HGBL

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2009, for C2 Global Technologies Inc. (also referred to as C2). The Company is a patent licensing firm focused on Voice over Internet Protocol (VoIP) technology, holding foundational patents including U.S. Patent Nos. 6,243,373 and 6,438,124. In February 2009, the Company established a new subsidiary, Counsel RB Capital LLC, to diversify into the acquisition and disposition of distressed assets. The Company is 90.9% owned by Counsel Corporation.

Key Financial Metrics

Note: The filing does not provide explicit margin percentages due to zero revenue in the current period. The Company reported no debt other than accounts payable and accrued liabilities.

Material Changes vs. Prior Period

• Revenue Collapse: Patent licensing revenue dropped from $6.2 million in Q1 2008 to $0 in Q1 2009. The 2008 revenue was derived from settlement agreements with major carriers (AT&T and Verizon), whereas no such settlements were finalized in Q1 2009.
• Profitability Shift: The Company swung from a net income of $1.8 million in Q1 2008 to a net loss of $342,000 in Q1 2009.
• Expense Increases: Selling, general, and administrative (SG&A) expenses increased to $387,000 from $276,000, primarily driven by $131,000 in salaries for the new Counsel RB subsidiary.
• Patent Costs: Patent licensing expenses decreased significantly to $1,000 from $3.2 million, as the 2008 figure included a 35% participation fee payable to the patent vendor based on 2008 settlements.
• Cash Position: Cash decreased by $651,000 during the quarter due to operating losses, share repurchases ($125,000), and investments in Counsel RB ($170,000).

Outlook, Risks, and Management Commentary

• Outlook: Management anticipates generating ongoing licensing and royalty revenue through the enforcement of its VoIP patent portfolio. The Company estimates it has sufficient cash resources ($3.4 million) to cover annual operating expenses of approximately $1.2 million (excluding Counsel RB operations) without entering new agreements.
• New Segment: Counsel RB Capital LLC is expected to become a new operating segment, focusing on distressed assets, though it has only recently commenced operations.
• Legal Proceedings: A declaratory judgment action regarding dissenting stockholders' appraisal rights is expected to resume shortly. The Company settled with holders of 27,221 shares at $4.60 per share; 315 shares remain in dispute. Management does not believe an unfavorable outcome would be material.
• Subsequent Event: On May 7, 2009, the Company invested approximately $2.6 million to acquire a ~5% interest in Polaroid Corporation's assets (brand, inventory, IP) via a Chapter 11 reorganization.
• Risks: The Company relies on the validity of its patents and the success of future licensing negotiations. It has no credit facilities or guarantees from related parties.

Investor Verification Checklist

• Revenue Sustainability: Verify the timeline and probability of future patent licensing settlements, given the complete absence of revenue in Q1 2009.
• Cash Burn Rate: Confirm the $1.2 million annual operating expense estimate and assess the runway provided by the $3.4 million cash balance.
• Subsequent Investment: Review the terms and risks associated with the $2.6 million post-period investment in Polaroid Corporation assets.
• Related Party Transactions: Examine the management services agreement with Counsel Corporation (controlling shareholder) and the cost allocation for the new Counsel RB subsidiary.
• Legal Contingencies: Monitor the resolution of the remaining 315 shares in the dissenting stockholder appraisal litigation.