**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-K**





x **ANNUAL REPORT PURSUANT TO SECTION 13**


**OR
      15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**




**FOR
      THE FISCAL YEAR ENDED DECEMBER 31, 2007**





**Commission
      File No. 0-17973**







**C2
      GLOBAL TECHNOLOGIES INC.**


(Exact
      Name of Registrant as Specified in Its Charter)





**Florida**
            
            **59-2291344**(State
                or Other Jurisdiction
            
            (I.R.S.
                Employerof
                Incorporation or Organization)
            
            Identification
                No.)**3200
                - 40 King St. West, Toronto, Ontario, Canada**
            
            **M5H
                3Y2**(Address
                of Principal Executive Offices)
            
            (Zip
                Code)





**(416)
      866-3000**


(Registrant’s
      Telephone Number, Including Area Code)





Securities
      registered pursuant to Section 12(b) of the Act: **None.**





Securities
      registered pursuant to Section 12(g) of the Act: **Common
      Stock, $0.01 par value.**





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.


Yes £ No R





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act.


Yes £ No R





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 R No £





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K. £





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




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





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





The
      aggregate market value of Common Stock held by non-affiliates based upon the
      closing price of $0.40 per share on June 29, 2007, as reported by the OTC -
      Bulletin Board, was approximately $692,000.





As
      of
      February 26, 2008, there were 23,095,170 shares of Common Stock, $0.01 par
      value, outstanding.










**TABLE
      OF CONTENTS**




PAGEPART
                IItem
                1.
            Business.
            
            3Item
                1A.
            Risk
                Factors
            
            9Item
                1B.
            Unresolved
                Staff Comments
            
            11Item
                2.
            Properties.
            
            11Item
                3.
            Legal
                Proceedings.
            
            11Item
                4.
            Submission
                of Matters to a Vote of Security Holders.
            
            12PART
                IIItem
                5.
            Market
                for Registrant’s Common Equity, Related Stockholder Matters and Issuer
                Purchases of Equity Securities.
            
            13Item
                6.
            Selected
                Financial Data.
            
            16Item
                7.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations.
            
            17Item
                7A.
            Quantitative
                and Qualitative Disclosures About Market Risk.
            
            25Item
                8.
            Financial
                Statements and Supplementary Data.
            
            25Item
                9.
            Changes
                In and Disagreements With Accountants on Accounting and Financial
                Disclosure.
            
            25Item
                9A(T).
            Controls
                and Procedures.
            
            25Item
                9B.
            Other
                Information.
            
            26PART
                IIIItem
                10.
            Directors,
                Executive Officers and Corporate Governance.
            
            27Item
                11.
            Executive
                Compensation.
            
            30Item
                12.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters.
            
            38Item
                13.
            Certain
                Relationships and Related Transactions, and Director
                Independence.
            
            39Item
                14.
            Principal
                Accountant Fees and Services.
            
            41PART
                IVItem
                15.
            Exhibits
                and Financial Statement Schedules.
            
            43




2


**PART
      I**





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





**Item
      1. Business.**





**Overview
      and Recent Developments**





C2
      Global
      Technologies Inc. (“C2” or the “Company”) was incorporated in the State of
      Florida in 1983 under the name “MedCross, Inc.” which was changed to “I-Link
      Incorporated” in 1997, to “Acceris Communications Inc.” in 2003, and to “C2
      Global Technologies Inc.” in 2005. The most recent name change reflects a change
      in the strategic direction of the Company following the disposition of its
      Telecommunications business in the third quarter of 2005, as discussed below.
      In
      the second quarter of 2006, the Company opened an office in Texas.





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





In
      the
      third quarter of 2007, the Company began investing in Internet-based e-commerce
      businesses, when it acquired minority positions in MyTrade.com, Inc., Buddy
      Media, Inc. and LIMOS.com LLC. Its investment in MyTrade.com, Inc. was sold
      in
      the fourth quarter of 2007, and the Company recognized a gain of
      $75. **** The
      Company’s investment in Internet-based e-commerce businesses continued in the
      fourth quarter of 2007 when, effective December 7, 2007, it completed the
      acquisition of a one-third interest in Knight’s Bridge Capital Partners Internet
      Fund No. 1 GP LLC (“Knight’s Bridge GP”). The additional two-thirds interest in
      Knight’s Bridge GP was acquired by parties affiliated with the Company’s
      majority stockholder, Counsel Corporation (“Counsel”). Knight’s Bridge GP was
      formed to acquire the general partner interests in 2007 Fund 1 LLP (the “Fund”,
      subsequently renamed Knight’s Bridge Capital Partners Internet Fund No. 1 LP).
      At December 31, 2007, the Fund held investments in several Internet-based
      e-commerce businesses. As the general partner of the Fund, Knight’s Bridge GP
      manages the Fund, in return for which it earns a 2% per annum management fee
      with respect to the Fund’s invested capital. Knight’s Bridge GP also has a 20%
      carried interest on any incremental realized gains from the Fund’s investments.
      The Fund was an investor in MyTrade.com, and the Company earned approximately
      $7
      in the fourth quarter of 2007 as its share of Knight’s Bridge GP’s carried
      interest when the Fund also sold its investment in MyTrade.com.





The
      following table presents information about the net income, loss and assets
      of
      the Company as of and for the three years ended December 31, 2007. Effective
      with the sale of the Telecommunications business in the third quarter of 2005,
      the Company no longer has distinct operating segments, as were reported in
      prior
      years. The Company’s consolidated financial statements, included in Item 15 of
      this Annual Report on Form 10-K (the “Report”), have been restated to include
      the Telecommunications operations as discontinued operations.





**For
                the Year Ended December 31,****2007**
            
            **2006**
            
            **2005**Revenues
                from external customers
            
            $
            —
            
            $
            —
            
            $
            —Other
                income (expense), net
            
            
            (207
            )
            
            155
            
            
            1,084Interest
                expense - related party
            
            
            184
            
            
            10,390
            
            
            12,154Interest
                expense - third party
            
            
            12
            
            
            510
            
            
            658(Loss)
                from continuing operations
            
            
            (639
            )
            
            (12,046
            )
            
            (14,907
            )Income
                (loss) from discontinued operations
            
            
            (6
            )
            
            4,370
            
            
            (3,582
            )Total
                assets
            
            
            1,796
            
            
            1,386
            
            
            3,490




3


The
      independent registered public accounting firms’ reports on the consolidated
      financial statements included in the Company’s Annual Report on Form 10-K for
      each of the years ended December 31, 2005, 2006 and 2007 contained a paragraph
      wherein they discussed the uncertainty about the Company’s ability to continue
      as a going concern. Readers are encouraged to take due care when reading the
      independent registered public accountants’ report included in Item 15, and
      Management’s Discussion and Analysis included in Item 7, of this Report. In the
      absence of ongoing licensing revenues or a substantial infusion of capital,
      the
      Company may not be able to continue as a going concern.





**History
      and Development of the Business**





In
      1994,
      we began operating as an Internet service provider and quickly identified that
      the emerging IP environment was a promising basis for enhanced service delivery.
      We soon turned to designing and building an IP telecommunications platform
      consisting of proprietary software and hardware, and leased telecommunications
      lines. The goal was to create a platform with the quality and reliability
      necessary for voice transmission.





In
      1997,
      we began offering enhanced services over a mixed IP-and-circuit-switched network
      platform. These services offered a blend of traditional and enhanced
      communication services and combined the inherent cost advantages of an IP-based
      network with the reliability of the existing Public Switched Telephone Network
      (“PSTN”).





In
      August 1997, we acquired MiBridge, Inc. (“MiBridge”), a communications
      technology company engaged in the design, development, integration and marketing
      of a range of software telecommunications products that support multimedia
      communications over the PSTN, local area networks (LANs) and IP networks. The
      acquisition of MiBridge permitted us to accelerate the development and
      deployment of IP technology across our network platform.





In
      1998,
      we first deployed our real-time IP communications network platform. With this
      new platform, all core operating functions such as switching, routing and media
      control became software-driven. This new platform represented the first
      nationwide, commercially viable VoIP platform of its kind. Following the launch
      of our software-defined VoIP platform in 1998, we continued to refine and
      enhance the platform to make it even more efficient and capable for our partners
      and customers.





Commencing
      in 2001, the Company entered the Telecommunications business. The assets of
      the
      Company’s Telecommunications segment were owned through a wholly-owned
      subsidiary, Acceris Communications Corp. (name changed to WXC Corp. (“WXCC”) in
      October 2005). This business was sold effective September 30, 2005.





In
      2002,
      the U.S. Patent and Trademark Office issued U.S. patent No. 6,438,124 (the
“C2
      Patent”) for the Company’s Voice Internet Transmission System. Filed in 1996,
      the C2 Patent reflects foundational thinking, application, and practice in
      the
      VoIP services market. The C2 Patent encompasses the technology that allows
      two
      parties to converse phone-to-phone, regardless of the distance, by transmitting
      voice/sound via the Internet. No special telephone or computer is required
      at
      either end of the call. The apparatus that makes this technically possible
      is a
      system of Internet access nodes, or Voice Engines, which provide digitized,
      compressed, and encrypted duplex or simplex Internet voice/sound. The end result
      is a high-quality calling experience whereby the Internet serves only as the
      transport medium and, as such, can lead to reduced toll charges. Shortly after
      the issuance of our core C2 Patent, we disposed of our domestic U.S. VoIP
      network in a transaction with Buyers United, Inc., which closed on May 1,
      2003. The sale included the physical assets required to operate our nationwide
      network using our patented VoIP technology (constituting the core business
      of
      the I-Link Communications Inc. (“ILC”) business) and included a fully paid
      non-exclusive perpetual license to our proprietary software-based network
      convergence solution for voice and data. The sale of the ILC business removed
      essentially all operations that did not pertain to our proprietary
      software-based convergence solution for voice and data. As part of the sale,
      we
      retained all of our intellectual property rights and patents.





In
      2003,
      we added to our VoIP patent holdings when we acquired U.S. Patent No. 6,243,373,
      titled *“Method
      and Apparatus for Implementing a Computer Network/Internet Telephone
      System”* (the
“VoIP Patent”), which included a corresponding foreign patent and related
      international patent applications. The vendor of the VoIP Patent was granted
      a
      first priority security interest in the patent in order to secure C2’s
      obligations under the associated purchase agreement. The VoIP Patent together
      with the existing C2 Patent and related international patents and patent
      applications form our international VoIP Patent Portfolio that covers the basic
      process and technology that enable VoIP communication as it is used in the
      market today. Telecommunications companies that enable their customers to
      originate a phone call on a traditional handset, transmit any part of that
      call
      via IP, and then terminate the call over the traditional telephone network,
      are
      utilizing C2’s patented technology. The comprehensive nature of the VoIP Patent
      is summarized in the patent’s abstract, which, in pertinent part, describes the
      technology as follows: *“A
      method and apparatus are provided for communicating audio information over
      a
      computer network. A standard telephone connected to the PSTN may be used to
      communicate with any other PSTN-connected telephone, where a computer network,
      such as the Internet, is the transmission facility instead of conventional
      telephone transmission facilities.”* As part
      of the consideration for the acquisition of the VoIP Patent, the vendor is
      entitled to receive 35% of the net earnings from our VoIP Patent
      Portfolio.




4





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





The
      Company has previously conducted research and development activities related
      to
      its patents, most recently in 2005, when it invested $389. The Company suspended
      its investment in research and development in the third quarter of 2005 in
      conjunction with its decision to focus on the realization of licensing fees
      associated with its intellectual property.





On
      March
      28, 2006, the Company sold all the shares of WXCC to a third party. The Company
      recognized a gain of $3,645 on the sale, net of closing costs of $118. On June
      30, 2006, the same third party that had purchased the WXCC shares agreed to
      acquire all the shares of ILC from the Company. The Company recognized a gain
      of
      $665 on the sale, net of closing costs of $46. Both of these gains were included
      in income from discontinued operations in the Company’s consolidated statement
      of operations.





As
      discussed above under “Overview and Recent Developments”, in the third quarter
      of 2007, the Company began investing in Internet-based e-commerce businesses
      through its acquisitions of minority positions in MyTrade.com, Inc., Buddy
      Media, Inc. and LIMOS.com LLC, and it continued its investment activities in
      the
      fourth quarter of 2007 with the acquisition of a one-third interest in Knight’s
      Bridge Capital Partners Internet Fund No. 1 GP LLC. At December 31, 2007 the
      Company’s investment in these businesses totalled $519. The Company’s objective
      is to realize long-term capital appreciation as the value of these businesses
      is
      developed and recognized.




5





***Intellectual
      Property***




Below
      is
      a summary of the Company’s patents:


**Type**
              
              **Title**
              
              **Numbe**r
              
              **Status****VoIP
                  Architecture**
              
              Computer
                  Network/Internet Telephone System (“VoIP Patent”)
              
              U.S.
                  No. 6,243,373
              
              Issued:
                  June 5, 2001
                Expires:
                  November 1, 2015Australia
                  No. 716096
              
              Issued:
                  June 1, 2000
                Expires:
                  October 29, 2016People’s
                  Republic of
                China
                  No. ZL96199457.6
              
              Issued:
                  December 14, 2005
                Expires:
                  October 29, 2016Canada
                  No. 2,238,867
              
              Issued:
                  October 18, 2005
                Expires:
                  October 29, 2016Hong
                  Kong
                No.
                  HK1018372
              
              Issued:
                  August 11, 2006
                Expires:
                  October 29, 2016Europe
                  No. 0873637
              
              Granted
                  March 21, 2007Internet
                  Transmssion System
                (“C2
                  Patent”)
              
              U.S.
                  No. 6,438,124
              
              Issued:
                  August 20, 2002
                Expires:
                  July 22, 2018People’s
                  Republic of
                China
                  No. ZL97192954.8
              
              Issued:
                  May 21, 2004
                Expires:
                  February 5, 2017Canada
                  No. 2,245,815
              
              Issued:
                  October 10, 2006
                Expires:
                  February 5, 2017Private
                  IP Communication Network Architecture
              
              U.S.
                  No. 7,215,663
              
              Issued:
                  May 8, 2007
                Expires:
                  June 12, 2017**Conferencing**
              
              Delay
                  Synchronization in Compressed Audio System
              
              U.S.
                  No. 5,754,534
              
              Issued:
                  May 19, 1998
                Expires:
                  May 6, 2016Volume
                  Control Arrangement for Compressed Information Signal
                  Delays
              
              U.S.
                  No. 5,898,675
              
              Issued:
                  April 27, 1999
                Expires:
                  April 29, 2016




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





In
      addition to the VoIP Patent Portfolio, which covers the foundation of any VoIP
      system, our patent holdings include:





*Private
      IP Communication Network Architecture (U.S. Patent No. 7,215,663 granted May
      8,
      2007) -* This
      invention relates generally to multimedia communications networks. The patent’s
      Internet Linked Network Architecture delivers telecommunication type services
      across a network utilizing digital technology. The unique breadth and
      flexibility of telecommunication services offered by the Internet Linked Network
      Architecture flow directly from the network over which they are delivered and
      the underlying design principles and architectural decisions employed during
      its
      creation.




6





C2
      also
      owns intellectual property that solves teleconferencing problems:





*Delay
      Synchronization in Compressed Audio Systems (U.S. Patent No. 5,754,534 granted
      May 19, 1998) -* This
      invention eliminates popping and clicking when switching between parties in
      a
      communications conferencing system employing signal compression techniques
      to
      reduce bandwidth requirements.





*Volume
      Control Arrangement for Compressed Information Signals (U.S. Patent No.
      5,898,675 granted April 27, 1999) -* This
      invention allows for modifying amplitude, frequency or phase characteristics
      of
      an audio or video signal in a compressed signal system without altering the
      encoder or decoder employed by each conferee in a conferencing setting, so
      that
      individuals on the conference call can each adjust their own gain levels without
      signal degradation.





***Employees***





As
      of
      December 31, 2007, C2 had five employees, all of whom are also employees of
      Counsel. The salaries of four of the employees are paid by Counsel. Under the
      terms of a management services agreement (the “Agreement”), as described in Item
      11 of this Report, the Counsel employees provide management and administrative
      services to C2 and the associated costs are allocated to C2. The CEO has a
      separate employment arrangement with C2, as discussed in Item 11. The Company
      expects to hire additional employees as it pursues its patent licensing
      strategy, although there are no specific plans at this time.





***Industry***




The
      communications services industry continues to evolve, both domestically and
      internationally, providing significant opportunities and risks to the
      participants in these markets. Factors that have driven this change
      include:




·
            
            entry
                of new competitors and investment of substantial capital in existing
                and
                new services, resulting in significant price
                competition·
            
            technological
                advances resulting in a proliferation of new services and products
                and
                rapid increases in network capacity·
            
            the
                Telecommunications Act of 1996; as amended, and·
            
            growing
                deregulation of communications services markets in the United States
                and
                in other countries around the world.




Historically,
      the communications services industry transmitted voice and data over separate
      networks using different technologies. Traditional carriers have typically
      built
      telephone networks based on circuit switching technology, which establishes
      and
      maintains a dedicated path for each telephone call until the call is
      terminated.





VoIP
      is a
      technology that can replace the traditional telephone network. This type of
      data
      network is more efficient than a dedicated circuit network because the data
      network is not restricted by the one-call, one-line limitation of a traditional
      telephone network. This improved efficiency creates cost savings that can be
      either passed on to the consumer in the form of lower rates or retained by
      the
      VoIP provider. In addition, VoIP technology enables the provision of enhanced
      services such as unified messaging.





***Competition***




We
      are
      seeking to have telecommunications service providers (“TSPs”), equipment
      suppliers (“ESs”) and end users license our patents. In this regard, our
      competition is existing technology, outside the scope of our patents, which
      allows TSPs and ESs to deliver communication services to their
      customers.




VoIP
      has
      become a widespread and accepted telecommunications technology, with a variety
      of applications in the telecommunications and other industries. While we and
      many others believe that we will see continued proliferation of this technology
      in the coming years, and while we believe that this proliferation will occur
      within the context of our patents, there is no certainty that this will occur,
      or that it will occur in a manner that requires organizations to license our
      patents.




7


***Government
      Regulation***




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





**Available
      Information**





C2
      is
      subject to the informational requirements of the Securities Exchange Act of
      1934, as amended (the “Exchange Act”), which requires that C2 file reports,
      proxy statements and other information with the Securities and Exchange
      Commission (“SEC”). The SEC maintains a website on the Internet at *http://www.sec.gov* that
      contains reports, proxy and information statements, and other information
      regarding issuers, including C2, which file electronically with the SEC. In
      addition, C2’s Exchange Act filings may be inspected and copied at the SEC’s
      Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public
      may obtain information on the operation of the Public Reference Room by calling
      the SEC at 1-800-SEC-0330. The Company makes available free of charge through
      its Internet web site, *http://www.c-2technologies.com* (follow
      Investor Relations tab to link to “SEC Filings”) its annual report on Form 10-K,
      quarterly reports on Form 10-Q, current reports on Form 8-K and amendments
      to
      those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
      Exchange Act as soon as reasonably practicable after such material has been
      electronically filed with, or furnished to, the SEC.




8





**Item
      1A. Risk Factors.**





*You
      should carefully consider and evaluate these risk factors, as any of them could
      materially and adversely affect our business, financial condition and results
      of
      operations, which, in turn, can adversely affect the price of our
      securities.*





**Reports
      of our independent registered accountants have made reference to the going
      concern risk.**




In
      each
      of their audit reports for the years ended December 31, 2005, 2006 and 2007,
      our
      independent registered public accounting firm has made reference to the
      uncertainty regarding our ability to continue as a going concern. Before
      considering making an investment or becoming a stakeholder in C2, you should
      carefully review the aforementioned accountants’ reports and ensure that you
      have read and understood them, and have obtained relevant advice from your
      financial and other advisors.





**If
      we were to default on any of our related party loans, Counsel could foreclose
      on
      our assets.**




At
      December 31, 2007 Counsel owned 92.51% of the equity of the Company. Counsel
      had
      previously committed, by means of a Keep Well agreement (the “Keep Well”) that
      expired on December 31, 2006, to fund the operating cash requirements of the
      Company. Although Counsel funded our minimal cash requirements during 2007,
      and
      has indicated that it will continue to do so until at least December 31, 2008,
      which is the maturity date of the outstanding loan payable to Counsel, it has
      not formally committed to long-term funding of our operations. Our assets serve
      as collateral for our related party debt. In the event that we were to default
      on this debt, and Counsel foreclosed on our assets, we would be unable to
      continue our operations as they are presently conducted, if at all. Our
      aggregate total debt to Counsel at December 31, 2007 was $2,335. See the section
      entitled “Transactions with Counsel” in Item 13 of this Report.





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




The
      preferred share investment that the Company made in Buddy Media during the
      third
      quarter of 2007 is in a development stage company that has yet to provide a
      return to shareholders. There can be no assurance that the Company will either
      recover the value of its initial investment or earn a positive
      return.





**We
      are subject to litigation.**




We
      are,
      from time to time, involved in various claims, legal proceedings and complaints
      arising in the ordinary course of business. The significant litigation matters
      in which we are involved at this time are detailed in Item 3 of this Report.





**We
      may be required to make cash payments to dissenting
      stockholders.**




At
      our
      Adjourned Meeting of Stockholders held on December 30, 2003, our
      stockholders, among other things, approved an amendment to our Articles of
      Incorporation, deleting Article VI thereof (regarding liquidations,
      reorganizations, mergers and the like). Stockholders who were entitled to vote
      at the meeting and advised us in writing, prior to the vote on the amendment,
      that they dissented and intended to demand payment for their shares if the
      amendment was effectuated, were entitled to exercise their appraisal rights
      and
      obtain payment in cash for their shares under Sections 607.1301 - 607.1333
      of the Florida Business Corporation Act (the “Florida Act”), provided their
      shares were not voted in favor of the amendment.





In
      January 2004, we sent appraisal notices in compliance with Florida
      corporate statutes to all stockholders who had advised us of their intention
      to
      exercise their appraisal rights. The appraisal notices included our estimate
      of
      fair value of our shares, at $4.00 per share on a post-split basis. These
      stockholders had until February 29, 2004 to return their completed
      appraisal notices along with certificates for the shares for which they were
      exercising their appraisal rights. Approximately 33 stockholders holding
      approximately 74,000 shares of our stock returned completed appraisal notices
      by
      February 29, 2004. A stockholder of 20 shares notified us of his acceptance
      of our offer of $4.00 per share, while the stockholders of the remaining shares
      did not accept our offer. Subject to the qualification that, in accordance
      with
      the Florida Act, we may not make any payment to a stockholder seeking appraisal
      rights if, at the time of payment, our total assets are less than our total
      liabilities, stockholders who accepted our offer to purchase their shares at
      the
      estimated fair value will be paid for their shares within 90 days of our
      receipt of a duly executed appraisal notice. If we should be required to make
      any payments to dissenting stockholders, Counsel will fund any such amounts
      through advances to C2. Stockholders who did not accept our offer were required
      to indicate their own estimate of fair value, and if we do not agree with such
      estimates, the parties are required to go to court for an appraisal proceeding
      on an individual basis, in order to establish fair value. Because we did not
      agree with the estimates submitted by most of the dissenting stockholders,
      we
      have sought a judicial determination of the fair value of the common stock
      held
      by the dissenting stockholders. On June 24, 2004, we filed suit against the
      dissenting stockholders seeking a declaratory judgment, appraisal and other
      relief in the Circuit Court for the 17 th Judicial
      District in Broward County, Florida. On February 4, 2005, the declaratory
      judgment action was stayed pending the resolution of the direct and derivative
      lawsuits filed in California. This decision was made by the judge in the Florida
      declaratory judgment action due to the similar nature of certain allegations
      brought by the defendants in the declaratory judgment matter and the California
      lawsuits. On March 7, 2005, the dissenting shareholders appealed the decision
      of
      the District Court judge to the Fourth District Court of Appeals for the State
      of Florida, which denied the appeal on June 21, 2005. When the declaratory
      judgment matter resumes, there is no assurance that this matter will be resolved
      in our favor and an unfavorable outcome of this matter could have a material
      adverse impact on our business, results of operations, financial position or
      liquidity.




9





**We
      may fail to either adequately protect our proprietary technology and processes,
      or enforce our intellectual property rights, which would allow competitors
      to
      take advantage of our development efforts.**




The
      Company’s VoIP Patent Portfolio consists of United States Patents No. 6,243,373
      and No. 6,438,124. The ultimate value of these patents has yet to be
      determined. If we fail to obtain or maintain adequate protections, or are
      unsuccessful in enforcing our patent rights, we may not be able to either
      realize value from our patents, or prevent third parties from benefiting from
      those patents without benefit to the Company. Any currently pending or future
      patent applications may not result in issued patents. In addition, any issued
      patents may not have priority over any patent applications of others or may
      not
      contain claims sufficiently broad to protect us against third parties with
      similar technologies, products or processes.





**Our
      principal stockholder, Counsel, has voting control over us and our executive
      officers are employees of Counsel.**




Counsel
      owns approximately 93% of our outstanding common stock. As a result, Counsel
      controls all matters requiring approval by the stockholders, including the
      election of the Board of Directors and significant corporate transactions.
      Our
      Board of Directors has five members, four of whom are independent of Counsel.
      The Board establishes corporate policies and has the sole authority to nominate
      and elect officers to carry out those policies. Our Chief Executive Officer,
      Chief Financial Officer, Vice President of Accounting and Corporate Secretary
      are all employees of Counsel. Counsel’s control over C2 could delay or prevent a
      change in control of the Company, impede a merger, consolidation, takeover
      or
      other business combination involving us, or discourage a potential acquirer
      from
      making a tender offer or otherwise attempting to obtain control of the Company.





**Provisions
      in our Articles of Incorporation, as amended, could prevent or delay
      stockholders' attempts to replace or remove current
      management.**




Our
      Articles of Incorporation, as amended, provide for staggered terms for the
      members of our Board of Directors. The Board of Directors is divided into three
      staggered classes, and each director serves a term of three years. At each
      annual stockholders’ meeting only those directors comprising one of the three
      classes will have completed their term and stand for re-election or replacement.
      These provisions may be beneficial to our management and the Board of Directors
      in a hostile tender offer, and may have an adverse impact on stockholders who
      may want to participate in such a tender offer, or who may want to replace
      some
      or all of the members of the Board of Directors.





**Our
      Board of Directors may issue additional shares of preferred stock without
      stockholder approval.**




Our
      Articles of Incorporation, as amended, authorize the issuance of up to
      10,000,000 shares of preferred stock, $10.00 par value per share. The Board
      of
      Directors is authorized to determine the rights and preferences of any
      additional series or class of preferred stock. The Board of Directors may,
      without stockholder approval, issue shares of preferred stock with dividend,
      liquidation, conversion, voting or other rights which are senior to our shares
      of common stock or which could adversely affect the voting power or other rights
      of the existing holders of outstanding shares of preferred stock or common
      stock. The issuance of additional shares of preferred stock may also hamper
      or
      discourage an acquisition or change in control of C2.





**We
      may conduct future offerings of our common stock and preferred stock and pay
      debt obligations with our common and preferred stock that may diminish our
      investors’ pro rata ownership and depress our stock price.**




We
      reserve the right to make future offers and sales, either public or private,
      of
      our securities including shares of our preferred stock, common stock or
      securities convertible into common stock at prices differing from the price
      of
      the common stock previously issued. In the event that any such future sales
      of
      securities are effected or we use our common or preferred stock to pay principal
      or interest on our debt obligations, an investor’s pro rata ownership interest
      may be reduced to the extent of any such issuances and, to the extent that
      any
      such sales are effected at consideration which is less than that paid by the
      investor, the investor may experience dilution and a diminution in the market
      price of the common stock. As of the date of this Report, a third party holds
      a
      Warrant to acquire 1,000,000 shares of common stock.





**The
      telecommunications market is volatile.**




During
      the last several years, the telecommunications industry has been very volatile
      as a result of overcapacity, which has led to price erosion and bankruptcies.
      If
      our potential licensees cannot control their subscriber and customer attrition,
      our potential revenue could decrease significantly as the licensees become
      unable to meet their financial obligations.





**There
      is a limited public trading market for our common stock; the market price of
      our
      common stock has been volatile and could experience substantial fluctuations.**




Our
      common stock is currently quoted on the OTC Bulletin Board and has a limited
      public trading market. Without an active trading market, there can be no
      assurance regarding the liquidity or resale value of the common stock. In
      addition, the market price of our common stock has been, and may continue to
      be,
      volatile. Such price fluctuations may be affected by general market price
      movements or by reasons unrelated to our operating performance or prospects
      such
      as, among other things, announcements concerning us or our competitors,
      technological innovations, government regulations, and litigation concerning
      proprietary rights or other matters.




10





**We
      may not be able to utilize income tax loss carryforwards.**




Restrictions
      in our ability to utilize income tax loss carry forwards have occurred in the
      past due to the application of certain changes in ownership tax rules in the
      United States. There is no certainty that the application of these rules may
      not
      recur. In addition, further restrictions of, reductions in, or expiry of net
      operating loss and net capital loss carry forwards may occur through future
      merger, acquisition and/or disposition transactions or failure to continue
      a
      significant level of business activities. Any such additional limitations could
      require us to pay income taxes in the future and record an income tax expense
      to
      the extent of such liability. We could be liable for income taxes on an overall
      basis while having unutilized tax loss carry forwards since these losses may
      be
      applicable to one jurisdiction and/or particular line of business while earnings
      may be applicable to a different jurisdiction and/or line of business.
      Additionally, income tax loss carry forwards may expire before we have the
      ability to utilize such losses in a particular jurisdiction and there is no
      certainty that current income tax rates will remain in effect at the time when
      we have the opportunity to utilize reported tax loss carry
      forwards.





**We
      have not declared any dividends on our common stock to date and have no
      expectation of doing so in the foreseeable future.**




The
      payment of cash dividends on our common stock rests within the discretion of
      our
      Board of Directors and will depend, among other things, upon our earnings,
      unencumbered cash, capital requirements and our financial condition, as well
      as
      other relevant factors. To date, we have not paid dividends on our common
      stock nor do we anticipate that we will pay dividends in the foreseeable future.
      As of December 31, 2007, we do not have any preferred stock outstanding that
      has
      any preferential dividends. Additionally, under the Florida Act, we cannot
      pay
      dividends while we have negative stockholders’ equity.





**Item
      1B. Unresolved Staff Comments**




None.





**Item
      2. Properties.**





The
      Company, in connection with its intellectual property licensing business, rents
      approximately 200 square feet of office space in Marshall, Texas on a month
      to
      month basis for a nominal amount. Should the Company be required to vacate
      these
      premises, ample alternative space is available. All accounting and reporting
      functions are carried out from the corporate office of its majority stockholder,
      Counsel, located in Toronto, Ontario, Canada. The Company is not required to
      pay
      rent or other occupancy costs to Counsel.





**Item
      3. Legal Proceedings.**





On
      April 16, 2004, certain stockholders of the Company (the “Plaintiffs”)
      filed a putative derivative complaint in the Superior Court of the State of
      California in and for the County of San Diego (the “Complaint”) against the
      Company, WorldxChange Corporation (sic), Counsel Communications LLC, and Counsel
      Corporation as well as four present and former officers and directors of the
      Company, some of whom also are or were directors and/or officers of the other
      corporate defendants (collectively, the “Defendants”). The Complaint alleges,
      among other things, that the Defendants, in their respective roles as
      controlling stockholder and directors and officers of the Company committed
      breaches of the fiduciary duties of care, loyalty and good faith and were
      unjustly enriched, and that the individual Defendants committed waste of
      corporate assets, abuse of control and gross mismanagement. The Plaintiffs
      seek
      compensatory damages, restitution, disgorgement of allegedly unlawful profits,
      benefits and other compensation, attorneys’ fees and expenses in connection with
      the Complaint. The Company believes that these claims are without merit and
      intends to continue to vigorously defend this action. Although there is no
      certainty that this matter will be resolved in the Company’s favor, at this time
      the Company does not believe that the outcome of this matter will have a
      material adverse impact on its business, results of operations, financial
      position or liquidity.





The
      Company, Counsel Communications LLC, Counsel Corporation and four of its current
      and former executives and board members were named in a securities action filed
      in the Superior Court of the State of California in and for the County of San
      Diego (the “Court”) on April 16, 2004, in which the plaintiffs made claims
      nearly identical to those set forth in the Complaint in the derivative suit
      described above. The Company believes that these claims are without merit and
      intends to vigorously defend this action. Although there is no certainty that
      this matter will be resolved in the Company’s favor, at this time the Company
      does not believe that the outcome of this matter will have a material adverse
      impact on its business, results of operations, financial position or liquidity.
      In February 2006, the plaintiffs in both this action and the derivative action
      described above changed attorneys. On July 31, 2007, the trial date for both
      actions was moved to June 6, 2008.




11





At
      our
      Adjourned Meeting of Stockholders held on December 30, 2003, our
      stockholders, among other things, approved an amendment to our Articles of
      Incorporation, deleting Article VI thereof (regarding liquidations,
      reorganizations, mergers and the like). Stockholders who were entitled to vote
      at the meeting and advised us in writing, prior to the vote on the amendment,
      that they dissented and intended to demand payment for their shares if the
      amendment was effectuated, were entitled to exercise their appraisal rights
      and
      obtain payment in cash for their shares under Sections 607.1301 - 607.1333
      of the Florida Act, provided their shares were not voted in favor of the
      amendment. In January 2004, we sent appraisal notices in compliance with
      Florida corporate statutes to all stockholders who had advised us of their
      intention to exercise their appraisal rights. The appraisal notices included
      our
      estimate of fair value of our shares, at $4.00 per share on a post-split basis.
      These stockholders had until February 29, 2004 to return their completed
      appraisal notices along with certificates for the shares for which they were
      exercising their appraisal rights. Approximately 33 stockholders holding
      approximately 74,000 shares of our stock returned completed appraisal notices
      by
      February 29, 2004. A stockholder of 20 shares notified us of his acceptance
      of our offer of $4.00 per share, while the stockholders of the remaining shares
      did not accept our offer. Subject to the qualification that, in accordance
      with
      the Florida Act, we may not make any payment to a stockholder seeking appraisal
      rights if, at the time of payment, our total assets are less than our total
      liabilities, stockholders who accepted our offer to purchase their shares at
      the
      estimated fair value will be paid for their shares within 90 days of our
      receipt of a duly executed appraisal notice. If we should be required to make
      any payments to dissenting stockholders, Counsel will fund any such amounts
      through advances to C2. Stockholders who did not accept our offer were required
      to indicate their own estimate of fair value, and if we do not agree with such
      estimates, the parties are required to go to court for an appraisal proceeding
      on an individual basis, in order to establish fair value. Because we did not
      agree with the estimates submitted by most of the dissenting stockholders,
      we
      have sought a judicial determination of the fair value of the common stock
      held
      by the dissenting stockholders. On June 24, 2004, we filed suit against the
      dissenting stockholders seeking a declaratory judgment, appraisal and other
      relief in the Circuit Court for the 17 th Judicial
      District in Broward County, Florida. On February 4, 2005, the declaratory
      judgment action was stayed pending the resolution of the direct and derivative
      lawsuits filed in California. This decision was made by the judge in the Florida
      declaratory judgment action due to the similar nature of certain allegations
      brought by the defendants in the declaratory judgment matter and the California
      lawsuits described above. On March 7, 2005, the dissenting shareholders appealed
      the decision of the District Court judge to the Fourth District Court of Appeals
      for the State of Florida, which denied the appeal on June 21, 2005. When the
      declaratory judgment matter resumes, there is no assurance that this matter
      will
      be resolved in our favor and an unfavorable outcome of this matter could have
      a
      material adverse impact on our business, results of operations, financial
      position or liquidity.





On
      June
      15, 2006, C2 Communications Technologies Inc., a wholly-owned subsidiary of
      the
      Company, filed a patent infringement lawsuit against AT&T, Inc., Verizon
      Communications, Inc., Qwest Communications International, Inc., Bellsouth
      Corporation, Sprint Nextel Corporation, Global Crossing Limited, and Level
      3
      Communications, Inc. The complaint was filed in the Marshall Division of the
      United States District Court for the Eastern District of Texas and alleges
      that
      the defendants’ services and systems utilizing VoIP infringe C2’s U.S. Patent
      No. 6,243,373, entitled *“Method
      and Apparatus for Implementing a Computer Network/Internet Telephone
      System”* .
      The
      complaint seeks an injunction, monetary damages, and costs. In April 2007,
      a
      trial date of August 4, 2008 was set for the lawsuit. In June 2007, the
      complaint against Bellsouth Corporation was dismissed without prejudice. There
      is no assurance that the Company will be successful in this litigation. In
      February 2008, the Company settled the complaints against AT&T and Verizon
      by entering into settlement and license agreements.





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





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





None


12





**PART
      II**





**Item
      5. Market for Registrant’s Common Equity, Related Stockholder
      Matters**  **and
      Issuer Purchases of Equity Securities.**





**Market
      Information**





Shares
      of
      C2’s common stock, $0.01 par value per share, are traded on the OTC Bulletin
      Board (“OTCBB”) under the symbol COBT.OB.





The
      following table sets forth the high and low prices for our common stock, as
      quoted on the OTCBB, for the calendar quarters from January 1, 2006 through
      December 31, 2007, based on inter-dealer quotations, without retail markup,
      markdown, commissions or adjustments. These prices may not represent actual
      transactions:




**Quarter
                Ended**
            
            **High**
            
            **Low**March
                31, 2006
            
            $
            0.79
            
            $
            0.40June
                30, 2006
            
            
            1.98
            
            
            0.25September
                30, 2006
            
            
            1.60
            
            
            0.51December
                31, 2006
            
            
            0.60
            
            
            0.35March
                31, 2007
            
            $
            1.49
            
            $
            0.50June
                30, 2007
            
            
            0.90
            
            
            0.35September
                30, 2007
            
            
            0.55
            
            
            0.40December
                31, 2007
            
            
            0.90
            
            
            0.31





On
      February 26, 2008, the closing price for a share of the Company’s common stock
      was $1.01.





**Holders**





As
      of February
      26, 2008 ,
      the
      Company had approximately 946 holders of common stock of record.





**Dividends**





To
      date,
      we have not paid dividends on our common stock nor do we anticipate that we
      will
      pay dividends in the foreseeable future. As of December 31, 2007, we do not
      have
      any preferred stock outstanding which has any preferential dividends. Under
      the
      Florida Act, we cannot pay dividends while we have negative stockholders’
equity.




13





**Securities
      Authorized for Issuance Under Equity Compensation Plans**





The
      following table sets forth, as of December 31, 2007, information with respect
      to
      equity compensation plans (including individual compensation arrangements)
      under
      which the Company’s securities are authorized for issuance.




During
      the twelve months ended December 31, 2007, 30,000 options were granted to
      directors under the 2003 Employee Stock Option and Appreciation Rights Plan.
      These options were issued with an exercise price that equalled or exceeded
      fair
      market value on the date of the grant, and they vest over a 4-year period
      subject to the grantee’s continued service as a director with the
      Company **.** The
      Company relied on an exemption from registration under Section 4(2) of the
      Securities Act of 1933, as amended (the “1933 Act”). No other options were
      issued during the twelve months ended December 31, 2007.




**Plan
                Category (1)**
            
            **Number
                of Securities to be issued upon exercise of outstanding
                options**
            
            **Weighted-average
                exercise price of outstanding options**
            
            **Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in column
                (a))****(a)**
            
            **(b)**
            
            **(c)**$**Equity
                compensation plans approved by security
                holders:**2003
                Stock Option and Appreciation Rights Plan
            
            
            598,250
            
            
            1.48
            
            
            1,401,7501997
                Recruitment Stock Option Plan
            
            
            238,611
            
            
            2.20
            
            
            131,3891995
                Directors Stock Option and Appreciation Rights Plan
            
            
            —
            
            
            —
            
            
            12,5001995
                Employee Stock Option and Appreciation Rights Plan
            
            
            —
            
            
            —
            
            
            20,000**Equity
                compensation plans not approved by security
                holders:**Issuance
                of non-qualified options to employees and outside
                consultants
            
            
            138,888
            
            
            59.26
            
            
            —Total
            
            
            975,749
            
            
            9.88
            
            
            1,565,639




(1)
              For a description of the material terms of these plans, see Note 16
              in the
              Company’s audited financial statements included in Item 15 of this
              Report.




**Recent
      Sales of Unregistered Securities; Use of Proceeds from
      Registered**  **Securities.**





None.





**Issuer
      Purchases of Equity Securities.**





We
      did
      not make any stock repurchases during the last quarter of 2007.




14





**Performance
      Graph.**





*The
      following Performance Graph and related information shall not be deemed
“soliciting material” or to be “filed” with the Securities and Exchange
      Commission, nor shall such information be incorporated by reference into any
      future filings under the Securities Act of 1933 or Securities Exchange Act
      of
      1934, each as amended, except to the extent that the Company specifically
      incorporates it by reference into such filing.*





The
      following graph compares our cumulative total stockholder return with that
      of
      the Russell 2000 index of small-capitalization companies and our peer group.
      Our
      peer group consists of Acacia Technologies Group, Forgent Networks Inc. (d/b/a
      Asure Software), UTEK Corporation, Patriot Scientific Corporation and Network-1
      Security Solutions Inc. We selected these companies for our Current Group
      because they are in the business of licensing intellectual property in a manner
      that is similar to our business model. The graph assumes an initial investment
      of $100.00 made on December 31, 2002, and the reinvestment of dividends (where
      applicable). We have never paid a dividend on our common stock.










**Total
                    Return Analysis**12/31/2002
                
                12/31/2003
                
                12/31/2004
                
                12/31/2005
                
                12/31/2006
                
                12/31/2007**C2
                    Global Technologies, Inc.**
                
                **$**
                **100.00**
                
                **$**
                **87.20**
                
                **$**
                **24.00**
                
                **$**
                **24.40**
                
                **$**
                **16.00**
                
                **$**
                **12.40****Peer
                    Group**
                
                **$**
                **100.00**
                
                **$**
                **137.45**
                
                **$**
                **179.69**
                
                **$**
                **207.50**
                
                **$**
                **687.61**
                
                **$**
                **629.28****Russell
                    2000 Index**
                
                **$**
                **100.00**
                
                **$**
                **145.37**
                
                **$**
                **170.08**
                
                **$**
                **175.73**
                
                **$**
                **205.61**
                
                **$**
                **199.96**Source:
                    CTA Integrated Communications www.ctaintegrated.com (303) 665-4200.
                    Data
                    from ReutersBRIDGE Data Networks


15


**Item
      6. Selected Financial Data.**





The
      following selected consolidated financial information was derived from the
      audited consolidated financial statements and notes thereto. Prior periods
      have
      been amended to reclassify the Telecommunications business as discontinued
      operations. The information set forth below is not necessarily indicative of
      the
      results of future operations and should be read in conjunction with Item 7,
      “Management’s Discussion and Analysis of Financial Condition and Results of
      Operations” as well as the Consolidated Financial Statements and Notes thereto
      included in Item 15 in this Report.





******2007**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003****Statement
                of Operations Data :**Patent
                licensing and development revenues
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            540
            
            $
            2,164Operating
                costs and expenses
            
            
            1,236
            
            
            1,301
            
            
            3,179
            
            
            4,541
            
            
            4,516Operating
                loss
            
            
            (1,236
            )
            
            (1,301
            )
            
            (3,179
            )
            
            (4,001
            )
            
            (2,352
            )Other
                income (expense):Interest
                expense - related party
            
            
            (184
            )
            
            (10,390
            )
            
            (12,154
            )
            
            (8,488
            )
            
            (10,175
            )Interest
                expense - third party
            
            
            (12
            )
            
            (510
            )
            
            (658
            )
            
            (65
            )
            
            (875
            )Other
                income (expense)
            
            
            (207
            )
            
            155
            
            
            1,084
            
            
            1,487
            
            
            1,138Other
                income (expense), net
            
            
            (403
            )
            
            (10,745
            )
            
            (11,728
            )
            
            (7,066
            )
            
            (9,912
            )Loss
                from continuing operations before income taxes
            
            
            (1,639
            )
            
            (12,046
            )
            
            (14,907
            )
            
            (11,067
            )
            
            (12,264
            )Income
                tax expense (recovery)
            
            
            (1,000
            )
            
            —
            
            
            —
            
            
            —
            
            
            —Loss
                from continuing operations
            
            
            (639
            )
            
            (12,046
            )
            
            (14,907
            )
            
            (11,067
            )
            
            (12,264
            )Income
                (loss) from discontinued operations
            
            
            (6
            )
            
            4,370
            
            
            (3,582
            )
            
            (11,716
            )
            
            (19,164
            )Net
                loss
            
            $
            (645
            )
            $
            (
                7,676
            )
            $
            (18,489
            )
            $
            (22,783
            )
            $
            (31,428
            )Net
                loss per common share - basic and diluted:Loss
                from continuing operations
            
            $
            (0.03
            )
            $
            (0.63
            )
            $
            (0.77
            )
            $
            (0.57
            )
            $
            (1.75
            )Income
                (loss) from discontinued operations
            
            
            —
            
            
            0.23
            
            
            (0.19
            )
            
            (0.61
            )
            
            (2.73
            )Net
                loss per common share
            
            $
            (0.03
            )
            $
            (0.40
            )
            $
            (0.96
            )
            $
            (1.18
            )
            $
            (4.48
            )**Balance
                Sheet Data:**Total
                assets
            
            $
            1,796
            
            $
            1,386
            
            $
            3,490
            
            $
            24,009
            
            $
            39,054Total
                current liabilities
            
            $
            2,737
            
            $
            1,855
            
            $
            79,852
            
            $
            36,150
            
            $
            50,887Total
                long-term obligations:Related
                party
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            46,015
            
            $
            28,717Third
                party
            
            $
            —
            
            $
            —
            
            $
            1,580
            
            $
            3,164
            
            $
            —Discontinued
                liabilities
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            645
            
            $
            2,403Stockholders’
                deficit
            
            $
            (941
            )
            $
            (469
            )
            $
            (77,942
            )
            $
            (61,965
            )
            $
            (42,953
            )





16


**Item
      7. Management’s Discussion and Analysis of Financial Condition and
      Results**  **of
      Operations.**





(All
      dollar amounts are presented in thousands USD, unless otherwise indicated,
      except per share amounts)





The
      following discussion and analysis should be read in conjunction with our
      Consolidated Financial Statements and Notes thereto, included in Item 8 of
      this
      Report. Our accounting policies have the potential to have a significant impact
      on our financial statements, either because of the significance of the financial
      statement item to which they relate, or because they require judgment and
      estimation due to the uncertainty involved in measuring, at a specific point
      in
      time, events which are continuous in nature.





**Forward-Looking
      Information**





*This
      Report contains certain “forward-looking statements” within the meaning of
      Section 27A of the Securities Act of 1933, as amended, and Section 21E of
      the Exchange Act of 1934, as amended, that are based on management’s exercise of
      business judgment as well as assumptions made by, and information currently
      available to, management. When used in this document, the words “may”,* " *will”,
      “anticipate”, “believe”, “estimate”, “expect”, “intend”, and words of similar
      import, are intended to identify any forward-looking statements. You should
      not
      place undue reliance on these forward-looking statements. These statements
      reflect our current view of future events and are subject to certain risks
      and
      uncertainties, as noted below. Should one or more of these risks or
      uncertainties materialize, or should underlying assumptions prove incorrect,
      our
      actual results could differ materially from those anticipated in these
      forward-looking statements. We undertake no obligation, and do not intend,
      to
      update, revise or otherwise publicly release any revisions to these
      forward-looking statements to reflect events or circumstances after the date
      hereof, or to reflect the occurrence of any unanticipated events. Although
      we
      believe that our expectations are based on reasonable assumptions, we can give
      no assurance that our expectations will materialize.*





**Business
      Overview, Recent Developments and Outlook**





Please
      see Item 1, above, of this Report for an overview of the Company’s business and
      development. Please see Item 1A, above, for a discussion of the risk factors
      that may impact the Company’s current and future operations, and financial
      condition.





**Liquidity
      and Capital Resources**





As
      a
      result of our historical operating losses and negative cash flows from
      operations, at December 31, 2007 we had a stockholders’ deficit of $941 (2006 -
      $469) and a working capital deficit of $1,653 (2006 - $1,782). The working
      capital deficit decreased by $1,000 due to the Company recording a deferred
      income tax asset of $1,000 in the fourth quarter of 2007 as a result of the
      settlement and license agreements that were finalized in the first quarter
      of
      2008, and by $148 due to a reduction in accounts payable and accrued
      liabilities. These decreases were offset by net advances of $2,145 from our
      majority stockholder, Counsel Corporation (together with its subsidiaries,
      “Counsel”), and the capitalization of $184 interest on those advances. During
      2007, Counsel advanced a total of $3,245, and the Company repaid $1,100 of
      principal from the proceeds of the redemption of the AccessLine portfolio
      investment and the sale of the investment in MyTrade.com, Inc., which are
      discussed in more detail in Note 5 of the consolidated financial statements.
      The
      bulk of the advances from Counsel were used to fund the January 10, 2007
      repayment of the $1,471 convertible note (the “Note”) owing to a third party
      lender at December 31, 2006. The Note’s repayment also resulted in the
      elimination of its associated $62 deferred financing costs and $172 debt
      discount, further increasing the working capital deficit.





As
      a
      result of the settlement and license agreements entered into with respect to
      the
      VoIP Patent Portfolio in 2008, the Company expects to recognize revenues from
      continuing operations for the first time since 2004. At the present time, the
      Company expects to have positive operating cash flows in 2008. However, the
      Company must continue to realize value from its intellectual property through
      ongoing licensing and royalty revenue, as discussed in Note 1 of the
      consolidated financial statements, in order to continue as a going concern.
      Absent an ongoing revenue stream, there is significant doubt regarding the
      Company’s ability to obtain additional financing to fund its operations without
      the support of Counsel.





Related
      party debt owing to Counsel is $2,335 at December 31, 2007 compared to $6 at
      December 31, 2006. Interest on the related party debt is capitalized, at the
      end
      of each quarter, and added to the principal amount outstanding. The related
      party debt was scheduled to mature on December 31, 2007, but has been extended
      until December 31, 2008. Until December 31, 2006, the debt was supported by
      Counsel’s Keep Well agreement with C2, which required Counsel to fund, through
      long-term intercompany advances or equity contributions, all capital investment,
      working capital or other operational cash requirements of C2. The Keep Well
      was
      not extended beyond its December 31, 2006 maturity, but Counsel has indicated
      that it will fund the Company’s minimal cash requirements until at least
      December 31, 2008.




17





The
      Company had no long-term third party debt at December 31, 2007.





***Ownership
      Structure and Capital Resources***


·
              The
                  Company is 92.51% owned by Counsel. The remaining 7.49% is owned
                  by public
                  stockholders.
 
 ·
              Since
                  becoming controlling stockholder in 2001, Counsel has invested
                  over
                  $100,000 in C2 to fund the development of C2’s technology and its
                  Telecommunications business. At December 29, 2006 C2 owed $83,582
                  to
                  Counsel, including accrued and unpaid interest. As discussed in
                  Note 9 of
                  the consolidated financial statements included in Item 15 of this
                  Report,
                  on December 30, 2006 Counsel converted $3,386 of this debt into
                  3,847,475
                  common shares of C2, and forgave the balance of $80,196. Counsel
                  subsequently provided net advances of $2,151 through December 31,
                  2007.
                  The disposition of the Telecommunications business in the third
                  quarter of
                  2005 significantly reduced both the complexity and the funding
                  requirements of the Company’s operations, and Counsel’s investment during
                  2006 and 2007 was significantly less than its investment in prior
                  years.
                  As noted above, should the Company fail to establish ongoing patent
                  licensing and royalty revenues, the Company’s ongoing operations may again
                  become dependent on funding by
                  Counsel.


***Cash
      Position***





Cash,
      cash equivalents and restricted cash as of December 31, 2007 were $67 compared
      to $3 in 2006 and $1,833 in 2005.





***Cash
      utilized in operating activities***





Cash
      used
      in operating activities (excluding discontinued operations) during 2007 was
      $1,268 (2006 - $2,324; 2005 - $3,350). The net loss from continuing operations
      decreased $11,407 to $639 in 2007 compared to $12,046 in 2006. In 2007, the
      loss
      from discontinued operations was $6, as compared to income of $4,370 in 2006,
      a
      net decrease of $4,376. In the fourth quarter of 2007 the Company recorded
      a
      deferred income tax recovery of $1,000; there was no similar transaction in
      2006. The other significant changes in non-cash items in 2007 as compared to
      2006 involved related party debt. In 2006 the Company recorded $2,848 of
      amortization of discount and debt issuance costs on a convertible note owing
      to
      Counsel; as this debt was eliminated by conversion and forgiveness on December
      30, 2006, there were no similar amounts recorded in 2007. As well, Counsel’s
      December 30, 2006 forgiveness of the remaining debt owing resulted in
      capitalized interest being reduced from $7,542 in 2006 to $184 in 2007, a
      difference of $7,358. It should also be noted that the reduction in accounts
      payable and accrued liabilities in 2007 was $148, compared to $1,224 in 2006,
      a
      reflection of the reduced complexity of the Company’s operations following the
      sale of its Telecommunications business during the third quarter of
      2005.





***Cash
      provided by investing activities***





Net
      cash
      provided by investing activities (excluding discontinued operations) during
      2007
      was $655 (2006 - $0, 2005 - $0). In 2007, the Company’s $1,100 preferred share
      investment in AccessLine Communications was redeemed in full. The Company
      subsequently invested $595 in the portfolio investments described in Note 5
      of
      the consolidated financial statements, and received $150 from the sale of one
      of
      these investments. There were no similar transactions in 2006 and
      2005.





***Cash
      provided by financing activities***





Financing
      activities (excluding discontinued operations) provided net cash of $683 (2006
      -
      $2,142; 2005 - $12,092). Net financing from Counsel was $2,145 in 2007 compared
      to $2,401 in 2006, a decrease of $256. However, the Company’s payments to its
      third party lender in 2007 decreased $303, from $1,765 in 2006 to $1,462 in
      2007. In 2006, $1,506 of the payments to the third party lender were made from
      cash that had been segregated in 2005 for that purpose; no segregated cash
      remained to be applied in 2007.





**Contractual
      Obligations**





We
      have
      no contractual commitments other than our debt. We have no liabilities
      associated with income taxes that require disclosure under the terms and
      provisions of FIN 48. The following table summarizes our contractual
      obligations, including estimated interest payable, at December 31,
      2007:





**Payment
                due by period****Contractual
                obligations:**
            
            **Total**
            
            **Less
                than 1**
              **year**
            
            **1-3**
              **years**
            
            **3-5**
              **years**
            
            **More
                than 5****years**Notes
                payable to a related party
            
            $
            2,577
            
            $
            2,577
            
            $
            —
            
            $
            —
            
            $
            —Total
            
            $
            2,577
            
            $
            2,577
            
            $
            —
            
            $
            —
            
            $
            —





18





**Consolidated
      Results of Operations**





Key
      selected financial data for the three years ended December 31, 2007, 2006 and
      2005 are as follows:




**Percentage
                Change****2007**
            
            **2006**
            
            **2005**
            
            **2007
                vs. 2006**
            
            **2006
                vs. 2005**Revenues:Patent
                licensing
            
            $
            —
            
            $
            —
            
            $
            —
            
            
            N/A
            
            
            N/AOperating
                costs and expenses:Selling,
                general, administrative and other
            
            
            1,216
            
            
            1,281
            
            
            2,758
            
            
            (5
            )
            
            (54
            )Research
                and development
            
            
            —
            
            
            —
            
            
            389
            
            
            N/A
            
            
            N/ADepreciation
                and amortization
            
            
            20
            
            
            20
            
            
            32
            
            
            —
            
            
            (38
            )Total
                operating costs and expenses
            
            
            1,236
            
            
            1,301
            
            
            3,179
            
            
            (5
            )
            
            (59
            )Operating
                loss
            
            
            (1,236
            )
            
            (1,301
            )
            
            (3,179
            )
            
            (5
            )
            
            (59
            )Other
                income (expense):Interest
                expense - related party
            
            
            (184
            )
            
            (10,390
            )
            
            (12,154
            )
            
            (98
            )
            
            (15
            )Interest
                expense - third party
            
            
            (12
            )
            
            (510
            )
            
            (658
            )
            
            (98
            )
            
            (22
            )Other
                income (expense)
            
            
            (207
            )
            
            155
            
            
            1,084
            
            
            N/A
            
            
            (86
            )Total
                other expense, net
            
            
            (403
            )
            
            (10,745
            )
            
            (11,728
            )
            
            (96
            )
            
            (8
            )Loss
                from continuing operations before income taxes
            
            
            (1,639
            )
            
            (12,046
            )
            
            (14,907
            )
            
            (86
            )
            
            (19
            )Income
                tax expense (recovery)
            
            
            (1,000
            )
            
            —
            
            
            —
            
            
            N/A
            
            
            N/ALoss
                from continuing operations
            
            
            (639
            )
            
            (12,046
            )
            
            (14,907
            )
            
            (95
            )
            
            (19
            )Income
                (loss) from discontinued operations
            
            
            (6
            )
            
            4,370
            
            
            (3,582
            )
            
            N/A
            
            
            N/ANet
                loss
            
            $
            (645
            )
            $
            (7,676
            )
            $
            (18,489
            )
            
            (92
            )
            
            (58
            )




In
      order
      to more fully understand the comparison of the results of continuing operations
      for 2007 as compared to 2006, and for 2006 as compared to 2005, it is important
      to note the significant changes that occurred in 2005 and 2006. On May 19,
      2005,
      we entered into an agreement to sell substantially all of the assets, and to
      transfer certain liabilities, of WXC Corp. (“WXCC”, formerly Acceris
      Communications Corp.) to Acceris Management and Acquisition LLC, an unrelated
      third party. The sale closed on September 30, 2005. The operational results
      related to WXCC were reclassified as discontinued operations in 2005 and prior
      years, and accordingly are not included in the following analysis of continuing
      operations. Similarly, in the second quarter of 2006 we entered into a stock
      purchase agreement with a third party, which agreed to acquire all of the shares
      of I-Link Communications Inc. (“ILC”) from the Company. The operational results
      related to ILC were reclassified as discontinued operations in 2006 and prior
      years, and are not included in the following analysis of continuing
      operations.




Patent
        licensing revenue is derived from licensing and related services revenue.
        Utilizing our patented technology, VoIP enables telecommunications customers
        to
        originate a phone call on a traditional handset, transmit any part of that
        call
        via the Internet, and then terminate the call over the traditional telephone
        network. Our VoIP Patent Portfolio is an international patent portfolio covering
        the basic process and technology that enables VoIP communications. The Company
        has engaged, and intends to continue to engage, in licensing agreements with
        third parties domestically and internationally. At present, no ongoing royalties
        are being paid to the Company. The Company plans to obtain licensing and
        royalty
        revenue from the target market for its patents. In this regard, in the third
        quarter of 2005, the Company retained legal counsel with expertise in the
        enforcement of intellectual property rights, and on June 15, 2006 C2
        Communications Technologies Inc., a wholly-owned subsidiary of the Company,
        filed a patent infringement lawsuit against AT&T, Inc., Verizon
        Communications, Inc., Qwest Communications International, Inc., Bellsouth
        Corporation, Sprint Nextel Corporation, Global Crossing Limited, and Level
        3
        Communications, Inc. The complaint was filed in the Marshall Division of
        the
        United States District Court for the Eastern District of Texas, and alleges
        that
        these companies’ VoIP services and systems infringe the Company’s U.S. Patent
        No. 6,243,373, entitled *“Method and Apparatus for Implementing a Computer
        Network/Internet Telephone System”.* The complaint seeks an injunction,
        monetary damages and costs. In April 2007, a trial date of August 4, 2008
        was
        set for the lawsuit. In June 2007, the complaint against Bellsouth Corporation
        was dismissed without prejudice. In February 2008, the Company settled the
        complaints against AT&T and Verizon by entering into settlement and license
        agreements.





Revenue
      and contributions from this business were historically based on the sales and
      deployments of our VoIP solutions, which we ceased directly marketing in 2005,
      rather than on the receipt of licensing fees and royalties. We expect to
      generate ongoing licensing and royalty revenue in this business as we gain
      recognition of the underlying value in our VoIP Patent Portfolio through the
      enforcement of our intellectual property rights. In connection with the 2003
      acquisition of U.S. Patent No. 6,243,373, the Company agreed to remit, to the
      former owner of the patent, 35% of the net proceeds from future revenue derived
      from the licensing of the VoIP Patent Portfolio. Net proceeds are defined as
      revenue from licensing the VoIP Patent Portfolio less costs necessary to obtain
      the licensing arrangement. To date, no payments have been made to the former
      owner of the patent, as the relevant costs incurred have exceeded licensing
      revenues. As we earn patent licensing revenues, we expect that there will be
      net
      proceeds that will be subject to the former owner’s 35%
      entitlement.




19





***2007
      Compared to 2006***





**Patent
      licensing revenues** were $0
      in both 2007 and 2006.





**Selling,
      general, administrative and other expense** was
      $1,216 for the year ended December 31, 2007 as compared to $1,281 for the year
      ended December 31, 2006. The significant changes included:


·
              Compensation
                  expense was $304 compared to $234 in 2006. The salary earned by
                  the CEO of
                  C2 remained unchanged at $138; however, stock-based compensation
                  expense
                  increased by $27, from $139 in 2006 to $166 in 2007. In 2006 the
                  Company
                  incurred compensation expense of $27 for an
                  employee who provided technology-related services; his employment
                  terminated in the second quarter of 2006 and
                  consequentlythere
                  was no corresponding expense in 2007. Also, in the first quarter
                  of 2006
                  the Company recorded a credit of $69 relating to the reversal of
                  bonus
                  expense accrued in 2005 that was subsequently determined not to
                  be
                  warranted; there were no similar transactions in
                  2007.
 
 ·
              Legal
                  expenses in 2007 were $157, comparable to $171 in
                  2006.
 
 ·
              Accounting
                  and tax consulting expenses in 2007 were $146 compared to $295
                  in 2006.
                  The decrease reflects the reduced complexity of the Company’s operations
                  following the disposition of the Telecommunications business in
                  the third
                  quarter of 2005.
 
 ·
              Fees
                  paid to the members of our Board of Directors were $104 in 2007
                  and
                  2006.
 
 ·
              Management
                  fee expense charged by our majority stockholder, Counsel, was $225
                  in both
                  2007 and 2006. See Item 13 of this Report for details regarding
                  these
                  management fees.
 
 ·
              Directors
                  and officers insurance expense was $150 in both 2007 and
                  2006.
 
 ·
              In
                  the second quarter of 2007, the Company incurred expenses of $60
                  with
                  respect to filing fees for patents being issued in various European
                  countries. There was no corresponding expense in
                  2006.
 
 **Depreciation
        and amortization** - This
        expense was $20 in both 2007 and 2006, and relates to the amortization of
        the
        cost of the VoIP Patent.
 
 The
        changes in **other
        income (expense)** are
        primarily related to the following:
 
 ·
              Related
                  party interest expense was $184 in 2007, as compared to $10,390
                  in 2006.
                  The decrease of $10,206 is primarily due to the decrease in the
                  balance
                  owing to Counsel. As discussed in Note 13 of the consolidated financial
                  statements, on December 30, 2006, Counsel converted $3,386 of the
                  $83,582
                  owed by C2 into 3,847,475 common shares and forgave the remaining
                  balance
                  of $80,196. Subsequent net advances by Counsel of $2,151 through
                  December
                  31, 2007 resulted in much lower interest expense during 2007. It
                  should
                  also be noted that the related party interest expense in 2006 included
                  $2,848 of amortization of the beneficial conversion feature (“BCF”)
                  related to Counsel’s ability to convert a portion of its debt. The BCF was
                  fully amortized in 2006, prior to the debt forgiveness by Counsel,
                  and
                  there has been no corresponding expense in
                  2007.
 
 ·
              Third
                  party interest expense was $12 in 2007, as compared to $510 in
                  2006. All
                  of the interest expense related to the Note and the warrant to
                  purchase
                  common stock, both held by the Company’s third party lender. As discussed
                  in Note 9, the Note was prepaid in full effective January 10, 2007,
                  and
                  therefore the 2007 expense consists of interest and discount amortization
                  for only ten days. In 2006, the combined interest expense and discount
                  amortization were $588, and the Company recorded a credit of $78
                  as a mark
                  to market adjustment on the warrant to purchase common stock. The
                  2006
                  mark to market adjustment on the warrant was based on the closing
                  price of
                  the Company’s common stock on the last day of each quarter. As discussed
                  in Note 9, in the fourth quarter of 2006 the warrant was transferred
                  to
                  stockholders’ equity and therefore no mark to market adjustments were
                  required in 2007.
 
 ·
              In
                  2007 the Company had other expense of $207, as compared to other
                  income of
                  $155 in 2006. The 2007 expense is primarily composed of the $293
                  cost to
                  prepay the Note owed to the third party lender, as detailed in
                  Note 9. It
                  also includes the gain of $75 on the sale of the Company’s interest in
                  MyTrade.com, as detailed in Note 5, and $6 of income related to
                  investments where the Company has significant influence, as also
                  detailed
                  in Note 5. During 2007 the Company earned $2 of bank interest and
                  received
                  $3 as a reduction of prior years’ insurance premiums. The 2006 income
                  primarily consists of the recovery of $110 of receivables that
                  were fully
                  reserved against when acquired in 2001 as part of the acquisition
                  of the
                  assets of WorldxChange Communications Inc. from bankruptcy, as
                  a result of
                  the Company entering into settlement agreements with certain carriers.
                  The
                  remaining income in 2006 related to interest earned on cash deposits.




20




***2006
      Compared to 2005***





**Patent
      licensing revenues** were $0
      in both 2006 and 2005.





**Selling,
      general, administrative and other expense** was
      $1,281 for the year ended December 31, 2006 as compared to $2,758 for the year
      ended December 31, 2005. The significant changes included:


·
              Compensation
                  expense was $234 compared to $275 in 2005. The 2005 expense included
                  a
                  bonus accrual of $69, which was reversed in the first quarter of
                  2006 upon
                  determination that it was not warranted. After the effects of the
                  bonus
                  are removed, the comparative expense amounts for 2006 and 2005
                  are $303
                  and $206, respectively. On January 1, 2006 the Company adopted
                  SFAS No.
                  123(R), which resulted in $139 of compensation expense being recorded
                  in
                  2006. No corresponding expense was recorded in 2005. In 2006, the
                  salary
                  expense for the Company’s technology-relatedemployees
                  was $27, but the corresponding compensation costs in 2005 were
                  included in
                  research and development expense. These increases in compensation
                  expense
                  recorded in 2006 as compared to 2005 were partially offset by a
                  reduction
                  in the annual salary earned by the CEO of C2. Effective July 1,
                  2005, the
                  annual salary was reduced from $275 to $138, with the result that
                  the 2006
                  expense was $69 lower than the 2005 expense. The change in salary
                  reflected the reduced complexity of the Company’s operations following the
                  sale of the Telecommunications business in the third quarter of
                  2005.
 
 ·
              Legal
                  expenses in 2006 were $171 compared to $845 in 2005. The decrease
                  in legal
                  expenses resulted primarily from a reduced level of activity in
                  the
                  Company’s patent litigation with ITXC. This litigation had commenced in
                  April 2004 and was terminated in March
                  2006.
 
 ·
              Accounting
                  and tax consulting expenses in 2006 were $295 compared to $242
                  in
                  2005.
 
 ·
              Fees
                  paid to the members of our Board of Directors were $104 in 2006
                  compared
                  to $168 in 2005. The decrease is attributable to two factors. The
                  first is
                  that fewer meetings were held during 2006. As well, the Board was
                  smaller
                  during 2006, having been reduced, at the end of the first quarter
                  of 2005,
                  from eight members to four members.
 
 ·
              Management
                  fee expense charged by our majority stockholder, Counsel, was $225
                  in 2006
                  and $450 in 2005. See Item 13 of this Report for details regarding
                  these
                  management fees.
 
 ·
              Directors
                  and officers insurance expense was $150 in both 2006 and
                  2005.
 
 ·
              Travel
                  and entertainment expenses in 2006 were $18 compared to $240 in
                  2005. The
                  reduced level of expense in 2006 reflects the decreased complexity
                  of
                  operations following the sale of the Telecommunications business
                  in the
                  third quarter of 2005.
 
 ·
              We
                  incurred restructuring expenses of $152 in 2005, relating to severance
                  costs paid to former employees in the third quarter of 2005. There
                  were no
                  similar expenses in 2006.


**Research
      and development (“R&D”) costs** - In
      2004, the Company resumed R&D activities related to its VoIP technology
      platform. The Company suspended its R&D expenditures in the third quarter of
      2005 in conjunction with its decision to focus all business efforts on the
      realization of licensing fees associated with its intellectual property. There
      was therefore no R&D expense in 2006, compared to $389 in 2005.





**Depreciation
      and amortization** - This
      expense was $20 in 2006 compared to $32 in 2005. In 2006, this expense consisted
      solely of amortization of the cost of the VoIP Patent. In 2005, the Company
      also
      incurred depreciation expense on equipment that it acquired in December 2004
      and
      sold in September 2005.





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


·
              Related
                  party interest expense was $10,390 in 2006, as compared to $12,154
                  in
                  2005. The decrease of $1,764 is attributable to two factors. Interest
                  expense on the related party debt with our majority stockholder,
                  Counsel,
                  increased by $1,362, from $6,180 in 2005 to $7,542 in 2006. This
                  was due
                  to a larger average loan balance during 2006, including additional
                  advances during 2006 of $2,401. The interest expense was partially
                  offset
                  by a reduction of $3,126 in amortization of the BCF related to
                  Counsel’s
                  ability to convert a portion of its debt. In 2006, amortization
                  of the BCF
                  was $2,848 on $19,966 of debt convertible at $5.02 per share. In
                  2005,
                  amortization of the BCF was $5,974 on $18,270 of debt convertible
                  at $5.02
                  per share. As discussed above, this debt was forgiven by Counsel
                  on
                  December 30, 2006.
  21
  ·
              Third
                  party interest expense was $510 in 2006, as compared to $658 in
                  2005. The
                  decrease of $148 is due to the fact that the Note with the Company’s third
                  party lender, entered into on October 14, 2004, had a lower average
                  balance during 2006 than during 2005. As discussed above, this
                  debt was
                  repaid in full in January 2007.
 
 ·
              Other
                  income was $155 for 2006, as compared to $1,084 in 2005. In the
                  second
                  quarter of 2006, the Company entered into settlement agreements
                  with
                  certain carriers, which resulted in the recovery of $110 of receivables
                  that were fully reserved against when acquired in 2001 as part
                  of the
                  acquisition of the assets of WorldxChange Communications Inc. from
                  bankruptcy. The remaining income is primarily due to interest earned
                  on
                  cash balances, including interest on the $1,800 deposit that was
                  placed
                  with the Company’s third party lender in October 2005 and subsequently
                  applied to the monthly payments of the Note. In 2005, $1,115 of
                  other
                  income was attributable to settlement agreements with certain carriers,
                  similar to those described for 2006. The 2005 income was partially
                  offset
                  by a charge of $38 when fixed assets were transferred to a former
                  employee
                  in return for future royalty revenues.





**Adoption
      of Significant Accounting Pronouncements**





In
      July
      2006, the Financial Accounting Standards Board ("FASB") issued FASB
      Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes - an Interpretation of FASB Statement No.
      109* ("FIN
      48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
      in a company's financial statements in accordance with SFAS No. 109, and
      prescribes a recognition threshold and measurement attributes for the financial
      statement recognition and measurement of a tax position taken or expected to
      be
      taken in a tax return. FIN 48 also provides guidance on de-recognition,
      classification, interest and penalties, accounting in interim periods,
      disclosure and transition. The Company adopted the provisions of FIN 48
      effective January 1, 2007. The adoption of FIN 48 had no material effect on
      the
      financial position, operations or cash flow of the Company. See Note 12 for
      further discussion of the Company’s income taxes.





In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* (“SFAS
      No. 157”). SFAS No. 157 defines fair value, establishes a framework for
      measuring fair value under GAAP, expands the required disclosures regarding
      fair
      value measurements, and applies to other accounting pronouncements that either
      require or permit fair value measurements. SFAS No. 157 is effective for fiscal
      years beginning after November 15, 2007, and for interim periods within those
      fiscal years, with early adoption encouraged. SFAS No. 157 is to be applied
      prospectively, with a limited form of retrospective application for several
      financial instruments. The Company elected to adopt SFAS No. 157 at January
      1,
      2007, in order to conform to the adoption of a similar Canadian accounting
      pronouncement by its parent, Counsel Corporation. The Company’s adoption of SFAS
      No. 157 had no effect on its financial position, operations or cash flows.





In
      February 2008, the FASB issued FASB
      Staff Position No. FAS 157-2, *Effective
      Date of FASB Statement No. 157* (“FSP
      FAS 157-2”). FSP FAS 157-2 delays the effective date of SFAS No. 157 for all
      nonrecurring fair value measurements of nonfinancial assets and nonfinancial
      liabilities until fiscal years beginning after November 15, 2008. FSP FAS 157-2
      states that a measurement is recurring if it happens at least annually and
      defines nonfinancial assets and nonfinancial liabilities as all assets and
      liabilities other than those meeting the definition of a financial asset or
      financial liability in SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial Liabilities, Including
      an
      Amendment of FASB Statement No. 115* (“SFAS
      No. 159”, discussed below). FSP FAS 157-2 is effective upon issuance. Entities
      that applied the measurement and disclosure guidance in SFAS No. 157 in
      preparing either interim or annual financial statements issued before the
      effective date of the FSP are not eligible for the FSP’s deferral provisions.
      Entities are encouraged to adopt SFAS No. 157 in its entirety, as long as they
      have not yet issued financial statements during that year. An entity that
      chooses to adopt SFAS No. 157 in its entirety must do so for all nonfinancial
      assets and nonfinancial liabilities within its scope. As C2 had not employed
      fair value accounting for any of its nonfinancial assets and nonfinancial
      liabilities prior to its adoption of SFAS No. 157 at January 1, 2007, FSP FAS
      157-2 had no effect on its financial position, operations or cash
      flows.





In
      February 2007, the FASB issued SFAS No. 159. SFAS No. 159 provides the
      option to measure selected financial assets and liabilities at fair value,
      and
      requires the fair values of those assets and liabilities to be shown on the
      face
      of the balance sheet. It also requires the provision of additional information
      regarding the reasons for electing the fair value option and the effect of
      the
      election on current period earnings. SFAS No. 159 also establishes presentation
      and disclosure requirements designed to facilitate comparisons between entities
      that choose different measurement attributes for similar types of assets and
      liabilities. SFAS No. 159 is effective for fiscal years beginning after
      November 15, 2007, with early adoption permitted if SFAS No. 157 is also
      adopted. SFAS No. 159 is to be applied prospectively. The Company did not elect
      early adoption of SFAS No. 159, and is currently evaluating the impact that
      SFAS
      No. 159 will have on its financial statements when adopted.




22





In
      December 2007, the FASB issued SFAS No. 141(R), *Business
      Combinations* (“SFAS
      No. 141(R)”) and SFAS No. 160, *Noncontrolling
      Interests in Consolidated Financial Statements* (“SFAS
      No. 160”). SFAS No. 141(R) replaces SFAS No. 141 and SFAS No. 160 amends
      Accounting Research Bulletin No. 51, *Consolidated
      Financial Statements* .
      Together, SFAS No. 141(R) and SFAS No. 160 substantially increase the use of
      fair value and make significant changes to the way companies account for
      business combinations and noncontrolling interests. Specifically, they will
      require more assets acquired and liabilities assumed to be measured at fair
      value as of the acquisition date, liabilities related to contingent
      consideration to be remeasured at fair value in each subsequent reporting
      period, acquisition-related costs to be expensed, and noncontrolling interests
      in subsidiaries to be initially measured at fair value and classified as a
      separate component of equity. SFAS No.
      141(R) and SFAS No. 160 are effective for fiscal years beginning after
      December 15, 2008, with early adoption prohibited. They are to be applied
      prospectively, with one exception relating to income taxes. The Company is
      currently evaluating the impact that SFAS No. 141(R) and SFAS No. 160 will
      have
      on its financial statements when adopted.





**Critical
      Accounting Policies**





***Use
      of estimates***





Our
      consolidated financial statements have been prepared in accordance with
      accounting principles generally accepted in the United States (“GAAP”). This
      requires management to make estimates and assumptions that affect the reported
      amounts of assets and liabilities and the disclosure of contingent assets and
      liabilities at the date of the financial statements, as well as the reported
      amounts of revenues and expenses during the reporting period. Actual results
      could differ from those estimates.





Significant
      estimates required for the preparation of the consolidated financial statements
      included in Item 15 of this Report were those related to intangible assets,
      goodwill, investments, deferred tax assets, liabilities, and contingencies
      surrounding litigation. These estimates are considered significant because
      of
      the significance of the financial statement item to which they relate, or
      because they require judgment and estimation due to the uncertainty involved
      in
      measuring, at a specific point in time, events that are continuous in nature.
      Management bases its estimates and judgments on historical experience and
      various other factors that are believed to be reasonable under the
      circumstances, as discussed below.





***Revenue
      recognition***





Revenue
      is recognized when persuasive evidence of an arrangement exists, delivery has
      occurred or services have been rendered, the Company’s price to the customer is
      fixed and determinable, and collection of the resulting receivable is reasonably
      assured. Revenues where collectibility is not assured are recognized when the
      total cash collections to be retained by the Company are finalized.





***Intangible
      assets and goodwill***





At
      December 31, 2007, the Company’s intangible assets consist of the patent rights
      associated with the VoIP Patent, and the Company’s goodwill relates to an
      investment in a subsidiary company that holds the rights to some of the
      Company’s patents. The patent rights are being amortized over 60
      months.





The
      Company assesses the fair value of its intangible assets and its goodwill based
      upon the fair value of the Company as a consolidated entity, with the Company’s
      valuation being based upon its market capitalization. Management believes this
      to be the most reasonable method at the current time, given the absence of
      a
      predictable revenue stream and the corresponding inability to use an alternative
      valuation method such as a discounted cash flow analysis. At December 31, 2007,
      the Company’s market capitalization significantly exceeded the carrying amount
      of its total assets, and therefore the Company’s management determined that no
      impairment was present.





We
      cannot
      predict the occurrence of future events that might adversely affect the reported
      value of the intangible assets or the goodwill. Such events may include, but
      are
      not limited to, strategic decisions made in response to economic and competitive
      conditions, judgments on the validity of the Company’s VoIP Patent Portfolio, or
      other factors not known to management at this time.




23





***Investments***





The
      Company holds a minority preferred share investment in Buddy Media, Inc., a
      minority investment in LIMOS.com LLC, and a one-third interest in Knight’s
      Bridge Capital Partners Internet Fund No. 1 GP LLC.





The
      Buddy
      Media, Inc. preferred shares are not readily marketable, and are convertible
      into common stock that is also not readily marketable. The investment is
      accounted for under the cost method, which requires the fair value of the
      securities to be estimated quarterly using the best available information as
      of
      the evaluation date in order to determine whether there have been any other
      than
      temporary impairments in the investment’s carrying value. The fair value is
      estimated according to the guidelines of SFAS No. 157, *Fair
      Value Measurements* ,
      and
      given the nature of the investments it is based upon Level 3 inputs. Based
      on
      the Company’s analysis of information provided by Buddy Media, Inc., management
      concluded that the fair value of the investment was not impaired at December
      31,
      2007.





As
      discussed in more detail in Note 5 of the consolidated financial statements,
      the
      Company accounts for its investments in LIMOS.com LLC and Knight’s Bridge
      Capital Partners Internet Fund No. 1 GP LLC using the equity method. Under
      this
      method, the investments are carried at cost, plus or minus the Company’s share
      of increases and decreases in the investee’s net assets and certain other
      adjustments. The Company’s share of the net income or loss of the investee is
      included in other income in the Company’s income statement, and any dividends
      received from the investee are credited to the investment account.





***Liabilities***





The
      Company is involved from time to time in various legal matters arising out
      of
      its operations in the normal course of business. On a case by case basis, the
      Company evaluates the likelihood of possible outcomes for this litigation.
      Based
      on this evaluation, the Company determines whether a liability accrual is
      appropriate. If the likelihood of a negative outcome is probable, and the amount
      is estimable, the Company accounts for the liability in the current period.
      At
      this time, the Company does not believe that the outcome of the shareholder
      litigation in which it is currently involved will have a material adverse impact
      on its business, results of operations, financial position or
      liquidity.





***Stock-Based
      Compensation***





At
      December 31, 2007, the Company has several stock-based compensation plans,
      which
      are described more fully in Note 16 to the consolidated financial statements.
      The Company calculates stock-based compensation in accordance with SFAS No.
      123, *Accounting
      for Stock-Based Compensation* ,
      as
      revised December 2004 (“SFAS No. 123(R)”), which it was required to adopt in the
      first quarter of 2006. SFAS No. 123(R) superseded Accounting Principles Board
      Opinion No. 25, *Accounting
      for Stock Issued to Employees* ,
      and
      related Interpretations (“APB No. 25”), and requires that all stock-based
      compensation, including options, be expensed at fair value, as of the grant
      date, over the vesting period. Prior to January 1, 2006, the Company accounted
      for these plans under the recognition and measurement principles of APB No.
      25,
      under which stock-based employee compensation cost was not reflected in net
      loss, as all options granted under these plans had an exercise price equal
      to
      the market value of the underlying common stock on the date of grant. In
      accordance with SFAS No. 123, as amended by SFAS No. 148, the Company provided
      footnote disclosure of the pro forma stock-based compensation cost, net loss
      and
      net loss per share as if the fair-value based method of expense recognition
      and
      measurement prescribed by SFAS No. 123 had been applied to all employee
      options.





All
      options are granted with an exercise price that is equal to, or greater than,
      the market value of the Company’s common stock on the date of grant, and the
      options vest in four equal installments beginning one year from the grant date.
      The Company estimates the fair value of each option grant on the grant date
      using the Black-Scholes option pricing model with the following assumptions:
      an
      expected volatility of 79%, the discount window primary credit rate for the
      appropriate term, as supplied by the Federal Reserve, an expected term of 4.75
      years as calculated according to the provisions of SEC Staff Accounting Bulletin
      No. 107, and a dividend yield of zero.





At
      December 31, 2007, the Company had unrecognized stock-based compensation expense
      of $176, which is expected to be recognized over a weighted-average period
      of
      approximately 14 months.




24





***Income
      taxes***





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





In
      July 2006, the Financial Accounting Standards Board ("FASB") issued FASB
      Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes - an Interpretation of FASB Statement No.
      109* ("FIN
      48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
      in a company's financial statements in accordance with SFAS No. 109, and
      prescribes a recognition threshold and measurement attributes for the financial
      statement recognition and measurement of a tax position taken or expected to
      be
      taken in a tax return. FIN 48 also provides guidance on de-recognition,
      classification, interest and penalties, accounting in interim periods,
      disclosure and transition. The Company adopted the provisions of FIN 48
      effective January 1, 2007. The adoption of FIN 48 had no material effect on
      the financial position, operations or cash flow of the Company. See Note 12
      for
      further discussion of the Company’s income taxes.





The
      Company periodically assesses the value of its deferred tax asset, which has
      been generated by a history of net operating and net capital losses, and which
      has been recognized in accordance with FIN 48, and determines the necessity
      for
      a valuation allowance. The Company evaluates which portion of the deferred tax
      asset, if any, will more likely than not be realized by offsetting future
      taxable income, taking into consideration any limitations that may exist on
      its
      use of its net operating and net capital loss carryforwards.





**Item
      7A. Quantitative and Qualitative Disclosures about Market
      Risk.**





Our
      exposure to market risk is limited to interest rate sensitivity, which is
      affected by changes in the general level of interest rates. Due to the minimal
      amount of cash and cash equivalents currently on hand, we believe that we are
      not subject to any material interest rate risk as it relates to interest income.
      As to interest expense, at December 31, 2007 we had no variable rate debt
      instruments. We do not believe that we are subject to material market risk
      on
      our fixed rate debt with Counsel in the near term.





We
      did
      not have any foreign currency hedges or other derivative financial instruments
      as of December 31, 2007. We do not enter into financial instruments for trading
      or speculative purposes and do not currently utilize derivative financial
      instruments. Our operations are conducted primarily in the United States and
      as
      such are not subject to material foreign currency exchange rate risk.





**Item
      8. Financial Statements and Supplementary Data.**





See
      Consolidated Financial Statements and supplementary data beginning on pages
      F-1
      and S-1.





**Item
      9. Changes In and Disagreements With Accountants on Accounting
      and**  **Financial
      Disclosure.**





None.





**Item
      9A(T). Controls and Procedures.**





**Evaluation
      of Disclosure Controls and Procedures**





As
      of the
      end of the period covered by this Report, our Chief Executive Officer and Chief
      Financial Officer (the “Certifying Officers”) conducted evaluations of our
      disclosure controls and procedures. As defined in Rules 13a-15(e) and 15d-15(e)
      of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the
      term “disclosure controls and procedures” means controls and other procedures of
      an issuer that are designed to ensure that information required to be disclosed
      by the issuer in the reports that it files or submits under the Exchange Act
      is
      recorded, processed, summarized and reported, within the time periods specified
      in the Commission’s rules and forms. Disclosure controls and procedures include,
      without limitation, controls and procedures designed to ensure that information
      required to be disclosed by an issuer in the reports that it files or submits
      under the Exchange Act is accumulated and communicated to the issuer’s
      management, including the Certifying Officers, to allow timely decisions
      regarding required disclosure. Based on this evaluation, the Certifying Officers
      have concluded that our disclosure controls and procedures were
      effective.




25




**Management’s
      Annual Report on Internal Control Over Financial Reporting**





The
      Company’s management is responsible for establishing and maintaining adequate
      internal control over financial reporting, in accordance with Rules 13a-15(f)
      and 15d-15(f) of the Exchange Act. Under the supervision and with the
      participation of the Company’s management, including the Certifying Officers, we
      conducted an evaluation of the effectiveness of the Company’s internal control
      over financial reporting based on the framework in *Internal
      Control—Integrated Framework* issued
      by the Committee of Sponsoring Organizations of the Treadway
      Commission.





The
      Company’s internal control over financial reporting is a process designed to
      provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of financial statements for external purposes in accordance
      with generally accepted accounting principles in the United States of America.
      The Company’s internal control over financial reporting includes those policies
      and procedures that (i) pertain to the maintenance of records that, in
      reasonable detail, accurately and fairly reflect the transactions and
      dispositions of the assets of the Company; (ii) provide reasonable assurance
      that transactions are recorded as necessary to permit preparation of financial
      statements in accordance with generally accepted accounting principles, and
      that
      receipts and expenditures of the Company are being made only in accordance
      with
      authorizations of management and directors of the Company; and (iii) provide
      reasonable assurance regarding prevention or timely detection of unauthorized
      acquisition, use, or disposition of the Company’s assets that could have a
      material effect on the financial statements.





Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.





Based
      on
      its assessment using these criteria, the Company’s management concluded that the
      Company maintained effective internal control over financial reporting as of
      December 31, 2007.





This
      Report does not include an attestation report of the Company’s independent
      registered public accounting firm regarding internal control over financial
      reporting. Management’s report was not subject to attestation by the Company’s
      independent registered public accounting firm pursuant to temporary rules of
      the
      SEC that permit the Company to provide only management’s report in this
      Report.





**Changes
      in Internal Controls over Financial Reporting**





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





**Item
      9B. Other Information.**




None.




26





**PART
      III**





**Item
      10. Directors, Executive Officers and Corporate
      Governance.**





Under
      our
      Articles of Incorporation, as amended, the Board of Directors is divided into
      three classes, with the total number of directors to be not less than five
      and
      not more than nine. Each director is to serve a term of three years or until
      his
      or her successor is duly elected and qualified. As of the date hereof, the
      Board
      of Directors consists of five members: one Class I director (Mr. Shimer), three
      Class II directors (Messrs. Toh, Heaton, and Silber) and one Class III director
      (Mr. Turock). The following table sets forth the names, ages and positions
      with
      C2 of the persons who currently serve as our directors and executive officers.
      There are no family relationships between any present executive officers and
      directors.





**Name**
            
            **Age
                (1)**
            
            **Title**Allan
                C. Silber
            
            59
            
            Chairman
                of the Board and Chief Executive OfficerHal
                B. Heaton
            
            57
            
            Director
                (2), (3), (4), (5)Henry
                Y.L. Toh
            
            50
            
            Director
                (2), (3), (4), (5)Samuel
                L. Shimer
            
            44
            
            Director
                (2)David
                L. Turock
            
            50
            
            Director
                (2), (6)Stephen
                A. Weintraub
            
            60
            
            Executive
                Vice President, Corporate Secretary and Chief Financial
                Officer





(1)
            As
                of December 31, 2007.(2)
            Independent
                Director(3)
            Member
                of the Audit Committee(4)
            Member
                of the Compensation Committee(5)
            Member
                of the Special Committee of Independent Directors(6)
            Appointed
                to the Board of Directors January 16,
                2008





Set
      forth
      below are descriptions of the backgrounds of the executive officers and
      directors of the Company and their principal occupations for the past five
      years:





**Allan
      C. Silber** ,
      Chairman of the Board and Chief Executive Officer. Mr. Silber was elected to
      the
      Board of Directors as a Class II director in September 2001. He was appointed
      as
      Chairman of the Board in November 2001, a position he held until October 2004,
      and was again appointed as Chairman of the Board in March 2005. Mr. Silber
      is
      the Chairman and CEO of Counsel Corporation, which he founded in 1979. Mr.
      Silber attended McMaster University and received a Bachelor of Science degree
      from the University of Toronto.





**Hal
      B. Heaton** ,
      Director. Dr. Heaton was appointed by the Board of Directors as a Class II
      director on June 14, 2000 to fill a board vacancy. In March 2005, Mr. Heaton
      was
      appointed as Chairman of the Special Committee of Independent Directors. From
      1982 to present he has been a professor of Finance at Brigham Young University
      and between 1988 and 1990 was a visiting professor of Finance at Harvard
      University. Dr. Heaton holds a Bachelor’s degree in Computer Science/Mathematics
      and a Master’s in Business Administration from Brigham Young University, as well
      as a Master’s degree in Economics and a Ph.D. in Finance from Stanford
      University.





**Henry
      Y.L. Toh** ,
      Director. The Board of Directors elected Mr. Toh as a Class II director and
      as
      Vice Chairman of the Board of Directors in April 1992. Mr. Toh became President
      of C2 in May 1993, Acting Chief Financial Officer in September 1995 and Chairman
      of the Board in May 1996, and served as such through September 1996. Mr. Toh
      was
      appointed as Chairman of the Audit Committee in March 2005. Mr. Toh has served
      as a director of Four M International, Inc, a privately held offshore investment
      entity, since 1992; a director of I DNA, Inc., a specialized finance and
      entertainment company, since 1998; a director of Teletouch Communications,
      Inc.,
      a retail provider of internet, cellular and paging services, since 2001; a
      director of Isolagen, Inc., a biotechnology company, since 2004; a director
      of
      Labcock Technologies, Inc., since 2005; and a director of American Surgical
      Holdings, Inc. since 2006. Mr. Toh has been a director and Chief Executive
      Officer of Amerique Investments since 1992. Mr. Toh is a graduate of Rice
      University.





**Samuel
      L. Shimer** ,
      Director. Mr. Shimer was appointed by the Board of Directors as a Class I
      director on April 15, 2001 to fill a board vacancy. He was appointed Senior
      Vice
      President, Mergers & Acquisitions and Business Development on February 12,
      2003 and he terminated his employment with the Company on February 27, 2004
      to
      join J. H. Whitney & Co., an asset management company. From 1997 to February
      2003 he was employed by Counsel as a Managing Director. From 1991 to 1997,
      Mr.
      Shimer worked at two merchant banking funds affiliated with Lazard Frères &
Co., Center Partners and Corporate Partners, ultimately serving as a Principal.
      Mr. Shimer earned a Bachelor of Science in Economics degree from The Wharton
      School of the University of Pennsylvania, and a Master’s of Business
      Administration degree from Harvard Business School.




27





**David
      L. Turock** ,
      Director. Mr. Turock was appointed by the Board of Directors as a Class III
      director on January 16, 2008 to fill a board vacancy. Mr. Turock began his
      career working with AT&T Bell Laboratories in 1982 and Bell Communications
      Research in 1988, and subsequently founded enhanced telephone service provider,
      Call Sciences. He later formed Interexchange, which designed and operated one
      of
      the world’s largest debit card systems. Most recently, from 2001 to 2007, Mr.
      Turock was Chief Technology Officer of Therap Services, a provider of
      informatics services to disabled patients. Mr. Turock is also the inventor
      of
      the Company’s VoIP Patent. Mr. Turock received his B.S. in Experimental
      Psychology from Syracuse University, his M.S. and Ph.D. degrees in Cognitive
      Psychology from Rutgers University, and his M.S.E. in Computer Science from
      the
      Moore School of the University of Pennsylvania.





**Stephen
      A. Weintraub** ,
      Executive Vice President, Corporate Secretary and Chief Financial Officer.
      Mr.
      Weintraub was appointed Senior Vice President and Secretary of C2 in December
      2002. Mr. Weintraub was elected as a Class I director on November 26, 2003,
      and
      served as a director until June 15, 2004. He became an Executive Vice President
      in October 2005 and was appointed Chief Financial Officer in December 2005.
      Mr.
      Weintraub joined Counsel in June 1983 as Vice President, Finance and Chief
      Financial Officer. He has been and is an officer and director of Counsel
      and various Counsel subsidiaries. He has been Secretary of Counsel since 1987
      and was appointed Senior Vice President in 1989. In December 2004, Mr. Weintraub
      was promoted to Executive Vice President and Secretary and became Chief
      Financial Officer again in December 2005. Mr. Weintraub received a Bachelor’s
      degree in Commerce from the University of Toronto in 1969, qualified as a
      Chartered Accountant with Clarkson, Gordon (now Ernst & Young LLP) in 1972
      and received his law degree (LL.B.) from Osgoode Hall Law School, York
      University in 1975. Mr. Weintraub is a director of Counsel Corporation, the
      parent company of C2.





Each
      officer of C2 has been appointed by the Board of Directors and holds his office
      at the discretion of the Board of Directors.





C2
      and
      four of C2’s current and former executives and board members were named in
      derivative and securities actions filed in the Superior Court of the State
      of
      California in and for the County of San Diego on April 16, 2004, as described
      in
      Item 3 of this Report. No director or officer of our company has, during the
      last five years: (i) been convicted of any criminal proceeding (excluding
      traffic violations or similar misdemeanors) or (ii) been a party to a civil
      proceeding of a judicial or administrative body of competent jurisdiction and
      as
      a result of such proceeding was or is subject to a judgment, decree or final
      order enjoining future violations of, or prohibiting or mandating activities
      subject to, United States federal or state securities laws, or finding any
      violations with respect to such laws.





**Section
      16(a) Beneficial Ownership Reporting Compliance**





Section
      16(a) of the Exchange Act requires our officers and directors, and persons
      who
      own more than ten percent of a registered class of our equity securities, to
      file reports of ownership and changes in ownership of equity securities of
      C2
      with the SEC. Officers, directors, and greater than ten percent stockholders
      are
      required by the SEC regulation to furnish us with copies of all Section 16(a)
      forms that they file.





Based
      solely upon a review of Forms 3 and Forms 4 furnished to us pursuant to Rule
      16a-3 under the Exchange Act during our most recent fiscal year, and Forms
      5
      with respect to our most recent fiscal year, we believe that all such forms
      required to be filed pursuant to Section 16(a) were timely filed as necessary,
      by the executive officers, directors and security holders required to file
      same
      during the fiscal year ended December 31, 2007.





**Code
      of Ethics**





C2
      has
      adopted a code of ethics that applies to its employees, including its principal
      executive, financial and accounting officers or persons performing similar
      functions. The C2 Code of Conduct (the “Code”) can be found on the Company’s
      website at *http://www.c-2technologies.com* (follow
      Corporate Governance link to Governance Documents tab). The Company intends
      to
      satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding any
      amendments to, or waivers from, a provision of the Code that applies to its
      principal executive, financial and accounting officers or persons performing
      similar functions by posting such information on its website at the website
      address set forth above.





**Corporate
      Governance**





***Audit
      Committee***




The
      Audit
      Committee is responsible for making recommendations to the Board of Directors
      concerning the selection and engagement of independent accountants and for
      reviewing the scope of the annual audit, audit fees, results of the audit and
      independent registered public accounting firm’s independence. The Audit
      Committee is also responsible for corporate governance, and reviews and
      discusses with management and the Board of Directors such matters as accounting
      policies, internal accounting controls and procedures for preparation of
      financial statements. Its membership is currently comprised of Mr. Toh
      (Chairman) and Mr. Heaton, both independent directors. The Audit Committee
      held
      four meetings during the fiscal year ended December 31, 2007. On June 9, 2000,
      the Board of Directors approved C2’s Audit Committee Charter, which was
      subsequently revised and amended on July 10, 2001 and again on February 12,
      2003
      in order to incorporate certain updates in light of the most recent regulatory
      developments, including the Sarbanes-Oxley Act of 2002. A copy of the current
      Audit Committee Charter is available on the Company’s website *www.c-2technologies.com* .




28





***Board
      Meetings and Committees; Annual Meeting Attendance***




The
      Board
      of Directors held four meetings during the fiscal year ended December 31,
      2007.





The
      Board
      of Directors has designated three standing committees: the Audit Committee,
      the
      Compensation Committee, and the Special Committee of Independent Directors.





The
      Board
      has no formal policy regarding attendance at annual shareholder meetings;
      however, directors are encouraged to attend. No annual shareholder meeting
      was
      held during 2007.




***Audit
      Committee Financial Expert***




The
      Board
      of Directors has determined that Mr. Henry Y.L. Toh is an audit committee
      financial expert as defined by Item 407(d) of Regulation S-K under the
      Securities Act and is independent within the meaning of Item 7(d)(3)(iv) of
      Schedule 14A under the Exchange Act.





***Special
      Committee of Independent Directors***




The
      Special Committee of Independent Directors reviews and makes recommendations
      to
      the Board of Directors on potential merger and acquisition activities of the
      business and potential financings. The Committee was formed on December 7,
      2004
      and is comprised of Messrs. Heaton (Chairman) and Toh. Mr. Heaton joined the
      committee on March 30, 2005. The Special Committee held no meetings during
      the
      fiscal year ended December 31, 2007.





***Nominating
      Committee and Nomination of Directors***




C2
      does
      not have a nominating or a corporate governance committee. However, corporate
      governance functions are included in the Audit Committee Charter, and Board
      nominations are considered by the full Board. There are no specific criteria
      for
      Director nominees; however, the Board looks for individuals who are independent
      and knowledgeable with respect to general business matters. There has been
      no
      material change in the procedures by which our shareholders may recommend
      nominees to our Board of Directors since such procedures were adopted and
      implemented.




29





**Item
      11. Executive Compensation.**





**Compensation
      Discussion and Analysis**





***Summary***





This
      report is the Compensation Discussion and Analysis of our executive compensation
      program and an explanation and analysis of the material elements of total
      compensation paid to each of our named executive officers. Included in the
      discussion is an overview and description of:


·
              our
                  compensation philosophy and
                  program;
  ·
              the
                  objectives of our compensation
                  program;
  ·
              what
                  the compensation program is designed to
                  reward;
  ·
              each
                  element of compensation;
  ·
              why
                  we choose to pay each element;
  ·
              how
                  we determine the amount for each element;
                  and
  ·
              how
                  each compensation element and our decision regarding that element
                  fit into
                  our overall compensation objectives and affect decisions regarding
                  other
                  elements.




In
      reviewing our executive compensation program, we considered issues pertaining
      to
      policies and practices for allocating between long-term and currently paid
      compensation and those policies for allocating between cash and non-cash
      compensation. We also considered the determinations for granting awards,
      performance factors for our company and our named executive officers, and how
      specific elements of compensation are structured and taken into account in
      making compensation decisions. Questions related to the benchmarking of total
      compensation or any material element of compensation, the tax and accounting
      treatment of particular forms of compensation and the role of executive officers
      (if any) in the total compensation process also are addressed where
      appropriate.





***General
      Executive Compensation Philosophy***





We
      compensate our executive management through a combination of base salaries,
      merit based performance bonuses, and long-term equity compensation that is
      designed to be competitive with similarly situated companies within our
      industry. Our executive compensation program is structured to align management’s
      incentives with the long-term interests of our shareholders, and to maximize
      profitability and shareholder value.





We
      adhere
      to the following compensation policies, which are designed to support the
      achievement of our business strategies:


·
              Our
                  executive compensation program should strengthen the relationship
                  between
                  compensation, both cash and equity-based, and performance by emphasizing
                  variable, at-risk compensation that is dependent upon the successful
                  achievement of specified corporate, business unit and individual
                  performance goals.
 
 ·
              A
                  portion of each executive’s total compensation should be comprised of
                  long-term, at-risk compensation to focus management on the long-term
                  interests of shareholders.
 
 ·
              An
                  appropriately balanced mix of at-risk incentive cash and equity-based
                  compensation aligns the interests of our executives with that of
                  our
                  shareholders. The equity-based component promotes a continuing
                  focus on
                  building profitability and shareowner
                  value.
 
 ·
              Total
                  compensation should enhance our ability to attract, retain, motivate
                  and
                  develop knowledgeable and experienced executives upon whom, in
                  large part,
                  our successful operation and management
                  depends.




We
      set
      compensation by establishing targeted compensation levels for each senior
      executive and allocating that compensation amount among base salary, merit-based
      compensation bonuses, and long-term equity compensation. At the highest and
      most
      senior levels, we offer incentive based compensation to reward company wide
      performance and to maximize future profitability, stock appreciation and
      shareholder value.





A
      core
      principle of our executive compensation program is the belief that compensation
      paid to executive officers should be closely aligned with our near- and
      long-term success, while simultaneously giving us the flexibility to recruit
      and
      retain the most qualified key executives. Our compensation program is structured
      so that it is related to our stock performance and other factors, direct and
      indirect, all of which may influence long-term shareholder value and our
      success.




30





As
      a
      result, we have designed our total executive compensation plan to include the
      following elements:





·
            Annual
                Base Salaries;




·
            Annual
                Performance-Based Cash Bonuses;




·
            Long-Term
                Equity -Based Compensation





We
      utilize each of these elements of executive compensation to ensure proper
      balance between our short- and long-term success as well as between our
      financial performance and shareholder return. In this regard, we believe that
      the executive compensation program for our named executive officers is
      consistent with our financial performance and the performance of each named
      executive officer.





***Our
      Named Executive Officers for 2007***





This
      analysis focuses on the compensation paid to our “named executive officers,”
which is a defined term generally encompassing all persons that served as our
      principal executive officer or principal financial officer at any time during
      the fiscal year, as well as certain other highly paid executive officers serving
      in such positions at the end of the fiscal year. During 2006 and 2007, our
      named
      executive officers consisted of the following officers:





**Allan
      C. Silber** - our
      Chairman of the Board and Chief Executive Officer. Mr. Silber is the Chairman
      and CEO of Counsel Corporation, our majority shareholder, which he founded
      in
      1979.




**Stephen
      A. Weintraub** - our
      Executive Vice President, Corporate Secretary and Chief Financial Officer since
      December 2005. Mr. Weintraub is the Executive Vice President, Corporate
      Secretary and Chief Financial Officer of Counsel Corporation.





Except
      for the CEO, our company had no paid employees during 2006 and
      2007.





***Elements
      of Compensation***





***Base
      Salaries***





Unless
      determined pursuant to their employment agreements, the base salaries of the
      Company’s named executive officers are evaluated annually. In evaluating
      appropriate pay levels and salary increases for such officers, the Compensation
      Committee considers achievement of the Company’s strategic goals, level of
      responsibility, individual performance, and internal equity and external pay
      practices. In addition, the Committee considers the scope of the executives’
responsibilities, taking into account competitive market compensation for
      similar positions, as well as seniority of the individual, our ability to
      replace the individual and other primarily judgmental factors deemed relevant
      by
      our Board of Directors and Compensation Committee.





Base
      salaries are reviewed annually by our Compensation Committee and our Board,
      and
      adjusted from time to time pursuant to such review or at other appropriate
      times, in order to align salaries with market levels after taking into account
      individual responsibilities, performance and experience. For 2008, this review
      will occur by June 30.





Except
      for the CEO, the Company had no paid employees during 2006 and 2007. As noted
      above, the Company’s CEO, Mr. Allan Silber, is also the CEO of Counsel. Mr.
      Silber’s initial annual salary of $275, and a discretionary bonus of up to 100%
      of his base salary, were identical to the compensation being paid to the
      outgoing President and CEO, whom Mr. Silber replaced at the end of 2002.
      Following the finalization, in May 2005, of the agreement to sell our
      Telecommunications business, in the third quarter of 2005 Mr. Silber’s annual
      salary and bonus were reduced by 50%, to $137.5 salary and a discretionary
      bonus
      of up to 100% of his base salary. However, given the continued involvement
      of
      Mr. Silber, as well as the involvement of other employees of Counsel who receive
      no direct compensation from the Company, the Compensation Committee made
      discretionary grants of options to purchase common shares to both Mr. Silber
      and
      those employees in the third quarter of 2006.





***Bonuses***





Bonus
      awards are designed to focus management attention on key operational goals
      for
      the current fiscal year. Our company executives may earn a bonus based upon
      achievement of their specific operational goals and achievement by the Company
      or business unit of its financial targets. Cash bonus awards are distributed
      based upon the Company and the individual meeting performance criteria
      objectives. The final determination for all bonus payments is made by our
      Compensation Committee.





We
      set
      bonuses based on certain performance measures in order to maximize and align
      the
      interests of our officers with those of our shareholders. Although performance
      goals are generally standard for determining bonus awards, we have and will
      consider additional performance rating goals when evaluating the bonus
      compensation structure of our executive management. In addition, in instances
      where the employee has responsibility over a specific area, performance goals
      may be directly tied to the overall performance of that particular area. It
      is
      not expected that any bonuses will be awarded for 2007.




31





***Equity
      Incentive Grants***





In
      keeping with our philosophy of providing a total compensation package that
      favors at-risk components of pay, long-term incentives comprise a significant
      component of our executives’ total compensation package. These incentives are
      designed to motivate and reward executives for maximizing shareowner value
      and
      encourage the long-term employment of key employees. Our objective is to provide
      executives with above-average, long-term incentive award
      opportunities.





We
      view
      stock options as our primary long-term compensation vehicle for our executive
      officers. Stock options generally are granted at the prevailing market price
      on
      the date of grant and will have value only if our stock price increases. Grants
      of stock options generally are based upon our performance, the level of the
      executive’s position, and an evaluation of the executive’s past and expected
      future performance. We do not time or plan the release of material, non-public
      information for the purpose of affecting the value of executive
      compensation.





We
      believe that stock options will continue to be used as the predominant form
      of
      stock-based compensation.





***Other
      Benefits***





There
      are
      no other benefits provided to employees at this time, including pension,
      severance or change in control benefits.





***Tax
      Considerations***





Section
      162(m) of the Internal Revenue Code places limits on the deductibility of
      compensation in excess of $1 million paid to executive officers of publicly
      held
      companies. The Compensation Committee does not believe that Section 162(m)
      has
      had or will have any impact on the compensation policies followed by the
      Company.





***Executive
      Compensation Process***





***Compensation
      Committee***





Our
      Compensation Committee oversees and approves all compensation and awards made
      to
      executive officers under our executive compensation program. The Compensation
      Committee reviews the performance and compensation of the Chief Executive
      Officer, without his participation, and establishes his compensation
      accordingly, with consultation from others when appropriate. For the remaining
      executive officers, recommendations are made to the Compensation Committee
      by
      the Chief Executive Officer.




32





**Executive
      and Director Compensation - Tabular Disclosure**





*Please
      note that all amounts reported in the tables below, and the accompanying notes,
      are in dollars, rounded to the nearest dollar.*





***Summary
      Compensation Table***





The
      following table sets forth the aggregate compensation for services rendered
      during the fiscal year ended December 31, 2007 by our Named Executive Officers,
      which included our principal executive officer and principal financial officer.
      We have no other officers or employees whose compensation is $100,000.00 or
      more. As discussed in Item 13, certain employees of Counsel provide services
      to
      C2, and compensation for those services is provided and paid for under the
      terms
      and provisions of the certain Management Services Agreement (the “Agreement”)
      entered into between Counsel and C2.





**Name
                and Principal Position**
            
            **Year**
            
            **Salary**
            
            **Option
                Awards****1******
            
            **Total**Allan
                Silber
            
            
            2007
            
            $
            137,500
            
            $
            33,563
            
            $
            171,063Chairman
                of the Board and Chief Executive Officer
            
            
            2006
            
            
            137,500
            
            
            13,982
            
            
            151,482Stephen
                Weintraub
            
            
            2007
            
            
            —
            
            
            12,375
            
            
            12,375Executive
                Vice President, Chief Financial Officer
              and
                Corporate Secretary
            
            
            2006
            
            
            —
            
            
            5,155
            
            
            5,155





1 The
      amounts reported in this column relate solely to compensation expense associated
      with options issued in 2006. Please see the *“Grants
      of Plan-Based Awards for the Year Ended December 31, 2006”* table,
      as included in our Annual Report on Form 10-K for the year ended December 31,
      2006, for details of these options.





***Grants
      of Plan-Based Awards***





There
      were no grants of plan-based awards to the Chief Executive Officer and Chief
      Financial Officer during the year ended December 31, 2007. During 2006, the
      Chief Executive Officer was granted 300,000 options to purchase common stock,
      and the Chief Financial Officer was granted 75,000 options to purchase common
      stock. Please see the *“Grants
      of Plan-Based Awards for the Year Ended December 31, 2006”* table,
      as included in our Annual Report on Form 10-K for the year ended December 31,
      2006, for details of these options. There were no option awards to the Chief
      Executive Officer or Chief Financial Officer during 2005.





Allan
      Silber, the CEO of C2, is an employee of Counsel. As CEO of C2, he is entitled
      to an annual salary of $137,500, plus a discretionary bonus of 100% of the
      base
      salary. No bonus was paid for the years ended December 31, 2005 and 2006, and
      none is expected to be paid for the year ended December 31, 2007. Mr. Silber’s
      compensation is expensed by C2.





Stephen
      Weintraub, the CFO of C2, is an employee of Counsel. Mr. Weintraub has no
      employment contract with C2. The cost of Mr. Weintraub’s services to C2 is a
      component of the Agreement between C2 and Counsel. The Agreement was first
      entered into in December 2004. Under the terms of the original Agreement, C2
      agreed to make payment to Counsel for the past and future services to be
      provided to the Company by certain Counsel personnel for the calendar years
      of
      2004 and 2005. The basis for such services charged is an allocation, based
      on
      time incurred, of the cost of the base compensation paid by Counsel to those
      employees providing services to C2. In December 2005, C2 entered into a similar
      agreement with Counsel for services to be provided by Counsel in 2006, with
      the
      allocation determined on the same basis as the Agreement, and in May 2007,
      C2
      and Counsel entered into a similar agreement for services to be provided during
      2007. For the years ended December 31, 2007 and 2006, the cost was $225,000,
      as
      compared to $450,000 for the year ended December 31, 2005. The amounts due
      under
      the Agreement are payable within 30 days following the respective year end,
      subject to applicable restrictions. Any unpaid fee amounts bear interest at
      10%
      per annum commencing on the day after such year end. In the event of a change
      of
      control, merger or similar event of the C2, all amounts owing, including fees
      incurred up to the date of the event, will become due and payable immediately
      upon the occurrence of such event. The Company expects that Counsel will
      continue to provide these services in 2008 on the same cost basis.




33





***Outstanding
      Equity Awards at Fiscal Year-End***





The
      following table sets forth the detail of outstanding equity awards, as regards
      exercisable and unexercisable options, at December 31, 2007.





**Name**
            
            **Number
                of Securities Underlying Unexercised Options:
                Exercisable**
            
            **Number
                of Securities Underlying Unexercised Options:
                Unexercisable****1**
            
            **Option
                Exercise Price($/Sh)**
            
            **Option
                Expiration Date**Allan
                Silber
            
            
            56,250
            
            
            168,750
            
            $
            0.66
            
            
            August
                1, 2013Allan
                Silber
            
            
            18,750
            
            
            56,250
            
            
            1.11
            
            
            August
                1, 2013Stephen
                Weintraub
            
            
            18,750
            
            
            56,250
            
            
            1.01
            
            
            August
                1, 2013





1 The
      options vest 25% annually beginning on the first anniversary of the grant date, which
      was
      August 1, 2006 for all options reported in this table.




***Compensation
      of Directors***





The
      following table sets forth the aggregate compensation for services rendered
      during the fiscal year ended December 31, 2007 by each person serving as a
      director.





**Name**
            
            **Fees
                Earned or Paid in Cash**
            
            **Option
                Awards****1**
            
            **Total**Henry
                Y.L. Toh
            
            $
            44,000
            
            $
            4,406
            
            $
            48,406Hal
                B. Heaton
            
            
            36,000
            
            
            4,496
            
            
            40,496Samuel
                L. Shimer
            
            
            24,000
            
            
            3,870
            
            
            27,870





1 The
      options vest 25% annually beginning on the first anniversary of the grant date.
      The amount reported in this column relates to compensation expense associated
      with options issued in 2004, 2005, 2006 and 2007. The table below provides
      information regarding the current year compensation expense and grant date
      fair
      value of each option award underlying the reported 2007 compensation
      expense.




34





**DETAIL
                OF DIRECTOR OPTION AWARDS EXPENSE**




**Name**
              
              **Grant
                  Date**
              
              **Number
                  of Options Awarded**
              
              **Grant
                  Date Fair Value of Option Award**
              
              **2007
                  Expense**Henry
                  Y.L. Toh
              
              
              January
                  2, 2004
              
              
              1,500
              
              $
              2,145
              
              $
              536August
                  10, 2004
              
              
              10,000
              
              
              5,400
              
              
              1,350April
                  1, 2005
              
              
              10,000
              
              
              3,600
              
              
              900April
                  3, 2006
              
              
              10,000
              
              
              3,300
              
              
              825April
                  2, 2007
              
              
              10,000
              
              
              4,600
              
              
              795$
              4,406Hal
                  B. Heaton
              
              
              January
                  2, 2004
              
              
              1,750
              
              $
              2,502
              
              $
              626August
                  10, 2004
              
              
              10,000
              
              
              5,400
              
              
              1,350April
                  1, 2005
              
              
              10,000
              
              
              3,600
              
              
              900April
                  3, 2006
              
              
              10,000
              
              
              3,300
              
              
              825April
                  2, 2007
              
              
              10,000
              
              
              4,600
              
              
              795$
              4,496Samuel
                  L. Shimer
              
              
              August
                  10, 2004
              
              
              10,000
              
              $
              5,400
              
              $
              1,350April
                  1, 2005
              
              
              10,000
              
              
              3,600
              
              
              900April
                  3, 2006
              
              
              10,000
              
              
              3,300
              
              
              825April
                  2, 2007
              
              
              10,000
              
              
              4,600
              
              
              795$
              3,870




Each
      director who is not employed by C2 or by Counsel receives a $20,000 per year
      cash retainer, $1,000 per meeting attended in person or by telephone, and an
      annual grant of stock options to purchase 10,000 shares of common stock, which
      is awarded on March 31 or the next business day. In addition, the Chairman
      of
      the Audit Committee receives a cash retainer of $10,000 per year, Audit
      Committee members who are not the chair receive a cash retainer of $5,000 per
      year, and other committee chairpersons receive an annual cash retainer of $2,000
      per year. The directors are also eligible to receive options under our stock
      option plans at the discretion of the Board of Directors. No discretionary
      stock
      options were awarded to the non-employee directors during 2007 or 2006. 300,000
      stock options were awarded to Allan Silber during 2006, as disclosed above
      in
      the Summary Compensation table.





***Compensation
      Committee Interlocks and Insider Participation***





The
      Compensation Committee reviews and approves the compensation for executive
      employees. The Compensation Committee Mandate was first approved by C2’s Board
      of Directors on February 12, 2003. It was subsequently revised on December
      9,
      2005. The Compensation Committee Mandate is available on the Company’s website *www.c-2technologies.com* .





According
      to the Compensation Committee’s charter, the majority of the members must be
      independent directors. The membership is currently comprised of Messrs. Heaton
      (Chairman) and Toh, both independent directors. The Compensation Committee
      held
      one meeting during the fiscal year ended December 31, 2007.





No
      Compensation Committee members or other directors served:


·
              as
                  a member of the compensation committee of another entity which
                  has had an
                  executive officer who has served on our compensation committee;
  ·
              as
                  a director of another entity which has had an executive officer
                  who has
                  served on our compensation committee; or
  ·
              as
                  a member of the compensation committee of another entity which
                  has had an
                  executive officer who has served as one of our
                  directors.


35





**Compensation
      Committee Report**





The
      following paragraphs in this section constitute information required pursuant
      to
      Section 407(e)(5) of Regulation S-K promulgated under the Securities Act of
      1933, as amended. In accordance with these rules, the information so provided
      is
“”furnished”, not “filed” with the SEC.





1.  The
      Compensation Committee has reviewed and discussed the Compensation Discussion
      and Analysis (“CD&A”) set forth above with the management of the Company;
      and





2.  Based
      on
      the review and discussions, the Compensation Committee recommended to the Board
      of Directors that the CD&A be included in the Company’s Annual Report on
      Form 10-K for the fiscal year ended December 31, 2007, and, as applicable,
      the
      Company’s proxy statement.





*By
      the Compensation Committee* :


/s/
                Hal. B. HeatonHal
                B. Heaton, Chairman/s/
                Henry Y.L. TohHenry
              Y. L. Toh




**Stock
      Option Plans**





At
      December 31, 2007, the Company has five stock-based employee compensation plans,
      which are described below. All share amounts disclosed below reflect the effect
      of the 1-for-20 reverse stock split which was approved by the stockholders
      on
      November 26, 2003.





1995
      Director Stock Option and Appreciation Rights Plan





The
      1995
      Director Stock Option and Appreciation Rights Plan (the “1995 Director Plan”)
      provides for the issuance of incentive stock options, non-qualified stock
      options and stock appreciation rights (“SARs”) to directors of the Company up to
      12,500 shares of common stock (subject to adjustment in the event of stock
      dividends, stock splits, and other similar events). If any incentive option,
      non-qualified option or SAR terminates prior to exercise thereof and during
      the
      duration of the 1995 Director Plan, the shares of common stock as to which
      such
      option or right was not exercised will become available under the 1995 Director
      Plan for the grant of additional options or rights to any eligible director.
      Each option is immediately exercisable for a period of ten years from the date
      of grant. The Company has 12,500 shares of common stock reserved for issuance
      under the 1995 Director Plan. No options were granted or exercised under this
      plan in 2007 and 2006. As of December 31, 2007 and 2006, no options to purchase
      shares were outstanding. In 2007, no options expired (2006 -
      7,500).





1995
      Employee Stock Option and Appreciation Rights Plan





The
      1995
      Employee Stock Option and Appreciation Rights Plan (the “1995 Employee Plan”)
      provides for the issuance of incentive stock options, non-qualified stock
      options, and SARs. Directors of the Company are not eligible to participate
      in
      the 1995 Employee Plan. The 1995 Employee Plan provides for the grant of stock
      options, which qualify as incentive stock options under Section 422 of the
      Internal Revenue Code, to be issued to officers who are employees and other
      employees, as well as for the grant of non-qualified options to be issued to
      officers, employees and consultants. In addition, SARs may be granted in
      conjunction with the grant of incentive and non-qualified options.





The
      1995
      Employee Plan provides for the grant of incentive options, non-qualified options
      and SARs of up to 20,000 shares of common stock (subject to adjustment in the
      event of stock dividends, stock splits, and other similar events). To the extent
      that an incentive option or non-qualified option is not exercised within the
      period of exercisability specified therein, it will expire as to the then
      unexercisable portion. If any incentive option, non-qualified option or SAR
      terminates prior to exercise thereof and during the duration of the 1995
      Employee Plan, the shares of common stock as to which such option or right
      was
      not exercised will become available under the 1995 Employee Plan for the grant
      of additional options or rights to any eligible employee. The shares of common
      stock subject to the 1995 Employee Plan may be made available from either
      authorized but unissued shares, treasury shares or both. The Company has 20,000
      shares of common stock reserved for issuance under the 1995 Employee Plan.
      As of
      December 31, 2007 and 2006, there were no options outstanding under the 1995
      Employee Plan. No options were granted or exercised in 2007 or 2006 under the
      1995 Employee Plan.




36





1997
      Recruitment Stock Option Plan





In
      October 2000, the stockholders of the Company approved an amendment of the
      1997
      Recruitment Stock Option Plan (the “1997 Plan”) which provides for the issuance
      of incentive stock options, non-qualified stock options and SARs up to an
      aggregate of 370,000 shares of common stock (subject to adjustment in the event
      of stock dividends, stock splits, and other similar events). The price at which
      shares of common stock covered by the option can be purchased is determined
      by
      the Company’s Board of Directors; however, in all instances the exercise price
      is never less than the fair market value of the Company’s common stock on the
      date the option is granted.





As
      of
      December 31, 2007, there were options to purchase 238,611 shares (2006 - 239,611
      shares) of the Company’s common stock outstanding under the 1997 Plan. 168,750
      of these options were unvested at December 31, 2007, and will vest between
      2008
      and 2010 at an exercise price of $0.66 per share. 56,250 options with an
      exercise price of $0.66 per share were vested at December 31, 2007 (no vested
      options at December 31, 2006). 13,611 options with exercise prices of $1.40
      to
      $111.26 per share were vested at December 31, 2007 (2006 - 14,611 options with
      exercise prices of $1.40 to $111.26 per share). The options with an exercise
      price of $0.66 must be exercised within seven years of grant date and can only
      be exercised while the option holder is an employee of the Company. The
      remaining options must be exercised within ten years of grant date and can
      only
      be exercised while the option holder is an employee of the Company. The Company
      has not awarded any SARs under the 1997 Plan. During 2007, no options to
      purchase shares of common stock were issued, and 1,000 options expired. During
      2006, 225,000 options to purchase shares of common stock were issued, and no
      options were forfeited or expired. There were no exercises during 2007 or
      2006.





2000
      Employee Stock Purchase Plan





During
      2000, the Company obtained approval from its stockholders to establish the
      2000
      Employee Stock Purchase Plan. The Stock Purchase Plan provides for the purchase
      of common stock, in the aggregate, up to 125,000 shares. This plan allows all
      eligible employees of the Company to have payroll withholding of 1 to 15 percent
      of their wages. The amounts withheld during a calendar quarter are then used
      to
      purchase common stock at a 15 percent discount off the lower of the closing
      sale
      price of the Company’s stock on the first or last day of each quarter. This plan
      was approved by the Board of Directors, subject to stockholder approval, and
      was
      effective beginning the third quarter of 2000. The Company issued 1,726 shares
      to employees based upon payroll withholdings during 2001. There have been no
      issuances since 2001.





The
      purpose of the Stock Purchase Plan is to provide incentives for all eligible
      employees of C2 (or any of its subsidiaries), who have been employees for at
      least three months, to participate in stock ownership of C2 by acquiring or
      increasing their proprietary interest in C2. The Stock Purchase Plan is designed
      to encourage employees to remain in the employ of C2. It is the intention of
      C2
      to have the Stock Purchase Plan qualify as an “employee stock purchase plan”
within the meaning of Section 423 of the Internal Revenue Code, as amended,
      to
      issue shares of common stock to all eligible employees of C2 (or any of C2’s
      subsidiaries) who have been employees for at least three months.





2003
      Stock Option and Appreciation Rights Plan





In
      November 2003, the stockholders of the Company approved the 2003 Stock Option
      and Appreciation Rights Plan (the “2003 Plan”) which provides for the issuance
      of incentive stock options, non-qualified stock options and SARs up to an
      aggregate of 2,000,000 shares of common stock (subject to adjustment in the
      event of stock dividends, stock splits, and other similar events). The price
      at
      which shares of common stock covered by the option can be purchased is
      determined by the Company’s Board of Directors or a committee thereof; however,
      in the case of incentive stock options the exercise price shall not be less
      than
      the fair market value of the Company’s common stock on the date the option is
      granted. As of December 31, 2007, there were options to purchase 598,250 shares
      (2006 - 568,250 shares) of the Company’s common stock outstanding under the 2003
      Plan. The outstanding options vest over four years at exercise prices ranging
      from $0.51 to $3.00 per share. During 2007, 30,000 options (2006 - 230,000
      options) were granted. During 2007 and 2006 no options to purchase shares of
      common stock were forfeited or expired. There were no options exercised during
      2007 and 2006, and no SARs have been issued under the 2003 Plan.




37





**Item
      12. Security Ownership of Certain Beneficial Owners and Management
      and**  **Related
      Stockholder Matters.**





Please
      see Item 5 for detail of the Company’s securities authorized for issuance under
      equity compensation plans.





The
      following table sets forth information regarding the ownership of our common
      stock as of February 26, 2008 by: (i) each director; (ii) each of the
      Named Executive Officers in the Summary Compensation Table; (iii) all
      executive officers and directors of the Company as a group; and (iv) all
      those known by us to be beneficial owners of more than five percent of our
      common stock. As of February 26, 2008, there are 23,095,170 shares of common
      stock and 603 shares of Series N Preferred stock issued and outstanding. Each
      share of Series N Preferred Stock is entitled to 40 votes.




**Name
                and Address of**
              **Beneficial
                Owner (1)**
            
            **Number
                of Shares**
              **Beneficially
                Owned (2)**
            
            **Percentage**
              **of
                Common Stock**
              **Beneficially
                Owned**Allan
                C. Silber
            
            
            75,000
            (3)
            
            *
            %Hal
                B. Heaton
            
            
            30,448
            (4)
            
            *
            %Henry
                Y.L. Toh
            
            
            30,163
            (5)
            
            *
            %Samuel
                L. Shimer
            
            
            22,500
            (6)
            
            *
            %Stephen
                A. Weintraub
            
            
            18,750
            (7)
            
            *
            %Counsel
                Corporation and subsidiaries
              40
                King Street West Suite 3200
              Toronto,
                Ontario M5H 3Y2
            
            
            21,364,744
            
            
            92
            %All
                Executive Officers and Directors as a Group (5 people)
            
            
            176,861
            
            
            1
            %





*
            
            Indicates
                less than one percent(1)
            
            Unless
                otherwise noted, all listed shares of common stock are owned of record
                by
                each person or entity named as beneficial owner and that person or
                entity
                has sole voting and dispositive power with respect to the shares
                of common
                stock owned by each of them. All addresses are c/o C2 Global Technologies
                Inc. unless otherwise indicated.(2)
            
            As
                to each person or entity named as beneficial owners, that person’s or
                entity’s percentage of ownership is determined based on the assumption
                that any options or convertible securities held by such person or
                entity
                which are exercisable or convertible within 60 days have been exercised
                or
                converted, as the case may be.(3)
            
            Represents
                  shares of common stock issuable pursuant to options.Mr.
                  Silber is Chairman, Chief Executive Officer and President of Counsel,
                  and
                  a beneficial owner of approximately 6,068,776 shares or 12.5% of
                  the
                  outstanding common stock (10.0% of the outstanding voting shares)
                  of
                  Counsel. Mr. Silber disclaims beneficial ownership of the shares
                  of C2’s
                  common stock beneficially owned by Counsel.(4)
            
            Represents
                shares of common stock issuable pursuant to options.(5)
            
            Represents
                shares of common stock issuable pursuant to options. Does not include
                shares held by Four M International, Ltd., of which Mr. Toh is a
                director.
                Mr. Toh disclaims any beneficial ownership of such
                shares.(6)
            
            Represents
                shares of common stock issuable pursuant to options. Mr. Shimer is
                a
                beneficial owner of 819,011 shares in Counsel, which represents a
                1.7%
                beneficial ownership of Counsel. Mr. Shimer disclaims beneficial
                ownership
                of the shares of C2’s common stock beneficially owned by Counsel.(7)
            
            Represents
                  shares of common stock issuable pursuant to options.Mr.
                  Weintraub is Executive Vice President, Secretary and Chief Financial
                  Officer of Counsel and a beneficial owner of 421,901 shares in
                  Counsel,
                  which represents less than 1% beneficial ownership of Counsel.
                  Mr.
                  Weintraub disclaims beneficial ownership of the shares of C2’s common
                  stock beneficially owned by
                  Counsel.





There
      are
      no arrangements, known to the Company, including any pledge by any person of
      securities of the registrant or any of its parents, the operation of which
      may
      at a subsequent date result in a change of control of the
      registrant.





38





**Item
      13. Certain Relationships and Related Transactions, and Director
      Independence.**





**Transactions
      with Management and Others**





See
      Item
      11 hereof for descriptions of the terms of employment, consulting and other
      agreements between the Company and certain officers, directors and other related
      parties.





**Transactions
      with Counsel**





At
      December 31, 2007, C2 was indebted to Counsel in the aggregate amount of $2,335,
      including accrued and unpaid interest to that date. The details of the
      individual notes comprising the balance owing are presented below.





***Collateralized
      Promissory Note and Loan Agreement***





During
      the fourth quarter of 2003, Counsel advanced the sum of $5,600 to C2, evidenced
      by a promissory note. In January 2004, C2 and Counsel entered into a loan
      agreement and an amended and restated promissory note pursuant to which an
      additional $2,000 was loaned to C2 and pursuant to which additional periodic
      loans were made from time to time (collectively and as amended, the “Promissory
      Note”). The Promissory Note accrues interest at 10% per annum compounded
      quarterly from the date funds are advanced. The loan has been amended several
      times and the maturity date of the loan plus accrued interest has been extended
      to December 31, 2008 . The
      Promissory Note is secured by the assets of the Company and is subject to
      certain events of default which may accelerate the repayment of principal plus
      accrued interest. There are no conversion features associated with the
      Promissory Note. The loan increased primarily due to operating advances in
      2004,
      2005, and 2006 and the outstanding balance at December 29, 2006 (including
      principal and accrued interest), prior to the December 30, 2006 debt forgiveness
      by Counsel, was $41,897.  At
      December 31, 2006 C2 was indebted to Counsel in the amount of $6, representing
      C2 expenses paid by Counsel on behalf of C2 that had not been recorded in C2’s
      accounts prior to the debt forgiveness. At December 31, 2007 C2 was indebted
      to
      Counsel in the amount of $2,288 due to Counsel funding the Company’s ongoing
      cash requirements net of the Company’s repayment of $1,000 from the proceeds of
      the AccessLine preferred share redemption discussed in Note 5 of the
      consolidated financial statements.





***Secured
      Loan to C2***





To
      fund
      the acquisition of the WorldxChange Communications, Inc. assets and operations
      on June 4, 2001, Counsel provided a loan (the “Initial Loan”) to C2 in the
      aggregate amount of $15,000. On October 1, 2003 Counsel assigned the balance
      owed in connection with the Initial Loan of $9,743, including accrued interest
      (“the Assigned Loan”), to C2 in exchange for a new loan bearing interest at 10%
      per annum compounded quarterly and payable on maturity of the loan (“the New
      Loan”). Consistent with the terms of the Initial Loan, subject to certain
      conditions, the New Loan provides for certain mandatory prepayments upon written
      notice from Counsel including an event resulting in the issuance of new shares
      by C2 to a party unrelated to Counsel where the funds were not used for an
      approved expanded business plan, the purchase of the Company’s accounts
      receivable by a third party or where C2 sells material assets in excess of
      cash
      proceeds of $1,000, and certain other events. The New Loan is subject to certain
      events of default which accelerate the repayment of principal plus accrued
      interest. It has been amended several times and the maturity date of the loan
      plus accrued interest has been extended to December 31, 2008. There are no
      conversion features associated with the New Loan. As of December 29, 2006,
      the
      total outstanding debt under the New Loan (including principal and accrued
      interest), prior to the December 30, 2006 debt forgiveness by Counsel, was
      $13,428. During 2007, Counsel advanced $145 and accrued interest of $2 and
      the
      Company repaid $100 from the proceeds of the MyTrade.com, Inc. sale discussed
      in
      Note 5; therefore, the total outstanding debt under the New Loan was $47 at
      December 31, 2007.





***Initial
      Acquisition of C2 and Senior Convertible Loan***





On
      March
      1, 2001, C2 entered into a Senior Convertible Loan and Security Agreement,
      (the
“Senior Loan Agreement”) with Counsel. Pursuant to the terms and provisions of
      the Senior Loan Agreement, Counsel agreed to make periodic loans to C2 in the
      aggregate principal amount not to exceed $10,000, which was subsequently
      increased to $12,000 through amendment on May 8, 2001. The Senior Loan Agreement
      was amended several times and the maturity date of the loan plus accrued
      interest was extended to October 31, 2007. As a result of the application of
      the
      anti-dilution provisions of the Senior Loan Agreement, the conversion price
      was
      adjusted to $5.02 per common share. At December 29, 2006, prior to the December
      30, 2006 debt forgiveness by Counsel, the total outstanding debt under the
      Senior Loan Agreement (including principal and accrued interest) was $19,966
      which was convertible into approximately 3,977,208 shares of common stock.
      There
      have been no further advances under this loan since the debt was
      forgiven.




39





***Assignment
      of Winter Harbor Common Stock and Debt Interests***





Pursuant
      to the terms of a settlement between Counsel and Winter Harbor and First Media
      L.P., a limited partnership and the parent company of Winter Harbor
      (collectively, the “Winter Harbor Parties”), effective August 29, 2003, the
      Winter Harbor Parties relinquished their right to 118,750 shares of the common
      stock of C2 to Counsel. The Winter Harbor Parties further assigned to Counsel
      all of their rights with respect to a note payable by C2 of $1,999 drawn down
      pursuant to a Letter of Credit issued November 3, 1998 to secure certain
      obligations of C2 together with any accrued interest thereon. The assigned
      amount together with accrued interest amounted to $2,577 on August 29, 2003.
      As
      a result of the settlement and assignment, C2 entered into a new loan agreement
      with Counsel the terms of which provided that from August 29, 2003 the loan
      balance of $2,577 would bear interest at 10% per annum compounded quarterly
      with
      the aggregate balance of principal and accrued interest payable on maturity
      of
      the loan. This loan agreement was amended and restated several times to allow
      for the making of further periodic advances and to extend the maturity date
      to
      October 31, 2007. There were no conversion features associated with this loan.
      As of December 29, 2006, prior to the December 30, 2006 debt forgiveness by
      Counsel, the total outstanding debt under the loan (including principal and
      accrued interest) was $8,291. There have been no further advances under this
      loan since the debt was forgiven.





***Counsel
      Guarantee, Subordination and Stock Pledge***





In
      October 2004, Counsel agreed to guarantee the debt that the Company owed to
      its
      third party lender, and also agreed to subordinate all of its debt owed by
      the
      Company, and to subrogate all of its related security interests, in favor of
      the
      third party lender. Counsel further agreed to pledge all of its shares owned
      in
      C2 as security for its guarantee. In accordance with these agreements, amounts
      owing to Counsel could not be repaid while amounts remained owing to the third
      party lender. In January 2007, when the debt owing to the third party lender
      was
      prepaid in full, the subordination, subrogation and guarantee agreements were
      terminated.





As
      discussed in Note 5 of the consolidated financial statements included in Item
      15
      of this Report, with respect to the Company’s investment in LIMOS.com in the
      third quarter of 2007, all investors in LIMOS.com have pledged their ownership
      interests as security for a $2,500 loan entered into by LIMOS.com and a third
      party lender (the “Lender”). Counsel has guaranteed $250 of the Loan on the
      Company’s behalf. Contemporaneously with the Company’s investment in LIMOS.com
      and Counsel’s guaranty, Counsel and the Lender entered into a Priorities
      Agreement. Under the terms of the Promissory Note, which is discussed in more
      detail in Note 2, Note 9 and Note 13 of the consolidated financial statements,
      the Company had pledged all of its assets to Counsel as security for the
      Promissory Note. The Priorities Agreement subordinates Counsel’s claim to the
      Company’s investment in LIMOS.com in favor of the Lender.





***Counsel
      Management Services***





In
      December 2004, C2 entered into a management services agreement (the “Agreement”)
      with Counsel. Under the terms of the Agreement, C2 agreed to make payment to
      Counsel for the past and future services to be provided by certain Counsel
      personnel to C2 for each of 2004 and 2005. In March 2006 C2 entered into a
      similar agreement with Counsel for services to be provided in 2006. The basis
      for such services charged was an allocation, based on time incurred, of the
      cost
      of the base compensation paid by Counsel to those employees providing services
      to C2. For the years ended December 31, 2004 and 2005, the cost of such services
      was $280 and $450, respectively. The cost for 2006 was $225, reflecting the
      reduced complexity of C2 operations following the sale of the Telecommunications
      business. The foregoing fees for 2004, 2005 and 2006 were due and payable within
      30 days following the respective year ends, subject to any subordination
      restrictions then in effect. Any unpaid fee amounts bore interest at 10% per
      annum commencing on the day after such year-end, and in the event of a change
      of
      control, merger or similar event of the Company, all amounts owing, including
      fees incurred up to the date of the event, would have become due and payable
      immediately upon the occurrence of such event, subject to any subordination
      restrictions then in effect. The fees for 2004, 2005 and 2006 were forgiven
      on
      December 30, 2006 as part of Counsel’s forgiveness of its outstanding debt from
      C2, as discussed above. Amounts owing to Counsel at December 31, 2006 could
      not
      be repaid while amounts remained owing to the Company’s third party lender. The
      repayment in full of the third party debt in January 2007 removed this
      restriction on payments to Counsel. In May 2007, the Company and Counsel entered
      into a similar agreement for services provided during 2007, and the cost for
      2007 was $225. The Company expects that Counsel will continue to provide these
      services in 2008 on the same cost basis.





**Director
      Independence**




In
      determining director independence, C2 defines independent directors in
      accordance with the applicable rules of the SEC and the Nasdaq Marketplace
      Rules. According to this definition, Mr. Toh, Mr. Heaton, Mr. Shimer and Mr.
      Turock are independent directors.




40




**Item
      14. Principal Accountant Fees and Services.**





In
      November 2006 the Company’s Audit Committee engaged Mintz & Partners LLP
      (“Mintz”) as the independent registered public accounting firm of the Company
      for the fiscal year ended December 31, 2006. Previously, the Company’s
      independent registered public accounting firm was BDO Seidman, LLP. Prior to
      May
      5, 2004, the Company’s independent registered public accounting firm was
      PricewaterhouseCoopers LLP. All fees paid to independent registered public
      accounting firms were pre-approved by the Audit Committee.





On
      December 12, 2007, the Company was informed by Mintz that it
      had reached an agreement with Deloitte & Touche LLP’s Greater Toronto
      Private Company Services to merge the two firms in January 2008. The merger was
      completed on January 29, 2008. Effective that date , both
      firms were operating under the name Deloitte & Touche LLP (“Deloitte &
Touche”) and Mintz ceased providing services as a separate entity.





Fees
      paid
      or expected to be paid to Deloitte & Touche, our independent registered
      public accounting firm for the fiscal periods ended December 31, 2007 and 2006,
      are set forth below.





**Year
                Ended December 31,**
              **(in
                thousands)****2007**
            
            **2006**Audit
                fees
            
            $
            94
            
            $
            67Audit-related
                fees
            
            
            11
            
            
            —Tax
                fees
            
            
            17
            
            
            20All
                other fees
            
            
            —
            
            
            —Total
            
            $
            122
            
            $
            87





Fees
      paid
      or expected to be paid to BDO Seidman, LLP, our independent registered public
      accounting firm for the period May 17, 2004 to November 16, 2006, for the fiscal
      periods ended December 31, 2007 and 2006 are set forth below.





**Year
                Ended December 31,**
              **(in
                thousands)****2007**
            
            **2006**Audit
                fees
            
            $
            20
            
            $
            123Audit-related
                fees
            
            
            —
            
            
            51Tax
                fees
            
            
            —
            
            
            3All
                other fees
            
            
            —
            
            
            —Total
            
            $
            20
            
            $
            177




Fees
      paid
      in 2006 to PricewaterhouseCoopers LLP, our independent registered public
      accounting firm prior to May 5, 2004, are set forth below.




**Year
                Ended December 31,**
              **(in
                thousands)****2006**Audit
                fees
            
            $
            26Audit-related
                fees
            
            
            —Tax
                fees
            
            
            —All
                other fees
            
            
            —Total
            
            $
            26





***Audit
      Fees***





Audit
      fees were for professional services rendered for the audit of our annual
      financial statements for the years ended December 31, 2006 and 2007, the reviews
      of the financial statements included in our quarterly reports on Form 10-Q
      for
      the years ended December 31, 2006 and 2007, and services in connection with
      our
      statutory and regulatory filings for the years ended December 31, 2006 and
      2007.
      They amounted to $216 and $114, respectively.




41





***Audit-Related
      Fees***





Audit
      related fees were for assurance and related services rendered that are
      reasonably related to the audit and reviews of our financial statements for
      the
      years ended December 31, 2006 and 2007, exclusive of the fees disclosed as
      Audit
      Fees above. These fees include benefit plan audits and accounting consultations,
      which amounted to $51 and $11, for the respective years.





***Tax
      Fees***





Tax
      fees
      were for services related to tax compliance, consulting and planning services
      rendered during the years ended December 31, 2006 and 2007 and included
      preparation of tax returns, review of restrictions on net operating loss
      carryforwards and other general tax services. Tax fees paid amounted to $23
      and
      $17, for the respective years.





***All
      Other Fees***





We
      did
      not incur fees for any services, other than the fees disclosed above relating
      to
      audit, audit-related and tax services, rendered during the years ended December
      31, 2006 and 2007.





**Audit
      and Non-Audit Service Pre-Approval Policy**





In
      accordance with the requirements of the Sarbanes-Oxley Act of 2002 and the
      rules
      and regulations promulgated thereunder, the Audit Committee has adopted an
      informal approval policy that it believes will result in an effective and
      efficient procedure to pre-approve services performed by the independent
      registered public accounting firm.




**Audit
      Services.** Audit
      services include the annual financial statement audit (including quarterly
      reviews) and other procedures required to be performed by the independent
      registered public accounting firm to be able to form an opinion on our financial
      statements. The Audit Committee pre-approves specified annual audit services
      engagement terms and fees and other specified audit fees. All other audit
      services must be specifically pre-approved by the Audit Committee. The Audit
      Committee monitors the audit services engagement and may approve, if necessary,
      any changes in terms, conditions and fees resulting from changes in audit scope
      or other items.





**Audit-Related
      Services.** Audit-related
      services are assurance and related services that are reasonably related to
      the
      performance of the audit or review of our financial statements which
      historically have been provided to us by the independent registered public
      accounting firm and are consistent with the SEC’s rules on auditor independence.
      The Audit Committee pre-approves specified audit-related services within
      pre-approved fee levels. All other audit-related services must be pre-approved
      by the Audit Committee.





**Tax
      Services.** The
      Audit
      Committee pre-approves specified tax services that the Audit Committee believes
      would not impair the independence of the independent registered public
      accounting firm and that are consistent with SEC rules and guidance. All other
      tax services must be specifically approved by the Audit Committee.





**All
      Other Services.** Other
      services are services provided by the independent registered public accounting
      firm that do not fall within the established audit, audit-related and tax
      services categories. The Audit Committee pre-approves specified other services
      that do not fall within any of the specified prohibited categories of
      services.





**Procedures** .
      All
      proposals for services to be provided by the independent registered public
      accounting firm, which must include a detailed description of the services
      to be
      rendered and the amount of corresponding fees, are submitted to the Chairman
      of
      the Audit Committee and the Chief Financial Officer. The Chief Financial Officer
      authorizes services that have been pre-approved by the Audit Committee. If
      there
      is any question as to whether a proposed service fits within a pre-approved
      service, the Audit Committee chair is consulted for a determination. The Chief
      Financial Officer submits requests or applications to provide services that
      have
      not been pre-approved by the Audit Committee, which must include an affirmation
      by the Chief Financial Officer and the independent registered public accounting
      firm that the request or application is consistent with the SEC’s rules on
      auditor independence, to the Audit Committee (or its Chair or any of its other
      members pursuant to delegated authority) for approval.





42


**PART
      IV**





**Item
      15. Exhibits and Financial Statement Schedules**





(a)
            The
                following financial statements and those financial statement schedules
                required by Item 8 hereof are filed as part of this
                Report:





1.
            Financial
                Statements:




Reports
                    of Independent Registered Public Accounting Firms
                  
                  Consolidated
                      Balance Sheets as of December 31, 2007 and 2006
                    
                    Consolidated
                      Statements of Operations for the years ended December 31, 2007,
                      2006 and
                      2005
                    
                    Consolidated
                      Statement of Changes in Stockholders’ Deficit for the years ended December
                      31, 2007, 2006 and 2005
                    
                    Consolidated
                      Statements of Cash Flows for the years ended December 31, 2007,
                      2006 and
                      2005
                    
                    Notes
                      to Consolidated Financial
                      Statements
  2.
                Financial
                      Statement Schedule:
 Schedule
                            II - Valuation and Qualifying Accounts
                          
                          All
                            other schedules are omitted because of the absence of
                            conditions under
                            which they are required or because the required information
                            is presented
                            in the Financial Statements or Notes
                            thereto.


(b)
            The
                following exhibits are filed as part of this
                Report:





**Exhibit
                Number**
            
            **Title
                of Exhibit**3.1(i)
            
            Amended
                and Restated Articles of Incorporation. (1)3.2(ii)
            
            Bylaws
                as amended (2)10.1*
            
            1997
                Recruitment Stock Option Plan. (3)10.2*
            
            2001
                Stock Option and Appreciation Rights Plan. (4)10.2.1*
            
            2003
                Stock Option and Appreciation Rights Plan. (5)10.3
            
            Securities
                Purchase Agreement dated as of October 14, 2004. (6)10.4
            
            Registration
                Rights Agreement dated as of October 14, 2004. (6)10.5
            
            Common
                Stock Purchase Warrant issued October 14, 2004. (6)10.6*
            
            Counsel
                Management Agreement. (7)10.7
            
            Fourth
                Amendment to Amended and Restated Loan Agreement between C2 Global
                Technologies Inc. and Counsel Corporation (US) dated January 30,
                2004,
                dated as of July 6, 2005 (8)10.8
            
            Seventh
                Amendment to Senior Convertible Loan and Security Agreement between
                C2
                Global Technologies Inc. and Counsel Corporation and Counsel Capital
                Corporation dated March 1, 2001, dated as of July 6, 2005
                (8)10.9
            
            Promissory
                Note for $6,315.53 dated December 31, 2006 between C2 Global Technologies
                Inc. and Counsel Corporation. (9)




43




**Exhibit
                Number**
            
            **Title
                of Exhibit**


10.10
            
            Promissory
                Note for $1,613,000.00 dated March 31, 2007 between C2 Global Technologies
                Inc. and Counsel Corporation. (10)10.11
            
            Promissory
                Note for $56,250.00 dated March 31, 2007 between C2 Global Technologies
                Inc. and Counsel Corporation. (10)10.12
            
            Promissory
                Note for $142,050.31 dated March 31, 2007 between C2 Global Technologies
                Inc. and Counsel Corporation. (10)10.13
            
            Promissory
                Note for $147,000.00 dated June 30, 2007 between C2 Global Technologies
                Inc. and Counsel Corporation. (11)10.14
            
            Promissory
                Note for $56,250.00 dated June 30, 2007 between C2 Global Technologies
                Inc. and Counsel Corporation. (11)10.15
            
            Promissory
                Note for $44,826.30 dated June 30, 2007 between C2 Global Technologies
                Inc. and Counsel Corporation. (11)10.16
            
            Promissory
                Note for $672,961.16 dated September 30, 2007 between C2 Global
                Technologies Inc. and Counsel Corporation. (12)10.17
            
            Promissory
                Note for $56,250.00 dated September 30, 2007 between C2 Global
                Technologies Inc. and Counsel Corporation. (12)10.18
            
            Promissory
                Note for $73,295.21 dated September 30, 2007 between C2 Global
                Technologies Inc. and Counsel Corporation. (12)10.19
            
            The
                Pledge Agreement dated as of September 21, 2007. (13)10.20
            
            The
                Priorities Agreement dated as of September 21, 2007.
                (13)10.21
            
            Fifth
                Amendment to Loan Agreement between C2 Global Technologies Inc. and
                Counsel Corporation (US) dated June 4, 2001, dated as of December
                31, 2007
                (included herewith)10.22
            
            Sixth
                Amendment to Loan Agreement between C2 Global Technologies Inc. and
                Counsel Corporation (US) dated June 4, 2001, dated as of December
                31, 2007
                (included herewith)10.23
            
            Fifth
                Amendment to Loan Agreement between C2 Global Technologies Inc. and
                Counsel Corporation dated January 26, 2004, dated as of December
                31, 2007
                (included herewith)10.24
            
            Promissory
                note for $145,000.00 dated November 14, 2007 between C2 Global
                Technologies Inc. and Counsel Corporation (US) (included
                herewith)10.25
            
            Promissory
                Note for $120,000.00 dated December 31, 2007 between C2 Global
                Technologies Inc. and Counsel Corporation. (included
                herewith)10.26
            
            Promissory
                Note for $56,250.00 dated December 31, 2007 between C2 Global Technologies
                Inc. and Counsel Corporation. (included herewith)10.27
            
            Promissory
                Note for $61,351.77 dated December 31, 2007 between C2 Global Technologies
                Inc. and Counsel Corporation. (included herewith)14
            
            C2
                Global Technologies Inc. Code of Conduct. (7)21
            
            List
                of subsidiaries. (included herewith)




44




**Exhibit
                Number**
            
            **Title
                of Exhibit**


23.1
            
            Consent
                of Deloitte & Touche LLP (included herewith)23.2
            
            Consent
                of Mintz & Partners LLP (included herewith)23.3
            
            Consent
                of BDO Seidman LLP (included herewith)31.1
            
            Certification
                of the CEO pursuant to Rule 13a-14(a) under the Securities Exchange
                Act of
                1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
                of 2002
                (included herewith)31.2
            
            Certification
                of the CFO pursuant to Rule 13a-14(a) under the Securities Exchange
                Act of
                1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
                of 2002
                (included herewith)32.1
            
            Certification
                pursuant to 18 U.S.C 1350 as adopted pursuant to Section 906 of the
                Sarbanes Oxley Act of 2002 (included herewith)32.2
            
            Certification
                pursuant to 18 U.S. C. 1350 as adopted pursuant to Section 906 of
                the
                Sarbanes Oxley Act of 2002 (included
                herewith)





*
      Indicates a management contract or compensatory plan required to be filed as
      an
      exhibit.





(1)
            Incorporated
                by reference to our Annual Report on Form 10-K for the year ended
                December
                31, 1998, file number 0-17973.





(2)
            Incorporated
                by reference to our Quarterly Report on Form 10-Q for the period
                ended
                September 30, 1998, file number
                0-17973.





(3)
            Incorporated
                by reference to our Current Report on Form 8-K filed on March 16,
                2001,
                file number 0-17973.





(4)
            Incorporated
                by reference to our Annual Report on Form 10-KSB for the year ended
                December 31, 1996, file number 0-17973.





(5)
            Incorporated
                by reference to our Quarterly Report on Form 10-Q for the period
                ended
                September 30, 2001, file number 0-17973.





(6)
            Incorporated
                by reference to our Definitive Proxy Statement for the November 26,
                2003
                annual stockholder meeting.





(7)
            Incorporated
                by reference to our Annual Report on Form 10-K/A#1 for the year ended
                December 31, 2003.





(8)
            Incorporated
                by reference to our Annual Report on Form 10-K/A#3 for the year ended
                December 31, 2002, file number 0-17973.





(9)
            Incorporated
                by reference to our Current Report on Form 8-K filed on December
                26, 2002,
                file number 0-17973.





(10)
            Incorporated
                by reference to our Quarterly Report on Form 10-Q for the period
                ended
                March 31, 2004.





(11)
            Incorporated
                by reference to our Current Report on Form 8-K filed on July 19,
                2004.





(12)
            Incorporated
                by reference to our Current Report on Form 8-K filed on October 20,
                2004.





(13)
            Incorporated
                by reference to our Current Report on Form 8-K filed on January 6,
                2005





(14)
            Incorporated
                by reference to our Quarterly Report on Form 10-Q for the period
                ended
                March 31, 2005





(15)
            Incorporated
                by reference to our Current Report on Form 8-K filed on May 25,
                2005





(16)
            Incorporated
                by reference to our Quarterly Report on Form 10-Q for the period
                ended
                June 30, 2005




45


(17)
            Incorporated
                by reference to our Quarterly Report on Form 10-Q for the period
                ended
                September 30, 2005





(18)
            Incorporated
                by reference to our Annual Report on Form 10-K for the year ended
                December
                31, 2006





(19)
            Incorporated
                by reference to our Quarterly Report on Form 10-Q for the period
                ended
                March 31, 2007





(20)
            Incorporated
                by reference to our Quarterly Report on Form 10-Q for the period
                ended
                June 30, 2007





(21)
            Incorporated
                by reference to our Quarterly Report on Form 10-Q for the period
                ended
                September 30, 2007





(22)
            Incorporated
                by reference to our Current Report on Form 8-K filed on September
                26,
                2007, file number 0-17973.




46





**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
      the
      Registrant has duly caused this report to be signed on our behalf by the
      undersigned, hereunto duly authorized.




C2
                GLOBAL TECHNOLOGIES INC.
              (Registrant)Dated:
              March 11, 2008
            By:
            /s/
              Allan C. SilberAllan
              C. Silber,Chairman
              of the Board and Chief Executive Officer




In
      accordance with Section 13 of the Securities Exchange Act of 1934, this report
      has been signed by the following persons on behalf of the registrant and in
      the
      capacities and on the dates indicated.





**Signature**
            
            **Title**
            
            **Date**/s/
                Allan C. Silber
              
              Allan
                C. Silber
            
            Chairman
                of the Board of Directors and Chief Executive Officer
            
            March
                11, 2008/s/
                Stephen A. Weintraub
              
              Stephen
                A. Weintraub
            
            Executive
                Vice President, Chief Financial Officer and Corporate
                Secretary
            
            March
                11, 2008/s/
                Catherine A. Moran
              
              Catherine
                A. Moran
            
            Vice
                President of Accounting and Controller
            
            March
                11, 2008/s/
                Hal B. Heaton
              
              Hal
                B. Heaton
            
            Director
            
            March
                11, 2008/s/
                Samuel L. Shimer
              
              Samuel
                L. Shimer
            
            Director
            
            March
                11 2008/s/
                Henry Y. L. Toh
              
              Henry
                Y.L. Toh
            
            Director
            
            March
                11, 2008/s/
                David L. Turock
              
              David
                L. Turock
            
            Director
            
            March
                11, 2008





47


(c)
      Financial Statement Schedules





The
      following Schedules are included in our Financial Statements:





Schedule
      of Valuation and Qualifying Accounts




48




**INDEX
      OF FINANCIAL STATEMENTS & SUPPLEMENTAL SCHEDULE**





**Title
      of Document**





**Page**Reports
                of Independent Registered Public Accounting Firms
            F-2Consolidated
                Balance Sheets as of December 31, 2007 and 2006
            F-5Consolidated
                Statements of Operations for the years ended December 31, 2007, 2006
                and
                2005
            F-6Consolidated
                Statement of Changes in Stockholders’ Deficit for the years ended December
                31, 2007, 2006 and 2005
            F-7Consolidated
                Statements of Cash Flows for the years ended December 31, 2007, 2006
                and
                2005
            F-8Notes
                to Consolidated Financial Statements
            F-10Schedule
                of Valuation and Qualifying Accounts
            S-1





F-1




**Report
      of Independent Registered Public Accounting Firm**





To
      the
      Board of Directors and Stockholders of


C2
      Global
      Technologies Inc.


Toronto,
      Ontario, Canada





We
      have
      audited the accompanying consolidated balance sheet of C2 Global Technologies
      Inc. and subsidiaries (the “Company”) as of December 31, 2007, and the related
      consolidated statements of operations and comprehensive loss, stockholders'
      deficit, and cash flows for the year then ended. We also audited the financial
      statement schedule listed in the accompanying index for the year ended December
      31, 2007. 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 audit.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about 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. We believe that our audit provide a reasonable
      basis for our opinion.





In
      our
      opinion, the consolidated financial statements present fairly, in all material
      respects, the financial position of C2 Global Technologies Inc. and subsidiaries
      as of **** December
      31, 2007, and the results of their operations and their cash flows for the
      year
      then ended, in conformity with accounting principles generally accepted in
      the
      United States of America.





Also,
      in
      our opinion, the financial statement schedule listed in the accompanying index
      presents fairly, in all material respects, the information set forth therein
      for
      the year ended December 31, 2007.





The
      Company is not required to have, nor were we engaged to perform, an audit of
      its
      internal control over financial reporting. Our audit included consideration
      of
      internal control over financial reporting as a basis for designing audit
      procedures that are appropriate in the circumstances, but not for the purpose
      of
      expressing an opinion on the Company’s internal control over financial
      reporting. Accordingly, we express no such opinion.





The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern. As discussed in Note 2 to the
      financial statements, the Company’s recurring losses from operations and net
      stockholders’ capital deficiency raise substantial doubt about its ability to
      continue as a going concern. Management’s plans concerning these matters are
      also described in Note 2. The consolidated financial statements do not include
      any adjustments that might result from the outcome of this
      uncertainty.




/s/ Deloitte & Touche LLP





Deloitte
      & Touche LLP


Toronto,
      Canada


February
      26, 2008




F-2





**Report
      of Independent Registered Public Accounting Firm**





To
      the
      Board of Directors and Stockholders of


C2
      Global
      Technologies Inc.


Toronto,
      Ontario, Canada





We
      have
      audited the accompanying consolidated balance sheet of C2
      Global
      Technologies Inc. and its subsidiaries as
      of
      December 31, 2006 and the related consolidated statements of operations,
      stockholders’ deficit, and cash flows for the year then ended. We have also
      audited the financial statement schedule listed in the accompanying index for
      the year ended December 31, 2006. These consolidated financial statements and
      financial statement schedule are the responsibility of the Company’s management.
      Our responsibility is to express an opinion on these consolidated financial
      statements and financial statement schedule based on our audits.




We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the
      consolidated financial statements and financial statement schedule are free
      of
      material misstatement. The Company is not required to have, nor were we engaged
      to perform, an audit of its internal control over financial reporting. Our
      audit
      included consideration of internal control over financial reporting as a basis
      for designing audit procedures that are appropriate in the circumstances, but
      not for the purpose of expressing an opinion on the effectiveness of the
      Company’s internal control over financial reporting. Accordingly, we express no
      such opinion. An audit also includes examining, on a test basis, evidence
      supporting the amounts and disclosures in the consolidated financial statements
      and financial statement schedule, assessing the accounting principles used
      and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audit provides a
      reasonable basis for our opinion.




In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of C2 Global Technologies
      Inc.
      at December 31, 2006, and the results of its operations and its cash flows
      for
      the year then ended **,** in
      conformity with accounting principles generally accepted in the United States
      of
      America.





Also,
      in
      our opinion, the financial statement schedule listed in the accompanying index
      presents fairly, in all material respects, the information set forth therein
      for
      the year ended December 31, 2006.




The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern. As discussed in Note 2 to the
      consolidated financial statements, the Company has suffered recurring losses
      from operations and has a net capital deficiency that raise substantial doubt
      about its ability to continue as a going concern. Management’s plans in regard
      to these matters are also described in Note 2. The consolidated financial
      statements do not include any adjustments that might result from the outcome
      of
      this uncertainty.








/s/
      Mintz
& Partners LLP


Mintz
      & Partners LLP


Toronto,
      Ontario





March
      1,
      2007




F-3


**Report
      of Independent Registered Public Accounting Firm**





To
      the
      Board of Directors and Stockholders of


C2
      Global
      Technologies Inc.


Toronto,
      Ontario, Canada





We
      have
      audited the accompanying consolidated statements of operations, stockholders’
deficit, and cash flows for the year ended December 31, 2005 of C2
      Global
      Technologies Inc. and its subsidiaries. We
      have
      also audited the financial statement schedule listed in the accompanying index
      for the year ended December 31, 2005. These consolidated financial statements
      and financial statement schedule are the responsibility of the Company’s
      management. Our responsibility is to express an opinion on these consolidated
      financial statements and financial statement schedule based on our
      audit.




We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the
      consolidated financial statements and financial statement schedule are free
      of
      material misstatement. The Company is not required to have, nor were we engaged
      to perform, an audit of its internal control over financial reporting. Our
      audit
      included consideration of internal control over financial reporting as a basis
      for designing audit procedures that are appropriate in the circumstances, but
      not for the purpose of expressing an opinion on the effectiveness of the
      Company’s internal control over financial reporting. Accordingly, we express no
      such opinion. An audit also includes examining, on a test basis, evidence
      supporting the amounts and disclosures in the consolidated financial statements
      and financial statement schedule, assessing the accounting principles used
      and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audit provides a
      reasonable basis for our opinion.




In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the results of operations and cash flows for the
      year
      ended December 31, 2005 of C2 Global Technologies Inc., in conformity with
      accounting principles generally accepted in the United States of
      America.





Also,
      in
      our opinion, the financial statement schedule listed in the accompanying index
      presents fairly, in all material respects, the information set forth therein
      for
      the year ended December 31, 2005.




The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern. As discussed in Note 2 to the
      consolidated financial statements, the Company has suffered recurring losses
      from operations and has a net capital deficiency that raise substantial doubt
      about its ability to continue as a going concern. Management’s plans in regard
      to these matters are also described in Note 2. The consolidated financial
      statements do not include any adjustments that might result from the outcome
      of
      this uncertainty.





/s/
      BDO
      Seidman, LLP


BDO
      Seidman, LLP


Houston,
      Texas





March
      27,
      2006, except for the effects of the discontinued


operations
      discussed in Note 6, as to which the date


is
      March
      1, 2007




F-4


**C2
      GLOBAL TECHNOLOGIES INC. AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


**as
      of December 31, 2007 and 2006**


**(In
      thousands, except share and per share amounts)**





**2007**
            
            **2006**ASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            67
            
            $
            3Deferred
                income tax asset (Note 12)
            
            
            1,000
            
            
            —Other
                current assets
            
            
            17
            
            
            70Total
                current assets
            
            
            1,084
            
            
            73Other
                assets:Intangible
                assets, net (Note 8)
            
            
            20
            
            
            40Goodwill
                (Note 8)
            
            
            173
            
            
            173Investments
                (Note 5)
            
            
            519
            
            
            1,100Total
                assets
            
            $
            1,796
            
            $
            1,386LIABILITIES
                AND STOCKHOLDERS’ DEFICITCurrent
                liabilities:Accounts
                payable and accrued liabilities (Note 7)
            
            $
            402
            
            $
            550Convertible
                note payable, net of unamortized discount (Note 9)
            
            
            —
            
            
            1,299Notes
                payable to a related party (Note 9)
            
            
            2,335
            
            
            6Total
                liabilities
            
            
            2,737
            
            
            1,855Commitments
                and contingencies (Note 2, 10 and 11)Stockholders’
                deficit:Preferred
                stock, $10.00 par value, authorized 10,000,000 shares; issued and
                outstanding 607 shares at December 31, 2007 and 611 shares at December
                31,
                2006, liquidation preference of $607 at December 31, 2007 and $611
                at
                December 31, 2006
            
            
            6
            
            
            6Common
                stock, $0.01 par value, authorized 300,000,000 shares; issued and
                outstanding 23,095,010 shares at December 31, 2007 and 23,084,850
                shares
                at December 31, 2006
            
            
            231
            
            
            231Additional
                paid-in capital
            
            
            274,672
            
            
            274,499Accumulated
                deficit
            
            
            (275,850
            )
            
            (275,205
            )Total
                stockholders’ deficit
            
            
            (941
            )
            
            (469
            )Total
                liabilities and stockholders’ deficit
            
            $
            1,796
            
            $
            1,386





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




F-5





**C2
      GLOBAL TECHNOLOGIES INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**for
      the years ended December 31, 2007, 2006 and 2005**


**(In
      thousands, except per share amounts)**





**2007**
            
            **2006**
            
            **2005**RevenuePatent
                licensing
            
            $
            —
            
            $
            —
            
            $
            —Operating
                costs and expenses:Selling,
                general and administrative
            
            
            1,216
            
            
            1,281
            
            
            2,758Research
                and development
            
            
            —
            
            
            —
            
            
            389Depreciation
                and amortization
            
            
            20
            
            
            20
            
            
            32Total
                operating costs and expenses
            
            
            1,236
            
            
            1,301
            
            
            3,179Operating
                loss
            
            
            (1,236
            )
            
            (1,301
            )
            
            (3,179
            )Other
                income (expense):Interest
                expense - related party (Note 9)
            
            
            (184
            )
            
            (10,390
            )
            
            (12,154
            )Interest
                expense - third party
            
            
            (12
            )
            
            (510
            )
            
            (658
            )Other
                income (expense)
            
            
            (207
            )
            
            155
            
            
            1,084Total
                other expense
            
            
            (403
            )
            
            (10,745
            )
            
            (11,728
            )Loss
                from continuing operations before income taxes
            
            
            (1,639
            )
            
            (12,046
            )
            
            (14,907
            )Income
                tax expense (recovery) (Note 12)
            
            
            (1,000
            )
            
            —
            
            
            —Loss
                from continuing operations
            
            
            (639
            )
            
            (12,046
            )
            
            (14,907
            )Income
                (loss) from discontinued operations (Note 6)
            
            
            (6
            )
            
            4,370
            
            
            (3,582
            )Net
                loss and comprehensive loss
            
            $
            (645
            )
            $
            (7,676
            )
            $
            (18,489
            )


Weighted
                average shares outstanding
            
            
            23,095
            
            
            19,258
            
            
            19,237Net
                income (loss) per common share: (Note 4)Loss
                from continuing operations
            
            $
            (0.03
            )
            $
            (0.63
            )
            $
            (0.77
            )Income
                (loss) from discontinued operations
            
            
            —
            
            
            0.23
            
            
            (0.19
            )Net
                loss per common share
            
            $
            (0.03
            )
            $
            (0.40
            )
            $
            (0.96
            )





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




F-6





**C2
      GLOBAL TECHNOLOGIES INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT**


**for
      the years ended December 31, 2007, 2006 and 2005**


**(In
      thousands of dollars, except share amounts)**




**Preferred
                stock**
            
            **Common
                stock**
            
            **Additional
                paid-**
            
            **Accumulated****Shares**
            
            **Amount**
            
            **Shares**
            
            **Amount**
            
            **in
                capital**
            
            **Deficit**
            
            **Total****Balance
                at December 31, 2004**
            
            
            617
            
            $
            6
            
            
            19,237,135
            
            $
            192
            
            $
            186,650
            
            $
            (248,813
            )
            $
            (61,965
            )Beneficial
                conversion feature on certain convertible notes payable to related
                party
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,511
            
            
            —
            
            
            1,511Conferral
                of benefit from majority stockholder
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,000
            
            
            —
            
            
            1,000Issuance
                of options to purchase common stock to non-employee
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1
            
            
            —
            
            
            1Net
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (18,489
            )
            
            (18,489
            )**Balance
                at December 31, 2005**
            
            
            617
            
            
            6
            
            
            19,237,135
            
            
            192
            
            
            189,162
            
            
            (267,302
            )
            
            (77,942
            )Conversion
                of Class N preferred stock to common stock
            
            
            (6
            )
            
            —
            
            
            240
            
            
            —
            
            
            —
            
            
            —
            
            
            —Conversion
                of related party debt to common stock (1)
            
            
            —
            
            
            —
            
            
            3,847,475
            
            
            39
            
            
            3,347
            
            
            —
            
            
            3,386Forgiveness
                of related party debt (2)
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            80,196
            
            
            —
            
            
            80,196Transfer
                of warrant to equity (3)
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            430
            
            
            (227
            )
            
            203Beneficial
                conversion feature on certain convertible notes payable to related
                party
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,225
            
            
            —
            
            
            1,225Compensation
                cost related to stock options
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            139
            
            
            —
            
            
            139Net
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (7,676
            )
            
            (7,676
            )**Balance
                at December 31, 2006**
            
            
            611
            
            
            6
            
            
            23,084,850
            
            
            231
            
            
            274,499
            
            
            (275,205
            )
            
            (469
            )Conversion
                of Class N preferred stock to common stock
            
            
            (4
            )
            
            —
            
            
            160
            
            
            —
            
            
            —
            
            
            —
            
            
            —Conversion
                of third party debt to common stock (4)
            
            
            —
            
            
            —
            
            
            10,000
            
            
            —
            
            
            7
            
            
            —
            
            
            7Compensation
                cost related to stock options
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            166
            
            
            —
            
            
            166Net
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (645
            )
            
            (645
            )**Balance
                at December 31, 2007**
            
            
            607
            
            $
            6
            
            
            23,095,010
            
            $
            231
            
            $
            274,672
            
            $
            (275,850
            )
            $
            (941
            )








(1)
            The
                Company issued 3,847,475 common shares of the Company in exchange
                for
                $3,386 of related party debt, as discussed in Note
                9.





(2)
            Contemporaneous
                with the issuance of common shares described in (2), the remaining
                $80,196
                of related party debt outstanding at December 30, 2006 was forgiven,
                as
                discussed in Note 9.





(3)
            The
                Company adopted FASB Staff Position No. EITF 00-19-2,*Accounting
                for Registration Payment Arrangements*in
                the fourth quarter of 2006, at which time it reclassified the warrant
                to
                purchase common stock from long-term liabilities to equity, as discussed
                in Note 9.





(4)
            In
                connection with the payment of a note payable to a third party, the
                Company converted a portion of the note into 10,000 common shares,
                as
                discussed in Note 9.





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




F-7


**C2
      GLOBAL TECHNOLOGIES INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**for
      the years ended December 31, 2007, 2006 and 2005**


**(In
      thousands of dollars)**




**2007**
            
            **2006**
            
            **2005****Cash
                flows from operating activities:**Net
                loss
            
            $
            (645
            )
            $
            (7,676
            )
            $
            (18,489
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Loss
                (income) from discontinued operations
            
            
            6
            
            
            (4,370
            )
            
            3,582Depreciation
                and amortization
            
            
            20
            
            
            20
            
            
            32Amortization
                of discount and debt issuance costs on notes payable to a related
                party
            
            
            —
            
            
            2,848
            
            
            5,974Amortization
                of discount and debt issuance costs on convertible note
                payable
            
            
            8
            
            
            298
            
            
            284Accrued
                interest added to notes payable to a related party
            
            
            184
            
            
            7,542
            
            
            6,180Non-cash
                cost of prepayment of third party debt
            
            
            224
            
            
            —
            
            
            —Stock
                compensation expense
            
            
            166
            
            
            139
            
            
            —Gain
                on sale of portfolio investments
            
            
            (75
            )
            
            —
            
            
            —Equity
                interests in significantly influenced companies
            
            
            1
            
            
            —
            
            
            —Mark
                to market adjustment of warrant to purchase common stock
            
            
            —
            
            
            (78
            )
            
            (41
            )Expense
                associated with issuance of options to purchase common stock to
                non-employee
            
            
            —
            
            
            —
            
            
            1Loss
                on disposal of fixed assets
            
            
            —
            
            
            —
            
            
            38Changes
                in operating assets and liabilities:Decrease
                (increase) in other assets
            
            
            (9
            )
            
            177
            
            
            (185
            )(Increase)
                in deferred income taxes payable
            
            
            (1,000
            )
            
            —
            
            
            —Decrease
                in accounts payable and accrued liabilities
            
            
            (148
            )
            
            (1,224
            )
            
            (726
            )Net
                cash used in operating activities by continuing operations
            
            
            (1,268
            )
            
            (2,324
            )
            
            (3,350
            )Net
                cash used in operating activities by discontinued
                operations
            
            
            (6
            )
            
            (142
            )
            
            (11,490
            )Net
                cash used in operating activities
            
            
            (1,274
            )
            
            (2,466
            )
            
            (14,840
            )**Cash
                flows from investing activities:**Redemption
                of portfolio investments
            
            
            1,100
            
            
            —
            
            
            —Sale
                of portfolio investments
            
            
            150
            
            
            —
            
            
            —Purchase
                of portfolio investments
            
            
            (595
            )
            
            —
            
            
            —Net
                cash provided by investing activities by continuing
                operations
            
            
            655
            
            
            —
            
            
            —Net
                cash used in investing activities by discontinued
                operations
            
            
            —
            
            
            —
            
            
            (127
            )Net
                cash provided by investing activities
            
            
            655
            
            
            —
            
            
            (127
            )**Cash
                flows from financing activities:**Increase
                in notes payable to a related party
            
            
            3,245
            
            
            2,401
            
            
            15,365Repayment
                of notes payable to a related party
            
            
            (1,100
            )
            
            —
            
            
            —Segregation
                to restricted cash for future payments of convertible note
                payable
            
            
            —
            
            
            —
            
            
            (1,800
            )Release
                of restricted cash to pay convertible note payable
            
            
            —
            
            
            1,506
            
            
            294Repayment
                of convertible note payable
            
            
            (1,462
            )
            
            (1,765
            )
            
            (1,767
            )Net
                cash provided by financing activities of continuing
                operations
            
            
            683
            
            
            2,142
            
            
            12,092Net
                cash provided by financing activities of discontinued
                operations
            
            
            —
            
            
            —
            
            
            3,158Net
                cash provided by financing activities
            
            
            683
            
            
            2,142
            
            
            15,250Increase
                (decrease) in cash and cash equivalents
            
            
            64
            
            
            (324
            )
            
            283Cash
                and cash equivalents at beginning of year
            
            
            3
            
            
            327
            
            
            44Cash
                and cash equivalents at end of year
            
            $
            67
            
            $
            3
            
            $
            327





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




F-8





**C2
      GLOBAL TECHNOLOGIES INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS (continued)**


**for
      the years ended December 31, 2007, 2006 and 2005**


**(In
      thousands of dollars)**





**2007**
            
            **2006**
            
            **2005****Supplemental
                schedule of non-cash investing and financing
                activities:**Disposition
                of telecommunications business in exchange for assumption of
                liabilities
            
            $
            —
            
            $
            4,324
            
            $
            8,014Discount
                in connection with convertible notes payable to related
                parties
            
            
            —
            
            
            1,225
            
            
            1,511Conversion
                of notes payable to a third party to common stock
            
            
            7
            
            
            —
            
            
            —Conversion
                of notes payable to a related party to common stock
            
            
            —
            
            
            3,386
            
            
            —Forgiveness
                of related party debt
            
            
            —
            
            
            80,196
            
            
            —**Supplemental
                cash flow information:**Taxes
                paid
            
            
            —
            
            
            4
            
            
            4Interest
                paid
            
            
            21
            
            
            304
            
            
            417





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




F-9





**C2
      GLOBAL TECHNOLOGIES INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


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





**Note
      1 - Description of Business and Principles of Consolidation**





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





C2
      owns
      certain patents, including two foundational patents in voice over internet
      protocol (“VoIP”) technology - U.S. Patent Nos. 6,243,373 (the “VoIP Patent”)
      and 6,438,124 (the “C2 Patent”) (together the “VoIP Patent Portfolio”), which it
      seeks to license. The VoIP Patent, including a corresponding foreign patent
      and
      related international patent applications, was acquired from a third party
      in
      2003. At the time of acquisition, the vendor of the VoIP Patent was granted
      a
      first priority security interest in the patent in order to secure C2’s
      obligations under the associated purchase agreement, as discussed in Note 11.
      The C2 Patent was developed by the Company.





Subsequent
      to the disposition of its Telecommunications business in September 2005, as
      discussed in Note 6 to these consolidated financial statements, licensing of
      intellectual property constitutes the primary business of the Company. C2’s
      target market consists of carriers, equipment manufacturers, service providers
      and end users in the internet protocol (“IP”) telephone market who are using
      C2’s patented VoIP technologies by deploying VoIP networks for phone-to-phone
      communications. The Company has engaged, and intends to continue to engage,
      in
      licensing agreements with third parties domestically and internationally. At
      present, no ongoing royalties are being paid to the Company. The Company plans
      to obtain licensing and royalty revenue from the target market for its patents,
      with the assistance of outside counsel, in order to realize value from its
      intellectual property. In February 2008, the Company entered into settlement
      and
      license agreements with AT&T and Verizon.





In
      the
      third quarter of 2007, the Company began investing in Internet-based e-commerce
      businesses, when it acquired minority positions in MyTrade.com, Inc., Buddy
      Media, Inc. and LIMOS.com LLC. In the fourth quarter of 2007 it acquired a
      one-third interest in Knight’s Bridge Capital Partners Internet Fund No. 1 GP
      LLC. These investments are discussed in more detail in Note 5.





**Note
      2 - Liquidity and Capital Resources**





As
      a
      result of our historical operating losses and negative cash flows from
      operations, at December 31, 2007 we had a stockholders’ deficit of $941 (2006 -
      $469) and a working capital deficit of $1,653 (2006 - $1,782). The working
      capital deficit decreased by $1,000 due to the Company recording a deferred
      income tax asset of $1,000 in the fourth quarter of 2007 as a result of the
      settlement and license agreements that were finalized in the first quarter
      of
      2008, and by $148 due to a reduction in accounts payable and accrued
      liabilities. These decreases were offset by net advances of $2,145 from our
      majority stockholder, Counsel Corporation (together with its subsidiaries,
      “Counsel”), and the capitalization of $184 interest on those advances. During
      2007, Counsel advanced a total of $3,245, and the Company repaid $1,100 of
      principal from the proceeds of the redemption of the AccessLine portfolio
      investment and the sale of the investment in MyTrade.com, Inc., which are
      discussed in more detail in Note 5 of these consolidated financial statements.
      The bulk of the advances from Counsel were used to fund the January 10, 2007
      repayment of the $1,471 convertible note (the “Note”) owing to a third party
      lender at December 31, 2006. The Note’s repayment also resulted in the
      elimination of its associated $62 deferred financing costs and $172 debt
      discount, further increasing the working capital deficit





As
      a
      result of the settlement and license agreements entered into with respect to
      the
      VoIP Patent Portfolio in 2008, the Company expects to recognize revenues from
      continuing operations for the first time since 2004. At the present time, the
      Company expects to have positive operating cash flows in 2008. However, the
      Company must continue to realize value from its intellectual property through
      ongoing licensing and royalty revenue, as discussed in Note 1, in order to
      continue as a going concern. Absent an ongoing revenue stream, there is
      significant doubt regarding the Company’s ability to obtain additional financing
      to fund its operations without the support of Counsel.





Related
      party debt owing to Counsel is $2,335 at December 31, 2007 compared to $6 at
      December 31, 2006. Interest on the related party debt is capitalized, at the
      end
      of each quarter, and added to the principal amount outstanding. The related
      party debt was scheduled to mature on December 31, 2007, but has been extended
      until December 31, 2008. Until December 31, 2006, the debt was supported by
      Counsel’s Keep Well agreement with C2, which required Counsel to fund, through
      long-term intercompany advances or equity contributions, all capital investment,
      working capital or other operational cash requirements of C2. The Keep Well
      was
      not extended beyond its December 31, 2006 maturity, but Counsel has indicated
      that it will fund the Company’s minimal cash requirements until at least
      December 31, 2008.




F-10





The
      Company had no long-term third party debt at December 31, 2007.





Ownership
      Structure and Capital Resources:





·
            The
                Company is 92.51% owned by Counsel. The remaining 7.49% is owned
                by public
                stockholders.





·
            Since
                becoming controlling stockholder in 2001, Counsel has invested over
                $100,000 in C2 to fund the development of C2’s technology and its
                Telecommunications business. At December 29, 2006 C2 owed $83,582
                to
                Counsel, including accrued and unpaid interest. As discussed in Note
                9, on
                December 30, 2006 Counsel converted $3,386 of this debt into 3,847,475
                common shares of C2, and forgave the balance of $80,196. Counsel
                subsequently provided net advances of $2,151 through December 31,
                2007.
                The disposition of the Telecommunications business in the third quarter
                of
                2005 significantly reduced both the complexity and the funding
                requirements of the Company’s operations, and Counsel’s investment during
                2006 and 2007 was significantly less than its investment in prior
                years.
                As noted above, should the Company fail to establish ongoing patent
                licensing and royalty revenues, the Company’s ongoing operations may again
                become dependent on funding by
                Counsel.




**Note
      3 - Summary of Significant Accounting Policies**





**Use
      of estimates**





The
      preparation of our financial statements in conformity with GAAP requires
      management to make estimates and assumptions that affect the reported amounts
      of
      assets and liabilities and the disclosure of contingent assets and liabilities
      at the date of the financial statements, as well as the reported amounts of
      revenues and expenses during the reporting period. Actual results could differ
      from those estimates.





Significant
      estimates include revenue recognition, purchase accounting (including the
      ultimate recoverability of intangibles and other long-lived assets), valuation
      of goodwill and intangibles, valuation of deferred tax assets, liabilities,
      stock-based compensation, and contingencies surrounding litigation. These
      estimates have the potential to significantly impact our financial statements,
      either because of the significance of the financial statement item to which
      they
      relate, or because they require judgment and estimation due to the uncertainty
      involved in measuring, at a specific point in time, events that are continuous
      in nature.





**Revenue
      recognition**





Revenue
      is recognized when persuasive evidence of an arrangement exists, delivery has
      occurred or services have been rendered, the Company’s price to the customer is
      fixed and determinable, and collection of the resulting receivable is reasonably
      assured. Revenues where collectibility is not assured are recognized when the
      total cash collections to be retained by the Company are finalized.





**Cash
      and cash equivalents**





The
      Company considers all highly liquid investments with an original maturity of
      three months or less to be cash equivalents. The Company maintains its cash
      and
      cash equivalents primarily with financial institutions in Toronto, Canada.
      These
      accounts may from time to time exceed federally insured limits. The Company
      has
      not experienced any losses on such accounts.





**Furniture,
      fixtures, equipment and software**





Furniture,
      fixtures, equipment and software are stated at cost. Depreciation is calculated
      using the straight-line method over the following estimated useful
      lives:





Furniture,
                fixtures and office equipment
            3-10
                yearsSoftware
                and information systems
            3
                yearsLeasehold
                improvements
            Shorter
                of estimated life or lease term





F-11





**Intangible
      assets and goodwill**





The
      Company accounts for intangible assets in accordance with Statement of Financial
      Accounting Standards (“SFAS”) No. 141, *Business
      Combinations* and
      SFAS
      No. 142, *Goodwill
      and Other Intangible Assets* .
      All
      business combinations are accounted for using the purchase method. Goodwill
      and
      intangible assets with indefinite useful lives are not amortized, but are tested
      for impairment at least annually. Intangible assets are recorded based on
      estimates of fair value at the time of the acquisition.





The
      Company assesses the fair value of its intangible assets and its goodwill based
      upon the fair value of the Company as a consolidated entity, with the Company’s
      valuation being based upon its market capitalization. Management believes this
      to be the most reasonable method at the current time, given the absence of
      a
      predictable revenue stream and the corresponding inability to use an alternative
      valuation method such as a discounted cash flow analysis. If the carrying amount
      of the Company’s net assets exceeds the Company’s estimated fair value,
      intangible asset and/or goodwill impairment may be present. The Company measures
      the goodwill impairment loss based upon the fair value of the underlying assets
      and liabilities, including any unrecognized intangible assets, and estimates
      the
      implied fair value of goodwill. An impairment loss is recognized to the extent
      that the Company’s recorded goodwill exceeds its implied fair
      value.





Goodwill,
      in addition to being tested for impairment annually, is tested for impairment
      between annual tests if an event occurs or circumstances change such that it
      is
      more likely than not that the carrying amount of goodwill may be impaired.
      No
      impairment was present upon the performance of these tests at December 31,
      2007
      and 2006. We cannot predict the occurrence of future events that might adversely
      affect the reported value of goodwill. Such events may include, but are not
      limited to, strategic decisions made in response to economic and competitive
      conditions and judgments on the validity of the Company’s VoIP Patent Portfolio,
      or other factors not known to management at this time. See Note 8 for more
      detail regarding the Company’s goodwill and intangible assets.





**Investments**





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





Equity
      securities that are not readily marketable, and equity securities having
      underlying common stock that is also not readily marketable, are accounted
      for
      under the cost method when the Company’s ownership interests do not allow it to
      exercise significant influence over the entities in which it has invested.
      This
      is due to the fact that the Company plans to hold the investments for an
      indefinite period of time with the objective of realizing long-term capital
      appreciation. When the Company’s ownership interests do allow it to exercise
      significant influence over the entities in which it has invested, the
      investments are accounted for under the equity method.





The
      Company monitors all of its investments for impairment by considering factors
      such as the economic environment and market conditions, as well as the
      operational performance of, and other specific factors relating to, the
      businesses underlying the investments. The fair values of the securities are
      estimated quarterly using the best available information as of the evaluation
      date, including data such as the quoted market prices of comparable public
      companies, market price of the common stock underlying the preferred stock,
      recent financing rounds of the investee, and other investee-specific
      information. The Company will record an other than temporary impairment in
      the
      carrying value of the investments should the Company conclude that such a
      decline has occurred.





Impairments,
      equity pick-ups, dividends and realized gains and losses on equity securities
      are included in other income in the consolidated statements of operations.
      See
      Note 5 for further discussion of the Company’s investments.





**Liabilities**





The
      Company is involved from time to time in various legal matters arising out
      of
      its operations in the normal course of business. On a case by case basis, the
      Company evaluates the likelihood of possible outcomes for this litigation.
      Based
      on this evaluation, the Company determines whether a liability accrual is
      appropriate. If the likelihood of a negative outcome is probable, and the amount
      is estimable, the Company accounts for the liability in the current period.
      A
      change in the circumstances surrounding any current litigation could have a
      material impact on the financial statements.




F-12





**Stock-based
      compensation**





At
      December 31, 2007, the Company has several stock-based compensation plans,
      which
      are discussed in Note 16. The Company calculates stock-based compensation in
      accordance with SFAS No. 123, *Accounting
      for Stock-Based Compensation* ,
      as
      revised December 2004 (“SFAS No. 123(R)”), which it was required to adopt in the
      first quarter of 2006. SFAS No. 123(R) superseded Accounting Principles Board
      Opinion No. 25, *Accounting
      for Stock Issued to Employees* ,
      and
      related Interpretations (“APB No. 25”), and requires that all stock-based
      compensation, including options, be expensed at fair value, as of the grant
      date, over the vesting period. Prior to January 1, 2006, the Company accounted
      for these plans under the recognition and measurement principles of APB No.
      25,
      under which stock-based employee compensation cost was not reflected in net
      loss, as all options granted under these plans have an exercise price at least
      equal to the market value of the underlying common stock on the date of grant.
      In accordance with SFAS No. 123, as amended by SFAS No. 148, the Company
      provided footnote disclosure of the pro forma stock-based compensation cost,
      net
      loss and net loss per share as if the fair-value based method of expense
      recognition and measurement prescribed by SFAS No. 123 had been applied to
      all
      employee options.





**Research
      and development costs**





The
      Company suspended its research and development activities in the third quarter
      of 2005. The Company expensed internal research and development costs, which
      primarily consist of salaries, when they were incurred.





**Income
      taxes**





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





The
      Company periodically assesses the value of its deferred tax asset, which has
      been generated by a history of net operating and net capital losses, and
      determines the necessity for a valuation allowance. The Company evaluates which
      portion, if any, will more likely than not be realized by offsetting future
      taxable income, taking into consideration any limitations that may exist on
      its
      use of its net operating and net capital loss carryforwards.





In
      July
      2006, the Financial Accounting Standards Board ("FASB") issued FASB
      Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes - an Interpretation of FASB Statement No.
      109* ("FIN
      48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
      in a company's financial statements in accordance with SFAS No. 109, and
      prescribes a recognition threshold and measurement attributes for the financial
      statement recognition and measurement of a tax position taken or expected to
      be
      taken in a tax return. FIN 48 also provides guidance on de-recognition,
      classification, interest and penalties, accounting in interim periods,
      disclosure and transition. The Company adopted the provisions of FIN 48
      effective January 1, 2007. The adoption of FIN 48 had no material effect on
      the
      financial position, operations or cash flow of the Company. See Note 12 for
      further discussion of the Company’s income taxes.





**Fair
      Value of Financial Instruments**





The
      fair
      value of financial instruments is the amount at which the instruments could
      be
      exchanged in a current transaction between willing parties, other than in a
      forced sale or liquidation. The carrying value at December 31, 2007 and 2006
      for
      the Company’s financial instruments, which include cash, accounts payable and
      accrued liabilities, and related party debt, approximates fair value. At
      December 31, 2006, the carrying value of the Company’s third party debt was
      lower than the fair value of the debt due to the discounts set out in Note
      9.





In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* (“SFAS
      No. 157”). SFAS No. 157 defines fair value, establishes a framework for
      measuring fair value under GAAP, expands the required disclosures regarding
      fair
      value measurements, and applies to other accounting pronouncements that either
      require or permit fair value measurements. SFAS No. 157 is effective for fiscal
      years beginning after November 15, 2007, and for interim periods within those
      fiscal years, with early adoption encouraged. SFAS No. 157 is to be applied
      prospectively, with a limited form of retrospective application for several
      financial instruments. The Company elected to adopt SFAS No. 157 at January
      1,
      2007, in order to conform to the adoption of a similar Canadian accounting
      pronouncement by its parent, Counsel. The Company’s adoption of SFAS No. 157 had
      no effect on the Company’s financial position, operations or cash
      flows.




F-13





In
      February 2008, the FASB issued FASB
      Staff Position No. FAS 157-2, *Effective
      Date of FASB Statement No. 157* (“FSP
      FAS 157-2”). FSP FAS 157-2 delays the effective date of SFAS No. 157 for all
      nonrecurring fair value measurements of nonfinancial assets and nonfinancial
      liabilities until fiscal years beginning after November 15, 2008. FSP FAS 157-2
      states that a measurement is recurring if it happens at least annually and
      defines nonfinancial assets and nonfinancial liabilities as all assets and
      liabilities other than those meeting the definition of a financial asset or
      financial liability in SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial Liabilities, Including
      an
      Amendment of FASB Statement No. 115* (“SFAS
      No. 159”, discussed below). FSP FAS 157-2 is effective upon issuance. Entities
      that applied the measurement and disclosure guidance in SFAS No. 157 in
      preparing either interim or annual financial statements issued before the
      effective date of the FSP are not eligible for the FSP’s deferral provisions.
      Entities are encouraged to adopt SFAS No. 157 in its entirety, as long as they
      have not yet issued financial statements during that year. An entity that
      chooses to adopt SFAS No. 157 in its entirety must do so for all nonfinancial
      assets and nonfinancial liabilities within its scope. As C2 had not employed
      fair value accounting for any of its nonfinancial assets and nonfinancial
      liabilities prior to its adoption of SFAS No. 157 at January 1, 2007, FSP FAS
      157-2 had no effect on its financial position, operations or cash
      flows.





**Segment
      reporting**





The
      Company currently operates in a single business segment, patent
      licensing.





**Discontinued
      Operations**





In
      accordance with the provisions of SFAS No. 144, *Accounting
      for the Impairment or Disposal of Long-Lived Assets* ,
      the
      operations and related losses on operations sold, or identified as held for
      sale, have been presented as discontinued
      operations in the Consolidated Statements of Operations for all years presented.
      Gains are recognized when realized.





**Recent
      accounting pronouncements**





In
      February 2007, the FASB issued SFAS No. 159. SFAS No. 159 provides the
      option to measure selected financial assets and liabilities at fair value,
      and
      requires the fair values of those assets and liabilities to be shown on the
      face
      of the balance sheet. It also requires the provision of additional information
      regarding the reasons for electing the fair value option and the effect of
      the
      election on current period earnings. SFAS No. 159 also establishes presentation
      and disclosure requirements designed to facilitate comparisons between entities
      that choose different measurement attributes for similar types of assets and
      liabilities. SFAS No. 159 is effective for fiscal years beginning after
      November 15, 2007, with early adoption permitted if SFAS No. 157 is also
      adopted. SFAS No. 159 is to be applied prospectively. The Company did not elect
      early adoption of SFAS No. 159, and is currently evaluating the impact that
      SFAS
      No. 159 will have on its financial statements when adopted.





In
      December 2007, the FASB issued SFAS No. 141(R), *Business
      Combinations* (“SFAS
      No. 141(R)”) and SFAS No. 160, *Noncontrolling
      Interests in Consolidated Financial Statements* (“SFAS
      No. 160”). SFAS No. 141(R) replaces SFAS No. 141 and SFAS No. 160 amends
      Accounting Research Bulletin No. 51, *Consolidated
      Financial Statements* .
      Together, SFAS No. 141(R) and SFAS No. 160 substantially increase the use of
      fair value and make significant changes to the way companies account for
      business combinations and noncontrolling interests. Specifically, they will
      require more assets acquired and liabilities assumed to be measured at fair
      value as of the acquisition date, liabilities related to contingent
      consideration to be remeasured at fair value in each subsequent reporting
      period, acquisition-related costs to be expensed, and noncontrolling interests
      in subsidiaries to be initially measured at fair value and classified as a
      separate component of equity. SFAS No.
      141(R) and SFAS No. 160 are effective for fiscal years beginning after
      December 15, 2008, with early adoption prohibited. They are to be applied
      prospectively, with one exception relating to income taxes. The Company is
      currently evaluating the impact that SFAS No. 141(R) and SFAS No. 160 will
      have
      on its financial statements when adopted.





**Note
      4 -Earnings (Loss) per Share**





The
      Company is required, in periods in which it has net income, to calculate basic
      earnings per share (“basic EPS”) using the two-class method described in EITF
      Issue No. 03-6, *Participating
      Securities and the Two-Class Method under SFAS Statement No.
      128* (“EITF
      03-6”). The two-class method is required because the Company’s Class N preferred
      shares, each of which is convertible to 40 common shares, have the right to
      receive dividends or dividend equivalents should the Company declare dividends
      on its common stock. Under the two-class method, earnings for the period, net
      of
      any deductions for contractual preferred stock dividends and any earnings
      actually distributed during the period, are allocated on a pro-rata basis to
      the
      common and preferred stockholders. The weighted-average number of common and
      preferred shares outstanding during the period is then used to calculate basic
      EPS for each class of shares.




F-14





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





Options,
      warrants and convertible debt are included in the calculation of diluted
      earnings (loss) per share, since they are assumed to be exercised or converted,
      except when their effect would be anti-dilutive. As the Company had a net loss
      from continuing operations for 2007, 2006, and 2005, diluted loss per share
      is
      not presented.





In
      October 2007, four shares of the Company’s Class N preferred stock held by an
      unrelated third party were converted into 160 shares of common stock. In May
      2006, there was a similar conversion by an unrelated third party of six shares
      of preferred stock into 240 shares of common stock.





Potential
      common shares that were not included in the computation of earnings (loss)
      per
      share because they would have been anti-dilutive are as follows as at December
      31:




**2007**
            
            
            **2006**
            
            
            **2005**Assumed
                conversion of Class N preferred stock
            
            
            24,280
            
            
            24,440
            
            
            24,680Assumed
                conversion of convertible debt
            
            
            —
            
            
            —
            
            
            3,639,412Assumed
                conversion of third party convertible debt
            
            
            —
            
            
            1,671,123
            
            
            3,676,471Assumed
                exercise of options and warrant to purchase shares of common
                stock
            
            
            1,975,749
            
            
            2,096,329
            
            
            1,727,0292,000,029
            
            
            3,791,892
            
            
            9,067,592





**Note
      5 - Investments**




The
      Company’s investments as of December 31 consisted of the following:




**2007**
            
            
            **2006**AccessLine
                Communications
            
            $
            —
            
            $
            1,100Buddy
                Media, Inc.
            
            
            100
            
            
            —LIMOS.com
                LLC
            
            
            399
            
            
            —Knight’s
                Bridge Capital Partners Internet Fund No. 1 GP LLC
            
            
            20
            
            
            —Total
                investments
            
            $
            519
            
            $
            1,100




**MyTrade.com,
      Inc.**





On
      August
      23, 2007, the Company acquired 75,000 shares of convertible Series A Preferred
      Stock (8% per annum cumulative dividend) of MyTrade.com, Inc. (“MyTrade.com”)
      for a total purchase price of $75, representing approximately 12.5% of
      MyTrade.com’s preferred stock, or approximately 3.57% of MyTrade.com on an
      as-converted basis. MyTrade.com is a website providing investors and potential
      investors of all experience levels with tickerized aggregate investment data
      and
      insight from across the internet in a customized interface. On December 10,
      2007, the Company completed the sale of its ownership interest in MyTrade.com
      to
      an unrelated third party. The Company’s net proceeds from the sale were $150,
      resulting in a gain of $75.





**Buddy
      Media, Inc.**





On
      September 12, 2007, the Company acquired 303,030 shares of convertible Series
      A
      Preferred Stock of Buddy Media, Inc. (“Buddy Media”) for a total purchase price
      of $100. Buddy Media is a leading developer of applications for emerging new
      media platforms, including Facebook, MySpace and other social media sites.
      The
      Company’s investment is less than 5% of Buddy Media on an as-converted basis.
      The Series A preferred shares vote on an as-converted basis with the common
      stock, are convertible by a vote of the majority of the Series A preferred
      stockholders or mandatorily convertible in connection with an initial public
      offering, and are redeemable in certain circumstances, including a liquidation
      or sale of Buddy Media. They are entitled to dividends in the event that common
      stock holders also receive dividends. The material terms of the Company’s
      Stockholders’ Agreement and Subscription Agreement are standard for early
      investments in development stage companies and include drag along rights, right
      of first offer, refusal rights, co-sale rights, limited anti-dilution
      protection, dividend preference and liquidation preference. The Series A
      preferred shares have standard piggyback registration rights with customary
      expiration provisions and are subject to a contractual 180 day market
      stand-off.




F-15





The
      Company’s ownership interest in Buddy Media does not allow it to exercise
      significant influence over Buddy Media’s operations, and the Company intends to
      hold the investment for an indefinite period of time. The investment is
      therefore accounted for under the cost method. At each balance sheet date,
      the
      Company estimates the fair value of the securities using the best available
      information as of the evaluation date. Because Buddy Media’s shares are not
      traded on an open market, their valuation must be based primarily on
      investee-specific information. The Company will record an other than temporary
      impairment of the investment in the event the Company concludes that such
      impairment has occurred. Based on the Company’s analysis, at December 31, 2007
      there has been no impairment in the fair value of it investment in Buddy
      Media.





**LIMOS.com
      LLC**





On
      September 21, 2007, the Company acquired 400,000 units of AZ Limos LLC (name
      subsequently changed to LIMOS.com LLC, “LIMOS.com”) for a total purchase price
      of $400, representing a 16% ownership interest in LIMOS.com. LIMOS.com was
      incorporated in July 2007 in order to acquire the assets and operations of
      Limos.com (“Limos”), a private company that provides qualified leads for
      licensed limousine operators. The Company’s investment was part of a $2,500
      capital raise by LIMOS.com.





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





Contemporaneously
      with the Company’s investment in LIMOS.com and Counsel’s guaranty, Counsel and
      the Lender entered into a Priorities Agreement. Under the terms of the Company’s
      note payable to Counsel, which is discussed in more detail in Note 2, Note
      9 and
      Note 13 of these audited consolidated financial statements, the Company had
      pledged all of its assets to Counsel as security for the related party note.
      The
      Priorities Agreement subordinates Counsel’s security interest in the Company’s
      investment in LIMOS.com in favor of the Lender. As well, certain third party
      investors have a 20% carried interest in LIMOS.com, which is payable after
      all
      investors have received an annual 10% return on their capital from earnings
      generated by LIMOS.com and after all investors have received the return in
      full
      of their invested capital.





At
      the
      date of the Company’s investment in LIMOS.com, its ownership interest did not
      allow it to exercise significant influence over LIMOS.com’s operations, and the
      investment was accounted for under the cost method. Subsequently, in November
      2007, the Company’s parent, Counsel, increased its ownership of an affiliated
      entity (the “Affiliate”) from 50% to 100%. The Affiliate has voting control of
      50% of LIMOS.com, including the 16% owned by the Company. In addition, the
      Affiliate earns a 2% management fee, based on the invested capital of LIMOS.com,
      in return for managing the operations of LIMOS.com, and holds two of the four
      seats on LIMOS.com’s Board of Directors. The Company’s Chief Executive Officer,
      who is also Counsel’s Chief Executive Officer, is a director of the Affiliate.
      As a result of Counsel’s acquisition of the Affiliate, the Company’s ability to
      exercise significant influence over LIMOS.com is deemed to have increased,
      and
      therefore the Company currently accounts for its investment in LIMOS.com under
      the equity method. Consequently, the Company recorded a loss of $1 from its
      investment for the period September 21, 2007 to December 31, 2007.





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





The
      Company acquired a one-third interest in Knight’s Bridge Capital Partners
      Internet Fund No. 1 GP LLC (“Knight’s Bridge GP”), effective December 7, 2007,
      for a total purchase price of $20. The additional two-thirds interest in
      Knight’s Bridge GP was acquired by parties affiliated with Counsel. Knight’s
      Bridge GP was formed to acquire the general partner interests in 2007 Fund
      1 LLP
      (the “Fund”, subsequently renamed Knight’s Bridge Capital Partners Internet Fund
      No. 1 LP). At December 31, 2007, the Fund held investments in several
      Internet-based e-commerce businesses. As the general partner of the Fund,
      Knight’s Bridge GP manages the Fund, in return for which it earns a 2% per annum
      management fee with respect to the Fund’s invested capital. Knight’s Bridge GP
      also has a 20% carried interest on any incremental realized gains from the
      Fund’s investments.





The
      Company’s one-third ownership of Knight’s Bridge GP allows the Company to
      exercise significant influence, and therefore the Company accounts for its
      investment under the equity method. The Fund was an investor in MyTrade.com,
      and
      the Company recorded income of $7 as its share of the Knight’s Bridge GP’s
      carried interest when the Fund also sold its investment in MyTrade.com.
      Following the Fund’s sale of MyTrade.com, the Company received a cash
      distribution of $7 from Knight’s Bridge GP, which was recorded as a reduction of
      the Company’s investment.




F-16





All
      of
      the investments described above were funded by Counsel through advances under
      the Promissory Note that is discussed in Note 2, Note 9 and Note
      13.





The
      Company’s investment at December 31, 2006 consisted of a convertible preferred
      stock holding in AccessLine Communications Corporation (“AccessLine”), a
      privately-held corporation. On September 14, 2007, AccessLine was acquired
      by an
      unrelated third party. In conjunction with the acquisition, the Company agreed
      to accept the payment of $1,100 on September 14, 2007 as full payment of the
      redemption of its preferred stock holding.





**Note
      6 - Discontinued Operations**





**Disposition
      of the Telecommunications Business**





Commencing
      in 2001, the Company entered the Telecommunications business, acquiring certain
      assets of the estate of WorldxChange Communications Inc. from bankruptcy. In
      2002, the Company also acquired certain assets of the estate of RSL.COM USA
      Inc.
      from bankruptcy, and in 2003 the Company acquired Local Telcom Holdings, LLC.
      Together, these assets made up the Telecommunications segment of the Company’s
      business, which was owned through the Company’s wholly-owned subsidiary, Acceris
      Communications Corp. (name changed to WXC Corp. (“WXCC”) in October
      2005).





The
      Company entered into an Asset Purchase Agreement, dated as of May 19, 2005,
      to
      sell substantially all of the assets and to transfer certain liabilities of
      WXCC
      to Acceris Management and Acquisition LLC (“AMA”), an arm’s length Minnesota
      limited liability company and wholly-owned subsidiary of North Central Equity
      LLC. In addition, on May 19, 2005, the parties executed a Management Services
      Agreement (“MSA”), Security Agreement, Note, Proxy and Guaranty. Upon receipt of
      the requisite approvals, including shareholder approval, the transaction was
      completed on September 30, 2005.





The
      sale
      resulted in a gain on disposition of $6,387, net of disposition and business
      exit costs. This gain, as well as the Telecommunications operations for the
      year
      ended December 31, 2005, have been reported in discontinued operations. In
      connection with the sale, the Company incurred one-time termination costs of
      $697. $496 of these costs were paid during 2005, and the remaining $201 were
      paid during 2006. The Company recorded these costs as an expense of discontinued
      operations.





On
      February 28, 2006, the Company entered into a stock purchase agreement with
      a
      third party, which agreed to acquire all the shares of WXCC from the Company,
      subject to certain closing requirements. As a result of all closing requirements
      being completed and the third party lender’s consent to the release of its
      security interest on March 28, 2006, the Company was relieved of $3,763 of
      obligations that had previously been classified as liabilities of discontinued
      operations. The Company recognized a gain of $3,645 on the sale, net of closing
      costs of $118, which is included in income from discontinued operations.





On
      June
      26, 2006, the Company entered into a stock purchase agreement with the same
      third party involved in the purchase of the WXCC shares, discussed above. The
      third party agreed to acquire all the shares of ILC from the Company, subject
      to
      certain closing requirements. As a result of all closing requirements being
      completed as of June 30, 2006, the Company was relieved of $711 of obligations
      that had previously been classified as liabilities of discontinued operations.
      The Company recognized a gain of $665 on the sale, net of closing costs of
      $46,
      which is included in income from discontinued operations.





**Note
      7 - Composition of Certain Financial Statement Captions**





Accounts
      payable and accrued liabilities consisted of the following at December
      31:





**2007**
            
            **2006**Regulatory
                and legal fees
            
            $
            69
            
            $
            53Accounting,
                auditing and tax consulting
            
            
            107
            
            
            126Telecommunications
                and related costs
            
            
            —
            
            
            77Sales
                and other taxes
            
            
            62
            
            
            72Remuneration
                and benefits
            
            
            114
            
            
            101Accrued
                interest
            
            
            —
            
            
            17Other
            
            
            50
            
            
            104$
            402
            
            $
            550





F-17





**Note
      8 - Intangible Assets and Goodwill**





Intangible
      assets consisted of the following at December 31:





******2007****Amortization**
              **period**
            
            **Cost**
            
            **Accumulated**
              **amortization**
            
            **Net**Intangible
                assets subject to amortization:Patent
                rights
            
            
            60
                months
            
            
            100
            
            
            (80
            )
            
            20Goodwill
            
            
            
            
            
            173
            
            
            —
            
            
            173$
            273
            
            $
            (80
            )
            $
            193





******2006****Amortization**
              **period**
            
            **Cost**
            
            **Accumulated**
              **amortization**
            
            **Net**Intangible
                assets subject to amortization:Patent
                rights
            
            
            60
                months
            
            
            100
            
            
            (60
            )
            
            40Goodwill
            
            
            
            
            
            173
            
            
            —
            
            
            173$
            273
            
            $
            (60
            )
            $
            213





The
      Company’s patent rights were acquired in December 2003 and are associated with
      the VoIP Patent. Aggregate amortization expense of intangibles was $20 for
      each
      of the years ended December 31, 2007, 2006 and 2005. Amortization expense is
      expected to be $20 in 2008, at which point the patent rights will be fully
      amortized.





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





**Note
      9 - Debt**





The
      Company’s debt consists of the following at December 31:




**2007**
            
            ******2006****Gross
                debt**
            
            **Discounts**
            
            **Reported
                debt**
            
            **Gross
                debt**
            
            **Discounts**
            
            **Reported
                debt**Notes
                payable to a related party, interest at 10.0%
            
            $
            2,335
            
            $
            —
            
            $
            2,335
            
            $
            6
            
            $
            —
            
            $
            6Convertible
                note, interest at WSJ plus 3.0% (1)
            
            
            —
            
            
            —
            
            
            —
            
            
            1,471
            
            
            (172
            )
            
            1,2992,335
            
            
            —
            
            
            2,335
            
            
            1,477
            
            
            (172
            )
            
            1,305Less
                current portion
            
            
            2,335
            
            
            —
            
            
            2,335
            
            
            1,477
            
            
            (172
            )
            
            1,305Long-term
                debt
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —





(1)
      This
      Note was scheduled to mature in October 2007, but was repaid in full in January
      2007. Prior to the repayment, the Note was secured by all assets of the Company
      and guaranteed by Counsel through its maturity in October 2007. The repayment
      was funded by Counsel and added to the note owing to Counsel.




**Payment
                due by period****Contractual
                obligations:**
            
            ******Total**
            
            **Less
                than 1**
              **year**
            
            **1-3**
              **years**
            
            **3-5**
              **years**
            
            **More
                than 5**
              **years**Notes
                payable to a related party
            
            $
            2,335
            
            $
            2,335
            
            $
            —
            
            $
            —
            
            $
            —Total
            
            $
            2,335
            
            $
            2,335
            
            $
            —
            
            $
            —
            
            $
            —




Counsel
      is the controlling stockholder of the Company. The convertible note payable
      (the
“Note”) outstanding at December 31, 2006 was held by a third party lender. As
      discussed below, the Note was repaid in full in January 2007. As Counsel funded
      the repayment, the related party note was increased at the same time. At
      December 31, 2006, Counsel had guaranteed the Note through its contractual
      maturity in October 2007, and had also subordinated its debt position and
      pledged its ownership interest in C2 in favor of the third party
      lender.




F-18





Notes
      payable to a related party





The
      related party notes payable were scheduled to mature on October 31, 2007. At
      December 29, 2006, the aggregate amount of the outstanding related party debt,
      all of which was payable to Counsel, was $83,582, including accrued and unpaid
      interest to that date. On December 29, 2006, C2 negotiated an agreement with
      Counsel under which, effective December 30, 2006, $3,386 of debt was converted
      into 3,847,475 common shares of C2 at a price of $0.88 per share. At the same
      time, the $80,196 remaining balance of the debt was forgiven by Counsel. The
      debt forgiveness has been recorded as a capital contribution by Counsel in
      the
      consolidated financial statements for the year ending December 31,
      2006.





While
      any
      amount of the notes is outstanding, they are subject to acceleration in certain
      circumstances including certain events of default. Interest on related party
      debt accrues to principal quarterly and, accordingly, the Company has no cash
      payment obligations to Counsel prior to the debt’s maturity or forgiveness.
      Historically, advances have been made to fund operations, to finance working
      capital, to fund acquisitions and to pay down third party debt. Counsel, via
      a
“Keep Well” agreement which expired on December 31, 2006, had previously agreed
      to fund the cash requirements of C2. Although the Keep Well has not been
      extended, Counsel has indicated that it will fund the Company’s minimal cash
      requirements until at least December 31, 2008.





At
      December 31, 2007 C2 was indebted to Counsel in the amount of $2,335,
      representing $2,151 of net advances made since the December 30, 2006 debt
      forgiveness, and $184 of accrued interest on those advances.





Prior
      to
      the debt forgiveness discussed above, one of the notes payable to Counsel was
      convertible into common stock. Throughout the term of this note, anti-dilution
      events impacted the conversion price and the number of shares issuable upon
      conversion of this debt. As well, accumulated unpaid interest costs, which
      were
      required by the terms of the debt to be added to the principal balance, were
      also convertible upon the same terms. These anti-dilution events and deemed
      “paid in kind” interest periodically resulted in the recognition of a beneficial
      conversion feature (“BCF”). In accordance with Emerging Issues Task Force Issue
      No. 00-27, *Application
      of Issue 98-5 to Certain Convertible Instruments* ,
      in 2006
      the Company recorded a BCF of $1,225 (2005 - $1,511; 2004 - $3,771) as paid-in
      capital. The aggregate BCF was amortized over the term of the debt, using the
      effective interest rate method, through a charge to the statement of operations,
      and was fully amortized at December 30, 2006. For further discussion of notes
      payable and other transactions with Counsel, see Note 2, above, and Note 13,
      below.





Convertible
      note payable to a third party





On
      October 14, 2004, the Company issued the Note with a detachable warrant to
      a
      third party lender, in the principal amount of $5,000, due October 14, 2007.
      The
      Note provided that the principal amount outstanding bore interest at the prime
      rate as published in the Wall Street Journal plus 3% (but not less than 7%
      per
      annum) decreasing by 2% (but not to less than 0%) for every 25% increase in
      the
      Market Price (as defined therein) above the fixed conversion price following
      the
      effective date of the registration statement covering the common stock issuable
      upon conversion of the Note. Principal was payable at the rate of approximately
      $147 per month, in cash or, in certain circumstances, in registered common
      stock. In the event the monthly payment was paid in cash, the Company paid
      102%
      of the amount due. The Company had the right to prepay the Note at any time,
      by
      giving seven business days written notice and paying 120% of the outstanding
      principal amount of the Note. Subsequent to December 31, 2006, in January 2007,
      as a result of negotiations between the Company and the third party lender,
      the
      lender converted a portion of its note into 10,000 common shares of the Company,
      and the Company prepaid the remaining Note in full by paying 105% of the amount
      then due.





The
      Company’s net loss on the prepayment of the Note was $293, calculated as
      follows:





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





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




F-19





While
      the
      Note was outstanding, the third party lender had the right to convert the Note,
      in whole or in part, into shares of common stock at any time upon one business
      day’s prior written notice. The Note was convertible into shares of the
      Company’s common stock at a fixed conversion price of $0.88 per share of common
      stock. In accordance with FASB Standard No. 133, *Accounting
      for Derivative Instruments and Hedging Activities* and
      Emerging Issues Task Force Issue No. 00-19, *Accounting
      for Derivative Financial Instruments Indexed to, and Potentially Settled in,
      a
      Company’s Own Stock* ), the
      Company analyzed the various embedded derivative elements of the debt at
      inception of the Note and concluded that all of the individual elements should
      be characterized as debt for accounting purposes and that the embedded
      derivative elements had nominal value. The value of the embedded derivative
      elements of the debt was reassessed on a quarterly basis on a mark-to-market
      basis. At the end of 2006 and 2005, the Company concluded that the value of
      the
      embedded derivatives remained nominal.





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





Warrant
      to purchase common stock





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





The
      Company filed a registration statement under the Securities Act of 1933, as
      amended, to register the 6,681,818 shares issuable upon conversion of the Note
      as well as those issuable pursuant to the Warrant. This registration statement
      was declared effective by the SEC on January 18, 2005.





At
      the
      time it was issued in October 2004, the Warrant was classified as a liability
      in
      the consolidated financial statements, as it was linked to a registration
      payment arrangement and thus met the conditions for this classification under
      the GAAP in effect at that date. The details of the registration payment
      arrangement were previously disclosed in the Company’s Report on Form 8-K, filed
      with the SEC on October 20, 2004. At the issuance of the Warrant, the Company
      did not expect to make any payments relating to the registration payment
      arrangement. The initial value assigned to the Warrant was $430. The value
      of
      the Warrant was then reassessed quarterly on a mark-to-market basis, based
      on
      the price of the Company’s common stock at the end of the quarter. The Company
      adjusted the value of the Warrant to $322 at the end of 2004, $281 at the end
      of
      2005, and $203 at September 30, 2006. The Company recorded $108, $41 and $78
      as
      income in 2004, 2005 and 2006, respectively, representing the diminution in
      the
      estimated fair value of the Warrant during each of those periods.





In
      December 2006, the FASB issued FASB Staff Position No. EITF 00-19-2, *Accounting
      for Registration Payment Arrangements* (“FSP
      EITF 00-19-2”). According to FSP EITF 00-19-2, financial instrument(s) such as
      the Warrant should be recorded in the financial statements using appropriate
      GAAP without regard to the contingent obligation to transfer consideration
      pursuant to a related registration payment arrangement, and any contingent
      obligations under the registration payment arrangement should be separately
      recognized and measured in accordance with GAAP relating to liabilities.
      Adoption of FSP EITF 00-19-2 is permitted for interim or annual periods for
      which financial statements or interim reports have not been issued.
      Retrospective application is not permitted. The Company evaluated the
      requirements of FSP EITF 00-19-2, determined that it is applicable to the
      Warrant, and chose to adopt FSP EITF 00-19-2 effective October 1, 2006, the
      beginning of the Company’s 2006 fourth quarter. The impact of adopting FSP EITF
      00-19-2 on the Company’s financial position was as follows: long-term
      liabilities were reduced by $203, the fair value of the Warrant at October
      1,
      2006, and stockholders’ equity was increased by $430, the fair value of the
      Warrant when issued at October 14, 2004. The difference between these two
      amounts, $227, was recorded as a charge to opening retained earnings. At the
      date of adoption of FSP EITF 00-19-2, and at December 31, 2007 and 2006, the
      Company’s assessment was that payments relating to the registration payment
      arrangement were not probable, and therefore the Company has not recorded any
      liability in connection with such a payment.





**Note
      10 - Commitments**





At
      December 31, 2007, C2 has no commitments other than its debt, as described
      above
      in Note 9.




F-20




**Note
      11 - Patent Residual**




In
      the
      fourth quarter of 2003, C2 acquired Patent No. 6,243,373 from a third party.
      Consideration provided was $100 plus a 35% residual payable to the third party
      relating to the net proceeds from future licensing and/or enforcement actions
      from the C2 VoIP Patent Portfolio (U.S. Patent Nos. 6,243,373 and 6,438,124).
      Net proceeds are defined as amounts collected from third parties net of the
      direct costs associated with putting the licensing or enforcement in place
      and
      related collection costs. To date, no payments have been required, as the
      relevant costs incurred have exceeded licensing revenues. As we earn patent
      licensing revenues, we expect that there will be proceeds that will be subject
      to the former owner’s 35% entitlement.





**Note
      12 - Income Taxes**





The
      Company recognized a future income tax recovery of $1,000 with respect to the
      tax effect of available tax loss carryforwards expected to be utilized in 2008.
      No income tax benefit was recognized with respect to its net losses recorded
      in
      2006 and 2005. The reported tax benefit varies from the amount that would be
      provided by applying the statutory U.S. Federal income tax rate to the loss
      from
      continuing operations before taxes for the following reasons:




**2007**
            
            **2006**
            
            **2005**Expected
                federal statutory tax benefit
            
            $
            (554
            )
            $
            (4,096
            )
            $
            (5,068
            )Increase
                (reduction) in taxes resulting from:State
                income taxes
            
            
            —
            
            
            (121
            )
            
            (268
            )Non-deductible
                interest on certain notes
            
            
            —
            
            
            2,841
            
            
            2,560Change
                in valuation allowance attributable to continuing
                operations
            
            
            (508
            )
            
            1,371
            
            
            2,775Other
            
            
            62
            
            
            5
            
            
            1Future
                income tax recovery
            
            $
            (1,000
            )
            $
            —
            
            $
            —





The
      change in the valuation allowance, including discontinued operations, was a
      decrease of $557 (applying FIN 48), a decrease of $21,186, and an increase
      of
      $3,123 for the years ended 2007, 2006 and 2005, respectively.





At
      December 31, 2007, after the application of FIN 48 described further below,
      the
      Company had total net operating loss and net capital loss carryforwards for
      federal income tax purposes of approximately $88,000 and $34,000 respectively.
      The Company believes that it is more likely than not that it will utilize at
      least $3,000 of these tax losses against estimated future taxable income arising
      in 2008. The net operating loss carryforwards expire between 2024 and 2027.
      The
      net capital loss carryforwards expire in 2010 and 2011.





The
      Company’s utilization of approximately $35,000 of its available net operating
      loss carryforwards against future taxable income is restricted pursuant to
      the
“change in ownership” rules in Section 382 of the Internal Revenue Code and
      after the application of FIN 48 described further below. These rules, in
      general, provide that an ownership change occurs when the percentage
      shareholdings of 5% direct or indirect stockholders of a loss corporation have,
      in aggregate, increased by more than 50 percentage points during the immediately
      preceding three years.





Restrictions
      in net operating loss carryforwards occurred in 2001 as a result of the
      acquisition of the Company by Counsel. Further restrictions may have occurred
      as
      a result of subsequent changes in the share ownership and capital structure
      of
      the Company and Counsel and disposition of business interests by the Company.
      Pursuant to Section 382 of the Internal Revenue Code, annual usage of the
      Company’s net operating loss carryforwards, prior to the sale of the Company’s
      Telecommunications business, was limited to approximately $6,700 per annum
      until
      2008 and $1,700 per annum thereafter as a result of previous cumulative changes
      of ownership resulting in a change of control of the Company. After the
      completion of the sale of the Company’s Telecommunications business, the annual
      usage of the Company’s net operating loss carryforwards is limited to
      approximately $2,500 per annum until 2008 and $1,700 per annum thereafter.
      There
      is no certainty that the application of these “change in ownership” rules may
      not recur, resulting in further restrictions on the Company’s income tax loss
      carry forwards existing at a particular time. In addition, further restrictions,
      reductions in, or expiry of net operating loss and net capital loss
      carryforwards may occur through future merger, acquisition and/or disposition
      transactions or failure to continue a significant level of business activities.
      Any such additional limitations could require the Company to pay income taxes
      on
      its future earnings and record an income tax expense to the extent of such
      liability, despite the existence of such tax loss carryforwards.





The
      Company is subject to state income tax in multiple jurisdictions. While the
      Company had net operating loss carryforwards for state income tax purposes
      in
      certain states where it previously conducted business its available state tax
      loss carryforwards may differ substantially by jurisdiction and, in general,
      are
      subject to the same or similar restrictions as to expiry and usage described
      above. In addition, in certain states the Company’s state tax loss carryforwards
      which were attributable to the business of WXC Corp. ceased to be available
      to
      the Company following the sale of the shares of this company in 2006. It is
      entirely possible that in the future, the Company
      may not have tax loss carryforwards available to shield income generated for
      state tax purposes and which is attributable to a particular state from being
      subject to tax in that particular state.




F-21





The
      components of the deferred tax asset and liability as of December 31 (after
      the
      application of FIN 48) are as follows:





**2007**
            
            **2006**
              **Post-FIN
                48**
            
            **2006**
              **Pre-FIN
                48**Net
                operating loss carryforwards
            
            $
            30,127
            
            $
            29,393
            
            $
            41,197Net
                capital loss carryforwards
            
            
            11,837
            
            
            11,862
            
            
            13,014Acquired
                in-process research and development and intangible assets
            
            
            1,343
            
            
            1,715
            
            
            1,881Stock-based
                compensation
            
            
            88
            
            
            42
            
            
            48Accrued
                liabilities
            
            
            7
            
            
            7
            
            
            7Reserve
                for accounts receivable
            
            
            2
            
            
            2
            
            
            2Other
            
            
            25
            
            
            (35
            )
            
            (39
            )Valuation
                allowance
            
            
            (42,429
            )
            
            (42,986
            )
            
            (56,110
            )Total
                deferred tax assets
            
            
            1,000
            
            
            —
            
            
            —Deferred
                tax liabilities
            
            
            —
            
            
            —
            
            
            —Net
                deferred tax assets
            
            $
            1,000
            
            $
            —
            
            $
            —





The
      Company has claimed a valuation allowance at the end of the year sufficient
      to
      reduce its net deferred tax asset to $1,000, the amount considered more likely
      than not to be utilized in 2008. As the Company had no expectation of generating
      taxable income in 2007, a full valuation allowance was provided for at December
      31, 2006 to reduce the total deferred tax asset to nil.





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





***Uncertain
      Tax Positions***





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





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





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





The
      following table summarizes the activity related to gross unrecognized tax
      benefits of the Company from January 1, 2007 to December 31, 2007:





Beginning
                unrecognized tax benefit per FIN 48
            
            
            13,124Decrease
                related to prior year positions
            
            
            (5
            )Increase
                related to current year positions
            
            
            48Ending
                unrecognized tax benefit per FIN 48
            
            
            13,167





F-22





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





The
      Company has a history of generating tax losses arising from 1991 to the present.
      All loss taxation years remain open for audit pending their application against
      income in a subsequent taxation year. In general, the statute of limitations
      expires 3 years from the date that a Company files a tax return applying prior
      year tax loss carryforwards against income in the later year. In 2006, the
      Company applied historic tax loss carryforwards against debt forgiveness income.
      Accordingly, the 2004 through 2007 taxation years remain open.





**Note
      13 - Transactions with Controlling Stockholder**





**Transactions
      with Counsel**





At
      December 31, 2007, C2 was indebted to Counsel in the aggregate amount of $2,335,
      including accrued and unpaid interest to that date. The details of the
      individual notes comprising the balance are presented below.





Collateralized
      Promissory Note and Loan Agreement





During
      the fourth quarter of 2003, Counsel advanced the sum of $5,600 to C2, evidenced
      by a promissory note. In January 2004, C2 and Counsel entered into a loan
      agreement and an amended and restated promissory note pursuant to which an
      additional $2,000 was loaned to C2 and pursuant to which additional periodic
      loans were made from time to time (collectively and as amended, the “Promissory
      Note”). The Promissory Note accrues interest at 10% per annum compounded
      quarterly from the date funds are advanced. The loan has been amended several
      times and the maturity date of the loan plus accrued interest has been extended
      to December 31, 2008 . The
      Promissory Note is secured by the assets of the Company and is subject to
      certain events of default which may accelerate the repayment of principal plus
      accrued interest. There are no conversion features associated with the
      Promissory Note. The loan increased primarily due to operating advances in
      2004,
      2005 and 2006 and the outstanding balance at December 29, 2006 (including
      principal and accrued interest), prior to the December 30, 2006 debt forgiveness
      by Counsel, was $41,897.  At
      December 31, 2006 C2 was indebted to Counsel in the amount of $6, representing
      C2 expenses paid by Counsel on behalf of C2 that had not been recorded in C2’s
      accounts prior to the debt forgiveness. At December 31, 2007 C2 was indebted
      to
      Counsel in the amount of $2,288 due to Counsel funding the Company’s ongoing
      cash requirements net of the Company’s repayment of $1,000 from the proceeds of
      the AccessLine preferred share redemption discussed in Note 5.





Secured
      Loan to C2





To
      fund
      the acquisition of the WorldxChange Communications, Inc. assets and operations
      on June 4, 2001, Counsel provided a loan (the “Initial Loan”) to C2 in the
      aggregate amount of $15,000. On October 1, 2003 Counsel assigned the balance
      owed in connection with the Initial Loan of $9,743, including accrued interest
      (“the Assigned Loan”), to C2 in exchange for a new loan bearing interest at 10%
      per annum compounded quarterly and payable on maturity of the loan (“the New
      Loan”). Consistent with the terms of the Initial Loan, subject to certain
      conditions, the New Loan provides for certain mandatory prepayments upon written
      notice from Counsel including an event resulting in the issuance of new shares
      by C2 to a party unrelated to Counsel where the funds were not used for an
      approved expanded business plan, the purchase of the Company’s accounts
      receivable by a third party or where C2 sells material assets in excess of
      cash
      proceeds of $1,000, and certain other events. The New Loan is subject to certain
      events of default which accelerate the repayment of principal plus accrued
      interest. It has been amended several times and the maturity date of the loan
      plus accrued interest has been extended to December 31, 2008. There are no
      conversion features associated with the New Loan. As of December 29, 2006,
      the
      total outstanding debt under the New Loan (including principal and accrued
      interest), prior to the December 30, 2006 debt forgiveness by Counsel, was
      $13,428. During 2007, Counsel advanced $145 and accrued interest of $2 and
      the
      Company repaid $100 from the proceeds of the MyTrade.com, Inc. sale discussed
      in
      Note 5; therefore, total outstanding debt under the New Loan was $47 at December
      31, 2007.





Initial
      Acquisition of C2 and Senior Convertible Loan





On
      March
      1, 2001, C2 entered into a Senior Convertible Loan and Security Agreement,
      (the
“Senior Loan Agreement”) with Counsel. Pursuant to the terms and provisions of
      the Senior Loan Agreement, Counsel agreed to make periodic loans to C2 in the
      aggregate principal amount not to exceed $10,000, which was subsequently
      increased to $12,000 through amendment on May 8, 2001.




F-23


The
      Senior Loan Agreement was amended several times and the maturity date of the
      loan plus accrued interest was extended to October 31, 2007. As a result of
      the
      application of the anti-dilution provisions of the Senior Loan Agreement, the
      conversion price was adjusted to $5.02 per common share. At December 29, 2006,
      prior to the December 30, 2006 debt forgiveness by Counsel, the total
      outstanding debt under the Senior Loan Agreement (including principal and
      accrued interest) was $19,966 which was convertible into approximately 3,977,208
      shares of common stock. There have been no further advances under this loan
      since the debt was forgiven.





Assignment
      of Winter Harbor Common Stock and Debt Interests





Pursuant
      to the terms of a settlement between Counsel and Winter Harbor and First Media
      L.P., a limited partnership and the parent company of Winter Harbor
      (collectively, the “Winter Harbor Parties”), effective August 29, 2003, the
      Winter Harbor Parties relinquished their right to 118,750 shares of the common
      stock of C2 to Counsel. The Winter Harbor Parties further assigned to Counsel
      all of their rights with respect to a note payable by C2 of $1,999 drawn down
      pursuant to a Letter of Credit issued November 3, 1998 to secure certain
      obligations of C2 together with any accrued interest thereon. The assigned
      amount together with accrued interest amounted to $2,577 on August 29, 2003.
      As
      a result of the settlement and assignment, C2 entered into a new loan agreement
      with Counsel the terms of which provided that from August 29, 2003 the loan
      balance of $2,577 would bear interest at 10% per annum compounded quarterly
      with
      the aggregate balance of principal and accrued interest payable on maturity
      of
      the loan. This loan agreement was amended and restated several times to allow
      for the making of further periodic advances and to extend the maturity date
      to
      October 31, 2007. There were no conversion features associated with this loan.
      As of December 29, 2006, prior to the December 30, 2006 debt forgiveness by
      Counsel, the total outstanding debt under the loan (including principal and
      accrued interest) was $8,291. There have been no further advances under this
      loan since the debt was forgiven.





Counsel
      Guarantee, Subordination and Stock Pledge





In
      October 2004, Counsel agreed to guarantee the debt that the Company owed to
      its
      third party lender, and also agreed to subordinate all of its debt owed by
      the
      Company, and to subrogate all of its related security interests, in favor of
      the
      third party lender. Counsel further agreed to pledge all of its shares owned
      in
      C2 as security for its guarantee. In accordance with these agreements, amounts
      owing to Counsel could not be repaid while amounts remained owing to the third
      party lender. In January 2007, when the debt owing to the third party lender
      was
      prepaid in full, the subordination , subrogation and guarantee agreements were
      terminated.





As
      discussed in Note 5 of these consolidated financial statements, with respect
      to
      the Company’s investment in LIMOS.com in the third quarter of 2007, all
      investors in LIMOS.com have pledged their ownership interests as security for
      a
      $2,500 loan entered into by LIMOS.com and a third party lender (the “Lender”).
      The Company’s majority stockholder, Counsel, has guaranteed $250 of the Loan on
      the Company’s behalf. Contemporaneously with the Company’s investment in
      LIMOS.com and Counsel’s guaranty, Counsel and the Lender entered into a
      Priorities Agreement. Under the terms of the Promissory Note, which is discussed
      in more detail in Note 2 and Note 9, the Company had pledged all of its
      assets to Counsel as security for the Promissory Note. The Priorities Agreement
      subordinates Counsel’s claim to the Company’s investment in LIMOS.com in favor
      of the Lender.





Counsel
      Management Services





In
      December 2004, C2 entered into a management services agreement (the “Agreement”)
      with Counsel. Under the terms of the Agreement, C2 agreed to make payment to
      Counsel for the past and future services to be provided by certain Counsel
      personnel to C2 for each of 2004 and 2005. In March 2006 C2 entered into a
      similar agreement with Counsel for services to be provided in 2006. The basis
      for such services charged was an allocation, based on time incurred, of the
      cost
      of the base compensation paid by Counsel to those employees providing services
      to C2. For the years ended December 31, 2004 and 2005, the cost of such services
      was $280 and $450, respectively. The cost for 2006 was $225, reflecting the
      reduced complexity of C2 operations following the sale of the Telecommunications
      business. The foregoing fees for 2004, 2005 and 2006 were due and payable within
      30 days following the respective year ends, subject to any subordination
      restrictions then in effect. Any unpaid fee amounts bore interest at 10% per
      annum commencing on the day after such year-end, and in the event of a change
      of
      control, merger or similar event of the Company, all amounts owing, including
      fees incurred up to the date of the event, would have become due and payable
      immediately upon the occurrence of such event, subject to any subordination
      restrictions then in effect. The fees for 2004, 2005 and 2006 were forgiven
      on
      December 30, 2006 as part of Counsel’s forgiveness of its outstanding debt from
      C2, as discussed above. In accordance with the agreement with the Company’s
      third party lender, amounts owing to Counsel at December 31, 2006 could not
      be
      repaid while amounts remained owing to the third party lender. The repayment
      in
      full of the third party debt in January 2007 removed this restriction on
      payments to Counsel. In May 2007, the Company and Counsel entered into a similar
      agreement for services provided during 2007, and the cost for 2007 was $225.
      The
      Company expects that Counsel will continue to provide these services in 2008
      on
      the same cost basis.




F-24




**Note
      14 - Legal Proceedings**





On
      April 16, 2004, certain stockholders of the Company (the “Plaintiffs”)
      filed a putative derivative complaint in the Superior Court of the State of
      California in and for the County of San Diego, (the “Complaint”) against the
      Company, WorldxChange Corporation (sic), Counsel Communications LLC, and Counsel
      Corporation as well as four present and former officers and directors of the
      Company, some of whom also are or were directors and/or officers of the other
      corporate defendants (collectively, the “Defendants”). The Complaint alleges,
      among other things, that the Defendants, in their respective roles as
      controlling stockholder and directors and officers of the Company committed
      breaches of the fiduciary duties of care, loyalty and good faith and were
      unjustly enriched, and that the individual Defendants committed waste of
      corporate assets, abuse of control and gross mismanagement. The Plaintiffs
      seek
      compensatory damages, restitution, disgorgement of allegedly unlawful profits,
      benefits and other compensation, attorneys’ fees and expenses in connection with
      the Complaint. The Company believes that these claims are without merit and
      intends to continue to vigorously defend this action. Although there is no
      certainty that this matter will be resolved in the Company’s favor, at this time
      the Company does not believe that the outcome of this matter will have a
      material adverse impact on its business, results of operations, financial
      position or liquidity.





The
      Company, Counsel Communications LLC, Counsel Corporation and four of its current
      and former executives and board members were named in a securities action filed
      in the Superior Court of the State of California in and for the County of San
      Diego (the “Court”) on April 16, 2004, in which the plaintiffs made claims
      nearly identical to those set forth in the Complaint in the derivative suit
      described above. The Company believes that these claims are without merit and
      intends to vigorously defend this action. Although there is no certainty that
      this matter will be resolved in the Company’s favor, at this time the Company
      does not believe that the outcome of this matter will have a material adverse
      impact on its business, results of operations, financial position or liquidity.
      In February 2006, the plaintiffs in both this action and the derivative action
      described above changed attorneys. On July 31, 2007, the trial date for both
      actions was moved to June 6, 2008.





At
      our
      Adjourned Meeting of Stockholders held on December 30, 2003, our stockholders,
      among other things, approved an amendment to our Articles of Incorporation,
      deleting Article VI thereof (regarding liquidations, reorganizations, mergers
      and the like). Stockholders who were entitled to vote at the meeting and advised
      us in writing, prior to the vote on the amendment, that they dissented and
      intended to demand payment for their shares if the amendment was effectuated,
      were entitled to exercise their appraisal rights and obtain payment in cash
      for
      their shares under Sections 607.1301 - 607.1333 of the Florida Business
      Corporation Act (the “Florida Act”), provided their shares were not voted in
      favor of the amendment. In January 2004, we sent appraisal notices in compliance
      with Florida corporate statutes to all stockholders who had advised us of their
      intention to exercise their appraisal rights. The appraisal notices included
      our
      estimate of fair value of our shares, at $4.00 per share on a post-split basis.
      These stockholders had until February 29, 2004 to return their completed
      appraisal notices along with certificates for the shares for which they were
      exercising their appraisal rights. Approximately 33 stockholders holding
      approximately 74,000 shares of our stock returned completed appraisal notices
      by
      February 29, 2004. A stockholder of 20 shares notified us of his acceptance
      of
      our offer of $4.00 per share, while the stockholders of the remaining shares
      did
      not accept our offer. Subject to the qualification that, in accordance with
      the
      Florida Act, we may not make any payment to a stockholder seeking appraisal
      rights if, at the time of payment, our total assets are less than our total
      liabilities, stockholders who accepted our offer to purchase their shares at
      the
      estimated fair value will be paid for their shares within 90 days of our receipt
      of a duly executed appraisal notice. If we should be required to make any
      payments to dissenting stockholders, Counsel will fund any such amounts through
      advances to C2. Stockholders who did not accept our offer were required to
      indicate their own estimate of fair value, and if we do not agree with such
      estimates, the parties are required to go to court for an appraisal proceeding
      on an individual basis, in order to establish fair value. Because we did not
      agree with the estimates submitted by most of the dissenting stockholders,
      we
      have sought a judicial determination of the fair value of the common stock
      held
      by the dissenting stockholders. On June 24, 2004, we filed suit against the
      dissenting stockholders seeking a declaratory judgment, appraisal and other
      relief in the Circuit Court for the 17 th Judicial
      District in Broward County, Florida. On February 4, 2005, the declaratory
      judgment action was stayed pending the resolution of the direct and derivative
      lawsuits filed in California. This decision was made by the judge in the Florida
      declaratory judgment action due to the similar nature of certain allegations
      brought by the defendants in the declaratory judgment matter and the California
      lawsuits described above. On March 7, 2005, the dissenting shareholders appealed
      the decision of the District Court judge to the Fourth District Court of Appeals
      for the State of Florida, which denied the appeal on June 21, 2005. When the
      declaratory judgment matter resumes, there is no assurance that this matter
      will
      be resolved in our favor and an unfavorable outcome of this matter could have
      a
      material adverse impact on our business, results of operations, financial
      position or liquidity.





In
      connection with the Company’s efforts to enforce its patent rights, C2
      Communications Technologies Inc., a wholly-owned subsidiary of the Company,
      filed a patent infringement lawsuit against AT&T, Inc., Verizon
      Communications, Inc., Qwest Communications International, Inc., Bellsouth
      Corporation, Sprint Nextel Corporation, Global Crossing Limited, and Level
      3
      Communications, Inc. The complaint was filed in the Marshall Division of the
      United States District Court for the Eastern District of Texas on June 15,
      2006.
      The complaint alleges that these companies’ VoIP services and systems infringe
      the Company’s U.S. Patent No. 6,243,373, entitled *“Method
      and Apparatus for Implementing a Computer Network/Internet Telephone
      System”.* The
      complaint seeks
      an
      injunction, monetary damages and costs. There is no assurance that the Company
      will be successful in this litigation. In February 2008, the Company settled
      the
      complaints against AT&T and Verizon by entering into settlement and license
      agreements.




F-25





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





**Note
      15 - Class N Preferred Stock**





Each
      Class N preferred share has a voting entitlement equal to 40 common shares,
      votes with the common stock on an as-converted basis and is senior to all other
      preferred stock of the Company. Dividends, if any, will be paid on an
      as-converted basis equal to common stock dividends. The value of each Class N
      preferred share is $1,000, and each share is convertible to 40 common shares
      at
      the rate of $25 per common share.





During
      2007, holders of the Class N preferred stock converted four of those shares
      into
      160 shares of common stock. During 2006, six of those shares were converted
      into
      240 shares of common stock. As of December 31, 2007 and 2006, there were,
      respectively, 607 and 611 shares of Class N preferred stock issued and
      outstanding.





At
      December 31, 2007 and 2006, of the 10,000,000 shares of preferred stock
      authorized, 9,486,500 remain undesignated and unissued.





**Note
      16 - Stock-Based Compensation**





***Stock-
      Based Compensation Plans***





At
      December 31, 2007, the Company has five stock-based compensation plans, which
      are described below.





1995
      Director Stock Option and Appreciation Rights Plan





The
      1995
      Director Stock Option and Appreciation Rights Plan (the “1995 Director Plan”)
      provides for the issuance of incentive stock options, non-qualified stock
      options and stock appreciation rights (“SARs”) to directors of the Company up to
      12,500 shares of common stock (subject to adjustment in the event of stock
      dividends, stock splits, and other similar events). If any incentive option,
      non-qualified option or SAR terminates prior to exercise thereof and during
      the
      duration of the 1995 Director Plan, the shares of common stock as to which
      such
      option or right was not exercised will become available under the 1995 Director
      Plan for the grant of additional options or rights to any eligible director.
      Each option is immediately exercisable for a period of ten years from the date
      of grant. The Company has 12,500 shares of common stock reserved for issuance
      under the 1995 Director Plan. No options were granted or exercised under this
      plan in 2007 and 2006. As of December 31, 2007 and 2006, no options to purchase
      shares were outstanding. In 2007, no options expired (2006 -
      7,500).





1995
      Employee Stock Option and Appreciation Rights Plan





The
      1995
      Employee Stock Option and Appreciation Rights Plan (the “1995 Employee Plan”)
      provides for the issuance of incentive stock options, non-qualified stock
      options, and SARs. Directors of the Company are not eligible to participate
      in
      the 1995 Employee Plan. The 1995 Employee Plan provides for the grant of stock
      options, which qualify as incentive stock options under Section 422 of the
      Internal Revenue Code, to be issued to officers who are employees and other
      employees, as well as for the grant of non-qualified options to be issued to
      officers, employees and consultants. In addition, SARs may be granted in
      conjunction with the grant of incentive and non-qualified options.





The
      1995
      Employee Plan provides for the grant of incentive options, non-qualified options
      and SARs of up to 20,000 shares of common stock (subject to adjustment in the
      event of stock dividends, stock splits, and other similar events). To the extent
      that an incentive option or non-qualified option is not exercised within the
      period of exercisability specified therein, it will expire as to the then
      unexercisable portion. If any incentive option, non-qualified option or SAR
      terminates prior to exercise thereof and during the duration of the 1995
      Employee Plan, the shares of common stock as to which such option or right
      was
      not exercised will become available under the 1995 Employee Plan for the grant
      of additional options or rights to any eligible employee. The shares of common
      stock subject to the 1995 Employee Plan may be made available from either
      authorized but unissued shares, treasury shares or both. The Company has 20,000
      shares of common stock reserved for issuance under the 1995 Employee Plan.
      As of
      December 31, 2007 and 2006, there were no options outstanding under the 1995
      Employee Plan. No options were granted or exercised in 2007 or 2006 under the
      1995 Employee Plan.




F-26





1997
      Recruitment Stock Option Plan





In
      October 2000, the stockholders of the Company approved an amendment of the
      1997
      Recruitment Stock Option Plan (the “1997 Plan”)which provides for the issuance
      of incentive stock options, non-qualified stock options and SARs up to an
      aggregate of 370,000 shares of common stock (subject to adjustment in the event
      of stock dividends, stock splits, and other similar events). The price at which
      shares of common stock covered by the option can be purchased is determined
      by
      the Company’s Board of Directors; however in all instances the exercise price is
      never less than the fair market value of the Company’s common stock on the date
      the option is granted.





As
      of
      December 31, 2007, there were options to purchase 238,611 shares (2006 - 239,611
      shares) of the Company’s common stock outstanding under the 1997 Plan. 168,750
      of these options were unvested at December 31, 2007, and will vest between
      2008
      and 2010 at an exercise price of $0.66 per share. 56,250 options with an
      exercise price of $0.66 per share were vested at December 31, 2007 (no vested
      options at December 31, 2006). 13,611 options with exercise prices of $1.40
      to
      $111.26 per share were vested at December 31, 2007 (2006 - 14,611 options with
      exercise prices of $1.40 to $111.26 per share). The options with an exercise
      price of $0.66 must be exercised within seven years of grant date and can only
      be exercised while the option holder is an employee of the Company. The
      remaining options must be exercised within ten years of grant date and can
      only
      be exercised while the option holder is an employee of the Company. The Company
      has not awarded any SARs under the 1997 Plan. During 2007, no options to
      purchase shares of common stock were issued, and 1,000 options expired. During
      2006, 225,000 options to purchase shares of common stock were issued, and no
      options were forfeited or expired. There were no exercises during 2007 or
      2006.





2000
      Employee Stock Purchase Plan





During
      2000, the Company obtained approval from its stockholders to establish the
      2000
      Employee Stock Purchase Plan. The Stock Purchase Plan provides for the purchase
      of common stock, in the aggregate, up to 125,000 shares. This plan allows all
      eligible employees of the Company to have payroll withholding of 1 to 15 percent
      of their wages. The amounts withheld during a calendar quarter are then used
      to
      purchase common stock at a 15 percent discount off the lower of the closing
      sale
      price of the Company’s stock on the first or last day of each quarter. This plan
      was approved by the Board of Directors, subject to stockholder approval, and
      was
      effective beginning the third quarter of 2000. The Company issued 1,726 shares
      to employees based upon payroll withholdings during 2001. There have been no
      issuances since 2001.





The
      purpose of the Stock Purchase Plan is to provide incentives for all eligible
      employees of C2 (or any of its subsidiaries) who have been employees for at
      least three months, to participate in stock ownership of C2 by acquiring or
      increasing their proprietary interest in C2. The Stock Purchase Plan is designed
      to encourage employees to remain in the employ of C2. It is the intention of
      C2
      to have the Stock Purchase Plan qualify as an “employee stock purchase plan”
within the meaning of Section 423 of the Internal Revenue Code, as amended,
      to
      issue shares of common stock to all eligible employees of C2 (or any of C2’s
      subsidiaries) who have been employees for at least three months.





2003
      Stock Option and Appreciation Rights Plan





In
      November 2003, the stockholders of the Company approved the 2003 Stock Option
      and Appreciation Rights Plan (the “2003 Plan”) which provides for the issuance
      of incentive stock options, non-qualified stock options and SARs up to an
      aggregate of 2,000,000 shares of common stock (subject to adjustment in the
      event of stock dividends, stock splits, and other similar events). The price
      at
      which shares of common stock covered by the option can be purchased is
      determined by the Company’s Board of Directors or a committee thereof; however,
      in the case of incentive stock options the exercise price shall not be less
      than
      the fair market value of the Company’s common stock on the date the option is
      granted. As of December 31, 2007, there were options to purchase 598,250 shares
      (2006 - 568,250 shares) of the Company’s common stock outstanding under the 2003
      Plan. The outstanding options vest over four years at exercise prices ranging
      from $0.51 to $3.00 per share. During 2007, 30,000 options (2006 - 230,000
      options) were granted. During 2007 and 2006, no options to purchase shares
      of
      common stock were forfeited or expired. There were no options exercised during
      2007 and 2006, and no SARs have been issued under the 2003 Plan.





Other
      options





In
      1996,
      the Company approved the issuance of 87,500 options to executives of the
      Company, as part of their employment agreements, and 3,200 options to a
      consultant. As of December 31, 2007 and 2006, none of these options remained
      outstanding. During 2006, 78,200 options with an exercise price of $78.00
      expired.





During
      1997 and 2001, the Company issued options to purchase 60,500 shares of common
      stock (10,500 of which were issued under the 1997 recruitment stock option
      plan)
      to consultants at exercise prices ranging from $97.50 to $168.75 (repriced
      to
      $78.00 on December
      13, 1998), which was based on the closing price of the stock at the grant date.
      During 2007, 43,667 options expired, and none were exercised or forfeited.
      No
      options expired, and none were exercised or forfeited during 2006. The remaining
      options must be exercised within ten years of the grant date. As of December
      31,
      2007 there remained 833 options outstanding.




F-27





During
      1997, the Company issued non-qualified options to purchase 114,750 shares of
      common stock to certain executive employees. The options must be exercised
      within ten years of the grant date and have an exercise price of $78.00. During
      2007, the remaining 105,915 options expired and there were therefore no options
      outstanding at December 31, 2007. There were no options exercised or forfeited
      in 2007 or 2006, and no options expired during 2006.





During
      1998, the Company issued non-qualified options to purchase 46,750 shares of
      common stock to certain executive employees at exercise prices ranging from
      $51.26 to $62.50, which price was based on the closing price of the stock at
      the
      grant date. The options must be exercised within ten years of the grant date.
      No
      options expired, were exercised or forfeited during 2007 or 2006. As of December
      31, 2007 there remained 40,472 options outstanding.





During
      1999, the Company issued non-qualified options to purchase 32,750 shares of
      common stock to certain executive employees at exercise prices ranging from
      $50.00 to $71.26, which price was based on the closing price of the stock at
      the
      grant date. The options must be exercised within ten years of the grant date.
      No
      options expired, were exercised or forfeited during 2007 or 2006. As of December
      31, 2007, there remained 18,750 options outstanding.





During
      1999, the Company issued non-qualified options to purchase 10,000 shares of
      common stock to a consultant at an exercise price of $60.00, which was based
      on
      the closing price of the stock at the grant date. No options expired, were
      exercised or forfeited during 2007 or 2006. The fair value of the options issued
      was recorded as deferred compensation of $300,000, which was amortized over
      the
      expected period the services were to be provided. The options must be exercised
      within ten years of the grant date. As of December 31, 2007 there remained
      10,000 options outstanding.





During
      2000, the Company issued non-qualified options to purchase 129,250 shares of
      common stock to certain executive employees at exercise prices ranging from
      $55.00 to $127.50, which price was based on the closing price of the stock
      at
      the grant date. The options must be exercised within ten years of the grant
      date. No options expired, were exercised or forfeited during 2007 or 2006.
      As of
      December 31, 2007, there remained 68,833 options outstanding.





The
      following table summarizes the changes in common stock options for the common
      stock option plans described above:





**2007**
            
            **2006**
            
            **2005****Options**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            
            **Options**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            
            **Options**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**Outstanding
                at beginning of year
            
            
            1,096,326
            
            $
            19.51
            
            
            727,026
            
            $
            37.50
            
            
            1,791,643
            
            $
            42.46Granted
            
            
            30,000
            
            
            0.70
            
            
            455,000
            
            
            0.82
            
            
            39,600
            
            
            0.54Exercised
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Expired
            
            
            (150,577
            )
            
            78.00
            
            
            (85,700
            )
            
            73.14
            
            
            (1,117
            )
            
            21.98Forfeited
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (1,103,100
            )
            
            4.64Outstanding
                at end of year
            
            
            975,749
            
            $
            9.88
            
            
            1,096,326
            
            $
            19.51
            
            
            727,026
            
            $
            37.50Options
                exercisable at year end
            
            
            549,936
            
            $
            16.89
            
            
            499,701
            
            $
            41.24
            
            
            516,463
            
            $
            53.39Weighted-average
                fair value of options granted during the year
            
            
            
            
            $
            0.46
            
            
            
            
            $
            0.50
            
            
            
            
            $
            0.39





***Stock-Based
      Compensation Expense***




In
      December 2004, the FASB issued a revision (“SFAS No. 123(R)”) to SFAS No. 123, *Accounting
      for Stock-Based Compensation* (“SFAS
      No. 123”), and the Company was required to adopt SFAS No. 123(R) in the first
      quarter of 2006. SFAS No. 123(R) supersedes Accounting Principles Board Opinion
      No. 25, *Accounting
      for Stock Issued to Employees* (“APB
      No. 25”), and related Interpretations, and requires that all stock-based
      compensation, including options, be expensed at fair value, as of the grant
      date, over the vesting period. Companies are required to use an option pricing
      model (e.g.: Black-Scholes or Binomial) to determine compensation expense,
      consistent with the model previously used in the already required disclosures
      of
      SFAS No. 148, *Accounting
      for Stock-Based Compensation-Transition and Disclosure* .
      The
      effect of adopting SFAS No. 123(R) on the Company’s financial position,
      operations and cash flow is discussed below.




F-28




The
      Company’s stock-based compensation plans are described above. Prior to January
      1, 2006, the Company accounted for these plans under the recognition and
      measurement principles of APB No. 25, under which stock-based employee
      compensation cost was not reflected in net loss, as all options granted under
      these plans had an exercise price equal to the market value of the underlying
      common stock on the date of grant. In accordance with SFAS No. 123, as amended
      by SFAS No. 148, the Company provided footnote disclosure of the pro forma
      stock-based compensation cost, net loss and net loss per share as if the
      fair-value based method of expense recognition and measurement prescribed by
      SFAS No. 123 had been applied to all employee options.




The
      table
      below illustrates the effect on net loss and net loss per share if the Company
      had applied the fair value recognition provisions of SFAS No. 123 to options
      granted under the Company’s stock option plans in the year ended December 31,
      2005:.





**Year
                Ended****December
                31,********2005**Net
                loss as reported
            
            $
            (18,489
            )Deduct:Total
                compensation cost determined under fair value based method for all
                awards,
                net of $0 tax
            
            
            (198
            )Pro
                forma net loss
            
            $
            (18,687
            )Loss
                per shareBasic
                and diluted - as reported
            
            $
            (0.96
            )Basic
                and diluted - pro forma
            
            $
            (0.97
            )





The
      fair
      value of each option grant was estimated on the date of the grant using the
      Black-Scholes option pricing model with the following weighted average
      assumptions: expected volatility of 81%, risk free rates ranging from 3.73%
      to
      3.75%, an expected life of four years, and a dividend yield of
      zero.




As
      a
      result of adopting SFAS No. 123(R) on January 1, 2006, C2’s net loss for the
      years ended December 31, 2007 and 2006 is $166 and $139, respectively, more
      than
      it would have been if the Company had continued to account for stock-based
      compensation under APB No. 25. Basic and diluted net loss per share for the
      years ended December 31, 2007 and 2006 was increased by $0.01 and $0.01,
      respectively. The adoption of SFAS No. 123(R) had no effect on the Company’s
      Statement of Cash Flows, as there were no exercises of stock options during
      the
      years ended December 31, 2007 and 2006 and therefore no stock option-related
      cash flows were generated.




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




As
      of
      December 31, 2007, the total unrecognized stock-based compensation expense
      related to unvested stock options was $176, which is expected to be recognized
      over 14 months, as compared to $328 and approximately 16 months as of December
      31, 2006.




In
      April
      2007, 30,000 options were granted to the Company’s non-employee directors under
      the terms of the 2003 Stock Option and Appreciation Rights Plan. No options
      were
      forfeited or exercised during the year ending December 31, 2007. However; 1,000
      options under the 1997 Recruitment Stock Option Plan, and 149,582 executive
      options awarded in 1997, expired during the year ending December 31,
      2007.




As
      of
      December 31, 2007, the aggregate intrinsic value of options outstanding was
      $0,
      based on the Company’s closing stock price of $0.31 on December 31, 2007.
      Intrinsic value is the amount by which the fair value of the underlying stock
      exceeds the exercise price of the options. At December 31, 2007, all of the
      outstanding options had exercise prices greater than $0.31.




F-29




The
      following table presents information regarding unvested stock options
      outstanding at December 31, 2007 and 2006:




**Options**
            
            **Weighted**
              **Average**
              **Grant
                Date**
              **Fair
                Value**Unvested
                at December 31, 2006
            
            
            596,625
            
            $
            0.63Granted
            
            
            30,000
            
            $
            0.46Vested
            
            
            (198,312
            )
            $
            1.28Expired
            
            
            (2,500
            )
            
            —Unvested
                at December 31, 2007
            
            
            425,813
            
            $
            0.51




**Options**
            
            **Weighted**
              **Average**
              **Grant
                Date**
              **Fair
                Value**Unvested
                at December 31, 2005
            
            
            226,187
            
            $
            1.16Granted
            
            
            455,000
            
            $
            0.50Vested
            
            
            (84,562
            )
            $
            1.35Expired
            
            
            —
            
            
            —Unvested
                at December 31, 2006
            
            
            596,625
            
            $
            0.63




The
      total
      fair value of shares vesting during the years ending December 31, 2007 and
      2006
      was $171 and $114, respectively.




The
      following table summarizes information about fixed stock options outstanding
      at
      December 31, 2007:





**Exercise
                price**
            
            **Options**
              **Outstanding**
            
            **Weighted**
              **Average**
              **Remaining**
              **Life
                (years)**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            
            **Number**
              **Exercisable**
            
            **Weighted**
              **Average**
              **Remaining**
              **Life
                (years)**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**$
                0.51 to $ 1.39
            
            
            670,000
            
            
            4.98
            
            $
            0.86
            
            
            245,000
            
            
            4.34
            
            $
            0.93$
                1.40 to $ 3.00
            
            
            159,448
            
            
            2.67
            
            
            2.94
            
            
            158,635
            
            
            2.67
            
            
            2.95$
                6.88 to $ 15.62
            
            
            2,965
            
            
            3.02
            
            
            14.99
            
            
            2,965
            
            
            3.02
            
            
            14.99$48.76
                to $ 71.26
            
            
            138,555
            
            
            1.60
            
            
            58.16
            
            
            138,555
            
            
            1.60
            
            
            58.16$78.00
                to $127.50
            
            
            4,781
            
            
            1.89
            
            
            102.71
            
            
            4,781
            
            
            1.89
            
            
            102.71975,749
            
            
            4.10
            
            $
            9.88
            
            
            549,936
            
            
            3.14
            
            $
            16.89





**Note
      17 - Subsequent Event**





On
      February 18 and 28, 2008, the Company settled its patent infringement litigation
      against AT&T and Verizon, respectively, by entering into settlement and
      license agreements.




F-30





**Note
      18 - Summarized Quarterly Data (unaudited)**





Following
      is a summary of the quarterly results of operations for the years ended December
      31, 2007 and 2006.





**March
                31**
            
            **June
                30**
            
            **September
                30**
            
            **December
                31**Net
                sales
            
            
            2007
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —2006
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —Gross
                profit
            
            
            2007
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —2006
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —Operating
                income (loss)
            
            
            2007
            
            $
            (284
            )
            $
            (319
            )
            $
            (323
            )
            $
            (310
            )2006
            
            $
            (395
            )
            $
            (356
            )
            $
            (311
            )
            $
            (239
            )Net
                income (loss) from continuing operations
            
            
            2007
            
            $
            (625
            )
            $
            (365
            )
            $
            (372
            )
            $
            7232006
            
            $
            (2,734
            )
            $
            (3,452
            )
            $
            (1,753
            )
            $
            (4,107
            )Net
                income (loss)
            
            
            2007
            
            $
            (627
            )
            $
            (383
            )
            $
            (375
            )
            $
            7402006
            
            $
            958
            
            $
            (2,793
            )
            $
            (1,756
            )
            $
            (4,085
            )Basic
                and diluted income (loss) from continuing operations per common
                share
            
            
            2007
            
            $
            (0.03
            )
            $
            (0.01
            )
            $
            (0.02
            )
            $
            0.032006
            
            $
            (0.14
            )
            $
            (0.18
            )
            $
            (0.09
            )
            $
            (0.22
            )Basic
                and diluted income (loss) per common share
            
            
            2007
            
            $
            (0.03
            )
            $
            (0.01
            )
            $
            (0.02
            )
            $
            0.032006
            
            $
            0.05
            
            $
            (0.14
            )
            $
            (0.09
            )
            $
            (0.22
            )





F-31





**C2
      GLOBAL TECHNOLOGIES INC. AND SUBSIDIARIES**


**SCHEDULE
      OF VALUATION AND QUALIFYING ACCOUNTS**





**Description**
            
            **Balance
                at**
              **Beginning**
              **of
                Period**
            
            **Charged
                to**
              **Costs
                and**
              **Expenses**
            
            **Deductions**
              **(a)**
            
            **Other**
            
            **Balance
                at**
              **End
                of**
              **Period**Allowance
                for doubtful accounts:December
                31, 2005
            
            $
            6
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            6December
                31, 2006
            
            $
            6
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            6December
                31, 2007
            
            $
            6
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            6





(a)  Deductions
      represents allowance amounts written off as uncollectible and recoveries of
      previously reserved amounts.






S-1