of
the applicable fiscal period.                                                                                                                                                       

To ensure that public companies such as Counsel disclose complete and
accurate financial information in their periodic reports, U.S. federal
securities law requires the Companys CEO and CFO to certify that: (i) they
have reviewed each periodic report; (ii) based on their knowledge, there are no
materially false statements or material omissions in the subject periodic
report; (iii) the report fairly presents the issuers financial condition and
results of operations; (iv) the signing officers are responsible for
establishing and maintaining effective internal controls and have evaluated the
effectiveness of those controls within 90 days of the date of the report; (v)
they have presented their conclusions about the effectiveness of the controls
in the subject report; (vi) they have disclosed control deficiencies and any
fraud by management or Employees with a significant role in internal controls
(regardless of materiality) to the auditors and the Audit Committee; and (vii)
they have disclosed any material weaknesses in internal controls to the
Companys auditors. It is anticipated that additional requirements may be
promulgated in the near future.

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In addition, every Employee should be aware that:



| |  |  | It is a crime, punishable by imprisonment of up to ten (10)
years, to knowingly and willfully violate Sarbanes-Oxley Act of 2002
provisions regarding retention of corporate audit records;                                                                                                                           
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | It is a crime, punishable by imprisonment of up to twenty (20)
years, to knowingly alter, destroy, conceal, etc. records or
documents with the intent to impede, obstruct, or influence a federal
government investigation or case filed in bankruptcy, or in relation
to or contemplation of any such matter or case;
|
| |  |  | It is a crime, punishable by imprisonment of up to twenty (20)
years, to corruptly alter, destroy, mutilate, or conceal records or
documents with the intent to impair their integrity or availability
in an official proceeding; or to otherwise obstruct, influence, or
impede a proceeding (or attempt to do so);
|
| |  |  | It is a crime, punishable by imprisonment of up to ten (10)
years, to knowingly, with the intent to retaliate, take any action
harmful to a person for providing to a law enforcement officer any
truthful information relating to the commission or possible
commission of any federal offense.                      

You should contact the Corporate Secretary should you have any question
regarding the foregoing discussion.

Personnel Records

Personnel records are treated as confidential by the Company, unless
otherwise required by law or permission to disclose their contents is given by
an Employee. Notwithstanding the foregoing, the Company will confirm length of
service and position held (and pay rate, when written permission is given by
the Employee) when contacted by a prospective lender to an Employee or by a
prospective employer after an Employees separation from the Company.

Information to Customers

It is our Company policy to provide technical information which is as
accurate as possible in order to properly guide our own Employees and customers
in the sales and use of our products and services. No false or inaccurate data
shall knowingly be recorded or used by any Employee. Any Employee having
information concerning any such false data being recorded or used shall
promptly report such a situation to the Corporate Secretary.

Computer Usage/Software Licensing

It is our Company policy to restrict access to computer databases and
electronic mail communications systems to authorized users for business and
business-related purposes only. It is the Company policy to maintain
compliance with software licensing requirements of our suppliers and vendors.

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SECURITIES TRADES BY COMPANY PERSONNEL

Reasons for this Policy

Federal and provincial securities regulators are vigorously pursuing
violations of insider trading laws. Recent legislation has increased the
penalties for insider trading and put the onus on companies for violations by
their personnel. These policies and procedures covering securities trades by
Counsel personnel will help protect the Company and its personnel from
potentially severe consequences.

This Code of Conduct establishes policies for securities trading for all
personnel and also sets forth compliance guidelines for officers and directors
to whom special reporting obligations apply. It is intended to avoid even the
appearance of improper conduct on the part of anyone employed by or associated
with the Company. It is everyones responsibility to maintain the Companys
reputation for integrity and ethical conduct.

The Consequences

The consequences of insider trading violations can be severe. Penalties
under U.S. law (which is more stringent than Canadian law) include:

For individuals who trade on insider information (or tip information to
others):



| |  |  | A civil penalty of up to three times the profit gained or loss avoided;  
| | - |  | -------------------------------------------------------------------------
|
| |  |  | A criminal fine (no matter how small the profit) of up to $1 million; and
|
| |  |  | A jail term of up to ten years.                                          

For companies (and possibly any supervisory persons) that fail to take
appropriate steps to prevent illegal trading:



| |  |  | A civil penalty of the greater of $1 million or three times the
profit gained or loss avoided as a result of the Employees
violation; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | A criminal penalty of up to $2.5 million.                                                                                                 

In addition, the U.S. Securities Enforcement Remedies and Penny Stock
Reform Act of 1990 provides the Securities and Exchange Commission (the SEC)
with greater enforcement powers, including the ability to go to court and seek
significant fines for securities law violations (ranging up to $100,000 for
individuals and $500,000 for companies per violation) and to seek its own cease
and desist orders in an SEC administrative hearing.

Moreover, if an employee violates the Companys insider trading policy, he
or she may be subject to Company-imposed sanctions, including dismissal for
cause.

Counsel Corporation Policy

If a director, officer or any other employee has material non-public
information relating to the Company, neither that person nor any related person
may buy or sell securities of the Company or engage in any other action to take
advantage of that information or pass it on to others.This policy also
applies to information relating to any other company, including our customers,
suppliers or vendors and those with which the Company may be negotiating major
transactions, obtained in the course of employment and to trading in the shares
of such a customer or supplier. Information that is not material to the
Company may nevertheless be material to one of these other companies.

Transactions that may appear justifiable for independent reasons (such as
the need to raise money for an emergency) are no exception. Even the
appearance of an improper transaction must be avoided to preserve our
reputation for adhering to the highest standards of conduct.

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Material Information. Material information is any information that a
reasonable investor would consider important in a decision to buy, hold or sell
stock. In short, any information that could reasonably affect the price of
stock should be considered material.

Examples. Information that will likely be regarded as material includes:
annual or quarterly financial results; projections of future earnings or
losses; a significant change in earnings or earnings projections; news of a
proposed merger, acquisition or tender offer; news of a significant purchase or
sale of assets or the purchase or disposition of a division or subsidiary;
changes in dividend policies or the declaration of a stock split or the
offering of additional securities; changes in management; significant new
products; impending bankruptcy or financial or liquidity problems; major
litigation or regulatory sanctions; and the gain or loss of a substantial
customer or supplier. Either positive or negative information may be material.

Benefit of Hindsight. Remember, if your securities transactions become
the subject of scrutiny, they will be reviewed after-the-fact with the benefit
of hindsight. As a result, before engaging in any transaction you should
carefully consider how regulators and others might view your transaction in
hindsight.

Transactions By Family Members. The very same restrictions apply to your
family members and others living in your household. You are responsible for
their compliance.

Tipping Information to Others. Whether the information is proprietary
information about our Company or information that could affect our stock price,
employees must never pass such information on to others. The above penalties
may apply regardless of whether or not you derive any benefit from anothers
actions. For example, the SEC has imposed a $470,000 penalty on a tipper even
though he did not profit from his tippees trading.

Posting material, nonpublic information, or making statements or
recommendations based on this information, on any Internet Website, electronic
bulletin board, Internet message board, Internet chat room, or other similar
form of electronic communication, can also constitute tipping under the
securities laws. Because of the high potential for improper or premature
disclosure of material, nonpublic information posed by these activities and the
resulting liability under the securities laws for the Employee and the Company,
Employees may not post any information about the Company, its business plans,
its employees or directors, or its customers, suppliers or vendors, nor engage
in any discussions with other parties about the Company, its business plans,
its employees or directors, or its customers, suppliers or vendors, on any of
these forums. Furthermore, employees should notify the Companys Corporate
Secretary if they are aware of such activities by any other employee.

When Information Becomes Public. It is also improper for an Employee to
enter a trade immediately after the Company has made a public announcement of
material information, including earnings releases. Because the Companys
stockholders and the investing public should be afforded the time to receive
the information and act upon it, as a general rule you should not engage in any
transactions involving Company shares until one full business day after such
information has been released. Thus, if an announcement is made after the
market closes on a Monday, Wednesday generally would be the first day on which
you should trade. If an announcement is made before the market opens on a
Friday, Monday would be the first day.

Period of No Securities Transactions. To minimize the risk of liability
on the part of the Company and its personnel for violations of the foregoing
insider trading restrictions, the Company has established a period relating to
the Companys earnings during which the Companys directors, officers, senior
executives, and certain other employees should not buy or sell Company shares
under any circumstances. The quiet period begins on the last day of the last
month of the quarter and extends until the end of the first full business day
following the public release of the Companys financial results for that
quarter.

Method of Preserving Confidentiality. Employees of the Company should not
discuss inside information in public places where it can be overheard such as
elevators, restaurants, taxis and airplanes. Such information should be
divulged only to persons having a need to know it in order to carry out their
job responsibilities. To avoid even the appearance of impropriety, Employees
should refrain from providing any advice or making recommendations regarding
the purchase or sale of the Companys shares. Use particular caution when
receiving inquiries from securities analysts, companies in the same business as
the Company and members of the press. All such inquiries should be handled by
offering no comment on the matter and by referring the inquirer to the
Companys investor relations area of its website or the Corporate Secretary.

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Additional Prohibited Transactions

Because we believe it is improper and inappropriate for any Company
personnel to engage in short-term or speculative transactions involving Company
stock, Employees should not engage in any of the following activities with
respect to securities of the Company:

1.     Trading in Securities on a Short-Term Basis. Any Company shares
purchased by any personnel in the open market must be held for a minimum of six
months and ideally longer, unless (in the case of employees who are not
officers or directors) the sale results from personal emergency and the holding
period is waived by the Companys Corporate Secretary.

2.     Short Sales.

3.     Buying or Selling Puts or Calls.

Company Assistance

Any person who has any questions about specific transactions may obtain
additional guidance from the Companys Corporate Secretary. Remember, however,
the ultimate responsibility for adhering to this Code of Conduct and avoiding
improper transactions rests with you.

Special Guidelines for Directors and Officers

To provide assistance in preventing inadvertent violations and avoiding
even the appearance of an improper transaction (which could result, for
example, where an officer engages in a trade while unaware of a pending major
development), we are implementing the following procedure:

All transactions in Company stock (acquisitions, dispositions, transfers,
etc.) by directors and officers must be pre-cleared by the Companys Corporate
Secretary. If you contemplate a transaction, you should contact the Corporate
Secretary in advance.

Consequences of Violation

Any employee who violates this Policy Statement is subject to possible
suspension or discharge. Any employee who assists in, or knowingly fails to
report, a violation of this Policy Statement is also subject to suspension,
discharge or other appropriate action. Any employee who suspects a violation
of this Policy Statement should inform the Corporate Secretary or the Chairman
of the Board of the Company (anonymously if desired).

EXCEPTIONS TO THE CODE OF CONDUCT

The Corporate Secretary may make exceptions on a case-by-case basis of
this Code upon a determination that the conduct at issue involves a negligible
opportunity for abuse or otherwise merits an exemption from the Standards set
forth herein. All such exceptions must be received in writing by the person
requesting the exemption before becoming effective.

* * * * *

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SUPERVISORY PROCEDURES

The role of the Corporate Secretary is critical to the implementation and
maintenance of this Code of Conduct. Supervisory Procedures can be divided
into two classifications: (i) prevention of violations of law; and (ii) the
preservation of systems necessary to assure the integrity of the Companys
financial reporting.

Prevention of Violations of Law

To prevent insider trading, the Corporate Secretary should:



| |  |  | provide, on a regular basis, a program to
familiarize Employees with the Companys policy and procedures,
including the furnishing of this Code of Conduct to all
Employees and to each new Employee upon commencement of
employment;           
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | answer questions regarding the Code of Conduct;                                                                                                                                                                                                 
|
| |  |  | resolve issues of whether information received by
an Employee of the Company is material and non-public;                                                                                                                                        
|
| |  |  | review, with the assistance of the Companys legal
counsel, on a regular basis and update as necessary the Code of
Conduct;                                                                                                                     
|
| |  |  | when it has been determined that an Employee of the
Company has Material Non-Public Information, implement measures
to prevent dissemination of such information, and if necessary,
restrict Employees from trading the affected securities; and
|
| |  |  | promptly review, and either approve or disapprove,
in writing, each request of an Employee for clearance to trade
in specified securities.                                                                                                      

Detection of Insider Trading

To detect insider trading, the Corporate Secretary should:



| |  |  | review the trading activity reports and beneficial
ownership disclosure, as filed by each officer and director;                                          
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | maintain regular communication with and be
available to answer questions from Employees of the Company who
are contemplating securities transactions; and
|
| |  |  | coordinate the review of such reports with other
appropriate officers or directors of the Company.                                                       

Special Reports to Management

Upon learning of a potential violation of the Code of Conduct, the
Corporate Secretary should promptly prepare a written report to management and
the Audit Committee providing full details and recommendations for further
action.

ACKNOWLEDGMENT

We will expect every Employee requested to do so to submit a letter
affirming the knowledge and understanding of this Code of Conduct and to
disclose any transactions where it might appear to an outsider that any of
these policies have not been observed.

CORPORATE SECRETARY

Employees who discover violations of Company policies are encouraged to
report the violations immediately to the Corporate Secretary and to the
Chairman of the Audit Committee. The Corporate Secretary will be responsible
for providing information about the Companys position on ethical issues, for
responding to inquiries about Employee conduct, and for considering
disciplinary action which may be taken against any persons found in violation
of these Standards.

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ACKNOWLEDGMENT

To: Corporate Secretary

I have read the Code of Conduct. I understand my responsibility to comply
with the Code of Conduct and the process and consequences for dealing with
violations thereof.

If I have any questions or concerns regarding conduct that may raise
concern under this Code of Conduct, I will immediately follow one of the
procedures suggested in this policy and will notify the Corporate Secretary.

| |  |                            
| |  | ---------------------------
| |  | Signature                  
| |  |                            
|
| |  | Print Your Name            
|
| |  | Date                       
|
| |  | Job Title or Classification
|
| |  | Location                   

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EXHIBIT C

LIST OF SUBSIDIARIES OF COUNSEL CORPORATION

|    |  |                                                                 
|--- |  | ----------------------------------------------------------------
|1.  |  | Counsel Capital Corporation, an Ontario corporation             
|2.  |  | Counselcare, Ltd., a Delaware corporation                       
|3.  |  | Counsel Corporation (US), a Delaware corporation                
|4.  |  | Stadtsub Holdings, Inc., a Delaware corporation                 
|5.  |  | Counsel Nursing Properties, Inc., a Delaware corporation        
|6.  |  | Counsel LLC, a Delaware limited liability company               
|7.  |  | Counsel Communications LLC, a Delaware limited liability company
|8.  |  | I-Link Incorporated, a Florida corporation                      
|9.  |  | I-Link Communications Inc., a Utah corporation                  
|10. |  | Acceris Capital Corporation, a Delaware corporation             
|11. |  | Acceris Communications Technologies Inc., a Delaware corporation
|12. |  | WorldxChange Corp., a Delaware corporation                      

C-1