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

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

Forward-Looking Information

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

Business Overview, Recent Developments and Outlook

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

Liquidity and Capital Resources

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

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

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

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

Ownership Structure and Capital Resources

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

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

Cash Position

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

Cash utilized in operating activities

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

Cash provided by investing activities

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

Cash provided by financing activities

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

Contractual Obligations

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

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

Total                                $   2,577   $       2,577   $         -   $         -   $           -

Consolidated Results of Operations

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

                                                                                 Percentage Change
                                       2007        2006        2005       2007 vs. 2006      2006 vs. 2005
Revenues:
Patent licensing                     $       -   $       -   $       -               N/A                N/A

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

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

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

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

2007 Compared to 2006

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

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

· Compensation expense was $304 compared to $234 in 2006. The salary earned by the CEO of C2 remained unchanged at $138; however, stock-based compensation expense increased by $27, from $139 in 2006 to $166 in 2007. In 2006 the Company incurred compensation expense of $27 for an employee who provided technology-related services; his employment terminated in the second quarter of 2006 and 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.

· Legal expenses in 2007 were $157, comparable to $171 in 2006.

· Accounting and tax consulting expenses in 2007 were $146 compared to $295 in 2006. The decrease reflects the reduced complexity of the Company's operations following the disposition of the Telecommunications business in the third quarter of 2005.

· Fees paid to the members of our Board of Directors were $104 in 2007 and 2006.

· Management fee expense charged by our majority stockholder, Counsel, was $225 in both 2007 and 2006. See Item 13 of this Report for details regarding these management fees.

· Directors and officers insurance expense was $150 in both 2007 and 2006.

· In the second quarter of 2007, the Company incurred expenses of $60 with respect to filing fees for patents being issued in various European countries. There was no corresponding expense in 2006.

Depreciation and amortization - This expense was $20 in both 2007 and 2006, and relates to the amortization of the cost of the VoIP Patent.

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

· Related party interest expense was $184 in 2007, as compared to $10,390 in 2006. The decrease of $10,206 is primarily due to the decrease in the balance owing to Counsel. As discussed in Note 13 of the consolidated financial statements, on December 30, 2006, Counsel converted $3,386 of the $83,582 owed by C2 into 3,847,475 common shares and forgave the remaining balance of $80,196. Subsequent net advances by Counsel of $2,151 through December 31, 2007 resulted in much lower interest expense during 2007. It should also be noted that the related party interest expense in 2006 included $2,848 of amortization of the beneficial conversion feature ("BCF") related to Counsel's ability to convert a portion of its debt. The BCF was fully amortized in 2006, prior to the debt forgiveness by Counsel, and there has been no corresponding expense in 2007.

· Third party interest expense was $12 in 2007, as compared to $510 in 2006. All of the interest expense related to the Note and the warrant to purchase common stock, both held by the Company's third party lender. As discussed in Note 9, the Note was prepaid in full effective January 10, 2007, and therefore the 2007 expense consists of interest and discount amortization for only ten days. In 2006, the combined interest expense and discount amortization were $588, and the Company recorded a credit of $78 as a mark to market adjustment on the warrant to purchase common stock. The 2006 mark to market adjustment on the warrant was based on the closing price of the Company's common stock on the last day of each quarter. As discussed in Note 9, in the fourth quarter of 2006 the warrant was transferred to stockholders' equity and therefore no mark to market adjustments were required in 2007.

· In 2007 the Company had other expense of $207, as compared to other income of $155 in 2006. The 2007 expense is primarily composed of the $293 cost to prepay the Note owed to the third party lender, as detailed in Note 9. It also includes the gain of $75 on the sale of the Company's interest in MyTrade.com, as detailed in Note 5, and $6 of income related to investments where the Company has significant influence, as also detailed in Note 5. During 2007 the Company earned $2 of bank interest and received $3 as a reduction of prior years' insurance premiums. The 2006 income primarily consists of the recovery of $110 of receivables that were fully reserved against when acquired in 2001 as part of the acquisition of the assets of WorldxChange Communications Inc. from bankruptcy, as a result of the Company entering into settlement agreements with certain carriers. The remaining income in 2006 related to interest earned on cash deposits.

2006 Compared to 2005

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

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

· Compensation expense was $234 compared to $275 in 2005. The 2005 expense included a bonus accrual of $69, which was reversed in the first quarter of 2006 upon determination that it was not warranted. After the effects of the bonus are removed, the comparative expense amounts for 2006 and 2005 are $303 and $206, respectively. On January 1, 2006 the Company adopted SFAS No.
123(R), which resulted in $139 of compensation expense being recorded in 2006. No corresponding expense was recorded in 2005. In 2006, the salary expense for the Company's technology-related employees was $27, but the corresponding compensation costs in 2005 were included in research and development expense. These increases in compensation expense recorded in 2006 as compared to 2005 were partially offset by a reduction in the annual salary earned by the CEO of C2. Effective July 1, 2005, the annual salary was reduced from $275 to $138, with the result that the 2006 expense was $69 lower than the 2005 expense. The change in salary reflected the reduced complexity of the Company's operations following the sale of the Telecommunications business in the third quarter of 2005.

· Legal expenses in 2006 were $171 compared to $845 in 2005. The decrease in legal expenses resulted primarily from a reduced level of activity in the Company's patent litigation with ITXC. This litigation had commenced in April 2004 and was terminated in March 2006.

· Accounting and tax consulting expenses in 2006 were $295 compared to $242 in 2005.

· Fees paid to the members of our Board of Directors were $104 in 2006 compared to $168 in 2005. The decrease is attributable to two factors. The first is that fewer meetings were held during 2006. As well, the Board was smaller during 2006, having been reduced, at the end of the first quarter of 2005, from eight members to four members.

· Management fee expense charged by our majority stockholder, Counsel, was $225 in 2006 and $450 in 2005. See Item 13 of this Report for details regarding these management fees.

· Directors and officers insurance expense was $150 in both 2006 and 2005.

· Travel and entertainment expenses in 2006 were $18 compared to $240 in 2005. The reduced level of expense in 2006 reflects the decreased complexity of operations following the sale of the Telecommunications business in the third quarter of 2005.

· We incurred restructuring expenses of $152 in 2005, relating to severance costs paid to former employees in the third quarter of 2005. There were no similar expenses in 2006.

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

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

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

· Related party interest expense was $10,390 in 2006, as compared to $12,154 in 2005. The decrease of $1,764 is attributable to two factors. Interest expense on the related party debt with our majority stockholder, Counsel, increased by $1,362, from $6,180 in 2005 to $7,542 in 2006. This was due to a larger average loan balance during 2006, including additional advances during 2006 of $2,401. The interest expense was partially offset by a reduction of $3,126 in amortization of the BCF related to Counsel's ability to convert a portion of its debt. In 2006, amortization of the BCF was $2,848 on $19,966 of debt convertible at $5.02 per share. In 2005, amortization of the BCF was $5,974 on $18,270 of debt convertible at $5.02 per share. As discussed above, this debt was forgiven by Counsel on December 30, 2006.

· Third party interest expense was $510 in 2006, as compared to $658 in 2005. The decrease of $148 is due to the fact that the Note with the Company's third party lender, entered into on October 14, 2004, had a lower average balance during 2006 than during 2005. As discussed above, this debt was repaid in full in January 2007.

· Other income was $155 for 2006, as compared to $1,084 in 2005. In the second quarter of 2006, the Company entered into settlement agreements with certain carriers, which resulted in the recovery of $110 of receivables that were fully reserved against when acquired in 2001 as part of the acquisition of the assets of WorldxChange Communications Inc. from bankruptcy. The remaining income is primarily due to interest earned on cash balances, including interest on the $1,800 deposit that was placed with the Company's third party lender in October 2005 and subsequently applied to the monthly payments of the Note. In 2005, $1,115 of other income was attributable to settlement agreements with certain carriers, similar to those described for 2006. The 2005 income was partially offset by a charge of $38 when fixed assets were transferred to a former employee in return for future royalty revenues.

Adoption of Significant Accounting Pronouncements

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

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements ("SFAS No. 157"). SFAS No. 157 defines fair value, establishes a framework for measuring fair value under GAAP, expands the required disclosures regarding fair . . .