<PAGE>
=============================================================================

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                            ----------------------

                                  FORM 10-Q


  [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934

       For the quarterly period ended   March 31, 2006
                                      ------------------

                                      OR

  [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934

       For the transition period from ___________ to ___________


                            ----------------------


                                   333-36804
                             Commission file number


                           MADISON RIVER CAPITAL, LLC
            (Exact Name of Registrant as Specified in Its Charter)


           Delaware                                   56-2156823
(State or Other Jurisdiction of          (I.R.S. Employer Identification No.)
 Incorporation or Organization)


                            103 South Fifth Street
                         Mebane, North Carolina 27302
         (Address of Principal Executive Offices, Including Zip Code)

                                (919) 563-1500
             (Registrant's Telephone Number, Including Area Code)



Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes  X   No ___
                                                   ---

Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer.  See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act.

Large accelerated filer     Accelerated filer     Non-accelerated filer  X
                        ---                   ---                       ---

Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes       No  X
                                        ---      ---

As of May 12, 2006, the Registrant had 211,583,892 Class A member interests
outstanding.  All member interests are owned by Madison River Telephone
Company, LLC.
=============================================================================

<PAGE>




                          MADISON RIVER CAPITAL, LLC

                              Index to Form 10-Q

<TABLE>
<CAPTION>
Part I - Financial Information                                                             Page
                                                                                           ----
<S>                                                                                         <C>
Item  1.  Financial Statements
          Condensed Consolidated Balance Sheets - March 31, 2006 (Unaudited)
            and December 31, 2005............................................................1
          Condensed Consolidated Statements of Operations (Unaudited) - Three Months
            Ended March 31, 2006 and 2005....................................................2
          Condensed Consolidated Statements of Member's Capital (Unaudited)- Three Months
            Ended March 31, 2006 and 2005....................................................3
          Condensed Consolidated Statements of Cash Flows (Unaudited) - Three Months
            Ended March 31, 2006 and 2005....................................................4
          Notes to Condensed Consolidated Financial Statements (Unaudited)...................5
Item  2.  Management's Discussion and Analysis of Financial Condition and Results
            of Operations....................................................................10
Item  3.  Quantitative and Qualitative Disclosures About Market Risk.........................28
Item  4.  Controls and Procedures............................................................28



Part II - Other Information

Item  6.  Exhibits...........................................................................29
Signature....................................................................................29
</TABLE>









                                      i


<PAGE>

                                   Part I


Item 1.  FINANCIAL STATEMENTS
                          MADISON RIVER CAPITAL, LLC
                     Condensed Consolidated Balance Sheets
                            (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                  March 31, 2006     December 31, 2005
                                                                  --------------     -----------------
Assets                                                              (Unaudited)
<S>                                                                 <C>                  <C>
Current assets:
  Cash and cash equivalents                                          $   18,148           $   20,100
  Accounts receivable, less allowance for uncollectible accounts
    of $1,013 and $900 in 2006 and 2005, respectively                     8,580               10,553
  Receivables, primarily from interexchange carriers, less
    allowance for uncollectible accounts of $1,072 and $1,048
    in 2006 and 2005, respectively                                        6,997                6,813
  Rural Telephone Finance Cooperative patronage capital receivable          380                2,813
  Rural Telephone Bank stock, at cost                                    10,079               10,079
  Rural Telephone Bank stock redemption value in excess of cost          16,399                 -
  Other current assets                                                    3,243                8,212
                                                                      ---------            ---------
    Total current assets                                                 63,826               58,570
                                                                      ---------            ---------

Telephone plant and equipment                                           700,770              699,373
Less accumulated depreciation and amortization                         (431,195)            (424,129)
                                                                      ---------            ---------
  Telephone plant and equipment, net                                    269,575              275,244
                                                                      ---------            ---------

Other assets:
  Goodwill                                                              366,332              366,332
  Other assets                                                           20,204               14,423
                                                                      ---------            ---------
    Total other assets                                                  386,536              380,755
                                                                      ---------            ---------

    Total assets                                                     $  719,937           $  714,569
                                                                      =========            =========

Liabilities and member's capital
Current liabilities:
  Accounts payable                                                   $      951           $    1,288
  Accrued expenses                                                       23,119               28,805
  Other current liabilities                                               6,935                7,162
  Current portion of long-term debt                                      27,000                7,000
                                                                      ---------            ---------
    Total current liabilities                                            58,005               44,255
                                                                      ---------            ---------

Noncurrent liabilities:
  Long-term debt                                                        524,421              551,338
  Other liabilities                                                      62,457               60,181
                                                                      ---------            ---------
    Total noncurrent liabilities                                        586,878              611,519
                                                                      ---------            ---------

    Total liabilities                                                   644,883              655,774

Member's capital:
  Member's interest                                                     251,837              251,837
  Accumulated deficit                                                  (176,557)            (189,960)
  Accumulated other comprehensive loss, net of tax                         (226)              (3,082)
                                                                      ---------            ---------
    Total member's capital                                               75,054               58,795
                                                                      ---------            ---------

    Total liabilities and member's capital                           $  719,937           $  714,569
                                                                      =========            =========
</TABLE>


              See Notes to Condensed Consolidated Financial Statements.

                                      1

<PAGE>

                          MADISON RIVER CAPITAL, LLC
               Condensed Consolidated Statements of Operations
                            (Dollars in thousands)
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                                        Three Months Ended March 31,
                                                                        ----------------------------
                                                                           2006              2005
                                                                        ----------        ----------
<S>                                                                     <C>               <C>
Operating revenues:
  Local services                                                        $   32,240        $   31,373
  Long distance services                                                     3,909             3,859
  Internet and enhanced data services                                        6,174             5,766
  Edge-out services                                                          2,252             2,725
  Miscellaneous telecommunications service and equipment                     4,704             4,207
                                                                          --------          --------
    Total operating revenues                                                49,279            47,930
                                                                          --------          --------

Operating expenses:
  Cost of services and sales (exclusive of depreciation
    and amortization)                                                       15,152            13,732
  Depreciation and amortization                                              8,681             9,274
  Selling, general and administrative expenses                               9,219             9,203
                                                                          --------          --------
    Total operating expenses                                                33,052            32,209
                                                                          --------          --------

Net operating income                                                        16,227            15,721

Interest expense                                                           (11,330)          (14,415)
Loss on extinguishment of long-term debt                                      (463)             -
Gain on redemption of Rural Telephone Bank stock                            16,399              -
Other income, net                                                              899             1,022
                                                                          --------          --------

Income before income taxes                                                  21,732             2,328

Income tax expense                                                           8,329             1,500
                                                                          --------          --------

Net income                                                              $   13,403        $      828
                                                                          ========          ========
</TABLE>

           See Notes to Condensed Consolidated Financial Statements.


                                      2

<PAGE>

                          MADISON RIVER CAPITAL, LLC
              Condensed Consolidated Statements of Member's Capital
                            (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                                  Accumulated
                                                                                     Other
                                                    Member's       Accumulated   Comprehensive
                                                    Interest         Deficit          Loss         Total
                                                   ----------      -----------   -------------   ---------
<S>                                               <C>            <C>             <C>           <C>
Balance at December 31, 2004                      $  251,684     $  (188,324)    $ (2,600)       $  60,760
  Net income (unaudited)                                -                828          -                828
                                                   ---------      ----------      -------         --------
Balance at March 31, 2005 (unaudited)             $  251,684     $  (187,496)    $ (2,600)       $  61,588
                                                   =========      ==========      =======         ========


Balance at December 31, 2005                      $  251,837     $  (189,960)    $ (3,082)       $  58,795
  Net income (unaudited)                                -             13,403          -             13,403
  Change in fair market value of interest
    rate hedges, net of tax (unaudited)                 -               -           2,856            2,856
                                                                                                  --------
  Comprehensive income (unaudited)                      -               -             -             16,259
                                                   ---------      ----------      -------         --------
Balance at March 31, 2006 (unaudited)             $  251,837     $  (176,557)    $   (226)       $  75,054
                                                   =========      ==========      =======         ========
</TABLE>


           See Notes to Condensed Consolidated Financial Statements.


                                      3

<PAGE>


                          MADISON RIVER CAPITAL, LLC
                Condensed Consolidated Statements of Cash Flows
                            (Dollars in thousands)
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                                        Three Months Ended March 31,
                                                                        ----------------------------
                                                                           2006              2005
                                                                        ----------        ----------
<S>                                                                     <C>               <C>
Operating activities
Net cash provided by operating activities                               $    7,804        $      363
                                                                         ---------         ---------

Investing activities
Purchases of telephone plant and equipment                                  (2,794)           (2,148)
Redemption of Rural Telephone Finance Cooperative stock                        -                 469
Change in other assets                                                         760              (161)
                                                                         ---------         ---------
Net cash used for investing activities                                      (2,034)           (1,840)
                                                                         ---------         ---------

Financing activities
Repayment of long-term debt                                                 (7,309)           (2,346)
Costs related to amendment of senior secured credit facility                  (413)              -
                                                                         ---------         ---------
Net cash used for financing activities                                      (7,722)           (2,346)
                                                                         ---------         ---------

Net decrease in cash and cash equivalents                                   (1,952)           (3,823)

Cash and cash equivalents at beginning of year                              20,100            34,486
                                                                         ---------         ---------

Cash and cash equivalents at end of first quarter                       $   18,148        $   30,663
                                                                         =========         =========
</TABLE>



           See Notes to Condensed Consolidated Financial Statements.


                                      4



<PAGE>

                          MADISON RIVER CAPITAL, LLC
             Notes To Condensed Consolidated Financial Statements
                                 (Unaudited)

1.  GENERAL

    Madison River Capital, LLC (the "Company"), a wholly-owned subsidiary of
Madison River Telephone Company LLC ("MRTC"), was organized on August 26,
1999 as a limited liability company under the provisions of the Delaware
Limited Liability Company Act. Under the provisions of this Act, the member's
liability is limited to the Company's assets provided that the member returns
to the Company any distributions received by the member as the result of an
accounting or similar error.

    The Company offers a variety of telecommunications services to business
and residential customers in the Southeast and Midwest regions of the United
States including local and long distance voice services, Internet access
services, high-speed data and fiber transport.  The Company was founded for
the primary purpose of the acquisition, integration and operation of rural
local exchange telephone companies, or RLECs.  Since January 1998, the
Company has acquired four RLECs located in North Carolina, Illinois, Alabama
and Georgia.  These RLECs served 229,006 voice access and broadband
connections as of March 31, 2006.

    The Company's RLECs manage and operate edge-out competitive local
exchange carrier, or CLEC, businesses in markets in North Carolina, Illinois
and Louisiana, and provide fiber transport services to other businesses,
primarily in the Southeast.  These operations are referred to as Edge-Out
Services, or EOS.  The EOS markets were developed in close proximity, or
edged-out, from the RLEC operations by utilizing a broad range of experienced
and efficient resources provided by the RLECs.  At March 31, 2006, the EOS
operations served 8,977 voice access and high-speed data connections.


2.  BASIS OF PRESENTATION

    The accompanying unaudited condensed consolidated financial statements
include the accounts of the Company and its wholly-owned and majority-owned
subsidiaries as follows:

  * Madison River Finance Corp. ("MRF"), a wholly-owned subsidiary
  * Gallatin River Holdings, LLC and its subsidiary ("GRH"), a wholly-owned
      subsidiary
  * Madison River Communications, LLC and its subsidiary ("MRC"), a wholly-
      owned subsidiary
  * Madison River Holdings Corp. ("MRH"), a wholly-owned subsidiary
    * Madison River LTD Funding Corp. ("MRLTDF"), a wholly-owned subsidiary
      * Mebtel, Inc. ("Mebtel"), a wholly-owned subsidiary
      * Gulf Coast Services, Inc. and its subsidiaries  ("GCSI"), a wholly-
        owned subsidiary
      * Coastal Communications, Inc. and its subsidiaries ("CCI"), a
        majority-owned subsidiary
      * Madison River Management, LLC ("MRM"), a wholly-owned subsidiary
    * Madison River Long Distance Solutions, Inc. ("MRLDS"), a wholly-owned
      subsidiary
    * Mebtel Long Distance Solutions, Inc. ("MLDS"), a wholly-owned
      subsidiary

    These financial statements have been prepared by the Company in
accordance with generally accepted accounting principles for interim
financial information and are in the form prescribed by the Securities and
Exchange Commission in instructions to Form 10-Q and Article 10 of Regulation
S-X.  Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements.  The interim unaudited financial statements should be read in
conjunction with the audited financial statements of the Company as of and
for the year ended December 31, 2005.  Such financial statements are included
in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2005 filed with the Securities and Exchange Commission.  The
amounts presented in the condensed consolidated balance sheet as of December
31, 2005 were derived from the audited financial statements included in the
Form 10-K.  In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the three-month period ended March
31, 2006 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2006.

    Certain amounts in the 2005 condensed consolidated financial statements
have been reclassified to conform to the 2006 presentation.  These
reclassifications had no effect on net income or member's capital as
previously reported.

                                      5

<PAGE>

                          MADISON RIVER CAPITAL, LLC
        Notes To Condensed Consolidated Financial Statements, Continued
                                  (Unaudited)


3.  RURAL TELEPHONE BANK STOCK

    In the first quarter of 2006, the Company completed stock redemption
agreements with the Rural Telephone Bank ("RTB") providing for the redemption
of the Company's 26,478 shares of $1,000 par value Class C stock in the RTB.
The stock had a carrying value of $10.1 million.  Accordingly, the Company
recognized a gain of $16.4 million related to the redemption during the
quarter.  The shares were redeemed at their par value of approximately $26.5
million in April 2006 and were subsequently cancelled.

4.  TELEPHONE PLANT AND EQUIPMENT

    Telephone plant and equipment consisted of the following:

<TABLE>
<CAPTION>
                                           March 31,       December 31,
                                             2006              2005
                                           ---------       ------------
                                                (in thousands)
  <S>                                      <C>             <C>
  Land, buildings and general equipment    $  79,659       $  80,253
  Central office equipment                   254,150         252,509
  Poles, wires, cables and conduit           337,845         334,989
  Leasehold improvements                       3,955           3,955
  Software                                    17,933          18,213
  Construction-in-process                      7,228           9,454
                                            --------        --------
    Total telephone plant and equipment    $ 700,770       $ 699,373
                                            ========        ========
</TABLE>

5.  RESTRUCTURING CHARGE

    As of March 31, 2006, the following amounts were recorded related to
restructuring charges recorded by the Company in the third quarter of 2002
and the fourth quarter of 2001:

<TABLE>
<CAPTION>
                                                    2006
                                Balance at      first quarter    Balance at
                             December 31, 2005    payments     March 31, 2006
                             -----------------  -------------  --------------
                                               (in thousands)
  <S>                            <C>             <C>            <C>
  Future lease obligations       $    115        $    33        $      82
                                  =======         ======         ========
</TABLE>


6.  LONG-TERM DEBT AND LINE OF CREDIT

    Long-term debt and line of credit outstanding consist of the following
at:

<TABLE>
<CAPTION>
                                                                            March 31,        December 31,
                                                                               2006              2005
                                                                            ----------       ------------
                                                                                  (in thousands)
<S>                                                                         <C>               <C>

Senior secured note payable to banks maturing July 2012.                    $  475,000        $  475,000
Unsecured 13.25% senior notes payable, due March 1, 2010,
  with interest payable semiannually on March 1 and September 1,
  net of debt discount of $579 and $662, respectively.                          76,421            83,338
                                                                             ---------         ---------
                                                                               551,421           558,338
Less current portion                                                            27,000             7,000
                                                                             ---------         ---------
                                                                            $  524,421        $  551,338
                                                                             =========         =========
</TABLE>


                                      6

<PAGE>

                          MADISON RIVER CAPITAL, LLC
        Notes To Condensed Consolidated Financial Statements, Continued
                                  (Unaudited)


6.  LONG-TERM DEBT AND LINES OF CREDIT, Continued

    The Company's senior secured credit facility consists of a seven-year,
$475.0 million term loan with a syndicate of banks and a seven-year, $75.0
million revolving line of credit facility with the Rural Telephone Finance
Cooperative (the "RTFC").  The term loan and the revolving line of credit
mature in July 2012.

    On January 27, 2006, the Company completed an amendment to its senior
secured credit facility that reduced the interest rate margins on the term
loan by 25 basis points.  As part of the agreement, in the year following the
effective date of the amendment, prepayments of the term loan under certain
conditions may require the Company to also pay a fee equal to 1.00% of the
aggregate principal amount of the prepayment.  The Company paid approximately
$0.4 million for expenses related to the transaction.

    The term loan bears variable interest, at the Company's option, at either
(a) a base rate, as defined in the credit agreement, plus 1.25% or (b) a
London interbank offered rate ("LIBOR") plus a 2.25% margin. At March 31,
2006, the Company had elected the LIBOR rate option.  The credit agreement
required the Company to enter into interest rate hedge agreements within six
months of the closing date of the transaction that cover a minimum of 50% of
the principal amount of the Company's and MRTC's combined long-term debt for
a period of two years from July 29, 2005.  In October 2005, the Company
entered into interest rate swap agreements to effectively fix the interest
rate on $350.0 million of its credit facility for a period of four years.
The effective rate under the interest rate swaps is approximately 6.97%.  The
interest rate on the remaining $125.0 million variable portion of its term
loan, effective until July 6, 2006, is 7.26%.  As of March 31, 2006, the
Company's weighted average effective interest rate on its secured credit
facility was 7.15%.

    The term loan has no scheduled principal payments until maturity of the
credit agreement in July 2012.  However, the Company is permitted under the
credit agreement to make voluntary prepayments of the term loan and the line
of credit without premium or penalty at any time, except as provided for in
the amendment entered into on January 27, 2006.  Subject to certain
conditions and exceptions, the Company will be required to make mandatory
prepayments of borrowings under the term loan and then under the revolving
credit facility, without premium or penalty, using (i) the net cash proceeds
from sales or dispositions of certain assets, (ii) the net cash proceeds from
certain debt and equity issuances and (iii) 50% of its net excess cash flow
as defined in the credit agreement.  The Company may be subject to standard
breakage costs under its hedging obligations if it chooses to unwind its
swaps prior to their maturity.

    The credit agreement permits the Company to use 100% of its gross excess
cash flow, as defined in the credit agreement, to redeem the remaining senior
notes, and, subject to limitations in the senior note indenture, make
distributions to MRTC to be used to repay its long-term debt.  In addition,
beginning January 1, 2007, if the total leverage ratio, as defined in the
credit agreement, is between 4.5 to 1.0 and 5.0 to 1.0, MRTC may pay
dividends in amounts up to 50% of gross excess cash flow and if the total
leverage ratio is below 4.5 to 1.0, MRTC may pay dividends in amounts up to
100% of gross excess cash flow.  If the Company and MRTC do not retire other
long-term debt or, if permitted, pay dividends, in an amount equivalent to
their gross excess cash flow in a fiscal year, then 50% of the remaining
amount, referred to as net excess cash flow, must be used to prepay the
$475.0 million term loan within 90 days after year-end.  For purposes of this
test, the Company is permitted to apply any repayments of other long-term
debt in the first 90 days after year-end to reduce the prior year's net
excess cash flow, thereby minimizing or eliminating any mandatory prepayments
of the term loan from net excess cash flow.

    As of December 31, 2005, the Company had approximately $6.4 million of
net excess cash flow for 2005.  On March 27, 2006, the Company redeemed $7.0
million of its senior notes.  The Company applied approximately $6.4 million
from this senior note redemption to reduce 2005's net excess cash flow to
zero, resulting in no mandatory prepayment of the term loan being required.
The remainder of the redemption is to be applied to 2006's net excess cash
flow calculation.

    The $75.0 million revolving line of credit is with the RTFC and bears
interest that is payable quarterly at the RTFC's line of credit base rate
plus 0.5% per annum (9.25% at March 31, 2006).  The entire revolving credit
facility was available to the Company for general corporate purposes at March
31, 2006.  The amount available to be drawn may be less than the full amount
of the revolving line of credit subject to certain restrictions in the credit
agreement, primarily the financial ratios.  The line of credit was undrawn as
of this date.


                                      7

<PAGE>

                          MADISON RIVER CAPITAL, LLC
        Notes To Condensed Consolidated Financial Statements, Continued
                                  (Unaudited)


6.  LONG-TERM DEBT AND LINES OF CREDIT, Continued

    Under the terms of the credit agreement, the Company must comply with
certain administrative and financial covenants.  The Company is, among other
things, restricted in its ability to (i) incur additional indebtedness, (ii)
make restricted payments or pay dividends, (iii) redeem or repurchase equity
interests, (iv) make various investments or other restricted payments, (v)
create certain liens or use assets as security in other transactions, (vi)
sell certain assets or utilize certain asset sale proceeds, (vii) merge or
consolidate with or into other companies or (viii) enter into transactions
with affiliates.  In addition, the Company must maintain certain financial
ratios, including a total leverage ratio, a senior secured debt leverage
ratio and a fixed coverage charge ratio.

    The credit facility is secured by a first mortgage lien on the operating
assets and revenues of the Company and those of MRTC and the Company's first-
tier, wholly-owned subsidiaries: MRH, MRF, and MRC (collectively, the "Loan
Parties").  In addition to the Company, the remaining Loan Parties have
guaranteed the credit facility and each Loan Party has pledged the equity
interests in each wholly-owned subsidiary that it owns in support of the
credit facility.


    At March 31, 2006, the Company has $77.0 million of 13.25% senior notes
outstanding that mature in March 2010 and have semiannual interest payments
due on March 1 and September 1 of each year.  The Company has the ability to
repurchase on the open market or voluntarily redeem its remaining senior
notes.  In March 2006, the Company voluntarily redeemed $7.0 million in
senior notes for a redemption price of 104.417% of par value plus accrued
interest using its cash on hand.  The Company recorded $0.5 million as a loss
on extinguishment of long-term debt which consists of the premium paid to
redeem the senior notes and the write-off of unamortized debt issuance costs
and unamortized discount related to the redeemed senior notes.  On May 12,
2006, the Company redeemed an additional $27.0 million of senior notes for a
redemption price of 104.417% of the par value of the principal amount
redeemed plus accrued interest.

    The Company remains subject to the terms of the indenture that governs
the senior notes and, accordingly, must comply with certain financial and
administrative covenants. The Company is, among other things, restricted in
its ability to (i) incur additional indebtedness, (ii) pay dividends, (iii)
redeem or repurchase equity interests, (iv) make various investments or other
restricted payments, (v) create certain liens or use assets as security in
other transactions, (vi) sell certain assets or utilize certain asset sale
proceeds, (vii) merge or consolidate with or into other companies or (viii)
enter into transactions with affiliates.


7.  BENEFIT PLANS

    Net periodic benefit costs (benefits) for the Company's pension plan and
other postretirement benefit plans for the quarters ended March 31, 2006 and
2005 are as follows:


<TABLE>
<CAPTION>
                                   Defined benefit pension plan     Other postretirement benefits
                                   ----------------------------     -----------------------------
                                     March 31,      March 31,         March 31,       March 31,
                                       2006           2005              2006            2005
                                     ---------      ---------         ---------       ---------
                                                          (in thousands)
  <S>                                <C>            <C>               <C>             <C>
  Service cost                       $   -          $     99          $     21        $     15
  Interest cost                         206              196                26              28
  Expected return on plan assets       (225)            (211)               -               -
  Amortization of net loss (gain)        74               54               (42)            (46)
  Amortization of prior service cost     -                -                (27)            (27)
                                      -----          -------           -------         -------
                                     $   55         $    138          $    (22)       $    (30)
                                      =====          =======           =======         =======
</TABLE>


    The Company expects to contribute approximately $0.4 million to its
pension plan in 2006.  The Company did not make any contribution to its
pension plan in the first quarter of 2006.


                                      8

<PAGE>

                          MADISON RIVER CAPITAL, LLC
        Notes To Condensed Consolidated Financial Statements, Continued
                                  (Unaudited)


8.  SEGMENT INFORMATION

    The Company offers a variety of telecommunications services to business
and residential customers including local and long distance voice, high speed
data, Internet access and fiber transport.  In accordance with the
requirements of Statement of Financial Accounting Standards No. 131,
Disclosure about Segments of an Enterprise and Related Information, ("SFAS
131") the Company's operations are classified into two reportable business
segments.  The first segment consists of the Company's four RLECs that
provide regulated and nonregulated telecommunication services in their
franchised territories.  The second segment consists of the EOS operations
that are in close proximity to the RLEC territories and are managed and
operated as a line of business of the RLECs.  Although both segments provide
similar types of telecommunication services, are operated and managed by
common management teams and share common resources, certain differences exist
in the businesses of the RLECs and the EOS that the Company has evaluated to
indicate two segments.  Included in these differences between the RLECs and
the EOS are: (i) the extent to which each segment's operations are regulated,
(ii) different approaches in the way each segment markets its services, (iii)
positions within their respective markets and therefore how they price their
services and (iv) composition of each segment's customer base.  In addition,
each segment's financial and operating results are evaluated separately by
the chief operating decision maker of the Company.  Periodically, the Company
will analyze these factors, among others, to determine the appropriate
reportable business segments required under SFAS 131.

    The Company's two reportable segments follow the same accounting
principles and policies used for the Company's consolidated financial
statements.  Revenues by product line are disclosed in the Consolidated
Statement of Operations. The RLEC generates revenues from the provision of
local and long distance voice services, Internet and enhanced data services
and miscellaneous services.  The EOS generates revenues from provision of
local and long distance voice services, Internet and enhanced data services,
transport services and miscellaneous services.  All operations and assets are
located in the United States.  The following tables summarize the revenues
and net operating income for each segment for the three month periods ended
March 31, 2006 and 2005:

<TABLE>
<CAPTION>
                                          Three month period ended
                                         --------------------------
                                         March 31,        March 31,
                                           2006             2005
                                         ---------        ---------
                                               (in thousands)
        <S>                              <C>              <C>
         Total revenues:
           RLEC operations               $  47,494        $  45,817
           EOS                               2,375            2,824
                                          --------         --------
                                            49,869           48,641
         Less intersegment revenues           (590)            (711)
                                          --------         --------
           Total reported revenues       $  49,279        $  47,930
                                          ========         ========

         Net operating income (loss):
           RLEC operations               $  18,936        $  18,180
           EOS                              (2,709)          (2,459)
                                          --------         --------
           Total reported net operating
             income                      $  16,227        $  15,721
                                          ========         ========
</TABLE>


    Total assets by segment, net of intersegment investments and other
intersegment balances, were as follows:





<TABLE>
<CAPTION>
                                         March 31,          December 31,
                                           2006                 2005
                                         ---------          ------------
                                                (in thousands)
        <S>                             <C>                <C>
         Total assets:
           RLEC operations              $  713,596          $  715,841
           EOS                             459,317             454,613
                                         ---------           ---------
                                         1,172,913           1,170,454
           Less intersegment assets       (452,976)           (455,885)
                                         ---------           ---------
         Total reported assets          $  719,937          $  714,569
                                         =========           =========
</TABLE>


                                      9

<PAGE>


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

    Certain statements, other than statements of historical fact, included in
this Form 10-Q are "forward-looking statements."  Forward-looking statements
generally can be identified by the use of forward-looking terminology such as
"may," "will," "expect," "intend," "estimate," "anticipate," "plan," "seek"
or "believe." We believe that the expectations reflected in such forward-
looking statements are accurate. However, we cannot assure you that such
expectations will occur. Our actual future performance could differ
materially from such statements.  Factors that could cause or contribute to
such differences include, but are not limited, to the following:

  * our ability to service our significant amount of indebtedness;
  * our inability to achieve profitability;
  * our ability to sustain our revenues;
  * our dependence on economic conditions in the local markets we serve;
  * significant and growing competition in the telecommunications industry;
  * the advent of new technology that may force us to expand or adapt our
      network in the future;
  * our increasing dependence on the sale of broadband services;
  * the success of efforts to expand our service offerings and grow our
      business;
  * our ability to execute our acquisition strategy, including successfully
      integrating acquired businesses;
  * our success in returning our edge-out services to positive cash flow
      generation and maintaining a sustainable line of business capable of
      funding its own operations;
  * unanticipated network disruptions;
  * our ability to obtain and maintain the necessary rights-of-way for our
      networks;
  * our dependence on other companies in the telecommunications industry with
      which we have material relationships;
  * our ability to compete effectively with the regional Bell operating
      companies, cable television, wireless, VOIP and other telecommunication
      competitors, which may have greater resources than us;
  * our dependence on our key personnel;
  * our ability to raise additional capital on acceptable terms and on a
      timely basis;
  * a reduction in universal service fund payments; and
  * our regulatory environment.

    You should not unduly rely on these forward-looking statements, which
speak only as of the date of this Form 10-Q. Except as required by law, we
are not obligated to publicly release any revisions to these forward-looking
statements to reflect events or circumstances occurring after the date of
this Form 10-Q or to reflect the occurrence of unanticipated events.

    Important factors that could cause our actual results to differ
materially from our expectations are discussed in Item 1A - "Risk Factors" of
our Annual Report on Form 10-K for the fiscal year ended December 31, 2005
(File No. 333-36804) as filed with the Securities and Exchange Commission, or
SEC.

References in this Form 10-Q to "we," "us" and "our" mean Madison River
Capital, LLC and its subsidiaries.


Overview

    We operate rural telephone companies that serve business and residential
customers in Alabama, Georgia, Illinois and North Carolina. We offer our
customers a variety of telecommunications services, including local and long
distance services, Internet and enhanced data services, telephone directory
and other miscellaneous services.  We also offer telecommunications services
to customers in territories near certain of our rural telephone companies
which we refer to as our edge-out services. At March 31, 2006, we had 237,983
voice access line, broadband and high-speed data connections in service in
our RLEC operations and our edge-out services.

    On December 23, 2004, Madison River Communications Corp., an entity
formed to serve as the successor to our parent, Madison River Telephone
Company, LLC, or MRTC, filed a Registration Statement on Form S-1 with the
SEC for the purpose of registering its common stock in connection with an
initial public offering. The Form S-1 remains on file but has not yet become
effective. Those securities may not be sold nor may offers to buy be accepted
prior to the time the Form S-1 becomes effective. This Quarterly Report on
Form 10-Q shall not constitute an offer to sell or the solicitation of an
offer to buy nor shall there by any sale of those securities in any state in
which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such state.

                                     10

<PAGE>


    The consummation of the initial public offering is subject to various
contingencies, including market conditions.  There can be no assurance that
the initial public offering and the related transactions will be completed on
the terms described in the Form S-1 or at all.  See " - Proposed Initial
Public Offering of Common Stock by Madison River Communications Corp. and
Related Transactions" for further information.

    In our rural telephone markets we serve as the incumbent local exchange
carrier.  Our rural telephone companies are located in Foley, Alabama;
Hinesville, Georgia; Galesburg, Dixon and Pekin, Illinois and Mebane, North
Carolina. In addition, our rural telephone company in North Carolina serves
as the incumbent local exchange carrier for the Milton and Gatewood exchanges
which were acquired in April 2005 and are in close proximity to Mebane.  We
refer to these companies as our RLEC operations.  We also provide edge-out
services as a competitive local exchange carrier in territories that are in
close proximity to our rural telephone markets. We currently provide edge-out
services to medium and large customers in two markets: (i) the Triangle
(Raleigh, Durham and Chapel Hill) and the Triad (Greensboro and Winston-
Salem) in North Carolina; and (ii) Peoria and Bloomington in Illinois.  As we
have announced, we are in the process of systematically closing our edge-out
service operations in New Orleans, Louisiana and nearby cities.  We suspended
the provision of voice and data services to predominantly all of our affected
customers as of March 1, 2006.  We expect to complete the closure of these
operations, including termination of certain contracts and removal of our
equipment, by the third quarter of 2006.  The decision to close these
operations was the direct result of the loss of customers and decline in
business from the impact of Hurricane Katrina on this region.  The management
and operating responsibility for the edge-out operations are provided by the
managers of the respective rural telephone companies.

    Our edge-out services include not only competitive local exchange carrier
services but also a transport service that provides transport and Internet
Protocol, or IP, transit services to other carriers and large businesses
along approximately 2,400 route miles of fiber optic network. The majority of
this network comprises a long-haul network in the Southeast United States
that connects Atlanta, Georgia and Dallas, Texas, two of the five Tier I
Network Access Points. Further, the route connects other metropolitan areas
such as Mobile and Montgomery, Alabama; Biloxi, Mississippi; New Orleans,
Louisiana; and Houston, Texas. We have designated Atlanta and Dallas as our
Internet egress points. Because the fiber transport business has proven to be
extremely competitive, we have not actively expanded this line of business.
However, our fiber optic network is a valuable resource for our rural
telephone companies in their provision of dial-up, broadband and high-speed
access services to their customers as these companies use our fiber optic
network to connect to the Internet.  Support for our retail Internet access
business in our rural telephone operations is the predominant use of our
fiber transport facilities.

    Since our inception, our principal activities have been the acquisition,
integration, operation and improvement of rural telephone companies. In
acquiring our four rural telephone companies, we purchased established
businesses with stable cash flows, governmental authorizations and
certifications in place, operational support systems, experienced management
and key personnel and technologically advanced facilities. We continue to
develop the established markets in which our rural telephone companies
operate with successful marketing of related services and broadband products
and we are controlling expenses through the use of business process
management tools and other methods. Our objective for our edge-out services
is to maintain a line of business that generates sufficient cash flows to
fund its own operations and capital requirements and does not harm the
enterprise as a whole. Accordingly, we utilize a rigorous set of criteria for
evaluating new customers and determining the desirability of renewing
existing contracts for customers of our edge-out services.


Factors Affecting Future Operations

    The following is a discussion of the primary factors that we believe will
affect our operations over the next few years.

Revenues

    Our revenues are derived principally from the sale of voice and data
communications services to business and residential customers in our
established rural telephone markets. For the first quarter ended March 31,
2006, approximately 95.4% of our operating revenues came from our RLEC
operations and 4.6% from our edge-out services. Comparatively, for the first
quarter ended March 31, 2005, approximately 94.3% of our operating revenues
came from our RLEC operations and 5.7% from our edge-out services. We are
managing our RLEC operations to increase revenues from local and long
distance voice services, broadband Internet access and enhanced data and
other related telecommunication services. We believe the sale of
communications services to customers in our RLEC markets will continue to
provide the predominant share of our revenues for the foreseeable future and
will increase as a percentage of our total revenues for the Company.  We
expect revenues from our edge-out services to decrease significantly from
past levels as a result of the systematic closing of our operations in New
Orleans, Louisiana.


                                     11

<PAGE>


    On August 29, 2005, Hurricane Katrina came ashore east of New Orleans,
Louisiana and caused significant wind and flood damage to areas of
Mississippi and Louisiana, including New Orleans.  The effects of the storm
and subsequent flooding impacted our edge-out services operations in New
Orleans and, to a lesser degree, our RLEC operations in Alabama.  A portion
of our edge-out service operations is serving customers located in New
Orleans and surrounding communities including Biloxi and Gulfport,
Mississippi.  Our facilities in New Orleans sustained some damage but
remained operational.  However, the significant impact of Hurricane Katrina
on the economy in New Orleans and surrounding regions directly resulted in a
significant loss of our customers and decline in our business.  As a result
of these factors, we made the decision to systematically close our operations
in New Orleans.  We notified our affected customers in December 2005 of our
decision and we suspended the provision of voice and data services to these
customers as of March 1, 2006.  We expect to complete the process of closing
our operations, including the termination of certain contracts and removal of
our equipment, by the third quarter of 2006.  We served approximately 3,800
connections in New Orleans and nearby communities with revenues of
approximately $3.0 million to $3.5 million annually prior to the storm.  We
do not believe the termination of our operations in New Orleans will have a
material impact on our financial position, results of operations or cash
flows.

    At Gulf Telephone Company in Foley, Alabama, we did not incur any major
damage to our central office or remote switch locations but we did incur
storm-related damages in certain of our outside plant facilities, primarily
in the coastal communities we serve.  As a result of the storm, a minimal
amount of voice access lines and broadband connections were taken out of
service.  During the fourth quarter, we spent approximately $3.8 million for
additional capital expenditures at Gulf Telephone Company to add
significantly more high-capacity fiber optic transport lines using a network
architecture that will enhance network survivability.  A portion of the
additional capital expenditures were made to repair storm damage to our
network sustained as a result of the storm.  The additional fiber will
strengthen our ability to sustain service to our customers through
catastrophic storms and will also create a dynamic network platform for
providing high bandwidth services to our customers in Alabama.  The fiber
deployment includes "intelligent" electronics and the network was designed
with "ring" architecture so that if a portion of the network is damaged, the
network will immediately sense the damage and automatically route traffic in
another direction.  These enhancements should make our network more resistant
to outages from storms or other network disruptions and we believe may
provide stability to our revenues in the event that this area is impacted by
future storms.

    Our fiber transport business, which provides services to other carriers
and major accounts, will increase its revenues only if certain profit margins
are obtained without making significant additional capital investments.
Because the fiber transport business is highly competitive, we do not
anticipate any growth in this line of business at this time.  We will
continue to use our fiber transport facilities to support our retail Internet
access business in our RLEC operations, which is its predominant use.

    At March 31, 2006, we had 237,983 voice access line, broadband and high-
speed data connections in service compared to 233,585 connections in service
at March 31, 2005, an increase of 4,398 connections, or 1.9%. Our RLEC
operations had 229,006 connections in service at March 31, 2006 and 221,245
connections in service at March 31, 2005, an increase of 7,761 connections,
or 3.5%. For our edge-out services, connections in service at March 31, 2006
and March 31, 2005 were 8,977 and 12,340, respectively, a decrease of 3,363
connections, or 27.3%.

    Voice access lines refer to local telephone service provided to
residential and business customers. Broadband connections are the high-speed
connections provided to end users for purposes of accessing the Internet.
Most broadband customers are residential customers who also subscribe to our
local telephone service. In our edge-out services, our customers are
primarily medium and large businesses that we actively market our services to
through sales calls. Our revenues are highly dependent on the number of
connections in service.

    The services we offer to customers may be purchased separately, but are
increasingly being included in a package with selected other service
offerings, referred to as bundling, and sold at a discount to the a la carte
pricing for the services. An important part of our sales and marketing
strategy for our RLEC operations emphasizes the bundling of services and the
benefits it provides to our customers. We have branded our primary
residential bundled offering as our No Limits-Broadband package. The No
Limits-Broadband bundle is marketed to our residential customers at a price
that varies slightly by location. The No Limits-Broadband package offers:

  * unlimited local telephone service;
  * unlimited nationwide long distance;
  * unlimited use of our most popular custom calling features, including
      caller identification and voicemail; and
  * unlimited use of our high-speed broadband service for Internet access.

                                     12

<PAGE>


    Our No Limits-Broadband package has been successful in increasing
penetration rates in services such as broadband and long distance. Many of
our existing customers selecting the No Limits-Broadband package are new
broadband subscribers and long distance customers, and this has led to an
overall increase in our monthly average revenue per unit for a subscriber of
the No Limits-Broadband bundle. We intend to continue to enhance our bundled
service offerings with promotional pricing and new service additions.

    We also offer a No Limits-Telephone bundle in selected markets.  This
bundle includes the first three voice services and feature sets listed above,
but not the broadband service.  Customers switching to No Limits-Telephone
may result in a reduction in our average revenue per unit since they would
not be taking our broadband service.

    During the latter part of March 2006, we began offering a new broadband
offering in our rural telephone markets which we refer to as Broadband Lite.
This offering provides broadband access to the Internet at speeds slower than
our premium broadband service and is being marketed primarily to our dial-up
customers at a price that is slightly above the pricing for our dial-up
service.  Based on early indications, acceptance of this product has been
strong.  We believe that this product offering will further enhance our
broadband penetration rates with our customers.  However, as it is being
offered at a pricing point that is lower than our premium broadband offering,
we expect that our monthly average revenue per unit for broadband services
will decline.

    During 2005, we entered an agreement with the National Rural
Telecommunications Cooperative that allows us to offer DIRECTV satellite
television service to our customers. We believe that this is an important
component of our bundled service offerings as we can provide a video offering
in addition to our current voice and data offerings. We commenced the
introduction of this satellite television offering during the second quarter
of 2005 primarily through a soft roll-out of the service to our employees and
other selected customers.  We introduced this product to all of our customers
during the third quarter of 2005.  While this product offering will be
important to our overall bundle of services, we do not believe that it will
have a significant impact on our results of operations or cash flows going
forward.

    On April 30, 2005, our North Carolina rural telephone company, Mebtel,
Inc., completed the acquisition of rural telephone assets comprising two
exchanges in North Carolina.  As of March 31, 2006, these exchanges served
3,460 voice access lines, 2,482 long distance accounts, 330 broadband
connections and 86 dial-up Internet accounts.  We upgraded the network used
to provide services in these two exchanges and began offering broadband
service during the third quarter of 2005.

    We believe we have been successful in competing with high-speed Internet
access products from competitors, particularly cable television operators, in
our markets in recent years as the number of broadband subscribers we serve
in our RLEC operations has continued to increase. We believe that our
position as first to market with high-speed broadband service in all of our
markets, the execution of our strategy and our ability to deliver a quality
broadband product at a competitive price and in a timely manner has made us
the provider of choice in our markets. Currently, we are capable of providing
broadband service to approximately 99% of our access lines.  With the
introduction of our No Limits-Broadband package in the fourth quarter of
2003, we experienced significant growth in broadband subscribers. As of March
31, 2006, our penetration rate for residential broadband connections as a
percentage of primary residential voice access lines was 39.4% compared to
34.2% at March 31, 2005 and 36.5% at December 31, 2005. Although we cannot be
certain, we anticipate that our broadband product offerings will continue to
provide a source of increasing revenues for our RLEC operations in future
quarters. As of March 31, 2006, we had 48,992 broadband connections in
service, an increase of 7,135 connections, or 17.0%, from 41,857 broadband
connections in service at March 31, 2005.  The rate at which we were adding
new broadband connections slowed in 2005 compared to 2004.  Our broadband
connections increased by 15,381 connections in 2004 compared to 6,007
connections in 2005. However, in the first quarter of 2006, the pace of new
broadband connections increased as we added 3,423 broadband connections.  The
increase is attributed primarily to increases in our Georgia rural telephone
company as troops returned from deployment.  We believe we will continue to
add new broadband connections in future quarters and, in the near term, this
rate may increase from the strong introduction of our Broadband Lite offering
at the end of the first quarter of 2006.  After the initial impact from the
introduction of Broadband Lite, we expect that we will add new broadband
connections at a slower pace than we experienced in recent quarters.

    As we have increased the number of broadband connections we serve, we
have experienced a decrease in the number of dial-up Internet accounts in
service. At March 31, 2006, we had 10,616 dial-up Internet customers, which
was a decrease of 3,897 accounts, or 26.9%, from 14,513 dial-up Internet
accounts at March 31, 2005. We believe that a significant percentage of the
decrease in dial-up Internet customers is the result of customers migrating
from our dial-up Internet service to our broadband service.  With the
introduction of our Broadband Lite offering which is targeted at our dial-up
customers, we believe that the decrease in dial-up accounts may accelerate in
future quarters.


                                     13

<PAGE>


    We have also been successful in growing penetration rates in our RLEC
operations for the provision of long distance and related telecommunications
services to our customers. At March 31, 2006, we had 109,873 long distance
accounts compared to 102,636 long distance accounts at March 31, 2005, an
increase of 7.1%. Our long distance penetration of total access lines was
61.0% and 57.2% at March 31, 2006 and 2005, respectively.  In addition, our
penetration rates for our primary custom calling features including
voicemail, caller identification, call waiting and call forwarding as of
March 31, 2006 have increased since March 31, 2005.  A substantial portion of
the growth in long distance accounts served and custom calling features
provided can be attributed to the success of our No Limits bundles, and to
our acquisition of two exchanges in North Carolina during the second quarter
of 2005.


    As of March 31, 2006, our RLEC operations had 180,014 voice access lines
in service, which is an increase of 626 voice access lines, or 0.3%, from
179,388 voice access lines in service at March 31, 2005. The increase in
voice access lines can be attributed primarily to the acquisition of two
exchanges in North Carolina during the second quarter of 2005.  We served
approximately 3,460 voice access lines in these two exchanges at March 31,
2006.

    In addition, the number of voice access lines served by our rural
telephone company in Georgia, Coastal Utilities, Inc., increased as a result
of the return of the majority of the troops to Fort Stewart and Hunter Army
Airfield in Hinesville from a full deployment to Iraq during the first
quarter of 2006. The deployment began during the fourth quarter of 2004 and
all troops were deployed by February 2005.  Coastal Utilities serves the
Hinesville area, including the military bases where the deployed troops are
stationed.  At December 31, 2005, we estimated that voice access lines in
service at Coastal Utilities had decreased by approximately 1,350 lines as a
result of the deployment.  We believe that a significant share of those lines
have been recovered as of March 31, 2006 but continue to be impacted in the
near term as some troops change their assigned bases or retire from military
service.  Although we expect that these departing troops will be replaced, we
are uncertain of the timing of those replacements.  We believe that we will
recover the predominant share of these voice access lines as the level of
troops at the military bases in Hinesville stabilizes following the
deployment.  According to public announcements by military authorities, we
expect that further deployments of troops to Iraq from the military bases in
Hinesville are planned for later this year.  We will continue to monitor
these announcements.

    Finally, the number of voice access lines served by our rural telephone
company in Alabama, Gulf Telephone Company, at March 31, 2006 has increased
by approximately 780 voice access lines from March 31, 2005 attributed
principally to recovery of voice access lines disconnected as the result of
storm-related damages from Hurricane Ivan in September 2004 and Hurricane
Katrina in August 2005 and continued strength in tourism along the Gulf Coast
which is driving new development and expansion.  As of March 31, 2006, the
Company estimates that approximately 2,100 voice access lines remain
disconnected as the result of storm related damages.  Substantially all of
these disconnected voice access lines are due to damage at the customer
premises making the location unusable or uninhabitable until repairs or
rebuilding, if necessary, can be completed. Although the recovery of voice
access lines disconnected as the result of these storms has been slower than
originally anticipated, we believe that these lines should return to service
as redevelopment of the damaged coastal areas served by Gulf Telephone
Company are completed.

    These increases in voice access lines were partially offset by two
factors.  First, weakness in the local economies served by our rural
telephone company in Illinois, Gallatin River Communications, continues to
impact the number of voice access lines we serve. This region is
predominantly industrial and agricultural in nature and has experienced
significant losses in its business base in recent years, resulting in higher
unemployment. Primary voice access lines, which we define as total voice
access lines less second lines, declined by approximately 3,800 lines from
March 31, 2005 to March 31, 2006, accounting for the predominant share of the
decline in voice access lines during this period.  We are uncertain at this
time regarding the future trend for voice access lines at Gallatin River, but
absent any improvement in the local economies comprising this market, we
expect access lines in service in this market will continue to decline in the
near term.  We are also uncertain what the impact of the introduction of
voice services by cable telephone companies will have on our voice access
lines in this market.  We expect such services will be available in mid-2006.

    Second, the growth in our broadband connections has resulted in a
corresponding decrease in the number of second lines served.  We believe that
as our existing customers migrate from our dial-up Internet service, where
they may also purchase a second line from us to use in connecting to the
Internet, to our broadband service where they no longer need a voice access
line to connect to the Internet, they often remove the second line from
service.  Accordingly, the number of second lines in service decreased by
1,197 lines, or 18.3% from 6,544 second lines in service at March 31, 2005 to
5,347 second lines in service at March 31, 2006. We believe as we continue to
increase the number of broadband connections we serve, we will continue to
experience a decline in the number of second lines we serve.


                                     14

<PAGE>


    Excluding the impact of the acquisition of the two exchanges, our
decrease in voice access lines would have been approximately 2,850 lines, or
1.6%, during the twelve month period ended March 31, 2006.

    We currently face competition from, and in the future may face additional
competition from, other telecommunications providers, which we believe will
be primarily from cable television companies and wireless telecommunications
providers.  We face competition for high-speed access to the Internet from
cable television companies in each of our markets. Further, cable television
companies are deploying the ability to provide voice services over their
network facilities which creates additional competition for our local and
long distance voice services. We believe that we will face competition from
cable television companies for our voice services in each of our rural
telephone markets beginning in 2006.  In addition, we believe that certain
customers in our markets substitute their wireless telephones for their
wireline telephones.  We expect the competition for the services we provide
will intensify and as such, we may experience further declines in our voice
access lines.  Accordingly, our local, long distance and network access
service revenues may decrease as a result.

    Our RLEC operations benefit from statutory and regulatory requirements
that rates in rural areas be reasonably comparable to rates in urban areas,
which results in state and federal universal service fund payments in high
cost rural areas. For the first quarters ended March 31, 2006 and 2005,
revenues attributable to such payments represented 7.6% and 6.5%,
respectively, of our total revenues. Under the current regulatory scheme,
many factors impact the amount of universal service fund payments we receive.
Among these factors are the amount of expenses incurred at our regulated
telephone companies for the provision of services and the number of voice
access lines we serve.  Other factors are based on industry statistics that
are beyond our control.  Therefore, changes in our expenses and voice access
line counts in combination with other industry factors may result in a
decrease in the amount of universal service payments we receive.

    On September 23, 2005, the Federal Communications Commission released the
text of its order (the "FCC Order") which eliminated the requirement for
incumbent local exchange carriers, or ILECs, to share their broadband
infrastructure with other broadband providers and competitors.  Pursuant to
the FCC Order, ILECs have the choice to provide broadband infrastructure to
affiliates and/or non-affiliates on a common carrier or non-common carrier
basis.  If an ILEC chooses to provide broadband facilities on a common
carrier basis, it may continue to offer the service pursuant to interstate
tariffs or it may offer the service on a non-tariffed basis and post its
rates, terms and conditions on its web site.  If service is offered on a
common carrier basis, an ILEC will be obligated to provide the service to any
party who requests service.  The FCC Order prohibits ILECs from offering end
user broadband information services as a regulated offering.  The FCC Order
requires ILECs to continue providing loop unbundled network elements to
competitors to use for broadband end user services.  On the effective date of
the FCC Order any existing broadband infrastructure tariff offerings will
remain in effect for existing services or "grandfathered".  After one year,
the tariffs may be withdrawn and the Federal Communications Commission has
already provided authorization to allow for the tariff withdrawal.  ILECs
will continue to make universal service contributions for 270 days after the
effective date of the order based on "current contributions".  Effective
April 14, 2006, our rural telephone companies elected to offer broadband
infrastructure services on a common carrier non-tariffed basis.  We do not
believe the affect of the FCC Order will have a material impact on our
financial position, results of operations or cash flows.

    In our edge-out services, we expect our revenues to decrease in 2006
compared to prior years primarily as the result of our decision to
systematically close our edge-out operations in New Orleans.  Due to the
decline in our business from the impact of Hurricane Katrina on the
surrounding region, we suspended the provision of voice and data services to
our remaining customers as of March 1, 2006.  We expect to complete the
process of closing our operations, including the termination of certain
contracts and removal of our equipment, by the third quarter of 2006.  We
served approximately 3,800 connections in New Orleans and nearby communities
with revenues of approximately $3.0 million to $3.5 million annually prior to
the storm.  In addition, we have seen a decrease in revenues from our fiber
transport business as we have not actively pursued the addition of new
customers for that business due to significant price competition.  As of
March 31, 2006, our edge-out services had 8,460 voice access lines and 517
high-speed data connections in service. At March 31, 2005, our edge-out
services served 11,682 voice access lines and 658 high-speed data
connections. This is a decrease of 3,222 voice access lines, or 27.6%, and a
decrease of 141 high-speed data connections, or 21.4%.


                                     15

<PAGE>


    Our objective for the edge-out services is to maintain a line of business
that generates sufficient cash flows to fund its own operations and capital
requirements and does not harm the enterprise as a whole.  Accordingly, the
decline in our business in New Orleans from the impacts of the hurricane
resulted in our systematic closure of those operations.  We will continue to
monitor our other edge-out markets to be certain that this objective is being
met and what changes may be necessary to our business to achieve this
objective.  In terms of business development, we are focusing our efforts on
only adding customers that meet certain profitability criteria and on
increasing our profitability and margins for services provided to existing
customers when renegotiating their contracts at expiration.

Operating Expenses

    Our primary operating expenses consist of cost of services and sales
(exclusive of depreciation and amortization), selling, general and
administrative expenses and depreciation and amortization.

    Cost of services and sales

    Our cost of services and sales includes:

  * plant specific costs and expenses, such as network and general support
      expense, central office switching and transmission expense, broadband
      costs, including modems, peripheral materials and egress and transport,
      information origination/termination expense, underlying carrier costs
      for long distance transmissions services and cable and wire facilities
      expense;
  * plant nonspecific costs, such as testing, provisioning, Internet service
      provider, or ISP, external help desk costs, network administration,
      outside plant administration, power and engineering;
  * materials and contract labor costs related to construction of certain
      telecommunication facilities and telecommunication equipment
      installations for customers;
  * the cost of collocating in incumbent local exchange carrier central
      offices and leasing unbundled copper loop lines and high capacity
      digital lines from the incumbent local exchange carriers to connect our
      customers and other carriers' networks to our network; and
  * the cost of leasing transport from incumbent local exchange carriers or
      other providers where our fiber transport capacity is not available.

    We have entered into interconnection agreements with BellSouth, Verizon,
Sprint and AT&T which allow, among other things, the edge-out services to
lease unbundled network elements from these incumbent local exchange
carriers, at contracted rates contained in the interconnection agreements. We
use these network elements to connect our edge-out services customers with
our network. Other interconnection agreements may be required by our edge-out
services. In addition, each of the edge-out services currently has the
necessary certifications to operate in the states where it has customers.

    In February and April 2005, we entered into agreements with two carriers
to provide long distance transmission services for our customers.  With our
new agreements, we are not subjected to any minimum volume commitments as
existed under our prior contract.

    On April 28, 2005, we completed a new collective bargaining agreement
with the Communications Workers of America, covering 56 employees of Gallatin
River Communications located in Galesburg, Illinois.  On October 6, 2005 and
November 30, 2005, we completed new collective bargaining agreements with the
International Brotherhood of Electrical Workers, or IBEW, covering 52
employees of Gallatin River Communications in Pekin, Illinois and 29
employees in Dixon, Illinois, respectively.  Each of the three agreements is
for five years.  An important element of each of these agreements was the
ability to freeze the further accrual of benefits for these employees under
our defined benefit pension plan in exchange for an enhancement to their
defined contribution 401(K) plan.  Effective with this change, the further
accrual of benefits under our defined benefit pension plan for all
participants in the pension plan is now frozen.  We will be required to
continue to make cash contributions to the pension plan in the future to fund
our obligation.

    In response to a decision by the United States Court of Appeals for the
District of Columbia, or the DC Circuit Court, to vacate certain portions of
the FCC's Triennial Review Order, on August 20, 2004, the FCC released its
Order and Notice of Proposed Rulemaking in the Matter of Unbundled Access to
Network Elements and initiated a proceeding to review and revise its
unbundling rules. In response to the reversal of its rules by the DC Circuit
Court, the FCC issued interim rules on August 20, 2004, and initiated a
proceeding to review and revise its unbundling rules. On December 15, 2004,
the FCC adopted new rules which were released February 4, 2005. The new rules
reduce incumbent local exchange carriers' obligations to lease interoffice
transport and high-capacity loops, and eliminate the requirement to lease
mass market local circuit switching, including the unbundled network element


                                     16

<PAGE>


platform (a combination of loop, switching and transport which allows
competitive local exchange carriers to offer service without their own
infrastructure). The revised rules took effect March 11, 2005 and, subject to
a twelve month transition, eliminated incumbent local exchange carriers'
obligations to provide unbundled network element platform services
nationwide, certain high speed interoffice facilities and certain high
capacity unbundled network element loops in larger incumbent local exchange
carrier wire centers. We have made appropriate changes to circuits used in
our edge-out operations affected by the revised rules and we do not believe
that the impact on our operations will be material.  We are uncertain as to
the impact on our RLEC operations or edge-out services of actions that may be
taken by state utility commissions based upon the new regulations or new
legislation that may be considered and passed in response to the new
regulations or any further court decisions. The FCC is also considering
changes in the rules it applies to the pricing of unbundled network elements.
Significant increases in pricing of unbundled network elements, currently
based on FCC total element long-run incremental cost pricing rules, would
significantly increase the cost of obtaining facilities necessary to provide
services to customers in our edge-out markets.  However, based on information
currently available, we believe the impact to our edge-out services will not
be material.  Our objective for the edge-out services has been to maintain a
line of business that generates sufficient cash flows to fund its own
operations and capital requirements and does not harm the enterprise as a
whole. We continue to analyze its financial and operating results to
determine that our objective for this line of business is being accomplished.

    Selling, general and administrative expenses

    Selling, general and administrative expenses include:

  * selling and marketing expenses;
  * expenses associated with customer care;
  * billing and other operating support systems; and
  * corporate and administrative expenses.

    We market our business services through agency relationships and sales
people. We market our consumer services primarily through our customer sales
and service representatives. We offer competitive compensation packages
including sales commissions and incentives.

    We have operating support and other back office systems that we use to
enter, schedule, provision and track customer orders, test services and
interface with trouble management, inventory, billing, collection and
customer care service systems for the access lines in our operations. We may
review and consider the benefits offered by the latest generation of systems,
and, if we implement new systems, we expect that our operating support
systems and customer care expenses may increase.

    Depreciation and amortization expenses

    We recognize depreciation expense for our telephone plant and equipment
that is in service and is used in our operations, excluding land which is not
depreciated. Our regulated rural telephone operations use straight-line rates
approved by the public utility commissions in the states where we have
regulated telephone plant in service. In our unregulated rural telephone
operations and in our edge-out services, telephone plant and equipment is
depreciated over useful lives, determined according to the class of the
asset, ranging from three years to thirty-three years. We have seen a decline
in our depreciation expense in recent quarters as a result of certain asset
classes becoming fully depreciated.

    During the fourth quarter of 2005, we made approximately $3.8 million in
additional capital expenditures in our Alabama rural telephone company to add
significantly more high-capacity fiber optic transport lines to enhance our
network survivability and to repair storm damage to our network sustained as
a result of the hurricane in August 2005.  We received authorization from the
Alabama Public Service Commission, or APSC, to accelerate depreciation of
these additional capital expenditures completely into the fourth quarter of
2005.  This acceleration of depreciation of these capital expenditures
substantially increased our depreciation expense in the fourth quarter.
Beyond this unusual event, we anticipate that our depreciation expense will
continue to decrease in the near-term.

    Amortization expense is recognized primarily for our intangible assets
considered to have finite lives on a straight-line basis, primarily our debt
issuance costs. In accordance with Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets ("SFAS 142"),
goodwill and intangible assets deemed to have indefinite lives are no longer
permitted to be amortized but are subject to impairment tests at least
annually in accordance with the tenets of SFAS 142.


                                     17

<PAGE>


Results of Operations

Quarter Ended March 31, 2006 compared to Quarter Ended March 31, 2005

    Revenues

    Total revenues for the first quarter ended March 31, 2006 were $49.3
million, an increase of $1.4 million, or 2.8%, from $47.9 million for the
first quarter ended March 31, 2005. Revenues in the RLEC operations were
$47.0 million in the first quarter of 2006, an increase of $1.8 million, or
4.0%, from revenues of $45.2 million in the first quarter of 2005. In our
edge-out services, revenues decreased $0.4 million, or 17.4%, to $2.3 million
in the first quarter of 2006 compared to $2.7 million in the first quarter of
2005.

    For the quarter ended March 31, 2006, our RLEC operations and edge-out
services provided approximately 95.4% and 4.6%, respectively, of our
revenues. Comparatively, for the quarter ended March 31, 2005, our RLEC
operations provided 94.3% of our revenues and our edge-out services provided
5.7% of our revenues.

    Revenues from voice services, which are comprised of our revenues from
provision of local services, which includes our network access revenues, and
our revenues from provision of long distance services, as a percentage of
total revenues, were approximately 73.4% and 73.5% in the first quarter ended
March 31, 2006 and 2005, respectively.

    Local Services.    Revenues from local services, which are comprised
primarily of revenues from the provision of local telecommunication services
to end users and network access services, as a percentage of total revenues,
were approximately 65.4% and 65.5% in the first quarter ended March 31, 2006
and 2005, respectively.

    Local service revenues in the first quarter of 2006 were $32.2 million,
an increase of $0.8 million, or 2.8%, from local service revenues in the
first quarter of 2005 of $31.4 million.  The increase in local service
revenues is attributed primarily to an increase in network access revenues
from higher universal service support revenues and special access billings.
In addition, revenues from the two exchanges acquired in April 2005 was the
primary reason for an increase in end user revenues.

    Long Distance Services.    Long distance revenues were approximately $3.9
million in the first quarter of 2006 and $3.8 million in the first quarter of
2005, an increase of $0.1 million, or 1.3%.  The increase is attributed
primarily to the increase in the number of long distance accounts in service,
including the addition of approximately 2,500 long distance accounts from our
acquisition of two exchanges in North Carolina in April 2005.  Partially
offsetting this increase was a decrease in intrastate toll revenues from more
customers selecting our No Limits bundles. As the number of subscribers to
the No Limits bundle increased, more customer billings reflect a flat rate
charge for long distance service compared to the higher usage-based charges
for these customers in prior periods.

    Internet and Enhanced Data Services.    Revenues from Internet and
enhanced data services increased $0.4 million, or 7.1% to $6.2 million in the
first quarter of 2006 compared to $5.8 million in the first quarter of 2005.
The increase in revenues is attributable to the increase in the number of
broadband connections served in our RLEC operations and was partially offset
by a decrease in the number of dial-up Internet accounts. At March 31, 2006,
our RLEC operations served 48,992 broadband connections compared to 41,857
broadband connections at March 31, 2005, an increase of 7,135 connections, or
17.0%.  The number of dial-up Internet accounts declined by 3,897 accounts,
or 26.9% to 10,616 accounts at March 31, 2006 from 14,513 accounts at March
31, 2005. The growth in broadband connections is attributable to the strong
demand for our No Limits bundled offering.

    Edge-Out Services.    Revenues from our edge-out services in the first
quarter of 2006 were $2.3 million, a decrease of approximately $0.4 million,
or 17.4%, from revenues of $2.7 million in the first quarter of 2005. The
decrease is attributable predominantly to the decline in our business in our
New Orleans, Louisiana market from the impact of Hurricane Katrina on our
customers in that region.  In addition, the systematic close of those
operations resulted in the termination of the provision of services to the
remaining customers on March 1, 2006.  At March 31, 2006 and 2005, our edge-
out services served 8,977 and 12,340 voice and high-speed data connections,
respectively, representing a 27.3% decrease.  In addition, our reserve for
uncollectible accounts for edge-out customers increased approximately $0.1
million in the first quarter of 2006 compared to the first quarter of 2005,
again the result of the shutdown of the New Orleans operations.

    We expect our revenues from our edge-out services to decline
significantly in 2006 as a result of our decision to systematically close our
operations in New Orleans. We served approximately 3,800 connections in New
Orleans and nearby communities with revenues of approximately $3.0 million to
$3.5 million annually prior to the impacts of the storm.


                                     18

<PAGE>


    Miscellaneous Telecommunications Revenues.    Miscellaneous
telecommunications revenues were $4.7 million in the first quarter of 2006,
an increase of $0.5 million, or 11.8%, compared to miscellaneous
telecommunications revenues of $4.2 million in the first quarter of 2005. The
increase in miscellaneous telecommunications revenues is attributed largely
to an increase in revenues from offering satellite television services which
were not offered in the first quarter of 2005 and an increase in revenues
from a nonrecurring construction project and equipment sales.

    Operating Expenses

    Total operating expenses increased approximately $0.9 million from $32.2
million, or 67.2% of total revenues in the first quarter of 2005, to $33.1
million, or 67.1% of total revenues in the first quarter of 2006. The
increase is attributable primarily to an increase of $1.5 million in cost of
sales and services and was partially offset by a $0.6 million decrease in
depreciation and amortization expenses in the first quarter of 2006 compared
to the same period in 2005.

    Cost of services and sales (exclusive of depreciation and amortization),
as a percentage of total revenues, increased to 30.8% in the first quarter of
2006 from 28.7% in the first quarter of 2005, and selling, general and
administrative expenses, as a percentage of total revenues, decreased from
19.2% in the first quarter of 2005 to 18.7% in the first quarter of 2006.
Depreciation and amortization expenses, as a percentage of total revenues,
decreased from 19.4% in the first quarter of 2005 to 17.6% in the first
quarter of 2006.

    RLEC Operations Operating Expenses.    In the RLEC operations, operating
expenses in the quarter ended March 31, 2006 were $28.1 million, an increase
of $1.1 million, or 3.9%, from operating expenses of $27.0 million in the
quarter ended March 31, 2005. Cost of services and sales (exclusive of
depreciation and amortization) in the RLEC operations increased approximately
$1.4 million, or 11.8%, to $13.3 million in the first quarter of 2006 from
$11.9 million in the first quarter of 2005.  The increase is attributed
primarily to higher labor and material expenses related to a nonrecurring
construction project and equipment sales and higher access expenses.

    Depreciation and amortization expense in the first quarter of 2006 was
$6.3 million, a decrease of $0.4 million, or 5.7%, from depreciation and
amortization expense of $6.7 million in the first quarter of 2005. The
decrease is attributable to certain assets becoming fully depreciated during
the past year.

    Selling, general and administrative expenses were fairly comparable to
the prior year, increasing approximately $0.1 million, or 0.7%, to $8.5
million in the first quarter of 2006 from $8.4 million in the first quarter
of 2005.  The increase is attributed principally to higher advertising and
promotional expenses and property tax accruals and was partially offset by
lower contract labor expenses.

    Edge-Out Services Operating Expenses.    Operating expenses in our edge-
out services decreased approximately $0.2 million from $5.2 million in the
first quarter of 2005 to $5.0 million in the first quarter of 2006,
attributable primarily to a decrease in depreciation and amortization
expense.  Depreciation and amortization expense decreased $0.2 million, or
8.2%, to $2.3 million in the first quarter of 2006 from $2.5 million in the
first quarter of 2005. The decrease in depreciation expense is primarily
attributable to certain assets becoming fully depreciated.  In addition, as
part of the shutdown of our New Orleans operations, we took an impairment
charge to writeoff certain plant and equipment used in those operations and
therefore, we are no longer recognizing depreciation expense on those assets.
Cost of services and sales (exclusive of depreciation and amortization) were
approximately $1.9 million in the first quarter of 2006 and in the first
quarter of 2005, while selling, general and administrative expenses were
approximately $0.7 million in the first quarter of 2006 and in the first
quarter of 2005.  We expect these expenses to decline as we complete the
closure of the New Orleans operations.

    Net Operating Income

    Net operating income increased approximately $0.5 million from $15.7
million, or 32.8% of total revenues in the first quarter of 2005 to $16.2
million, or 32.9% of total revenues in the first quarter of 2006. The
increase is attributable primarily to the increase in revenues in the RLEC
operations and the decrease in depreciation and amortization expense in both
the RLEC operations and the edge-out services and was partially offset by the
increase in cost of services and sales in the RLEC operations. Net operating
income in the RLEC operations increased $0.7 million, or 4.2%, to $18.9
million in the first quarter of 2006 from $18.2 million in the first quarter
of 2005. For the edge-out services, the net operating loss was $2.7 million
in the first quarter of 2006 and $2.5 million in the first quarter of 2005.


                                     19

<PAGE>


    Interest Expense

    Interest expense decreased $3.1 million, or 21.4% to $11.3 million, or
23.0% of total revenues, in the first quarter of 2006 from $14.4 million, or
30.1% of total revenues, in the first quarter of 2005. The decrease is
attributed to our refinancing of our secured long-term debt and redemption of
senior notes during the third and fourth quarters of 2005 which decreased the
amount of long-term debt outstanding and lowered our weighted average
effective interest rate.  We expect our interest expense to continue to
decline as a result of our long-term debt refinancing which reduced the
amount of long-term debt outstanding at March 31, 2006 by approximately $64.4
million from outstanding long-term debt at March 31, 2005 and from further
redemptions or repurchases of our senior notes.

    Loss on the Extinguishment of Long-term Debt

    With the redemption of $7.0 million in our outstanding senior notes in
March 2006, we recognized a $0.5 million loss on extinguishment of long-term
debt for premiums paid to redeem the senior notes and writeoffs of related
unamortized discount and debt issuance costs.  No comparable loss was
recognized in the first quarter of 2005.

    Gain on the Redemption of Rural Telephone Bank Stock

    In the first quarter of 2006, we recognized a gain of $16.4 million for
the redemption of our 26,478 shares of $1,000 par value Class C stock in the
Rural Telephone Bank, or RTB.  The shares were redeemed at their par value in
April.  The stock had a carrying value of $10.1 million.  No similar gain was
recognized in the first quarter of 2005.

    Other Income

    Other income in the first quarter of 2006 was approximately $0.9 million
compared to approximately $1.0 million in the first quarter of 2005,
representing 1.8% and 2.1% of total revenues in the first quarters of 2006
and 2005, respectively. Dividend income decreased $0.6 million in the first
quarter of 2006 compared to the first quarter of 2005 as a result of the
redemption of the subordinated capital certificates from the Rural Telephone
Finance Cooperative, or RTFC, as part of the long-term debt refinancing in
July 2005 and the redemption of our shares in the RTB in April 2006.  As a
cooperative, the RTFC allocates its net margins to borrowers on a pro rata
basis based on each borrower's patronage in the RTFC.  As part of the
refinancing in July 2005, we redeemed our remaining subordinated capital
certificates in the RTFC and used the proceeds to repay a portion of our
outstanding debt to the RTFC.  Upon repayment of all outstanding amounts to
the RTFC, we were no longer a borrower from the RTFC and not eligible to
share in the allocation of its net margins.  As we were a borrower for a
portion of the RTFC's fiscal year, in January 2007, we expect to receive a
prorated allocation of patronage capital, estimated to be approximately $0.4
million, which we accrued in the first quarter of 2006.  After receipt of
this allocation, we will not receive any new patronage capital allocations
from the RTFC.  The RTB is in the process of being liquidated and all of our
Class C shares were redeemed in April 2006 and cancelled.  Therefore, we are
no longer eligible to receive dividends from the RTB and, accordingly, did
not accrue any dividends in the first quarter of 2006.  The decrease in
dividends was offset by a comparable increase in nonrecurring gains on sales
of assets.

    Income Tax Expense

    We reported income tax expense of $8.3 million in the quarter ended March
31, 2006 compared to income tax expense of $1.5 million in the quarter ended
March 31, 2005, an increase of $6.8 million.  The increase is attributed
primarily to an increase in our pre-tax income in the first quarter of 2006
compared to the first quarter of 2005 driven primarily by the gain on the
redemption of the RTB stock and the lower interest expense.  In the first
quarter of 2006, our pre-tax income was approximately $21.7 million compared
to pre-tax income of $2.3 million in the first quarter of 2005, an
improvement of $19.4 million.  Included in our income tax expense in the
first quarter of 2005 was a one-time accrual of approximately $0.6 million
for a proposed audit adjustment from an audit by the Alabama Department of
Revenue.  No such accruals were made in the first quarter of 2006.

    Net Income

    We reported net income of $13.4 million in the first quarter of 2006, or
27.2% of total revenues, an increase of $12.6 million from our net income of
$0.8 million, or 1.7% of total revenues, in the first quarter of 2005.  The
increase can be attributed principally to the $16.4 pre-tax gain recognized
for the redemption of the RTB stock and the $3.1 million decrease in interest
expense.


                                     20

<PAGE>


Liquidity and Capital Resources

    We are a holding company with no business operations of our own. Our only
significant assets are the capital stock and member interests we hold in our
subsidiaries. As such, our primary sources of cash to pay our obligations,
including our long-term indebtedness, are cash on hand and distributions from
our subsidiaries made out of their net earnings and cash flow. Even if our
subsidiaries determine to pay a dividend on, or make a distribution in
respect of, their capital stock or member interests, we cannot guarantee that
our subsidiaries will generate sufficient cash flow to pay such a dividend or
distribute such funds or that they will be permitted to pay such dividend or
distribution under the terms of their credit facilities, any other
contractual obligations they may have or the laws of their jurisdiction of
incorporation.

    At March 31, 2006, our liquidity consisted of cash and cash equivalents
of $18.1 million and a $75.0 million revolving line of credit provided by the
RTFC.  The entire revolving credit facility was available to us for general
corporate purposes at March 31, 2006.  Under the terms of our senior secured
credit facility, the amount available to be advanced under our revolving line
of credit may be limited.  The limitation on the amount available to be
advanced is due to certain covenants in our credit agreement, primarily our
financial ratios, that restrict the amount of senior secured debt and total
debt that we may carry at any time.

    At March 31, 2006, we had working capital of approximately $5.8 million
compared to working capital of $13.0 million at March 31, 2005, a decrease of
$7.2 million. Our cash on hand at March 31, 2006 was approximately $18.2
million, a decrease of $12.5 million compared to our cash balance of $30.7
million at March 31, 2005.  The decrease can be attributed principally to our
repayments of long-term debt.  Using our cash on hand, the $475.0 million in
proceeds from the refinancing in July 2005 and the redemption of $42.2
million in RTFC subordinated capital certificates, we repaid all of the
outstanding amounts to the RTFC, approximately $422.6 million at March 31,
2005, and redeemed $121.0 million of our senior notes during the prior twelve
months.  In addition, transactions recorded in the first quarter of 2006
related to the redemption of our Class C shares in the RTB resulted in a $2.4
million increase in our working capital.  Our current assets at March 31,
2006 include $26.5 million for proceeds to be received from the redemption of
our RTB stock, including $16.4 million for the gain recognized from the
redemption and $10.1 million for the carrying value of our RTB stock.  With
the proceeds from the redemption received in April 2006, we elected to redeem
an additional $27.0 million of our senior notes in May 2006.  We have
reflected the $27.0 million redemption as a current liability at March 31,
2006.  This resulted in an increase of $17.6 million in our current
liabilities as we had $9.4 million reflected as the current portion of long-
term debt at March 31, 2005.  In addition, we have accrued approximately $6.5
for income taxes related to the gain on the RTB stock.

    Although we anticipate using our excess cash flow to opportunistically
purchase or redeem our higher cost long-term debt, principally our 13.25%
senior notes, we are uncertain as to the timing and extent of these payments.
Factors that will impact our purchase, redemption or repayments, among
others, are the results of our operations and generation of cash flow from
our business, market conditions for our senior notes, other transactions that
we may execute, the terms of our new credit agreement and the terms of our
senior note indenture.  Therefore, we expect our cash balance may fluctuate
from period to period based on the timing of these redemptions.

    Operating Activities. For the quarters ended March 31, 2006 and 2005, we
generated cash from operating activities of $7.8 million and $0.4 million,
respectively, an increase of $7.4 million.  In the first quarter of 2006, our
interest payments were approximately $4.5 million lower and our income tax
payments were approximately $2.6 million lower than in the first quarter of
2005.  In addition, cash generated from a reduction in our accounts
receivable was approximately $1.8 million in the first quarter of 2006 and
$1.0 million in the first quarter of 2005.

    Investing Activities. For the quarter ended March 31, 2006, net cash used
for investing activities was $2.0 million and consisted principally of $2.8
million in cash used for the purchase of telephone plant and equipment.  This
was partially offset by $0.8 million in cash provided by changes in other
assets, primarily from the proceeds of sales of certain telephone plant and
equipment.  For the quarter ended March 31, 2005, net cash used for investing
activities was $1.8 million and consisted primarily of $2.1 million in cash
used for the purchase of telephone plant and equipment partially offset by
cash received from the redemption of subordinated capital certificates by the
RTFC in the amount of $0.5 million.

    Financing Activities. For the quarter ended March 31, 2006, net cash used
in our financing activities was $7.7 million and consisted of $7.3 million
used for the redemption of senior notes and $0.4 million paid as part of an
amendment to our senior secured credit facility.  For the quarter ended March
31, 2005, net cash used in financing activities was $2.3 million for
principal payments made to the RTFC.


                                     21

<PAGE>


Long-Term Debt and Revolving Credit Facility

Senior Secured Credit Facility

    On July 29, 2005, we entered into a senior secured credit facility with a
seven-year, $475.0 million term loan provided by a syndicate of banks and a
seven-year, $75.0 million revolving line of credit provided by the RTFC.  On
January 27, 2006, we completed an amendment to our senior secured credit
facility that reduced the interest rate margin for our term loan by 25 basis
points.  As part of the agreement, in the year following the effective date
of the amendment, prepayments of our term loan may require us to also pay a
prepayment fee equal to 1.00% of the aggregate principal amount of the
prepayment if certain conditions exist.

    Our term loan, as amended, bears variable interest, at our option, at
either (a) a base rate, as defined in the credit agreement, plus 1.25% or (b)
a London interbank offered rate ("LIBOR") plus 2.25%.  Currently, interest on
our credit agreement is based on a three month LIBOR rate.  Interest is
payable on the dates our interest rate resets.

    Our credit agreement for the senior secured credit facility required us
to enter into interest rate hedge agreements within six months of the closing
date of the transaction that cover a minimum of 50% of the combined principal
amount of our long-term debt and MRTC's long-term debt for a period of two
years from July 29, 2005.  During October 2005, we entered into three
interest rate swap agreements to fix the interest rate on a notional amount
of $350.0 million of our term loan for a period of four years.  As of March
31, 2006, with the hedge agreements in place, we effectively have a fixed
interest rate on 73.7% of our term loan and 77.4% of our total long-term debt
including our senior notes.

    As of May 12, 2006, our fixed interest rate on the $350.0 million is
approximately 6.97%.  The interest rate on the $125.0 million variable
portion of our term loan, a rate effective until July 6, 2006, is 7.26%.
Accordingly, as of April 6, 2006, our weighted average effective interest
rate on our senior secured credit facility was 7.15%.

    As part of the transaction, the RTFC provided a new $75.0 million
revolving line of credit.  Our line of credit bears interest that is payable
quarterly at the RTFC's line of credit base rate plus 0.5% per annum (9.35%
at May 12, 2006).  The line of credit remains undrawn as of May 12, 2006.
The entire revolving credit facility was available to us for general
corporate purposes at March 31, 2006.  Under the terms of our senior secured
credit facility, the amount available to be advanced under our revolving line
of credit may be limited due to certain covenants in our credit agreement,
primarily our financial ratios, that restrict the amount of senior secured
debt and total debt that we may carry at any time.

    The entire revolving credit facility was available to us for general
corporate purposes at March 31, 2006.  Under the terms of our senior secured
credit facility, the amount available to be advanced under our revolving line
of credit may be limited.  The limitation on the amount available to be
advanced is due to certain covenants in our credit agreement, primarily our
financial ratios, that restrict the amount of senior secured debt and total
debt that we may carry at any time.

    Our term loan has no scheduled amortization of principal until the
maturity of the credit agreement in July 2012.  However, under our credit
agreement, we are permitted to make voluntary prepayments of the term loan
and revolving line of credit without premium or penalty, other than standard
breakage costs related to any hedging obligations.  Subject to certain
conditions and exceptions, we will be required to make mandatory repayments
of borrowings under the term loan and then under the revolving credit
facility, without premium or penalty,  using (i) the net cash proceeds from
the sale or disposition of certain assets, (ii) the net cash proceeds from
certain debt and equity issuances and (iii) 50% of our net excess cash flow
as defined in the credit agreement.

    We are permitted under our credit agreement to use 100% of our gross
excess cash flow, as defined in the credit agreement, to redeem or repurchase
the remaining outstanding senior notes, and, subject to limitations contained
in our senior note indenture, make distributions to MRTC to be used to repay
its long-term debt.  In addition, beginning January 1, 2007, if our total
leverage ratio, as defined in the credit agreement, is between 4.5 to 1.0 and
5.0 to 1.0, MRTC may pay dividends in amounts up to 50% of gross excess cash
flow and if our total leverage ratio is below 4.5 to 1.0, MRTC may pay
dividends in amounts up to 100% of gross excess cash flow.

    If we and MRTC do not retire other long-term debt or, if permitted, pay
dividends, in an amount equivalent to our gross excess cash flow in a fiscal
year, then 50% of the remaining amount, referred to as net excess cash flow,
must be used to repay a portion of the $475.0 million term loan within 90
days after year-end.  For purposes of this test, we are permitted to apply
any repayments of other long-term debt in the first 90 days after year-end to
reduce the prior year's net excess cash flow, thereby minimizing or
eliminating any mandatory repayments of the term loan from net excess cash
flow.  As of December 31, 2005, we had approximately $6.4 million of net
excess cash flow for 2005.  On March 27, 2006, we redeemed $7.0 million of
our 13.25% senior notes and applied the necessary amount of this senior note
redemption to reduce 2005's net excess cash flow to zero, resulting in no
mandatory repayment of the term loan being required.  The remainder of the
redemption is being applied to 2006's net excess cash flow calculation.


                                     22

<PAGE>


    Under the terms of the credit agreement, we are required to comply with
certain financial ratios and administrative and financial covenants. We are,
among other things, restricted in our ability to (i) incur additional
indebtedness, (ii) make restricted payments or pay dividends, (iii) redeem or
repurchase equity interests, (iv) make various investments or other
restricted payments, (v) create certain liens or use assets as security in
other transactions, (vi) sell certain assets or utilize certain asset sale
proceeds, (vii) merge or consolidate with or into other companies or (viii)
enter into transactions with affiliates.  At March 31, 2006, we believe we
were in compliance with the terms of our credit agreement.

    The credit facility is secured by a first mortgage lien on our operating
assets and revenues and those of MRTC and our first-tier, wholly-owned
subsidiaries, Madison River Holdings Corp., Madison River Finance Corp. and
Madison River Communications, LLC (collectively, the "Loan Parties").  In
addition, MRTC and our first-tier, wholly-owned subsidiaries have guaranteed
the credit facility and each Loan Party has pledged the equity interests in
each wholly-owned subsidiary that it owns in support of the credit facility.

13.25% Senior Notes due 2010

    As discussed above, under our credit agreement, we have the ability to
repurchase on the open market or voluntarily redeem additional senior notes.
Accordingly, on May 12, 2006, we voluntarily redeemed an additional $27.0
million of our outstanding senior notes for a redemption price of 104.417% of
aggregate principal amount redeemed plus accrued interest.  As part of this
redemption, we recognized a loss on the extinguishment of long-term debt of
$1.8 million which consisted of a premium paid to redeem the senior notes of
$1.2 million and $0.6 million for the writeoff of unamortized debt issuance
costs and unamortized discount related to the redeemed senior notes.
Therefore, after May 12, 2006, we have $50.0 million of our 13.25% senior
notes outstanding that mature in March 2010 and have semiannual interest
payments due on March 1 and September 1 of each year.

    In March 2006, we voluntarily redeemed $7.0 million in our senior notes
at a redemption price of 104.417% of the par value redeemed plus accrued
interest using our cash on hand.  We recognized a $0.5 million loss on
extinguishment of long-term debt for this redemption.

    We remain subject to the terms of our indenture that governs the senior
notes and, accordingly, must comply with certain financial and administrative
covenants contained in the indenture. We are, among other things, restricted
in our ability to (i) incur additional indebtedness, (ii) pay dividends,
(iii) redeem or repurchase equity interests, (iv) make various investments or
other restricted payments, (v) create certain liens or use assets as security
in other transactions, (vi) sell certain assets or utilize certain asset sale
proceeds, (vii) merge or consolidate with or into other companies or (viii)
enter into transactions with affiliates.  At March 31, 2006, we believe we
were in compliance with the terms of our indenture.

Minority Interest in Coastal Communications, Inc.

    As part of the consideration paid in the Coastal Communications, Inc.
acquisition in March 2000, MRTC issued to the shareholders of Coastal
Communications, Inc. (the "Coastal shareholders") 300 shares of Series A
stock and 300 shares of Series B non-voting common stock of Coastal
Communications, Inc. in the face amount of $10.0 million and $5.0 million,
respectively. The Series A and Series B stock had put and call features that
were defined pursuant to the terms of a shareholders' agreement and were
exercisable by the holders and Coastal Communications, Inc. In April 2002,
MRTC completed an agreement with the Coastal shareholders that, among other
things, modified certain provisions of the shareholders' agreement. Under the
terms of the agreement, the Coastal shareholders exchanged 120 shares of
their Series A stock and all of their Series B stock in Coastal
Communications, Inc. for equity in MRTC and notes payable from MRTC. The
notes were repaid in December 2004.

    Coastal Communications, Inc. redeemed 30 shares of the Series A stock
retained by the Coastal shareholders for $33,333.33 per share, or
approximately $1.0 million, at the closing of the transaction in April 2002.
Under the terms of the amended shareholders' agreement, the Coastal
shareholders have the right to require Coastal Communications, Inc. to redeem
their remaining shares of Series A stock in increments not to exceed 30
shares at $33,333.33 per share, or an aggregate value of $1.0 million, in any
thirteen-month period. Accordingly, the Coastal shareholders put 30 shares of
Series A stock to Coastal Communications, Inc. in May 2003, June 2004 and
July 2005 and, in each case, Coastal Communications, Inc. redeemed the shares
for approximately $1.0 million shortly thereafter. The Coastal shareholders,
who continue to hold 60 shares of Series A stock, may put an additional 30
shares to Coastal Communications, Inc. in August 2006 and the remaining 30
shares in September 2007.  Under the terms of the agreement, we may at any
time require the Coastal shareholders to sell their remaining shares of
Series A stock to us for a purchase price of $33,333.33 per share.


                                     23

<PAGE>


Deferred Income Tax Contingency

    During 2002, we amended certain prior year income tax returns that
resulted in refunds of approximately $7.8 million. We received the refunds in
2002 and recorded them as deferred income tax liabilities. In the third
quarter of 2003, the Internal Revenue Service (the "IRS"), as part of an
audit, verbally notified us that our position taken in the amended tax
returns would be disallowed and in the fourth quarter of 2003, we received
formal notice of such action by the IRS. The refunds impacted by this IRS
notification totaled approximately $5.1 million and these amounts continue to
be included in our deferred income tax liabilities. We believe that our
position is appropriate under current tax laws and we intend to vigorously
defend the position taken in our amended income tax returns. We continue to
accrue interest expense of approximately $0.2 million each quarter related to
these refunds until the issue is resolved. At this time, we cannot assure you
that we will prevail in our defense of our position taken in the amended
income tax returns and we are uncertain as to the amount of time it will take
to resolve. If we are not successful, we may be required to repay the amounts
received as refunds plus accrued interest.

    The remaining $2.7 million in refunds for 1998 amended income tax
returns, which were not included in the IRS notification and for which we
were advised the statute of limitations for audit adjustments had expired,
were recognized as an income tax benefit in the fourth quarter of 2003.
However, in June 2004, the Department of Justice filed suit against two of
our subsidiaries, Gulf Coast Services, Inc. and Coastal Utilities, Inc.,
claiming that these were erroneous refunds of income taxes that our
subsidiaries received which the United States of America is entitled to have
returned. The amount of alleged erroneous refunds being sought in the
lawsuits total approximately $2.9 million. In the first quarter of 2004, as
the result of certain income tax audit adjustments made related to the
examination of a separate year, we paid approximately $0.9 million of these
claims. Accordingly, to recognize our potential exposure under the lawsuits,
we accrued the remaining $2.1 million as income tax expense during the second
quarter of 2004. At the same time, we also recognized $0.4 million in
interest expense related to these alleged erroneous refunds and we continue
to recognize additional interest expense each quarter related to these
disputed refunds. We believe that our position taken in the amended income
tax returns is appropriate under current tax laws and we intend to vigorously
defend against these claims. However, if we are not successful, we may be
required to repay the amounts received as refunds plus the accrued interest
and plaintiff's costs.

Capital and Liquidity Requirements

    Our working capital needs, our debt service requirements and our capital
expenditures are primarily funded with our cash flow from operations.  Our
other primary source of liquidity is the available amounts under our undrawn
revolving line of credit with the RTFC.

    We believe that the terms of our senior secured credit facility with a
syndicate of banks and our revolving line of credit with the RTFC will
provide us opportunities to significantly improve our liquidity going
forward, primarily from reductions in our overall leverage and our
corresponding interest payments.

    At July 29, 2005, using the $475.0 million in proceeds from our term
loan, combined with the redemption of our $42.2 million of RTFC subordinated
stock certificates, we retired our $417.2 million in outstanding term debt
with the RTFC which bore a weighted average interest rate of approximately
7.2% at the time of repayment.  Subsequent to the refinancing, we have also
redeemed approximately $148.0 million of our outstanding 13.25% senior notes.
Accordingly, our long-term debt outstanding has decreased from approximately
$613.5 million at July 29, 2005 to approximately $524.6 million at May 12,
2006.  By fully retiring our outstanding debt with the RTFC and the
subsequent redemption of our senior notes, our weighted average effective
interest rate on our long-term debt has decreased.  At July 29, 2005, our
weighted average effective interest rate on our long-term debt, including the
senior notes, was approximately 9.17%.  As of May 12, 2006, our weighted
average effective interest rate was 7.73%.  Accordingly, the cash required to
service the interest accrued on our long-term debt has decreased and will
continue to decrease significantly from recent historical levels.  The amount
of this decrease will depend upon the variability in interest rates although,
in the near term, this impact should be minimal as we have fixed rates
covering approximately 76.2% of our long-term debt.  In addition, we expect
that our interest expense will decrease further as we repurchase additional
senior notes from our excess cash flow as permitted under our credit
agreement.

    In addition, by repaying the outstanding term loans to the RTFC, we have
eliminated the $9.4 million in annual scheduled principal payments required
by our long-term debt agreement with the RTFC.  Our new credit agreement does
not provide for any scheduled principal amortization payments on the term
loan, however we do have requirements to make mandatory prepayments of the
term loan in certain situations, including an annual prepayment of 50% of our
net excess cash flow from the prior year. For purposes of this test, we are
permitted to apply repayments of other long-term debt, other than advances on
our line of credit, in the first 90 days after year-end to reduce the prior
year's net excess cash flow, thereby minimizing or eliminating any mandatory
repayments of the term loan from net excess cash flow.  On March 27, 2006, we
redeemed $7.0 million of our senior notes and applied approximately $6.4
million of that amount against the remaining net excess cash flow for 2005 to
reduce it to zero,


                                     24

<PAGE>


thereby resulting in no mandatory repayment of the term loan being required.
The remainder of the redemption is being applied to 2006's net excess cash
flow calculation.  In the next twelve months, we believe that we will use
100% of our gross excess cash flow to voluntarily redeem or repay long-term
debt, primarily the 13.25% senior notes, and therefore we do not anticipate
making any mandatory prepayments of our term loan with our net excess cash
flow.

    Although we anticipate using our excess cash flow to opportunistically
purchase, redeem or repay our higher cost long-term debt, we are uncertain as
to the timing and extent of these redemptions or repayments. Factors that
will impact our timing, among others, are the results of our operations and
generation of cash flow from our business, market conditions for our senior
notes, other transactions that we may execute, the terms of our new credit
agreement and the terms of our senior note indenture.  As a result of our
intent to use our excess cash flow to reduce our leverage, we expect that our
cash balance may fluctuate from period to period.

    Partially offsetting the benefit of lower interest expense will be a
decrease in the amount of patronage capital dividends we receive from the
RTFC.  As a cooperative, the RTFC allocates its net margins to borrowers on a
pro rata basis based on each borrower's patronage in the RTFC.  The net
margins are based on the RTFC's fiscal year which begins on June 1 and ends
on May 31.  In recent years, the Company has received an annual patronage
capital allocation from the RTFC that it records at cost.  As determined by
the RTFC's board of directors, a percentage of the patronage capital
allocations paid are retired with cash in January of each year with the
remainder being distributed in the form of patronage capital certificates.
The patronage capital certificates will be retired for cash on a scheduled
15-year cycle or as determined by the RTFC's board of directors.  For 2005,
our allocation of patronage capital from the RTFC was $2.8 million of which
$2.0 million was retired with cash and $0.8 million was received in patronage
capital certificates in January 2006.  In January 2007, we expect to receive
a prorated allocation of patronage capital, estimated to be approximately
$0.4 million, based on the period of time we were borrowers during the RTFC's
fiscal year that will end on May 31, 2006.  After receipt of this allocation,
we will not receive any new patronage capital allocations from the RTFC.

    In addition, we have historically received cash dividends on our Class C
shares held in the RTB.  For example, the Board of Directors of the RTB
declared and paid a 5.74 % cash dividend to Class C shareholders on the par
value of their stock for which we received a cash dividend of approximately
$1.5 million in December 2005.  As discussed previously, the RTB is in the
process of being liquidated.  In April 2006, we received proceeds of $26.5
million for the par value of our RTB Class C common shares and our shares
were canceled.  Our carrying value for the shares was $10.1 million.  As we
no longer hold an investment in the RTB, we will no longer receive cash
dividends from the RTB.

    We also expect that as we repay our higher cost long-term debt and our
interest expense decreases, our cash paid for federal income taxes will
increase as a result.  Although we had a net taxable loss for 2005 for
federal income tax purposes, we believe that we will have federal taxable
income beginning in 2006.

    In the near term, we expect that our primary uses of cash will include:

  * purchases, repayments or redemptions of our long-term debt, primarily our
      senior notes plus related prepayment premiums;
  * interest payments on our long-term debt;
  * payment of income taxes;
  * the maintenance and growth of our telephone plant and network
      infrastructure, including capital expenditures;
  * funding redemptions of Series A stock put to Coastal Communications, Inc.
      per the terms of a shareholders agreement with the former shareholders
      of Coastal Utilities, Inc.;
  * the maintenance, upgrade and integration of operating support systems and
      other automated back office systems;
  * sales and marketing expenses;
  * corporate overhead; and
  * personnel and related expenses.


                                     25

<PAGE>


    We currently estimate that capital expenditures in 2006 will be
approximately $14.0 million.  For 2005, our capital expenditures were
approximately $16.4 million, or an increase of approximately $1.8 million
from our capital expenditures of $14.6 million in 2004.  Our capital
expenditures in 2005 included approximately $3.8 million in additional
capital expenditures for our Alabama rural telephone company to add
significantly more high-capacity fiber optic transport lines to enhance
survivability of our network during future hurricanes and to repair storm
damage to our network sustained as a result of Hurricane Katrina in August
2005.  In addition, we made capital expenditures of approximately $0.8
million to enhance the network serving the two exchanges we acquired in April
2005, primarily to enable us to provide broadband service to these customers.
Excluding these two items, our capital expenditures for 2005 would have been
approximately $11.9 million.  For 2004, our capital expenditures of
approximately $14.6 million included approximately $2.6 million in additional
capital expenditures at our rural telephone operations in Alabama to repair
and replace certain telephone and plant equipment, primarily certain
components of our transmission and distribution facilities used to serve the
coastal areas, as a result of damages from Hurricane Ivan in September 2004.
Excluding these expenditures, our capital expenditures for 2004 would have
been approximately $12.0 million.  For the years ended December 31, 2003 and
2002, our capital expenditures were approximately $12.2 million and $12.3
million, respectively.  Our use of cash for capital expenditures in our
normal business operations has been fairly consistent for the past four years
and is significantly less than we had incurred in years prior to 2002. This
is a result of several factors. First, we invested a significant amount in
capital additions and improvements during 2000 and 2001 to build-out and
enhance our telephone plant and network facilities in each of our markets.
Absent any major changes in the technology that we employ, we believe that we
have facilities in place capable of providing a high level of service to our
customers without significant alterations or enhancements to our telephone
plant. A large portion of our capital expenditures in 2005 and 2004 have been
directed toward maintaining our existing facilities. Second, we have
experienced slower growth in recent quarters for our RLEC operations
including losses in the number of voice access lines we serve. In addition,
we have not expanded our edge-out services into any new markets, nor do we
have any current intentions to expand into new markets, and our existing
edge-out operations have not demonstrated any growth as part of our business
plan to generate sustainable cash flow. Therefore, there is minimal demand
currently to expand our telephone plant or network facilities. In 2004 and
2005, the demand for use of capital in the expansion of our telephone plant
and network facilities has been assessed and will continue to be assessed, in
part, using factors such as the increase in demand for access lines and
communications services and the introduction of new technologies that will
provide an appropriate return on capital invested. In 2005, we entered into
an agreement with the National Rural Telecommunications Cooperative that
allows us to offer DIRECTV satellite television service to our customers.
This agreement does not require us to make any significant capital
expenditures to provide this service to our customers.

    Based on our business plan, we currently project that cash and cash
equivalents on hand, available borrowings under our revolving line of credit
and our cash flow from operations will be adequate to meet our foreseeable
operational liquidity needs for the next 12 months. However, our actual cash
needs may differ from our estimates, and those differences could be material.
Our future operating cash requirements will depend on many factors,
including, among others:

  * the demand for our services in our existing markets;
  * the increase in competitive services in our existing markets for voice
      and broadband services;
  * the extent to which we consummate any significant additional
      acquisitions;
  * our success in maintaining a net positive cash flow in our edge-out
      operations;
  * our ability to acquire, maintain, develop, upgrade and integrate the
      necessary operating support systems and other back office systems;
  * regulatory, technological and competitive developments;
  * the outcome of current litigation with the Department of Justice
      regarding the claim that two of our subsidiaries received erroneous
      refunds;
  * any subsequent troop deployments at the military bases in Georgia; and
  * the extent of any further hurricane-related damages to any of our
      operating companies.


                                     26

<PAGE>


    To the extent that our business plans or projections change or prove to
be inaccurate, we may require additional financing or require financing
sooner than we currently anticipate. Sources of additional financing may
include commercial bank borrowings, including additional borrowings under our
existing credit facilities, sales of non-strategic assets, vendor financing
or the private or public sales of equity and debt securities. We cannot
assure you that we will generate sufficient cash flow from operations in the
future or that future borrowings or other financings will be available to us
in amounts sufficient to provide adequate working capital, service our
indebtedness, make anticipated capital expenditures or pay income taxes.
Failure to obtain adequate financing, if necessary, could require us to
significantly reduce our operations or level of capital expenditures which
could have a material adverse effect on our financial condition or results of
operations.

    Under the terms of MRTC's Operating Agreement, at any time on or after
January 16, 2006, certain members may require MRTC to redeem all of their
Class A units at an amount equal to the fair market value of the units. Upon
written notice to our board from a member exercising its put rights, MRTC
will have 120 days to purchase the member's units for cash. To the extent
that cash is not available or MRTC is not permitted to make such payments,
MRTC may issue notes to the member, with such notes bearing interest at the
prime rate, until the notes can be retired for cash.  If such put rights are
exercised by any of our members, we may be required to fund this obligation
of MRTC.  The holders of MRTC's Class B, Class C and Class D units have no
rights to require the redemption of those units.  No such put rights had been
exercised as of May 12, 2006.

Proposed Initial Public Offering of Common Stock by Madison River
Communications Corp. and Related Transactions

    On December 23, 2004, Madison River Communications Corp., an entity
formed to serve as the successor to Madison River Telephone Company, LLC, our
parent, filed a Registration Statement on Form S-1 with the SEC for the
purpose of registering its common stock in connection with an initial public
offering. The Form S-1 remains on file but has not yet become effective.
Those securities may not be sold nor may offers to buy be accepted prior to
the time the Form S-1 becomes effective. This Quarterly Report on Form 10-Q
shall not constitute an offer to sell or the solicitation of an offer to buy
nor shall there by any sale of those securities in any state in which such
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such state.

    The consummation of the initial public offering is subject to various
contingencies, including market conditions.  There can be no assurance that
the initial public offering and the related transactions will be completed on
the terms described in the Form S-1 or at all.

Critical Accounting Estimates

    Our management's discussion and analysis of our financial condition and
results of operations is based upon our condensed consolidated financial
statements, which we have prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
condensed consolidated financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenue
and expenses, and related disclosure of contingent assets and liabilities. We
evaluate our estimates on a regular basis, including those related to our
allowance for uncollectible accounts, revenues, impairments of goodwill and
long-lived assets and income taxes.  Management bases its estimates on
historical experience, consultation and advice from third party subject
matter experts and on various other assumptions that it believes to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Our actual results may differ from
these estimates. There were no significant changes in our critical accounting
estimates during the first quarter of 2006 from those discussed in our 2005
Annual Report on Form 10-K.

Recent Accounting Pronouncement

    The Financial Accounting Standards Board ("FASB") issues exposure drafts
for proposed statements of financial accounting standards. Such exposure
drafts are subject to comment from the public, to revisions by the FASB and
to final issuance by the FASB as statements of financial accounting
standards. Management considers the effect of the proposed statements on our
financial statements and monitors the status of changes to issued exposure
drafts and to proposed effective dates.

    In December 2004, the FASB issued Statement of Financial Accounting
Standards No. 123 (revised 2004), Share-Based Payment. ("SFAS 123R").  This
new standard requires companies to adopt the fair value methodology of
valuing stock-based compensation and recognizing that valuation in the
financial statements from the date of grant.  Our policy is to use the
minimum value method to account for our share-based payments, however, we had
no such arrangements as of March 31, 2006.  We adopted the prospective
transition method effective January 1, 2006, with no restatement of any prior
periods.  Under the prospective transition method, equity awards previously
accounted for as variable awards under Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to


                                     27

<PAGE>


Employees, will continue to be accounted for as variable awards unless those
awards are substantively modified after the adoption of SFAS 123R.  The
adoption of SFAS 123R had no effect on our financial position or results of
operations.


ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    Although we invest our short-term excess cash balances, the nature and
quality of these investments are restricted under our internal investment
policies and our long-term debt agreements. These investments are limited
primarily to U.S. Treasury agreement and agency securities, certain time
deposits and high quality repurchase agreements and high quality commercial
paper. We do not invest in any derivative or commodity type instruments.
Accordingly, we are subject to minimal market risk on our investments.

    As of May 12, 2006, our outstanding long-term debt consists principally
of a $475.0 million term loan.  The term loan, as amended, bears a weighted
average effective interest rate of 7.15% as of May 12, 2006, a rate that is
in place until July 6, 2006.  We have interest rate swap agreements with
three banks that fix the interest rate on $350.0 million of our term loan at
an interest rate of 6.97% for a period of four years.  Therefore, $125.0
million of our term loan remains variable and subject to interest rate risk
if interest rates rise.  A one percent increase in interest rates would
result in an increase in our interest expense of approximately $1.3 million.
We also have $50.0 million of senior notes outstanding with a stated fixed
interest rate of 13.25%.  We are not subject to interest rate risk on our
senior notes.

    As discussed above, we have entered into interest rate swap agreements to
manage our exposure to fluctuations in interest rates on our variable rate
indebtedness.  Each floating rate payor under the interest rate swap
agreements is a nationally recognized commercial bank, which has been
accorded ratings similar to other large commercial banks by primary rating
agencies. We will periodically monitor these credit ratings. While we may be
exposed to losses due to non-performance of the bank counterparties, we
consider the risk remote and do not expect the settlement of this transaction
to have a material effect on our financial condition, results of operations
or cash flows.


ITEM 4 - CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures

    We maintain disclosure controls and procedures that are designed to
ensure that material information required to be disclosed in our reports
under the Securities and Exchange Act of 1934, as amended, (the "Exchange
Act") is recorded, processed, summarized, and reported within the time
periods specified in the SEC's rules and forms, and that such information is
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure. In designing and evaluating the disclosure
controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only a
reasonable assurance of achieving the desired control objectives.

    Our management, with the participation of our Chief Executive Officer and
Chief Financial Officer, has evaluated the effectiveness of our disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-
15(e) under the Exchange Act) as of  the end of the period covered by this
report.  This evaluation included consideration of the material weakness
disclosed in our Form 10-K for the fiscal year ended December 31, 2005.
Based on this evaluation, which included an assessment of remediation efforts
related to controls over the application of generally accepted accounting
principles associated with our analysis of the long-term incentive plan and
the presentation of our telephone plant and equipment and accumulated other
comprehensive loss, the Chief Executive Officer and Chief Financial Officer
have concluded that, as of the end of the period covered by this report, our
disclosure controls and procedures are effective.

(b) Internal Control Over Financial Reporting

    In order to remediate the aforementioned material weakness, management
has implemented additional internal controls over financial reporting.  The
remediation action included enhancing and strengthening the process used to
interpret new accounting pronouncements, related interpretations of
supporting documentation, as well as the process of selection, review and
assessment of the accounting policies used.

    Other than as described above, there have not been any changes in our
internal control over financial reporting (as such term is defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to
which this report relates that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.


                                     28

<PAGE>


                                  Part II

Item 1A.  RISK FACTORS

There are no material changes from the risk factors set forth in Part I, Item
1A, in the Company's Annual Report on Form 10-K for the year ended December
31, 2005.

Item 6.  EXHIBITS

    (a)  Exhibits

    Exhibit
    Number                            Description
    -------        ----------------------------------------------------------

     10.1          Employment Agreement, dated January 1, 2006, between
                   Madison River Telephone Company, LLC and J. Stephen
                   Vanderwoude (filed as Exhibit 10.12 to the Company's
                   Annual Report on Form 10-K filed with the Securities and
                   Exchange Commission on March 31, 2006.)
     10.2          Employment Agreement, dated January 1, 2006, between
                   Madison River Telephone Company, LLC and Paul H. Sunu
                   (filed as Exhibit 10.14 to the Company's Annual Report on
                   Form 10-K filed with the Securities and Exchange
                   Commission on March 31, 2006.)
     10.3          Employment Agreement, dated January 1, 2006, between
                   Madison River Telephone Company, LLC and Bruce J. Becker
                   (filed as Exhibit 10.16 to the Company's Annual Report on
                   Form 10-K filed with the Securities and Exchange
                   Commission on March 31, 2006.)
     10.4          Employment Agreement, dated January 1, 2006, between
                   Madison River Telephone Company, LLC and Ken Amburn (filed
                   as Exhibit 10.18 to the Company's Annual Report on Form
                   10-K filed with the Securities and Exchange Commission on
                   March 31, 2006.)
     10.5          Employment Agreement, dated January 1, 2006, between
                   Madison River Telephone Company, LLC and Michael Skrivan
                   (filed as Exhibit 10.19 to the Company's Annual Report on
                   Form 10-K filed with the Securities and Exchange
                   Commission on March 31, 2006.)
     10.6          Amendment No. 1 and Waiver dated January 27, 2006 to the
                   $550,000,000 Credit Agreement dated July 29, 2005 (filed
                   as Exhibit 10.1 to the Company's Current Report on Form
                   8-K filed with the Securities and Exchange Commission on
                   February 1, 2006.)
     31.1          Certification of Chief Executive Officer of Madison River
                   Capital, LLC pursuant to Rule 13a-14(a)/Rule 15d-14(a) of
                   the Securities Exchange Act of 1934, as amended

     31.2          Certification of Chief Financial Officer of Madison River
                   Capital, LLC pursuant to Rule 13a-14(a)/Rule 15d-14(a) of
                   the Securities Exchange Act of 1934, as amended

     32.1          Certification of Chief Executive Officer of Madison River
                   Capital, LLC pursuant to 18 U.S.C. Section 1350, as
                   adopted pursuant to Section 906 of the Sarbanes-Oxley Act
                   of 2002

     32.2          Certification of Chief Financial Officer of Madison River
                   Capital, LLC pursuant to 18 U.S.C. Section 1350, as
                   adopted pursuant to Section 906 of the Sarbanes-Oxley Act
                   of 2002



                                   SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                      MADISON RIVER CAPITAL, LLC

Date:  May 15, 2006                   /s/  PAUL H. SUNU
                                      ---------------------------------------
                                      Name:  Paul H. Sunu
                                      Title:  Managing Director, Chief
                                              Financial Officer and Secretary



                                     29



<PAGE>


                                EXHIBIT INDEX

    Exhibit
    Number                            Description
    -------     -------------------------------------------------------------

     10.1          Employment Agreement, dated January 1, 2006, between
                   Madison River Telephone Company, LLC and J. Stephen
                   Vanderwoude (filed as Exhibit 10.12 to the Company's
                   Annual Report on Form 10-K filed with the Securities and
                   Exchange Commission on March 31, 2006.)
     10.2          Employment Agreement, dated January 1, 2006, between
                   Madison River Telephone Company, LLC and Paul H. Sunu
                   (filed as Exhibit 10.14 to the Company's Annual Report on
                   Form 10-K filed with the Securities and Exchange
                   Commission on March 31, 2006.)
     10.3          Employment Agreement, dated January 1, 2006, between
                   Madison River Telephone Company, LLC and Bruce J. Becker
                   (filed as Exhibit 10.16 to the Company's Annual Report on
                   Form 10-K filed with the Securities and Exchange
                   Commission on March 31, 2006.)
     10.4          Employment Agreement, dated January 1, 2006, between
                   Madison River Telephone Company, LLC and Ken Amburn (filed
                   as Exhibit 10.18 to the Company's Annual Report on Form
                   10-K filed with the Securities and Exchange Commission on
                   March 31, 2006.)
     10.5          Employment Agreement, dated January 1, 2006, between
                   Madison River Telephone Company, LLC and Michael Skrivan
                   (filed as Exhibit 10.19 to the Company's Annual Report on
                   Form 10-K filed with the Securities and Exchange
                   Commission on March 31, 2006.)
     10.6          Amendment No. 1 and Waiver dated January 27, 2006 to the
                   $550,000,000 Credit Agreement dated July 29, 2005 (filed
                   as Exhibit 10.1 to the Company's Current Report on Form
                   8-K filed with the Securities and Exchange Commission on
                   February 1, 2006.)
     31.1          Certification of Chief Executive Officer of Madison River
                   Capital, LLC pursuant to Rule 13a-14(a)/Rule 15d-14(a) of
                   the Securities Exchange Act of 1934, as amended

     31.2          Certification of Chief Financial Officer of Madison River
                   Capital, LLC pursuant to Rule 13a-14(a)/Rule 15d-14(a) of
                   the Securities Exchange Act of 1934, as amended

     32.1          Certification of Chief Executive Officer of Madison River
                   Capital, LLC pursuant to 18 U.S.C. Section 1350, as
                   adopted pursuant to Section 906 of the Sarbanes-Oxley Act
                   of 2002

     32.2          Certification of Chief Financial Officer of Madison River
                   Capital, LLC pursuant to 18 U.S.C. Section 1350, as
                   adopted pursuant to Section 906 of the Sarbanes-Oxley Act
                   of 2002