Counsel 6K Current report | CXSNF 25 Nov 03

FRONT COVER

REPORT TO SHAREHOLDERS

We are pleased to report Counsel Corporation’s consolidated results for the third quarter of 2003. Significant developments since our last report are as follows (all amounts are stated in US dollars unless noted):

Communications


•	I-Link Incorporated (OTCBB:ILNK.OB) will be holding its annual shareholders’ meeting on November 26, 2003. Following this meeting, Counsel expects to convert approximately $32.2 million of its loans receivable from I-Link into equity. This will be accompanied by the launch of I-Link’s new name, Acceris Communications, and a share consolidation of 1-for-20. Following the debt restructuring, Counsel will own approximately 88% of I-Link and will have loans receivable totaling approximately $33.5 million.

•	I-Link expects to commence offering local dialing services to its residential and small business customers in the fourth quarter of 2003. The service will initially be available in New York and New Jersey, expanding to other markets throughout the United States in 2004.

•	Acceris Communications Technologies entered into a licensing agreement on October 7, 2003 with J-Link Incorporated of Yokohama City, Japan, an Internet provider.

Real Estate


•	Counsel Real Estate continues to meet the quarterly objectives for its income producing property portfolio, including equity returns, occupancy rates and lease renewals.

Corporate


•	The Company repaid its outstanding 6% convertible debentures at maturity (October 31, 2003) by delivering 690 common shares for each $1,000 of principal, resulting in the issuance of 28.2 million common shares. A significant debenture holder filed a lawsuit to restrain the Company from satisfying its obligation to repay the debentures at maturity by delivering common shares. On October 28, 2003, the Ontario Superior Court of Justice dismissed the lawsuit. The debenture holder has appealed this decision. The Company had offered $750 cash for each $1,000 of principal amount of debentures as an alternative to delivering common shares at maturity. However, less than 45% of the debentures were tendered to this offer, and the offer expired on October 30, 2003 without take-up.

•	In October, the Company received notices of intent to exercise options to purchase five retirement centres in Ontario and British Columbia from the lessee of the centres. The total purchase price is Cdn $30 million, and the transaction is expected to close in the second quarter of 2004. At September 30, 2003, the centres had a net asset value of Cdn $22.2 million and were subject to mortgages aggregating Cdn $18.3 million.

The Company has returned to profitability in the third quarter of 2003, with net earnings of $783,000 or $0.01 per share. For the quarter and nine months ended September 30, 2003, consolidated revenue from continuing operations was $37.2 million and $107.1 million, respectively. This compares to $38.5 million in the second quarter of 2003, $21.0 million in the third quarter of 2002 and $67.5 million for the nine months ended September 30, 2002. The increase in consolidated revenue over the third quarter of 2002 is due primarily to the full quarter inclusion of revenues related to the December 2002 acquisition of the enterprise and agent businesses of RSL Com USA Inc. and revenue from a network service offering.

We are pleased with the progress made in the third quarter of 2003 towards achieving our objective of generating improved operating results and cash flow.

On behalf of the Board,

-s- Allan Silber

ALLAN SILBER

Chairman and Chief Executive Officer

November 19, 2003

COUNSEL CORPORATION

INTERIM MANAGEMENT’S DISCUSSION AND ANALYSIS

FOR THE QUARTER ENDED SEPTEMBER 30, 2003

(All dollar amounts are in thousands of US dollars, unless otherwise indicated)

INTRODUCTION

This interim management’s discussion and analysis (“MD&A”) of the results of operations of Counsel Corporation (“Counsel”, the “Company”) for the three and nine months ended September 30, 2003 and its financial condition as at September 30, 2003 is based on the Company’s interim consolidated financial statements prepared in accordance with accounting principles generally accepted in Canada (“Canadian GAAP”) and the guidance of the Canadian Institute of Public and Private Real Estate companies (“CIPREC”) and should be read in conjunction with the restated audited annual consolidated financial statements for the year ended December 31, 2002 and the notes thereto. References to interim financial statements are to the unaudited consolidated financial statements of Counsel as at and for the three and nine months ended September 30, 2003.

Forward-looking information

This MD&A contains forward-looking statements that involve risk and uncertainties. These statements can be identified by the use of forward-looking terminology such as “may”, “will”, “expect”, “anticipate”, “estimate”, “plans”, “continue”, or the negative thereof or other variations thereof or comparable terminology referring to future events or results. The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of numerous factors. These factors include, without limitation, the timing of acquisitions and expansion opportunities, technological change and changes to the business environment that may impact the Company’s capital expenditures and competitive factors that may impact revenue and operating costs and alter the timing and amount of the Company’s capital expenditures. Any of these factors could cause actual results to vary materially from current results or the Company’s currently anticipated future results and financial condition. The Company wishes to caution readers not to place undue reliance on such forward-looking statements that speak only as of the date made. Additional information concerning factors that cause actual results to materially differ from those in such forward-looking statements is contained in the Company’s filings with Canadian and United States securities regulatory authorities.

Definitions

The Company’s discussion of its financial results focuses on operating income (loss) and net earnings (loss). Operating income (loss) and net earnings (loss) are presented in the Company’s unaudited consolidated statement of operations. Operating income (loss) is defined as earnings from continuing operations before other gains, other losses and impairments, interest and taxes. It is important to note that operating income (loss) is not a measure of performance under Canadian GAAP. Operating income (loss) should not be considered in isolation or as a substitute for net earnings (loss) prepared in accordance with Canadian GAAP or as a measure of operating performance or profitability. Operating income (loss) does not have a standardized meaning prescribed by GAAP and is not necessarily comparable to similar measures presented by other companies.

Certain comparative figures have been reclassified to conform to the current period financial statement presentation.

OVERVIEW

Counsel is a diversified company focused on acquiring and building businesses in two specific sectors: communications in the United States and real estate in Canada.

The Company entered the communications sector in March 2001 when it acquired a controlling interest in I-Link Incorporated (“I-Link/Acceris”). I-Link/Acceris is a supplier of voice, data and enhanced communications products and services. I-Link/Acceris operates as a facilities based telecommunications carrier providing long distance voice services to retail customers in the United States, and long distance voice and data services to small to medium-sized

businesses in the United States. I-Link/ Acceris also licenses a fully developed network convergence solution for voice and data based on its Internet Protocol communications technology.

The Company entered the real estate sector in 2002, when it completed the acquisition of five income producing properties, consisting of approximately 730,000 square feet and 13 acres of vacant land zoned for retail development in Canada.

CRITICAL ACCOUNTING POLICIES

The financial statements of Counsel are prepared in conformity with a framework of generally accepted accounting policies selected by management and approved by the Audit Committee of the Board of Directors. These policies are set out in Note 3 to the December 31, 2002 restated consolidated financial statements. Certain of the policies are more significant than others and are therefore considered critical accounting policies. Accounting policies are considered critical if they rely on a substantial amount of judgment (use of estimates) in their application or if they result from a choice between accounting alternatives and that choice has a material impact on our reported results or financial position. The policies identified as critical to Counsel are discussed below.

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods.

The most significant estimates relate to the application of purchase accounting, the assessment of recoverability of customer and loans receivables, portfolio investments, and the cash-flows expected to be derived from long lived assets including property under development, income producing properties, property, plant and equipment and intangible assets. Management makes significant estimates related to the measurement of obligations and the timing of the related cash flows, particularly related to accrued liabilities and future income tax liabilities. Such timing and measurement uncertainty could have a material effect on the reported results of operations and the financial position of the Company.

Actual results could differ materially from those estimates in the near term.

Revenue recognition

Telecommunication services

Revenue is generally 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 or determinable, and collection of the resulting receivable is reasonably assured. Revenue is derived from telecommunications usage, based on minutes of use. Revenue derived from usage is recognized as services are provided, based on agreed upon usage rates. Revenue is recorded net of estimated customer credits and billing errors, which are recorded at the same time the corresponding revenue is recognized. Revenues from billings for services rendered where collectibility is not determinable, are recognized when the final cash collections to be retained by the Company are finalized.

Technology licensing

Revenue from the sale of software licenses is recognized when a non-cancelable agreement is in force, the license fee is fixed or determinable, acceptance has occurred and collectibility is reasonably assured. Maintenance and support revenue is recognized ratably over the term of the related agreements. When a license of technology requires continued support or involvement of I-Link, contract revenue is spread over the period of the required support or involvement. In the event that collectibility is in question, revenue (deferred or recognized) is recorded only to the extent of cash receipts.

Valuation of portfolio investments

Portfolio investments represent investments in publicly traded and privately held companies. These investments are accounted for using the cost method. Under the cost method, the investment is initially recorded at cost; earnings from such investments are only recognized to the extent received or receivable. Provisions for loss in value are recorded if a decline in value is considered to be other than temporary. Neither unrealized gains nor recoveries in valuation, if any, are reflected in the consolidated financial statements.

Valuation of intangible assets

Effective 2002, companies are no longer permitted to amortize goodwill on a periodic or routine basis. Instead, the carrying value of goodwill must be assessed at least annually based on a comparison of a reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit.

Intangible assets are recorded at fair value upon acquisition. Finite-life intangible assets are amortized on a straight-line basis over their estimated useful life of one to five years (See Note 10 to the December 31, 2002 restated consolidated financial statements).

On an ongoing basis, management reviews the carrying value of intangible assets and the amortization of finite-life intangible assets, taking into consideration any events and circumstances that might have impaired their carrying value. The Company assesses impairment by determining whether the carrying value exceeds the fair value, determined as the consideration that would be agreed upon in an arm’s length transaction. If the fair value is determined to be less than the net book value, the excess of the net book value over the fair value is charged to operations in the period in which such impairment is determined by management.

Valuation of income producing properties

Income producing properties are carried at the lower of depreciated cost and net recoverable amount. A write-down to net recoverable amount is recognized when a property’s undiscounted cash flows are less than its carrying value. Projections of future cash flows take into account the specific business plan for each property and management’s best estimate of the most probable set of economic conditions anticipated to prevail in the market. The use of net recoverable amount to assess the carrying value at which a property is reported assumes the property will be held for the long term. Otherwise, the net realizable value method is used. Estimated net realizable value represents the estimated selling price reduced by any costs expected until final disposition, assuming reasonable market conditions.

Income taxes

Counsel operates in Canada and the United States and is therefore subject to income taxes in multiple jurisdictions. The income tax expense reported in the statement of operations is based on a number of different estimates made by management. The effective tax rate can change from year to year based on the mix of income or loss among the different jurisdictions in which the Company operates, changes in tax laws in these jurisdictions, and changes in the estimated values of future tax assets and liabilities recorded on the balance sheet. The income tax expense reflects an estimate of cash taxes expected to be paid in the current year, as well as a provision for changes arising this year in the value of future tax assets and liabilities. The likelihood of recovering value from future tax assets such as loss carry forwards and the future tax depreciation of capital assets are assessed at each quarter-end and a valuation allowance may be established or modified. Changes in the amount of the valuation allowance required can materially increase or decrease the tax expense in a period. Significant judgment is applied to determine the appropriate amount of valuation allowance to record. Material changes in income tax assets, liabilities, expense and recoveries may occur in the short term.

Restrictions in the Company’s ability to utilize income tax loss carry forwards have occurred in the past due to the application of change in ownership tax rules in the United States. There is no certainty that the application of these rules may not reoccur resulting in further restrictions on the Company’s income tax loss carry forwards existing at a particular time. Any such additional limitations could require the Company to pay income taxes in the future and record an income tax expense to the extent of such liability.

The Company 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 the Company has 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 the Company has the opportunity to utilize reported tax loss carry forwards.

NEW ACCOUNTING PRONOUNCEMENTS

Consolidation of Variable Interest Entities

The CICA issued accounting guideline AcG-15, Consolidation of Variable Interest Entities, which will be effective for the Company’s fiscal year beginning on January 1, 2004. The Guideline provides guidance as to when to apply consolidation principles to certain entities that are subject to control on a basis other than ownership of voting shares and thus determining when an enterprise includes the assets, liabilities and results of activities of such an entity (a variable interest entity) in its consolidated financial statements. The Company is currently evaluating the effects that the adoptions of this standard will have on its financial position and results of operations.

Generally Accepted Accounting Principles

The CICA recently issued Handbook Section 1100,Generally Accepted Accounting Principles. The section establishes standards for financial reporting in accordance with generally accepted accounting principles (“GAAP”). It clarifies the relative authority of various accounting pronouncements and other sources of guidance within GAAP. The standard also eliminates “industry practice” as a possible source to consult. The standard is effective for years beginning on or after October 1, 2003. The Company is currently evaluating the effects that the adoption of this standard will have on its financial position and results of operations.

Stock-Based Compensation

CICA Handbook Section 3870, Stock-Based Compensation and Other Stock-Based Payments was amended to require an expense to be recognized in the financial statements for all forms of employee stock-based compensation, including stock options, effective for periods beginning on or after January 1, 2004 for public companies. The Company is currently evaluating the effects that the adoption of this standard will have on its financial position and results of operations.

CONSOLIDATED RESULTS OF OPERATIONS

The following table sets out the Company’s consolidated quarterly results of operations for the eight quarters ended September 30, 2003 under the basis of presentation utilized in its GAAP financial statements.



		Unaudited																								Unaudited


														Restated			Restated									Nine months ended
														(1)			(1)									September 30
		2001			2002			2002			2002			2002			2003			2003			2003						2003
		Q4			Q1			Q2			Q3			Q4			Q1			Q2			Q3			2002
		$			$			$			$			$			$			$			$			$			$

Revenue
United States
	Acceris Communications Partners		22,386			22,811			20,984			19,834			20,076			23,272			29,505			29,149			63,629			81,926
	Acceris Communications Solutions		–			–			–			–			1,547			7,095			6,747			5,854			–			19,696
	Acceris Communications Technologies		1,420			1,581			888			321			47			–			1,050			1,049			2,790			2,099

			23,806			24,392			21,872			20,155			21,670			30,367			37,302			36,052			66,419			103,721
Canada
	Real estate		11			75			78			894			972			1,032			1,202			1,117			1,047			3,351

			23,817			24,467			21,950			21,049			22,642			31,399			38,504			37,169			67,466			107,072
Operating costs and expenses:
Telecommunication costs (exclusive of depreciation and amortization shown below)			14,503			13,273			12,237			10,973			14,453			25,748			21,319			20,072			36,483			67,139
Income producing properties			–			–			–			309			628			662			727			618			309			2,007
Selling, general and administrative			22,331			12,392			9,865			10,675			12,805			15,529			15,904			14,777			32,932			46,210
Research and development			307			382			465			317			235			–			–			–			1,164			–
Provision for doubtful accounts			403			1,357			1,251			1,118			2,273			1,175			1,131			1,466			3,726			3,772
Depreciation and amortization			2,561			1,684			1,592			1,715			2,042			2,524			2,362			2,597			4,991			7,483

Operating loss before undernoted items			(16,288	)		(4,621	)		(3,460	)		(4,058	)		(9,794	)		(14,239	)		(2,939	)		(2,361	)		(12,139	)		(19,539	)
Gains and other income:
Short-term investments			5,000			26,621			879			162			405			448			1,929			1,617			27,662			3,994
Portfolio investment			64			–			–			–			–			–			–			–			–			–
Sale of subsidiary			589			–			–			–			–			–			–			–			–			–
Retirement of debt			1,093			–			–			–			–			–			–			–			–			–
Other			–			–			–			501			782			–			–			2,578			501			2,578
Impairments and other losses:
Write-down of short-term investments			(2	)		(136	)		(2,656	)		(1,139	)		(80	)		(98	)		(35	)		–			(3,931	)		(133	)
Portfolio investments			(3,925	)		–			–			(640	)		–			–			(650	)		–			(640	)		(650	)
Other			–			–			(64	)		–			(1,159	)		–			–			(657	)		(64	)		(657	)
Interest income			529			123			146			83			49			38			114			395			352			547
Interest expense			(704	)		(654	)		(713	)		(692	)		(657	)		(714	)		(904	)		(638	)		(2,059	)		(2,256	)

Earnings (loss) before income taxes, non- controlling interest and discontinued operations			(13,644	)		21,333			(5,868	)		(5,783	)		(10,454	)		(14,565	)		(2,485	)		934			9,682			(16,116	)
Income taxes			5,261			11,005			465			438			(2,253	)		–			14			882			11,908			896
Non-controlling interest			(39	)		–			–			–			–			–			–			–			–			–

Earnings (loss) from continuing operations			(18,866	)		10,328			(6,333	)		(6,221	)		(8,201	)		(14,565	)		(2,499	)		52			(2,226	)		(17,012	)
Discontinued operations:
Medical products and services
	Medical products		(1,607	)		(843	)		3			(799	)		(1,213	)		211			10			29			(1,639	)		250
	Pharmaceutical products		4,519			–			(410	)		(88	)		(209	)		(17	)		145			(6	)		(498	)		122
	Pharmacy services		(1,716	)		–			–			–			(1,958	)		–			–			–			–			–
Communications			(4,197	)		(3,099	)		(4,580	)		(1,463	)		(3,366	)		(277	)		371			213			(9,142	)		307
Real estate			–			–			–			212			233			267			299			355			212			921
Long-term care			(1,043	)		4			76			3			(1,007	)		(904	)		(1,067	)		140			83			(1,831	)

Net earnings (loss)			(22,910	)		6,390			(11,244	)		(8,356	)		(15,721	)		(15,285	)		(2,741	)		783			(13,210	)		(17,243	)
Weighted average number of common shares outstanding (in thousands)			22,858			22,411			22,312			22,131			21,928			21,491			21,060			20,593			22,285			21,045
Basic net earnings (loss) per share from:
	Continuing operations		(0.86	)		0.43			(0.32	)		(0.32	)		(0.41	)		(0.72	)		(0.15	)		(0.03	)		(0.21	)		(0.90	)
	Discontinued operations		(0.18	)		(0.18	)		(0.20	)		(0.10	)		(0.34	)		(0.03	)		(0.01	)		0.04			(0.48	)		0.00

	Basic net earnings (loss) per share		(1.04	)		0.25			(0.52	)		(0.42	)		(0.75	)		(0.75	)		(0.16	)		0.01			(0.69	)		(0.90	)

Diluted net earnings (loss) per share from:
	Continuing operations		(0.86	)		0.21			(0.32	)		(0.32	)		(0.41	)		(0.72	)		(0.15	)		(0.03	)		(0.21	)		(0.90	)
	Discontinued operations		(0.18	)		(0.08	)		(0.20	)		(0.10	)		(0.34	)		(0.03	)		(0.01	)		0.04			(0.48	)		(0.00	)

	Diluted net earnings (loss) per share		(1.04	)		0.13			(0.52	)		(0.42	)		(0.75	)		(0.75	)		(0.16	)		0.01			(0.69	)		(0.90	)

(1)

On September 5, 2003, I-Link Incorporated, a subsidiary, restated its financial statements for the year ended December 31, 2002 and the quarter ended March 31, 2003 to adopt the unencumbered cash basis of revenue recognition for a telecommunications network service offering. See note 2 to the Company’s December 31, 2002 restated consolidated financial statements and note 2 to the Company’s March 31, 2003 restated interim financial statements.

Operating losses

The Company’s communications operating segments are: Acceris Communications Partners, Acceris Communications Solutions and Acceris Communications Technologies. Real estate and corporate segments are reported and analyzed separately. Each segment is discussed below.

In the third quarter of 2003, the Company incurred an operating loss of $2,361 compared to an operating loss of $2,939 for the second quarter of 2003 and an operating loss of $4,058 in the third quarter of 2002. The improved results in the third quarter compared to the third quarter of 2002, relates primarily to the acquisition of the enterprise and agent business of RSL COM U.S.A. Inc. (“RSL”) acquired on December 10, 2002.

The Company expects to produce operating income in all of its operating units in 2004.

Gains and other income

The Company makes investments in equities of publicly traded companies, categorized as short-term investments. During the third quarter of 2003, the Company reduced its short-term investment portfolio, recognizing a gain on the sale of securities of $1,617.

The Company recognized a gain of $2,578 in the third quarter of 2003 on the assignment of certain liabilities of I-Link, owed to Winter Harbor LLC, to Counsel pursuant to a settlement agreement between the Company and Winter Harbor.

Impairments and other losses

The Company recorded impairments on short-term investments of $nil in the third quarter of 2003 compared to $35 in the second quarter and a $1,139 impairment in the third quarter of 2002.

The Company incurred costs of $657 during the third quarter of 2003 related to its unsuccessful offer to acquire at least 45% of its then outstanding $40.8 million, 6% convertible unsecured subordinated debentures.

Interest income and expense

Interest expense was $638 in the third quarter of 2003 compared to $904 in the second quarter of the year and $692 in the third quarter of 2002. The third quarter decrease in 2003 versus the second quarter of 2003 related primarily to the decline in the average outstanding balance on the Company’s revolving credit facility.

The convertible debentures of Counsel are a hybrid financial instrument, which contains both debt and equity elements. Under Canadian GAAP, the majority of the interest expense associated with the debentures is recorded as a charge to equity and thus excluded from interest expense reported by the Company (See note 12 (d) to the restated December 31, 2002 consolidated financial statements).

Income taxes

The income tax expense for the Company was $882 in the third quarter of 2003 compared to $14 in the second quarter of 2003 and $438 in the third quarter of 2002.

The Company has significant operating and capital losses available to reduce future income tax expense. A large portion of the future income tax assets resulting from these losses has been offset by a valuation allowance arising from uncertainties associated with their utilization, given the large losses incurred by the Company in recent years. There is significant uncertainty as to when the Company’s estimated future income tax liabilities will convert to cash liabilities or will be determined as no longer required by the Company.

Discontinued operations

Commencing in the second quarter of 2003, the Company initiated a formal plan of disposal for one of its income producing properties. In the fourth quarter, the Company abandoned its formal plan of disposal for this income producing property. As a result of this decision, this property will be included in continuing operations in the fourth quarter of 2003.

The communications business recognized $213 of contingent consideration during this quarter from the sale of its VolP network and customers to Buyers United Inc.

Results from the seniors living business stabilized in the current quarter. The strengthening Canadian dollar relative to the US dollar had negatively affected results in earlier quarters in 2003.

Net earnings (loss)

The Company realized net earnings in the third quarter of 2003 of $783 compared to a net loss of $2,741 in the second quarter of 2003 and $8,356 in the third quarter of 2002.

The Company expects to continue to deliver improved results from its communications, real estate and corporate segments in the coming quarters.

Segment Analysis:

The continuing operations of the Company for communications are: Acceris Communications Partners, Acceris Communications Solutions and Acceris Communications Technologies. Real estate and corporate segments are reported and analyzed separately. The Company believes that providing the results of business segments on a rolling eight-quarter basis supplemented by commentary provides meaningful information for users of the consolidated financial statements.

Acceris Communications Partners



		Unaudited																						Unaudited


												Restated (1)			Restated (1)									Nine months ended
		2001			2002			2002		2002		2002			2003			2003			2003			September 30
		Q4			Q1			Q2		Q3		Q4			Q1			Q2			Q3			2002		2003
		$			$			$		$		$			$			$			$			$		$

Revenue
	United States		22,386			22,811			20,984		19,834		20,076			23,272			29,505			29,149			63,629		81,926

			22,386			22,811			20,984		19,834		20,076			23,272			29,505			29,149			63,629		81,926
Operating costs and expenses:
	Telecommunication costs (exclusive of depreciation and amortization shown below)		14,503			13,273			12,237		10,973		13,262			20,920			17,374			16,839			36,483		55,133
	Selling, general and administrative		13,717			7,698			6,179		5,717		7,890			10,788			10,434			10,804			19,594		32,026
	Provision for doubtful accounts		403			1,357			1,251		1,118		2,240			1,151			1,169			1,467			3,726		3,787
	Depreciation and amortization		809			980			977		966		1,133			1,164			1,162			1,453			2,923		3,779

Operating income (loss)			(7,046	)		(497	)		340		1,060		(4,449	)		(10,751	)		(634	)		(1,414	)		903		(12,799	)



		Unaudited																						Unaudited


												Restated (1)			Restated (1)									Nine months ended
		2001			2002			2002		2002		2002			2003			2003			2003			September 30
		Q4			Q1			Q2		Q3		Q4			Q1			Q2			Q3			2002		2003
		$			$			$		$		$			$			$			$			$		$

Operating income (loss) by profit centre:
	Retail long distance		(7,046	)		(497	)		340		1,060		(2,343	)		(1,570	)		(1,284	)		(2,703	)		903		(5,557	)
	Network service offering		–			–			–		–		(2,106	)		(9,181	)		650			1,518			-		(7,013	)
	Local dialing offering		–			–			–		–		–			–			–			(229	)		-		(229	)

Operating income (loss)			(7,046	)		(497	)		340		1,060		(4,449	)		(10,751	)		(634	)		(1,414	)		903		(12,799	)

(1)

Acceris Communications Partners’ business includes the operations of WorldxChange acquired in June 2001 and the agent and residential (“A&R”) business of RSL acquired in December 2002. Acceris Communications Partners operates three profit centres. The core business is a facilities based telecommunications provider in the retail long distance market. Acceris Communications Partners also provided a network service offering that commenced in the fourth quarter of 2002 and was discontinued in the third quarter of 2003. Acceris Communications Partners will offer local dialing products to its residential and small business customers starting in the fourth quarter of 2003. In 2003, integration costs of $1,254 (included in selling, general and administrative expenses) were incurred as we worked to complete the integration of the acquired businesses.

Acceris Communications Partners accounted for $29,149 of telecommunication services revenue in the third quarter of 2003 compared to $29,505 in the second quarter and $19,834 in third quarter of 2002. The increase over the second quarter of 2002 resulted from the recognition of revenue under the unencumbered cash basis of accounting relating to a network service offering and the inclusion of revenue from the A&R business of RSL. It is anticipated that Acceris Communications Partners’ telecommunication services revenue will continue to increase in future quarters.

Acceris Communications Partners’ telecommunication network expense was $16,839 in the third quarter of 2003 compared to $17,374 in the second quarter and $10,973 in the third quarter of 2002. The decrease from the second quarter of 2003 relates primarily to a reduction in network expenses for the network service offering that has been discontinued. The increase over the third quarter of 2002 relates primarily to the acquisition of the former A&R business of RSL in December 2002 and the inclusion of network expenses related to the network service offering.

Many factors affect the predictability of margins including pricing and cost attributes associated with the 700+ long distance programs, fluctuations in the number of minutes carried over the Company’s frame relay and voice network each period, changes in the contribution rate to the Universal Service Fund (“USF”) and other regulatory changes associated with the USF.

Acceris Communications Partners’ selling, general and administrative expense was $10,804 in the third quarter of 2003, up from $10,434 in the second quarter and up from $5,717 in the third quarter of 2002. The increase from the second quarter of 2003 results from increased personnel costs and increased commissions, partially offset by a decrease in general operating costs. The increase from the third quarter of 2002 to the third quarter of 2003, resulted from the acquisition of the former A&R business of RSL, an increase in commission costs related to the channel strategy (commissions paid to commercial agents and MLM channels), an increase in personnel costs and an increase in professional fees.

Acceris Communications Partners’ provision for doubtful accounts was $1,467 in the third quarter of 2003 as compared to $1,169 in the second quarter and $1,118 in the third quarter of 2002.

Acceris Communications Solutions

Unaudited

Nine months ended

2001

2002

2003

September 30

2002

2003

Revenue

United States

–

1,547

7,095

6,747

5,854

–

19,696

–

1,547

7,095

6,747

5,854

–

19,696

Operating costs and expenses:

Telecommunication costs (exclusive of depreciation

–

1,191

4,828

3,945

3,233

–

12,006

and amortization shown below)

Selling, general and administrative

–

777

2,768

2,724

2,223

–

7,715

Provision for doubtful accounts

–

(38

)

–

(15

)

Depreciation and amortization

–

158

662

595

541

–

1,798

Operating loss

–

(612

)

(1,187

)

(479

)

(142

)

–

(1,808

)

Acceris Communications Solutions is comprised of the operations of the former Enterprise business of RSL acquired in December 2002. The Enterprise business provides voice and data services to small- and medium-sized businesses. The business expects to grow with its focus on attracting and maintaining customers.

Acceris Communications Solutions accounted for $5,854 of telecommunications services revenue in the third quarter of 2003 compared to $6,747 in the second quarter and $nil in the third quarter of 2002.

Acceris Communications Solutions’ telecommunication network expense was $3,233 in the third quarter of 2003 compared to $3,945 in the second quarter and $nil in the second quarter of 2002. The savings from the second

quarter resulted from a volume decline and network integration activities. The decline in costs associated with network integration activities is expected to continue throughout the remainder of 2003.

Acceris Communications Solutions accounted for $2,223 of selling, general and administrative expense in the third quarter of 2003, $2,724 in second quarter of 2003 and $nil in the third quarter of 2002. The decline from second quarter 2003 results from a decline in salaries and benefits.

Acceris Communications Technologies



																										Unaudited
		Unaudited
																										Nine months ended
		2001			2002			2002			2002			2002			2003			2003			2003			September 30
		Q4			Q1			Q2			Q3			Q4			Q1			Q2			Q3			2002			2003
		$			$			$			$			$			$			$			$			$			$

Revenue
	United States		1,420			1,581			888			321			47			–			1,050			1,049			2,790			2,099

			1,420			1,581			888			321			47			–			1,050			1,049			2,790			2,099
Operating costs and expenses:
	Selling, general and administrative		4,646			1,002			968			942			1,350			669			1,652			954			2,912			3,275
	Research and development		307			382			465			317			235			–			–			–			1,164			–
	Depreciation and amortization		1,437			558			559			536			470			517			517			517			1,653			1,551

Operating loss			(4,970	)		(361	)		(1,104	)		(1,474	)		(2,008	)		(1,186	)		(1,119	)		(422	)		(2,939	)		(2,727	)

Acceris Communications Technologies is the technology services segment of I-Link/Acceris, which licenses a fully developed technology platform to third party users that facilitates the convergence of traditional telecommunications equipment and Internet Protocol technologies. Technology licensing revenues and contributions are project based and, as such, these amounts will vary from period to period based on the timing and size of technology licensing projects and payments.

Acceris Communications Technologies reported revenue of $1,049 in the third quarter of 2003 as compared to $1,050 in the second quarter and $321 in the third quarter of 2002. The revenues in 2003 relate to two contracts. The first contract was entered into in the first quarter of 2003, with acceptance of the technology being obtained in the second quarter of 2003. The second contract with an overseas customer was entered into in the third quarter of 2003 and is expected to continue into 2004/2005.

In the third quarter of 2003, Acceris Communications Technologies’ selling, general and administrative expense was $954, $1,652 for the second quarter of 2003 and $942 for the third quarter of 2002. It is anticipated that selling, general and administrative expense will change from quarter to quarter based on the business volumes in the segment.

Acceris Communications Technologies did not incur any research and development costs in the first, second and third quarters of 2003 compared to $317 in the third quarter of 2002. The maturity of the product offering and advancement of the technology does not require the business to invest in research and development at this time. However, investment in this segment may be required in the future to ensure the technology continues to meet the expanding needs of the customer base.

Real estate



		Unaudited																Unaudited


																		Nine months ended
		2001		2002		2002		2002		2002		2003		2003		2003		September 30
		Q4		Q1		Q2		Q3		Q4		Q1		Q2		Q3		2002		2003
		$		$		$		$		$		$		$		$		$		$

Revenue
	Canada		11		75		78		894		972		1,032		1,202		1,117		1,047		3,351
			11		75		78		894		972		1,032		1,202		1,117		1,047		3,351

Operating costs and expenses:
	Income producing properties		–		–		–		309		628		662		727		618		309		2,007
	Depreciation and amortization		3		16		16		62		23		57		63		68		94		188

Operating income			8		59		62		523		321		313		412		431		644		1,156

Counsel purchased five income-producing properties in the third quarter of 2002 (one of which is reported as discontinued operations), which were immediately accretive to operating income.

Subsequent to the third quarter 2003, the Company rescinded its decision to sell one of the income producing properties. This property will be reflected as part of continuing operations in the financial statements in the fourth quarter of 2003.

Revenue generated by the real estate business in the third quarter of 2003 was $1,117 compared to $1,202 in the second quarter and $894 in the third quarter of 2002.

The real estate segment has generated positive operating and net income since acquisition and is self-funding. The Company anticipates acquiring additional properties. As at September 30, 2003 income-producing properties were 94% leased.

Corporate costs and expenses



		Unaudited																								Unaudited


																										Nine months ended
		2001			2002			2002			2002			2002			2003			2003			2003			September 30
		Q4			Q1			Q2			Q3			Q4			Q1			Q2			Q3			2002			2003
		$			$			$			$			$			$			$			$			$			$

Operating costs and expenses:
	Selling, general and administrative		3,968			3,692			2,718			4,016			2,788			1,304			1,094			796			10,426			3,194
	Depreciation and amortization		312			130			40			151			258			124			25			18			321			167

Operating loss			(4,280	)		(3,822	)		(2,758	)		(4,167	)		(3,046	)		(1,428	)		(1,119	)		(814	)		(10,747	)		(3,361	)

Head office costs amounted to $814 compared to $1,119 in the second quarter and $4,167 in the third quarter of 2002. In the third quarter, operating costs were primarily lower than the second quarter due to a reduction in discretionary compensation and a decrease in professional service fees. The decrease from the third quarter of 2002 relative to the third quarter of 2003 is primarily due to the reduction of overhead costs resulting from closing the Company’s New York office and the termination of the Company’s affiliation with Springwell Capital Partners.

CAPITAL RESOURCES AND LIQUIDITY

Working Capital

The Company has experienced a reduction of $19,950 in working capital since December 31, 2002. The primary changes in working capital have resulted from a $9,003 increase in deferred revenue relating to a discontinued network service offering, a $4,833 increase in borrowing from its revolving credit facility in WorldxChange; a $2,393 increase in current liabilities of discontinued operations and $2,201 increase in accounts payable and accrued liabilities.

The Company expects working capital to improve in the coming quarters as we recognize amounts from deferred revenue, continue to liquidate short-term investments, dispose of long-term care assets and earn operating income.

Sources of funding

The Company had $8,510 in cash and cash equivalents and short-term investments on September 30, 2003.

In the third quarter of 2003, sources of cash included existing reserves, proceeds on the liquidation of short-term investments and positive operating cash flow. The Company will continue to monetize its short-term investments and other assets to provide funds for general corporate purposes as required.

Uses of funding

Funds were primarily used for capital expenditures, to reduce outstanding amounts borrowed under its revolving credit facilities in communications, and to make scheduled payments on its capital leases and mortgages.

Excluding the convertible debentures, substantially all debt is directly attributable to the funding of operating segments and the cost of this debt is expected to continue to be funded by operating cash flows in future periods.

Convertible debentures

The Company repaid its outstanding 6% convertible debentures at maturity (October 31, 2003) by delivering 690 common shares for each $1,000 of principal, resulting in the issuance of 28.2 million common shares. A significant debenture holder filed a lawsuit to restrain the Company from satisfying its obligation to repay the debentures at maturity by delivering common shares. On October 28, the Ontario Superior Court of Justice dismissed the lawsuit. The debenture holder has appealed this decision. The Company had offered $750 cash for each $1,000 of principal amount of debentures as an alternative to delivering common shares at maturity. However, less than 45% of the debentures were tendered to this offer, and the offer expired on October 30, 2003 without take-up.

At September 30, 2003, the Company’s convertible debentures had an outstanding face value of $40,861 (December 31, 2002 — $42,561), a fair value of $30,658 (December 31, 2002 — $27,882). The debentures matured on October 31, 2003.

Normal course issuer bids

The Company renewed its normal course issuer bids for its common shares and convertible debentures on December 12, 2002. During the third quarter of 2003 the Company acquired 313,300 common shares for cancellation for $1,430 (third quarter 2002 — 294,900 shares for $524) and $705 of convertible debentures for $641 (third quarter 2002 — $nil).

COUNSEL CORPORATION

CONSOLIDATED BALANCE SHEETS

					��
				Restated (1)
	September 30,			December 31,
	2003			2002
(In thousands of U.S. dollars)	$			$


	(Unaudited)			(Audited)
Assets
CURRENT ASSETS
Cash and cash equivalents		7,831			8,991
Short-term investments		679			3,071
Accounts receivable (net of allowance for doubtful accounts of $3,008; 2002 – $2,784)		18,602			17,233
Income taxes recoverable		–			3,329
Future income tax assets		250			274
Prepaid expenses and deposits		3,540			4,591
Assets of discontinued operations (note 8)		5,543			2,414

		36,445			39,903
LONG-TERM ASSETS
Income producing properties		22,222			19,147
Properties under development (note 6)		7,361			3,063
Loans receivable		6,149			6,573
Prepaid expenses and deposits		1,016			2,262
Portfolio investments		6,558			4,420
Property, plant and equipment, net		10,396			12,657
Intangible assets, net (note 7)		9,484			9,318
Assets of discontinued operations (note 8)		39,241			37,370

		138,872			134,713

Liabilities
CURRENT LIABILITIES
Accounts payable		6,802			7,675
Accrued liabilities		23,840			20,766
Deferred revenue		9,961			958
Revolving credit facility		13,919			9,086
Current portion of mortgages and loans payable		2,201			3,303
Current portion of capital leases		2,660			2,714
Convertible debentures payable		1,222			2,515
Income tax payable		511			–
Liabilities of discontinued operations (note 8)		10,165			7,772

		71,281			54,789
LONG-TERM LIABILITIES
Mortgages and loans payable		17,343			14,319
Capital leases		2,331			4,146
Future income tax liabilities		37,464			36,550
Liabilities of discontinued operations (note 8)		22,975			20,025

		151,394			129,829
Commitments, contingencies, guarantees and concentrations (note 12)
MINORITY INTEREST		659			–
Shareholders’ equity (deficit)		(13,181	)		4,884

		138,872			134,713

(1)

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

These unaudited interim consolidated financial statements should be read in conjunction with the restated audited consolidated financial statements for the year ended December 31, 2002.

COUNSEL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

For the period ended September 30, 2003



	Capital Stock								Equity
									component			Foreign		Restated (1)			Restated (1)
	No. of								of convertible			currency		Retained			Total
	common						Contributed		debentures			translation		earnings			Shareholders’
	shares			Amount			surplus		payable			adjustment		(Deficit)			equity
(In thousands of U.S. dollars) (Unaudited)	(In 000’s)			$			$		$			$		$			$

Balance – December 31, 2001		22,493			102,852			8,883		41,833			–		(117,074	)		36,494
Adjustment related to the adoption of new accounting pronouncement		–			–			–		–			–		(1,000	)		(1,000	)

Restated Balance – December 31, 2001		22,493			102,852			8,883		41,833			–		(118,074	)		35,494
Common shares purchased for cancellation		(492	)		(2,250	)		1,305		–			–		–			(945	)
Accretion of equity component of debentures payable		–			–			–		2,270			–		(2,270	)		–
Net loss		–			–			–		–			–		(13,213	)		(13,213	)

Balance – September 30, 2002		22,001			100,602			10,188		44,103			–		(133,557	)		21,336
Common shares purchased for cancellation		(256	)		(1,168	)		581		–			–		–			(587	)
Accretion of equity component of debentures payable		–			–			–		759			–		(759	)		–
Gain on retirement of debentures payable net of income taxes of $15		–			–			63		(210	)		–		–			(147	)
Net loss – restated		–			–			–		–			–		(15,718	)		(15,718	)

Restated balance – December 31, 2002		21,745			99,434			10,832		44,652			–		(150,034	)		4,884
Common shares purchased for cancellation		(1,337	)		(6,110	)		3,598		–			–		–			(2,512	)
Accretion of equity component of debentures payable		–			–			–		2,232			–		(2,232	)		–
Foreign currency translation adjustment		–			–			–					2,820		–			2,820
Gain on retirement of debentures payable net of income taxes of $66		–			–			671		(1,801	)		–		–			(1,130	)
Net loss		–			–			–		–			–		(17,243	)		(17,243	)

Balance – September 30, 2003		20,408			93,324			15,101		45,083			2,820		(169,509	)		(13,181	)

(1)

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

These unaudited interim consolidated financial statements should be read in conjunction with the restated audited consolidated financial statements for the year ended December 31, 2002.

COUNSEL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS



								Nine months ended
		Three months ended						September 30
		September 30						Restated (1)
		2003			2002			2003			2002
(In thousands of U.S. dollars, except per share amounts) (Unaudited)		$			$			$			$


Revenues
	Telecommunication services		35,003			19,834			101,622			63,629
	Communication technology licensing		1,049			321			2,099			2,790
	Income producing properties		1,117			894			3,351			1,047

			37,169			21,049			107,072			67,466

Operating costs and expenses
	Telecommunication costs (exclusive of depreciation and amortization shown below)		20,072			10,973			67,139			36,483
	Income producing properties		618			309			2,007			309
	Selling, general and administrative		14,777			10,675			46,210			32,932
	Research and development		–			317			–			1,164
	Provision for doubtful accounts		1,466			1,118			3,772			3,726
	Depreciation and amortization		2,597			1,715			7,483			4,991

			39,530			25,107			126,611			79,605

Operating loss before undernoted items			(2,361	)		(4,058	)		(19,539	)		(12,139	)
Gains and other income
	Gain on sale of short-term investments		1,617			162			3,994			27,662
	Other		2,578			501			2,578			501
Impairments and other losses
	Write-down of short-term investments		–			(1,139	)		(133	)		(3,931	)
	Write-down of portfolio investments		–			(640	)		(650	)		(640	)
	Other		(657	)		–			(657	)		(64	)

Earnings (loss) before the undernoted			1,177			(5,174	)		(14,407	)		11,389
	Interest income		395			83			547			352
	Interest expense		(638	)		(692	)		(2,256	)		(2,059	)

Earnings (loss) before income taxes and discontinued operations			934			(5,783	)		(16,116	)		9,682
	Provision for income taxes		(882	)		(438	)		(896	)		(11,908	)

	Income (loss) from continuing operations		52			(6,221	)		(17,012	)		(2,226	)

	Income (loss) from discontinued operations (note 8)		731			(2,135	)		(231	)		(10,984	)

Net earnings (loss)			783			(8,356	)		(17,243	)		(13,210	)

Basic and diluted net earnings (loss) per share (note 11):
	Continuing operations		(0.03	)		(0.32	)		(0.90	)		(0.21	)
	Discontinued operations		0.04			(0.10	)		(0.00	)		(0.48	)

Basic and diluted net earnings (loss) per share			0.01			(0.42	)		(0.90	)		(0.69	)

Weighted average number of common shares outstanding (in thousands) – Basic and diluted			20,593			22,131			21,045			22,285

(1)

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

These unaudited interim consolidated financial statements should be read in conjunction with the restated audited consolidated financial statements for the year ended December 31, 2002.

COUNSEL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS



									Nine months ended September 30
			Three months ended September 30						Restated (1)
			2003			2002			2003			2002
(In thousands of U.S. dollars) (Unaudited)			$			$			$			$


Cash provided by (used in)
OPERATING ACTIVITIES
	Earnings (loss) from continuing operations			52			(6,221	)		(17,012	)		(2,226	)
	Non-cash items
		Future income taxes		889			795			938			11,925
		Depreciation of property, plant and equipment		1,499			1,198			4,952			2,552
		Amortization of intangible assets		1,098			517			2,531			2,439
		Gain on sale of short-term investments		(1,617	)		(162	)		(3,994	)		(27,662	)
		Write-down of short-term investments		–			1,139			133			3,931
		Write-down of portfolio investments		–			640			650			579
		Impairment of property, plant and equipment		–			1,070			–			2,934
		Accretion of liability component of debentures payable		12			72			36			217
		Stock received on sale transactions		(123	)		–			(1,223	)		–
		Discharge of obligations		–			–			(394	)		–
		Assignment of certain assets		(2,578	)		–			(2,578	)		–

Changes in non-cash working capital related to operations
	(Increase) decrease in accounts receivable			2,026			605			(128	)		6,845
	(Increase) decrease in income taxes recoverable			1,104			125			3,840			(4	)
	(Increase) decrease in loans receivable, prepaid expenses and deposits			943			(535	)		(139	)		(32	)
	Increase (decrease) in accounts payable and accrued liabilities			718			(2,884	)		2,372			(15,006	)
	Increase (decrease) in deferred revenue			(304	)		(322	)		9,003			(1,940	)

Cash provided by (used in) continuing operations				3,719			(3,963	)		(1,013	)		(15,448	)
Cash provided by (used in) discontinued operations				714			(4,133	)		(1,203	)		(10,766	)

				4,433			(8,096	)		(2,216	)		(26,214	)

INVESTING ACTIVITIES
	Purchase of short-term investments			–			–			(185	)		(9,807	)
	Purchase of portfolio investments			–			–			–			(500	)
	Purchase of property, plant and equipment			(333	)		–			(1,710	)		(1,298	)
	Purchase of property under development			(994	)		(540	)		(1,777	)		(2,611	)
	Proceeds on sale of short-term investments			2,476			1,743			6,438			39,383
	Proceeds on sale of portfolio investments			125			88			125			145
	Proceeds on sale of property, plant and equipment			–			691			160			691
	Acquisition of income producing properties			–			(8,965	)		–			(7,470	)
	Discontinued operations			–			(4,699	)		1,583			371

				1,274			(11,682	)		4,634			18,904

FINANCING ACTIVITIES
	Net draws on revolving credit facility			(929	)		1,836			4,833			1,031
	Repayment of mortgages and loans payable			(93	)		–			(421	)		–
	Capital lease repayments			(601	)		(617	)		(1,869	)		(1,938	)
	Common shares purchased for cancellation			(511	)		(556	)		(2,512	)		(945	)
	Retirement of debentures payable			(534	)		–			(1,148	)		–
	Repayment of liability component of debenture payable			–			–			(1,416	)		(1,282	)
	Discontinued operations			(67	)		(276	)		829			(426	)

				(2,735	)		387			(1,704	)		(3,560	)

Increase/ (decrease) in cash and cash equivalents				2,972			(19,391	)		714			(10,870	)
Cash and cash equivalents – beginning of period				7,779			33,878			10,037			25,357

Cash and cash equivalents – end of period				10,751			14,487			10,751			14,487
Less: cash and cash equivalents – discontinued operations				2,920			1,806			2,920			1,806

Cash and cash equivalents – continuing operations				7,831			12,681			7,831			12,681

Supplementary information
Cash paid (received) during the period:
	Interest			930			990			3,866			3,705
	Income tax			(1,431	)		10			(4,031	)		269
Non-cash investing and financing activities:
	Communications shares acquired on sale transaction			123			–			1,816			–
	Mortgages and loans assumed on acquisition of income producing properties			–			20,007			1,328			20,007
	Assets acquired on purchase transaction			2,836			–			2,836			–
	Notes payable incurred for the purchase of software and software licenses			921			–			921			–

(1)

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

These unaudited interim consolidated financial statements should be read in conjunction with the restated audited consolidated financial statements for the year ended December 31, 2002.

COUNSEL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2003 (In thousands of U.S. dollars, except per share amounts) (Unaudited)

1. Description of the business

Counsel Corporation (the “Company” or “Counsel”) is a diversified company focused on acquiring and building businesses in two specific sectors: communications in the United States and real estate in Canada.

The Company engages in the communications sector through its investment in I-Link Incorporated (“I-Link/Acceris”). I-Link/Acceris is a supplier of voice, data and enhanced communications products and services. Through direct and indirect subsidiaries, I-Link/Acceris operates as a facilities based telecommunications carrier providing long distance voice services to retail customers in the United States, and long distance voice and data services to small- to medium-sized businesses in the United States. I-Link/Acceris also licenses a fully developed network convergence solution for voice and data based on its Internet Protocol communications technology.

The Company entered the real estate sector during the third quarter of 2002 through the acquisition of five retail shopping centres in Canada.

To gain a full appreciation of all the assets currently under management, a review of discontinued operations is required. During 2003, the Company adopted a formal plan of disposal for an income producing property. Subsequent to the quarter end, the plan was terminated and accordingly, the income producing property will be reflected in continuing operations effective in the fourth quarter of 2003. In 2002, formal plans of disposal were adopted for the Company’s long-term care business, medical products business segment and communications network segment (see note 8).

2. Summary of significant accounting policies

Basis of presentation

The consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in Canada (“Canadian GAAP”) and are presented in U.S. dollars. These interim consolidated financial statements should be read in conjunction with the most recent restated audited annual financial statements, as at December 31, 2002, and the notes thereto. In the opinion of management, all adjustments considered necessary for a fair presentation of results for the periods reported have been included. The interim consolidated financial statements conform in all material respects to the requirements of Canadian GAAP for interim financial statements and, accordingly, do not contain all of the note disclosures found in the annual financial statements. The interim consolidated financial statements follow the same accounting policies and methods of their application as the restated audited annual financial statements.

Certain comparative figures have been reclassified to conform to the current period financial statement presentation.

COUNSEL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2003 (In thousands of U.S. dollars, except per share amounts) (Unaudited)

These consolidated financial statements include the accounts of the Company and all companies which it controls. The Company’s principal operating subsidiaries comprising continuing operations and its respective ownership interest in each subsidiary as at September 30, 2003 and December 31, 2002, are as follows:


	September 30,		December 31,
	2003		2002

	%		%
Counsel Corporation (US)		100.0		100.0
Counsel Communications LLC (i)		100.0		88.4
I-Link/Acceris (i)/(ii)		69.8		60.2


(i)	On January 2, 2003, the Company acquired the minority interest of Counsel Communications LLC, which owns all of the Company’s shares of I-Link/Acceris. As a result, the Company’s ownership in Counsel Communications LLC and its effective ownership in I-Link/Acceris increased to 100% and 68.1% respectively.

(ii)	In the third quarter of 2003, the Company received 2% of the total shares of I-Link and the assignment of certain liabilities of I-Link, owed to Winter Harbor LLC, to Counsel Communications LLC pursuant to a settlement agreement between Winter Harbor LLC and the Company. This resulted in a gain of $2,578 that has been recorded in Other income on the income statement.

Intercompany balances and transactions among the Company and its subsidiaries are eliminated on consolidation.

Significant Accounting Policies

The policy below has been broadened from those set out in Note 3 of the restated consolidated financial statements as at December 31, 2002.

Properties under development

Properties under development are recorded at cost and reduced for impairment where applicable. Properties are classified as properties under development until the properties are substantially completed and available for immediate sale, at which time they are classified as properties held for sale or as income producing properties. The cost of real estate under development includes the acquisition cost of land, pre-development and development expenses, interest, realty taxes and other expenses directly related to the property.

3. Recent accounting pronouncements

Consolidation of Variable Interest Entities

Generally Accepted Accounting Principles

COUNSEL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2003 (In thousands of U.S. dollars, except per share amounts) (Unaudited)

standard also eliminates “industry practice” as a possible source to consult. The standard is effective for years beginning on or after October 1, 2003. The Company is currently evaluating the effects that the adoption of this standard will have on its financial position and results of operations.

Stock-Based Compensation

4. Acquisitions

In July 2002, the Company, through its controlling interest in I-Link/Acceris, agreed to purchase certain assets and related liabilities of Transpoint Communications, LLC (“Transpoint”) and Local Telecom Holdings, LLC (“Local Telecom”). Also in July 2002, the Company and Local Telecom entered into a management agreement, pursuant to which the Company provided certain management services to Local Telecom for a monthly fee of $15, and a wholesale telecommunications services agreement, pursuant to which the Company provides network services (at prices comparable to those charged to third party carriers) to Local Telecom. The acquisition closed on July 28, 2003. The Company recorded revenues from Local Telecom for management and wholesale telecommunications services totaling $182 during 2003 until the closing. As part of the management agreement, the Company collected customer accounts on behalf of Local Telecom and paid certain costs and expenses of Local Telecom from the date of the agreement through closing. As of the closing date, the Company had an asset (which had been included in other assets) from Local Telecom of $2,836 that represented uncollected revenues from Local Telecom plus costs and expenses paid for Local Telecom, less collections on accounts receivable of Local Telecom. At closing, the $2,836 was applied as part of the total purchase price of $2,879. The intent of this acquisition was primarily to increase the Company’s customer base in the Company’s commercial agent business and improve network utilization. Subsequent to closing, actual revenues of $931 from Local Telecom customers have been recorded as telecommunication services revenues in the third quarter of 2003.

The preliminary allocation of the purchase price to the fair values of assets acquired and liabilities assumed is as follows. The completion of the purchase price allocations is pending the completion of the valuation of the intangible assets. The preliminary allocation to the intangible assets is to customer contracts and relationships ($1,399) and agent relationships ($1,398) that are being amortized over one and three years, respectively:


	$

Accounts receivable and other current assets		685
Furniture, fixtures and equipment		5
Intangible assets		2,797
Accounts payable and accrued liabilities		(608	)

		2,879

During the second quarter, the Company acquired the Imperial Square retail development site located in Guelph, Ontario. The purchase price amounted to $2,134, including closing adjustments of $89. This acquisition was funded by the assumption of $1,328 of first mortgage debt at 9.25% maturing December 2004 and with funds from the Company and an investment partner that acquired a 35% equity interest in the property. The investment partner is affiliated with a member of the board of directors of the Company.

COUNSEL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2003 (In thousands of U.S. dollars, except per share amounts) (Unaudited)

5. Stock-based compensation plans

The Company applies the intrinsic value based method of accounting for its fixed employee stock compensation plans. Options are granted with an exercise price that is equal to the market value of the underlying stock at the date of grant and accordingly, no compensation expense has been recognized.

As the Company has elected to use the intrinsic value based method, the following disclosures are required to give pro forma effects as if the fair value based method of accounting had been used to account for employee stock compensation plans.



	For the three months ended						For the nine months ended
	September 30,						September 30,
	2003			2002			2003			2002
	$			$			$			$


Net earnings (loss), as reported		783			(8,356	)		(17,243	)		(13,210	)
Pro forma adjustments		(415	)		(458	)		(957	)		(1,555	)

Pro forma net earnings (loss) for the period		368			(8,814	)		(18,200	)		(14,765	)

Pro forma basic and diluted net earnings (loss) per share		(0.02	)		(0.43	)		(0.97	)		(0.76	)

For purposes of these pro forma disclosures, the fair value of each option of the Company was estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2003 and 2002, respectively: risk-free interest rate of 5.0%; expected dividend yield of nil%; expected life of six years; and expected volatility of 60.0% and 65.5%, respectively. The pro forma disclosures include the effects of options issued by I-Link/Acceris.

The Black-Scholes model requires highly subjective assumptions, including volatility and the expected time until exercise, which greatly affect the calculated values. Accordingly, management believes that the model does not necessarily provide a reliable single measure of the fair value of the Company’s stock option awards.

The Company plans to grant additional stock options each year and as a result, the above pro forma amounts are not likely to be representative of the effects on reported earnings for future years.

6. Real estate under development

September 30

December 31

2003

2002

Property

Location

Imperial Square

Guelph, Ontario

3,481

—

Willowcreek II

Peterborough, Ontario

3,243

2,624

1250 Steeles Ave. West II

Brampton, Ontario

637

439

7,361

3,063

In the third quarter of 2003, the Company commenced development of the Imperial Square property. The development is expected to cost $7,800 and will be completed in 2004. The Company expects to fund this development through a non-revolving demand loan of up to $4,984 bearing interest at prime rate plus 1%.

COUNSEL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2003 (In thousands of U.S. dollars, except per share amounts) (Unaudited)

7. Intangible assets



	September 30, 2003


				Accumulated
	Amortization	Cost		amortization			Net
	period	$		$			$


Telecommunications technology	60 months		13,628		(8,436	)		5,192
Customer contracts and relationships	60 months		1,693		(283	)		1,410
Agent relationships	36 months		1,981		(196	)		1,785
Customer base	12 months		1,399		(350	)		1,049
Agent contracts	12 months		250		(202	)		48

			18,951		(9,467	)		9,484



	December 31, 2002


				Accumulated
	Amortization	Cost		amortization			Net
	period	$		$			$


Telecommunications technology	60 months		13,628		(6,884	)		6,744
Customer contracts and relationships	60 months		1,786		(20	)		1,766
Agent relationships	36 months		588		(15	)		573
Agent contracts	12 months		250		(15	)		235

			16,252		(6,934	)		9,318

8. Discontinued operations

The Company has a number of discontinued operations. Long-term care and real estate are subject to formal plans of disposal while medical products and services (“MPS”) and communications operations have been sold.

Discontinued operations have been presented on a segmented basis to enhance the reader’s understanding of the financial information presented.

In October, the Company received notices of intent to exercise options to purchase five retirement centres in Ontario and British Columbia from the lessee of the centres. The total purchase price pursuant to the options is Cdn $30,000, before cost of disposition, and the transaction is expected to close in the second quarter of 2004. At September 30, 2003, the centres had a net asset value of Cdn $22,200 and were subject to mortgages aggregating Cdn $18,300.

Subsequent to end of the third quarter, the Company terminated its formal disposal plan for an income producing property. As a result of this decision, this income producing property will be included in continuing operations commencing in the fourth quarter of 2003.

COUNSEL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2003 (In thousands of U.S. dollars, except per share amounts) (Unaudited)

Medical products and services (“MPS”) represents the discontinued medical products operations, pharmaceutical products operations and pharmacy services operations. A summary of the carrying value of the assets and liabilities for discontinued operations as at September 30, 2003, and December 31, 2002 is as follows:


									September 30		December 31
									2003		2002


			Long-term
			care		Real estate		Communications		Total		Total
			$		$		$		$		$


Assets
	CURRENT
		Cash and cash equivalents		2,850		–		70		2,920		1,059
		Accounts receivable		1,137		250		–		1,387		667
		Other assets		1,031		205		–		1,236		688

				5,018		455		70		5,543		2,414

	LONG-TERM
		Mortgage receivable		1,846		–		–		1,846		1,528
		Income producing properties		–		18,444		–		18,444		15,772
		Property, plant and equipment, net		18,666		–		–		18,666		19,554
		Telecommunications technology		–		–		–		–		270
		Goodwill, net		285		–		–		285		246

				20,797		18,444		–		39,241		37,370

TOTAL ASSETS				25,815		18,899		70		44,784		39,784

Liabilities
	CURRENT
		Accounts payable and accrued liabilities		8,422		175		954		9,551		6,688
		Deferred revenue		–		–		–		–		576
		Mortgages and loans payable		212		402		–		614		508

				8,634		577		954		10,165		7,772

	LONG-TERM
		Deferred revenue		336		–		–		336		115
		Mortgages and loans payable		13,343		9,296		–		22,639		19,749
		Non-controlling interest		–		–		–		–		161

				13,679		9,296		–		22,975		20,025

	TOTAL LIABILITIES			22,313		9,873		954		33,140		27,797

COUNSEL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2003 (In thousands of U.S. dollars, except per share amounts) (Unaudited)

The composition of earnings (loss) from discontinued operations is as follows:



	For the three months ended September 30, 2003


	Long-term
	care			Real estate		Communications		MPS		Total
	$			$		$		$		$


Revenue		9,397			784		–		–		10,181

Earnings (loss) before income taxes		94			355		213		23		685
Income taxes		(46	)		–		–		–		(46	)

Net earnings		140			355		213		23		731



	For the three months ended September 30, 2002


	Long-term
	care		Real estate		Communications			MPS			Total
	$		$		$			$			$


Revenue		8,079		591		1,892			963			11,525

Earnings (loss) before income taxes		3		212		(1,463	)		(799	)		(2,047	)
Gain (loss) subsequent to measurement date		–		–		–			(88	)		(88	)

Net earnings (loss)		3		212		(1,463	)		(887	)		(2,135	)



	For the nine months ended September 30, 2003


	Long-term
	care			Real estate		Communications		MPS		Total
	$			$		$		$		$


Revenue		27,371			2,321		2,022		–		31,714

Earnings (loss) before income taxes		(1,785	)		921		307		372		(185	)
Income taxes		46					–		–		46

Net earnings (loss)		(1,831	)		921		307		372		(231	)



	For the nine months ended September 30, 2002


	Long-term
	care		Real estate		Communications			MPS			Total
	$		$		$			$			$


Revenue		23,783		591		6,054			3,035			33,463

Earnings (loss) before income taxes		83		212		(9,142	)		(1,787	)		(10,634	)
Gain (loss) subsequent to measurement date		–		–		–			(498	)		(498	)
Non-controlling interest		–		–		–			148			148

Net earnings (loss)		83		212		(9,142	)		(2,137	)		(10,984	)

COUNSEL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2003 (In thousands of U.S. dollars, except per share amounts) (Unaudited)

9. Subsequent events

The Company repaid its outstanding $40,861 of 6% convertible unsecured subordinated debentures at maturity (October 31, 2003) by delivering 690 common shares for each $1,000 of principal, resulting in the issuance of 28.2 million common shares.

A significant debenture holder filed a lawsuit to restrain the Company from satisfying its obligation to repay the aggregate principal amount of its outstanding debentures at maturity by delivering common shares. On October 28, the Ontario Superior Court of Justice dismissed the lawsuit. The debenture holder has appealed this decision.

In October 2003, certain liabilities of the Company (including a loan payable in the amount of $747) were settled with a vendor. The settlement resulted in the Company becoming legally released from its liabilities of approximately $1,100 in accounts and notes payable and related accrued interest. This amount will be recognized as other income in the fourth quarter of 2003.

In November 2003, the Company sold 4.37 acres of its Imperial Square property for net proceeds of $1,100. The net proceeds were used to reduce the mortgage on the property.

10. Related party transaction

At September 30, 2003, I-Link/Acceris owed Counsel $65,700. This amount is eliminated in the accounts of Counsel on consolidation. On November 26, 2003 I-Link/Acceris will hold a shareholders’ meeting. Following this meeting Counsel expects to convert approximately $32,200 of this debt into equity, thereby increasing its ownership to approximately 88%. In addition, the remaining loans receivable of $33,500 and Counsel’s funding support agreement were extended through June 30, 2005.

COUNSEL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2003 (In thousands of U.S. dollars, except per share amounts) (Unaudited)

11. Additional earnings (loss) per share disclosures

The following is a reconciliation of the numerators and denominators used in computing basic and diluted net earnings (loss) per share:



	Three months ended						Nine months ended
	September 30,						September 30,
	2003			2002			2003			2002
	$			$			$			$


Basic and diluted net earnings (loss) per share:
Numerator:
Earnings (loss) from continuing operations		52			(6,221	)		(17,012	)		(2,226	)
Accretion of equity component of debentures payable		(702	)		(691	)		(2,232	)		(2,270	)

Earnings (loss) available to common shareholders – continuing operations		(650	)		(6,912	)		(19,244	)		(4,496	)

Income (loss) from discontinued operations		731			(2,135	)		(231	)		(10,984	)

Denominator:
Weighted average common shares outstanding (000’s)		20,593			22,131			21,045			22,285

Basic and diluted earnings (loss) per share from continuing operations		(0.03	)		(0.32	)		(0.90	)		(0.21	)
Basic and diluted earnings (loss) per share from discontinued operations		0.04			(0.10	)		(0.00	)		(0.48	)

Basic and diluted net earnings (loss) per share		0.01			(0.42	)		(0.90	)		(0.69	)

Diluted net earnings (loss) per share:
Weighted average common shares outstanding (000’s)		20,593			22,131			21,045			22,285

Diluted earnings (loss) per share from continuing operations		(0.03	)		(0.32	)		(0.90	)		(0.21	)
Diluted earnings (loss) per share from discontinued operations		0.04			(0.10	)		(0.00	)		(0.48	)

Diluted net earnings (loss) per share		0.01			(0.42	)		(0.90	)		(0.69	)

Potential common share equivalents, incremental shares from stock options and shares issuable upon conversion of convertible debentures have been excluded from the loss per share calculation, as they are anti-dilutive.


12.	Commitments, contingencies, guarantees and concentrations

The Company has guaranteed the repayment of certain mortgages amounting to $38,677. Seven of these mortgages, amounting to $29,687, are payable by a limited partnership in which the Company has a 50% equity interest. The Company’s investment in this limited partnership has a carrying value of $nil. In 1984 the Company sold seven long-term care facilities to the limited partnership. The Company continues to act as guarantor for the repayment of the first mortgages on the facilities, which were assumed by the limited partnership. The limited partnership is in compliance with the terms of the mortgages and, accordingly, the Company has not recognized any liability that may arise under the guarantees provided. The Company believes that the value of the facilities, which have been provided

COUNSEL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2003 (In thousands of U.S. dollars, except per share amounts) (Unaudited)

as collateral for the guarantees, is in excess of the amount of the mortgages and, on a sale or liquidation, would be sufficient to reimburse the Company for any payments that become due under these guarantees.

In addition, the Company has provided a guarantee for the repayment of a mortgage of $8,990 payable by another limited partnership. In 1985 the Company sold a long-term care facility to the limited partnership. The mortgage on the facility was assumed by the partnership and continues to be guaranteed by the Company. The Company receives a fee for this guarantee. The Company has no equity interest in the partnership; however, it does receive an annual incentive fee from the partnership based on the partnership’s financial performance and is entitled to participate in the proceeds of a sale or refinancing of the facility. The Company’s guarantee for this mortgage expires in 2015. The limited partnership is in compliance with the terms of the mortgage and, accordingly, the Company has not recognized any liability that may arise under this guarantee. The Company believes that the value of the facility, which has been provided as collateral for the guarantee, is in excess of the amount of the mortgage and, on a sale or liquidation, would be sufficient to reimburse the Company for any payment that becomes due under this guarantee.

13. Segmented information

The Company currently operates in two sectors, communications and real estate.

The communications sector consists of the Company’s subsidiary, I-Link/Acceris. I-Link/Acceris operates in three reportable segments, Acceris Partners, Acceris Solutions and Acceris Technologies:


	•	Acceris Partners includes the operations of WorldxChange (which was formerly reported as the dial-around segment), acquired in June 2001, and the agent and residential business of RSL, which was acquired in December 2002. This segment offers dial-around and 1+ telecommunications products.

	•	Acceris Solutions is the Enterprise business of RSL, which was acquired in December 2002. This segment offers voice and data solutions to enterprise customers.

	•	Acceris Technologies is the technology services segment, acquired in March 2001, which offers a fully developed network convergence software solution for voice and data. Acceris Technologies licenses certain developed technology to third party users.

The real estate segment, which commenced operations in the third quarter of 2001, is comprised of the Company’s investment in five income producing properties in Canada, four of which were purchased in 2002.

Each segment operates as a strategic business unit with separate operating management. The Company assesses performance based on operating income (loss), which is defined as earnings from continuing operations before other gains, other losses and impairments, interest and taxes. The accounting policies for the segments are the same as those described in note 3 to the restated December 31, 2002 consolidated financial statements.

COUNSEL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2003 (In thousands of U.S. dollars, except per share amounts) (Unaudited)

For the three months ended September 30, 2003

Acceris

Real

Partners

Solutions

Technologies

estate

Corporate

Total

Revenue

Canada

–

1,117

–

1,117

United States

29,149

5,854

1,049

–

36,052

29,149

5,854

1,049

1,117

–

37,169

Operating costs and expenses:

Telecommunication costs (exclusive of depreciation and amortization shown below)

16,839

3,233

–

20,072

Income producing properties

–

618

–

618

Selling, general and administrative

10,804

2,223

954

–

796

14,777

Provision for doubtful accounts

1,467

)

–

1,466

Depreciation and amortization

1,453

541

517

2,597

Operating income (loss) before undernoted items

(1,414

)

(142

)

(422

)

431

(814

)

(2,361

)

Gains and other income:

Gain on sale of short-term investments

–

1,617

Other

–

2,578

Impairments and other losses:

Other

–

(657

)

(657

)

Interest income

–

395

Interest expense

(270

)

(88

)

(20

)

(197

)

(63

)

(638

)

Segment earnings (loss)

(1,684

)

(230

)

(442

)

234

3,056

934

Segment assets as of September 30

Canada

–

49,743

32,550

82,293

United States

30,942

6,743

9,627

–

9,267

56,579

30,942

6,743

9,627

49,743

41,817

138,872

Capital expenditures

(1,149

)

(81

)

–

(21

)

(1,254

)

Other significant non-cash items:

Amortization of deferred revenue

(9,061

)

(874

)

(330

)

–

(10,265

)

Accretion of liability component of debentures payable

–

COUNSEL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2003 (In thousands of U.S. dollars, except per share amounts) (Unaudited)



		For the three months ended September 30, 2002

		Acceris			Acceris		Acceris			Real
		Partners			Solutions		Technologies			estate			Corporate			Total
		$			$		$			$			$			$


Revenue
	Canada		–			–		–			894			–			894
	United States		19,834			–		321			–			–			20,155

			19,834			–		321			894			–			21,049
Operating costs and expenses:
	Telecommunication costs (exclusive of depreciation and amortization shown below)		10,973			–		–			–			–			10,973
	Income producing properties		–			–		–			309			–			309
	Selling, general and administrative		5,717			–		942			–			4,016			10,675
	Research and development		–			–		317			–			–			317
	Provision for doubtful accounts		1,118			–		–			–			–			1,118
	Depreciation and amortization		966			–		536			62			151			1,715

Operating income (loss) before undernoted items			1,060			–		(1,474	)		523			(4,167	)		(4,058	)
Gains and other income:
	Gain on sale of short-term investments		–			–		–			–			162			162
	Other		499			–		–			–			2			501
Impairments and other losses:
	Write-down of short-term investments		–			–		–			–			(1,139	)		(1,139	)
	Portfolio investments		–			–		–			–			(640	)		(640	)
Interest income			–			–		8			–			75			83
Interest expense			(266	)		–		(156	)		(179	)		(91	)		(692	)

Segment earnings (loss)			1,293			–		(1,622	)		344			(5,798	)		(5,783	)

Segment assets as of September 30
	Canada		–			–		–			38,800			37,352			76,152
	United States		29,439			–		14,865			–			18,030			62,334

			29,439			–		14,865			38,800			55,382			138,486

Capital expenditures			(580	)		–		–			–			(32	)		(612	)
Other significant non-cash items:
	Amortization of deferred revenue		–			–		(368	)		–			–			(368	)
	Accretion of liability component of debentures payable		–			–		–			–			72			72

COUNSEL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2003 (In thousands of U.S. dollars, except per share amounts) (Unaudited)

For the nine months ended September 30, 2003

Acceris

Real

Partners

Solutions

Technologies

estate

Corporate

Total

Revenue

Canada

–

3,351

–

3,351

United States

81,926

19,696

2,099

–

103,721

81,926

19,696

2,099

3,351

–

107,072

Operating costs and expenses

Telecommunication costs (exclusive of depreciation and amortization shown below)

55,133

12,006

–

67,139

Income producing properties

–

2,007

–

2,007

Selling, general and administrative

32,026

7,715

3,275

–

3,194

46,210

Provision for doubtful accounts

3,787

(15

)

–

3,772

Depreciation and amortization

3,779

1,798

1,551

188

167

7,483

Operating income (loss) before undernoted items

(12,799

)

(1,808

)

(2,727

)

1,156

(3,361

)

(19,539

)

Gains and other income:

Gain on sale of short-term investments

–

3,994

Other

–

2,578

Impairments and other losses:

Write-down of short-term investments

–

(133

)

(133

)

Portfolio investments

–

(650

)

(650

)

Other

–

(657

)

(657

)

Interest income

–

545

547

Interest expense

(960

)

(267

)

(259

)

(580

)

(190

)

(2,256

)

Segment earnings (loss)

(13,757

)

(2,075

)

(2,986

)

576

2,126

(16,116

)

Segment assets as of September 30

Canada

–

49,743

32,550

82,293

United States

30,942

6,743

9,627

–

9,267

56,579

30,942

6,743

9,627

49,743

41,817

138,872

Capital expenditures

(2,425

)

(110

)

–

(41

)

(55

)

(2,631

)

Other significant non-cash items:

Amortization of deferred revenue

(14,344

)

(2,700

)

(484

)

–

(17,528

)

Accretion of liability component of debentures payable

–

COUNSEL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2003 (In thousands of U.S. dollars, except per share amounts) (Unaudited)



		For the nine months ended September 30, 2002

		Acceris			Acceris		Acceris			Real
		Partners			Solutions		Technologies			estate			Corporate			Total
		$			$		$			$			$			$


Revenue
	Canada		–			–		–			1,047			–			1,047
	United States		63,629			–		2,790			–			–			66,419

			63,629			–		2,790			1,047			–			67,466
Operating costs and expenses
	Telecommunication costs (exclusive of depreciation and amortization shown below)		36,483			–		–			–			–			36,483
	Income producing properties		–			–		–			309			–			309
	Selling, general and administrative		19,594			–		2,912			–			10,426			32,932
	Research and development		–			–		1,164			–			–			1,164
	Provision for doubtful accounts		3,726			–		–			–			–			3,726
	Depreciation and amortization		2,923			–		1,653			94			321			4,991

Operating income (loss) before undernoted items			903			–		(2,939	)		644			(10,747	)		(12,139	)
Gains and other income:
	Gain on sale of short-term investments		–			–		–			–			27,662			27,662
	Other		499			–		–			–			2			501
Impairments and other losses:
	Write-down of short-term investments		–			–		–			–			(3,931	)		(3,931	)
	Portfolio investments		–			–		–			–			(640	)		(640	)
	Other		–			–		–			–			(64	)		(64	)
Interest income			–			–		27			–			325			352
Interest expense			(858	)		–		(478	)		(213	)		(510	)		(2,059	)

Segment earnings (loss)			544			–		(3,390	)		431			12,097			9,682

Segment assets as of September 30
	Canada		–			–		–			38,800			37,352			76,152
	United States		29,439			–		14,865			–			18,030			62,334

			29,439			–		14,865			38,800			55,382			138,486

Capital expenditures			(1,440	)		–		–			–			(48	)		(1,488	)
Other significant non-cash items:
	Amortization of deferred revenue		–			–		(3,162	)		–			–			(3,162	)
	Accretion of liability component of debentures payable		–			–		–			–			217			217

CORPORATE AND SHAREHOLDER INFORMATION

CORPORATE INFORMATION

COUNSEL CORPORATION

The Exchange Tower

Suite 1300, P.O. Box 435

130 King Street West

Toronto, Ontario M5X 1E3

Tel: 416 866 3000

Fax: 416 866 3061

Website: www.counselcorp.com

SHAREHOLDER INFORMATION

AUDITORS

PricewaterhouseCoopers LLP

Chartered Accountants

TRANSFER AGENTS & REGISTRARS

Computershare Trust Company of Canada

Tel: 416 981 9500

Computershare Trust Company Inc

Tel: 303 984 4034

CAPITAL STOCK & CONVERTIBLE

DEBENTURES

At September 30, 2003 there were 20,408,000 common shares and

$40,861,000 of convertible debentures outstanding.

STOCK LISTINGS

Counsel Corporation’s common shares are

listed on The Toronto Stock Exchange

under the symbol CXS and on The NASDAQ

Stock Market under the symbol CXSN.

SHAREHOLDER

& INVESTOR CONTACT

STEPHEN WEINTRAUB

Senior Vice President & Secretary

Tel: 416 866 3058

Fax: 416 866 3061

E-mail: saw@counselcorp.com

BACK COVER

Counsel (CXSNF) Inactive 6-KCurrent report (foreign)