##### 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 QUARTERLY PERIOD ENDED JUNE 30, 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
    
    59-3501119(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    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
  o o þ
  o þ




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##### Table of Contents



PART IItem 1. Financial StatementsConsolidated Balance Sheets at June 30, 2006 (Unaudited) and December 31, 2005
    
    3Consolidated Statements of Operations (Unaudited) for the three and six months
ended June 30, 2006 and 2005
    
    4Consolidated Statements of Cash Flows (Unaudited) for the six months ended
June 30, 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
    
    22Item 4. Controls and Procedures
    
    23PART IIItem 1. Legal Proceedings
    
    23Signatures
    
    27Ex-31.1 Section 302 CertificationEx-31.2 Section 302 CertificationEx-32.1 Section 906 CertificationEx-32.1 Section 906 Certification
 1




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TRINSIC, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
  (Unaudited)June 30,
    
    
    December 31,2006
    
    
    2005AssetsCurrent assets:Cash and cash equivalents
    
    $
    700
    
    
    $
    79Accounts receivable, net of allowance for doubtful
accounts of $25,111 and $20,489
    
    
    16,160
    
    
    
    13,713Prepaid expenses and other current assets
    
    
    3,719
    
    
    
    4,713Total current assets
    
    
    20,579
    
    
    
    18,505Property and equipment, net
    
    
    16,427
    
    
    
    19,931Intangible assets, net
    
    
    8,054
    
    
    
    Other assets
    
    
    3,159
    
    
    
    2,884Total assets
    
    $
    48,219
    
    
    $
    41,320Liabilities and Stockholders DeficitCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    45,713
    
    
    $
    40,248Deferred revenue
    
    
    6,717
    
    
    
    6,013Current portion of long-term debt and capital lease obligations
    
    
    9,040
    
    
    
    2,418Total current liabilities
    
    
    61,470
    
    
    
    48,679Long-term debt and capital lease obligations
    
    
    684
    
    
    
    1,025Total liabilities
    
    
    62,154
    
    
    
    49,704Commitments and contingencies (Notes 6, 8, 11 and 13)Stockholders deficit:Common stock, $0.01 par value; 150,000,000
shares authorized; 18,762,994 and 17,756,944 shares issued;
18,457,510 and 17,518,573 outstanding
    
    
    185
    
    
    
    175Unearned stock compensation
    
    
    (415
    )
    
    
    (360
    )Additional paid-in capital
    
    
    417,037
    
    
    
    416,127Accumulated deficit
    
    
    (430,737
    )
    
    
    (424,321
    )Treasury stock, 305,484 and 238,371 shares at cost
    
    
    (5
    )
    
    
    (5
    )Total stockholders deficit
    
    
    (13,935
    )
    
    
    (8,384
    )Total liabilities and stockholders deficit
    
    $
    48,219
    
    
    $
    41,320
  2




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TRINSIC, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues
    
    $
    43,878
    
    
    $
    50,797
    
    
    $
    87,734
    
    
    $
    107,928Operating expenses:Network operations,
exclusive of depreciation and amortization
shown below
    
    
    28,158
    
    
    
    26,999
    
    
    
    52,985
    
    
    
    56,833Sales and marketing
    
    
    1,065
    
    
    
    3,692
    
    
    
    2,672
    
    
    
    8,911General and administrative
    
    
    12,455
    
    
    
    19,025
    
    
    
    29,165
    
    
    
    41,535Depreciation and amortization
    
    
    4,193
    
    
    
    2,955
    
    
    
    7,176
    
    
    
    7,134Total operating expenses
    
    
    45,871
    
    
    
    52,671
    
    
    
    91,998
    
    
    
    114,413Operating loss
    
    
    (1,993
    )
    
    
    (1,874
    )
    
    
    (4,264
    )
    
    
    (6,485
    )Nonoperating income (expense):Interest and other income
    
    
    1,117
    
    
    
    490
    
    
    
    2,042
    
    
    
    7,293Interest and other expense
    
    
    (1,919
    )
    
    
    (1,873
    )
    
    
    (4,194
    )
    
    
    (3,626
    )Total nonoperating income (expense)
    
    
    (802
    )
    
    
    (1,383
    )
    
    
    (2,152
    )
    
    
    3,667Net loss
    
    $
    (2,795
    )
    
    $
    (3,257
    )
    
    $
    (6,416
    )
    
    $
    (2,818
    )Weighted average shares outstanding
    
    
    18,451,371
    
    
    
    5,533,564
    
    
    
    17,994,581
    
    
    
    5,526,088Basic and diluted net loss per share
    
    $
    (0.15
    )
    
    $
    (0.59
    )
    
    $
    (0.36
    )
    
    $
    (0.51
    )
  3




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TRINSIC, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
  Six Months EndedJune 30,2006
    
    
    2005Cash flows from operating activities:Net loss
    
    $
    (6,416
    )
    
    $
    (2,818
    )Adjustments to reconcile net loss to net cash provided by
operating activities:Depreciation and amortization
    
    
    7,176
    
    
    
    7,134Provision for bad debts
    
    
    5,370
    
    
    
    6,384Gain on sale of building
    
    
    97
    
    
    
    Expense charged for granting of restricted stock
    
    
    865
    
    
    
    93Change in operating assets and liabilities:Increase in accounts receivable
    
    
    (7,817
    )
    
    
    (2,513
    )Increase in prepaid expenses
    
    
    (355
    )
    
    
    (2,020
    )Increase in other assets
    
    
    (275
    )
    
    
    (628
    )Increase (decrease) in accounts payable and accrued liabilities
    
    
    5,465
    
    
    
    (5,352
    )Increase in deferred revenue
    
    
    704
    
    
    
    244Total adjustments
    
    
    11,230
    
    
    
    3,342Net cash provided by operating activities
    
    
    4,814
    
    
    
    524Cash flows from investing activities:Purchases of property and equipment
    
    
    (1,053
    )
    
    
    (1,633
    )Purchase of customer lists
    
    
    (1,727
    )
    
    
    Net cash used in investing activities
    
    
    (2,780
    )
    
    
    (1,633
    )Cash flows from financing activities:Payments on long-term debt and capital lease obligations
    
    
    (925
    )
    
    
    (534
    )Proceeds from sale of building
    
    
    400
    
    
    
    Principal repayments received on notes receivable issued for stock
    
    
    
    
    
    
    250Payments on note payable for customer lists
    
    
    (1,865
    )
    
    
    Payoff of asset based loan
    
    
    
    
    
    
    (12,934
    )Proceeds from stand by credit facility
    
    
    977
    
    
    
    13,500Net cash provided by financing activities
    
    
    (1,413
    )
    
    
    282Net increase (decrease) in cash and cash equivalents
    
    
    621
    
    
    
    (827
    )Cash and cash equivalents, beginning of period
    
    
    79
    
    
    
    1,363Cash and cash equivalents, end of period
    
    $
    700
    
    
    $
    536Non-cash investing and financing activities:Purchase of customer lists
    
    $
    6,229
    
    
    $
    
  4




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TRINSIC, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
   DESCRIPTION OF BUSINESS
  LIQUIDITY AND CAPITAL RESOURCES
           5




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RECLASSIFICATION
   (a) Significant Accounting Policies
   (b) Recent Accounting Pronouncements
   6




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June 30, 2006
    
    

December 31, 2005Carrying
    
    
    Accumulated
    
    
    Net Intangible
    
    
    Carrying
    
    
    Accumulated
    
    
    Net IntangibleAmount
    
    
    Amortization
    
    
    Assets
    
    
    Amount
    
    
    Amortization
    
    
    AssetsCustomer related intangible assets:Customer list from acquisition of Sprint lines
    
    
    11,170
    
    
    
    3,116
    
    
    
    8,054
    
    
    
    
    
    
    
    
    
    
    
    $
    11,170
    
    
    $
    3,116
    
    
    $
    8,054
    
    
    $
    
    
    
    $
    
    
    
    $
    Aggregate amoritization expense:For the six months ended June 30, 2006
    
    
    
    
    
    $
    3,116For the six months ended June 30, 2005
    
    
    
    
    
    $
    457Expected amortization expense for the years ending December 31,2006
    
    
    
    
    
    $
    6,9032007
    
    
    
    
    
    $
    1,151
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June 30,
    
    
    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%
    
    $
    
    
    
    $
    360Loan payable to the Fund, secured by a
mortgage on real property located in Atmore, AL;
due on demand, interest rate at 12%
    
    
    1,977
    
    
    
    1,000UNRELATED PARTIES:Tax settlement payable to the State of New
York, payable in monthly installments through
March 2008, non-interest bearing
    
    
    1,505
    
    
    
    2,050Purchase price for local access lines due to
Sprint, payable in monthly installments through
July 2007, non-interest bearing
    
    
    6,229
    
    
    
    Capital leases
    
    
    13
    
    
    
    33$
    9,724
    
    
    $
    3,443Less: Current portion
    
    
    (9,040
    )
    
    
    (2,418
    )Total long-term debt
    
    $
    684
    
    
    $
    1,025
       
    
    Fair market value based on our closing common stock price on the date the option is granted;
 8




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
    
    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.
 For the six months ended
    
    For the six months endedJune 30,
    
    June 30,2005
    
    2005Net loss attributable to common stockholders, as reported
    
    $
    (3,257
    )
    
    $
    (2,818
    )Add: Stock based compensation included in net loss
    
    
    52
    
    
    
    93Deduct: Total stock based employee compensation
determined
under the fair value based method for all awards
    
    
    (637
    )
    
    
    (1,279
    )Net loss attributable to common stockholders, pro forma
    
    $
    (3,842
    )
    
    $
    (4,004
    )Basic and Diluted Net Loss per Common ShareAs reported
    
    $
    (0.59
    )
    
    $
    (0.51
    )Pro forma
    
    $
    (0.69
    )
    
    $
    (0.72
    )
         9




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Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Basic and diluted net loss per share:Net loss
    
    $
    (2,795
    )
    
    $
    (3,257
    )
    
    $
    (6,416
    )
    
    $
    (2,818
    )Weighted average shares outstanding:
    
    
    18,451,371
    
    
    
    5,533,564
    
    
    
    17,994,581
    
    
    
    5,526,088Basic and diluted net loss per share
    
    $
    (0.15
    )
    
    $
    (0.59
    )
    
    $
    (0.36
    )
    
    $
    (0.51
    )
  Six Months Ended June 30,2006
    
    2005Unexercised stock options
    
    
    58,757
    
    
    
    120,908Unexercised warrants
    
    
    48,744
    
    
    
    107,878Total potentially dilutive shares of common stock equivalents
    
    
    107,501
    
    
    
    228,786
     10




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11




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Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2006
    
    2005
    
    2006
    
    2005Retail ServicesRevenues
    
    $
    43,428
    
    
    $
    40,308
    
    
    $
    83,479
    
    
    $
    84,333Depreciation and amortization
    
    $
    1,887
    
    
    $
    2,907
    
    
    $
    4,000
    
    
    $
    7,050Segment results
    
    $
    2,577
    
    
    $
    (1,912
    )
    
    $
    2,136
    
    
    $
    (6,170
    )Capital expenditures
    
    $
    670
    
    
    $
    401
    
    
    $
    1,053
    
    
    $
    1,633Identifiable assets
    
    
    
    
    
    
    
    
    
    $
    43,621
    
    
    $
    50,315
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2006
    
    2005
    
    2006
    
    2005Wholesale ServicesRevenues
    
    $
    450
    
    
    $
    10,489
    
    
    $
    4,255
    
    
    $
    23,595Depreciation and amortization
    
    $
    2,306
    
    
    $
    48
    
    
    $
    3,176
    
    
    $
    84Segment results
    
    $
    (377
    )
    
    $
    2,993
    
    
    $
    776
    
    
    $
    6,819Capital expenditures
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Identifiable Assets
    
    
    
    
    
    
    
    
    
    $
    4,598
    
    
    $
    5,662
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005RevenuesRetail segment
    
    $
    43,428
    
    
    $
    40,308
    
    
    $
    83,479
    
    
    $
    84,333Wholesale segment
    
    
    450
    
    
    
    10,489
    
    
    
    4,255
    
    
    
    23,595Total consolidated
    
    $
    43,878
    
    
    $
    50,797
    
    
    $
    87,734
    
    
    $
    107,928
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Segment results:Retail segment
    
    $
    2,577
    
    
    $
    (1,912
    )
    
    $
    2,136
    
    
    $
    (6,170
    )Wholesale segment
    
    
    (377
    )
    
    
    2,993
    
    
    
    776
    
    
    
    6,819Depreciation and amortization
    
    
    (4,193
    )
    
    
    (2,955
    )
    
    
    (7,176
    )
    
    
    (7,134
    )Total consolidated operating loss
    
    $
    (1,993
    )
    
    $
    (1,874
    )
    
    $
    (4,264
    )
    
    $
    (6,485
    )
   
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
  12




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OVERVIEW
  RESULTS OF OPERATIONS
  Revenues
 For the three monthsended June 30,
    
    
    Percentage of RevenuesTotal revenues by segment (in millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Retail Segment
    
    $
    43.4
    
    
    $
    40.3
    
    
    
    99.0
    %
    
    
    79.3
    %Wholesale segment
    
    
    0.5
    
    
    
    10.5
    
    
    
    1.0
    %
    
    
    20.7
    %Total Revenues
    
    $
    43.9
    
    
    $
    50.8
    
    
    
    100.0
    %
    
    
    100.0
    %
 For the six months endedJune 30,
    
    
    Percentage of RevenuesTotal revenues by segment (in millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Retail Segment
    
    $
    83.5
    
    
    $
    84.3
    
    
    
    95.1
    %
    
    
    78.1
    %Wholesale segment
    
    
    4.3
    
    
    
    23.6
    
    
    
    4.9
    %
    
    
    21.9
    %Total Revenues
    
    $
    87.7
    
    
    $
    107.9
    
    
    
    100.0
    %
    
    
    100.0
    %
  13




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Average lines in service
    
    Average lines in servicefor the three months ended
    
    for the six months endedJune 30,
    
    June 30,Type of Service
    
    2006
    
    2005
    
    2006
    
    2005Bundled residential services
    
    
    165,920
    
    
    
    164,124
    
    
    
    160,079
    
    
    
    177,560Bundled business services
    
    
    45,227
    
    
    
    45,957
    
    
    
    46,547
    
    
    
    46,7051+ long distance services
    
    
    26,695
    
    
    
    34,386
    
    
    
    27,688
    
    
    
    36,151Wholesale services
    
    
    6,008
    
    
    
    232,640
    
    
    
    26,340
    
    
    
    255,426VoIP
    
    
    3,341
    
    
    
    4,366
    
    
    
    3,350
    
    
    
    3,425Total lines under management
    
    
    247,192
    
    
    
    481,473
    
    
    
    264,002
    
    
    
    519,267
 Ending lines in serviceas ofJune 30,Type of Service
    
    2006
    
    2005Bundled residential services
    
    
    158,821
    
    
    
    144,609Bundled business services
    
    
    44,323
    
    
    
    45,0231+ long distance services
    
    
    26,131
    
    
    
    35,927Wholesale services
    
    
    
    
    
    
    212,423VoIP
    
    
    3,202
    
    
    
    5,218Total lines under management
    
    
    232,477
    
    
    
    443,200
   For the three months
    
    For the six months endedended June 30,
    
    June 30,Average revenue per unit in service
    
    2006
    
    2005
    
    2006
    
    2005Bundled residential services
    
    $
    73.33
    
    
    $
    69.26
    
    
    $
    72.46
    
    
    $
    67.11Bundled business services
    
    $
    43.48
    
    
    $
    34.82
    
    
    $
    42.25
    
    
    $
    35.681+ long distance services
    
    $
    12.49
    
    
    $
    13.57
    
    
    $
    12.64
    
    
    $
    12.91
   Retail Segment
 14




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For the three monthsended June 30,
    
    
    Percentage of RevenuesRetail segment revenues by type (in millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Bundled residential services
    
    $
    36.5
    
    
    $
    34.1
    
    
    
    84.0
    %
    
    
    84.6
    %Bundled business services
    
    
    5.9
    
    
    
    4.8
    
    
    
    13.6
    %
    
    
    11.9
    %1+ long-distance services
    
    
    1.0
    
    
    
    1.4
    
    
    
    2.4
    %
    
    
    3.5
    %Total Revenues
    
    $
    43.4
    
    
    $
    40.3
    
    
    
    100.0
    %
    
    
    100.0
    %
 For the six months endedJune 30,
    
    
    Percentage of RevenuesRetail segment revenues by type (in millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Bundled residential services
    
    $
    69.6
    
    
    $
    71.5
    
    
    
    83.3
    %
    
    
    84.8
    %Bundled business services
    
    
    11.8
    
    
    
    10.0
    
    
    
    14.1
    %
    
    
    11.9
    %1+ long-distance services
    
    
    2.1
    
    
    
    2.8
    
    
    
    2.6
    %
    
    
    3.3
    %Total Revenues
    
    $
    83.5
    
    
    $
    84.3
    
    
    
    100.0
    %
    
    
    100.0
    %
   Wholesale Segment
 For the three monthsended June 30,
    
    
    Percentage of RevenuesWholesale segment revenues by type (in millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Sprint
    
    $
    0.5
    
    
    $
    10.5
    
    
    
    100.0
    %
    
    
    100.0
    %Total Revenues
    
    $
    0.5
    
    
    $
    10.5
    
    
    
    100.0
    %
    
    
    100.0
    %
 For the six months endedJune 30,
    
    
    Percentage of RevenuesWholesale segment revenues by type (in millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Sprint
    
    $
    4.3
    
    
    $
    23.6
    
    
    
    100.0
    %
    
    
    100.0
    %Total Revenues
    
    $
    4.3
    
    
    $
    23.6
    
    
    
    100.0
    %
    
    
    100.0
    %
  Network Operations
 15




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##### Table of Contents



For the three months
    
    
    Percentage of Segmentended June 30,
    
    
    RevenuesNetwork operations expense, exclusive of depreciation and amortization expense, by segment (in millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Retail Segment
    
    $
    27.6
    
    
    $
    21.4
    
    
    
    63.6
    %
    
    
    53.1
    %Wholesale Segment
    
    
    0.5
    
    
    
    5.6
    
    
    
    120.3
    %
    
    
    53.3
    %Total Network Operations Expense
    
    $
    28.2
    
    
    $
    27.0
    
    
    
    64.2
    %
    
    
    53.1
    %
 For the six months ended
    
    
    Percentage of SegmentJune 30,
    
    
    RevenuesNetwork operations expense, exclusive of depreciation and amortization expense, by segment (in millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Retail Segment
    
    $
    50.5
    
    
    $
    44.3
    
    
    
    60.5
    %
    
    
    52.6
    %Wholesale Segment
    
    
    2.5
    
    
    
    12.5
    
    
    
    59.2
    %
    
    
    53.0
    %Total Network Operations Expense
    
    $
    53.0
    
    
    $
    56.8
    
    
    
    60.4
    %
    
    
    52.6
    %
  For the three months
    
    
    Percentage of Networkended June 30,
    
    
    OperationsNetwork operations expense, exclusive of depreciation and amortization, by type (in millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Bundled residential services
    
    $
    23.1
    
    
    $
    17.8
    
    
    
    82.2
    %
    
    
    66.0
    %Bundled business services
    
    
    4.4
    
    
    
    3.4
    
    
    
    15.5
    %
    
    
    12.6
    %1+ long distance services
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.4
    %
    
    
    0.7
    %Wholesale services
    
    
    0.5
    
    
    
    5.6
    
    
    
    1.9
    %
    
    
    20.7
    %Total
    
    $
    28.2
    
    
    $
    27.0
    
    
    
    100
    %
    
    
    100
    %
 For the six months ended
    
    
    Percentage of NetworkJune 30,
    
    
    OperationsNetwork operations expense, exclusive of depreciation and amortization, by type (in millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Bundled residential services
    
    $
    42.0
    
    
    $
    36.8
    
    
    
    79.2
    %
    
    
    64.8
    %Bundled business services
    
    
    8.2
    
    
    
    7.0
    
    
    
    15.5
    %
    
    
    12.3
    %1+ long distance services
    
    
    0.3
    
    
    
    0.5
    
    
    
    0.5
    %
    
    
    0.9
    %Wholesale services
    
    
    2.5
    
    
    
    12.5
    
    
    
    4.8
    %
    
    
    22.0
    %Total
    
    $
    53.0
    
    
    $
    56.8
    
    
    
    100
    %
    
    
    100
    %
  16




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##### Table of Contents



For the three months
    
    For the six months endedended June 30,
    
    June 30,Average network operations expense per unit
    
    2006
    
    2005
    
    2006
    
    2005Bundled residential services
    
    $
    46.41
    
    
    $
    36.15
    
    
    $
    43.73
    
    
    $
    34.54Bundled business services
    
    $
    32.43
    
    
    $
    24.66
    
    
    $
    29.36
    
    
    $
    24.981+ long distance services
    
    $
    1.25
    
    
    $
    1.94
    
    
    $
    1.81
    
    
    $
    2.31
   Retail Segment
  For the three months
    
    For the six months endedended June 30,
    
    June 30,Network operations expense as a percentage of revenues
    
    2006
    
    2005
    
    2006
    
    2005Bundled residential services
    
    
    63.4
    %
    
    
    52.2
    %
    
    
    60.3
    %
    
    
    51.5
    %Bundled business services
    
    
    73.7
    %
    
    
    70.8
    %
    
    
    69.9
    %
    
    
    70.0
    %1+ long distance services
    
    
    11.8
    %
    
    
    14.3
    %
    
    
    12.8
    %
    
    
    17.9
    %
  Wholesale Segment
  Sales and Marketing
  17




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##### Table of Contents



For the three months
    
    
    Percentage of Segmentended June 30,
    
    
    RevenuesSales & marketing expense by segment (in millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Retail Segment
    
    $
    1.1
    
    
    $
    3.7
    
    
    
    2.5
    %
    
    
    9.2
    %Wholesale segment
    
    
    
    
    
    
    
    
    
    
    0.0
    %
    
    
    0.0
    %Total Sales & Marketing Expense
    
    $
    1.1
    
    
    $
    3.7
    
    
    
    2.4
    %
    
    
    7.3
    %
 For the six months ended
    
    
    Percentage of SegmentJune 30,
    
    
    RevenuesSales & marketing expense by segment (in millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Retail Segment
    
    $
    2.7
    
    
    $
    8.9
    
    
    
    3.2
    %
    
    
    10.6
    %Wholesale segment
    
    
    
    
    
    
    
    
    
    
    0.0
    %
    
    
    0.0
    %Total Sales & Marketing Expense
    
    $
    2.7
    
    
    $
    8.9
    
    
    
    3.0
    %
    
    
    8.2
    %
 Retail Segment
  Wholesale Segment
  General and Administrative
  For the three months
    
    
    Percentage of Segmentended June 30,
    
    
    RevenuesGeneral & administrative expense by segment (in millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Retail Segment
    
    $
    12.2
    
    
    $
    17.1
    
    
    
    28.0
    %
    
    
    42.4
    %Wholesale segment
    
    
    0.3
    
    
    
    1.9
    
    
    
    63.3
    %
    
    
    18.1
    %Total General & Administrative
Expense
    
    $
    12.5
    
    
    $
    19.0
    
    
    
    28.4
    %
    
    
    37.4
    %
 For the six months ended
    
    
    Percentage of SegmentJune 30,
    
    
    RevenuesGeneral & administrative expense by segment (in millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Retail Segment
    
    $
    28.2
    
    
    $
    37.2
    
    
    
    33.8
    %
    
    
    44.1
    %Wholesale segment
    
    
    1.0
    
    
    
    4.3
    
    
    
    22.5
    %
    
    
    18.2
    %Total General & Administrative
Expense
    
    $
    29.2
    
    
    $
    41.5
    
    
    
    33.2
    %
    
    
    38.5
    %
  18




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##### Table of Contents



Retail Segment
   Wholesale Segment
  Depreciation and Amortization
  Interest and Other Income
   Interest and Other Expense
   LIQUIDITY AND CAPITAL RESOURCES
     19




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##### Table of Contents



DEBT INSTRUMENTS
 Accounts Receivable Financing
   20




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##### Table of Contents



ILEC, IXC AND RELATED DISPUTED CHARGES
  Outstanding Disputesat June 30, 2006(in millions)Alternatively billed services
    
    $
    6.0Late fees for non-payment of disputed charges
    
    
    7.3Billing errors
    
    
    5.2All others
    
    
    2.0$
    20.5
     RELATED PARTY TRANSACTIONS
   SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   21




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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)
   22




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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
 23




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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, 2005.10.1
    
    
    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.
 24




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##### Table of Contents



EXHIBITNUMBER
    
    DESCRIPTION10.2.2
    
    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. Incorporated by reference to the correspondingly
numbered exhibit to our Form 10-Q filed May 15, 2006.31.1
    
    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
 25




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##### Table of Contents



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
  26