HGBL

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2006, for C2 Global Technologies Inc. (formerly Acceris Communications Inc.). The Company has pivoted from telecommunications operations to a business model focused on licensing its Voice over Internet Protocol (VoIP) patent portfolio. Following the disposition of its Telecommunications business in late 2005, the Company currently generates no revenue from continuing operations and relies on intellectual property enforcement for future income.

Key Financial Metrics

Note: Net income for Q1 2006 is driven entirely by a gain from discontinued operations. Continuing operations incurred a loss of $2,741,000.

Material Changes vs. Prior Period

• Discontinued Operations: The Company reported a net income of $958,000, primarily due to a $3,645,000 gain from the sale of its subsidiary WXC Corp. (formerly Acceris Communications Corp.) and the relief of $3,763,000 in liabilities. This contrasts with a loss of $4,481,000 from discontinued operations in Q1 2005.
• Operating Expenses: Selling, general, and administrative expenses decreased significantly to $397,000 from $837,000 in the prior year, reflecting reduced operational complexity and legal costs following the sale of the telecommunications business.
• Research and Development: R&D expenses dropped to $0 from $150,000 as the Company ceased direct R&D investment to focus on patent licensing.
• Debt Structure: Gross related party debt to Counsel Corporation increased to $76,319,000 due to capitalized interest ($1,796,000) and new advances ($877,000). Third-party debt to Laurus Master Fund, Ltd. decreased slightly to $2,794,000.

Outlook, Risks, and Management Commentary

• Liquidity and Going Concern: The Company has a significant stockholders' deficit and negative working capital of $77,110,000. Management states there is "significant doubt" about the ability to continue as a going concern beyond December 31, 2006, unless it successfully generates revenue from its IP portfolio. Operations are currently funded by a "Keep Well" agreement from the controlling shareholder, Counsel Corporation, which is not expected to be extended past its maturity.
• Revenue Strategy: The Company plans to generate revenue by enforcing its VoIP patents against carriers and equipment manufacturers. No royalties were received in the quarter.
• Legal Proceedings:
  • ITXC Litigation: Terminated in March 2006 via a Consent Order where C2 covenanted not to sue ITXC, allowing C2 to pursue other IP monetization options.
  • Derivative/Securities Actions: Ongoing lawsuits filed in 2004 by stockholders alleging breach of fiduciary duties. Trial dates have been vacated due to attorney changes.
  • Appraisal Rights: Pending judicial determination regarding the fair value of shares for dissenting stockholders from a 2003 amendment.
• Debt Covenants: The Company cannot repay amounts owed to Counsel while the Laurus Note remains outstanding. Counsel has subordinated its debt to Laurus.

Investor Verification Checklist

• Keep Well Expiration: Verify the status of the funding agreement with Counsel Corporation, which expires December 31, 2006, and whether an extension is secured.
• IP Monetization: Assess the progress of patent enforcement efforts and the likelihood of securing licensing agreements or royalty payments.
• Debt Maturity: Review the maturity dates of the $76.3 million related party debt (Dec 31, 2006) and the $2.8 million third-party convertible note (Oct 2007) to evaluate refinancing risks.
• Legal Exposure: Monitor the status of the derivative lawsuit and the appraisal rights litigation, as unfavorable outcomes could materially impact liquidity.
• Cash Burn: Track the rate of cash consumption from continuing operations against the $76,000 in unrestricted cash and $1,065,000 in restricted cash.