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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR THE YEAR ENDED DECEMBER 31, 2005
  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
  o þ
  þ o
  þ o
 o
 o o þ
  o þ
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DOCUMENTS INCORPORATED BY REFERENCE
   
  PART I.Item 1.
   BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2.    PropertiesItem 3.    Legal ProceedingsItem 4.    Submission of Matters to a Vote of Security HoldersPART II.Item 5.    Market for the Registrants Common Equity and Related Stockholder MattersItem 6.    Selected Consolidated Financial DataItem 7.    Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 7A. Quantitative and Qualitative Disclosures about Market RiskItem 8.    Financial Statements and Supplementary DataItem 9.    Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresPART III.Item 10. Directors and Executive Officers of the RegistrantItem 11. Executive CompensationItem 12. Security Ownership of Certain Beneficial Owners and ManagementItem 13. Certain Relationships and Related TransactionsItem 14. Principal Accounting Fees and ServicesPART IV.Item 15. Exhibits and Financial Statement SchedulesSignaturesEx-10.16: Agreement for Purchase and Sale of Customer Access LinesEx-21: List of SubsidiariesEx-23.a: Consent of PricewaterhouseCoopers LLPEx-23.b: Consent of Carr Riggs & Ingram LLCEx-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
  
 ITEM 1. BUSINESS
 GENERAL
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SEGMENT FINANCIAL INFORMATION
  INDUSTRY BACKGROUND
   RETAIL SERVICES
  3




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Circuit-Switched Residential Services
    Circuit-Switched Business Services
   Long Distance
  VoIP Services
  Billing and Collection
  4




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WHOLESALE SERVICES
    OPERATIONS SUPPORT SYSTEMS
   BUSINESS STRATEGY
  
    
    Focus our resources on preserving and maintaining our existing customer base of UNE-P and VoIP customers
 
    
    Grow these customer bases through acquisition of mature customer bases or geographic focus
 
    
    Limit our capital expenditures to capacity and required technical upgrades of existing equipment, and projects that
will produce immediate or significant positive cash returns
 
    
    Identify and seek to divest assets that do not meet internal return requirements
 
    
    Continually undertake a corporate wide evaluation of expenses. This includes the consolidation of functions, divesting
of unused and under utilized facilities, renegotiation of vendor contracts, extension of vendor payment terms and other
cost cutting measures.
 
    
    Continue to evaluate our markets and reduce sales staffing levels and close retail outlets that do not meet minimum
internal rates of returns.
 GOVERNMENT REGULATION
 Overview and Current Regulatory Developments
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FEDERAL REGULATION
 FCC Policy on Unbundled Access to Network Elements of Incumbent Local Exchange Carriers
  
    
    Historically, in providing our residential and business local telephone services
throughout the United States, we have utilized the unbundled network element platform
(or UNE-P) which is a combination of functions and components of an ILEC network,
including analog loops, switching and transport. As discussed below, FCC rules
effective on March 11, 2005 restricted our access to UNE-P for new customers and are
requiring us to transition our customers to alternative commercial arrangements,
different networks or resale.
    
    As an alternative to utilizing UNE-P, in New York City and in Tampa, Florida, we
provide VoIP residential and business telephone services through a network architecture
called UNE loop, or UNE-L. The UNE-L entry strategy requires us to establish
collocation arrangements with the ILEC and have unbundled access to analog loops, and
transport.
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
    
    We provide VoIP telephony services to businesses in the New York City metropolitan
area and Tampa utilizing an IP network. This network requires us to purchase or lease
high-capacity digital connections from the customers premises to our IP facilities. In
many instances, the only cost-effective means of obtaining that high-capacity digital
connection is from the ILEC. Typically, we provide service by means of a combination of
unbundled high-capacity loops and transport, which is called an Enhanced Extended
Link, or EEL. In some situations, we obtain transport from another, non-incumbent
provider but are dependent upon the ILEC for the final, last-mile connection to the
customer premises. In those situations, we purchase an unbundled high-capacity loop
from the ILEC. In the absence of access to unbundled access to high-capacity loops and
transport, our only option would be to purchase these connections as retail, special
access circuits that are available from ILECs and other providers. The prices of these
retail (and largely-deregulated) special access circuits are, in many instances,
substantially higher than the wholesale (and regulated) prices for unbundled network
elements.
  Triennial Review Remand Order Review of Section 251 Unbundling Obligations of
Incumbent Local Exchange Carriers, Triennial Review Remand Order
 Triennial Review Remand Order Triennial Review Remand Order
 th
 Local Competition Order AT&T v. Iowa Utilities Board UNE Remand Order)
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##### Table of Contents



UNE Remand Order USTA v. FCC UNE Remand
Order
 Triennial Review USTA UNE Remand Order. UNE Remand Order USTA
 Triennial Review Triennial Review Order,
   Pricing of Unbundled Network Elements
  Local Competition
Order, Local Competition Order AT&T Corp. v. Iowa Utilities
Board
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Verizon v. FCC,
  Verizon
 The Rights and Obligations Common Carriers Under Federal Law
   
    
    provide physical collocation to other common carriers, which allows companies such as us and other
competitive local exchange carriers to install and maintain our own network termination equipment in
incumbent local exchange carrier central offices or, if requested or if physical collocation is
demonstrated to be technically infeasible, virtual collocation;
 
    
    offer components of their local service networks on an unbundled basis to other common carriers so that
other providers of local service can use these elements in their networks to provide a wide range of
local services to customers (SeeFCC Policy on Unbundled Access, above); and
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
    
    establish wholesale rates for their services to promote resale by competitive local exchange carriers.
  
    
    interconnect with the facilities of other common carriers;
 
    
    establish number portability, which will allow customers to retain their existing phone
numbers if they switch from the local exchange carrier to a competitive local service
provider;
 
    
    provide nondiscriminatory access to telephone poles, ducts, conduits and rights-of-way; and
 
    
    compensate other local exchange carriers on a reciprocal basis for traffic originated by
one local exchange carrier and terminated by another local exchange carrier.
    Regulation of Rates, Terms and Conditions of Interstate Service
   See
 Interconnection Agreements
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Collocation
  Verizon Telephone Companies v. FCC
 Line Sharing, Line Splitting, and Dialtone-DSL Tying
 Triennial Review Order, Triennial Review Order
  Bell Operating Company Entry into the Long Distance Market.
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Triennial Review Order USTA II Triennial Review
Remand Order Triennial Review Order,
 Universal Service Contributions.
  Texas Office of Public Utility Counsel v. FCC Comsat Corp. v. FCC,
  12




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Interstate Tariffs and Rates
    Numbering and Number Portability.
    Restrictions on Bundling.
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Slamming.
 Network Information.
  FCC Policy on Enhanced, Information Services and Internet Protocol-Enabled Services (such as Voice
over Internet Protocol)
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Report to Congress
   Computer II/III Computer II/Computer III
 Intercarrier Compensation (Interstate Access Charges and Reciprocal Compensation)
  15




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Potential Federal Legislation
  Other Issues
  
    
    The FCC has adopted rules to require telecommunications service
providers to make their services accessible to individuals with
disabilities, if readily achievable.
 
    
    In March, 2004, the Department of Justice filed a rulemaking petition
before the FCC that asks for new rules to implement the Communications
Assistance with Law Enforcement Act (CALEA). CALEA requires
telecommunications providers to design and engineer their networks to
permit law enforcement agencies to wiretap and obtain customer service
information (e.g., call trace, call records). The Department of
Justice CALEA petition proposes to extend many of those requirements
to information services as well. Implementation of the proposed CALEA
rules could have a significant impact upon our ability
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to provide both
regulated common carrier and information services to our customers.
Such rules could increase the cost of equipment we purchase to deploy
our services and such rules could also delay the availability of
equipment we need. We cannot predict any such delays or the potential
cost at this time. Current FCC rules require telecommunications
service providers to provide law enforcement personnel with a
sufficient number of ports and technical assistance in connection with
wiretaps. We cannot predict the cost to us of complying with these
rules at this time.
    
    The FCC has adopted Do-Not-Call-Rules that limit the ability of
telemarketers to make telephone calls to consumers that choose to be
listed on the national Do-Not-Call-Registry. These rules could make
future telemarketing efforts more expensive and less effective.In 1999, the FCC has adopted rules designed to make it easier for
customers to understand the bills of telecommunications carriers.
These Truth-in-Billing Rules, CC Docket No. 98-170, establish certain
requirements regarding the formatting of bills and the information
that must be included on bills. In 2000, the FCC modified its
Truth-in-Billing rules to clarify that where an entity bundles a
number of services, some of which might be provided by different
carriers, as a single package, that offering can be listed on a bill
as a single offering. On March 30, 2004, NASUCA, an organization of
state consumer advocates, filed a petition before the FCC asking for
more-stringent regulation of bill format, which the FCC is considering
in WC Docket No. 04-208. Changes in these FCC rules could increase
our costs of doing business significantly and could make it more
difficult to assess and collect regulatory and other fees that, as a
common carrier, we are obligated to pay to local, state and federal
entities.
    
    We are subject to annual regulatory fees assessed by the FCC, and must
file an annual employment report to comply with the FCCs Equal
Employment Opportunity policies.
    
    The FCC has adopted an order granting limited pricing flexibility to
large incumbent local exchange carriers, and is considering granting
additional pricing flexibility and price deregulation options. These
actions could increase competition for some of our services.
  STATE REGULATION
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LOCAL GOVERNMENT REGULATION
  COMPETITION
 Overview
   18




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##### Table of Contents



Local Telephone Service
 Incumbent Local Exchange Carriers.
  Competitive Local Exchange Carriers.
 Cable Television Operators.
 Wireless Telephone Companies.
 VoIP Providers.
 New Entrants.
 Long Distance Telephone Service
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Enhanced Communications Services
  RESEARCH AND DEVELOPMENT ACTIVITIES
  EMPLOYEES
  ACCESS TO INFORMATION
   
 ITEM 1A. RISK FACTORS
  Risks Relating to Our Business and Financial Condition
 Loss of Asset-Based Financing
  Adequacy of Financing
  Availability and Favorable Pricing of Unbundled Network Components
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Acquisition of New Customers
  Competition
      Network Failure
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We do not have significant redundancy in our operations.
  Ability to Resell Long Distance Services
  Risk of Software Failures and Errors
  Protection of Proprietary Technology
  Dependence on Information Systems
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Dependence on Local Exchange Carriers
  Dependence on Third Party Vendors
  Dependence on Management and Key Personnel
  Government Regulation and Legal Uncertainties
    Unauthorized Transactions or Theft of Services
  23




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Interests of Controlling Shareholder
  Our liquidity situation may force us to sell assets without any certainty of improvement in our
long-term financial condition.
   Our allowance for doubtful accounts may not be sufficient to cover uncollectible accounts.
  Our integration of Sprint access lines could be unsuccessful or could disrupt the services we
provide to other customers.
  We have a limited amount of cash and do not have a line of credit or other borrowing facility. Any
unexpected or additional cash needs may cause the company to file for bankruptcy protection.
  Risks Relating to Our Stock Price
 Fluctuation in our Stock price
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
    
    quarterly variations in our operating results;
    
    operating results that vary from the expectations of securities analysts and investors;
    
    changes in expectations as to our future financial performance, including financial
estimates by securities analysts and investors;
    
    changes in our liquidity that may impact our ability to meet the financial covenants of
our senior bank credit facility and repay our debts;
    
    announcements of technological innovations or new products and services by our competitors;
    
    departures of key personnel;
    
    changes in laws and regulations;
    
    significant claims or lawsuits;
    
    the limited number of Trinsic shares that can freely be sold in the public market;
    
    announcements by us or our competitors of significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments; and
    
    general economic and competitive conditions.
 The number of shares of our common stock that is freely tradable in the public market decreased
substantially after our reverse stock splits of November 30, 2004 and September 23, 2005. The lack
of liquidity in our trading volume could further depress our stock price.
  Our common stock was delisted from the Nasdaq SmallCap Market effective December 14, 2005 and is
now quoted on the Over the Counter (OTC) Bulletin Board.
  If our common stock price remains low, we may not be willing or able to raise equity capital.
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
 
 ITEM 2. PROPERTIES
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ITEM 3. 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)
    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;
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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
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
  
 PART II
 
 ITEM 5. MARKET FOR OUR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 MARKET INFORMATION
  HIGH
    
    LOWFISCAL YEAR 2004:First Quarter
    
    $
    230.00
    
    
    $
    103.50Second Quarter
    
    $
    141.50
    
    
    $
    63.50Third Quarter
    
    $
    67.50
    
    
    $
    15.00Fourth Quarter
    
    $
    39.00
    
    
    $
    12.00FISCAL YEAR 2005:First Quarter
    
    $
    18.10
    
    
    $
    5.00Second Quarter
    
    $
    5.90
    
    
    $
    2.20Third Quarter
    
    $
    5.70
    
    
    $
    1.20Fourth Quarter
    
    $
    1.93
    
    
    $
    .52
 HOLDERS
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DIVIDENDS
  SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
 Number of securitiesremaining availableNumber of securities
    
    
    
    
    
    
    for future issuanceto be issued upon
    
    
    Weighted-average
    
    
    under equityexercise of
    
    
    exercise price of
    
    
    compensation plansoutstanding options,
    
    
    outstanding options,
    
    
    (excluding securitieswarrants and rights
    
    
    warrants and rights
    
    
    reflected in column a)Plan category

    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
security holders (1)
    
    
    72,588
    
    
    $
    232.24
    
    
    
    446,398
    (2)(3)Equity compensation
plans not approved by
security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    72,588
    
    
    
    
    
    
    
    446,398
 
 (1)
    
    We have three equity participation plans approved by security holders: the 1998 Equity
Participation Plan, the 2000 Equity Participation Plan and the 2004 Stock Incentive Plan. The 1998
Plan was terminated in 2000, but stock options under that plan remain outstanding.(2)
    
    Restricted stock, dividend equivalents, deferred stock and stock appreciation rights may be
awarded under our equity participation plans in addition to option grants.(3)
    
    Unless the board of directors sets a lesser number, the aggregate number of shares of common
stock subject to our 2000 Equity Participation Plan increases automatically on the first day of
each fiscal year by a number of shares equal to the lesser of (i) 6,000 or (ii) 6% of the
outstanding common shares on that date. 
 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
 HISTORY OF OPERATIONS
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Years Ended December 31,2005
    
    2004
    
    2003
    
    2002
    
    2001(In thousands, except share and per share data)Revenues
    
    $
    189,205
    
    
    $
    251,477
    
    
    $
    289,180
    
    
    $
    238,397
    
    
    $
    280,350Operating expenses:Network operations (6)
    
    
    103,099
    
    
    
    123,723
    
    
    
    135,531
    
    
    
    94,422
    
    
    
    159,617Sales and marketing
    
    
    13,471
    
    
    
    21,094
    
    
    
    19,421
    
    
    
    11,319
    
    
    
    31,243General and administrative (2)
    
    
    74,691
    
    
    
    112,350
    
    
    
    125,765
    
    
    
    123,578
    
    
    
    156,107Asset impairment charge (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,129
    
    
    
    59,247Wholesale development costs (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,018
    
    
    
    Restructuring charge (5)
    
    
    451
    
    
    
    4,801
    
    
    
    
    
    
    
    1,861
    
    
    
    Depreciation and amortization
    
    
    11,508
    
    
    
    19,764
    
    
    
    23,449
    
    
    
    23,936
    
    
    
    23,277Total operating expenses
    
    
    203,220
    
    
    
    281,732
    
    
    
    304,166
    
    
    
    257,263
    
    
    
    429,491Operating loss
    
    
    (14,015
    )
    
    
    (30,255
    )
    
    
    (14,986
    )
    
    
    (18,866
    )
    
    
    (149,141
    )Nonoperating income (loss):Interest and other income
    
    
    8,851
    
    
    
    2,753
    
    
    
    1,930
    
    
    
    3,448
    
    
    
    6,862Interest and other expense
    
    
    (9,263
    )
    
    
    (6,111
    )
    
    
    (3,071
    )
    
    
    (4,137
    )
    
    
    (3,789
    )Total nonoperating income (loss)
    
    
    (412
    )
    
    
    (3,358
    )
    
    
    (1,141
    )
    
    
    (689
    )
    
    
    3,073Net loss
    
    
    (14,427
    )
    
    
    (33,613
    )
    
    
    (16,127
    )
    
    
    (19,555
    )
    
    
    (146,068
    )Less mandatorily redeemable convertible
preferred stock dividends and accretion
    
    
    
    
    
    
    (15,326
    )
    
    
    (17,480
    )
    
    
    (15,589
    )
    
    
    (15,059
    )Less deemed dividend related to beneficial
conversion feature
    
    
    
    
    
    
    (57,584
    )
    
    
    (186
    )
    
    
    (186
    )
    
    
    (9,356
    )Net loss attributable to common stockholders
    
    $
    (14,427
    )
    
    $
    (106,523
    )
    
    $
    (33,793
    )
    
    $
    (35,330
    )
    
    $
    (170,483
    )Weighted average common shares outstanding (7)
    
    
    8,524,846
    
    
    
    1,167,678
    
    
    
    707,938
    
    
    
    699,034
    
    
    
    3,390,837Basic and diluted net loss per share
    
    $
    (1.69
    )
    
    $
    (91.23
    )
    
    $
    (47.73
    )
    
    $
    (50.54
    )
    
    $
    (50.28
    )Consolidated Balance Sheet DataCash and cash equivalents (3)
    
    $
    79
    
    
    $
    1,363
    
    
    $
    12,013
    
    
    $
    16,037
    
    
    $
    18,892Working capital (deficit)
    
    
    (30,174
    )
    
    
    (52,898
    )
    
    
    (31,095
    )
    
    
    (19,380
    )
    
    
    (11,983
    )Total assets
    
    
    41,320
    
    
    
    61,336
    
    
    
    81,670
    
    
    
    106,711
    
    
    
    116,737Total debt
    
    
    3,443
    
    
    
    20,503
    
    
    
    5,531
    
    
    
    10,144
    
    
    
    15,766Mandatorily convertible redeemable preferred stock
(3) (7)
    
    
    
    
    
    
    
    
    
    
    144,282
    
    
    
    127,631
    
    
    
    112,570Total stockholders equity (deficit)
    
    
    (8,384
    )
    
    
    (21,082
    )
    
    
    (131,019
    )
    
    
    (99,284
    )
    
    
    (67,172
    )Other Financial DataNet cash provided by (used in) operating activities
    
    
    (1,875
    )
    
    
    (16,816
    )
    
    
    11,956
    
    
    
    18,399
    
    
    
    (21,846
    )Net cash used in investing activities
    
    
    (3,526
    )
    
    
    (9,483
    )
    
    
    (10,996
    )
    
    
    (15,600
    )
    
    
    (15,615
    )Net cash provided by (used in) financing activities
    
    
    4,117
    
    
    
    15,649
    
    
    
    (4,984
    )
    
    
    (5,654
    )
    
    
    9,701
 Significant items impacting results
 
 (1)
    
    We recorded a $1.1 and $59.2 million expense related to impaired assets in 2002 and
2001, respectively. This expense 30




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was the result of managements decision to reduce various
customer growth initiatives, most notably telemarketing activity levels. In 2001, a
majority of the operations and assets of telemarketing centers acquired from Touch 1 were
either voluntarily closed or sold. In addition to the goodwill impairment of $54.9 million,
we recorded a $4.3 million charge associated with the impairment of assets, composed of
$3.0 million relating to unrealizable software and development projects, $0.9 million of a
worthless telemarketing property and equipment, and $0.4 million of securities deemed to be
worthless. As a result of managements decision in the second quarter of 2002 to enhance
future cash flow and operating earnings, we closed the remaining call centers in North
Dakota and recorded a $1.1 million asset impairment. We also incurred restructuring charges
as a result of this decision during 2002 as discussed in item (5).(2)
    
    Included in the 2001 general and administrative expense was a write-off of accounts
receivable that resulted in $29.9 million of additional bad debt expense.(3)
    
    During 2000, we issued Series D and E preferred stock for approximately $56.3 million
and $50.0 million, respectively. During 2001 we issued Series G preferred stock for
approximately $17.5 million.(4)
    
    During 2002, we began to provide our services on a wholesale basis. We recorded
start-up costs for developing this new service offering of approximately $1.0 million. All
wholesale related costs after our initial wholesale services contract signed on March 20,
2002 are included in the operating expenses line items, rather than being segregated.(5)
    
    During 2004, in support of efforts to improve our future cash flows and operating
earnings and to consolidate operations, we recorded restructuring charges which included
termination benefits in connection with reductions in force as well as the write-off of
certain assets. In 2005, we initiated a reduction in force which terminated the employment
of approximately 107 of our employees. We incurred a one-time charge during April of
approximately $0.5 million consisting primarily of post termination wages, salaries and the
associated payroll taxes, net of vacation expense already accrued for these employees.(6)
    
    During 2002, we received a $9.0 million retroactive rate reduction for the unbundled
network elements from Verizon as a result of a settlement with the New York Public Service
Commission.(7)
    
    In November 2004, we consummated an exchange of our common stock for our three
outstanding series of convertible preferred stock. 
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
  OVERVIEW
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Economic and Industry-Wide Factors
  Triennial Review Remand Order
 CRITICAL ACCOUNTING POLICIES AND ESTIMATES
   Revenue Recognition.
  Disputed Payables Related to Network Operations and General and Administrative Expense.
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Valuation of Accounts Receivable.
 Property, Plant and Equipment.
 Tax Related Accruals
 Contingencies
 RESULTS OF OPERATIONS
  Revenues
 For the year ended December 31,
    
    
    Percentage of RevenuesTotal revenues by segment (in millions)
    
    2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003Retail Segment
    
    $
    148.1
    
    
    $
    170.8
    
    
    $
    205.1
    
    
    
    78.3
    %
    
    
    68.0
    %
    
    
    70.9
    %Wholesale segment
    
    
    41.1
    
    
    
    80.4
    
    
    
    84.1
    
    
    
    21.7
    %
    
    
    32.0
    %
    
    
    29.1
    %Total Revenues
    
    $
    189.2
    
    
    $
    251.2
    
    
    $
    289.2
    
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 33




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##### Table of Contents



Average lines in service
    
    
    Ending lines in servicefor the year ended
    
    
    
    
    
    
    as ofDecember 31,
    
    
    December 31,Type of Service
    
    2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003Bundled residential services
    
    
    146,160
    
    
    
    181,632
    
    
    
    232,827
    
    
    
    104,899
    
    
    
    188,643
    
    
    
    204,758Bundled business services
    
    
    44,711
    
    
    
    46,958
    
    
    
    8,017
    
    
    
    41,105
    
    
    
    47,299
    
    
    
    21,5931+ long distance services
    
    
    36,093
    
    
    
    41,079
    
    
    
    90,584
    
    
    
    30,090
    
    
    
    40,393
    
    
    
    74,419Wholesale services
    
    
    187,023
    
    
    
    295,493
    
    
    
    158,199
    
    
    
    126,247
    
    
    
    299,644
    
    
    
    296,824VoIP
    
    
    2,647
    
    
    
    1,436
    
    
    
    
    
    
    
    2,998
    
    
    
    1,556
    
    
    
    Total lines under management
    
    
    416,634
    
    
    
    566,598
    
    
    
    489,627
    
    
    
    305,339
    
    
    
    577,535
    
    
    
    597,594
  For the year ended December 31,Average revenue per unit in service
    
    2005
    
    2004
    
    2003Bundled residential services
    
    $
    69.57
    
    
    $
    66.30
    
    
    $
    68.26Bundled business services
    
    $
    38.70
    
    
    $
    33.54
    
    
    $
    38.461+ long distance services
    
    $
    12.37
    
    
    $
    15.01
    
    
    $
    9.84
 
    
    ARPU increased in 2005 as compared to 2004 due to a residential price increase during
the second quarter of 2005.
    
    ARPU decreased in 2004, primarily due to access fee revenue declines. These are charges
that we bill to other carriers for carrying their traffic to our customers.
 Retail Segment
 For the year ended December 31,
    
    
    Percentage of RevenuesRetail segment revenues by type (in millions)
    
    2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003Bundled residential services
    
    $
    122.0
    
    
    $
    144.5
    
    
    $
    190.7
    
    
    
    82.4
    %
    
    
    84.6
    %
    
    
    93.0
    %Bundled business services
    
    
    20.8
    
    
    
    18.9
    
    
    
    3.7
    
    
    
    14.0
    %
    
    
    11.1
    %
    
    
    1.8
    %1+ long-distance services
    
    
    5.4
    
    
    
    7.4
    
    
    
    10.7
    
    
    
    3.6
    %
    
    
    4.3
    %
    
    
    5.2
    %Total Revenues
    
    $
    148.2
    
    
    $
    170.8
    
    
    $
    205.1
    
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 
    
    During 2005, the decrease in retail revenue of $22.7 million as compared to 2004, was
primarily the result of the decline in residential UNE-P lines.
    
    During 2004, the decrease in retail revenue of $34.3 million as compared to 2003, was
primarily the result of the decline in residential UNE-P lines and access fee revenue
declines.
  34




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##### Table of Contents



Wholesale Segment
 For the year ended December 31,
    
    
    Percentage of RevenuesWholesale segment revenues by type (in millions)
    
    2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003Sprint
    
    $
    41.1
    
    
    $
    78.2
    
    
    $
    59.7
    
    
    
    100.0
    %
    
    
    97.3
    %
    
    
    71.0
    %MCI
    
    
    
    
    
    
    0.3
    
    
    
    23.9
    
    
    
    0.0
    %
    
    
    0.4
    %
    
    
    28.4
    %Other
    
    
    
    
    
    
    1.9
    
    
    
    0.5
    
    
    
    0.0
    %
    
    
    2.4
    %
    
    
    0.6
    %Total Revenues
    
    $
    41.1
    
    
    $
    80.4
    
    
    $
    84.1
    
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 
    
    In 2005, Sprint was our only wholesale customer. Lines in service dropped significantly
during 2005, explaining the decrease in wholesale revenue from 2004 to 2005.
    
    In February 2004, we signed a wholesale services agreement with Working Assets Funding
Services, Inc. In January 2005, Working Assets ceased to offer retail services to these
customers and all remaining customers at that time became customers of Trinsic
Communications, Inc.
    
    Our wholesale agreement with Sprint was originally signed in February of 2003, replacing
our previous wholesale agreement with MCI which was terminated as of October 15, 2003.
  Network Operations
  Network operations expense, exclusive of depreciation

    For the year ended December 31,
    
    
    Percentage of Segment Revenuesand amortization expense, by segment (in millions)
    
    2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003Retail Segment
    
    $
    81.6
    
    
    $
    86.7
    
    
    $
    98.1
    
    
    
    55.1
    %
    
    
    50.8
    %
    
    
    47.8
    %Wholesale Segment
    
    
    21.5
    
    
    
    37.0
    
    
    
    37.0
    
    
    
    52.3
    %
    
    
    46.0
    %
    
    
    44.0
    %Total Network Operations Expense
    
    $
    103.1
    
    
    $
    123.7
    
    
    $
    135.1
    
    
    
    54.5
    %
    
    
    49.2
    %
    
    
    46.7
    %
  35




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Network operations expense,
exclusive of
    For the year ended December 31,
    
    
    Percentage of Network Operationsdepreciation and amortization, by type (in millions)
    
    2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003Bundled residential services
    
    $
    66.8
    
    
    $
    75.2
    
    
    $
    93.4
    
    
    
    64.8
    %
    
    
    60.8
    %
    
    
    69.1
    %Bundled business services
    
    
    13.3
    
    
    
    10.1
    
    
    
    2.1
    
    
    
    12.9
    %
    
    
    8.2
    %
    
    
    1.6
    %1+ long distance services
    
    
    1.5
    
    
    
    1.4
    
    
    
    2.6
    
    
    
    1.5
    %
    
    
    1.1
    %
    
    
    1.9
    %Wholesale services
    
    
    21.5
    
    
    
    37.0
    
    
    
    37.0
    
    
    
    20.8
    %
    
    
    29.9
    %
    
    
    27.4
    %Total
    
    $
    103.1
    
    
    $
    123.7
    
    
    $
    135.1
    
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 
    
    During 2005, network operations expense decreased for residential and wholesale services
as compared to 2004, primarily due to the decrease in lines in service. Although the
number of business lines decreased as well, the network operations expense increased due to
increases in ILEC fees.
    
    During 2004, network operations expense decreased by $19.4 million as compared to 2003
for residential and 1+ long distance services; this is the result of the decrease in
average lines year over year from approximately 323,000 to 223,000. Network operations
expense increased for bundled business services from $2.1 million to $10.1 million in 2004
as compared to 2003 because the average lines in service increased from approximately 8,000
in 2003 to approximately 47,000 in 2004.
  For the year ended December 31,Average network operations expense per unit
    
    2005
    
    
    2004
    
    
    2003Bundled residential services
    
    $
    38.07
    
    
    $
    34.50
    
    
    $
    33.43Bundled business services
    
    $
    24.85
    
    
    $
    17.92
    
    
    $
    21.831+ long distance services
    
    $
    3.48
    
    
    $
    2.84
    
    
    $
    2.39
 
    
    During 2005, AEPU increased for both residential and business services. This is
primarily the result of rate increases associated with the FCCs UNE-P ruling effective
March 11, 2005 and our commercial services agreements.
    
    During 2004, AEPU increased on the residential side and decreased on the business side.
These fluctuations are the net result of four offsetting factors: (1) increased usage as a
result of our residential customers choosing our unlimited product which generally results
in increased domestic long-distance charges; (2) changes in per line costs as our customer
base continues to become more geographically diverse resulting in some changes to the average
cost experienced as a result of having more lines in higher or lower priced UNE-P states and
zones; (3) our auditing and analysis of network operations and improving the synchronization
of our billing systems to help reduce network costs on a per unit basis; and (4) changes in
ILEC rates.
  Retail Segment
  36




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##### Table of Contents



For the year ended December 31,Network operations expense as a percentage of revenues
    
    2005
    
    
    2004
    
    
    2003Bundled residential services
    
    
    54.7
    %
    
    
    52.0
    %
    
    
    49.0
    %Bundled business services
    
    
    64.2
    %
    
    
    53.4
    %
    
    
    56.8
    %1+ long distance services
    
    
    28.1
    %
    
    
    18.9
    %
    
    
    24.3
    %
 
    
    During 2005, network operations expense as a percentage of revenues increased for
bundled residential, business and 1+ long distance services as compared to the prior year.
The changes are 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 and Bellsouth.
    
    In 2004, network operations expense related to bundled business services and 1+ long
distance services as a percentage of revenues decreased primarily as a result of continued
geographical dispersion of customers to less expensive pricing zones and states and our
auditing and analysis of network operations. Network operations expense related to bundled
residential services as a percentage of revenues increased due to increased usage related
to unlimited product offerings, increased ILEC rates and changes in geographic distribution
of our customer base.
 Wholesale Segment
 
    
    During 2005, network operations expense from the wholesale segment decreased by $15.5
million from 2004. This is mostly attributable to the significant decrease in wholesale
lines during 2005.
    
    During 2004, network operations expense from the wholesale segment was $37.0 million,
the same as it was for 2003. As stated in the revenue paragraph, Sprint decided to become
the customer of record for billing purposes from the ILECs. This caused a decrease to the
network operations expense which was offset by the increase of network operations expenses
associated with approximately 137,000 additional lines in service for the year ended
December 31, 2004.
 Sales and Marketing
  For the year ended December 31,
    
    
    Percentage of Segment RevenuesSales & marketing expense by segment (in millions)
    
    2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003Retail Segment
    
    $
    13.5
    
    
    $
    20.9
    
    
    $
    19.3
    
    
    
    9.1
    %
    
    
    12.2
    %
    
    
    9.4
    %Wholesale segment
    
    
    0.0
    
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.0
    %
    
    
    0.2
    %
    
    
    0.1
    %Total Sales & Marketing Expense
    
    $
    13.5
    
    
    $
    21.1
    
    
    $
    19.4
    
    
    
    7.1
    %
    
    
    8.4
    %
    
    
    6.7
    %
 
    
    In 2005, sales and marketing expense decreased by $7.6 million as compared to 2004.
This was mainly due to a decrease in sales commissions. Decreases were also experienced in
direct mail, advertising and marketing expenses as we began to focus on maintaining our
current customer base and not actively marketing to new customers.
    
    The increase in sales and marketing expense during 2004 as compared to 2003 was
primarily due to the additional sales teams we added to begin selling our new VoIP
products. We also increased direct mail campaigns during 2004 as compared to the prior
year. These increases were largely offset by a significant decrease in advertising
expense.
 Retail Segment
 
    
    In 2005, sales commissions for new accounts decreased by $4.9 million as compared to
2004. Advertising expenses decreased by $0.8 million and direct mail and marketing
expenses each decreased by $0.5 million as compared to 2004.
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The remaining decrease of $0.7 million was mainly due to decreases in recurring commissions,
payroll and related expenses and telemarketing expenses.
    
    During 2004, we hired additional sales and marketing personnel which increased sales and
marketing expense by $3.9 million. We also increased direct mail campaigns by
approximately $1.0 million as compared to 2003. These increases were offset by a decrease
in advertising expense of $3.7 million. The additional increase was due to increased
commissions and marketing expense, offset by decreased strategic partnership and
telemarketing expense.
 Wholesale Segment
  General and Administrative
  General & administrative expense by

    For the year ended December 31,
    
    
    Percentage of Segment Revenuessegment (in millions)
    
    2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003Retail Segment
    
    $
    68.1
    
    
    $
    89.1
    
    
    $
    103.9
    
    
    
    46.0
    %
    
    
    52.2
    %
    
    
    50.7
    %Wholesale segment
    
    
    6.6
    
    
    
    23.2
    
    
    
    22.3
    
    
    
    16.1
    %
    
    
    28.9
    %
    
    
    26.5
    %Total General $ Administrative
    
    $
    74.7
    
    
    $
    112.3
    
    
    $
    126.2
    
    
    
    39.5
    %
    
    
    44.7
    %
    
    
    43.6
    %
   
    
    Payroll and related expenses  $14.4 million
    
    Billing and collection fees  $6.3 million
    
    Set-up fees from the ILECs to establish service for new customers  $5.6 million
    
    Consulting and contract development fees  $4.9 million
    
    Insurance expenses  $3.5 million
    
    Legal fees  $2.6 million
    
    Provisioning usage charges  $1.9 million
    
    Incorrect dispatch fees  $1.5 million
    
    Other items including tax and license expense, rent expense and travel expense  $10.9. million
  
    
    Bad debt expense  $7.8 million
    
    Software development expense (less was capitalized in 2005)  $1.7 million
    
    ILEC performance credits for failure to meet certain service levels  $1.1 million
    
    Other miscellaneous items  $3.4 million
  
    
    Payroll and related expenses   $8.5 million
    
    Bad debt expense  $7.1 million
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
    
    Set-up fees from the ILECs to establish service for new customers   $4.0 million
    
    Contract development costs   $3.3 million
  
    
    ILEC performance credits for failure to meet certain service levels   $3.2 million
    
    Sales and use tax expense  $3.1 million
    
    Provisioning usage charges   $1.3 million
    
    Other items including professional and consulting fees, legal fees, collections fees and
incorrect dispatch expense  $1.9 million
  Retail Segment
 
    
    The overall decrease in general and administrative expense for the year ended December
31, 2005 was primarily the result of decreases in payroll related expenses, billing and
collection fees, set-up fees from the ILECs to establish service for new customers and
consulting and contract development fees. These decreases were slightly offset by
increases in bad debt expense, software development expense and ILEC credits.
    
    General and administrative expense decreased $14.4 million for the year ended December
31, 2004 as compared to the prior year. The largest decreases occurred in payroll and
related expenses and bad debt expense. Additional decreases occurred in contract
development and billing expense. These decreases were slightly offset by increases in ILEC
credits and tax expenses.
 Wholesale Segment
  
    
    In 2005, general and administrative expense decreased by $16.6 million as a result of
the decrease in wholesale lines in service. The expenses primarily responsible for the
decrease are billing and collection expenses, payroll related expenses and ILEC set-up fees
to establish service for new customers.
    
    The increase in general and administrative expense during 2004 is a direct result of
increased wholesale lines in service from growth attributable to our agreement with Sprint.
Specifically, these expenses include increased payroll expense, the outsourcing of certain
functions to limit our cost exposure and increased non-recurring provisioning expenses to
establish service for our wholesale customers.
 Depreciation and Amortization
 
    
    Depreciation and amortization expense decreased $8.3 million during the year ended
December 31, 2005, as compared to the prior years. The decrease was the result of decreased
capital spending.
    
    In 2004, depreciation and amortization expense decreased $3.6 million as compared to
2003 due to decreased capital spending and increased asset disposals.
 Interest and Other Income
  
    
    Interest and other income increased $6.1 million during 2005 as compared to 2004. This
is attributable to $6 million of
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lawsuit proceeds from our settelement with SBC Communications, Inc. and several of its
subsidiaries, as described in the Notes to Consolidated Financial Statements in our Annual
Report on Form 10-K for the year ended December 31, 2004.
    
    Interest and other income increased $0.8 million in 2004 as compared to the prior year.
The increase was primarily the result of interest charged to our customers related to
delinquencies.
 Interest and Other Expense
  
    
    Interest and other expense increased $3.2 million in 2005 as compared to 2004. This was
primarily attributable to the discount fees we paid to Thermo as well as an increased
balance in our standby credit facility during the first half of 2005.
    
    The increase in interest and other expense during 2004 as compared to 2003 was primarily
attributable to the interest we incurred on our asset based loan with Textron and our
standby credit facility, as well as an increase in late fees for vendor payments.
 Income Tax Benefit
 
    
    No provision for federal or state income taxes has been recorded due to the full
valuation allowance recorded against the net deferred tax asset for the years ended
December 31, 2005, 2004 and 2003.
 Net Loss Attributable to Common Stockholders
 
    
    Our net loss attributable to common stockholders improved $92.1 million for the year
ended December 31, 2005 as compared to the prior year. Components of this decrease were
discussed above; however, $72.9 million of the decrease was attributable to the preferred
stock dividends and accretion and the beneficial conversion feature recorded during 2004.
    
    Net loss attributable to common stockholders increased by $72.7 million during 2004 as
compared to 2003. In addition to the increase in our operating loss discussed above, $57.6
million was attributable to the preferred stock conversion. This amount represents 80% of
the fair value of the incremental consideration given to the preferred share holders in
order to effect the conversion.
 Restructuring Charge
 
    
    On April 6, 2005, we initiated a reduction in force which terminated the employment of
107 of our employees. The restructuring costs were considered a One-Time Termination
Benefit and as such were recorded as a liability at the communication date of April 6,
2005 in accordance with SFAS No. 146 Accounting for Costs Associated with Exit or Disposal
Activities. We incurred a one-time charge of approximately $0.5 million consisting
primarily of post termination wages, salaries and the associated payroll taxes, net of
vacation expense already accrued for these employees. Substantially all of these post
termination wages were paid within 30 days following the reduction in force.
    
    In June 2004, we approved and implemented a restructuring to improve our future cash
flows and operating earnings. The restructuring included a reduction in work force. The
restructuring charge included termination benefits in connection with the reduction in
force of 102 employees and was recorded in accordance with SFAS 146 at the communication
date of June 8, 2004. The total charge taken in the second quarter of 2004 was $0.8
million, the majority of which was paid in full by the end of August 2004.
    
    In September 2004, we approved and implemented a restructuring based on the change in
management that occurred on August 25, 2004 and the subsequent change in business focus.
The restructuring included a reduction in force of 152 employees and a write-off of certain
assets recorded in accordance with SFAS No. 146 . The restructuring costs were considered
a One-Time Termination Benefit and recognized at the communication date of September 1,
2004. The total charge taken in the third quarter of 2004 was approximately $3.2 million.
 40




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##### Table of Contents




    
    In October 2004, we approved and implemented an additional restructuring related to 44
employees in conjunction with the consolidation of certain operations in our Atlanta and
Tampa offices into our Atmore, Alabama offices. We recorded and recognized the costs in
accordance with SFAS 146 at the communication date of October 21, 2004. The total charge
taken in the fourth quarter of 2004 was approximately $0.8 million.
 LIQUIDITY AND CAPITAL RESOURCES
          41




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42




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CASH MANAGEMENT
  ACCOUNTS RECEIVABLE FINANCING
   ILEC, IXC AND RELATED DISPUTED CHARGES
  Outstanding Disputesat December 31, 2005(in millions)Alternatively billed services
    
    $
    6.0Late fees for non-payment of disputed charges
    
    
    6.8Billing errors
    
    
    4.6All others
    
    
    2.0$
    19.4
    CONTRACTUAL OBLIGATIONS
  43




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Less than
    
    
    
    
    
    
    
    
    
    
    AfterContractual Obligations
    
    T otal
    
    
    1 year-
    
    
    1-3 years
    
    
    4-5 years
    
    
    5 yearsLong-term debt
    
    $
    2,410
    
    
    $
    1,385
    
    
    $
    1,025
    
    
    
    
    
    
    $
    Operating leases
    
    
    9,026
    
    
    
    2,549
    
    
    
    6,360
    
    
    
    117
    
    
    
    Capital leases
    
    
    33
    
    
    
    33
    
    
    
    
    
    
    
    
    
    
    
    Unconditional purchase obligations
    
    
    15,406
    
    
    
    8,948
    
    
    
    6,459
    
    
    
    
    
    
    
    Total Contractual cash obligations
    
    $
    26,875
    
    
    $
    12,914
    
    
    $
    13,843
    
    
    
    117
    
    
    $
    
  RELATED PARTY TRANSACTIONS
     NEW ACCOUNTING PRONOUNCEMENTS
    44




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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
  
    
    our ability to finance network developments and operations;
    
    our ability to market our services successfully to new subscribers;
    
    our ability to retain a high percentage of our customers;
    
    our reliance on ILEC local networks;
    
    the outcome of legal and regulatory proceedings;
    
    competition, including the introduction of new products or services by our competitors;
    
    additions or departures of key personnel;
    
    existing and future laws or regulations affecting our business and our ability to comply with these laws or regulations;
    
    our reliance on the Regional Bell operating companys systems and provisioning processes;
    
    technological innovations;
    
    general economic and business conditions, both nationally and in the regions in which we operate; and
    
    other factors described in this document, including those described in more detail below.
  
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    45




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 PAGEReports of Independent Registered Certified Public Accounting Firm
    
    
    47-48Consolidated Financial Statements:Consolidated Balance Sheets
    
    
    49Consolidated Statements of Operations
    
    
    50Consolidated Statements of Changes in Stockholders Deficit
    
    
    51Consolidated Statements of Cash Flows
    
    
    52-53Notes to Consolidated Financial Statements
    
    
    54
 46




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
       
 47




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##### Table of Contents



Report of Independent Registered Certified Public Accounting Firm
    
 48




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##### Table of Contents



TRINSIC, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
  December 31,
    
    
    December 31,2005
    
    
    2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    79
    
    
    $
    1,363Accounts receivable, net of allowance for doubtful
accounts of $19,812 and $10,967
    
    
    13,713
    
    
    
    27,242Prepaid expenses and other current assets
    
    
    4,713
    
    
    
    836Total current assets
    
    
    18,505
    
    
    
    29,441Property and equipment, net
    
    
    19,931
    
    
    
    27,829Intangible assets, net
    
    
    
    
    
    
    457Other assets
    
    
    2,884
    
    
    
    3,609Total assets
    
    $
    41,320
    
    
    $
    61,336Liabilities and Stockholders DeficitCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    40,248
    
    
    $
    55,605Deferred revenue
    
    
    6,013
    
    
    
    6,264Current portion of long-term debt and capital lease obligations
    
    
    2,418
    
    
    
    7,536Asset based loan
    
    
    
    
    
    
    12,934Total current liabilities
    
    
    48,679
    
    
    
    82,339Long-term deferred revenue
    
    
    
    
    
    
    46Long-term debt and capital lease obligations
    
    
    1,025
    
    
    
    33Total liabilities
    
    
    49,704
    
    
    
    82,418Commitments and contingencies (Notes 12, 17 and 22)Stockholders deficit:Common stock, $0.01 par value; 150,000,000
shares authorized; 17,756,944 and 5,525,361 shares issued;
17,518,573 and 5,518,530 outstanding
    
    
    175
    
    
    
    55Notes receivable from stockholders
    
    
    
    
    
    
    (3,685
    )Unearned stock compensation
    
    
    (360
    )
    
    
    (466
    )Additional paid-in capital
    
    
    416,127
    
    
    
    392,916Accumulated deficit
    
    
    (424,321
    )
    
    
    (409,894
    )Treasury stock, 238,371 and 6,831 shares at cost
    
    
    (5
    )
    
    
    (8
    )Total stockholders deficit
    
    
    (8,384
    )
    
    
    (21,082
    )Total liabilities and stockholders deficit
    
    $
    41,320
    
    
    $
    61,336
  49




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TRINSIC, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
  Years EndedDecember 31,2005
    
    
    2004
    
    
    2003Revenues
    
    $
    189,205
    
    
    $
    251,477
    
    
    $
    289,180Operating expenses:Network operations, exclusive of depreciation
and amortization shown below
    
    
    103,099
    
    
    
    123,723
    
    
    
    135,531Sales and marketing
    
    
    13,471
    
    
    
    21,094
    
    
    
    19,421General and administrative
    
    
    74,691
    
    
    
    112,350
    
    
    
    125,765Restructuring charge
    
    
    451
    
    
    
    4,801
    
    
    
    Depreciation and amortization
    
    
    11,508
    
    
    
    19,764
    
    
    
    23,449Total operating expenses
    
    
    203,220
    
    
    
    281,732
    
    
    
    304,166Operating loss
    
    
    (14,015
    )
    
    
    (30,255
    )
    
    
    (14,986
    )Nonoperating income (expense):Interest and other income
    
    
    8,851
    
    
    
    2,753
    
    
    
    1,930Interest and other expense
    
    
    (9,263
    )
    
    
    (6,111
    )
    
    
    (3,071
    )Total nonoperating expense
    
    
    (412
    )
    
    
    (3,358
    )
    
    
    (1,141
    )Net loss
    
    
    (14,427
    )
    
    
    (33,613
    )
    
    
    (16,127
    )Less mandatorily redeemable convertible
preferred stock dividends and accretion
    
    
    
    
    
    
    (15,326
    )
    
    
    (17,480
    )Less deemed dividend related to beneficial
conversion feature
    
    
    
    
    
    
    (57,584
    )
    
    
    (186
    )Net loss attributable to common stockholders
    
    $
    (14,427
    )
    
    $
    (106,523
    )
    
    $
    (33,793
    )Weighted average common shares outstanding
    
    
    8,524,846
    
    
    
    1,167,678
    
    
    
    707,938Basic and diluted net loss attributable to
common stockholders per share
    
    $
    (1.69
    )
    
    $
    (91.23
    )
    
    $
    (47.73
    )
  50




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##### Table of Contents



TRINSIC, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS DEFICIT
  Notes Receivable
    
    
    Unearned
    
    
    Additional
    
    
    
    
    
    
    
    
    
    
    TotalCommon Stock
    
    
    from
    
    
    Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    Treasury
    
    
    StockholdersShares
    
    
    Par Value
    
    
    Stockholders
    
    
    Compensation
    
    
    Capital
    
    
    Deficit
    
    
    Stock
    
    
    DeficitBalance, December 31, 2002
    
    
    705,361
    
    
    $
    7
    
    
    $
    (1,589
    )
    
    $
    
    
    
    $
    205,064
    
    
    $
    (302,753
    )
    
    $
    (8
    )
    
    $
    (99,279
    )Exercise of stock options
    
    
    7,883
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    519
    
    
    
    
    
    
    
    
    
    
    
    519Exercise of warrants
    
    
    1,474
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accelerated vesting of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    123
    
    
    
    
    
    
    
    
    
    
    
    123Conversion of mandatorily redeemable convertible
preferred stock to common
    
    
    2,181
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    943
    
    
    
    
    
    
    
    
    
    
    
    943Repayment of notes receivable
    
    
    
    
    
    
    
    
    
    
    468
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    468Mandatorily redeemable convertible preferred
stock dividends and accretion
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,666
    )
    
    
    
    
    
    
    
    
    
    
    (17,666
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,127
    )
    
    
    
    
    
    
    (16,127
    )Balance, December 31, 2003
    
    
    716,899
    
    
    
    7
    
    
    
    (1,121
    )
    
    
    
    
    
    
    188,983
    
    
    
    (318,880
    )
    
    
    (8
    )
    
    
    (131,019
    )Exercise of stock options
    
    
    7,347
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    489
    
    
    
    
    
    
    
    
    
    
    
    489Exercise of warrants
    
    
    754
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock
for settlement
    
    
    11,715
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    744
    
    
    
    
    
    
    
    
    
    
    
    744Issue restricted common stock
    
    
    670
    
    
    
    
    
    
    
    
    
    
    
    (466
    )
    
    
    1,030
    
    
    
    
    
    
    
    
    
    
    
    564Conversion of mandatorily redeemable convertible
preferred stock to common
    
    
    4,781,145
    
    
    
    48
    
    
    
    
    
    
    
    
    
    
    
    216,996
    
    
    
    (57,401
    )
    
    
    
    
    
    
    159,643Repayment of notes receivable
    
    
    
    
    
    
    
    
    
    
    251
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    251Issuance of notes receivable (SipStorm)
    
    
    
    
    
    
    
    
    
    
    (2,815
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,815
    )Mandatorily redeemable convertible preferred
stock dividends and accretion
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,326
    )
    
    
    
    
    
    
    
    
    
    
    (15,326
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33,613
    )
    
    
    
    
    
    
    (33,613
    )Balance, December 31, 2004
    
    
    5,518,530
    
    
    
    55
    
    
    
    (3,685
    )
    
    
    (466
    )
    
    
    392,916
    
    
    
    (409,894
    )
    
    
    (8
    )
    
    
    (21,082
    )Repayment of notes receivable
    
    
    
    
    
    
    
    
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250Impairment on notes receivable
    
    
    (225,000
    )
    
    
    (2
    )
    
    
    3,435
    
    
    
    
    
    
    
    (870
    )
    
    
    
    
    
    
    
    
    
    
    2,563Issue restricted common stock
    
    
    182,709
    
    
    
    2
    
    
    
    
    
    
    
    106
    
    
    
    117
    
    
    
    
    
    
    
    3
    
    
    
    228Conversion of mandatorily redeemable convertible
preferred stock to common
    
    
    12,042,334
    
    
    
    120
    
    
    
    
    
    
    
    
    
    
    
    23,964
    
    
    
    
    
    
    
    
    
    
    
    24,084Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,427
    )
    
    
    
    
    
    
    (14,427
    )Balance, December 31, 2005
    
    
    17,518,573
    
    
    $
    175
    
    
    $
    
    
    
    $
    (360
    )
    
    $
    416,127
    
    
    $
    (424,321
    )
    
    $
    (5
    )
    
    $
    (8,384
    )
  51




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TRINSIC, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
  Year EndedDecember 31,2005
    
    
    2004
    
    
    2003Cash flows from operating activities:Net loss
    
    $
    (14,427
    )
    
    $
    (33,613
    )
    
    $
    (16,127
    )Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:Depreciation and amortization
    
    
    11,508
    
    
    
    19,764
    
    
    
    23,449Provision for bad debts
    
    
    15,620
    
    
    
    6,199
    
    
    
    14,022Impairment on notes receivable
    
    
    2,563
    
    
    
    
    
    
    
    Gain on disposal of equipment
    
    
    
    
    
    
    
    
    
    
    (43
    )Expense charged for granting of stock options
    
    
    228
    
    
    
    564
    
    
    
    123Change in operating assets and liabilities:Increase in accounts receivable
    
    
    (1,872
    )
    
    
    (12,776
    )
    
    
    (11,873
    )(Increase) decrease in prepaid expenses
    
    
    (3,877
    )
    
    
    3,040
    
    
    
    (1,923
    )Decrease in other assets
    
    
    725
    
    
    
    185
    
    
    
    1,888Increase (decrease) in accounts payable and accrued liabilities
    
    
    (12,046
    )
    
    
    945
    
    
    
    7,460Decrease in deferred revenue
    
    
    (297
    )
    
    
    (1,124
    )
    
    
    (5,020
    )Total adjustments
    
    
    12,552
    
    
    
    16,797
    
    
    
    28,083Net cash provided by (used in) operating activities
    
    
    (1,875
    )
    
    
    (16,816
    )
    
    
    11,956Cash flows from investing activities:Purchases of property and equipment
    
    
    (3,526
    )
    
    
    (9,509
    )
    
    
    (11,036
    )Principal repayments received on notes receivable
    
    
    
    
    
    
    26
    
    
    
    40Net cash used in investing activities
    
    
    (3,526
    )
    
    
    (9,483
    )
    
    
    (10,996
    )Cash flows from financing activities:Payments on long-term debt and capital lease obligations
    
    
    (676
    )
    
    
    (4,462
    )
    
    
    (5,903
    )Payment of preferred stock dividends
    
    
    
    
    
    
    (3
    )
    
    
    (72
    )Principal repayments received on notes receivable issued for stock
    
    
    250
    
    
    
    191
    
    
    
    468Proceeds from issuance of preferred stock
    
    
    2,500
    
    
    
    
    
    
    
    Proceeds from (repayment of) asset based loan
    
    
    (12,934
    )
    
    
    12,934
    
    
    
    Proceeds from stand by credit facility
    
    
    14,977
    
    
    
    6,500
    
    
    
    Proceeds from exercise of stock options and warrants
    
    
    
    
    
    
    489
    
    
    
    523Net cash provided by (used in) financing activities
    
    
    4,117
    
    
    
    15,649
    
    
    
    (4,984
    )Net decrease in cash and cash equivalents
    
    
    (1,284
    )
    
    
    (10,650
    )
    
    
    (4,024
    )Cash and cash equivalents, beginning of period
    
    
    1,363
    
    
    
    12,013
    
    
    
    16,037Cash and cash equivalents, end of period
    
    $
    79
    
    
    $
    1,363
    
    
    $
    12,013
  52




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TRINSIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS  CONTINUED
 Year EndedDecember 31,2005
    
    
    2004
    
    
    2003Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    8,302
    
    
    $
    6,108
    
    
    $
    3,070Non-cash investing and financing activities:Property and equipment acquired under capital
lease obligations
    
    $
    
    
    
    $
    
    
    
    $
    1,290Increase in additional paid-in capital for stock
options granted
    
    $
    117
    
    
    $
    1,030
    
    
    $
    519Net increase (decrease) in unearned stock
compensation for stock options granted (forfeited)
    
    $
    (106
    )
    
    $
    466
    
    
    $
    Accrued dividends and accretion on preferred stock
    
    $
    
    
    
    $
    15,326
    
    
    $
    17,480Common stock issued for settlement of obligations
    
    $
    
    
    
    $
    744
    
    
    $
    Note receivable received in exchange for sale of
assets and reduction of accounts payable
    
    $
    
    
    
    $
    2,815
    
    
    $
    Conversion of preferred stock to common stock
    
    $
    24,084
    
    
    $
    159,643
    
    
    $
    943Beneficial conversion associated with preferred stock
    
    $
    
    
    
    $
    57,584
    
    
    $
    186
  53




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##### Table of Contents



TRINSIC, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  1. NATURE OF BUSINESS
 DESCRIPTION OF BUSINESS
    LIQUIDITY AND GOING CONCERN
       54




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55




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##### Table of Contents



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 PRINCIPLES OF CONSOLIDATION
  CASH AND CASH EQUIVALENTS
  PREPAID EXPENSES AND OTHER CURRENT ASSETS
 56




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##### Table of Contents



PROPERTY AND EQUIPMENT, NET
   LONG-LIVED ASSETS
  INTANGIBLE ASSETS, NET
  DISPUTED PAYABLES RELATED TO NETWORK OPERATIONS AND GENERAL AND ADMINISTRATIVE EXENSE
  57




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##### Table of Contents



VALUATION OF ACCOUNTS RECEIVABLE
  CONTINGENCIES
  REVENUE RECOGNITION
   STOCK-BASED COMPENSATION
  58




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##### Table of Contents



For the years endedDecember 31,2005
    
    2004
    
    2003Net loss attributable to common stockholders, as reported
    
    $
    (14,427
    )
    
    $
    (106,523
    )
    
    $
    (33,793
    )Add: Stock based compensation included in net loss
    
    
    228
    
    
    
    564
    
    
    
    123Deduct: Total stock based employee compensation determined
under the fair value based method for all awards
    
    
    (2,318
    )
    
    
    (3,260
    )
    
    
    (5,821
    )Net loss attributable to common stockholders, pro forma
    
    $
    (16,517
    )
    
    $
    (109,219
    )
    
    $
    (39,491
    )Basic and diluted net loss attributable to common
stockholders per shareAs reported
    
    $
    (1.69
    )
    
    $
    (91.23
    )
    
    $
    (47.73
    )Pro forma
    
    
    (1.94
    )
    
    
    (93.54
    )
    
    
    (55.78
    )
  For the years endedDecember 31,2005
    
    2004
    
    2003Discount rate
    
    
    4.3
    %
    
    
    3.1
    %
    
    
    3.1
    %Volatility
    
    
    102.7
    %
    
    
    98.4
    %
    
    
    96.6
    %Average option expected life
    
    5 years
    
    5 years
    
    5 years
  ADVERTISING
  INCOME TAXES
  CONCENTRATIONS
  59




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##### Table of Contents



Percentage of Total BundledService Revenues2005
    
    2004New York
    
    
    29
    %
    
    
    29
    %Illinois
    
    
    7
    %
    
    
    8
    %Michigan
    
    
    7
    %
    
    
    7
    %Texas
    
    
    7
    %
    
    
    6
    %Georgia
    
    
    6
    %
    
    
    6
    %Pennsylvani
    
    
    5
    %
    
    
    4
    %Maryland
    
    
    5
    %
    
    
    3
    %Florida
    
    
    4
    %
    
    
    4
    %Kentucky
    
    
    3
    %
    
    
    6
    %California
    
    
    3
    %
    
    
    3
    %New Jersey
    
    
    3
    %
    
    
    2
    %Virginia
    
    
    2
    %
    
    
    4
    %Indiana
    
    
    2
    %
    
    
    2
    %Tennessee
    
    
    2
    %
    
    
    2
    %Alabama
    
    
    2
    %
    
    
    2
    %All Others
    
    
    13
    %
    
    
    12
    %100
    %
    
    
    100
    %
    SEGMENT REPORTING
  60




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##### Table of Contents



FINANCIAL INSTRUMENTS
  MANAGEMENTS USE OF ESTIMATES
  NEW ACCOUNTING PRONOUNCEMENTS
     RECLASSIFICATION
  3. WHOLESALE SERVICES
 61




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##### Table of Contents



4. ACCOUNTS RECEIVABLE AGREEMENT
     62




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##### Table of Contents



5. PROPERTY AND EQUIPMENT
  DepreciableLives in
    
    
    December 31,Years
    
    
    2005
    
    
    2004Switching equipment
    
    
    5-10
    
    
    $
    15,563
    
    
    $
    14,686Computer equipment
    
    
    5-10
    
    
    
    39,458
    
    
    
    38,674Software
    
    
    3
    
    
    
    58,516
    
    
    
    57,038Furniture and office equipment
    
    
    5-10
    
    
    
    8,860
    
    
    
    9,018Leasehold improvements
    
    
    3-15
    
    
    
    6,430
    
    
    
    6,393Land and building
    
    
    20-30
    
    
    
    4,354
    
    
    
    4,354Construction-in-progress
    
    
    
    
    
    
    153
    
    
    
    300Vehicles
    
    
    5
    
    
    
    20
    
    
    
    20133,354
    
    
    
    130,483Less accumulated depreciation and amortization
    
    
    
    
    
    
    (113,423
    )
    
    
    (102,654
    )Property and equipment, net
    
    
    
    
    
    $
    19,931
    
    
    $
    27,829
   December 31,2005
    
    
    2004Computer equipment
    
    $
    2,249
    
    
    $
    2,443Software
    
    
    912
    
    
    
    9123,161
    
    
    
    3,355Less accumulated depreciation and amortization
    
    
    (2,475
    )
    
    
    (1,967
    )Capital leases, net
    
    $
    686
    
    
    $
    1,388
 6. INTANGIBLE ASSETS
  December 31, 2005
    
    

December 31, 2004Carrying
    
    
    Accumulated
    
    
    Net Intangible
    
    
    Carrying
    
    
    Accumulated
    
    
    Net IntangibleAmount
    
    
    Amortization
    
    
    Assets
    
    
    Amount
    
    
    Amortization
    
    
    AssetsIntangible asset subject to
amortization:Customer related intangible assets
    
    $
    9,145
    
    
    $
    9,145
    
    
    $
    
    
    
    $
    9,145
    
    
    $
    8,688
    
    
    $
    457Aggregate amortization expense:For the year ended December 31, 2005
    
    
    
    
    
    $
    457For the year ended December 31, 2004
    
    
    
    
    
    $
    1,830
 63




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##### Table of Contents



7. OTHER ASSETS
  December 31,2005
    
    
    2004Deposits
    
    $
    2,884
    
    
    $
    3,425Inventory
    
    
    
    
    
    
    184$
    2,884
    
    
    $
    3,609
 8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
  December 31,2005
    
    
    2004Trade accounts payable
    
    $
    31,646
    
    
    $
    40,586Accrued taxes payable
    
    
    7,382
    
    
    
    10,223Accrued payroll
    
    
    461
    
    
    
    1,033Accrued rent
    
    
    61
    
    
    
    1,028Accrued restructuring charges
    
    
    
    
    
    
    954Accrued sales commissions
    
    
    698
    
    
    
    816Accrued interest payable
    
    
    
    
    
    
    965$
    40,248
    
    
    $
    55,605
 9. ASSET BASED LOAN
    10. STANDBY CREDIT FACILITY
  64




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##### Table of Contents



11. OTHER SHORT-TERM DEBT
  12. LONG-TERM DEBT
  December 31,2005
    
    
    2004RELATED PARTIES:Note payable to Corman Elegre, customer base pledged as collateral, payable in monthly installments, due
September 2004, interest rate at 6%
    
    $
    360
    
    
    $
    532Loan payable to the Fund, secured by a mortgage on real property located in Atmore, AL; due on demand,
interest rate at 12%
    
    
    1,000
    
    
    
    Standby Credit Facility
    
    
    
    
    
    
    6,500UNRELATED PARTIES:Tax settlement payable to the State of New York, payable in monthly installments through December 2007
    
    
    2,050
    
    
    
    Capital leases
    
    
    33
    
    
    
    482Asset based loan
    
    
    
    
    
    
    12,934Notes payable to Touch 1 pre-petition creditors (trade vendors), priority unsecured, payable in monthly
installments, due September 2005, interest rate at 6%
    
    
    
    
    
    
    55$
    3,443
    
    
    $
    20,503Less: Current portion
    
    
    (2,418
    )
    
    
    (20,470
    )Total long-term debt
    
    $
    1,025
    
    
    $
    33
  OPERATING LEASES
  65




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##### Table of Contents



CAPITAL LEASES
   CapitalOperating
    
    
    Lease
    
    
    Long-TermYear Ending December 31,
    
    Leases
    
    
    Obligations
    
    
    Debt2006
    
    $
    2,549
    
    
    $
    41
    
    
    $
    2,3852007
    
    
    2,520
    
    
    
    
    
    
    
    1,0252008
    
    
    2,333
    
    
    
    
    
    
    
    2009
    
    
    1,507
    
    
    
    
    
    
    
    2010
    
    
    117
    
    
    
    
    
    
    
    Thereafter
    
    
    
    
    
    
    
    
    
    
    Less amount representing executory costs
(taxes) and profit thereon
    
    
    
    
    
    
    (3
    )
    
    
    Net minimum payment
    
    $
    9,026
    
    
    
    38
    
    
    $
    3,410Less amount representing interest on
on obligations under capital leases
    
    
    
    
    
    
    (5
    )Present value of minimum lease payments
    
    
    
    
    
    $
    33
 13. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
  
    
    For our Series D Convertible Preferred Stock, which as of September 27, 2004
represented 397,672 shares with a liquidation preference of $165.50 per share and a
conversion price of $84.70 per share were outstanding, to exchange 2.569030 shares of our
common stock, for each share of our Series D Preferred Stock (representing an exchange
price of approximately $6.44 per share);
    
    For our 8% Convertible Preferred Stock, Series E, which as of September 27, 2004
represented 416,667 shares with a liquidation preference of $162.60 per share and a
conversion price of $80.80 per share were outstanding, to exchange 2.524216 shares of our
common stock, for each share of our Series E Preferred Stock (representing an exchange
price of approximately $6.44 per share); and
    
    For our 12% Junior Redeemable Convertible Preferred Stock, Series G, which as of
September 27, 2004 represented 17.1214286 shares outstanding with had a liquidation
preference of $1,449,749 per share and conversion price of $12.80 per share were
outstanding, to exchange 16,146.94 shares of our common stock, for each share of our
Series G Preferred Stock (representing an exchange price of approximately $8.98 per
share).
 66




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14. COMMON STOCK
   15. RESTRUCTURING CHARGES
   67




---



##### Table of Contents



Employee
    
    
    LeaseTermination
    
    
    Abandonment
    
    
    AssetBenefits
    
    
    Costs
    
    
    Retirement
    
    
    TotalBalance at December 31, 2003
    
    $
    
    
    
    $
    351
    
    
    $
    
    
    
    $
    351Plan Charges
    
    
    4,527
    
    
    
    234
    
    
    
    40
    
    
    
    4,801Cash paid
    
    
    (3,646
    )
    
    
    (262
    )
    
    
    
    
    
    
    (3,908
    )Asset disposal
    
    
    
    
    
    
    
    
    
    
    (40
    )
    
    
    (40
    )Converted to note payable
    
    
    
    
    
    
    (40
    )
    
    
    
    
    
    
    (40
    )Lease termination settlement reversal
    
    
    
    
    
    
    (210
    )
    
    
    
    
    
    
    (210
    )Balance at December 31, 2004
    
    
    881
    
    
    
    73
    
    
    
    
    
    
    
    954Plan Charges
    
    
    451
    
    
    
    
    
    
    
    
    
    
    
    451Vacation Accrual
    
    
    91
    
    
    
    
    
    
    
    
    
    
    
    91Cash paid
    
    
    (1,423
    )
    
    
    (73
    )
    
    
    
    
    
    
    (1,496
    )Balance at December 31, 2005
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 16. INCOME TAXES
   68




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Year ended December 312005
    
    
    2004
    
    
    2003Current:Federal Income Tax Expense
    
    $
    
    
    
    $
    
    
    
    $
    State Income Tax Expense
    
    
    20
    
    
    
    23
    
    
    
    82Subtotal
    
    
    20
    
    
    
    23
    
    
    
    82
    
    
    
    
    
    
    
    Deferred:
    
    
    
    
    
    
    
    
    
    
    Federal Income Tax Expense
    
    
    
    
    
    
    
    
    
    
    State Income Tax Expense
    
    
    
    
    
    
    
    
    
    
    Subtotal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    20
    
    
    $
    23
    
    
    $
    82
  Year ended December 312005
    
    
    2004
    
    
    2003Tax at U.S. statutory rate
    
    $
    (5,050
    )
    
    $
    (11,772
    )
    
    $
    (5,644
    )State taxes, net of federal benefit
    
    
    (409
    )
    
    
    (997
    )
    
    
    (413
    )Goodwill amortization
    
    
    
    
    
    
    
    
    
    
    Change in valuation allowance
    
    
    5,437
    
    
    
    12,776
    
    
    
    5,807Other
    
    
    42
    
    
    
    16
    
    
    
    332$
    20
    
    
    $
    23
    
    
    $
    82
  Year ended December 312005
    
    
    2004
    
    
    2003Current deferred tax assets:Accounts receivable
    
    $
    7,529
    
    
    $
    4,167
    
    
    $
    5,246Other Reserves
    
    
    2,025
    
    
    
    2,241
    
    
    
    1,968Accrued Expenses
    
    
    414
    
    
    
    821
    
    
    
    145Noncurrent deferred tax assets:Net operating loss carryforward
    
    
    120,035
    
    
    
    117,678
    
    
    
    106,691Fixed assets
    
    
    
    
    
    
    
    
    
    
    Deferred revenue
    
    
    
    
    
    
    
    
    
    
    271Deferred compensation
    
    
    
    
    
    
    
    
    
    
    181Excess Capital Losses
    
    
    133
    
    
    
    133
    
    
    
    133Other
    
    
    22
    
    
    
    389
    
    
    
    480Gross deferred tax assets
    
    
    130,158
    
    
    
    125,429
    
    
    
    115,115Less: Valuation Allowance
    
    
    130,113
    
    
    
    (124,676
    )
    
    
    (111,900
    )45
    
    
    
    753
    
    
    
    3,215Noncurrent deferred tax liabilities:Property and equipment
    
    
    (45
    )
    
    
    (579
    )
    
    
    (2,346
    )Intangible assets
    
    
    
    
    
    
    (174
    )
    
    
    (869
    )Net deferred tax asset (liability)
    
    $
    
    
    
    $
    
    
    
    $
    
 69




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##### Table of Contents



17. COMMITMENTS AND CONTINGENCIES
      18. RELATED PARTY TRANSACTIONS
 70




---



##### Table of Contents



19. EMPLOYEE BENEFIT PLAN
  20. STOCK-BASED COMPENSATION
     71




---



##### Table of Contents



1998 Equity ParticipationInitial Plan
    
    
    Plan
    
    
    2000 Equity Participation Plan
    
    
    TotalWeighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    

    WeightedNumber of
    
    
    Exercise
    
    
    Number of
    
    
    Exercise
    
    
    Number of
    
    
    Exercise
    
    
    Number of
    

   AverageShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares

    
    Exercise PriceOutstanding, December 31, 2003
    
    
    43,521
    
    
    
    142.50
    
    
    
    41,713
    
    
    
    678.00
    
    
    
    166,079
    
    
    
    105.00
    
    
    
    251,312
    
    
    
    207.00Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,367
    
    
    
    136.00
    
    
    
    45,367
    
    
    
    136.00Exercised
    
    
    
    
    
    
    
    
    
    
    (44
    )
    
    
    182.00
    
    
    
    (7,326
    )
    
    
    66.00
    
    
    
    (7,370
    )
    
    
    66.70Forfeited
    
    
    
    
    
    
    
    
    
    
    (30,844
    )
    
    
    239.90
    
    
    
    (34,247
    )
    
    
    118.20
    
    
    
    (65,091
    )
    
    
    175.90Expired
    
    
    
    
    
    
    
    
    
    
    (22
    )
    
    
    182.00
    
    
    
    
    
    
    
    
    
    
    
    (22
    )
    
    
    182.00Outstanding, December 31, 2004
    
    
    43,521
    
    
    
    
    
    
    
    10,802
    
    
    
    
    
    
    
    169,873
    
    
    
    
    
    
    
    224,196Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    94
    
    
    
    4.19
    
    
    
    94
    
    
    
    4.19Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    (27,084
    )
    
    
    176.13
    
    
    
    (7,350
    )
    
    
    1,017.55
    
    
    
    (117,268
    )
    
    
    141.23
    
    
    
    (151,702
    )
    
    
    189.92Expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding, December 31, 2005
    
    
    16,437
    
    
    
    
    
    
    
    3,452
    
    
    
    
    
    
    
    52,699
    
    
    
    
    
    
    
    72,588
 
 WeightedAverageNumber
    
    
    Number
    
    
    ExercisableOutstanding
    
    
    Exercisable
    
    
    Price$0.00-$50.00
    
    
    539
    
    
    
    539
    
    
    $
    31.37$50.01 - $100.00
    
    
    39,991
    
    
    
    39,972
    
    
    $
    68.62$100.01-$150.00
    
    
    14,741
    
    
    
    12,048
    
    
    $
    134.09$150.01-$200.00
    
    
    2,735
    
    
    
    
    
    
    $
    $250.01-$300.00
    
    
    1,947
    
    
    
    1,774
    
    
    $
    272.50$300.01-$350.00
    
    
    1,604
    
    
    
    1,604
    
    
    $
    350.00$350.01-$400.00
    
    
    1,729
    
    
    
    1,729
    
    
    $
    371.94$400.01-$450.00
    
    
    147
    
    
    
    147
    
    
    $
    448.60$450.01-$500.00
    
    
    220
    
    
    
    220
    
    
    $
    500.00$550.01-$600.00
    
    
    133
    
    
    
    133
    
    
    $
    600.00$600.01-$650.00
    
    
    4,940
    
    
    
    4,939
    
    
    $
    650.00$650.01-$700.00
    
    
    240
    
    
    
    240
    
    
    $
    700.00$700.01-$750.00
    
    
    100
    
    
    
    100
    
    
    $
    750.00Greater than$1,000.00
    
    
    3,522
    
    
    
    3,522
    
    
    $
    1,907.3372,588
    
    
    
    66,967
 72




---



##### Table of Contents



21. COMPUTATION OF NET LOSS PER SHARE
   Year Ended December 31,2005
    
    
    2004
    
    
    2003Basic and diluted net loss per share:Net loss
    
    $
    (14,427
    )
    
    $
    (33,613
    )
    
    $
    (16,127
    )Less mandatorily redeemable convertible preferred
stock dividends and accretion
    
    
    
    
    
    
    (15,326
    )
    
    
    (17,480
    )Less preferred stock conversion loss
    
    
    
    
    
    
    (57,584
    )
    
    
    Less deemed dividend related to beneficial
conversion feature
    
    
    
    
    
    
    
    
    
    
    (186
    )Net loss attributable to common stockholders
    
    $
    (14,427
    )
    
    $
    (106,523
    )
    
    $
    (33,793
    )Weighted average common shares outstanding
    
    
    8,524,846
    
    
    
    1,167,678
    
    
    
    707,938Basic and diluted net loss attributable to common
stockholders per share
    
    $
    (1.69
    )
    
    $
    (91.23
    )
    
    $
    (47.73
    )
  Year Ended December 31,2005
    
    
    2004
    
    
    2003Unexercised stock options
    
    
    72,588
    
    
    
    224,196
    
    
    
    251,312Unexercised warrants
    
    
    63,275
    
    
    
    107,878
    
    
    
    213,055Mandatorily redeemable preferred stock
convertible into common shares
    
    
    
    
    
    
    
    
    
    
    633,576Total potentially dilutive shares of common
stock equivalents
    
    
    135,863
    
    
    
    332,074
    
    
    
    1,097,944
 22. LEGAL AND REGULATORY PROCEEDINGS
  73




---



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74




---



##### Table of Contents



23. SEGMENT REPORTING
       75




---



##### Table of Contents



December 31,2005
    
    
    2004
    
    
    2003Retail ServicesRevenues
    
    $
    148,139
    
    
    $
    171,024
    
    
    $
    205,059Depreciation and amortization
    
    $
    11,365
    
    
    $
    19,019
    
    
    $
    20,956Segment results
    
    $
    (15,030
    )
    
    $
    (25,816
    )
    
    $
    (18,754
    )Capital expenditures
    
    $
    3,526
    
    
    $
    9,510
    
    
    $
    10,239Identifiable assets
    
    $
    35,001
    
    
    $
    55,260
    
    
    $
    69,325
 December 31,2005
    
    
    2004
    
    
    2003Wholesale ServicesRevenues
    
    $
    41,066
    
    
    $
    80,453
    
    
    $
    84,121Depreciation and amortization
    
    $
    143
    
    
    $
    745
    
    
    $
    2,493Segment results
    
    $
    12,974
    
    
    $
    20,126
    
    
    $
    24,717Capital expenditures
    
    $
    
    
    
    $
    
    
    
    $
    797Identifiable Assets
    
    $
    6,320
    
    
    $
    6,076
    
    
    $
    12,345
  December 31,2005
    
    
    2004
    
    
    2003RevenuesRetail segment
    
    $
    148,139
    
    
    $
    171,024
    
    
    $
    205,059Wholesale segment
    
    
    41,066
    
    
    
    80,453
    
    
    
    84,121Total consolidated
    
    $
    189,205
    
    
    $
    251,477
    
    
    $
    289,180
 December 31,2005
    
    
    2004
    
    
    2003Segment results:Retail segment
    
    $
    (15,030
    )
    
    $
    (25,816
    )
    
    $
    (18,754
    )Wholesale segment
    
    
    12,974
    
    
    
    20,126
    
    
    
    24,717Retroactive reduction to network access rate
    
    
    
    
    
    
    
    
    
    
    2,500Restructuring charge
    
    
    (451
    )
    
    
    (4,801
    )
    
    
    Depreciation and amortization
    
    
    (11,508
    )
    
    
    (19,764
    )
    
    
    (23,449
    )Total consolidated operating loss
    
    $
    (14,015
    )
    
    $
    (30,255
    )
    
    $
    (14,986
    )
 24. SUBSEQUENT EVENTS
   76




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SUPPLEMENTAL QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
  Quarter EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2005
    
    
    2005
    
    
    2005
    
    
    2005Revenues
    
    $
    57,131
    
    
    $
    50,797
    
    
    $
    44,030
    
    
    $
    37,247Operating loss
    
    $
    (4,609
    )
    
    $
    (1,874
    )
    
    $
    (1,842
    )
    
    $
    (5,690
    )Net income (loss)
    
    $
    442
    
    
    $
    (3,257
    )
    
    $
    (4,550
    )
    
    $
    (7,062
    )Net income (loss) per share (1-2)
    
    $
    0.08
    
    
    $
    (0.59
    )
    
    $
    (0.82
    )
    
    $
    (0.40
    )Weighted average shares outstanding (2)
    
    
    5,518,530
    
    
    
    5,533,564
    
    
    
    5,520,137
    
    
    
    17,518,573
 Quarter EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2004
    
    
    2004
    
    
    2004
    
    
    2004Revenues
    
    $
    68,467
    
    
    $
    63,797
    
    
    $
    60,912
    
    
    $
    58,301Operating loss
    
    $
    (9,971
    )
    
    $
    (9,464
    )
    
    $
    (9,733
    )
    
    $
    (1,087
    )Net loss
    
    $
    (10,384
    )
    
    $
    (11,111
    )
    
    $
    (10,342
    )
    
    $
    (1,776
    )Loss per share (1-2)
    
    
    (14.40
    )
    
    
    (15.18
    )
    
    
    (13.73
    )
    
    
    (0.73
    )Weighted average shares outstanding (2)
    
    
    721,338
    
    
    
    732,174
    
    
    
    753,005
    
    
    
    2,441,636
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##### Table of Contents



(1)
    
    Net income (loss) per share were calculated for each three-month period on a stand-alone basis.(2)
    
    Information for all periods presented has been restated for the one for ten reverse stock split
in 2005. 
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Evaluation
of Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
  Remediation of Material Weaknesses
  
 PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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##### Table of Contents



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  
 PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
         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.4.6
    
    Form of Warrant for the purchase of shares of our common stock by
each of the purchasers of our Series D Convertible
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##### Table of Contents



EXHIBITNUMBER
    
    DESCRIPTIONPreferred
Stock. Incorporated by reference to the correspondingly numbered
exhibit to our Quarterly Report on Form 10-Q for the quarter ended
June 30, 2000, filed on August 14, 2000.4.7
    
    Stock and Warrant Purchase Agreement, dated October 19, 2000, by
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, 2000.4.9
    
    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, 2000.4.10
    
    Warrant issued to The 1818 Fund III, L.P. for the purchase of
shares of our common stock. 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.4.16
    
    Warrant for the Purchase of Shares of Common Stock of Trinsic,
dated as of July 2, 2001. Incorporated by reference to Exhibit 2
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.4.17
    
    Backup Purchase Agreement, dated as of July 2, 2001, by and among
Z-Tel Communications, Inc., a Delaware corporation and our wholly
owned subsidiary, Touch 1 Communications, Inc., an Alabama
corporation and our wholly owned subsidiary, D. Gregory Smith and
others. Incorporated by reference to Exhibit 4 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.4.18
    
    Additional Investor Registration Rights Agreement, dated as of
July 2, 2001, between Z-Tel, D. Gregory Smith and others.
Incorporated by reference to Exhibit 5 to the Schedule 13D filed
July 24, 2001 with respect to our common stock by, among other
persons, D. Gregory Smith.4.19
    
    Voting Agreement, dated as of June 29, 2001, between us and
certain of our stockholders. Incorporated by reference to Exhibit
5 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, 2005.4.21
    
    Certificate of Designation of Convertible Preferred Stock, Series
H. Incorporated by reference to Exhibit B to our Form 8-K filed
July 20, 2005.
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##### Table of Contents



EXHIBITNUMBER
    
    DESCRIPTION4.22
    
    Voting Agreement, dated August 31, 2005, between us and The 1818
Fund III, L.P. Incorporated by reference to Exhibit B to our Form
8-K filed September 7, 2005.10.2.1
    
    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
    
    Loan and Security Agreement, dated April 22, 2004, by and between
Textron Financial Corporation and Z-Tel. Incorporated by reference
to Exhibit 10.2 of our Registration Statement on Form S-3 (File
No. 333-116747), originally filed June 22, 2004, as amended and as
effective July 15, 2004.10.4
    
    Receivables Sales Agreement dated as of July 27, 2000 by and
between Z-Tel Communications, Inc., as seller and subservicer,
Touch 1 Communications, Inc., as seller and subservicer, and RFC
Capital Corporation, as purchaser. Incorporated by reference to
the correspondingly numbered exhibit to our Quarterly Report on
Form 10- Q for the quarter ended June 30, 2000, filed on August
14, 2000, with an amendment extending the agreement until July 27,
2004.10.5
    
    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 Horace J. Trey Davis III, dated August 14, 2002.
Incorporated by reference to the correspondingly numbered exhibit to our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, filed on
May 17, 2004. By amendment dated October 5, 2004, the annual salary was
increased to $300,000. The amendment is incorporated by reference to Exhibit
99.1 to Form 8-K filed October 12, 2004.10.7
    
    Modification and Termination Agreement dated January 27, 2005 with Textron
Financial Corporation modifying our Loan and Security Agreement dated April
22, 2004. Incorporated by reference to Exhibit 10.4 to Form 8-K filed
February 2, 2005.10.8
    
    Asset Sale and Purchase Agreement dated September 29, 2004, between and
among Sipstorm, Inc. and us. Incorporated by reference to Exhibit 99.1 to
October 6, 2004.10.11
    
    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.
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##### Table of Contents



EXHIBITNUMBER
    
    DESCRIPTION10.15
    
    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.21.
    
    List of Subsidiaries23a.
    
    Consent of PricewaterhouseCoopers LLP23b.
    
    Consent of Carr Riggs & Ingram LLC31.1
    
    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 Officer
  SIGNATURE
    
    TITLE
    
    DATE/s/ Horace J. Davis, III
    
    
    
    March 31, 2006Horace J. Davis, III
    
    Chief Executive Officer
(Principal Executive
Officer)/s/Edward D. Moise, Jr.
    
    
    
    March 31, 2006Edward D. Moise, Jr.
    
    Chief Financial Officer
(Principal Financial and
Accounting Officer)/s/ Andrew C. Cowen
    
    
    
    March 31, 2006Andrew C. Cowen
    
    Director/s/ Richard F. LaRoche, Jr.
    
    
    
    March 31, 2006Richard F. LaRoche, Jr.
    
    Director/s/ Lawrence C. Tucker
    
    
    
    March 31, 2006Lawrence C. Tucker
    
    Director/s/ W. Andrew Krusen, Jr.
    
    
    
    March 31, 2006W. Andrew Krusen, Jr.
    
    Director/s/ Roy Neel
    
    
    
    March 31, 2006Roy Neel
    
    Director/s/ Raymond L. Golden
    
    
    
    March 31, 2006Raymond L. Golden
    
    Director
  83