Nasdaq drops bomb on Trinsic

Published 8:39 am Wednesday, May 11, 2005

By By Tim Cottrell
Trinsic Communications, Inc., formerly Z-Tel, received a double dose of bad news over the past two weeks, including an underwhelming qualified audit report and a notice from Nasdaq that they may be taken off its list of stocks.
The company announced via press release April 22 that its auditor, PricewaterhouseCoopers, had expressed the following qualification from Trinsic's financial statements as of Dec. 31, 2004.
"The Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern," the press release stated.
A "going concern" qualification relates to an entity's ability over the coming year to meet its obligations as they become due without substantial disposition of assets outside the normal course of business, restructuring of debt, externally forced revisions of its operations, or similar actions, according to Trinsic's press release.
An investment source tells the Advance that the audit did not spell doom and gloom for Trinsic, but simply raised doubts about its ability to maintain the way it operates.
Trinsic Chief Executive Officer (CEO) Trey Davis said that the company would press on.
"We are disappointed with this qualification, but not discouraged," Davis said. "We have made considerable efforts to ensure that we will be able to obtain funding and to generate cash flow from operations adequate to fund our business. Recently, we entered into a Receivables Sales Agreement with Thermo Credit, which will enable us to replace our current credit facility with Textron Financial. We have also substantially reduced our payroll, and importantly, we just entered into a commercial agreement with Verizon Communications whereby we will have access to Verizon's Wholesale Advantage platform. This agreement will give us access to the same network elements, features, and functions as we purchased from Verizon under the previous regulatory regime known as UNE-P (Unbundled Network Element Platform). As a result, and despite the qualification, we are focused on moving Trinsic forward."
However, that qualification may have inadvertently caused another problem for Trinsic, according to sources. The company's stock fell significantly following the audit report, leading to Trinsic's next press release from Friday.
In addition to that announcement, Trinsic announced Friday that by a letter dated that same day the NASDAQ Stock Market, Inc. has notified the company that the shares will be delisted from the NASDAQ SmallCap Market at the opening of business on May 17, according to another press release. The market value of Trinsic's common stock remains below the minimum of $35 million required by Marketplace Rule 4310(c)(2)(8)(ii) and due to this will be delisted. The company has indicated that it will appeal the decision. That appeal will stay the delisting pending a hearing.
Representatives from Trinsic could not be reached for comment about the either situation after several weeks, but representatives from NASDAQ did respond to queries from the Advance.
The market cannot comment on specifics about companies currently listed on NASDAQ, but representatives from NASDAQ did provide specifics to the delisting rule via email.
According to the nine-page document, any company in danger of being delisted from the NASDAQ Stock Exchange is entitled to an appeal within seven days of receiving notice. During that time, they may request a hearing from the Listing Qualifications Panel, where the company and its books are evaluated.
Sources again told the Advance that the announcement was not the end of the world, but could make life more difficult for Trinsic. A company's shares are the entire value of the company, and when those shares fall below $35 million, which is far more liberal than one would be allowed on the New York Stock Exchange, NASDAQ reserves the right to remove a company from its listing. The source said that being delisted from NASDAQ did not mean the company would go out of business, but did mean it would be difficult to trade the company's shares.

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