10-K 1 v142233_10k.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
T ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008
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. Employer
of 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, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).

Large Accelerated Filer ¨ | Accelerated Filer ¨ | Non-Accelerated Filer R | Smaller Reporting Company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No R
The aggregate market value of Common Stock held by non-affiliates based upon the closing price of $0.47 per share on June 30, 2008, as reported by the OTC - Bulletin Board, was approximately $987,000.
As of February 26, 2009, there were 22,745,530 shares of Common Stock, $0.01 par value, outstanding.

TABLE OF CONTENTS

|  | PAGE
| PART I |
Item 1. | Business. | 3
Item 1A. | Risk Factors | 9
Item 1B. | Unresolved Staff Comments | 10
Item 2. | Properties. | 10
Item 3. | Legal Proceedings. | 11
Item 4. | Submission of Matters to a Vote of Security Holders. | 12
| PART II |
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. | 13
Item 6. | Selected Financial Data. | 16
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 17
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk. | 25
Item 8. | Financial Statements and Supplementary Data. | 25
Item 9. | Changes In and Disagreements With Accountants on Accounting and Financial Disclosure. | 25
Item 9A(T). | Controls and Procedures. | 25
Item 9B. | Other Information. | 26
| PART III |
Item 10. | Directors, Executive Officers and Corporate Governance. | 27
Item 11. | Executive Compensation. | 30
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. | 38
Item 13. | Certain Relationships and Related Transactions, and Director Independence. | 39
Item 14. | Principal Accountant Fees and Services. | 40
| PART IV |
Item 15. | Exhibits and Financial Statement Schedules. | 42

2

Forward-Looking Information
This Annual Report on Form 10-K (the “Report”) contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended, that are based on management’s exercise of business judgment as well as assumptions made by, and information currently available to, management. When used in this document, the words “may”, "will”, “anticipate”, “believe”, “estimate”, “expect”, “intend”, and words of similar import, are intended to identify any forward-looking statements. You should not place undue reliance on these forward-looking statements. These statements reflect our current view of future events and are subject to certain risks and uncertainties, as noted 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.
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”, “we” or the “Company”) was incorporated in the State of Florida in 1983 under the name “MedCross, Inc.” which was changed to “I-Link Incorporated” in 1997, to “Acceris Communications Inc.” in 2003, and to “C2 Global Technologies Inc.” in 2005. The most recent name change reflects a change in the strategic direction of the Company following the disposition of its Telecommunications business in the third quarter of 2005, 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 licenses. 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’s objective is to obtain ongoing 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. (“AT&T”), Verizon Communications, Inc. (“Verizon”), Qwest Communications International, Inc. (“Qwest”), Bellsouth Corporation (“Bellsouth”), Sprint Nextel Corporation (“Sprint”), Global Crossing Limited (“Global Crossing”), and Level 3 Communications, Inc. (“Level 3”). The complaint was filed in the Marshall Division of the United States District Court for the Eastern District of Texas, and alleged that these companies’ VoIP services and systems infringe upon C2’s U.S. Patent No. 6,243,373, entitled “Method and Apparatus for Implementing a Computer Network/Internet Telephone System” (the “VoIP Patent”). The complaint sought an injunction, monetary damages, and costs.
In June 2007, the complaint against Bellsouth was dismissed without prejudice. In February 2008, the Company entered into settlement and license agreements with AT&T and Verizon, and in May 2008 the Company entered into a settlement and license agreement with Sprint. In September 2008, the Company effectively concluded the litigation by entering into a settlement and license agreement with Qwest, Global Crossing, and Level 3, which agreement also includes Sonus Networks, Inc. Under the terms of the settlement and license agreements, C2 granted each of the parties named above a non-exclusive, perpetual, worldwide, fully paid up, royalty free license under any of C2’s present patents and patent applications, including the VoIP Patent, to make, use, sell or otherwise dispose of any goods and services based on such patents.
3

In the third quarter of 2007, the Company began investing in Internet-based e-commerce businesses, when it acquired minority positions in MyTrade.com, Inc., Buddy Media, Inc. (“Buddy Media”) and LIMOS.com LLC (“LIMOS.com”). Its investment in MyTrade.com, Inc. was sold in the fourth quarter of 2007. In the fourth quarter of 2007 the Company acquired a one-third interest in Knight’s Bridge Capital Partners Internet Fund No. 1 GP LLC (“Knight’s Bridge GP”). The additional two-thirds interest in Knight’s Bridge GP was acquired by parties affiliated with the Company’s majority stockholder, Counsel Corporation (together with its subsidiaries, “Counsel”). Knight’s Bridge GP was formed to acquire the general partner interests in 2007 Fund 1 LLP (the “Fund”, subsequently renamed Knight’s Bridge Capital Partners Internet Fund No. 1 LP). The Fund holds investments in several Internet-based e-commerce businesses. As the general partner of the Fund, Knight’s Bridge GP manages the Fund, in return for which it earns a 2% per annum management fee with respect to the Fund’s invested capital. Knight’s Bridge GP also has a 20% carried interest on any incremental realized gains from the Fund’s investments. In the second quarter of 2008, the Company increased its investment in Buddy Media. Following the purchase, the Company’s investment in Buddy Media remains less than 5% on an as-converted basis.
The Company’s investment in LIMOS.com was sold on October 29, 2008. The Company received net proceeds of $781 and realized a gain of $425.
In April 2004, certain shareholders of C2 filed derivative and securities lawsuits in the Superior Court of the State of California against Counsel, C2 and several affiliated companies, as well as four present and former officers and directors of C2. Counsel and C2 believe that the claims are and were without merit, and have defended the actions accordingly. Effective June 18, 2008, in order to settle the litigation, and without any admission of liability by either C2 or the other defendants, the parties agreed to the following terms: (i) Counsel and/or certain of its affiliates, other than C2, would pay a total of $520 to the named plaintiffs; (ii) Counsel and/or a subsidiary other than C2 would give the plaintiffs approximately 370,000 common shares of C2, being five common shares of C2 for every share of C2 owned by the plaintiffs when the litigation commenced; (iii) plaintiffs who were also dissenting shareholders in an appraisal action filed by C2 in Florida in June 2004 would withdraw their dissent and C2 would return the shares that they tendered; (iv) Counsel and/or an affiliate would transfer 350,000 common shares to C2 for cancellation to settle the derivative claims of the litigation. As a result of the transfer of common shares to the plaintiffs and the cancellation of the shares transferred to C2, Counsel’s percentage ownership in C2 decreased from approximately 92.5% to approximately 90.8%. The settlement did not have a material adverse impact on the Company’s business, results of operations, financial position or liquidity.
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, 2008. Effective with the sale of the Telecommunications business in the third quarter of 2005, the Company no longer has distinct operating segments, as 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, |
|  | 2008 |  |  | 2007 |  |  | 2006 |
Revenues from external customers |  | $ | 17,625 |  |  | $ | — |  |  | $ | — |
Income (loss) from continuing operations |  |  | 5,839 |  |  |  | (639 | ) |  |  | (12,046 | )
Income (loss) from discontinued operations |  |  | (12 | ) |  |  | (6 | ) |  |  | 4,370 |
Total assets |  |  | 5,443 |  |  |  | 1,796 |  |  |  | 1,386 |

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.
4

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. As part of the sale, we retained all of our intellectual property rights and patents.
In 2003, we added to our VoIP patent holdings when we acquired the VoIP Patent, which included a corresponding foreign patent and related international patent applications. The vendor of the VoIP Patent was granted a first priority security interest in the patent in order to secure C2’s obligations under the associated purchase agreement. The VoIP Patent, together with the 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.
Up to December 31, 2004, revenue related to our intellectual property was based on the sales and deployment of our VoIP solutions, which we ceased directly marketing in 2005. No revenue was due to the receipt of licensing fees and royalties. Revenue in 2008 was the result of entering into the settlement and license agreements with AT&T, Verizon, Sprint, Qwest, Global Crossing, Level 3 and Sonus Networks, Inc., as described above. We expect to generate ongoing licensing and royalty revenue in this business as we gain recognition of the underlying value in our VoIP Patent Portfolio through the enforcement of our intellectual property rights, as discussed above under “Overview and Recent Developments”.
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. (sold in the fourth quarter of 2007), Buddy Media, Inc. and LIMOS.com LLC (sold in the fourth quarter of 2008). It continued its investment activities in the fourth quarter of 2007 with the acquisition of a one-third interest in Knight’s Bridge Capital Partners Internet Fund No. 1 GP LLC. In the second quarter of 2008, the Company increased its investment in Buddy Media. At December 31, 2008 the Company’s investment in these businesses totaled $242. The Company’s objective is to realize long-term capital appreciation as the value of these businesses is developed and recognized. In this regard, the Company recognized a gain of $75 on MyTrade.com, Inc. and a gain of $425 on LIMOS.com LLC in 2007 and 2008, respectively.
5

Intellectual Property
Below is a summary of the Company’s patents:

Type |  | Title |  | Number |  | Status
VoIP Architecture |  | Computer Network/Internet |  | U.S. No. 6,243,373 |  | Issued: June 5, 2001
|  | Telephone System (“VoIP Patent”) |  |  |  | Expires: November 1, 2015
|  |  |  | Australia No. 716096 |  | Issued: June 1, 2000
|  |  |  |  |  | Expires: October 29, 2016
|  |  |  | People’s Republic of |  | Issued: December 14, 2005
|  |  |  | China No. ZL96199457.6 |  | Expires: October 29, 2016
|  |  |  | Canada No. 2,238,867 |  | Issued: October 18, 2005
|  |  |  |  |  | Expires: October 29, 2016
|  |  |  | Hong Kong |  | Issued: August 11, 2006
|  |  |  | No. HK1018372 |  | Expires: October 29, 2016
|  |  |  | Europe No. 0873637 |  | Granted March 21, 2007 1
|  | Voice Internet Transmission |  | U.S. No. 6,438,124 |  | Issued: August 20, 2002
|  | System(“C2 Patent”) |  |  |  | Expires: July 22, 2018
|  |  |  | People’s Republic of |  | Issued: May 21, 2004
|  |  |  | China No. ZL97192954.8 |  | Expires: February 5, 2017
|  |  |  | Canada No. 2,245,815 |  | Issued: October 10, 2006
|  |  |  |  |  | Expires: February 5, 2017
|  |  |  | South Korea No. 847335 |  | Issued: July 14, 2008
|  |  |  |  |  | Expires: February 5, 2017
|  | Private IP Communication |  | U.S. No. 7,215,663 |  | Issued: May 8, 2007
|  | Network Architecture |  |  |  | Expires: June 12, 2017
Conferencing |  | Delay Synchronization in |  | U.S. No. 5,754,534 |  | Issued: May 19, 1998
|  | Compressed Audio System |  |  |  | Expires: May 6, 2016
|  | Volume Control Arrangement |  | U.S. No. 5,898,675 |  | Issued: April 27, 1999
|  | for Compressed Information Signal Delays |  |  |  | Expires: April 29, 2016

1 The European patent has been validated in Austria, Belgium, Denmark, Finland, France, Germany, Great Britain, Greece, Ireland, Italy, the Netherlands, Portugal, Spain, Sweden and Switzerland.
In addition to the C2 and VoIP patents, which cover the foundation of any VoIP system, our patent portfolio includes:
Private IP Communication Network Architecture (U.S. Patent No. 7,215,663 granted May 8, 2007) - This invention relates generally to multimedia communications networks. The patent’s Internet Linked Network Architecture delivers telecommunication type services across a network utilizing digital technology. The unique breadth and flexibility of telecommunication services offered by the Internet Linked Network Architecture flow directly from the network over which they are delivered and the underlying design principles and architectural decisions employed during its creation.
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, 2008, 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, and 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 became 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.
Our investments are particularly subject to risk of loss.
The Company’s portfolio investment in Buddy Media, Inc. is in a development stage company that has yet to provide a return to shareholders. The Company’s equity investment in Knight’s Bridge Capital Partners Internet Fund No. 1 GP LLC is in a company whose underlying investments are also primarily in development stage companies. Although the Company’s analyses of these investments as at December 31, 2008 resulted in the conclusion that no impairment was present, development stage companies are particularly vulnerable during an economic downturn such as the one currently in progress. There can be no assurance that the Company will either recover the value of its initial investments 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 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 additional 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.
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. These negative trends may become even more significant during the current economic downturn. Our potential licensees may experience increased customer attrition, may have difficulty generating and collecting revenue, or may even be forced into bankruptcy. Our potential revenue could therefore decrease significantly as the licensees become unable to meet their financial obligations.
Our principal stockholder, Counsel, has voting control of the Company and our executive officers are employees of Counsel.
Counsel owns approximately 91% 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 not employees or otherwise affiliated with 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. The Board 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 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.
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 is authorized to determine the rights and preferences of any additional series or class of preferred stock. The Board 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.
9

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.
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.
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, 2008, we do not have any preferred stock outstanding that has any preferential dividends.
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.
10

Item 3. Legal Proceedings.
Shareholder Litigation
In April 2004, certain shareholders of C2 filed derivative and securities lawsuits in the Superior Court of the State of California against Counsel, C2 and several affiliated companies, as well as four present and former officers and directors of C2. Counsel and C2 believe that the claims are and were without merit, and have defended the actions accordingly. Effective June 18, 2008, in order to settle the litigation, and without any admission of liability by either C2 or the other defendants, the parties agreed to the following terms: (i) Counsel and/or certain of its affiliates, other than C2, would pay a total of $520 to the named plaintiffs; (ii) Counsel and/or a subsidiary other than C2 would give the plaintiffs approximately 370,000 common shares of C2, being five common shares of C2 for every share of C2 owned by the plaintiffs when the litigation commenced; (iii) plaintiffs who were also dissenting shareholders in an appraisal action filed by C2 in Florida in June 2004 would withdraw their dissent and C2 would return the shares that they tendered; (iv) Counsel and/or an affiliate would transfer 350,000 common shares to C2 for cancellation to settle the derivative claims of the litigation. As a result of the transfer of common shares to the plaintiffs and the cancellation of the shares transferred to C2, Counsel’s percentage ownership in C2 decreased from approximately 92.5% to approximately 90.8%. The settlement did not have a material adverse impact on the Company’s business, results of operations, financial position or liquidity.
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, in the event that C2 does not have sufficient resources to fund the payments. 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 17th 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. As a result of the June 2008 settlement of the derivative and securities lawsuits in California, described above, the stay of the Florida declaratory judgment action is expected to be lifted shortly. Subsequent to December 31, 2008, the Company completed an agreement with the holders of 27,221 of the 27,536 shares held by the remaining dissenting stockholders, whereby the stockholders agreed to accept $4.60 per share in full payment for their respective shares, which will be cancelled by the Company, and a release of any other claims that they may have against the Company and Counsel. When the declaratory judgment action resumes with respect to the remaining dissenting stockholders, who exercised their appraisal rights with respect to the remaining 315 shares, the Company provides no assurance that this matter will be resolved in its favor; however, the Company's management does not believe that an unfavorable outcome of this matter would have a material adverse impact on our business, results of operations, financial position or liquidity.
Intellectual Property Enforcement Litigation
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 alleged that these companies’ VoIP services and systems infringe upon the Company’s U.S. Patent No. 6,243,373, entitled “Method and Apparatus for Implementing a Computer Network/Internet Telephone System” and sought an injunction, monetary damages and costs.
11

In June 2007, the complaint against Bellsouth Corporation was dismissed without prejudice. In February 2008, the Company settled the complaints against AT&T, Inc. and Verizon Communications, Inc. by entering into settlement and license agreements. In May 2008 the Company settled the complaint against Sprint Nextel Corporation by entering into a similar agreement. In September 2008, C2 effectively concluded the litigation by entering into a similar agreement with Qwest Communications International, Inc., Global Crossing Limited, and Level 3 Communications, Inc., which agreement also includes Sonus Networks, Inc.
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, 2007 through December 31, 2008, 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, 2007 |  | $ | 1.49 |  |  | $ | 0.50 |
June 30, 2007 |  |  | 0.90 |  |  |  | 0.35 |
September 30, 2007 |  |  | 0.55 |  |  |  | 0.40 |
December 31, 2007 |  |  | 0.90 |  |  |  | 0.31 |
March 31, 2008 |  | $ | 1.47 |  |  | $ | 0.31 |
June 30, 2008 |  |  | 1.30 |  |  |  | 0.47 |
September 30, 2008 |  |  | 1.01 |  |  |  | 0.35 |
December 31, 2008 |  |  | 0.75 |  |  |  | 0.11 |

On February 26, 2009, the closing price for a share of the Company’s common stock was $0.20.
Holders
As of February 26, 2009, the Company had approximately 519 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, 2008, we do not have any preferred stock outstanding which has any preferential dividends.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth, as of December 31, 2008, 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, 2008, 40,000 options were granted to directors under the 2003 Employee Stock Option and Appreciation Rights Plan. These options were issued with an exercise price of $0.90/share, which equalled 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 granted during the twelve months ended December 31, 2008.
13

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 |  |  | 638,250 |  |  |  | 1.45 |  |  |  | 1,361,750 |
1997 Recruitment Stock Option Plan |  |  | 237,361 |  |  |  | 1.80 |  |  |  | 132,639 |
1995 Directors Stock Option and Appreciation Rights Plan |  |  | — |  |  |  | — |  |  |  | 12,500 |
1995 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 |  |  | 103,416 |  |  |  | 60.10 |  |  |  | — |
Total |  |  | 979,027 |  |  |  | 7.73 |  |  |  | 1,526,889 |

(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 2008.
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 peer 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, 2003, and the reinvestment of dividends (where applicable). We have never paid a dividend on our common stock.
14

Total Return Analysis

|  | 12/31/03 |  |  | 12/31/04 |  |  | 12/31/05 |  |  | 12/31/06 |  |  | 12/31/07 |  |  | 12/31/08 |
C2 Global Technologies Inc. |  | $ | 100.00 |  |  | $ | 27.52 |  |  | $ | 27.98 |  |  | $ | 18.35 |  |  | $ | 14.22 |  |  | $ | 6.42 |
Peer Group |  | $ | 100.00 |  |  | $ | 105.38 |  |  | $ | 120.33 |  |  | $ | 192.02 |  |  | $ | 152.57 |  |  | $ | 53.88 |
Russell 2000 Index |  | $ | 100.00 |  |  | $ | 118.33 |  |  | $ | 123.72 |  |  | $ | 146.44 |  |  | $ | 144.15 |  |  | $ | 95.44 |

Source: Morningstar, Inc. (312) 384-4007
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.

|  | 2008 |  |  | 2007 |  |  | 2006 |  |  | 2005 |  |  | 2004 |
Statement of Operations Data : |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Patent licensing and development revenues |  | $ | 17,625 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 540 |
Operating costs and expenses |  |  | 12,022 |  |  |  | 1,236 |  |  |  | 1,301 |  |  |  | 3,179 |  |  |  | 4,541 |
Operating income (loss) |  |  | 5,603 |  |  |  | (1,236 | ) |  |  | (1,301 | ) |  |  | (3,179 | ) |  |  | (4,001 | )
Other income (expense): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest expense – related party |  |  | (43 | ) |  |  | (184 | ) |  |  | (10,390 | ) |  |  | (12,154 | ) |  |  | (8,488 | )
Interest expense – third party |  |  | — |  |  |  | (12 | ) |  |  | (510 | ) |  |  | (658 | ) |  |  | (65 | )
Other income (expense) |  |  | 17 |  |  |  | (288 | ) |  |  | 155 |  |  |  | 1,084 |  |  |  | 1,487 |
Other income (expense), net |  |  | (26 | ) |  |  | (484 | ) |  |  | (10,745 | ) |  |  | (11,728 | ) |  |  | (7,066 | )
Income (loss) from continuing operations before income taxes and earnings from equity accounted investments |  |  | 5,577 |  |  |  | (1,720 | ) |  |  | (12,046 | ) |  |  | (14,907 | ) |  |  | (11,067 | )
Income tax expense (recovery) |  |  | 125 |  |  |  | (1,000 | ) |  |  | — |  |  |  | — |  |  |  | — |
Earnings from equity accounted investments |  |  | 387 |  |  |  | 81 |  |  |  | — |  |  |  | — |  |  |  | — |
Income (loss) from continuing operations |  |  | 5,839 |  |  |  | (639 | ) |  |  | (12,046 | ) |  |  | (14,907 | ) |  |  | (11,067 | )
Income (loss) from discontinued operations |  |  | (12 | ) |  |  | (6 | ) |  |  | 4,370 |  |  |  | (3,582 | ) |  |  | (11,716 | )
Net income (loss) |  | $ | 5,827 |  |  | $ | (645 | ) |  | $ | ( 7,676 | ) |  | $ | (18,489 | ) |  | $ | (22,783 | )
Net income (loss) per common share – basic and diluted: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Income (loss) from continuing operations |  | $ | 0.25 |  |  | $ | (0.03 | ) |  | $ | (0.63 | ) |  | $ | (0.77 | ) |  | $ | (0.57 | )
Income (loss) from discontinued operations |  |  | — |  |  |  | — |  |  |  | 0.23 |  |  |  | (0.19 | ) |  |  | (0.61 | )
Net income (loss) per common share |  | $ | 0.25 |  |  | $ | (0.03 | ) |  | $ | (0.40 | ) |  | $ | (0.96 | ) |  | $ | (1.18 | )
Balance Sheet Data: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total assets |  | $ | 5,443 |  |  | $ | 1,796 |  |  | $ | 1,386 |  |  | $ | 3,490 |  |  | $ | 24,009 |
Total current liabilities |  | $ | 472 |  |  | $ | 2,737 |  |  | $ | 1,855 |  |  | $ | 79,852 |  |  | $ | 36,150 |
Total long-term obligations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Related party |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 46,015 |
Third party |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 1,580 |  |  | $ | 3,164 |
Discontinued liabilities |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 645 |
Stockholders’ equity (deficit) |  | $ | 4,971 |  |  | $ | (941 | ) |  | $ | (469 | ) |  | $ | (77,942 | ) |  | $ | (61,965 | )

16

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(All dollar amounts are presented in thousands of 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 15 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.
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
Liquidity
At December 31, 2008 the Company’s working capital was $4,556, as compared to a working capital deficit of $1,653 at December 31, 2007. Cash increased by $4,009, from $67 at December 31, 2007 to $4,076 at December 31, 2008. The primary reason for the improvement in the Company’s financial position is that during 2008 it recorded revenues and realized cash from continuing operations for the first time since 2004. All of the revenue was derived from settlement and license agreements with telecommunications carriers, which the Company entered into in February, May and September 2008. All amounts owing under these agreements were paid to the Company in 2008. During 2008 the Company also received net cash of $664 from its portfolio investments.
The Company’s liabilities at December 31, 2008 consisted solely of $472 in accounts payable and accrued liabilities, as compared to $402 of the same at December 31, 2007, resulting in net free cash holdings of $3,604 at December 31, 2008. The Company had no commitments or off balance sheet arrangements at December 31, 2008. The Company’s ongoing objective is to continue to enter into licensing and royalty agreements with respect to its patents. Even if the Company does not enter into such agreements, it has sufficient cash resources to cover its currently estimated annual cash operating expenses of approximately $1,200. At the current time, the Company has no available credit facilities, nor does it have any guarantees from related parties. The Company’s other assets, consisting primarily of a deferred tax asset, investments in private companies, and goodwill, are not readily convertible to cash.
On an ongoing basis, the Company considers opportunities to invest its available cash. At December 31, 2008 and the date of this Report, the Company had no investment commitments.
At December 31, 2008 the Company had no debt owing to its majority stockholder, Counsel, as compared to $2,335 owing at December 31, 2007.
Ownership Structure and Capital Resources

| · | At December 31, 2008 the Company had stockholders’ equity of $4,971, as compared to a stockholders’ deficit of $941 at December 31, 2007.

| · | The Company is 90.8% owned by Counsel. The remaining 9.2% is owned by public stockholders.

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

17

Cash Position and Cash Flows
Cash at December 31, 2008 was $4,076 compared to $67 and $3 at the same date in 2007 and 2006, respectively. As noted above, the significant increase of $4,009 in 2008 is due to the collection of revenue from settlement and licensing agreements, as well as positive cash flows from the Company’s portfolio investments.
Cash provided by or used in operating activities. Cash provided by operating activities (excluding discontinued operations) during 2008 was $5,692, as compared to cash used of $1,275 and $2,324 in 2007 and 2006, respectively. The improvement was primarily due to the Company earning $5,839 from continuing operations in 2008, as compared to net losses of $639 and $12,046 in 2007 and 2006, respectively. In 2008 the Company recorded a net decrease of $125 in the $1,000 deferred income tax recovery that was recorded in 2007; there were no deferred income tax asset transactions in 2006. In 2008 the Company repaid the related party debt owing to Counsel at December 31, 2007 and therefore capitalized no interest costs, as compared to capitalizing $184 in 2007 and $7,542 in 2006. 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 or 2008. The Company’s gains on the sale of portfolio investments, which were $425 in 2008 and $75 in 2007, reduced the net cash provided by operating activities.
Cash provided by investing activities. Net cash provided by investing activities during 2008 was $664, as compared to $662 in 2007. No cash was provided or used in 2006. In 2008, $781 was received as the net proceeds on the sale of the Company’s investment in LIMOS.com, $8 was received as a cash distribution from the Company’s investment in Knight’s Bridge GP, and the Company increased its investments in Buddy Media by $124 and Knight’s Bridge GP by $1. In 2007, the Company’s $1,100 preferred share investment in AccessLine Communications was redeemed in full. The Company subsequently invested $595 in portfolio investments, received $150 from the sale of one of these investments, and received $7 as a cash distribution from Knight’s Bridge GP.
Cash provided by or used in financing activities. Net cash used by financing activities in 2008 was $2,335, as compared to net cash provided of $683 in 2007 and $2,142 in 2006. The single financing activity in 2008 was repayment of the debt owing to Counsel at December 31, 2007. Counsel had provided net cash of $2,145 in 2007 and $2,401 in 2006. In 2007 and 2006 the Company paid $1,462 and $1,765, respectively, to its third party lender. 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
At December 31, 2008 the Company had no outstanding debt other than the accounts payable and accrued liabilities detailed in Note 7. We have no liabilities associated with income taxes that require disclosure under the terms and provisions of FIN 48.
18

Consolidated Results of Operations
Key selected financial data for the three years ended December 31, 2008, 2007 and 2006 are as follows:

|  |  |  |  |  |  |  |  |  |  | Percentage Change |
|  | 2008 |  |  | 2007 |  |  | 2006 |  |  | 2008 vs. 2007 |  |  | 2007 vs. 2006 |
Revenues: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Patent licensing |  | $ | 17,625 |  |  | $ | — |  |  | $ | — |  |  |  | N/A |  |  |  | N/A |
Operating costs and expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Patent licensing |  |  | 10,729 |  |  |  | — |  |  |  | — |  |  |  | N/A |  |  |  | N/A |
Selling, general, administrative and other |  |  | 1,273 |  |  |  | 1,216 |  |  |  | 1,281 |  |  |  | 5 |  |  |  | (5 | )
Depreciation and amortization |  |  | 20 |  |  |  | 20 |  |  |  | 20 |  |  |  | — |  |  |  | — |
Total operating costs and expenses |  |  | 12,022 |  |  |  | 1,236 |  |  |  | 1,301 |  |  |  | 873 |  |  |  | (5 | )
Operating income (loss) |  |  | 5,603 |  |  |  | (1,236 | ) |  |  | (1,301 | ) |  |  | N/A |  |  |  | (5 | )
Other income (expense): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other income (expense) |  |  | 17 |  |  |  | (288 | ) |  |  | 155 |  |  |  | N/A |  |  |  | N/A |
Interest expense – third party |  |  | — |  |  |  | (12 | ) |  |  | (510 | ) |  |  | N/A |  |  |  | (98 | )
Interest expense – related party |  |  | (43 | ) |  |  | (184 | ) |  |  | (10,390 | ) |  |  | (77 | ) |  |  | (98 | )
Earnings from equity accounted investments |  |  | 387 |  |  |  | 81 |  |  |  | — |  |  |  | 378 |  |  |  | N/A |
Total other income (expense) |  |  | 361 |  |  |  | (403 | ) |  |  | (10,745 | ) |  |  | N/A |  |  |  | (96 | )
Income (loss) from continuing operations before income taxes |  |  | 5,964 |  |  |  | (1,639 | ) |  |  | (12,046 | ) |  |  | N/A |  |  |  | (86 | )
Income tax expense (recovery) |  |  | 125 |  |  |  | (1,000 | ) |  |  | — |  |  |  | N/A |  |  |  | N/A |
Income (loss) from continuing operations |  |  | 5,839 |  |  |  | (639 | ) |  |  | (12,046 | ) |  |  | N/A |  |  |  | (95 | )
Income (loss) from discontinued operations |  |  | (12 | ) |  |  | (6 | ) |  |  | 4,370 |  |  |  | 100 |  |  |  | N/A |
Net income (loss) |  | $ | 5,827 |  |  | $ | (645 | ) |  | $ | (7,676 | ) |  |  | N/A |  |  |  | (92 | )

Patent licensing revenue is derived from licensing our intellectual property. Our VoIP Patent Portfolio is an international patent portfolio covering the basic process and technology that enables VoIP communications. Our patented technology 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. At present, no ongoing royalties are being paid to the Company. The Company’s objective is to obtain ongoing licensing and royalty revenue from the target market for its patents, both domestically and internationally. In this regard, in the third quarter of 2005, the Company retained legal counsel with expertise in the enforcement of intellectual property rights, and on June 15, 2006 C2 Communications Technologies Inc., a wholly-owned subsidiary of the Company, filed a patent infringement lawsuit against seven telecommunications companies. During 2008 the Company effectively concluded the litigation by entering into settlement and license agreements with the defendants in such litigation.
We expect to continue to generate licensing and royalty revenue in this business as we gain recognition of the underlying value in our VoIP Patent Portfolio through the enforcement of our intellectual property rights. In connection with the 2003 acquisition of U.S. Patent No. 6,243,373, the Company agreed to remit, to the former owner of the patent, 35% of the net proceeds from future revenue derived from the licensing of the VoIP Patent Portfolio. Net proceeds are defined as amounts collected from third parties net of the direct costs associated with the maintenance, licensing and enforcement of the VoIP Patent Portfolio.
2008 Compared to 2007
Patent licensing revenues were $17,625 in 2008 and $0 in 2007. These revenues, as noted above, were from settlement and license agreements entered into with the parties to the Company’s patent litigation that commenced in June 2006.
Patent licensing expense was $10,729 in 2008 and $0 in 2007. This expense includes four components: disbursements directly related to patent licensing, contingency fees earned by our legal counsel, ongoing business expenses related to patent licensing, and the participation fee of 35% payable to the vendor of the VoIP Patent.
Selling, general, administrative and other expense was $1,273 for the year ended December 31, 2008 as compared to $1,216 for the year ended December 31, 2007. The significant changes included:

| · | Compensation expense in 2008 was $361 compared to $304 in 2007. The salary earned by the CEO of C2 remained unchanged at $138. In 2008 a bonus of $138 was paid; there was no bonus expense in 2007. Stock-based compensation expense decreased by $81, from $166 in 2007 to $85 in 2008.

19

| · | Legal expenses in 2008 were $88, a decrease of $69 compared to $157 in 2007.

| · | Accounting and tax consulting expenses in 2008 were $122 compared to $146 in 2007.

| · | Fees paid to the members of our Board of Directors were $126 in 2008 as compared to $104 in 2007. The increase reflects the addition of a Class III director in January 2008.

| · | Management fee expense charged by our majority stockholder, Counsel, was $360 in 2008 as compared to $225 in 2007. The increase reflects the additional use of Counsel resources in connection with the patent licensing litigation and the Company’s investments in Internet-based e-commerce businesses. See Item 13 of this Report for details regarding these management fees.

| · | Directors and officers insurance expense was $150 in both 2008 and 2007.

| · | In 2008, the Company incurred expenses of $21 with respect to maintenance fees for its patents. In 2007 it incurred $60 with respect to filing fees for patents being issued in various European countries.

Depreciation and amortization – This expense was $20 in both 2008 and 2007, and relates to the amortization of the cost of the VoIP Patent. As of December 31, 2008, the cost of the patent has been fully amortized.
The changes in other income (expense) are related to the following:

| · | In 2008 the Company had other income of $17, as compared to other expense of $288 in 2007. In 2008 this consists of $15 interest income and $2 received as a reduction of prior years’ insurance premiums. 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 of the consolidated financial statements. During 2007 the Company earned $2 of bank interest and received $3 as a reduction of prior years’ insurance premiums.

| · | There was no third party interest expense in 2008, as compared to $12 in 2007. All of the interest expense in 2007 related to the debt held by the Company’s third party lender. The loan was repaid in full effective January 10, 2007.

| · | Related party interest expense was $43 in 2008, as compared to $184 in 2007. The decrease of $141 is due to the repayment in full of the debt owing to Counsel. As discussed in Note 13 of the consolidated financial statements, this was repaid in March 2008 and therefore the Company incurred no interest expense subsequent to that date.

Earnings from equity investments – In 2008, the Company recorded earnings of $387 relating to its equity accounted investments. This primarily consists of the gain of $425 from the sale of LIMOS.com, which is net of a loss of $43 that was recorded by the Company as its share of the net loss of LIMOS.com prior to the sale of the asset. The remainder consists of $5 representing the Company’s share of the earnings of Knight’s Bridge GP. In 2007 the Company had income of $81 from its equity accounted investments. This was composed of the gain of $75 on the sale of the Company’s interest in MyTrade.com, $7 of income representing the Company’s share of the earnings of Knight’s Bridge GP, and $1 representing the Company’s share of the loss recorded by LIMOS.com.
2007 Compared to 2006
Patent licensing revenues were $0 in both 2007 and 2006.
Patent licensing expense was $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 consequently there 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.

20

| · | 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:

| · | In 2007 the Company had other expense of $288, 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. 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.

| · | 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.

| · | 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 debt owing to Counsel. As discussed in Note 2 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 was no corresponding expense in 2007.

Earnings from equity investments – In 2007 the Company had income of $81 from its equity accounted investments. This was composed of the gain of $75 on the sale of the Company’s interest in MyTrade.com, $7 of income representing the Company’s share of the earnings of Knight’s Bridge GP, and $1 representing the Company’s share of the loss recorded by LIMOS.com. There were no similar items in 2006.
21

Recent Accounting Pronouncements
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, Fair Value Measurements (“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 was 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 were not eligible for the FSP’s deferral provisions. Entities were encouraged to adopt SFAS No. 157 in its entirety, as long as they had not yet issued financial statements during that year. An entity that chose to adopt SFAS No. 157 in its entirety had to 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 was effective for fiscal years beginning after November 15, 2007, with early adoption permitted if SFAS No. 157 was also adopted. SFAS No. 159 is to be applied prospectively. The Company adopted SFAS No. 159 at January 1, 2008. The carrying values of the Company’s cash, accounts payable and accrued liabilities approximate fair value, and therefore the adoption of SFAS No. 159 had no effect on the reported amounts of these assets and liabilities. In addition, the Company has the option to elect fair value accounting for its investments in internet-based E-commerce businesses. The Company has elected to continue to account for these investments using the methods in place at December 31, 2007, as described below under “Investments”. Therefore, the adoption of SFAS No. 159 had no impact on the Company’s financial position, results of operations or cash flows.
On October 10, 2008, the FASB issued FSP FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active (“FSP FAS 157-3”). FSP FAS 157-3 amends SFAS No. 157 by incorporating an example that illustrates key considerations in determining the fair value of a financial asset in an inactive market. It is intended to clarify application issues, and emphasize the measurement principles of SFAS No. 157, including the objective of fair value measurements, distressed transactions, relevance of observable data and management’s assumptions. FSP FAS 157-3 was effective as of October 10, 2008 and applicable to prior periods for which financial statements have not been issued. The adoption of FSP FAS 157-3 had no effect on the Company’s financial position, results of operations, or cash flows.
Future Accounting Pronouncements
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 initially measured and 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 will adopt SFAS No. 141(R) and SFAS No. 160 on January 1, 2009, and is currently evaluating the impact of these adoptions on our consolidated financial statements.
In May 2008, the FASB issued FASB Staff Position No. FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (“FSP APB 14-1”). FSP APB 14-1 addresses the accounting for convertible debt securities that, upon conversion, may be settled by the issuer fully or partially in cash. It does not change the accounting for traditional types of convertible debt securities that do not have a cash settlement feature, and does not apply if, under existing GAAP for derivatives, the embedded conversion feature must be accounted for separately from the rest of the instrument. FSP APB 14-1 is effective for fiscal years and interim periods beginning after December 15, 2008. It should be applied retrospectively to all past periods presented, even if the convertible debt security has matured, been converted or otherwise extinguished as of the FSP’s effective date. The Company does not expect that the adoption of FSP APB 14-1 on January 1, 2009 will have any effect on its financial position, results of operations, or cash flows.
22

On June 25, 2008, the FASB ratified Emerging Issues Task Force Issue 07-5, Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an Entity’s Own Stock (“EITF 07-5”). The Task Force reached a consensus on how an entity should evaluate whether an instrument (or an embedded feature) is indexed to its own stock, how the currency in which the instrument is denominated affects the determination of whether the instrument is indexed to a company’s own stock, and how an issuer should account for market-based employee stock option valuation instruments. EITF 07-5 is effective for fiscal years and interim periods beginning after December 31, 2008, and must be applied to outstanding instruments as of the beginning of the fiscal year of adoption, with a cumulative-effect adjustment to the opening balance of retained earnings. Early adoption is not permitted. The Company does not expect that the adoption of EITF 07-5 on January 1, 2009 will have any effect on its financial position, results of operations, or cash flows.
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 goodwill, investments, deferred income tax assets, liabilities, contingencies surrounding litigation, and stock-based compensation. 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.
Revenue recognition
The Company’s revenue is comprised primarily of amounts received in connection with the licensing of its patents. 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.
Goodwill
The Company’s goodwill relates to an investment in a subsidiary company that holds the rights to some of the Company’s patents. The Company assesses the fair value of its goodwill based upon the fair value of the Company as a consolidated entity. Beginning in 2005, the Company’s valuation was based upon its market capitalization. Management believed this to be the most reasonable method at the time, given the absence of a predictable revenue stream and the corresponding inability to use an alternative valuation method for the Company’s patents, such as a discounted cash flow analysis. For the year ended December 31, 2008, given the success that the Company has realized to date with respect to its patent litigation, the Company was able to use a discounted cash flow analysis to value its patents. At December 31, 2008, the fair value of the Company’s net assets significantly exceeded their book value, 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 goodwill. Such events may include, but are not limited to, strategic decisions made in response to economic and competitive conditions, judgments on the validity of the Company’s VoIP Patent Portfolio, or other factors not known to management at this time.
Investments
The Company holds investments in two private companies: a minority preferred share investment in Buddy Media, Inc. and a one-third interest in Knight’s Bridge Capital Partners Internet Fund No. 1 GP LLC. The Company sold its equity interest in LIMOS.com, LLC in the fourth quarter of 2008.
23

The Buddy Media, Inc. preferred shares do not have a readily determinable fair value, and are convertible into common stock that also does not have a readily determinable fair value. 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. A determination that the investment was other than temporarily impaired would require that it be written down to its fair value, with the loss recorded in earnings in the period of the write down. The fair value is estimated according to the guidelines of SFAS No. 157, Fair Value Measurements. Given the nature of the investments it is based upon Level 3 inputs, such as recent financing rounds of the investee and other investee-specific information. Based on the Company’s analysis of Buddy Media’s financial statements and projections as at December 31, 2008, the Company concluded that there has been no impairment in the fair value of its investment.
As discussed in more detail in Note 5 of the consolidated financial statements, the Company accounted for its investment in LIMOS.com LLC, and currently accounts for its investment in Knight’s Bridge Capital Partners Internet Fund No. 1 GP LLC (“Knight’s Bridge GP”), 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 reported separately in the Company’s income statement, and any dividends received from the investee are credited to the investment account. The Company also recognizes any other-than-temporary impairments of equity method investments. Based on an analysis of Knight’s Bridge GP at December 31, 2008, management concluded that its equity investment was not impaired.
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 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, 2008, 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. The provisions of the Company’s stock-based compensation plans do not require the Company to settle any options by transferring cash or other assets, and therefore the Company classifies the awards as equity.
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 determined as a weighted average of the Company’s volatility and its peer group’s volatility, 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. 110, and a dividend yield of zero.
At December 31, 2008, the Company had unrecognized stock-based compensation expense of $126, which is expected to be recognized over a weighted-average period of approximately 12 months.
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.
24

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 fact that our cash and cash equivalents are deposited with major financial institutions, we believe that we are not subject to any material interest rate risk as it relates to interest income. As to interest expense, at December 31, 2008 we had no variable or fixed rate debt instruments outstanding.
We did not have any foreign currency hedges or other derivative financial instruments as of December 31, 2008. 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
C2’s management carried out an evaluation, as required by Rule 13a-15(b) of the Exchange Act, with the participation of our principal executive officer and our principal financial officer (the “Certifying Officers”), of the effectiveness of our disclosure controls and procedures, as of the end of our last fiscal quarter. Based upon this evaluation, the Certifying Officers concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this Report, such that the information relating to C2 and its consolidated subsidiaries required to be disclosed in our Exchange Act reports filed with the SEC (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to C2’s management, including our Certifying Officers, as appropriate to allow timely decisions regarding required disclosure.
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.
25

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, 2008.
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. The Company will require an auditor's attestation regarding the effectiveness of internal controls to be included as a report submitted with the Company's Annual Report on Form 10-K for its fiscal year ending December 31, 2009.
Changes in Internal Controls over Financial Reporting
There were no changes in our internal control over financial reporting during the fourth fiscal quarter of 2008 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 |  | 60 |  | Chairman of the Board and Chief Executive Officer
Hal B. Heaton |  | 58 |  | Director (2), (3), (4)
Henry Y.L. Toh |  | 51 |  | Director (2), (3), (4)
Samuel L. Shimer |  | 45 |  | Director (2)
David L. Turock |  | 51 |  | Director (2), (5)
Stephen A. Weintraub |  | 61 |  | Executive Vice President, Corporate Secretary and Chief Financial Officer

| (1) | As of December 31, 2008.

| (2) | Independent Director

| (3) | Member of the Audit Committee

| (4) | Member of the Compensation Committee

| (5) | 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, the Chairman of Knight’s Bridge Capital Partners Inc., a wholly-owned subsidiary of Counsel that is a financial services provider, and the Chairman and CEO of Terra Firma Capital Corporation, a TSX Venture Exchange listed company of which Counsel owns approximately 23%. 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 1983 to the 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 been President and CEO, and a director, of Amerique Investments since 1992. Additionally, he has been Executive Vice President and a director of InovaChem, Inc., a development stage research and development company in specialized chemistry, since February 2008. Mr. Toh has served as a director of iDNA, 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; and a director of American Surgical Holdings, Inc. since 2006. 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., a private equity fund management company, where he remains as a Partner. 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.
Each officer of C2 has been appointed by the Board of Directors and holds his office at the discretion of the Board of Directors.
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, 2008, with two exceptions. David Turock, a Director, failed to file a timely Form 3. As well, Counsel Communications LLC, a wholly-owned subsidiary of Counsel, failed to file a timely Form 4. As of the date of filing this Report, both Mr. Turock and Counsel Communications LLC are in compliance with Section 16(a) reporting requirements.
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
Board Meetings and Committees
The Board held four meetings during the fiscal year ended December 31, 2008. The Board has designated two standing committees: the Audit Committee and the Compensation Committee. 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 since such procedures were adopted and implemented.
28

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, 2008. 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.
Audit Committee Financial Expert
The Board has determined that Mr. Henry Y.L. Toh is an Audit Committee financial expert as defined by Item 407(d) of Regulation S-K and is “independent” as such term is defined under Nasdaq Marketplace Rules and applicable federal securities laws and regulations.
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 2008
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, 2007 and 2008, 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 2007 and 2008.
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.
Except for the CEO, the Company had no paid employees during 2007 and 2008. As noted above, the Company’s CEO, Mr. Allan Silber, is also the CEO of Counsel. Mr. Silber’s annual salary of $137.5, and a discretionary bonus of up to 100% of his base salary, have been fixed at these amounts since 2005.
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.
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. The most recent option grants occurred in 2006, when Mr. Silber, as well as other employees of Counsel who receive no direct compensation from the Company, were awarded a total of 455,000 options to purchase common stock.
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.
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 years ended December 31, 2008, 2007 and 2006 by our Named Executive Officers. We have no other officers or employees whose compensation is $100,000 or more. As discussed below and 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 a Management Services Agreement (the “Agreement”) entered into between Counsel and C2.

Name and Principal Position |  | Year |  | Salary |  |  | Bonus |  |  | Option Awards 1 |  |  | Total |
Allan Silber |  | 2008 |  | $ | 137,500 |  |  | $ | 137,500 |  |  | $ | 33,563 |  |  | $ | 308,563 |
Chairman of the Board and Chief |  | 2007 |  |  | 137,500 |  |  |  | — |  |  |  | 33,563 |  |  |  | 171,063 |
Executive Officer |  | 2006 |  |  | 137,500 |  |  |  | — |  |  |  | 13,982 |  |  |  | 151,482 |
Stephen Weintraub |  | 2008 |  |  | — |  |  |  | — |  |  |  | 12,375 |  |  |  | 12,375 |
Executive Vice President, Chief |  | 2007 |  |  | — |  |  |  | — |  |  |  | 12,375 |  |  |  | 12,375 |
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.
32

Grants of Plan-Based Awards
There were no grants of plan-based awards to the Chief Executive Officer and Chief Financial Officer during the years ended December 31, 2007 and 2008. 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.
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 up to 100% of the base salary. Mr. Silber was awarded his full bonus entitlement in 2008 in recognition of his involvement in the successful prosecution and settlement of the Company’s patent infringement litigation. There were no bonus awards in 2007 or 2006.
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 and successive Agreements have been entered into in each subsequent year. Under the terms of the Agreement, C2 agrees to make payment to Counsel for ongoing services provided to C2 by certain Counsel personnel. The basis for such services charged is an allocation, based on time incurred, of the cost of the base compensation paid by Counsel to those employees providing services to C2. For the year ended December 31, 2008, the cost was $360,000. For the years ended December 31, 2007 and 2006, the cost was $225,000. The amounts due under the Agreement are payable within 30 days following the respective year end, subject to applicable restrictions. Any unpaid fee amounts bear interest at 10% per annum commencing on the day after such year end. In the event of a change of control, merger or similar event of C2, all amounts owing, including fees incurred up to the date of the event, will become due and payable immediately upon the occurrence of such event. The Company expects that Counsel will continue to provide these services in 2009 on the same cost basis.
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, 2008.

Name |  | Number of Securities Underlying Unexercised Options: Exercisable |  |  | Number of Securities Underlying Unexercised Options: Unexercisable1 |  |  | Option Exercise Price($/Sh) |  | Option Expiration Date
Allan Silber |  |  | 112,500 |  |  |  | 112,500 |  |  |  | $ 0.66 |  | August 1, 2013
Allan Silber |  |  | 37,500 |  |  |  | 37,500 |  |  |  | 1.11 |  | August 1, 2013
Stephen Weintraub |  |  | 37,500 |  |  |  | 37,500 |  |  |  | 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.
33

Compensation of Directors
The following table sets forth the aggregate compensation for services rendered during the fiscal year ended December 31, 2008 by each person serving as a director.

Name |  | Fees Earned or Paid in Cash |  |  | Option Awards1 |  |  | Total |
Henry Y.L. Toh |  |  | $43,000 |  |  |  | $5,334 |  |  |  | $48,334 |
Hal B. Heaton |  |  | 35,000 |  |  |  | 5,334 |  |  |  | 40,334 |
Samuel L. Shimer |  |  | 24,000 |  |  |  | 5,334 |  |  |  | 29,334 |
David L. Turock |  |  | 24,000 |  |  |  | 1,670 |  |  |  | 25,670 |

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 each year from 2004 to 2008. The table below provides information regarding the current year compensation expense and grant date fair value of each option award underlying the reported 2008 compensation expense.

DETAIL OF DIRECTOR OPTION AWARDS EXPENSE |
Name |  | Grant Date |  | Number of Options Awarded |  |  | Grant Date Fair Value of Option Award |  |  | 2008 Expense |
Henry Y.L. Toh |  | August 10, 2004 |  |  | 10,000 |  |  |  | $ 5,400 |  |  |  | $ 788 |
|  | April 1, 2005 |  |  | 10,000 |  |  |  | 3,600 |  |  |  | 900 |
|  | April 3, 2006 |  |  | 10,000 |  |  |  | 3,300 |  |  |  | 825 |
|  | April 2, 2007 |  |  | 10,000 |  |  |  | 4,600 |  |  |  | 1,150 |
|  | March 31, 2008 |  |  | 10,000 |  |  |  | 8,700 |  |  |  | 1,671 |
|  |  |  |  |  |  |  |  |  |  |  |  | $ 5,334 |
Hal B. Heaton |  | August 10, 2004 |  |  | 10,000 |  |  |  | $ 5,400 |  |  |  | $ 788 |
|  | April 1, 2005 |  |  | 10,000 |  |  |  | 3,600 |  |  |  | 900 |
|  | April 3, 2006 |  |  | 10,000 |  |  |  | 3,300 |  |  |  | 825 |
|  | April 2, 2007 |  |  | 10,000 |  |  |  | 4,600 |  |  |  | 1,150 |
|  | March 31, 2008 |  |  | 10,000 |  |  |  | 8,700 |  |  |  | 1,671 |
|  |  |  |  |  |  |  |  |  |  |  |  | $ 5,334 |
Samuel L. Shimer |  | August 10, 2004 |  |  | 10,000 |  |  |  | $ 5,400 |  |  |  | $ 788 |
|  | April 1, 2005 |  |  | 10,000 |  |  |  | 3,600 |  |  |  | 900 |
|  | April 3, 2006 |  |  | 10,000 |  |  |  | 3,300 |  |  |  | 825 |
|  | April 2, 2007 |  |  | 10,000 |  |  |  | 4,600 |  |  |  | 1,150 |
|  | March 31, 2008 |  |  | 10,000 |  |  |  | 8,700 |  |  |  | 1,671 |
|  |  |  |  |  |  |  |  |  |  |  |  | $ 5,334 |
David L. Turock |  | March 31, 2008 |  |  | 10,000 |  |  |  | 8,700 |  |  |  | $ 1,671 |

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 2008, 2007 or 2006. 300,000 stock options were awarded to Allan Silber during 2006.
34

Compensation Committee Interlocks and Insider Participation
The Compensation Committee reviews and approves the compensation for executive employees. The Compensation Committee Charter was first approved by C2’s Board of Directors on February 12, 2003 and was subsequently revised on December 9, 2005. The Compensation Committee Charter 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 no meetings during the fiscal year ended December 31, 2008.
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.

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. 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, 2008, and, as applicable, the Company’s proxy statement.
By the Compensation Committee:

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

Stock Option Plans
At December 31, 2008, the Company had 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 2008 and 2007. As of December 31, 2008 and 2007, no options to purchase shares were outstanding, and no options expired in 2008 and 2007.
35

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, 2008 and 2007, there were no options outstanding under the 1995 Employee Plan. No options were granted or exercised in 2008 or 2007 under the 1995 Employee Plan.
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, 2008, there were options to purchase 237,361 shares (2007 – 238,611 shares) of the Company’s common stock outstanding under the 1997 Plan. 112,500 of these options, with an exercise price of $0.66 per share, were unvested at December 31, 2008 (2007 – 168,750). They will vest in 2009 and 2010. 112,500 options with an exercise price of $0.66 per share were vested at December 31, 2008 (2007 – 56,250). 12,361 options with exercise prices of $1.40 to $111.26 per share were vested at December 31, 2008 (2007 – 13,611 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 2008, no options to purchase shares of common stock were issued, and 1,250 options expired. During 2007, no options to purchase shares of common stock were issued, and 1,000 options expired. There were no exercises during 2008 or 2007.
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.
36

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, 2008, there were options to purchase 638,250 shares (2007 - 598,250 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 2008, 40,000 options (2007 – 30,000 options) were granted. During 2008 and 2007 no options to purchase shares of common stock were forfeited or expired. There were no options exercised during 2008 and 2007, 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, 2009 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, 2009, there are 22,745,530 shares of common stock and 594 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 |  | 150,000(3) |  |  |  | 1% |
Hal B. Heaton |  | 42,948(4) |  |  |  | *% |
Henry Y.L. Toh |  | 41,413(4) |  |  |  | *% |
Samuel L. Shimer |  | 35,000(5) |  |  |  | *% |
David L. Turock |  | 2,500(4) |  |  |  | *% |
Stephen A. Weintraub |  | 37,500(6) |  |  |  | *% |
Counsel Corporation and subsidiaries 40 King Street West Suite 3200 Toronto, Ontario M5H 3Y2 |  | 20,644,481 |  |  |  | 90% |
All Executive Officers and Directors as a Group (6 people) |  | 309,361 |  |  |  | 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 6,628,776 shares or 14.1% of the outstanding common stock (11.2% 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. 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.

| (6) | 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 401,901 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, 2008, C2 had no indebtedness to Counsel. The details of the individual notes payable to Counsel at December 31, 2007, which were repaid during 2008, 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 additional periodic loans were made from time to time (collectively and as amended, the “Promissory Note”). The Promissory Note accrued interest at 10% per annum compounded quarterly from the date funds were advanced. The loan was amended several times and the maturity date of the loan plus accrued interest was extended to December 31, 2008. The Promissory Note was secured by the assets of the Company and was subject to certain events of default. There were no conversion features associated with the Promissory Note. 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 and 2007, C2 was indebted to Counsel in the amount of $6 and $2,288, respectively.
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, 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 provided for certain mandatory prepayments upon written notice from Counsel. The New Loan was subject to certain events of default. It was amended several times and the maturity date of the loan plus accrued interest was extended to December 31, 2008. There were 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. At December 31, 2006 and 2007 total outstanding debt under the New Loan was $0 and $47, respectively.
Counsel Management Services
Since December 2004, C2 and Counsel have entered into successive annual management services agreements (the “Agreement”). Under the terms of the Agreement, C2 agrees to make payment to Counsel for ongoing services provided to C2 by certain Counsel personnel. The basis for such services charged is an allocation, based on time incurred, of the cost of the base compensation paid by Counsel to those employees providing services to C2. For the year ended December 31, 2008, the cost was $360. For the years ended December 31, 2007 and 2006, the cost was $225. The amounts due under the Agreement are payable within 30 days following the respective year end, subject to applicable restrictions. Any unpaid fee amounts bear interest at 10% per annum commencing on the day after such year end. In the event of a change of control, merger or similar event of C2, all amounts owing, including fees incurred up to the date of the event, will become due and payable immediately upon the occurrence of such event. The Company expects that Counsel will continue to provide these services in 2009 on the same cost basis.
Director Independence
Our Board is subject to the independence requirements under the applicable SEC rules and regulations and Nasdaq Marketplace Rules. Pursuant to the requirements, the Board undertook its annual review of director independence. During this review, the Board considered transactions and relationships between each director or any member of his or her immediate family and C2 and its subsidiaries and affiliates. The purpose of this review was to determine whether any such relationships or transactions existed that were inconsistent with a determination that the director is independent. As a result of this review, the Board affirmatively determined that during 2008 that Mr. Toh, Mr. Heaton, Mr. Shimer and Mr. Turock are independent for purposes of the independence requirements. The Board further determined that each of the foregoing directors met the independence requirements needed to serve on the Board committees for which they serve.
39

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, whereby Deloitte & Touche LLP acquired Mintz’s public accounting practice. The transaction 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, 2008 and 2007, are set forth below.

|  | Year Ended December 31, |
|  | 2008 |  |  | 2007 |
Audit fees |  | $ | 88 |  |  | $ | 94 |
Audit-related fees |  |  | — |  |  |  | 11 |
Tax fees |  |  | — |  |  |  | 17 |
All other fees |  |  | — |  |  |  | — |
Total |  | $ | 88 |  |  | $ | 122 |

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

|  | Year Ended December 31, |
|  | 2007 |
Audit fees |  | $ | 20 |
Audit-related fees |  |  | — |
Tax fees |  |  | — |
All other fees |  |  | — |
Total |  | $ | 20 |

Audit Fees
Audit fees are for professional services for the audit of our annual financial statements for the years ended December 31, 2007 and 2008, the reviews of the financial statements included in our quarterly reports on Form 10-Q for the years ended December 31, 2007 and 2008, and services in connection with our statutory and regulatory filings for the years ended December 31, 2007 and 2008. They amounted to $114 and $88, respectively.
Audit-Related Fees
Audit related fees are for assurance and related services that are reasonably related to the audit and reviews of our financial statements for the years ended December 31, 2007 and 2008, exclusive of the fees disclosed as Audit Fees above. These fees include benefit plan audits and accounting consultations, which amounted to $11 and $0 for the respective years.
Tax Fees
Tax fees are for services related to tax compliance, consulting and planning services for the years ended December 31, 2007 and 2008 and included preparation of tax returns, review of restrictions on net operating loss carryforwards and other general tax services. Tax fees amounted to $17 and $0 for the respective years.
40

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, 2007 and 2008.
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 to pre-approve services performed by the independent registered public accounting firm. 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 Chairman or any of its other members pursuant to delegated authority) for approval.
`
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.
41

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, 2008 and 2007
Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and 2006
Consolidated Statement of Changes in Stockholders’ Equity for the years ended December 31, 2008, 2007 and 2006
Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006
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. (7)
10.4 |  | Registration Rights Agreement dated as of October 14, 2004. (7)
10.5 |  | Common Stock Purchase Warrant issued October 14, 2004. (7)
10.6* |  | Counsel Management Agreement. (8)
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 (9)
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 (9)
10.9 |  | Promissory Note for $6,315.53 dated December 31, 2006 between C2 Global Technologies Inc. and Counsel Corporation. (10)

42

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. (11)
10.11 |  | Promissory Note for $56,250.00 dated March 31, 2007 between C2 Global Technologies Inc. and Counsel Corporation. (11)
10.12 |  | Promissory Note for $142,050.31 dated March 31, 2007 between C2 Global Technologies Inc. and Counsel Corporation. (11)
10.13 |  | Promissory Note for $147,000.00 dated June 30, 2007 between C2 Global Technologies Inc. and Counsel Corporation. (12)
10.14 |  | Promissory Note for $56,250.00 dated June 30, 2007 between C2 Global Technologies Inc. and Counsel Corporation. (12)
10.15 |  | Promissory Note for $44,826.30 dated June 30, 2007 between C2 Global Technologies Inc. and Counsel Corporation. (12)
10.16 |  | Promissory Note for $672,961.16 dated September 30, 2007 between C2 Global Technologies Inc. and Counsel Corporation. (13)
10.17 |  | Promissory Note for $56,250.00 dated September 30, 2007 between C2 Global Technologies Inc. and Counsel Corporation. (13)
10.18 |  | Promissory Note for $73,295.21 dated September 30, 2007 between C2 Global Technologies Inc. and Counsel Corporation. (13)
10.19 |  | The Pledge Agreement dated as of September 21, 2007. (14)
10.20 |  | The Priorities Agreement dated as of September 21, 2007. (14)
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 (15)
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 (15)
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 (15)
10.24 |  | Promissory note for $145,000.00 dated November 14, 2007 between C2 Global Technologies Inc. and Counsel Corporation (US) (15)
10.25 |  | Promissory Note for $120,000.00 dated December 31, 2007 between C2 Global Technologies Inc. and Counsel Corporation. (15)
10.26 |  | Promissory Note for $56,250.00 dated December 31, 2007 between C2 Global Technologies Inc. and Counsel Corporation. (15)
10.27 |  | Promissory Note for $61,351.77 dated December 31, 2007 between C2 Global Technologies Inc. and Counsel Corporation. (15)
10.28 |  | Settlement and License Agreement dated as of February 18, 2008 (16)
10.29 |  | Settlement and License Agreement dated as of February 27, 2008 (16)
10.30 |  | Settlement and License Agreement dated as of May 30, 2008 (17)

43

Exhibit Number |  | Title of Exhibit
10.31 |  | Settlement and License Agreement dated as of September 25, 2008 (18)
10.32 |  | Stipulation of Dismissal with Prejudice dated as of March 12, 2009 (filed herewith)
14 |  | C2 Global Technologies Inc. Code of Conduct. (6)
21 |  | List of subsidiaries. (filed herewith)
23.1 |  | Consent of Deloitte & Touche LLP (filed herewith)
23.2 |  | Consent of Mintz & Partners LLP (filed 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 (filed 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 (filed herewith)
32.1 |  | Certification pursuant to 18 U.S.C 1350 as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 (filed herewith)
32.2 |  | Certification pursuant to 18 U.S. C. 1350 as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 (filed herewith)

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

| (1) | Incorporated by reference to our Quarterly Report on Form 10-QSB for the quarter ended June 30, 1996, 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 Definitive Proxy Statement for the October 7, 1997 annual stockholder meeting.

| (4) | Incorporated by reference to our Definitive Proxy Statement for the September 7, 2001 annual stockholder meeting.

| (5) | Incorporated by reference to our Definitive Proxy Statement for the November 26, 2003 annual stockholder meeting.

| (6) | Incorporated by reference to our Annual Report on Form 10-K for the year ended December 31, 2003.

| (7) | Incorporated by reference to our Current Report on Form 8-K filed on October 20, 2004.

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

| (9) | Incorporated by reference to our Quarterly Report on Form 10-Q for the period ended June 30, 2005.

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

| (11) | Incorporated by reference to our Quarterly Report on Form 10-Q for the period ended March 31, 2007.

| (12) | Incorporated by reference to our Quarterly Report on Form 10-Q for the period ended June 30, 2007.

| (13) | Incorporated by reference to our Quarterly Report on Form 10-Q for the period ended September 30, 2007.

| (14) | Incorporated by reference to our Current Report on Form 8-K filed on September 26, 2007, file number 0-17973.

| (15) | Incorporated by reference to our Annual Report on Form 10-K for the year ended December 31, 2007.

44

| (16) | Incorporated by reference to our Quarterly Report on Form 10-Q for the period ended March 31, 2008.

| (17) | Incorporated by reference to our Quarterly Report on Form 10-Q for the period ended June 30, 2008.

| (18) | Incorporated by reference to our Quarterly Report on Form 10-Q for the period ended September 30, 2008.

45

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 18, 2009 | By: | /s/ Allan C. Silber
| Allan 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 |  | Chairman of the Board of Directors and Chief |  | March 18, 2009
Allan C. Silber |  | Executive Officer |  |
/s/Stephen A. Weintraub |  | Executive Vice President, Chief Financial Officer and |  | March 18, 2009
Stephen A. Weintraub |  | Corporate Secretary |  |
/s/ Catherine A. Moran |  | Vice President of Accounting and Controller |  | March 18, 2009
Catherine A. Moran |  |  |  |
/s/ Hal B. Heaton |  | Director |  | March 18, 2009
Hal B. Heaton |  |  |  |
/s/ Samuel L. Shimer |  | Director |  | March 18, 2009
Samuel L. Shimer |  |  |  |
/s/ Henry Y. L. Toh |  | Director |  | March 18, 2009
Henry Y.L. Toh |  |  |  |
/s/ David L. Turock |  | Director |  | March 18, 2009
David L. Turock |  |  |  |

46

(c) Financial Statement Schedules
The following Schedules are included in our Financial Statements:
Schedule of Valuation and Qualifying Accounts
47

INDEX OF FINANCIAL STATEMENTS & SUPPLEMENTAL SCHEDULE
Title of Document

|  | Page |
Reports of Independent Registered Public Accounting Firms |  | F-2 |
Consolidated Balance Sheets as of December 31, 2008 and 2007 |  | F-4 |
Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and 2006 |  | F-5 |
Consolidated Statement of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2008, 2007 and 2006 |  | F-6 |
Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006 |  | F-7 |
Notes to Consolidated Financial Statements |  | F-9 |
Schedule 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 sheets of C2 Global Technologies Inc. and subsidiaries (the “Company”) as of December 31, 2008 and 2007, and the related consolidated statements of operations and comprehensive income (loss), stockholders' equity (deficit), and cash flows for the years then ended. We also audited the financial statement schedule listed in the index at item S-1. 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 audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits 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 audits 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, 2008 and 2007, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
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.

/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Licensed Public Accountants
Toronto, Canada
March 12, 2009

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

C2 GLOBAL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of December 31, 2008 and 2007
(In thousands of $US, except share and per share amounts)

|  | 2008 |  |  | 2007 |
ASSETS |  |  |  |  |  |
Current assets: |  |  |  |  |  |
Cash |  | $ | 4,076 |  |  | $ | 67 |
Deferred income tax assets (Note 12) |  |  | 875 |  |  |  | 1,000 |
Other current assets |  |  | 77 |  |  |  | 17 |
Total current assets |  |  | 5,028 |  |  |  | 1,084 |
Other assets: |  |  |  |  |  |  |  |
Intangible assets, net (Note 8) |  |  | — |  |  |  | 20 |
Goodwill (Note 8) |  |  | 173 |  |  |  | 173 |
Investments (Note 5) |  |  | 242 |  |  |  | 519 |
Total assets |  | $ | 5,443 |  |  | $ | 1,796 |
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |  |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |  |
Accounts payable and accrued liabilities (Note 7) |  | $ | 472 |  |  | $ | 402 |
Notes payable to a related party (Note 9) |  |  | — |  |  |  | 2,335 |
Total liabilities |  |  | 472 |  |  |  | 2,737 |
Commitments and contingencies (Notes 2, 10 and 11) |  |  |  |  |  |  |  |
Stockholders’ equity (deficit): |  |  |  |  |  |  |  |
Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and outstanding 594 Class N shares at December 31, 2008 and 607 Class N shares at December 31, 2007, liquidation preference of $594 at December 31, 2008 and $607 at December 31, 2007 |  |  | 6 |  |  |  | 6 |
Common stock, $0.01 par value, authorized 300,000,000 shares; issued and outstanding 22,745,530 shares at December 31, 2008 and 23,095,010 shares at December 31, 2007 |  |  | 227 |  |  |  | 231 |
Additional paid-in capital |  |  | 274,761 |  |  |  | 274,672 |
Accumulated deficit |  |  | (270,023 | ) |  |  | (275,850 | )
Total stockholders’ equity (deficit) |  |  | 4,971 |  |  |  | (941 | )
Total liabilities and stockholders’ equity (deficit) |  | $ | 5,443 |  |  | $ | 1,796 |

The accompanying notes are an integral part of these consolidated financial statements.
F-4

C2 GLOBAL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 2008, 2007 and 2006
(In thousands of $US, except per share amounts)

|  | 2008 |  |  | 2007 |  |  | 2006 |
Revenue |  |  |  |  |  |  |  |  |
Patent licensing |  | $ | 17,625 |  |  | $ | — |  |  | $ | — |
Operating costs and expenses: |  |  |  |  |  |  |  |  |  |  |  |
Patent licensing |  |  | 10,729 |  |  |  | — |  |  |  | — |
Selling, general and administrative |  |  | 1,273 |  |  |  | 1,216 |  |  |  | 1,281 |
Depreciation and amortization |  |  | 20 |  |  |  | 20 |  |  |  | 20 |
Total operating costs and expenses |  |  | 12,022 |  |  |  | 1,236 |  |  |  | 1,301 |
Operating income (loss) |  |  | 5,603 |  |  |  | (1,236 | ) |  |  | (1,301 | )
Other income (expense): |  |  |  |  |  |  |  |  |  |  |  |
Other income (expense) |  |  | 17 |  |  |  | (288 | ) |  |  | 155 |
Interest expense – third party |  |  | — |  |  |  | (12 | ) |  |  | (510 | )
Interest expense – related party (Note 9) |  |  | (43 | ) |  |  | (184 | ) |  |  | (10,390 | )
Total other income (expense) |  |  | (26 | ) |  |  | (484 | ) |  |  | (10,745 | )
Income (loss) from continuing operations before the undernoted |  |  | 5,577 |  |  |  | (1,720 | ) |  |  | (12,046 | )
Income tax expense (recovery) (Note 12) |  |  | 125 |  |  |  | (1,000 | ) |  |  | — |
Earnings (loss) of equity accounted investments (net of $0 tax) (Note 5) |  |  | (38 | ) |  |  | 6 |  |  |  | — |
Gains on sale of equity accounted investments (Note 5) |  |  | 425 |  |  |  | 75 |  |  |  | — |
Income (loss) from continuing operations |  |  | 5,839 |  |  |  | (639 | ) |  |  | (12,046 | )
Income (loss) from discontinued operations (Note 6) |  |  | (12 | ) |  |  | (6 | ) |  |  | 4,370 |
Net income (loss) and comprehensive income (loss) |  | $ | 5,827 |  |  | $ | (645 | ) |  | $ | (7,676 | )
Weighted average common shares outstanding |  |  | 22,907 |  |  |  | 23,095 |  |  |  | 19,258 |
Weighted average preferred shares outstanding |  |  | 1 |  |  |  | 1 |  |  |  | 1 |
Net income (loss) per share – basic and diluted: (Note 4) |  |  |  |  |  |  |  |  |  |  |  |
Income (loss) from continuing operations |  |  |  |  |  |  |  |  |  |  |  |
Common shares |  | $ | 0.25 |  |  | $ | (0.03 | ) |  | $ | (0.63 | )
Preferred shares |  | $ | 10.19 |  |  |  | N/A |  |  |  | N/A |
Income (loss) from discontinued operations |  |  |  |  |  |  |  |  |  |  |  |
Common shares |  | $ | — |  |  | $ | — |  |  | $ | 0.23 |
Preferred shares |  |  | N/A |  |  |  | N/A |  |  |  | N/A |

The accompanying notes are an integral part of these consolidated financial statements
F-5

C2 GLOBAL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
for the years ended December 31, 2008, 2007 and 2006
(In thousands of $US, except share amounts)

|  |  |  |  |  |  |  |  |  |  |  |  |  | Additional |  |  |  |  |  |  |
|  | Preferred stock |  |  | Common stock |  |  | paid- |  |  | Accumulated |  |  |  |
|  | Shares |  |  | Amount |  |  | Shares |  |  | Amount |  |  | in capital |  |  | Deficit |  |  | Total |
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 |  |  |  | — |  |  |  | 3,386 |
Forgiveness of related party debt (2) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 80,196 |  |  |  | — |  |  |  | 80,196 |
Transfer of warrant to equity (3) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 430 |  |  |  | (227 | ) |  |  | 203 |
Beneficial conversion feature on certain convertible notes payable to related party |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,225 |  |  |  | — |  |  |  | 1,225 |
Compensation cost related to stock options |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 139 |  |  |  | — |  |  |  | 139 |
Net 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 |  |  |  | — |  |  |  | 7 |
Compensation cost related to stock options |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 166 |  |  |  | — |  |  |  | 166 |
Net loss |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (645 | ) |  |  | (645 | )
Balance at December 31, 2007 |  |  | 607 |  |  |  | 6 |  |  |  | 23,095,010 |  |  |  | 231 |  |  |  | 274,672 |  |  |  | (275,850 | ) |  |  | (941 | )
Conversion of Class N preferred stock to common stock |  |  | (13 | ) |  |  | — |  |  |  | 520 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Cancellation of common stock (5) |  |  | — |  |  |  | — |  |  |  | (350,000 | ) |  |  | (4 | ) |  |  | 4 |  |  |  | — |  |  |  | — |
Compensation cost related to stock options |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 85 |  |  |  | — |  |  |  | 85 |
Net income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 5,827 |  |  |  | 5,827 |
Balance at December 31, 2008 |  |  | 594 |  |  | $ | 6 |  |  |  | 22,745,530 |  |  | $ | 227 |  |  | $ | 274,761 |  |  | $ | (270,023 | ) |  | $ | 4,971 |

| (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 2.

| (2) | Contemporaneous with the issuance of common shares described in (1) above, the remaining $80,196 of related party debt outstanding at December 30, 2006 was forgiven, as discussed in Note 2.

| (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.

| (5) | In connection with the June 2008 settlement of a derivative lawsuit, the Company agreed to cancel 350,000 common shares, as discussed in Note 14.

The accompanying notes are an integral part of these consolidated financial statements.
F-6

C2 GLOBAL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 2008, 2007 and 2006
(In thousands of $US)

|  | 2008 |  |  | 2007 |  |  | 2006 |
Cash flows from operating activities: |  |  |  |  |  |  |  |  |
Net income (loss) from continuing operations |  | $ | 5,839 |  |  | $ | (639 | ) |  | $ | (12,046 | )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |  |  |  |  |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 20 |  |  |  | 20 |  |  |  | 20 |
Equity interests in significantly influenced companies |  |  | 38 |  |  |  | (6 | ) |  |  | — |
Gain on sale of portfolio investments |  |  | (425 | ) |  |  | (75 | ) |  |  | — |
Stock compensation expense |  |  | 85 |  |  |  | 166 |  |  |  | 139 |
Amortization of discount and debt issuance costs on convertible note payable |  |  | — |  |  |  | 8 |  |  |  | 298 |
Accrued interest added to notes payable to a related party |  |  | — |  |  |  | 184 |  |  |  | 7,542 |
Amortization of discount and debt issuance costs on notes payable to a related party |  |  | — |  |  |  | — |  |  |  | 2,848 |
Non-cash cost of prepayment of third party debt |  |  | — |  |  |  | 224 |  |  |  | — |
Mark to market adjustment of warrant to purchase common stock |  |  | — |  |  |  | — |  |  |  | (78 | )
Changes in operating assets and liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Decrease (increase) in other assets |  |  | (60 | ) |  |  | (9 | ) |  |  | 177 |
Decrease (increase) in deferred income tax asset |  |  | 125 |  |  |  | (1,000 | ) |  |  | — |
Increase (decrease) in accounts payable and accrued liabilities |  |  | 70 |  |  |  | (148 | ) |  |  | (1,224 | )
Net cash provided by (used in) operating activities by continuing operations |  |  | 5,692 |  |  |  | (1,275 | ) |  |  | (2,324 | )
Net cash used in operating activities by discontinued operations |  |  | (12 | ) |  |  | (6 | ) |  |  | (142 | )
Net cash provided by (used in) operating activities |  |  | 5,680 |  |  |  | (1,281 | ) |  |  | (2,466 | )
Cash flows from investing activities: |  |  |  |  |  |  |  |  |  |  |  |
Purchase of portfolio investments |  |  | (125 | ) |  |  | (595 | ) |  |  | — |
Redemption of portfolio investments |  |  | — |  |  |  | 1,100 |  |  |  | — |
Sale of portfolio investments |  |  | 781 |  |  |  | 150 |  |  |  | — |
Cash distributions from portfolio investments |  |  | 8 |  |  |  | 7 |  |  |  | — |
Net cash provided by (used in) investing activities of continuing and discontinued operations |  |  | 664 |  |  |  | 662 |  |  |  | — |
Cash flows from financing activities: |  |  |  |  |  |  |  |  |  |  |  |
Increase in notes payable to a related party |  |  | — |  |  |  | 3,245 |  |  |  | 2,401 |
Repayment of notes payable to a related party |  |  | (2,335 | ) |  |  | (1,100 | ) |  |  | — |
Release of restricted cash to pay convertible note payable |  |  | — |  |  |  | — |  |  |  | 1,506 |
Repayment of convertible note payable |  |  | — |  |  |  | (1,462 | ) |  |  | (1,765 | )
Net cash provided by (used in) financing activities of continuing and discontinued operations |  |  | (2,335 | ) |  |  | 683 |  |  |  | 2,142 |
Increase (decrease) in cash |  |  | 4,009 |  |  |  | 64 |  |  |  | (324 | )
Cash at beginning of year |  |  | 67 |  |  |  | 3 |  |  |  | 327 |
Cash at end of year |  | $ | 4,076 |  |  | $ | 67 |  |  | $ | 3 |

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 (continued)
for the years ended December 31, 2008, 2007 and 2006
(In thousands of $US)

|  | 2008 |  |  | 2007 |  |  | 2006 |
Supplemental schedule of non-cash investing and financing activities: |  |  |  |  |  |  |  |  |
Disposition of telecommunications business in exchange for assumption of liabilities |  | $ | — |  |  | $ | — |  |  | $ | 4,324 |
Discount in connection with convertible notes payable to related parties |  |  | — |  |  |  | — |  |  |  | 1,225 |
Conversion 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 |
Interest paid |  |  | 43 |  |  |  | 21 |  |  |  | 304 |

The accompanying notes are an integral part of these consolidated financial statements.
F-8

C2 GLOBAL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of $US, 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 licenses. The VoIP Patent, including a corresponding foreign patent and related international patent applications, was acquired from a third party in 2003. At the time of acquisition, the vendor of the VoIP Patent was granted a first priority security interest in the patent in order to secure C2’s obligations under the associated purchase agreement, as discussed in Note 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 ongoing licensing and royalty revenue from the target market for its patents, with the assistance of outside counsel, in order to realize value from its intellectual property. In 2008, the Company entered into settlement and license agreements with six telecommunications companies and one associated supplier.
In the third quarter of 2007, the Company began investing in Internet-based e-commerce businesses through its acquisitions of minority positions in MyTrade.com, Inc. (sold in the fourth quarter of 2007), Buddy Media, Inc. (“Buddy Media”) and LIMOS.com LLC (“LIMOS.com”). 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 (“Knight’s Bridge GP”). In the second quarter of 2008, the Company increased its investments in Buddy Media and Knight’s Bridge GP. In October 2008, the Company sold its investment in LIMOS.com, realizing a gain of $425. These investments are discussed in more detail in Note 5.
Note 2 – Liquidity and Capital Resources
At December 31, 2008 the Company’s working capital was $4,556, as compared to a working capital deficit of $1,653 at December 31, 2007. Cash increased by $4,009, from $67 at December 31, 2007 to $4,076 at December 31, 2008. The primary reason for the improvement in the Company’s financial position is that during 2008 it recorded revenues and realized cash from continuing operations for the first time since 2004. All of the revenue was derived from settlement and license agreements with telecommunications carriers, which the Company entered into in February, May and September 2008. All amounts owing under these agreements were paid to the Company in 2008. During 2008 the Company also received net cash of $664 from its portfolio investments. This was composed of $781 net proceeds on the sale of LIMOS.com and $8 of cash distributions from Knight’s Bridge GP, less an investment of $124 in Buddy Media and $1 in Knight’s Bridge GP,
The Company’s liabilities at December 31, 2008 consisted solely of $472 in accounts payable and accrued liabilities, as compared to $402 of the same at December 31, 2007, resulting in net free cash holdings of $3,604 at December 31, 2008. The Company had no commitments or off balance sheet arrangements at December 31, 2008. The Company’s ongoing objective is to continue to enter into licensing and royalty agreements with respect to its patents. Even if the Company does not enter into such agreements, it has sufficient cash resources to cover its currently estimated annual cash operating expenses of approximately $1,200. At the current time, the Company has no available credit facilities, nor does it have any guarantees from related parties. The Company’s other assets, consisting primarily of a deferred tax asset, investments in private companies, and goodwill, are not readily convertible to cash.
On an ongoing basis, the Company considers opportunities to invest its available cash. At December 31, 2008 and the date of this Report, the Company had no investment commitments.
F-9

At December 31, 2008 the Company had no debt owing to its majority stockholder, Counsel Corporation (together with its subsidiaries, "Counsel") as compared to $2,335 owing at December 31, 2007.
Ownership Structure and Capital Resources

| · | At December 31, 2008 the Company had stockholders’ equity of $4,971, as compared to a stockholders’ deficit of $941 at December 31, 2007.

| · | The Company is 90.8% owned by Counsel. The remaining 9.2% is owned by public stockholders.

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

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 income tax assets, liabilities, contingencies surrounding litigation, and stock-based compensation. 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. Management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances.
Revenue recognition
The Company’s revenue is comprised primarily of amounts received in connection with the licensing of its patents. 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.
Intangible assets and goodwill
The Company accounts for intangible assets in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations (to be replaced by SFAS No. 141(R) effective January 1, 2009) and SFAS No. 142, Goodwill and Other Intangible Assets. Effective January 1, 2009, the Company will also adopt FASB Staff Position No. 142-3, Determination of the Useful Life of Intangible Assets (“FSP FAS 142-3”). 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.
F-10

The Company assesses the fair value of its intangible assets and its goodwill based upon the fair value of the Company as a consolidated entity. Beginning in 2005, the Company’s valuation was based upon its market capitalization. Management believed this to be the most reasonable method at the time, given the absence of a predictable revenue stream and the corresponding inability to use an alternative valuation method for the Company’s patents, such as a discounted cash flow analysis. For the year ended December 31, 2008, given the success that the Company has realized to date with respect to its patent litigation, the Company was able to use a discounted cash flow analysis to value its patents. If the carrying amount of the Company’s net assets exceeds the Company’s estimated fair value, intangible asset and/or goodwill impairment may be present. The Company measures the goodwill impairment loss based upon the fair value of the underlying assets and liabilities, including any unrecognized intangible assets, and estimates the implied fair value of goodwill. An impairment loss is recognized to the extent that the Company’s recorded goodwill exceeds its implied fair value.
Goodwill, in addition to being tested for impairment annually, is tested for impairment between annual tests if an event occurs or circumstances change such that it is more likely than not that the carrying amount of goodwill may be impaired. No impairment was present upon the performance of these tests at December 31, 2008 and 2007. 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 do not have a readily determinable fair value, and equity securities having underlying common stock that also does not have a readily determinable fair value, are accounted for under the cost method when the Company’s ownership interests do not allow it to exercise significant influence over the entities in which it has invested. When the Company’s ownership interests do allow it to exercise significant influence 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 reported separately 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.
Stock-based compensation
At December 31, 2008, 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. The provisions of the Company’s stock-based compensation plans do not require the Company to settle any options by transferring cash or other assets, and therefore the Company classifies the awards as equity.
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.
F-11

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, 2008 and 2007 for the Company’s financial instruments, which include cash, accounts payable and accrued liabilities, and related party debt, approximates fair value.
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.
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 was 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 were not eligible for the FSP’s deferral provisions. Entities were encouraged to adopt SFAS No. 157 in its entirety, as long as they had not yet issued financial statements during that year. An entity that chose to adopt SFAS No. 157 in its entirety had to 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.
F-12

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 adopted SFAS No. 159 at January 1, 2008. As noted above, the carrying values of the Company’s cash, accounts payable and accrued liabilities approximate fair value, and therefore the adoption of SFAS No. 159 had no effect on the reported amounts of these assets and liabilities. In addition, upon adoption, the Company had the option to elect fair value accounting for its investments in internet-based E-commerce businesses. The Company elected to continue to account for these investments using the methods in place at December 31, 2007, which are described above under “Investments”. Therefore, the adoption of SFAS No. 159 had no impact on the Company’s financial position, results of operations or cash flows.
On October 10, 2008, the FASB issued FSP FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active (“FSP FAS 157-3”). FSP FAS 157-3 amends SFAS No. 157 by incorporating an example that illustrates key considerations in determining the fair value of a financial asset in an inactive market. It is intended to clarify application issues, and emphasize the measurement principles of SFAS No. 157, including the objective of fair value measurements, distressed transactions, relevance of observable data and management’s assumptions. FSP FAS 157-3 is effective as of October 10, 2008 and applicable to prior periods for which financial statements have not been issued. The adoption of FSP FAS 157-3 had no effect on the Company’s financial position, results of operations, or cash flows.
Future accounting pronouncements
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. Some of the more significant requirements are that 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 initially measured and 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 will adopt SFAS No. 141(R) and SFAS No. 160 on January 1, 2009, and is currently evaluating the impact of these adoptions on our consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133 (“SFAS No. 161”). SFAS No. 161 does not change FASB Statement No. 133’s scope or accounting, but does require expanded disclosures about an entity’s derivative instruments and hedging activities. The required disclosures include: how and why an entity is using a derivative instrument or hedging activity, how the entity accounts for derivative instruments and hedged items under FASB Statement No. 133, and how the entity’s financial position, financial performance and cash flows are affected by derivative instruments. SFAS No. 161 also amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments (“SFAS No. 107”) to clarify that derivative instruments are subject to SFAS No. 107’s concentration-of-credit-risk disclosures. SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008, with early adoption permitted. The Company did not early adopt of SFAS No. 161 and expects that its adoption on January 1, 2009 will not have a significant impact on its financial statements.
In April 2008, the FASB issued FASB Staff Position No. FSP FAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP FAS 142-3”). FSP FAS 142-3 amends the list of factors that an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under SFAS No. 142, both those acquired individually or as part of a group of other assets, and those acquired in business combinations or asset acquisitions. The FSP also expands the disclosure requirements of SFAS No. 142. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Although the guidance regarding an intangible asset’s useful life is to be applied prospectively only to intangible assets acquired after FSP FAS 142-3’s effective date, the disclosure requirements must be applied prospectively to all intangible assets recognized as of the effective date. At December 31, 2008, the Company’s intangible assets were fully amortized, and the Company is currently evaluating the impact that FSP FAS 142-3 will have on its financial statement disclosures when it is adopted on January 1, 2009.
F-13

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (“SFAS No. 162”). SFAS No. 162 is intended to improve financial reporting by providing a consistent framework for determining the accounting principles to be used in the preparation of financial statements in conformity with GAAP. Currently, GAAP hierarchy is outlined in the American Institute of Certified Public Accountants Statement on Auditing Standards No. 69, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”, which is directed to auditors rather than to the entities responsible for the preparation of financial statements. SFAS No. 162 will be effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”. The FASB does not believe that SFAS No. 162 will result in a change to current practice, but has provided transition provisions. The Company does not expect that the adoption of SFAS No. 162 will have any effect on its financial statements.
In May 2008, the FASB issued FASB Staff Position No. FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (“FSP APB 14-1”). FSP APB 14-1 addresses the accounting for convertible debt securities that, upon conversion, may be settled by the issuer fully or partially in cash. It does not change the accounting for traditional types of convertible debt securities that do not have a cash settlement feature, and does not apply if, under existing GAAP for derivatives, the embedded conversion feature must be accounted for separately from the rest of the instrument. FSP APB 14-1 is effective for fiscal years and interim periods beginning after December 15, 2008. It should be applied retrospectively to all past periods presented, even if the convertible debt security has matured, been converted or otherwise extinguished as of the FSP’s effective date. The Company does not expect that the adoption of FSP APB 14-1 on January 1, 2009 will have any effect on its financial position, results of operations, or cash flows.
On June 25, 2008, the FASB ratified Emerging Issues Task Force Issue 07-5, Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an Entity’s Own Stock (“EITF 07-5”). The Task Force reached a consensus on how an entity should evaluate whether an instrument (or an embedded feature) is indexed to its own stock, how the currency in which the instrument is denominated affects the determination of whether the instrument is indexed to a company’s own stock, and how an issuer should account for market-based employee stock option valuation instruments. EITF 07-5 is effective for fiscal years and interim periods beginning after December 31, 2008, and must be applied to outstanding instruments as of the beginning of the fiscal year of adoption, with a cumulative-effect adjustment to the opening balance of retained earnings. Early adoption is not permitted. The Company does not expect that the adoption of EITF 07-5 on January 1, 2009 will have any effect on its financial position, results of operations, or cash flows.
On November 13, 2008, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF 08-6, Equity Method Investment Accounting Considerations (“EITF 08-6”). The consensus is effective for transactions occurring in interim periods and fiscal years beginning on or after December 15, 2008, coincident with the effective dates of SFAS No. 141(R) and SFAS No. 160. The major points of the consensus are that an entity should determine the initial carrying value of an equity method investment by applying the cost accumulation model described in SFAS No. 141(R), an entity should use the other-than-temporary impairment model of Accounting Principles Board Opinion No. 18 when testing equity method investments for impairment, share issuances by the investee should be accounted for as if the equity method investor had sold a proportionate share of its investment, and when an investment is no longer within the scope of equity method accounting and instead is within the scope of cost method accounting, the investor should prospectively use the current carrying amount of the investment as its initial cost. The Company will adopt EITF 08-6 on January 1, 2009.
The FASB, the EITF and the SEC have issued other accounting pronouncements and regulations during 2008 that will become effective in subsequent periods. The Company’s management does not believe that these pronouncements will have a significant impact on the Company’s financial statements at the time they become effective.
Note 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. Their effect has been determined to be anti-dilutive for 2008. As the Company had a net loss from continuing operations for 2007 and 2006, diluted loss per share is not presented.
In January 2008, four shares of the Company’s Class N preferred stock were converted into 160 shares of common stock. There was a similar conversion of six preferred shares into 240 common shares in June 2008, and another of three preferred shares into 120 common shares in November 2008. In October 2007, four shares of preferred stock were converted into 160 shares of common stock. All of the converted stock was held by unrelated third parties.
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:

|  | 2008 |  |  | 2007 |  |  | 2006 |
Assumed conversion of Class N preferred stock |  |  | 23,760 |  |  |  | 24,280 |  |  |  | 24,440 |
Assumed conversion of third party convertible debt |  |  | — |  |  |  | — |  |  |  | 1,671,123 |
Assumed exercise of options and warrant to purchase shares of common stock |  |  | 1,979,027 |  |  |  | 1,975,749 |  |  |  | 2,096,329 |
|  |  | 2,002,787 |  |  |  | 2,000,029 |  |  |  | 3,791,892 |

Note 5 – Investments
The Company’s investments as of December 31 consisted of the following:

|  | 2008 |  | 2007 |
Buddy Media, Inc. |  | $ | 224 |  |  | $ | 100 |
LIMOS.com LLC |  |  | — |  |  |  | 399 |
Knight’s Bridge Capital Partners Internet Fund No. 1 GP LLC |  |  | 18 |  |  |  | 20 |
Total investments |  | $ | 242 |  |  | $ | 519 |

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”), a private company, 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 was 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.
On April 15, 2008, the Company acquired 140,636 shares of convertible Series B Preferred Stock of Buddy Media for a total purchase price of $124. The Series B preferred shares are senior to the Series A preferred shares described above, but otherwise have substantially equivalent terms and conditions. Following the purchase, the Company’s investment remains less than 5% of Buddy Media on an as-converted basis.
The Company accounts for its investment under the cost method. At each balance sheet date, the Company estimates the fair value of the securities using the best available information. Because Buddy Media’s shares are not traded on an open market, their valuation must be based primarily on investee-specific information, which is a Level 3 input as defined by SFAS No. 157. The Company will record an other than temporary impairment of the investment in the event the Company concludes that such impairment has occurred.
F-15

Based on the Company’s analysis of Buddy Media’s financial statements and projections as at December 31, 2008, the Company concluded that there has been no impairment in the fair value of its investment.
Knight’s Bridge Capital Partners Internet Fund No. 1 GP LLC
The Company acquired a one-third interest in Knight’s Bridge Capital Partners Internet Fund No. 1 GP LLC (“Knight’s Bridge GP”), a private company, effective December 7, 2007, for a total purchase price of $20. The additional two-thirds interest in Knight’s Bridge GP was acquired by parties affiliated with Counsel. Knight’s Bridge GP is the general partner of Knight’s Bridge Capital Partners Internet Fund No. 1 LP (the “Fund”). The Fund holds investments in several Internet-based e-commerce businesses. As the general partner of the Fund, Knight’s Bridge GP manages the Fund, in return for which it earns a 2% per annum management fee with respect to the Fund’s invested capital. Knight’s Bridge GP also has a 20% carried interest on any incremental realized gains from the Fund’s investments.
The Company accounts for its investment under the equity method. During 2008, the Company invested an additional $1 in Knight’s Bridge GP, recorded $5 as its share of Knight’s Bridge GP’s earnings, and received cash distributions of $8. At December 31, 2008, the Company’s investment in Knight’s Bridge GP, net of recorded earnings and cash distributions, was $18.
At each balance sheet date, the Company estimates the fair value of its investment using the best available information as of the evaluation date. Because Knight’s Bridge GP is a closely-held, non-public entity, this valuation must be based primarily on investee-specific information, which is a Level 3 input as defined by SFAS No. 157. Knight’s Bridge GP’s value is directly linked to the value of the Fund, which is also a non-public entity. The Company will record an other than temporary impairment of its equity investment in Knight’s Bridge GP in the event the Company concludes that such impairment has occurred.
Based on the Company’s analysis of Knight’s Bridge GP’s and the Fund’s financial statements and projections as at December 31, 2008, the Company concluded that there has been no impairment in the fair value of its investment.
LIMOS.com LLC
On September 21, 2007, the Company acquired 400,000 units of LIMOS.com, LLC (“LIMOS.com”), an established provider of Internet-initiated leads for licensed limousine operators, for a total purchase price of $400. This represented a 16% ownership interest in LIMOS.com, which was subsequently reduced to 15.69%.
The Company accounted for its investment in LIMOS.com under the equity method. The Company recorded a loss of $1 from its investment for the period September 21, 2007 to December 31, 2007, and a loss of $43 for the period January 2008 to October 2008.
In October 2008, the Company sold its interest in LIMOS.com for net proceeds of $781 and realized a gain of $425, which has been reported in Earnings of Equity Investments in these consolidated financial statements. The gain was calculated as the difference between the Company’s proceeds of $781 and the $356 net book value of LIMOS.com at the date of the sale.
Note 6 – Discontinued Operations
Disposition of the Telecommunications Business
Commencing in 2001, the Company entered the telecommunications business, and by 2003 had combined several asset and share purchases to set up the Telecommunications segment of the Company’s business. This segment 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 an unrelated third party. The transaction was completed on September 30, 2005, and resulted in a gain on disposition of $6,387, net of disposition and business exit costs. 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.
F-16

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 was 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 was 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:

|  | 2008 |  |  | 2007 |
Regulatory and legal fees |  | $ | 51 |  |  | $ | 69 |
Accounting, auditing and tax consulting |  |  | 95 |  |  |  | 107 |
Patent licensing |  |  | 135 |  |  |  | — |
Sales and other taxes |  |  | 62 |  |  |  | 62 |
Remuneration and benefits |  |  | 87 |  |  |  | 114 |
Other |  |  | 42 |  |  |  | 50 |
|  | $ | 472 |  |  | $ | 402 |

Note 8 – Intangible Assets and Goodwill
Details of intangible assets and goodwill were as follows at December 31:

| 2008 |
| Amortization period |  | Cost |  |  | Accumulated amortization |  |  | Net |
Intangible assets subject to amortization: |  |  |  |  |  |  |  |  |  |
Patent rights | 60 months |  | $ | 100 |  |  | $ | (100 | ) |  | $ | — |
Goodwill |  |  |  | 173 |  |  |  | — |  |  |  | 173 |
|  |  | $ | 273 |  |  | $ | (100 | ) |  | $ | 173 |

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

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, 2008, 2007 and 2006, with the rights being fully amortized in the fourth quarter of 2008.
The Company’s goodwill relates to an investment in a subsidiary company that holds certain of the Company’s patent rights.
F-17

Note 9 – Debt
At December 31, 2008, the Company’s debt consisted solely of its accounts payable and accrued liabilities.
Notes payable to a related party
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. The debt was repaid to Counsel in the first quarter of 2008. 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 |  | $ | 1,388 |
Balance of Note owing at January 10, 2007, net of $8.8 converted to common shares |  |  | (1,315 | )
Accrued interest owing for period January 1 – 10, 2007 |  |  | (4 | )
Net premium paid |  |  | 69 |
Premium related to excess of $0.88 conversion price over $0.70 market price: 10,000 shares x $0.18 |  |  | (2 | )
Write-off unamortized discount and financing costs |  |  | 226 |
Net 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.
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.
F-18

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, 2008, 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, 2008, C2 has no commitments other than its accounts payable and accrued liabilities.
Note 11 – Patent Residual
In the fourth quarter of 2003, C2 acquired the VoIP Patent from a third party. Consideration provided was $100 plus a 35% residual payable to the third party relating to the net proceeds from future licensing and/or enforcement actions from the C2 VoIP Patent Portfolio. Net proceeds are defined as amounts collected from third parties net of the direct costs associated with putting the licensing or enforcement in place and related collection costs. In 2008, as a result of entering into four settlement and license agreements, the Company incurred $2,630 of patent residual expense.
Note 12 – Income Taxes
In 2008 the Company recognized a net future income tax expense of $125. This was the result of the reversal of a future income tax recovery of $1,000 that was recorded in 2007 with respect to estimated income for tax purposes that was realized in 2008, and a net future income tax recovery of $875 that was recorded with respect to the tax effect of available tax loss carry forwards expected to be utilized in 2009. No income tax benefit was recognized with respect to the Company’s net losses recorded in 2006. The reported tax benefit varies from the amount that would be provided by applying the statutory U.S. Federal income tax rate to the income (loss) from continuing operations before taxes for the following reasons:

|  | 2008 |  |  | 2007 |  |  | 2006 |
Expected federal statutory tax benefit |  | $ | 2,028 |  |  | $ | (554 | ) |  | $ | (4,096 | )
Increase (reduction) in taxes resulting from: |  |  |  |  |  |  |  |  |  |  |  |
State income taxes |  |  | — |  |  |  | — |  |  |  | (121 | )
Non-deductible interest on certain notes |  |  | — |  |  |  | — |  |  |  | 2,841 |
Non-deductible insurance premium |  |  | 51 |  |  |  | 51 |  |  |  | — |
Change in valuation allowance attributable to continuing operations |  |  | (1,966 | ) |  |  | (508 | ) |  |  | 1,371 |
Other |  |  | 12 |  |  |  | 11 |  |  |  | 5 |
Future income tax expense (recovery) |  | $ | 125 |  |  | $ | (1,000 | ) |  | $ | — |

The change in the valuation allowance, including discontinued operations, was a decrease of $1,961 (applying FIN48), a decrease of $668 (applying FIN 48), and a decrease of $21,186 for the years ended 2008, 2007 and 2006, respectively.
At December 31, 2008, 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 $83,500 and $34,300 respectively. The Company believes that it is more likely than not that it will utilize at least approximately $2,600 of these tax losses against estimated future income for tax purposes arising in 2009. The net operating loss carryforwards expire between 2024 and 2027. The net capital loss carryforwards expire in 2010 and 2011.
F-19

The Company’s utilization of approximately $30,400 of its available net operating loss carryforwards against future income for tax purposes 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 was 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.
The components of the deferred tax asset and liability as of December 31 (after the application of FIN 48) are as follows:

|  | 2008 |  |  | 2007 |  |  | 2006 |
|  |  |  |  |  |  |  | Post-FIN48 |
Net operating loss carry forwards |  | $ | 28,420 |  |  | $ | 29,968 |  |  | $ | 29,393 |
Net capital loss carry forwards |  |  | 11,691 |  |  |  | 11,835 |  |  |  | 11,862 |
Acquired in-process research and development and intangible assets |  |  | 972 |  |  |  | 1,343 |  |  |  | 1,715 |
Stock-based compensation |  |  | 105 |  |  |  | 88 |  |  |  | 42 |
Accrued liabilities |  |  | 7 |  |  |  | 7 |  |  |  | 7 |
Reserve for accounts receivable |  |  | 2 |  |  |  | 2 |  |  |  | 2 |
Other |  |  | 17 |  |  |  | 57 |  |  |  | (35 | )
Valuation allowance |  |  | (40,339 | ) |  |  | (42,300 | ) |  |  | (42,986 | )
Total deferred tax assets |  |  | 875 |  |  |  | 1,000 |  |  |  | — |
Deferred tax liabilities |  |  | — |  |  |  | — |  |  |  | — |
Net deferred tax assets |  | $ | 875 |  |  | $ | 1,000 |  |  | $ | — |

The Company has claimed a valuation allowance at the end of the year sufficient to reduce its net deferred tax asset to $875, the amount considered more likely than not to be utilized in 2009. The Company had a net deferred tax asset of $1,000 as of December 31, 2007, all of which was reversed in 2008 on the recognition of the realization of income for tax purposes in 2008. As the Company had no expectation of generating income for tax purposes 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 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.
F-20

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. As of December 31, 2008, the unrecognized tax benefit determined pursuant to FIN 48 is $13,138. The following table summarizes the activity related to gross unrecognized tax benefits of the Company from January 1, 2008 to December 31, 2008:

Beginning unrecognized tax benefit per FIN 48 |  | $ | 13,167 |
Increase (decrease) related to prior year positions |  |  | (29 | )
Increase (decrease) related to current year positions |  |  | — |
Ending unrecognized tax benefit per FIN 48 |  | $ | 13,138 |

In the unlikely event that these tax benefits are recognized in the future, there should be no impact on the Company’s effective tax rate, unless recognition occurs at a time when all of the Company’s historic tax loss carryforwards have been utilized and the associated valuation allowance against the Company’s deferred tax assets has been reversed. In such circumstances, the amount recognized at that time should result in a reduction in the Company’s effective tax rate.
The Company’s policy is to recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. Because the Company has tax loss carryforwards in excess of the unrecognized tax benefits, the Company did not accrue for interest and penalties related to unrecognized tax benefits either upon the adoption of FIN 48 or in the current period.
It is reasonably possible that the total amount of the Company’s unrecognized tax benefits will significantly increase or decrease within the next 12 months. These changes may be the result of future audits, the application of “change in ownership” rules leading to further restrictions in tax losses arising from changes in the capital structure of the Company and/or that of its parent company Counsel, reductions in available tax loss carryforwards through future merger, acquisition and/or disposition transactions, failure to continue a significant level of business 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 annual tax losses since 1991. All loss taxation years remain open for audit pending the application of the respective tax losses against income in a subsequent taxation year. In general, the statute of limitations expires three years from the date that a company files a tax return applying prior year tax loss carryforwards against income for tax purposes in the later year. The Company applied historic tax loss carryforwards to offset debt forgiveness in 2006 and income for tax purposes in 2008, respectively. The 2005 through 2008 taxation years remain open for audit.
Note 13 – Transactions with Controlling Stockholder
Transactions with Counsel
At December 31, 2008, C2 had no indebtedness to Counsel. The details of the individual notes payable to Counsel at December 31, 2007, which were repaid during 2008, 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 additional periodic loans were made from time to time (collectively and as amended, the “Promissory Note”). The Promissory Note accrued interest at 10% per annum compounded quarterly from the date funds were advanced. The loan was amended several times and the maturity date of the loan plus accrued interest was extended to December 31, 2008. The Promissory Note was secured by the assets of the Company and was subject to certain events of default. There were no conversion features associated with the Promissory Note. 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 and 2007, C2 was indebted to Counsel in the amount of $6 and $2,288, respectively.
F-21

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, 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 provided for certain mandatory prepayments upon written notice from Counsel. The New Loan was subject to certain events of default. It was amended several times and the maturity date of the loan plus accrued interest was extended to December 31, 2008. There were 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. At December 31, 2006 and 2007 total outstanding debt under the New Loan was $0 and $47, respectively.
Counsel Management Services
Since December 2004, C2 and Counsel have entered into successive annual management services agreements (the “Agreement”). Under the terms of the Agreement, C2 agrees to make payment to Counsel for ongoing services provided to C2 by certain Counsel personnel. The basis for such services charged is an allocation, based on time incurred, of the cost of the base compensation paid by Counsel to those employees providing services to C2. For the year ended December 31, 2008, the cost was $360. For the years ended December 31, 2007 and 2006, the cost was $225. The amounts due under the Agreement are payable within 30 days following the respective year end, subject to applicable restrictions. Any unpaid fee amounts bear interest at 10% per annum commencing on the day after such year end. In the event of a change of control, merger or similar event of C2, all amounts owing, including fees incurred up to the date of the event, will become due and payable immediately upon the occurrence of such event. The Company expects that Counsel will continue to provide these services in 2009 on the same cost basis.
Note 14 – Legal Proceedings
In April 2004, certain shareholders of C2 filed derivative and securities lawsuits in the Superior Court of the State of California against Counsel, C2 and several affiliated companies, as well as four present and former officers and directors of C2. Counsel and C2 believe that the claims are and were without merit, and have defended the actions accordingly.
Effective June 18, 2008, in order to settle the litigation, and without any admission of liability by either C2 or the other defendants, the parties agreed to the following terms: (i) Counsel and/or certain of its affiliates, other than C2, would pay a total of $520 to the named plaintiffs; (ii) Counsel and/or a subsidiary other than C2 would give the plaintiffs approximately 370,000 common shares of C2, being five common shares of C2 for every share of C2 owned by the plaintiffs when the litigation commenced; (iii) plaintiffs who were also dissenting shareholders in an appraisal action filed by C2 in Florida in June 2004 would withdraw their dissent and C2 would return the shares that they tendered; (iv) Counsel and/or an affiliate would transfer 350,000 common shares to C2 for cancellation to settle the derivative claims of the litigation. As a result of the transfer of common shares to the plaintiffs and the cancellation of the shares transferred to C2, Counsel’s percentage ownership in C2 decreased from approximately 92.5% to approximately 90.8%. The settlement did not have a material adverse impact on the Company’s business, results of operations, financial position or liquidity.
F-22

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, in the event that C2 does not have sufficient resources to fund the payments. 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 17th 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. As a result of the June 2008 settlement of the derivative and securities lawsuits in California, described above, the stay of the Florida declaratory judgment action is expected to be lifted shortly. Subsequent to December 31, 2008, the Company completed an agreement with the holders of 27,221 of the 27,536 shares held by the remaining dissenting stockholders, whereby the stockholders agreed to accept $4.60 per share in full payment for their respective shares, which will be cancelled by the Company, and a release of any other claims that they may have against the Company and Counsel. When the declaratory judgment action resumes with respect to the remaining dissenting stockholders, who exercised their appraisal rights with respect to the remaining 315 shares, the Company provides no assurance that this matter will be resolved in our favor; however, the Company's management does not believe that an unfavorable outcome of this matter would 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 alleged that these companies’ VoIP services and systems infringe upon the Company’s U.S. Patent No. 6,243,373, entitled “Method and Apparatus for Implementing a Computer Network/Internet Telephone System”. The complaint sought an injunction, monetary damages and costs.
In June 2007, the complaint against Bellsouth Corporation was dismissed without prejudice. In February 2008, the Company settled the complaints against AT&T, Inc. and Verizon Communications, Inc. by entering into settlement and license agreements. In May 2008 the Company settled the complaint against Sprint Nextel Corporation by entering into a similar agreement. In September 2008, C2 effectively concluded the litigation by entering into a similar agreement with Qwest Communications International, Inc., Global Crossing Limited, and Level 3 Communications, Inc., which agreement also includes Sonus Networks, Inc.
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.
In January 2008, four shares of the Company’s Class N preferred stock were converted into 160 shares of common stock. There was a similar conversion of six preferred shares into 240 common shares in June 2008, and another of three preferred shares into 120 common shares in November 2008. In October 2007, four shares of preferred stock were converted into 160 shares of common stock. All of the converted stock was held by unrelated third parties.
At December 31, 2008 and 2007, of the 10,000,000 shares of preferred stock authorized, 9,486,500 remain undesignated and unissued.
F-23

Note 16 – Stock-Based Compensation
Stock- Based Compensation Plans
At December 31, 2008, the Company had 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 2008 and 2007. As of December 31, 2008 and 2007, no options to purchase shares were outstanding, and no options expired in 2008 and 2007.
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, 2008 and 2007, there were no options outstanding under the 1995 Employee Plan. No options were granted or exercised in 2008 or 2007 under the 1995 Employee Plan.
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, 2008, there were options to purchase 237,361 shares (2007 – 238,611 shares) of the Company’s common stock outstanding under the 1997 Plan. 112,500 of these options, with an exercise price of $0.66 per share, were unvested at December 31, 2008 (2007 – 168,750). They will vest in 2009 and 2010. 112,500 options with an exercise price of $0.66 per share were vested at December 31, 2008 (2007 – 56,250). 12,361 options with exercise prices of $1.40 to $111.26 per share were vested at December 31, 2008 (2007 – 13,611 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 2008, no options to purchase shares of common stock were issued, and 1,250 options expired. During 2007, no options to purchase shares of common stock were issued, and 1,000 options expired. There were no exercises during 2008 or 2007.
F-24

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, 2008, there were options to purchase 638,250 shares (2007 - 598,250 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 2008, 40,000 options (2007 – 30,000 options) were granted. During 2008 and 2007 no options to purchase shares of common stock were forfeited or expired. There were no options exercised during 2008 and 2007, and no SARs have been issued under the 2003 Plan.
Other options
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 2008, there were no exercises, expiries or forfeitures. During 2007, 43,667 options expired, and none were exercised or forfeited. The remaining options must be exercised within ten years of the grant date. As of December 31, 2008 and 2007 there remained 833 options outstanding.
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, 2008 or 2007. There were no options exercised or forfeited in 2007.
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. During 2008, 35,472 options expired, and none were exercised or forfeited. No options expired, were exercised or forfeited during 2007. As of December 31, 2008 5,000 options remained outstanding (2007 – 40,472).
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 2008 or 2007. As of December 31, 2008 and 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 2008 or 2007. The fair value of the options issued was recorded as deferred compensation of $300, 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, 2008 and 2007 there remained 10,000 options outstanding.
F-25

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 2008 or 2007. As of December 31, 2008 and 2007, there remained 68,833 options outstanding.
Stock-Based Compensation Expense
The Company accounts for the stock-based compensation plans described above in accordance with SFAS No. 123, Accounting for Stock-Based Compensation, as revised December 2004 (“SFAS No. 123(R)”), which the Company was required to adopt in the first quarter of 2006. SFAS No. 123(R) 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 fair value of each option grant was estimated on the date of the grant using the Black-Scholes option pricing model with the following assumptions:

|  | 2008 |  |  | 2007 |  |  | 2006 |
Risk-free interest rate |  |  | 1.80% |  |  |  | 4.51% |  |  |  | 5.06% |
Expected life (years) |  |  | 4.75 |  |  |  | 4.75 |  |  |  | 4.75 |
Expected volatility |  |  | 198.4% |  |  |  | 79.1% |  |  |  | 79.1% |
Expected dividend yield |  |  | Zero |  |  |  | Zero |  |  |  | Zero |

Options were granted on a single date in both 2008 and 2007. In 2006, options were granted in both April and August: The risk-free interest rates are those for U.S. Treasury constant maturities, for terms matching the expected term of the option. The weighted average rate for 2006 corresponds to interest rates of 4.90% and 5.07%. The expected life of the options is calculated according to Staff Accounting Bulletin No. 110’s simplified method for estimating the expected term of the options, based on the vesting period and contractual term of each option grant, which are the same for all grants. For 2007 and 2006, expected volatility was based on the Company’s historical volatility in conjunction with peer group volatility and relevant stock-price indices. For 2008, expected volatility was based on the Company’s historical volatility and peer group volatility. As the Company’s stock is closely held and thinly traded, the Company believes that incorporating peer group information provides a better measure of expected volatility than the Company’s stock price alone. The Company has never paid a dividend on its common stock and therefore the expected dividend yield is zero.
Total compensation cost related to stock options in 2008, 2007 and 2006 was $85, $166 and $139, respectively. No tax benefit from stock-based compensation was recognized in these years, as no options were exercised. The Company’s stock-based compensation had no effect on its cash flows during the same periods. Option holders are not entitled to receive dividends or dividend equivalents.
The following table summarizes the changes in common stock options for the common stock option plans described above:

|  | 2008 |  |  | 2007 |  |  | 2006 |
|  | Options |  |  | Weighted Average Exercise Price |  |  | Options |  |  | Weighted Average Exercise Price |  |  | Options |  |  | Weighted Average Exercise Price |
Outstanding at beginning of year |  |  | 975,749 |  |  | $ | 9.88 |  |  |  | 1,096,326 |  |  | $ | 19.51 |  |  |  | 727,026 |  |  | $ | 37.50 |
Granted |  |  | 40,000 |  |  | $ | 0.90 |  |  |  | 30,000 |  |  | $ | 0.70 |  |  |  | 455,000 |  |  | $ | 0.82 |
Exercised |  |  | — |  |  | $ | — |  |  |  | — |  |  | $ | — |  |  |  | — |  |  | $ | — |
Expired |  |  | (36,722 | ) |  | $ | 57.53 |  |  |  | (150,577 | ) |  | $ | 78.00 |  |  |  | (85,700 | ) |  | $ | 73.14 |
Forfeited |  |  | — |  |  | $ | — |  |  |  | — |  |  | $ | — |  |  |  | — |  |  | $ | — |
Outstanding at end of year |  |  | 979,027 |  |  | $ | 7.73 |  |  |  | 975,749 |  |  | $ | 9.88 |  |  |  | 1,096,326 |  |  | $ | 19.51 |
Options exercisable at year end |  |  | 681,527 |  |  | $ | 10.75 |  |  |  | 549,936 |  |  | $ | 16.89 |  |  |  | 499,701 |  |  | $ | 41.24 |
Weighted-average fair value of options granted during the year |  |  |  |  |  | $ | 0.87 |  |  |  |  |  |  | $ | 0.46 |  |  |  |  |  |  | $ | 0.50 |

As of December 31, 2008, the total unrecognized stock-based compensation expense related to unvested stock options was $126, which is expected to be recognized over a weighted-average period of 12 months.
F-26

In March 2008, 40,000 options were granted to the Company’s non-employee directors under the terms of the 2003 Stock Option and Appreciation Rights Plan. There were no other option grants during 2008, and no options were exercised during the year ending December 31, 2008.
As of December 31, 2008, the aggregate intrinsic value of options outstanding was $0, based on the Company’s closing stock price of $0.14 on December 31, 2008. Intrinsic value is the amount by which the fair value of the underlying stock exceeds the exercise price of the options. At December 31, 2008, all of the outstanding options had exercise prices greater than $0.14.
The following table presents information regarding unvested stock options outstanding at December 31, 2008, 2007 and 2006:

|  | Options |  |  | Weighted Average Grant Date Fair Value |
Unvested at December 31, 2007 |  |  | 425,813 |  |  | $ | 0.51 |
Granted |  |  | 40,000 |  |  | $ | 0.87 |
Vested |  |  | (168,313 | ) |  | $ | 0.54 |
Expired |  |  | — |  |  | $ | — |
Unvested at December 31, 2008 |  |  | 297,500 |  |  | $ | 0.54 |

|  | Options |  |  | Weighted Average Grant Date Fair Value |
Unvested at December 31, 2006 |  |  | 596,625 |  |  | $ | 0.63 |
Granted |  |  | 30,000 |  |  | $ | 0.46 |
Vested |  |  | (198,312 | ) |  | $ | 1.28 |
Expired |  |  | (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 |  |  | $ | 1.16 |
Granted |  |  | 455,000 |  |  | $ | 0.50 |
Vested |  |  | (84,562 | ) |  | $ | 1.35 |
Expired |  |  | — |  |  | $ | — |
Unvested at December 31, 2006 |  |  | 596,625 |  |  | $ | 0.63 |

The total fair value of options vesting during the years ending December 31, 2008, 2007 and 2006 was $91, $171 and $114, respectively. The unvested options have no associated performance conditions. Therefore, the Company expects that, barring the departure of individual directors or employees, all of the unvested options will vest according to the standard four-year timetable.
The following table summarizes information about all stock options outstanding at December 31, 2008:

Exercise price |  |  | Options Outstanding |  |  | Weighted Average Remaining Life (years) |  |  | Weighted Average Exercise Price |  |  | Number Exercisable |  |  | Weighted Average Remaining Life (years) |  |  | Weighted Average Exercise Price |
$ 0.51 to $ 1.39 |  |  |  | 710,000 |  |  |  | 4.11 |  |  | $ | 0.87 |  |  |  | 412,500 |  |  |  | 3.60 |  |  | $ | 0.90 |
$ 1.40 to $ 3.00 |  |  |  | 159,448 |  |  |  | 1.67 |  |  | $ | 2.94 |  |  |  | 159,448 |  |  |  | 1.67 |  |  | $ | 2.94 |
$ 6.88 to $ 15.62 |  |  |  | 2,965 |  |  |  | 2.02 |  |  | $ | 14.99 |  |  |  | 2,965 |  |  |  | 2.02 |  |  | $ | 14.99 |
$ 48.76 to $ 71.26 |  |  |  | 103,083 |  |  |  | 0.87 |  |  | $ | 58.63 |  |  |  | 103,083 |  |  |  | 0.87 |  |  | $ | 58.63 |
$ 78.00 to $127.50 |  |  |  | 3,531 |  |  |  | 1.56 |  |  | $ | 111.46 |  |  |  | 3,531 |  |  |  | 1.56 |  |  | $ | 111.46 |
|  |  |  | 979,027 |  |  |  | 3.35 |  |  | $ | 7.73 |  |  |  | 681,527 |  |  |  | 2.72 |  |  | $ | 10.75 |

F-27

Note 17 – Summarized Quarterly Data (unaudited)
Following is a summary of the quarterly results of operations for the years ended December 31, 2008 and 2007.

|  |  | March 31 |  |  | June 30 |  |  | September 30 |  |  | December 31 |
Net sales | 2008 |  | $ | 6,225 |  |  | $ | 1,900 |  |  | $ | 9,500 |  |  | $ | — |
| 2007 |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Gross profit | 2008 |  | $ | 3,041 |  |  | $ | 592 |  |  | $ | 3,403 |  |  | $ | (140 | )
| 2007 |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Operating income (loss) | 2008 |  | $ | 2,760 |  |  | $ | 307 |  |  | $ | 3,086 |  |  | $ | (550 | )
| 2007 |  | $ | (284 | ) |  | $ | (319 | ) |  | $ | (323 | ) |  | $ | (310 | )
Net income (loss) from continuing operations | 2008 |  | $ | 1,795 |  |  | $ | 311 |  |  | $ | 4,015 |  |  | $ | (282 | )
| 2007 |  | $ | (625 | ) |  | $ | (365 | ) |  | $ | (372 | ) |  | $ | 723 |
Net income (loss) | 2008 |  | $ | 1,795 |  |  | $ | 305 |  |  | $ | 4,012 |  |  | $ | (285 | )
| 2007 |  | $ | (627 | ) |  | $ | (383 | ) |  | $ | (375 | ) |  | $ | 740 |
Basic and diluted income (loss) from continuing operations per common share | 2008 |  | $ | 0.08 |  |  | $ | 0.01 |  |  | $ | 0.18 |  |  | $ | (0.01 | )
| 2007 |  | $ | (0.03 | ) |  | $ | (0.01 | ) |  | $ | (0.02 | ) |  | $ | 0.03 |
Basic and diluted income from continuing operations per preferred share | 2008 |  | $ | 3.11 |  |  | $ | 0.54 |  |  | $ | 7.05 |  |  | $ | N/A |
| 2007 |  | $ | N/A |  |  | $ | N/A |  |  | $ | N/A |  |  | $ | N/A |
Basic and diluted income (loss) per common share | 2008 |  | $ | 0.08 |  |  | $ | 0.01 |  |  | $ | 0.18 |  |  | $ | (0.01 | )
| 2007 |  | $ | (0.03 | ) |  | $ | (0.01 | ) |  | $ | (0.02 | ) |  | $ | 0.03 |
Basic and diluted income per preferred share | 2008 |  | $ | 3.11 |  |  | $ | 0.54 |  |  | $ | 7.05 |  |  | $ | N/A |
| 2007 |  | $ | N/A |  |  | $ | N/A |  |  | $ | N/A |  |  | $ | N/A |

F-28

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, 2006 |  | $ | 6 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 6 |
December 31, 2007 |  | $ | 6 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 6 |
December 31, 2008 |  | $ | 6 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 6 |

____________

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

S-1