##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR THE THREE MONTHS ENDED MARCH 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM TO
 COMMISSION FILE NUMBER: 000-28467
 TRINSIC, INC.
  DELAWARE
(State or other jurisdiction of
incorporation or organization)
    
    59-3501119
(I.R.S. Employer
Identification Number)
 601 SOUTH HARBOUR ISLAND BOULEVARD, SUITE 220
TAMPA, FLORIDA 33602
 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
 SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, PAR VALUE $.01 PER
SHARE, PREFERRED STOCK PURCHASE RIGHTS
  þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
  o þ




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##### 



PART IItem 1. Financial StatementsConsolidated Balance Sheets at March 31, 2006 (Unaudited) and December 31, 2005
    
    
    3Consolidated Statements of Operations (Unaudited) for the three months ended March 31, 2006
and 2005
    
    
    4Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2006
and 2005
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    20Item 4. Controls and Procedures
    
    
    21PART IIItem 1. Legal Proceedings
    
    
    21Signatures
    
    
    25Ex-10.17 Agreement For Purchase & SaleEx-31.1: Section 302 Certification of CEOEx-31.2: Section 302 Certification of CFOEx-32.1: Section 906 Certification of CEOEx-32.2: Section 906 Certification of CFO
  2




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TRINSIC, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (Unaudited)March 31,
    
    
    December 31,2006
    
    
    2005AssetsCurrent assets:Cash and cash equivalents
    
    $
    2,160
    
    
    $
    79Accounts receivable, net of allowance for doubtful
accounts of $22,478 and $20,489
    
    
    18,124
    
    
    
    13,713Prepaid expenses and other current assets
    
    
    3,626
    
    
    
    4,713Total current assets
    
    
    23,910
    
    
    
    18,505Property and equipment, net
    
    
    18,170
    
    
    
    19,931Intangible assets, net
    
    
    9,417
    
    
    
    Other assets
    
    
    3,386
    
    
    
    2,884Total assets
    
    $
    54,883
    
    
    $
    41,320Liabilities and Stockholders DeficitCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    47,795
    
    
    $
    40,248Deferred revenue
    
    
    6,982
    
    
    
    6,013Current portion of long-term debt and capital lease obligations
    
    
    9,566
    
    
    
    2,418Total current liabilities
    
    
    64,343
    
    
    
    48,679Long-term debt and capital lease obligations
    
    
    1,794
    
    
    
    1,025Total liabilities
    
    
    66,137
    
    
    
    49,704Commitments and contingencies (Notes 6, 8, 11 and 13)Stockholders deficit:Common stock, $0.01 par value; 150,000,000
shares authorized; 17,808,144 and 17,756,944 shares issued;
17,552,288 and 17,518,573 outstanding
    
    
    175
    
    
    
    175Unearned stock compensation
    
    
    (252
    )
    
    
    (360
    )Additional paid-in capital
    
    
    416,771
    
    
    
    416,127Accumulated deficit
    
    
    (427,943
    )
    
    
    (424,321
    )Treasury stock, 255,856 and 238,371 shares at cost
    
    
    (5
    )
    
    
    (5
    )Total stockholders deficit
    
    
    (11,254
    )
    
    
    (8,384
    )Total liabilities and stockholders deficit
    
    $
    54,883
    
    
    $
    41,320
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TRINSIC, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 Three Months EndedMarch 31,2006
    
    
    2005Revenues
    
    $
    43,856
    
    
    $
    57,131Operating expenses:Network operations, exclusive of depreciation
and amortization shown below
    
    
    24,827
    
    
    
    29,833Sales and marketing
    
    
    1,607
    
    
    
    5,220General and administrative
    
    
    16,710
    
    
    
    22,508Depreciation and amortization
    
    
    2,983
    
    
    
    4,179Total operating expenses
    
    
    46,127
    
    
    
    61,740Operating loss
    
    
    (2,271
    )
    
    
    (4,609
    )Nonoperating income (expense):Interest and other income
    
    
    924
    
    
    
    6,804Interest and other expense
    
    
    (2,275
    )
    
    
    (1,753
    )Total nonoperating income (expense)
    
    
    (1,351
    )
    
    
    5,051Net income (loss) attributable to common stockholders
    
    $
    (3,622
    )
    
    $
    442Net income (loss) per share:Basic
    
    $
    (0.21
    )
    
    $
    0.08Diluted
    
    $
    (0.21
    )
    
    $
    0.08Weighted average shares outstanding:Basic
    
    
    17,532,716
    
    
    
    5,518,530Diluted
    
    
    17,532,716
    
    
    
    5,813,348
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TRINSIC, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Three Months EndedMarch 31,2006
    
    
    2005Cash flows from operating activities:Net income (loss)
    
    $
    (3,622
    )
    
    $
    442Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:Depreciation and amortization
    
    
    2,983
    
    
    
    4,179Provision for bad debts
    
    
    2,796
    
    
    
    4,377Expense charged for granting of stock options
    
    
    752
    
    
    
    41Change in operating assets and liabilities:Increase in accounts receivable
    
    
    (7,207
    )
    
    
    (9,660
    )Increase in prepaid expenses
    
    
    (262
    )
    
    
    (463
    )Increase in other assets
    
    
    (502
    )
    
    
    (1,745
    )Increase (decrease) in accounts payable and accrued liabilities
    
    
    7,547
    
    
    
    (717
    )Increase in deferred revenue
    
    
    969
    
    
    
    804Total adjustments
    
    
    7,076
    
    
    
    (3,184
    )Net cash provided by (used in) operating activities
    
    
    3,454
    
    
    
    (2,742
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (383
    )
    
    
    (1,232
    )Purchase of customer lists
    
    
    (1,727
    )
    
    
    Net cash used in investing activities
    
    
    (2,110
    )
    
    
    (1,232
    )Cash flows from financing activities:Payments on long-term debt and capital lease obligations
    
    
    (263
    )
    
    
    (376
    )Proceeds from asset based loan
    
    
    
    
    
    
    946Proceeds from stand by credit facility
    
    
    1,000
    
    
    
    7,163Net cash provided by financing activities
    
    
    737
    
    
    
    7,733Net increase in cash and cash equivalents
    
    
    2,081
    
    
    
    3,759Cash and cash equivalents, beginning of period
    
    
    79
    
    
    
    1,363Cash and cash equivalents, end of period
    
    $
    2,160
    
    
    $
    5,122Non-cash investing and financing activities:Purchase of customer lists
    
    $
    7,180
    
    
    $
    
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TRINSIC, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
  DESCRIPTION OF BUSINESS
  LIQUIDITY AND CAPITAL RESOURCES
            6




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(a) Significant Accounting Policies
  (b) Recent Accounting Pronouncements
      7




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March 31, 2006
    
    
    December 31, 2005Carrying
    
    
    Accumulated
    
    
    Net Intangible
    
    
    Carrying
    
    
    Accumulated
    
    
    Net IntangibleAmount
    
    
    Amortization
    
    
    Assets
    
    
    Amount
    
    
    Amortization
    
    
    AssetsCustomer related intangible assets:Customer list from Touch 1 acquisition
    
    $
    9,145
    
    
    $
    9,145
    
    
    $
    
    
    
    $
    9,145
    
    
    $
    9,145
    
    
    $
    Customer list from acquisition of Sprint lines
    
    
    10,256
    
    
    
    839
    
    
    
    9,417
    
    
    
    
    
    
    
    
    
    
    
    $
    19,401
    
    
    $
    9,984
    
    
    $
    9,417
    
    
    $
    9,145
    
    
    $
    9,145
    
    
    $
    Aggregate amortization expense:For the three months ended March 31, 2006
    
    
    
    
    
    $
    839For the three months ended March 31, 2005
    
    
    
    
    
    $
    457Expected amortization expense for the years ending December 31,2006
    
    
    
    
    
    $
    9,4012007
    
    
    
    
    
    $
    855
    8




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March 31,
    
    
    December 31,2006
    
    
    2005RELATED PARTIES:Note payable to Corman Elegre, customer base pledged as collateral, payable in monthly installments, due
September 2004, interest rate at 6%
    
    $
    370
    
    
    $
    360Loan payable to the Fund, secured by a mortgage on real property located in Atmore, AL; due on demand,
interest rate at 12%
    
    
    2,000
    
    
    
    1,000UNRELATED PARTIES:Tax settlement payable to the State of New York, payable in monthly installments through December 2007,
non-interest bearing
    
    
    1,794
    
    
    
    2,050Purchase price for local access lines due to Sprint, payable in monthly installments through May 2007,
non-interest bearing
    
    
    7,180
    
    
    
    Capital leases
    
    
    16
    
    
    
    33$
    11,360
    
    
    $
    3,443Less: Current portion
    
    
    (9,566
    )
    
    
    (2,418
    )Total long-term debt
    
    $
    1,794
    
    
    $
    1,025
       
    
    Fair market value based on our closing common stock price on the date the option is granted;
    
    Expected option term of 5 years;
    
    Volatility based on the historical stock price over a period consistent with the expected term;
    
    No expected dividend payments on our common stock.
 9




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Three MonthsEnded March 31, 2005Net income attributable to common stockholders, as reported
    
    $
    442Add: Stock-based compensation included in net income
    
    
    41Deduct: Total stock-based employee compensation determined
under the fair value based method for all awards
    
    
    (642
    )Net loss attributable to common stockholders, pro forma
    
    $
    (159
    )Basic Net Income (Loss) per ShareAs reported
    
    $
    0.08Pro forma
    
    $
    (0.03
    )Diluted Net Income (Loss) per ShareAs reported
    
    $
    0.08Pro forma
    
    $
    (0.03
    )
           10




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Three Months Ended March 31,2006
    
    
    2005Basic and diluted net income (loss) per share:Net income (loss) attributable to common stockholders
    
    $
    (3,622
    )
    
    $
    442Net income (loss) per share:Basic
    
    $
    (0.21
    )
    
    $
    0.08Diluted
    
    $
    (0.21
    )
    
    $
    0.08Weighted average shares outstanding:Basic
    
    
    17,532,716
    
    
    
    5,518,530Diluted
    
    
    17,532,716
    
    
    
    5,813,348
  Three Months Ended March 31,2006
    
    
    2005Unexercised stock options
    
    
    69,716
    
    
    
    186,940Unexercised warrants
    
    
    63,275
    
    
    
    107,878Total potentially dilutive shares of common stock equivalents
    
    
    132,991
    
    
    
    294,818
     11




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12




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March 31,Retail Services
    
    2006
    
    2005Revenues
    
    $
    40,051
    
    
    $
    44,024Depreciation and amortization
    
    $
    2,112
    
    
    $
    4,143Segment results
    
    $
    (441
    )
    
    $
    (4,256
    )Capital expenditures
    
    $
    383
    
    
    $
    1,232Identifiable assets
    
    $
    48,369
    
    
    $
    64,388
 March 31,Wholesale Services
    
    2006
    
    2005Revenues
    
    $
    3,805
    
    
    $
    13,107Depreciation and amortization
    
    $
    871
    
    
    $
    36Segment results
    
    $
    1,153
    
    
    $
    3,826Capital expenditures
    
    $
    
    
    
    $
    Identifiable Assets
    
    $
    6,514
    
    
    $
    7,667
  March 31,2006
    
    
    2005RevenuesRetail segment
    
    $
    40,051
    
    
    $
    44,024Wholesale segment
    
    
    3,805
    
    
    
    13,107Total consolidated
    
    $
    43,856
    
    
    $
    57,131
 March 31,2006
    
    
    2005Segment results:Retail segment
    
    $
    (441
    )
    
    $
    (4,256
    )Wholesale segment
    
    
    1,153
    
    
    
    3,826Depreciation and amortization
    
    
    (2,983
    )
    
    
    (4,179
    )Total consolidated operating loss
    
    $
    (2,271
    )
    
    $
    (4,609
    )
   
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
  13




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OVERVIEW
  RESULTS OF OPERATIONS
  Revenues
 For the three monthsTotal revenues by segment (in
    
    ended March 31,
    
    
    Percentage of Revenuesmillions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Retail Segment
    
    $
    40.1
    
    
    $
    44.0
    
    
    
    91.3
    %
    
    
    77.1
    %Wholesale segment
    
    
    3.8
    
    
    
    13.1
    
    
    
    8.7
    %
    
    
    22.9
    %Total Revenues
    
    $
    43.9
    
    
    $
    57.1
    
    
    
    100.0
    %
    
    
    100.0
    %
  Average lines in service
    
    
    Ending lines in servicefor the three months ended
    
    
    as ofMarch 31,
    
    
    March 31,Type of Service
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Bundled residential services
    
    
    154,237
    
    
    
    190,997
    
    
    
    177,935
    
    
    
    182,548Bundled business services
    
    
    47,867
    
    
    
    47,453
    
    
    
    52,612
    
    
    
    47,3781+ long distance services
    
    
    28,680
    
    
    
    37,916
    
    
    
    27,875
    
    
    
    39,539Wholesale services
    
    
    46,671
    
    
    
    278,467
    
    
    
    9,874
    
    
    
    254,086VoIP
    
    
    3,358
    
    
    
    2,483
    
    
    
    3,408
    
    
    
    3,959Total lines under management
    
    
    280,813
    
    
    
    557,316
    
    
    
    271,704
    
    
    
    527,510
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For the three monthsAverage revenue per unit in
    
    ended March 31,service
    
    2006
    
    2005Bundled residential services
    
    $
    71.75
    
    
    $
    65.27Bundled business services
    
    $
    40.39
    
    
    $
    36.531+ long distance services
    
    $
    12.78
    
    
    $
    12.31
   Retail Segment
 For the three monthsRetail segment revenues by type
    
    ended March 31,
    
    
    Percentage of Revenues(in millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Bundled residential services
    
    $
    33.2
    
    
    $
    37.4
    
    
    
    82.6
    %
    
    
    85.0
    %Bundled business services
    
    
    5.8
    
    
    
    5.2
    
    
    
    14.6
    %
    
    
    11.8
    %1+ long-distance services
    
    
    1.1
    
    
    
    1.4
    
    
    
    2.8
    %
    
    
    3.2
    %Total Revenues
    
    $
    40.1
    
    
    $
    44.0
    
    
    
    100.0
    %
    
    
    100.0
    %
 
    
    During 2006, the decrease in retail revenue of $3.9 million as compared to 2005, was
primarily the result of the decline in
residential UNE-P lines and 1+ long distance lines, offset by the conversion of Sprint
wholesale lines to the retail segment. These decreases were partially mitigated by increases
in bundled business revenue which was directly attributable to line growth.
 Wholesale Segment
 For the three monthsWholesale segment revenues by
    
    ended March 31,
    
    
    Percentage of Revenuestype (in millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Sprint
    
    $
    3.8
    
    
    $
    13.1
    
    
    
    100.0
    %
    
    
    100.0
    %MCI
    
    
    
    
    
    
    
    
    
    
    0.0
    %
    
    
    0.0
    %Other
    
    
    
    
    
    
    
    
    
    
    0.0
    %
    
    
    0.0
    %Total Revenues
    
    $
    3.8
    
    
    $
    13.1
    
    
    
    100.0
    %
    
    
    100.0
    %
 
    
    Sprint lines have decreased significantly from March 31, 2005 to 2006, resulting in a
decline in wholesale revenue.
 Network Operations
  15




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Network operations expense, exclusive of
    
    For the three months
    
    
    Percentage of Segmentdepreciation and amortization expense, by
    
    ended March 31,
    
    
    Revenuessegment (in millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Retail Segment
    
    $
    22.8
    
    
    $
    22.9
    
    
    
    56.9
    %
    
    
    52.0
    %Wholesale Segment
    
    
    2.0
    
    
    
    6.9
    
    
    
    52.6
    %
    
    
    52.7
    %Total Network Operations Expense
    
    $
    24.8
    
    
    $
    29.8
    
    
    
    56.5
    %
    
    
    52.2
    %
  Network operations expense, exclusive of
    
    For the three months
    
    
    Percentage of Networkdepreciation and amortization, by type (in
    
    ended March 31,
    
    
    Operationsmillions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Bundled residential services
    
    $
    18.7
    
    
    $
    19.1
    
    
    
    75.4
    %
    
    
    64.1
    %Bundled business services
    
    
    3.9
    
    
    
    3.6
    
    
    
    15.7
    %
    
    
    12.1
    %1+ long distance services
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.8
    %
    
    
    0.7
    %Wholesale services
    
    
    2.0
    
    
    
    6.9
    
    
    
    8.1
    %
    
    
    23.1
    %Total
    
    $
    24.8
    
    
    $
    29.8
    
    
    
    100
    %
    
    
    100
    %
 
    
    During 2006, network operations expense decreased as compared to 2005 for residential
and wholesale services. This is primarily due to the decrease in lines in service offset
partially by increased ILEC fees. Network operations expense
increased for bundled business services in 2006 as compared to 2005 due to the line growth
experienced and the increases in ILEC fees. The decrease in 1+ long distance lines in
service was offset by increased ILEC fees, causing the revenue to stay static from 2005 to
2006.
  For the three monthsAverage network operations expense per
    
    ended March 31,unit
    
    2006
    
    2005Bundled residential services
    
    $
    40.41
    
    
    $
    33.33Bundled business services
    
    $
    27.10
    
    
    $
    25.291+ long distance services
    
    $
    2.32
    
    
    $
    1.76
 
    
    During 2006, AEPU increased because of rate increases associated with the FCCs UNE-P
ruling effective March 11, 2005 and our commercial services agreements.
  Retail Segment
  16




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##### Table of Contents



For the three monthsNetwork operations expense as a
    
    ended March 31,percentage of revenues
    
    2006
    
    2005Bundled residential services
    
    
    56.3
    %
    
    
    51.1
    %Bundled business services
    
    
    67.2
    %
    
    
    69.2
    %1+ long distance services
    
    
    18.2
    %
    
    
    14.3
    %
 
    
    During the first quarter of 2006, network operations expense as a percentage of revenues
increased for bundled residential services and 1+ long distance services as compared to the
prior year. The increase is a direct result of rate increases associated with the FCCs
UNE-P ruling effective March 11, 2005 and our commercial services agreements with Qwest,
Verizon, SBC Communications (now AT&T) and BellSouth. Network operations expense as a
percentage of revenues decreased for bundled business services during the first quarter of
2006 as compared to the prior year. This is because the customer mix has shifted in 2006
towards customers with a larger ARPU.
 Wholesale Segment
 
    
    Network operations expense from the wholesale segment decreased by $4.9 million for the
quarter ended March 31, 2006 as compared to the same period in 2005. This was the result
of the significant decrease in wholesale lines in service during 2006 and the later part of
2005.
 Sales and Marketing
  For the three months
    
    
    Percentage of SegmentSales & marketing expense by segment (in
    
    ended March 31,
    
    
    Revenuesmillions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Retail Segment
    
    $
    1.6
    
    
    $
    5.2
    
    
    
    4.0
    %
    
    
    11.8
    %Wholesale segment
    
    
    
    
    
    
    
    
    
    
    0.0
    %
    
    
    0.0
    %Total Sales & Marketing Expense
    
    $
    1.6
    
    
    $
    5.2
    
    
    
    3.6
    %
    
    
    9.1
    %
 Retail Segment
 
    
    During the first three months of 2006, sales and marketing expense decreased by $3.6
million as compared to the same period in 2005. This was mainly due to a decrease in sales
commissions and payroll related expenses. Decreases were also experienced in direct mail
expenses and marketing expenses as we were not actively marketing to VoIP or UNE-P
customers in the first quarter of 2006.
 Wholesale Segment
  General and Administrative
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##### Table of Contents



For the three months
    
    
    Percentage of SegmentGeneral & administrative expense by
    
    ended March 31,
    
    
    Revenuessegment (in millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Retail Segment
    
    $
    16.0
    
    
    $
    20.1
    
    
    
    40.0
    %
    
    
    45.7
    %Wholesale segment
    
    
    0.7
    
    
    
    2.4
    
    
    
    18.4
    %
    
    
    18.3
    %Total General & Administrative
    
    $
    16.7
    
    
    $
    22.5
    
    
    
    38.2
    %
    
    
    39.4
    %
 
    
    The decrease of $5.8 million in general and administrative expenses in the first quarter
of 2006 as compared to the same period in 2005 is explained by decreases in payroll and
payroll related expenses, contract development, travel expenses, tax and licenses expenses,
bad debt expenses, customer provisioning expenses and incorrect dispatch expenses.
  Retail Segment
 
    
    General and administrative expense decreased $4.1 million for the quarter ended March
31, 2006 as compared to the prior year period. The largest decreases occurred in payroll
and payroll related expenses, bad debt expenses, customer provisioning expenses and
incorrect dispatch expenses.
  Wholesale Segment
 
    
    The decrease in general and administrative expense for the quarter ended March 31, 2006
as compared to the same period in 2005 is a direct result of decreased wholesale lines in
service. The expense line items that decreased most significantly are payroll and payroll
related expenses, incorrect dispatch expenses and customer provisioning expenses.
 Depreciation and Amortization
 
    
    Depreciation and amortization expense decreased $1.2 million for the quarter ended March
31, 2006 as compared to the prior year period. The decrease was the result of decreased
capital spending related to property, plant and equipment.
 Interest and Other Income
 
    
    Interest and other income primarily consists of interest charged to our bundled
residential and business customers for not paying their bills on time and income from
interest earned on our cash balances.
    
    During the quarter ended March 31, 2005, interest and other income also includes $6
million of lawsuit proceeds from a legal settlement.
 Interest and Other Expense
  
    
    The increase in interest and other expense during the quarter ended March 31, 2006 as
compared to 2005 was primarily attributable to the discount fees we incurred on our
accounts receivable financing agreement, as well as an increase in late fees for vendor
payments.
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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
              DEBT INSTRUMENTS
 19




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##### Table of Contents



Accounts Receivable Financing
   ILEC, IXC AND RELATED DISPUTED CHARGES
  Outstanding Disputesat March 31, 2006(in millions)Alternatively billed services
    
    $
    6.0Late fees for non-payment of disputed charges
    
    
    7.2Billing errors
    
    
    4.7All others
    
    
    2.0$
    19.9
    RELATED PARTY TRANSACTIONS
  SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    20




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
   Remediation of Material Weaknesses
  
 Part II
 
 ITEM 1. LEGAL PROCEEDINGS
 1.
    
    Master File Number 21 MC 92; In re Initial Public Offering Securities
Litigation., in the United States District Court for the Southern
District of New York (filed June 7, 2001)
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##### Table of Contents



2.
    
    C.A. No. 04CH07882, Susan Schad, on behalf of herself and all others
similarly situated, v. Z-Tel Communications, Inc., In the Circuit
Court of Cook County, Illinois, Illinois County Department, Chancery
Division, filed May 13, 2004;
  3.
    
    Case. No. 0410453, Wilder Corporation of Delaware, Inc. v. Trinsic
Communications, Inc., In the Circuit Court of the Thirteenth Judicial
Circuit in and for Hillsborough County, Florida, Civil Division,
Division G, filed November 19, 2004
  4.
    
    Case. No. 0410441, Beneficial Management Corporation of America. v.
Trinsic Communications, Inc., In the Circuit Court of the Thirteenth
Judicial Circuit in and for Hillsborough County, Florida, Civil
Division, Division F, filed November 19, 2004
  22




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##### Table of Contents



ITEM 6. EXHIBITS
 EXHIBITNUMBER
    
    DESCRIPTION3.1
    
    
    Amended and Restated Certificate of Incorporation of Trinsic, Inc. as
amended. Incorporated by reference to the correspondingly numbered exhibit
to our Annual Report on Form 10-K for the year ended December 31, 2004 filed
April 15, 2005.3.2
    
    
    Amended and Restated Bylaws of Trinsic, as amended. Incorporated by
reference to the correspondingly numbered exhibit to our Quarterly report on
Form 10-Q for the quarter ended September 30, 2004 filed November 15, 2004.3.3
    
    
    Certificate of Amendment to the Amended and Restated Certificate of
Incorporation of Trinsic, Inc. Incorporated by reference to Exhibit 3.3 to
our Form 8-K filed September 28, 2005.4.1
    
    
    Form of Common Stock Certificate. Incorporated by reference to the
correspondingly numbered exhibit to our Annual Report on Form 10-K for the
year ended December 31, 2004 filed April 15, 2005.4.2
    
    
    See Exhibits 3.1, 3.2 and 3.3. of this report for provisions of the Amended
and Restated Certificate of Incorporation, as amended, and our Bylaws, as
amended, defining rights of security holders.4.9
    
    
    Registration Rights Agreement between and among us and The 1818 Fund III,
L.P. Incorporated by reference to the correspondingly numbered exhibit to
our Quarterly Report on Form 10-Q for the quarter ended September 30, 2000,
filed on November 14, 2000.4.11
    
    
    Certificate of Designation of Series F Junior Participating Preferred Stock.
Incorporated by reference to the correspondingly numbered exhibit to our
Annual Report on Form 10-K for the year ended December 31, 2000, filed on
March 30, 2001.4.12
    
    
    Rights Agreement dated as of February 19, 2001 between Z-Tel Technologies,
Inc. and American Stock Transfer & Trust Company, as Rights Agent, as
amended July 2, 2001. Incorporated be reference to the correspondingly
numbered exhibit to our quarterly report on Form 10-Q for the quarter ended
June 30, 20014.13
    
    
    Amendment No. 1 to Rights Agreement dated as of November 19, 2004 between
Z-Tel Technologies, Inc. and American Stock Transfer & Trust Company, as
Rights Agent. Incorporated by reference to Exhibit 4.1 to our registration
statement on form 8-A/A filed on December 6, 2004.4.14
    
    
    Amendment No. 2 to Rights Agreement dated as of July 19, 2005, between
Trinsic, Inc. and American Stock Transfer & Trust Company, as Rights Agent.
Incorporated by reference to Exhibit 4.1 to our registration statement on
form 8-A/A filed on July 21, 2005.4.15
    
    
    Stock and Warrant Purchase Agreement, dated as of July 2, 2001, by and
between us, D. Gregory Smith, and others. Incorporated by reference to
Exhibit 1 to Amendment No. 1 of the Schedule 13D filed July 12, 2001 with
respect to our common stock by, among other persons, The 1818 Fund III, L.P.4.20
    
    
    Exchange and Purchase Agreement dated July 15, 2005 between Trinsic, Inc.
and The 1818 Fund III, L.P. Incorporated by reference to Exhibit A to our
Form 8-K filed July 20, 2005.
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##### Table of Contents



EXHIBITNUMBER
    
    DESCRIPTION10.1
    
    
    Employment Agreement of Horace J. Trey Davis III, dated August 15, 2005,
as amended January 30, 2006. Incorporated by reference to Exhibits A and B
of our Form 8-K filed April 20, 2006.10.2.1
    
    
    1998 Equity Participation Plan. Incorporated by reference to the
correspondingly numbered exhibit to our Registration Statement on Form S-1
(File No. 333-89063), originally filed October 14, 1999, as amended and as
effective December 14, 1999.10.2.2
    
    
    2000 Equity Participation Plan, as amended. Incorporated by reference to the
correspondingly numbered exhibit to our Annual Report on Form 10-K for the
year ended December 31, 2004 filed April 15, 2005.10.2.3
    
    
    2004 Stock Incentive Plan. Incorporated by reference to Exhibit 4.1 to our
Registration Statement on Form S-8 filed May 8, 2005.10.3
    
    
    Employment Agreement of Ronald R. Bailey dated August 15, 2005, as amended
January 30, 2006. Incorporated by reference to Exhibits C and D of our Form
8-K filed April 20, 2006.10.4
    
    
    Employment Agreement of Michael M. Slauson dated August 15, 2005.
Incorporated by reference to Exhibit E of our Form 8-K filed April 20, 200610.5
    
    
    Form of Indemnification Agreement for our executive officers and directors.
Incorporated by reference to the correspondingly numbered exhibit to our
Annual Report on Form 10-K for the year ended December 31, 2000, filed on
March 30, 2001.10.6
    
    
    Employment Agreement of Paul T. Kohler dated August 15, 2005. Incorporated
by reference to Exhibit F of our Form 8-K filed April 20, 2006.10.7
    
    
    Employment Agreement of John K. Lines dated August 15, 2005. Incorporated
by reference to Exhibit G of our Form 8-K filed April 20, 2006.10.11
    
    
    Promissory Note, dated September 10, 1999, from Touch 1 Communications, Inc.
to William F. Corman (First Revocable Trust). Incorporated by reference to
the correspondingly numbered exhibits to our Annual Report on Form 10-K for
the year ended December 31, 2000, filed on March 30, 2001.10.14
    
    
    Receivables Sales Agreement, dated as of March 28, 2005, by and between
Trinsic Communications Inc. and Touch 1 Communications s Inc., collectively
as Seller and Subservicer, and Thermo Credit, LLC, as Purchaser and Master
Servicer. Incorporated by reference to Exhibit 10.1 to our o Form 8-K filed
April 5, 2005.10.15
    
    
    Promissory Note, dated December 15, 2005, from Trinsic, Inc. to The 1818
Fund III, L.P. Incorporated by reference to Exhibit A to Form 8-K filed
December 21, 2005.10.16
    
    
    Agreement for Purchase and Sale of Customer Access Lines, dated October 25,
2005, by and among Sprint Communications Company L.P., Sprint Communications
Company of Virginia, Inc. and Trinsic, Inc. Incorporated by reference to
the correspondingly numbered exhibit to our Form 10-K filed march 31, 2006.10.17
    
    
    Agreement for Purchase and Sale of Customer Access Lines, dated as of
February 10, 2006, between Trinsic Communications, Inc. and Access
Integrated Networks, Inc.31.1
    
    
    Certification of the Chief Executive Officer31.2
    
    
    Certification of the Chief Financial Officer32.1
    
    
    Written Statement of the Chief Executive Officer Pursuant to 18 U.S.C.ss.135032.2
    
    
    Written Statement of the Chief Financial Officer Pursuant to 18 U.S.C.ss.1350
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SIGNATURES
  TRINSIC, INC.
 By:
    
    /s/ HORACE J. DAVIS, IIIHorace J. Davis, IIIChief Executive OfficerBy:
    
    /s/ EDWARD D. MOISE, JREdward D. Moise, Jr.Chief Financial Officer
  30