HGBL

Business Context and Reporting Period

Company: Counsel RB Capital Inc. (formerly C2 Global Technologies Inc.)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2010
Business Overview: The Company operates in two segments: Asset Liquidation (via wholly-owned subsidiary Counsel RB Capital LLC, which acquires and monetizes distressed assets) and Patent Licensing (licensing VoIP technology). In late 2010, the Company acquired the remaining 25% interest in Counsel RB from its Co-CEOs, making it a wholly-owned subsidiary. The Company also holds minority investments in private companies, including Polaroid Corporation.

Key Financial Metrics (Year Ended Dec 31, 2010)

Note: All dollar amounts are in thousands of USD unless otherwise noted. Revenue is derived primarily from asset liquidation; patent licensing revenue was $0 in 2010 and 2009.

Material Changes vs. Prior Period

• Profitability Turnaround: The Company shifted from a net loss of $(1,264) in 2009 to a net income of $4,829 in 2010. This was driven primarily by a significant increase in "Earnings of equity accounted asset liquidation investments," which rose from $64 in 2009 to $7,586 in 2010.
• Revenue Decline: Total revenue decreased 45% to $3,266 from $5,991 in 2009. This reflects a shift in business mix toward joint venture investments (equity method) rather than direct asset sales.
• Liquidity Improvement: Working capital improved from a deficit of $(4,346) to a positive $1,621. Cash on hand increased significantly from $93 to $2,608.
• Debt Reduction: The Company fully repaid a $1,564 related-party loan outstanding at the end of 2009. Third-party debt decreased slightly to $4,485.
• Goodwill Impairment: The Company recorded a $173 impairment charge related to its Patent Licensing segment goodwill, which was not present in 2009.

Guidance, Outlook, Risks, and Unusual Items

• Outlook: Management expects to generate sufficient cash from Counsel RB operations to meet ongoing requirements for at least the next twelve months, even without new patent licensing agreements. The Company continues to pursue licensing for its VoIP patents.
• Unusual Items:
  • Acquisition of Non-Controlling Interest: In November 2010, the Company acquired the remaining 25% of Counsel RB for 3.2 million shares, eliminating the non-controlling interest.
  • Investment Gains: The Company realized a $332 gain on the sale of its remaining investment in Buddy Media, Inc.
• Risks:
  • Asset Liquidation Risks: Exposure to inventory valuation, credit risk, and environmental liabilities associated with acquired assets.
  • Patent Enforcement: Ongoing litigation against PAETEC Corporation regarding VoIP patent infringement; trial date not set. Success depends on the ability to enforce patent rights.
  • Concentration Risk: A significant portion of assets (approx. 16%) is tied to the illiquid investment in Polaroid Corporation.
  • Related Party Dependence: The majority shareholder, Counsel Corporation, owns approx. 77% of the stock and provides management services. Key executives are employees of Counsel.

Key Facts for Investor Verification

• Revenue Quality: Verify the sustainability of the $7.6 million in equity-accounted earnings from joint ventures, as this drove the majority of the 2010 profit despite a drop in direct revenue.
• Patent Litigation Status: Monitor the outcome of the pending lawsuit against PAETEC Corporation, as future patent licensing revenue depends on enforcement success.
• Inventory Valuation: Assess the valuation of real estate and equipment inventory ($4.2 million combined), which is subject to write-downs if market conditions deteriorate.
• Related Party Transactions: Review the $360,000 annual management fee paid to Counsel Corporation and the terms of the revolving credit facility guaranteed by Counsel.
• Stock Ownership: Note that Counsel Corporation controls approximately 77% of voting power, which may impact corporate governance and future strategic decisions.