<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   June 30, 2005
                                      ------------------

                                      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 an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes         No   X
                                                ---         ---

As of August 2, 2005, 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 - June 30, 2005 (Unaudited)
            and December 31, 2004.............................................................1
          Condensed Consolidated Statements of Operations (Unaudited) -
            Three and Six Months Ended June 30, 2005 and 2004.................................2
          Condensed Consolidated Statement of Member's Capital (Unaudited) -
            Six Months Ended June 30, 2005....................................................3
          Condensed Consolidated Statements of Cash Flows (Unaudited) -
            Six Months Ended June 30, 2005 and 2004...........................................4
          Notes to Condensed Consolidated Financial Statements (Unaudited)....................5
 Item  2. Management's Discussion and Analysis of Financial Condition
            and Results of Operations........................................................11
 Item  3. Quantitative and Qualitative Disclosures About Market Risk.........................27
 Item  4. Controls and Procedures............................................................27


Part II - Other Information
 Item  6. Exhibits...........................................................................28

 Signature...................................................................................28

</TABLE>












                                      i


<PAGE>

                                   Part I


Item 1.  FINANCIAL STATEMENTS

                          MADISON RIVER CAPITAL, LLC
                     Condensed Consolidated Balance Sheets
                            (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                   June 30, 2005     December 31, 2004
                                                                   -------------     -----------------
Assets                                                              (Unaudited)
<S>                                                                 <C>                  <C>
Current assets:
  Cash and cash equivalents                                          $   33,391           $    34,486
  Accounts receivable, less allowance for uncollectible accounts
    of $1,130 and $1,416 in 2005 and 2004, respectively                   9,959                 9,855
  Receivables, primarily from interexchange carriers, less
    allowance for uncollectible accounts of $1,001 and $1,310
    in 2005 and 2004, respectively                                        6,357                 5,862
  Inventories                                                               504                   644
  Rural Telephone Finance Cooperative stock to be redeemed                  469                   469
  Rural Telephone Finance Cooperative patronage capital receivable        1,150                 2,910
  Other current assets                                                    6,771                 3,810
                                                                      ---------             ---------

    Total current assets                                                 58,601                58,036
                                                                      ---------             ---------

Telephone plant and equipment                                           494,092               484,608
Less accumulated depreciation and amortization                         (208,868)             (191,715)
                                                                      ---------             ---------

  Telephone plant and equipment, net                                    285,224               292,893
                                                                      ---------             ---------

Other assets:
  Rural Telephone Finance Cooperative stock, at cost                     41,721                42,190
  Goodwill                                                              366,332               366,332
  Other assets                                                           22,489                21,553
                                                                      ---------             ---------

    Total other assets                                                  430,542               430,075
                                                                      ---------             ---------

    Total assets                                                     $  774,367            $  781,004
                                                                      =========             =========


Liabilities and member's capital
Current liabilities:
  Accounts payable                                                   $      749            $    1,753
  Accrued expenses                                                       30,689                32,048
  Other current liabilities                                               6,599                 6,306
  Current portion of long-term debt                                       9,385                 9,385
                                                                      ---------             ---------

    Total current liabilities                                            47,422                49,492
                                                                      ---------             ---------

Noncurrent liabilities:
  Long-term debt                                                        604,127               608,691
  Other liabilities                                                      75,600                78,268
                                                                      ---------             ---------


    Total noncurrent liabilities                                        679,727               686,959
                                                                      ---------             ---------

    Total liabilities                                                   727,149               736,451

Member's capital:
  Member's interest                                                     251,684               251,684
  Accumulated deficit                                                  (200,273)             (202,938)
  Accumulated other comprehensive loss                                   (4,193)               (4,193)
                                                                      ---------             ---------

    Total member's capital                                               47,218                44,553
                                                                      ---------             ---------

    Total liabilities and member's capital                           $  774,367            $  781,004
                                                                      =========             =========


</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 June 30,  Six Months Ended June 30,
                                               ---------------------------  -------------------------
                                                     2005        2004            2005        2004
                                                     ----        ----            ----        ----
<S>                                               <C>         <C>             <C>         <C>
Operating revenues:
  Local services                                   $  31,283   $  31,974       $  62,656   $  64,667
  Long distance services                               3,976       3,710           7,835       7,516
  Internet and enhanced data services                  5,946       4,945          11,712       9,785
  Edge-out services                                    2,645       3,070           5,370       6,201
  Miscellaneous telecommunications
    services and equipment                             3,854       4,105           8,061       8,214
                                                    --------    --------        --------    --------

      Total operating revenues                        47,704      47,804          95,634      96,383
                                                    --------    --------        --------    --------

Operating expenses:
  Cost of services                                    13,503      13,427          27,307      26,862
  Depreciation and amortization                        9,422      10,707          18,696      22,816
  Selling, general and administrative expenses         8,696       9,888          18,192      20,056
                                                    --------    --------        --------    --------

      Total operating expenses                        31,621      34,022          64,195      69,734
                                                    --------    --------        --------    --------

Net operating income                                  16,083      13,782          31,439      26,649

Interest expense                                     (14,127)    (15,114)        (28,542)    (30,287)
Other income, net                                      1,009         727           2,031       1,592
                                                    --------    --------        --------    --------

Income (loss) before income tax expense                2,965        (605)          4,928      (2,046)

Income tax expense                                       894       1,889           2,263       1,728
                                                    --------    --------        --------    --------

Net income (loss)                                  $   2,071   $  (2,494)      $   2,665   $  (3,774)
                                                    ========    ========        ========    ========


</TABLE>



           See Notes to Condensed Consolidated Financial Statements.


                                      2


<PAGE>

                          MADISON RIVER CAPITAL, LLC
              Condensed Consolidated Statement 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 January 1, 2005                         $  251,684     $  (202,938)    $  (4,193)    $  44,553
  Net income                                             -              2,665          -            2,665
                                                    ---------      ----------      --------      --------

Balance at June 30, 2005 (unaudited)               $  251,684     $  (200,273)       (4,193)    $  47,218
                                                    =========      ==========      ========      ========

</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>
                                                                          Six Months Ended June 30,
                                                                        ----------------------------
                                                                           2005              2004
                                                                        ----------        ----------
<S>                                                                     <C>               <C>
Operating activities
Net cash provided by operating activities                                $  14,235         $  19,028
                                                                          --------          --------

Investing activities
Purchases of telephone plant and equipment                                  (4,913)           (8,285)
Acquisition                                                                 (6,270)             -
Redemption of Rural Telephone Finance Cooperative stock, net                   469             1,354
Change in other assets                                                          77                62
                                                                          --------          --------
Net cash used for investing activities                                     (10,637)           (6,869)
                                                                          --------          --------

Financing activities
Repurchase of outstanding 13 1/4% senior notes                                -               (2,140)
Payments on long-term debt                                                  (4,693)          (12,303)
                                                                          --------          --------
Net cash used for financing activities                                      (4,693)          (14,443)
                                                                          --------          --------

Net decrease in cash and cash equivalents                                   (1,095)           (2,284)
Cash and cash equivalents at beginning of year                              34,486            28,143
                                                                          --------          --------

Cash and cash equivalents at end of second quarter                       $  33,391         $  25,859
                                                                          ========          ========
</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 224,831 voice access and digital subscriber
line, or DSL, connections as of June 30, 2005.

    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 June 30, 2005, the EOS
operations served 12,465 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:

  * 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, 2004.  Such financial statements are included
in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2004 filed with the Securities and Exchange Commission.  The
amounts presented in the condensed consolidated balance sheet as of December
31, 2004 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 and six-month
periods ended June 30, 2005 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2005.

    Certain amounts in the 2004 condensed consolidated financial statements
have been reclassified to conform to the 2005 presentation.  These
reclassifications had no effect on net loss or member's capital as previously
reported.

                                      5

<PAGE>

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

3.  TELEPHONE PLANT AND EQUIPMENT

    Telephone plant and equipment consisted of the following:




<TABLE>
<CAPTION>
                                            June 30,       December 31,
                                             2005              2004
                                           ---------       ------------
                                                (in thousands)
  <S>                                      <C>             <C>
   Land, buildings and general equipment    $  55,204       $  54,485
   Central office equipment                   170,031         165,744
   Poles, wires, cables and conduit           241,493         237,509
   Leasehold improvements                       2,541           2,541
   Software                                    18,197          18,522
   Construction-in-process                      6,626           5,807
                                             --------        --------
     Total telephone plant and equipment    $ 494,092       $ 484,608
                                             ========        ========
</TABLE>


4.  RESTRUCTURING CHARGE

    As of June 30, 2005, 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>
                                                    2005
                                Balance at      second quarter    Balance at
                             December 31, 2004     payments     June 30, 2005
                             -----------------  --------------  -------------
                                               (in thousands)
  <S>                            <C>             <C>            <C>
   Future lease obligations       $    540        $  129         $    411
   Legal related expenses               31           -                 31
                                   -------         -----          -------
                                  $    571        $  129         $    442
                                   =======         =====          =======
</TABLE>

    The remaining liability as of June 30, 2005 is recorded as $0.2 million
in accrued expenses and $0.2 million in other long-term liabilities.

5.  BENEFIT PLANS

    The Company's net periodic benefit costs for the pension plan for the
second quarter and six months ended June 30, 2005 and 2004 are as follows:

<TABLE>
<CAPTION>

                                        Second quarter ended            Six months ended
                                       ----------------------         ----------------------
                                       June 30,      June 30,         June 30,      June 30,
                                         2005          2004             2005          2004
                                       ----------------------         ----------------------
                                                           (in thousands)
  <S>                                <C>           <C>               <C>           <C>
  Service cost                        $    99       $    98           $   198       $   196
  Interest cost                           196           186               392           373
  Expected return on plan assets         (211)         (189)             (422)         (379)
  Amortization of net loss                 54            80               108           159
                                       ------        ------            ------        ------
  Total net periodic benefit cost     $   138       $   175           $   276       $   349
                                       ======        ======            ======        ======
</TABLE>

    The Company's net periodic benefit costs for the other postretirement
benefit plans for the second quarter and six months ended June 30, 2005 and
2004 are as follows:

<TABLE>
<CAPTION>

                                        Second quarter ended            Six months ended
                                       ----------------------         ----------------------
                                       June 30,      June 30,         June 30,      June 30,
                                         2005          2004             2005          2004
                                       ----------------------         ----------------------
                                                           (in thousands)
  <S>                                <C>           <C>               <C>           <C>
  Service cost                        $   15       $   14             $    30       $    26
  Interest cost                           27           27                  55            53
  Amortization of net gain               (45)         (36)                (91)          (73)
  Amortization of prior service cost     (26)         (21)                (53)          (42)
                                       -----        -----              ------        ------
  Total net periodic benefit cost     $  (29)      $  (16)            $   (59)      $   (36)
                                       =====        =====              ======        ======
</TABLE>

    The Company made a contribution of $1.1 million to its pension plan in
the second quarter of 2005.  The Company does not expect to make any
additional contributions in 2005.

                                      6

<PAGE>

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

6.  LONG-TERM DEBT AND LINES OF CREDIT
    Long-term debt and lines of credit outstanding consist of the following
at:


<TABLE>
<CAPTION>
                                                                             June 30,        December 31,
                                                                               2005              2004
                                                                            ----------       ------------
                                                                                  (in thousands)
<S>                                                                         <C>               <C>
First mortgage notes collateralized by substantially all RLEC assets:
  RTFC note payable in quarterly principal installments plus interest
    through November 2016, interest accrued at RTFC's base variable rate
    plus 1.00% (7.5% at June 30, 2005).                                      $   11,423        $   11,551
  RTFC note payable in quarterly principal installments plus interest
    through November 2016, interest accrued at a fixed annual rate of
    5.65% (rate expires August 2006).                                             5,793             5,858
  RTFC note payable in quarterly principal installments plus interest
    through November 2016, interest accrued at a fixed annual rate of
    5.65% (rate expires August 2006).                                               930               941
  RTFC note payable in quarterly principal installments plus interest
    through November 2016, interest accrued at RTFC's base variable rate
    plus 1.00% (7.5% at June 30, 2005).                                         100,232           101,359
  RTFC note payable in quarterly principal installments plus interest
    through November 2016, interest accrued at a fixed annual rate of
    5.65% (rate expires August 2006).                                             5,435             5,496
  RTFC note payable in quarterly principal installments plus interest
    through November 2016, interest accrued at a fixed annual rate of
    5.65% (rate expires August 2006)                                             65,902            66,643
  RTFC note payable in quarterly principal installments plus interest
    through November 2016, interest accrued at a fixed annual rate of
    5.65% (rate expires August 2006).                                             3,465             3,505
  RTFC note payable in quarterly principal installments plus interest
    through November 2016, interest accrued at RTFC's base variable rate
    plus 1.00% (7.5% at June 30, 2005).                                         119,378           120,720
  RTFC note payable in quarterly principal installments plus interest
    through November 2016, interest accrued at a fixed annual rate of
    5.65% (rate expires August 2006).                                             7,607             7,692
  RTFC note payable in quarterly principal installments plus interest
    through November 2016, interest accrued at RTFC's base variable rate
    plus 1.00% (7.5% at June 30, 2005).                                          97,043            98,135
Unsecured 131/4% senior notes payable, due March 1, 2010, with interest
  payable semiannually on March 1 and September 1, net of debt discount
  of $1,696 and $1,824, respectively.                                           196,304           196,176
                                                                              ---------         ---------
                                                                                613,512           618,076
Less current portion                                                              9,385             9,385
                                                                              ---------         ---------
                                                                             $  604,127        $  608,691
                                                                              =========         =========
</TABLE>


    As of June 30, 2005, the Company's secured loan facilities consisted of
$417.2 million in term loans outstanding and $41.0 million in fully available
revolving lines of credit.  The loan facilities were provided by the Rural
Telephone Finance Cooperative (the "RTFC") and were primarily with the
Company's indirect wholly-owned subsidiary, MRLTDF, under a loan agreement
that was scheduled to mature in November 2016.  In total, as of June 30,
2005, our weighted average interest rate on all RTFC term debt was 7.1%.  On
July 29, 2005, the Company entered into a new senior secured credit facility
with a syndicate of banks providing a seven-year, $475.0 million term loan
and a seven-year, $75.0 million revolving line of credit provided by the
RTFC.  Proceeds from the term loan of approximately $375.0 million, together
with the RTFC's redemption of the $42.2 million in RTFC subordinated stock
certificates, were used to repay the $417.2 million in term loans outstanding
to the RTFC.  In addition, the RTFC cancelled the two lines of credit that
previously existed.  The Company also paid the RTFC approximately $4.8
million in accrued interest and $0.8 million as a fee for early repayment of
certain fixed rate term loans.  The Company will record this fee as loss on
extinguishment of debt.  With the remaining proceeds of the new term loan and
cash on hand, the Company will voluntarily redeem $102.0 million of its
outstanding 13.25% senior notes due 2010.  On the date the transaction
closed, the Company issued a notice to its noteholders of its intent to
voluntarily redeem $102.0 million in senior notes on August 29, 2005 for a
redemption price of 106.625% of par value plus accrued interest. At
completion of the transaction, the Company paid approximately $2.9 million as
origination fees for the new term loan and the new revolving line of credit
and $0.5 million for other loan related expenses, which represented a portion
of its fees and expenses related to this transaction.

                                      7

<PAGE>

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

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

    The new term loan bears variable interest, at the Company's option, at
either (a) a base rate, as defined in the credit agreement, plus 1.5% or (b)
a London interbank offered rate ("LIBOR") plus 2.5%.  Although the new term
loan initially bore interest at the base rate option, the Company converted
the interest rate to the LIBOR rate option effective August 3, 2005.  The
Company's interest rate on its term loan as of August 4, 2005 was 6.04%.  The
new credit agreement requires 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.  The
Company is currently evaluating hedging options with various banks.

    The new $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 (8.05% at August 4, 2005).  The line of credit is undrawn
and fully available to the Company for general corporate purposes.

    The new term loan has no scheduled payments of principal of the term loan
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 revolving line of credit without premium or penalty, other than
standard breakage costs related to any hedging obligations.  Subject to
certain conditions and exceptions, the Company will be required to make
mandatory repayments of borrowings under the term loan and then under the
revolving credit facility with (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 credit agreement will permit the Company to use 100% of its gross
excess cash flow, as defined in the credit agreement, to repay 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.

    Under the terms of the credit agreement, the Company must comply with
certain financial ratios and 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.

   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, Madison River Holdings Corp., Madison River
Finance Corp. and Madison River Communications, LLC (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 June 30, 2005, the Company had $198.0 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.  Using a portion of the proceeds
from the new credit facility and cash on hand, the Company will redeem $102.0
million of these senior notes at a redemption price of 106.625% plus accrued
interest on August 29, 2005.  After this redemption, the Company will have
$96.0 million in senior notes outstanding.  As discussed above, under the new
credit agreement, the Company has the ability to repurchase additional senior
notes on the open market or voluntarily redeem its senior notes.

    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 contained in the indenture. 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.  At June
30, 2005, the Company was in compliance with the terms of its indenture.


                                      8

<PAGE>

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

7.  INCOME TAXES

    Effective January 1, 2005, the Company elected to convert from being
treated as a partnership for federal and state income tax purposes to a C
corporation.  As of the effective date of the conversion, the Company will
begin filing a consolidated federal income tax return that includes the
Company and its subsidiaries pursuant to tax sharing agreements entered into
with the Company's subsidiaries.

    During 2004, the Alabama Department of Revenue performed an audit of the
2002 and 2001 combined state income tax returns filed by the Company's
subsidiary, Gulf Coast Services, Inc., with the State of Alabama.  For 2002,
as permitted under Alabama's income tax regulations, Gulf Coast Services,
Inc. filed a combined return which included its consolidated financial
results as well as the financial results for certain other subsidiaries of
the Company with Alabama operations.  In March 2005, the Alabama Department
of Revenue issued a Notice of Preliminary Assessment ("the Alabama Notice")
based on this audit in which it contends that the Company lacked the
necessary nexus to file its 2002 state income tax returns on a combined
basis.  The Alabama Notice should not result in any additional taxes being
due for 2002 due to offsetting adjustments.  However, if this Alabama Notice
is allowed to stand after appeals, the Company's state income tax liability
to Alabama will increase for tax years subsequent to 2002.  For 2003, the
Company filed a combined return using the same basis as 2002 and accordingly,
the return would be amended to reflect the findings in the Alabama Notice if
the Company's appeals are unsuccessful.  As such, upon receiving the Alabama
Notice in the first quarter of 2005, the Company accrued a contingent state
income tax liability of approximately $0.9 million to recognize the
additional income tax expense for 2003 that would be due if a combined return
was not filed.  The Company also accrued approximately $0.1 million for
potential interest expense related to this income tax assessment.  For 2004,
in establishing its liability for state income taxes, the Company did not
recognize a $1.4 million benefit from the filing of a combined return.

    The Company believes its position in the combined returns is appropriate
and intends to appeal this finding.  Accordingly, the Company filed a Request
for Review with the Alabama Department of Revenue in April 2005.  However, at
this time, the Company is uncertain as to the outcome of this matter.

8.  RECENT ACCOUNTING PRONOUNCEMENTS

    In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities" ("VIEs"), the primary objective
of which is to provide guidance on the identification of entities for which
control is achieved through means other than voting rights and to determine
when and which business enterprise should consolidate the VIEs. This new
model applies when either (1) the equity investors (if any) do not have a
controlling financial interest or (2) the equity investment at risk is
insufficient to finance the entity's activities without additional financial
support. FIN 46 also requires additional disclosures. The Interpretation was
effective immediately for interests acquired subsequent to January 31, 2003
and was effective March 31, 2004 for interests in VIEs created before
February 1, 2003. The Company has not obtained an interest in any VIEs since
January 31, 2003.  The Company determined that an unconsolidated company in
which it holds an investment accounted for under the equity method is a VIE
under FIN 46 but the Company is not the primary beneficiary of the VIE. As a
result, the provisions of FIN 46 did not have an impact on the Company's
financial condition or results of operations.


                                      9

<PAGE>

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


9.  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 and six-month
periods ended June 30, 2005 and 2004:


<TABLE>
<CAPTION>
                                       Three Month Period Ended           Six Month Period Ended
                                       ------------------------           ----------------------
                                         June 30,     June 30,             June 30,     June 30,
                                           2005         2004                 2005         2004
                                           ----         ----                 ----         ----
                                                             (in thousands)
    <S>                                  <C>          <C>                  <C>          <C>
    Total revenues
      RLEC operations                     $  45,660    $  45,396            $  91,477    $  91,509
      EOS                                     2,743        3,103                5,567        6,266
                                           --------     --------             --------     --------
                                             48,403       48,499               97,044       97,775
    Less intersegment revenues                 (699)        (695)              (1,410)      (1,392)
                                           --------     --------             --------     --------
      Total reported revenues             $  47,704    $  47,804            $  95,634    $  96,383
                                           ========     ========             ========     ========

    Net operating income (loss):
      RLEC operations                     $  18,535    $  16,050            $  36,350    $  31,783
      EOS                                    (2,452)      (2,268)              (4,911)      (5,134)
                                           --------     --------             --------     --------
      Total reported net operating
        income                            $  16,083    $  13,782            $  31,439    $  26,649
                                           ========     ========             ========     ========
</TABLE>

    At June 30, 2005 and December 31, 2004, total assets by segment, net of
intersegment investments and other intersegment balances, were as follows:

<TABLE>
<CAPTION>
                                         June 30,          December 31,
                                           2005                 2004
                                         --------           ------------
                                                (in thousands)
        <S>                              <C>               <C>
         Total assets:
           RLEC operations                $    846,197      $    840,537
           EOS                                 419,278           433,952
                                           -----------       -----------
                                             1,265,475         1,274,489
           Less intersegment assets           (491,108)         (493,485)
                                           -----------       -----------
           Total reported assets          $    774,367      $    781,004
                                           ===========       ===========
</TABLE>


                                      10

<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 dependence on market acceptance of DSL-based 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 ability to implement our business plan for our edge-out services
      successfully;
  * unanticipated network disruptions;
  * our ability to obtain and maintain the necessary rights-of-way for our
      networks;
  * the financial difficulties of other companies in the telecommunications
      industry with which we have material relationships;
  * our ability to compete effectively with the regional Bell operating
      companies;
  * 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 the "Risk Factors" section
beginning on page 21 of our Annual Report on Form 10-K for the fiscal year
ended December 31, 2004 (File No. 333-36804) as filed with the Securities and
Exchange Commission.

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


Overview
--------
    We operate four rural telephone companies that serve business and
residential customers in the Southeast and Midwest regions of the United
States. 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 and edge-out
services. At June 30, 2005, we had 237,296 voice access line, DSL 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 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 has not yet become
effective. These securities may not be sold nor may offers to buy be accepted
prior to the time the Form S-1 becomes effective. This 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 these 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.  See " - Proposed Initial
Public Offering of Common Stock by Madison River Communications Corp. and
Related Transactions" for further information.

                                      11

<PAGE>


    Our rural telephone markets which we serve as the incumbent local
exchange carrier are located in Foley, Alabama; Hinesville, Georgia;
Galesburg, Illinois and Mebane, North Carolina. We refer to these four
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 three markets: (i) the Triangle (Raleigh,
Durham and Chapel Hill) and the Triad (Greensboro and Winston-Salem) in North
Carolina; (ii) Peoria and Bloomington in Illinois and (iii) New Orleans,
Louisiana and nearby cities. 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 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 2,300 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 continues to be extremely
competitive, we are not actively expanding this line of business at this
time. However, our fiber optic network is a valuable resource for our rural
telephone companies in their provision of dial-up, DSL and high-speed access
services to their customers as they use our fiber optic network to connect to
the Internet.

    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 DSL products and we
are controlling expenses through the use of business process management tools
and other methods. For our edge-out services, our objective remains that of
maintaining 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 six months ended June 30, 2005,
approximately 94.4% of our operating revenues came from our RLEC operations
and 5.6% from our edge-out services. For the year ended December 31, 2004,
approximately 93.9% of our operating revenues came from our RLEC operations
and 6.1% from our edge-out services. We intend to focus on continuing to
generate increasing revenues in our RLEC operations from voice services
(local and long distance), 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.

    At the current time, we do not anticipate significant growth in revenues
from our edge-out services.  The objective of our business plan for this line
of business 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. Our fiber transport business, which provides
services to other carriers and major accounts, will increase revenues only if
certain profit margins are obtained without making significant additional
capital investments. Because the fiber transport business is highly
competitive, we don't 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.

    At June 30, 2005, we had 237,296 voice access lines, DSL connections and
high-speed data connections in service compared to 234,272 connections in
service at June 30, 2004, an increase of 3,024 connections, or 1.3%. Our RLEC
operations had 224,831 connections in service at June 30, 2005 and 219,585
connections in service at June 30, 2004, an increase of 5,246 connections, or
2.4%. For our edge-out services, connections in service at June 30, 2005 and
June 30, 2004 were 12,465 and 14,687, respectively, a decrease of 2,222
connections, or 15.1%.

    Voice access lines refer to local telephone service provided to
residential and business customers. DSL connections are the high-speed
connections provided to end users for purposes of accessing the Internet.
Most DSL customers are residential customers who also subscribe to our local
telephone service. In our edge-out services, our customers are primarily


                                      12

<PAGE>



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, often referred to as bundling, and sold at a discount. 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" package. The No Limits bundle is marketed to our residential
customers at a price that varies slightly by location. The No Limits 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 DSL service for Internet access.

    Our results show that the No Limits package has been successful in
increasing penetration rates in services such as DSL and long distance. Many
of our existing customers selecting the No Limits package are new DSL
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 bundle. We intend to continue to enhance our bundled service offerings
with promotional pricing and new service additions.

    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 will be an
attractive enhancement to our current bundled service offerings as we will
now be able to 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 expect to
have this product available 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 certain assets comprising two exchanges in
North Carolina for approximately $6.3 million.  As of June 30, 2005, these
exchanges served 3,587 voice access lines and 2,493 long distance accounts.
We are currently upgrading the network used to provide services in these two
exchanges to allow us to begin offering DSL service and we expect to complete
this project during the third quarter of 2005.  On an annual basis, we expect
that net operating income from these exchanges, before depreciation and
amortization expenses are deducted, to be approximately $1.5 million.

    We believe we have been successful in addressing competition from new
high-speed Internet access product introductions, particularly by cable
operators, in our markets in recent years as the number of DSL 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
DSL 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 DSL
service to approximately 98% of our customers.  With the introduction of our
No Limits package, we have experienced significant growth in DSL subscribers
in 2004 and 2005 compared to prior years. As of June 30, 2005, our
penetration rate for residential DSL connections as a percentage of primary
residential voice access lines was 34.3% compared to 32.2% at December 31,
2004 and 26.9% at June 30, 2004. Although we cannot be certain, we anticipate
that our DSL product will continue to provide a source of increasing revenues
for our RLEC operations in future quarters. As of June 30, 2005, we had
42,827 DSL connections in service, an increase of 3,265 connections from
39,562 DSL connections in service at December 31, 2004 and an increase of
8,573 connections from 34,254 DSL connections in service at June 30, 2004.
As anticipated, the rate at which we were adding new DSL connections has
declined.  We believe we will continue to add new DSL connections in future
quarters but at a slower pace than we have experienced in recent quarters.
As discussed further below, we have lost DSL connections as a result of
hurricane-related damages in Alabama and a full deployment of troops
stationed at Fort Stewart and Hunter Army Airfield near Hinesville, Georgia.
Excluding the loss of DSL connections from these events, which we believe are
temporary, our increase in DSL connections served would have been
approximately 9,672 connections, or 28.2%.

    As we have increased the number of DSL connections we serve, we have
experienced a decrease in the number of dial-up Internet accounts in service.
At June 30, 2005, we had 13,297 dial-up Internet customers, which was a
decrease of 4,893 customers, or 26.9%, from 18,190 dial-up Internet customers
at June 30, 2004. We believe that a large percentage of the decrease in dial-
up Internet customers is the result of customers migrating from our dial-up
Internet service to our DSL service.

    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 June 30, 2005, we had 106,004 long distance
accounts compared to 100,713 long distance accounts at June 30, 2004. In
addition, our penetration rates for our


                                      13

<PAGE>


primary custom calling features including voicemail, caller identification,
call waiting and call forwarding as of June 30, 2005 have increased since
June 30, 2004.  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 bundle, and to our acquisition of two exchanges in North
Carolina during the second quarter of 2005.

    As of June 30, 2005, the number of voice access lines served by our RLEC
operations has declined compared to the number of voice access lines in
service at June 30, 2004. As of June 30, 2005, our RLEC operations had
182,004 voice access lines in service, which is a decrease of 3,327 voice
access lines, or 1.8%, from 185,331 voice access lines in service at June 30,
2004. The decrease in voice access lines, which is net of the 3,587 voice
access lines acquired in the second quarter of 2005, can be attributed
primarily to four factors that are impacting our business.  First, storm-
related damages from Hurricane Ivan in September 2004 resulted in
approximately 2,727 voice access lines being disconnected as of June 30, 2005
at our Alabama rural telephone company, Gulf Telephone Company.  This is an
improvement from our estimate of approximately 2,840 voice access lines being
disconnected at December 31, 2004.  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. We believe that these voice access lines should return to
service as repairs and restorations in the coastal areas served by Gulf
Telephone are completed and people return to their properties.

    Second, at our rural telephone company in Illinois, Gallatin River
Communications, a persistent weakness in the local economies served by
Gallatin River continues to impact the number of voice access lines in
service.  In this market, primary voice access lines, which we define as
total voice access lines less second lines, declined by 3,544 lines from June
30, 2004 to June 30, 2005, accounting for approximately 50% of the total
decline in voice access lines during this period.  This market is
predominantly industrial and agricultural in nature and has experienced
significant losses in its business base, resulting in higher unemployment. 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 will continue to
decline.

    Third, we have seen a decrease in voice access lines at our rural
telephone company in Georgia, Coastal Utilities, Inc., as a result of the
full deployment of troops stationed at Fort Stewart and Hunter Army Airfield
to Iraq.  The deployment was completed in February 2005.  Coastal Utilities
serves the Hinesville area, including the military bases where the troops
were deployed from. According to military officials, the deployment could
last at least 14 months. The full extent of the impact on our operations is
difficult to predict and will vary depending on, among other factors, the
duration of the troop deployment.  We estimate that primary voice access
lines in service at Coastal Utilities have decreased by approximately 1,227
lines at June 30, 2005 as a result of the deployment.  We believe that we
will recover the predominant share of these voice access lines as the troops
return to these military bases from the deployment.

    A final factor impacting the number of voice access lines served is
attributed to the growth in our DSL connections and 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 DSL 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 761 lines, or 10.4% from 7,336 second
lines in service at June 30, 2004 to 6,575 second lines in service at June
30, 2005. We believe as we increase the number of DSL connections we serve,
correspondingly, we will continue to experience a decrease in the number of
second lines we serve.

    Excluding the impact of the acquisition of the two exchanges, the voice
access line losses related to hurricane damage in Alabama and the troop
deployment in Georgia, both of which we believe are temporary, and the loss
of second lines, our decrease in voice access lines would have been
approximately 2,199 lines, or 1.2%, during the twelve month period ended June
30, 2005.

    On May 6, 2005, the State of Alabama signed into law the Alabama
Communications Reform Act of 2005, or the Alabama Act.  Our rural telephone
company, Gulf Telephone Company, serves customers in Foley, Alabama and
surrounding areas.  The Alabama Act became effective August 1, 2005, although
many of its provisions become effective at a later date.  The Alabama Public
Service Commission, or APSC, retains its jurisdiction over regulated
telephone services through January 31, 2007, except for bundled offerings,
contract service offerings and broadband services which are subject to
different deregulation dates.  After January 31, 2007, the APSC will only
regulate basic residential services and business customers with up to four
lines to the extent such services are not included in a bundled offering.  In
order to qualify for deregulation under the Alabama Act, rural telephone
companies must show certain competitive activity and, based on information we
currently have, we believe Gulf Telephone Company will qualify for
deregulation under the provisions of the Alabama Act.  We anticipate that the
Alabama Act will provide Gulf Telephone Company with more flexibility to
address market conditions and we believe that it will not have a material
impact on our financial position, operations or cash flows.


                                      14

<PAGE>


    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 six months ended June 30, 2005 and June 30, 2004,
revenues attributable to such payments represented 6.4% and 6.3%,
respectively, of our total revenues. Under the current regulatory scheme, as
the number of access lines that we have in any given state increases, the
rate at which we can recover certain payments decreases. Therefore, as we
implement our growth strategy, our eligibility for such payments or the
amount of such payments may decrease.

    In our edge-out services, revenues decreased in the first six months of
2005 compared to the first six months of 2004 as sales of new services and
renewals of expiring customer contracts have not been enough to replace
customers that ceased purchasing our services in our competitive markets. In
addition, we have seen a decrease in revenues from our fiber transport
business.  At June 30, 2005, our edge-out services had 11,812 voice access
lines and 653 high-speed data connections in service. At June 30, 2004, our
edge-out services served 14,012 voice access lines and 675 high-speed data
connections. This is a decrease of 2,200 voice access lines, or 15.7%, and 22
high-speed data connections, or 3.3%.  Of the decrease in voice access lines,
approximately 2,200 are attributed to the loss of one customer in the third
quarter of 2004.  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.  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, DSL 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 SBC 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.

    Effective in April 2005, we entered into two new agreements with 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 expiring contract.

    On April 28, 2005, we completed a new collective bargaining agreement,
covering 56 employees of Gallatin River Communications located in Galesburg,
Illinois, for a period of five years.  As part of this agreement, we froze
the further accrual of benefits under our defined benefit pension plan for
these employees in exchange for an enhancement to their defined contribution
401(K) plan.  The existing agreement expired on April 30, 2005.  Our
remaining two collective bargaining agreements with the International
Brotherhood of Electrical Workers cover 54 employees in Pekin, Illinois and
28 employees in Dixon, Illinois.  These agreements expire on September 30,
2005 and November 30, 2005, respectively, and we intend to initiate formal
union negotiations on each contract approximately 30-45 days in advance of
the contract expiration date.


                                      15

<PAGE>


    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
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, eliminate 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. Several challenged those rules in court and it is not
possible to predict the result of any subsequent reconsideration or appeal.
It is not possible to predict the outcome or the ultimate impact on our RLEC
operations or our edge-out services. We are also 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. Pending further clarification and guidance from the
FCC, we may enter into good faith discussions with SBC and BellSouth on
amendments to these provisions of our interconnection agreements. 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
professional sales people. We market our consumer services primarily through
our professional 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.

    As of June 30, 2005, we have incurred approximately $1.8 million in
professional service fees and other expenses related to the registration
statement filed by Madison River Communications Corp. and our new credit
facility.  This amount is included in other current assets in our condensed
consolidated balance sheet.  With the completion of our new credit facility,
a portion of these fees and expenses will be capitalized as debt issuance
costs and, together with other fees and expenses we have incurred related to
the new credit facility, will be amortized over seven years, the life of the
new credit agreement.

    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 RLEC operations use straight-line rates approved
by the public utility commissions in the states where we have regulated
telephone plants in service. In our unregulated RLEC operations and in our
edge-out services, telephone plant and equipment is depreciated over lives,
determined according to the class of the asset, ranging from three years to
thirty-three years.

    We have seen a decline in recent quarters in our depreciation expense as
a result of certain asset classes becoming fully depreciated. As a result of
damages incurred in our Alabama rural telephone company related to Hurricane
Ivan,


                                      16

<PAGE>


we made capital expenditures of approximately $2.6 million with substantially
all of these expenditures being made in the fourth quarter of 2004. We
received authorization from the Alabama Public Service Commission to
accelerate depreciation of these capital expenditures completely in the
fourth quarter of 2004. Beyond this one-time 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. 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.

Results of Operations
---------------------

Six Months ended June 30, 2005 compared to Six Months ended June 30, 2004
-------------------------------------------------------------------------

    Revenues

    Total revenues for the six months ended June 30, 2005 were $95.6 million,
a decrease of $0.8 million, or 0.8%, from $96.4 million for the six months
ended June 30, 2004. Revenues in the RLEC operations were $90.3 million in
the six months ended June 30, 2005 and $90.2 million in the six months ended
June 30, 2004, an increase of $0.1 million, or 0.1%. In our edge-out
services, revenues decreased $0.9 million, or 13.4%, to $5.3 million in the
first six months of 2005 compared to $6.2 million in the first six months of
2004.

    For the six months ended June 30, 2005, our RLEC operations and edge-out
services provided approximately 94.4% and 5.6%, respectively, of our
revenues. Comparatively, for the year ended December 31, 2004, our RLEC
operations provided 93.9% of our revenues and our edge-out services provided
6.1% 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 73.7% and 74.9% for the six months ended
June 30, 2005 and 2004, 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, were approximately 65.5% and 67.1%
of total revenues for the six months ended June 30, 2005 and 2004,
respectively.

    Local service revenues in the first six months of 2005 were $62.7
million, a decrease of $2.0 million, or 3.1%, from local service revenues of
$64.7 million in the first six months of 2004.  The decrease in local service
revenues is attributed primarily to lower end user revenues and lower network
access revenues as the result of a decrease in the number of voice access
lines in service.  Our RLEC operations served 182,004 voice access lines at
June 30, 2005.  This is compared to 185,331 voice access lines in service at
June 30, 2004 and represents a decrease of 3,327 lines or 1.8%.  The decrease
in local service revenues from the decrease in the number of voice access
lines was partially offset by the 3,587 voice access lines acquired on April
30, 2005 as part of the acquisition of two exchanges in North Carolina.  In
addition, in the first six months of 2004, network access revenues benefited
from certain non-recurring revenues from wireless settlements.  No comparable
amounts were recognized in the second quarter of 2005.

    Long Distance Services.    Long distance revenues in the first six months
of 2005 were approximately $7.8 million and in the first six months of 2004
were $7.5 million, an increase of $0.3 million, or 4.2%.  The increase is
attributed primarily to the increase in the number of long distance accounts
in service, including the addition of 2,493 long distance accounts from our
acquisition of two exchanges in North Carolina.

    Internet and Enhanced Data Services.    Revenues from Internet and
enhanced data services increased $1.9 million, or 19.7% to $11.7 million in
the first six months of 2005 compared to $9.8 million in the first six months
of 2004. The increase in revenues is attributable primarily to the increase
in the number of DSL connections served in our RLEC operations. At June 30,
2005, our RLEC operations served 42,827 DSL connections compared to 34,254 at
June 30, 2004, an increase of 8,573 connections, or 25.0%.

    Edge-Out Services.    Revenues from our edge-out services in the first
six months of 2005 were $5.3 million, a decrease of approximately $0.9
million, or 13.4%, from revenues of $6.2 million in the first six months of
2004. The decrease was attributable primarily to a $0.6 million decrease in
local service revenues as the result of a decrease in the number of
connections served. At June 30, 2005 and 2004, our edge-out services served
approximately 11,812 and 14,012 voice access lines, respectively,
representing a 15.7% decrease.  Most of the decrease in voice access lines
came from the loss of a single customer in the third quarter of 2004.  In
addition, revenues from enhanced data services provided in our edge-out
services decreased $0.1 million, or 11.5%, in the first six months of 2005
compared to the first six months of 2004 as a result of a decrease in the
number of high speed data connections in service. At June 30, 2005, our edge-
out services served 653 connections compared to 675 connections at June 30,
2004, a decrease of 22 connections or 3.3%. Revenues from transport services
were approximately $1.1 million in the first six months of 2005 and $1.3


                                      17

<PAGE>


million in the first six months of 2004, a decrease of $0.2 million. The
decrease is attributed primarily to a decrease in fiber transport customers.
We have found the fiber transport business to be extremely competitive and we
are not actively expanding this line of business at this time. The main value
being derived from our fiber optic network is through support for our dial-
up, DSL and high-speed access services which require the use of our fiber
optic network to connect to the Internet. Miscellaneous telecommunications
revenues in our edge-out services increased $0.1 million in the first six
months of 2005 when compared to the first six months of 2004.

    Miscellaneous Telecommunications Revenues.    Miscellaneous
telecommunications revenues were $8.1 million in the first six months of
2005, a decrease of $0.1 million, or 1.9%, compared to miscellaneous
telecommunications revenues of $8.2 million in the first six months of 2004.
The decrease in miscellaneous telecommunications revenues in the first six
months of 2005 compared to the first six months of 2004 is attributed
primarily to a decrease in revenues from a special construction project
partially offset by a reduction in uncollectible expenses, which are included
in miscellaneous telecommunications revenues.

    Operating Expenses

    Total operating expenses decreased approximately $5.5 million from $69.7
million, or 72.4% of total revenues in the first six months of 2004, to $64.2
million, or 67.1% of total revenues in the first six months of 2005. The
decrease is attributable primarily to a decrease of $4.1 million in
depreciation and amortization expenses and a $1.8 million decrease in long-
term incentive plan expenses in the first six months of 2005 compared to the
same period in 2004. The decrease in depreciation and amortization expenses
is largely due to certain classes of assets becoming fully depreciated.  The
decrease in long-term incentive plan expenses is attributed primarily to a
significant reduction in the amount of new grants being made in recent
quarters.

    Cost of services and sales (exclusive of depreciation and amortization),
as a percentage of total revenues, increased to 28.6% in the first six months
of 2005 from 27.9% in the first six months of 2004, and selling, general and
administrative expenses, as a percentage of total revenues, decreased from
20.8% in the first six months of 2004 to 19.0% in the first six months of
2005. Depreciation and amortization expenses, as a percentage of total
revenues, decreased from 23.7% in the first six months of 2004 to 19.6% in
the first six months of 2005.

    RLEC Operations Operating Expenses.    In the RLEC operations, operating
expenses in the six months ended June 30, 2005 were $53.9 million, a decrease
of $4.5 million, or 7.7%, from operating expenses of $58.4 million in the six
months ended June 30, 2004. Depreciation and amortization expense in the
first six months of 2005 was $13.6 million, a decrease of $2.9 million, or
17.9%, from depreciation and amortization expense of $16.5 million in the
first six months of 2004.  The decrease was attributable to certain classes
of assets becoming fully depreciated.  Cost of services and sales (exclusive
of depreciation and amortization) in the RLEC operations were approximately
$23.7 million in the first six months of 2005 and in the first six months of
2004.  In cost of services and sales, increases related to additional
expenses for storm damage restoration in Alabama and higher access expenses
from increased long distance minutes were offset by decreases in long-term
incentive plan expenses, lower material and labor costs related to less
activity on a special construction project and a reduction in expenses for
DSL modems which are expensed at the time the DSL connection is placed in
service. In the first six months of 2005, the number of DSL connections in
service increased by 3,265 connections compared to an increase of 10,073
connections in the first six months of 2004.  Selling, general and
administrative expenses decreased approximately $1.5 million, or 8.2%, to
$16.7 million in the first six months of 2005 from $18.2 million in the first
six months of 2004, attributed primarily to a $1.5 million decrease in long-
term incentive plan expenses.

    Edge-Out Services Operating Expenses.    Operating expenses in our edge-
out services decreased approximately $1.0 million from $11.3 million in the
first six months of 2004 to $10.3 million in the first six months of 2005,
attributable primarily to a decrease in depreciation and amortization
expense.  Depreciation and amortization expense decreased $1.2 million, or
18.6%, to $5.1 million in the first six months of 2005 from $6.3 million in
the first six months of 2004. The decrease in depreciation expenses is
primarily attributable to certain assets becoming fully depreciated.  Cost of
services and sales (exclusive of depreciation and amortization) increased
approximately $0.5 million to $3.6 million in the first six months of 2005
from $3.1 million in the first six months of 2004.  The increase is largely
due to nonrecurring settlements from several disputes arising out of
interconnection agreements that totaled approximately $0.6 million that
reduced our cost of services and sales in the first six months of 2004.  No
comparable settlements were recognized in the first six months of 2005.
Selling, general and administrative expenses decreased $0.4 million to $1.5
million in the first six months of 2005 from $1.9 million in the first six
months of 2004.

    Net Operating Income

    Net operating income increased approximately $4.7 million from $26.7
million, or 27.7% of total revenues in the first six months of 2004 to $31.4
million, or 32.9% of total revenues in the first six months of 2005. The
increase is attributable primarily to the decrease in depreciation and
amortization expense and long-term incentive plan expenses in both the RLEC
operations and the edge-out services. Net operating income in the RLEC
operations increased $4.6 million, or 14.4%, to $36.4 million in the first
six months of 2005 from $31.8 million in the first six months of 2004.


                                      18

<PAGE>


For the edge-out services, the net operating loss improved $0.1 million to
$5.0 million in the first six months of 2005 from $5.1 million in the first
six months of 2004.

    Interest Expense

    Interest expense decreased $1.8 million, or 5.8% to $28.5 million, or
29.9% of total revenues, in the first six months of 2005 from $30.3 million,
or 31.4% of total revenues, in the first six months of 2004. Lower weighted
average outstanding balances and lower weighted average interest rates on
long-term debt with the RTFC resulted in a decrease of approximately $1.7
million in interest expense. Other interest expense, related primarily to
certain income tax-related exposures, decreased approximately $0.1 million in
the first six months of 2005.

    Other Income

    Other income in the first six months of 2005 was $2.0 million, an
increase of $0.4 million, or 27.6%, from other income of $1.6 million in the
first six months of 2004. Other income represented 2.1% and 1.7% of total
revenues in the first six months of 2005 and 2004, respectively. The increase
is due to an increase in interest income as a result of higher cash balances
and an increase in accruals for dividends from the Rural Telephone Bank.

    Income Tax Expense

    Income tax expense was $2.3 million in the six months ended June 30, 2005
compared to an income tax expense of $1.7 million in the six months ended
June 30, 2004, a change of $0.6 million.  The change is attributed primarily
to an increase in our pre-tax income in the first six months of 2005 compared
to the first six months of 2004.  In the first six months of 2005, our pre-
tax income was approximately $4.9 million compared to a pre-tax loss of $2.0
million in the first six months of 2004, an improvement of $6.9 million.  In
addition, in the first quarter of 2005, we recorded a one-time accrual of
approximately $0.9 million for state income tax expense related to a proposed
audit adjustment from an audit by the Alabama Department of Revenue.  We have
appealed this finding.  We also accrued approximately $0.1 million for
potential interest expense related to this income tax assessment in the first
quarter of 2005.  In the second quarter of 2004, the Department of Justice,
on behalf of the Internal Revenue Service, filed suit against two of our
subsidiaries, Gulf Coast Services, Inc. and Coastal Utilities, Inc., claiming
that certain refunds they had received were erroneous refunds that should be
returned.  As a result of these suits, we accrued approximately $2.0 million
in income tax expense and $0.4 million in interest expense during the second
quarter of 2004 related to these claims.  We are vigorously defending
ourselves against these suits.  However, at this time, we are uncertain as to
the outcome of the appeal of the adjustment from the audit by the Alabama
Department of Revenue or the suits filed by the Department of Justice.

    Net Income (Loss)

    We reported net income of $2.7 million in the first six months of 2005,
or 2.8% of total revenues.  Our net income of $2.7 million was an improvement
of $6.5 million from our net loss of $3.8 million, or 3.9% of total revenues,
in the first six months of 2004, as a result of the factors discussed above.
The RLEC operations reported net income of $14.9 million in the first six
months of 2005 compared to net income of $14.5 million in the first six
months of 2004, an increase of $0.4 million, or 2.7%. For the six months
ended June 30, 2005 and 2004, our edge-out services reported net losses of
$12.2 million and $18.3 million, respectively, an improvement of $6.1
million.

Second Quarter Ended June 30, 2005 compared to Second Quarter Ended June 30,
2004
-----------------------------------------------------------------------------

    Revenues

    Total revenues for the second quarter ended June 30, 2005 were $47.7
million, a decrease of $0.1 million, or 0.2%, from $47.8 million for the
second quarter ended June 30, 2004. Revenues in the RLEC operations were
$45.1 million in the second quarter ended June 30, 2005 and $44.8 million in
the second quarter ended June 30, 2004, an increase of $0.3 million, or 0.7%.
In our edge-out services, revenues decreased $0.4 million, or 13.8%, to $2.6
million in the second quarter of 2005 compared to $3.0 million in the second
quarter of 2004.

    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 73.9% and 74.6% for the second quarter
ended June 30, 2005 and 2004, 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, were approximately 65.6% and 66.9%
of total revenues for the second quarter ended June 30, 2005 and 2004,
respectively.

    Local service revenues in the second quarter of 2005 were $31.3 million,
a decrease of $0.7 million, or 2.2%, from local service revenues of $32.0
million in the second quarter of 2004.  The decrease in local service
revenues is attributed primarily to lower end user revenues and lower network
access revenues as the result of a decrease in the



                                      19

<PAGE>


number of voice access lines in service.  Voice access lines in service
decreased by 3,327 lines or 1.8% in the second quarter of 2005 compared to
the second quarter of 2004.  The decrease in local service revenues from the
decrease in the number of voice access lines was partially offset by the
3,587 voice access lines acquired on April 30, 2005 as part of the
acquisition of two exchanges in North Carolina.  In addition, in the second
quarter of 2004, network access revenues benefited from certain non-recurring
revenues from wireless settlements.  No comparable amounts were recognized in
the second quarter of 2005.

    Long Distance Services.    Long distance revenues in the second quarter
of 2005 were approximately $4.0 million and in the second quarter of 2004
were approximately $3.7 million, an increase of $0.3 million, or 7.2%.  The
increase is attributed primarily to the increase in the number of long
distance accounts in service, including the addition of 2,493 long distance
accounts from our acquisition of two exchanges in North Carolina.

    Internet and Enhanced Data Services.    Revenues from Internet and
enhanced data services increased $1.0 million, or 20.2% to $5.9 million in
the second quarter of 2005 compared to $4.9 million in the second quarter of
2004. The increase in revenues is attributable to the increase in the number
of DSL connections served in our RLEC operations. DSL connections in service
increased by 8,573 connections, or 25.0% in the second quarter of 2005
compared to the second quarter of 2004.

    Edge-Out Services.    Revenues from our edge-out services in the second
of 2005 were $2.6 million, a decrease of approximately $0.4 million, or
13.8%, from revenues of $3.0 million in the second quarter of 2004. The
decrease was attributable primarily to a $0.3 million decrease in local
service revenues as the result of a decrease in the number of connections
served. At June 30, 2005 and 2004, our edge-out services served approximately
11,812 and 14,012 voice access lines, respectively, representing a 15.7%
decrease.  Most of the decrease in voice access lines came from the loss of a
single customer in the third quarter of 2004.  In addition, revenues from
enhanced data services provided in our edge-out services decreased $0.1
million, or 11.6%, in the second quarter of 2005 compared to the second
quarter of 2004 as a result of a decrease in the number of high speed data
connections in service. Revenues from transport services decreased of $0.1
million.

    Miscellaneous Telecommunications Revenues.    Miscellaneous
telecommunications revenues were $3.9 million in the second quarter of 2005,
a decrease of $0.2 million, or 5.4%, compared to miscellaneous
telecommunications revenues of $4.1 million in the second quarter of 2004.
The decrease in miscellaneous telecommunications revenues is attributed
primarily to a decrease in revenues from a special construction project
partially offset by a reduction in uncollectible expenses, which are included
in miscellaneous telecommunications revenues.

    Operating Expenses

    Total operating expenses decreased approximately $2.4 million from $34.0
million, or 71.2% of total revenues in the second quarter of 2004, to $31.6
million, or 66.3% of total revenues in the second quarter of 2005. The
decrease is attributable primarily to a decrease of $1.3 million in
depreciation and amortization expense and a $1.3 million decrease in long-
term incentive plan expenses in the second quarter of 2005 compared to the
second quarter of 2004. The decrease in depreciation and amortization expense
is largely due to certain assets becoming fully depreciated.  The decrease in
long-term incentive plan expenses is attributed primarily to a significant
reduction in the amount of new grants being made in recent quarters.

    Cost of services and sales (exclusive of depreciation and amortization),
as a percentage of total revenues, increased to 28.3% in the second quarter
of 2005 from 28.1% in the second quarter of 2004, and selling, general and
administrative expenses, as a percentage of total revenues, decreased from
20.7% in the second quarter of 2004 to 18.2% in the second quarter of 2005.
Depreciation and amortization expenses, as a percentage of total revenues,
decreased from 22.4% in the second quarter of 2004 to 19.8% in the second
quarter of 2005.

    RLEC Operations Operating Expenses.    In the RLEC operations, operating
expenses in the quarter ended June 30, 2005 were $26.5 million, a decrease of
$2.2 million, or 7.5%, from operating expenses of $28.7 million in the
quarter ended June 30, 2004. Depreciation and amortization expense in the
second quarter of 2005 was $6.8 million, a decrease of $0.9 million, or
11.1%, from depreciation and amortization expense of $7.7 million in the
second quarter of 2004.  The decrease was attributable to certain assets
becoming fully depreciated.  Cost of services and sales (exclusive of
depreciation and amortization) in the RLEC operations were approximately
$11.8 million in the second quarter of 2005 compared to $12.1 million in the
second quarter of 2004, a decrease of $0.3 million, or 2.9%.  The decrease in
cost of services and sales is attributed primarily to lower material and
labor costs related to less activity on a special construction project and a
reduction in expenses for DSL modems which are expensed at the time the DSL
connection is placed in service. In the second quarter of 2005, the number of
DSL connections in service increased by 970 connections compared to an
increase of 3,608 connections in the second quarter of 2004.  This decrease
was partially offset by an increase in access expenses.  Selling, general and
administrative expenses decreased approximately $1.0 million, or 10.8%, to
$7.9 million in the second quarter of 2005 from $8.9 million in the second
quarter of 2004.  The decrease is attributed primarily to a decrease in long-
term incentive plan expenses.


                                      20

<PAGE>


    Edge-Out Services Operating Expenses.    Operating expenses in our edge-
out services decreased approximately $0.2 million from $5.3 million in the
second quarter of 2004 to $5.1 million in the second quarter of 2005,
attributable primarily to a decrease in depreciation and amortization
expense.  Depreciation and amortization expense decreased $0.4 million, or
14.2%, to $2.6 million in the second quarter of 2005 from $3.0 million in the
second quarter of 2004. The decrease in depreciation expenses is primarily
attributable to certain assets becoming fully depreciated.  Cost of services
and sales (exclusive of depreciation and amortization) increased
approximately $0.5 million to $1.8 million in the second quarter of 2005 from
$1.3 million in the second quarter of 2004.  The increase is largely due to
nonrecurring settlements from several disputes arising out of interconnection
agreements that totaled approximately $0.6 million that reduced our cost of
services and sales in the second quarter of 2004.  No comparable settlements
were recognized in the second quarter of 2005.  Selling, general and
administrative expenses decreased $0.2 million to $0.8 million in the second
quarter of 2005 from $1.0 million in the second quarter of 2004 and is
attributed primarily to a decrease in long-term incentive plan expenses.

    Net Operating Income

    Net operating income increased approximately $2.3 million from $13.8
million, or 28.8% of total revenues in the second quarter of 2004 to $16.1
million, or 33.7% of total revenues in the second quarter of 2005. The
increase is attributable primarily to the decrease in depreciation and
amortization expense and long-term incentive plan expenses in both the RLEC
operations and the edge-out services. Net operating income in the RLEC
operations increased $2.5 million, or 15.5%, to $18.6 million in the second
quarter of 2005 from $16.1 million in the second quarter of 2004. For the
edge-out services, the net operating loss was $2.5 million in the second
quarter of 2005 and $2.4 million in the second quarter of 2004.

    Interest Expense

    Interest expense in the second quarter of 2005 was $14.1 million compared
to $15.1 million in the second quarter of 2004, a decrease of $1.0 million,
or 6.5%. Interest expense was 29.6% of total revenues in the second quarter
of 2005 and 31.6% of total revenues in the second quarter of 2004. Lower
weighted average outstanding balances and lower weighted average interest
rates on long-term debt with the RTFC resulted in a decrease of approximately
$0.9 million in interest expense.

    Other Income

    Other income in the second quarter of 2005 was $1.0 million, an increase
of $0.3 million, or 38.9%, from other income of $0.7 million in the second
quarter of 2004. Other income represented 2.1% and 1.5% of total revenues in
the second quarter of 2005 and 2004, respectively. The increase is due to an
increase in interest income as a result of higher cash balances and an
increase in accruals for dividends from the Rural Telephone Bank.

    Income Tax Expense

    Income tax expense was $0.9 million in the quarter ended June 30, 2005
compared to income tax expense of $1.9 million in the quarter ended June 30,
2004, a change of $1.0 million.  In the second quarter of 2004, the
Department of Justice, on behalf of the Internal Revenue Service, filed suit
against two of our subsidiaries, Gulf Coast Services, Inc. and Coastal
Utilities, Inc., claiming that certain refunds they had received were
erroneous refunds that should be returned.  As a result of these suits, we
accrued approximately $2.0 million in income tax expense in the second
quarter of 2004.  No comparable accruals were made in the second quarter of
2005.  Partially offsetting this one-time accrual is an increase in our pre-
tax income.  In the second quarter of 2005, our pre-tax income was
approximately $3.0 million compared to a pre-tax loss of $0.6 million in the
second quarter of 2004, an improvement of $3.6 million.

    Net Income (Loss)

    We reported net income of $2.1 million in the second quarter of 2005, or
4.3% of total revenues.  Our net income of $2.1 million was an improvement of
$4.6 million from our net loss of $2.5 million, or 5.2% of total revenues, in
the second quarter of 2004, as a result of the factors discussed above. The
RLEC operations reported net income of $6.4 million in the second quarter of
2005 compared to net income of $6.2 million in the second quarter of 2004, an
increase of $0.2 million, or 2.5%. For the quarters ended June 30, 2005 and
2004, our edge-out services reported net losses of $4.3 million and $8.7
million, respectively, an improvement of $4.4 million.


Liquidity and Capital Resources
-------------------------------

    We are a holding company with no business operations of our own. Our only
significant assets are the capital stock/member interests of our
subsidiaries. Accordingly, our only sources of cash to pay our obligations
are cash on hand and distributions from our subsidiaries from 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/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


                                      21

<PAGE>


be permitted to pay such dividend or distribution under the terms of their
credit facilities, their contractual obligations or the laws of their
jurisdiction of incorporation.

    At June 30, 2005, we had total liquidity of $74.4 million, which
consisted of cash and cash equivalents of $33.4 million and available
borrowings under our lines of credit with the RTFC of $41.0 million.  As
discussed further below, on July 29, 2005, we completed a new $550.0 million
credit facility with a syndicate of banks consisting of a seven-year, $475.0
million term loan and a seven-year, $75.0 million revolving line of credit
provided by the RTFC. The $75.0 million revolver was undrawn at closing and
is fully available to us for general business purposes.

    At June 30, 2005, we had positive working capital of approximately $11.2
million compared to a working capital deficit of $7.8 million at June 30,
2004, a change of $19.0 million. The change is attributable primarily to an
increase in our cash balance of $7.5 million and a decrease of $8.7 million
in our accounts payable and accrued expenses at June 30, 2005 compared to
June 30, 2004. We believe our working capital position has been enhanced by
our reduced schedule of principal payments as the result of the credit
facility amendment with the RTFC entered into in July 2003.  In addition, we
have remained focused on implementing and maintaining operating improvements
and efficiencies in our business processes to reduce our operating expenses
as well as the execution of a disciplined approach to evaluating and making
capital expenditures.

    Operating Activities. For the six months ended June 30, 2005 and 2004, we
generated cash from operating activities of $14.2 million and $19.0 million,
respectively, a decrease of $4.8 million.  The decrease is attributed
primarily to a $2.8 million increase in state and federal income tax
payments, approximately $1.6 million in payments related to our registration
statement filing and a $0.5 million increase in insurance premiums as a
result of the timing of payment of associated premiums.  In the first six
months of 2005, changes in accounts payable and accrued expenses reflected a
use of cash of $2.4 million whereas in the first six months of 2004, changes
in accounts payable and accrued expenses resulted in a source of cash of $0.3
million.  In addition, in the first six months of 2005, we paid certain
premiums related to our property and casualty insurance policies at renewal
whereas in the first six months of 2004, these premiums were deferred and
paid over the corresponding months.

    Investing Activities. For the six months ended June 30, 2005, net cash
used for investing activities was $10.6 million and consisted of $4.9 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. In addition, in the
first six months of 2005, we purchased two exchanges located in North
Carolina for approximately $6.3 million in cash.  For the six months ended
June 30, 2004, net cash used in investing activities was $6.9 million and
consisted primarily of $8.3 million used for the purchase of telephone plant
and equipment partially offset by $1.4 million in cash received from the
redemption of subordinated capital certificates by the RTFC and $0.1 million
from changes in other assets.

    Financing Activities. For the six months ended June 30, 2005, net cash
used for financing activities consisted of $4.7 million used to retire long-
term debt.  For the six months ended June 30, 2004, net cash used for
financing activities included $12.3 million used to retire long-term debt and
$2.1 million for the repurchase of a portion of our 13.25% senior notes in
the open market.


Long-Term Debt and Revolving Credit Facilities

    As of June 30, 2005, our secured loan facilities consisted of $417.2
million in term loans outstanding and $41.0 million in fully available
revolving lines of credit.  The loan facilities were provided by the RTFC and
were primarily with the Company's indirect wholly-owned subsidiary, MRLTDF,
under a loan agreement that was scheduled to mature in November 2016.  In
total, as of June 30, 2005, our weighted average interest rate on all RTFC
term debt was 7.1%.

    On July 29, 2005, we entered into a new senior secured credit facility
with a syndicate of banks providing a seven-year, $475.0 million term loan.
In addition, as part of the new credit agreement, the RTFC provided a seven-
year, $75.0 million revolving line of credit that was undrawn at closing and
remains fully available.  We used proceeds from the term loan of
approximately $375.0 million, together with the RTFC's redemption of the
$42.2 million in RTFC subordinated stock certificates we held, to repay the
$417.2 million in term loans outstanding to the RTFC.  In addition, the RTFC
cancelled the two lines of credit at MRLTDF and Coastal Utilities that
previously existed.  We also paid the RTFC approximately $4.8 million for
accrued interest on the term loans and $0.8 million for a fee for early
repayment of certain fixed rate term loans which we recognized as loss on
extinguishment of debt.

    With the remaining proceeds of the new term loan and cash we had on hand,
we will voluntarily redeem $102.0 million of our outstanding senior notes.
After the transaction closed, we issued a notice to our senior noteholders of
our intent to voluntarily redeem $102.0 million in senior notes on August 29,
2005 for a redemption price of 106.625% of par value plus accrued interest.
In addition, at the closing of the new credit facility, we paid approximately
$2.9 million in origination fees for the new term loan and the new revolving
line of credit and $0.5 million for other loan related expenses, which
represented a portion of our fees and expenses related to this transaction.


                                      22

<PAGE>


    Our new term loan bears variable interest, at our option, at either (a) a
base rate, as defined in the credit agreement, plus 1.5% or (b) a London
interbank offered rate ("LIBOR") plus 2.5%.  Interest is payable quarterly.
Although our new term loan initially bore interest at the base rate option,
we converted the interest rate to the LIBOR rate option effective August 3,
2005. Our interest rate on the term loan as of August 4, 2005 was 6.04%.
The new credit agreement requires 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 minimum period of two years from July 29,
2005.  We are currently evaluating hedging options with various banks and
expect to enter into hedging agreements within the allowed time period.

    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 (8.05%
at August 4, 2005).  The line of credit remains undrawn and is fully
available to us for general business purposes.

    Our new 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 with (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 repay 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.

    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.

   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.

    We have $198.0 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.  Using a portion of the proceeds from the new credit facility
and a portion of our cash on hand, we will redeem $102.0 million of these
senior notes at a redemption price of 106.625% plus accrued interest on
August 29, 2005.  After this redemption, we will have $96.0 million in senior
notes outstanding.  As discussed above, under our new credit agreement, we
have the ability to repurchase additional senior notes on the open market or
voluntarily redeem senior notes.

    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 June 30, 2005, 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 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


                                      23

<PAGE>


terms of the agreement, the Coastal shareholders exchanged certain of their
equity interests in Coastal Communications, Inc. for equity in MRTC and the
notes payable from MRTC that were repaid in December 2004.

    Coastal Communications, Inc. redeemed 30 shares of 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 June 2003 and July 2004
and, in each case, Coastal Communications, Inc. redeemed the shares for
approximately $1.0 million shortly thereafter. The Coastal shareholders, who
continue to hold 90 shares of Series A stock, put an additional 30 shares to
Coastal Communications, Inc. effective July 31, 2005 which we intend to
redeem in August 2005.  Under the terms of the agreement, we may at any time
require the Coastal shareholders to sell their shares of Series A stock to us
for a purchase price of $33,333.33 per share.

Deferred Income Tax Contingency

    During 2002, we amended certain prior year income tax returns that
resulted in refunds to the Company 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, 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 $0.1 million quarterly 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 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 erroneous 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.

    During 2004, the Alabama Department of Revenue performed an audit of the
2002 and 2001 combined state income tax returns filed by our subsidiary, Gulf
Coast Services, Inc., with the State of Alabama.  For 2002, as permitted
under Alabama's income tax regulations, Gulf Coast Services, Inc. filed a
combined return which included its consolidated financial results as well as
the financial results for certain other subsidiaries of the Company with
Alabama operations.  In March, 2005, the Alabama Department of Revenue issued
a Notice of Preliminary Assessment, or the Alabama Notice, based on its audit
findings in which it contends that we lacked the necessary nexus to file our
2002 state income tax return on a combined basis.  The Alabama Notice would
not result in any additional taxes being due for 2002 due to offsetting
adjustments.  However, if this Alabama Notice is allowed to stand after
appeals, our state income tax liability to Alabama will increase for tax
years subsequent to 2002.  For 2003, we filed a combined return using the
same basis as 2002 and accordingly, this return would be amended to reflect
the findings in the Alabama Notice if our appeals are unsuccessful.  As such,
upon receiving the Alabama Notice in the first quarter of 2005, we accrued a
contingent state income tax liability of approximately $0.9 million to
recognize the additional income tax expense for 2003 that would be due if a
combined return was not filed.  We also accrued approximately $0.1 million
for potential interest expense related to this income tax assessment.  For
2004, in establishing our liability for state income taxes, we did not
recognize a benefit from the filing of a combined return which resulted in an
accrual of state income taxes of approximately $1.4 million.

    We believe our position for filing the combined returns is appropriate
and intend to appeal this finding.  Accordingly, we filed a Request for
Review with the Alabama Department of Revenue in April 2005.  However, at
this time, we are uncertain as to the outcome of this matter.  If we are not
successful, we may be required to pay the amount accrued as a contingent
income tax liability plus the accrued interest.


                                      24

<PAGE>


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 our $75.0 million undrawn revolving line
of credit with the RTFC.

    As discussed above, on July 29, 2005, we completed a new $550.0 million
credit facility with a syndicate of banks consisting of a $475.0 million term
loan and a $75.0 million revolving line of credit.  We believe that this
transaction will significantly improve our liquidity going forward, primarily
from a reduction in our interest expense.  As of August 4, 2005, our term
loan bears interest at 6.04%.  We intend to enter into one or more hedging
agreements with banks to effectively fix the interest rate on a portion of
our new term loan.  Management is currently reviewing various options and
strategies and has until January 29, 2006 to enter into hedging agreements
that meet the requirements of the new credit agreement.

    Proceeds from the $475.0 million term loan, combined with the redemption
of our $42.2 million of RTFC subordinated stock certificates, were used to
retire our $417.2 million in outstanding term debt with the RTFC which bore a
weighted average interest rate of 7.1% at June 30, 2005.  In addition, on
August 29, 2005, we intend to redeem approximately $102.0 million of our
outstanding 13.25% senior notes.  By fully retiring our outstanding debt with
the RTFC and the subsequent redemption of our senior notes, our weighted
average interest rate on our long-term debt will decrease.  The cash we
require to service the interest on our long-term debt will decrease
significantly from current levels.  The amount of this decrease will depend
upon the variability in interest rates and the terms of any hedging
agreements that we become a party to.  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 contain any scheduled principal amortization of the new term loan.  We do
have requirements for certain mandatory prepayments of the term loan,
including a requirement that 50% of our net excess cash flow be used to repay
the term loan.  Our net excess cash flow is our gross excess cash flow, as
defined in the credit agreement, less payments made to repay other long-term
debt and in certain instances, payments of dividends.  In the next twelve
months, we believe that we will use 100% of our gross excess cash flow to
repay long-term debt, including the senior notes, and therefore we do not
anticipate making any mandatory prepayments of the new term loan with our net
excess cash flow.

    As we repay our higher cost long-term debt and our interest expense
decreases, we expect our cash paid for income taxes will increase as a
result.

    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 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 that our cash balance may increase or decrease from
period to period.

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

  * repayments of our long-term debt, including open market purchases of our
    senior notes;
  * interest payments on our long-term debt;
  * payment of income taxes;
  * the maintenance and growth of our telephone plant and network
    infrastructure;
  * funding redemptions of Series A stock put to CCI 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.

    We currently estimate that capital expenditures in 2005 will be
approximately $13.3 million.  For 2004, our capital expenditures were
approximately $14.6 million, which included approximately $2.6 million in
capital expenditures to replace certain telephone and plant equipment,
primarily our transmission and distribution facilities used to serve the
coastal areas of our RLEC operations in Alabama, as a result of damages from
Hurricane Ivan.  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 2004, 2003 and
2002 was significantly less than we have incurred in years prior to 2002.
This is a result of several factors. First, we invested a significant amount
in capital


                                      25

<PAGE>


additions during 2000 and 2001 to build-out and enhance our telephone plant
and network facilities in our markets. Absent 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. A large portion of our capital expenditures in
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. We recently entered into
an agreement with the National Rural Telecommunications Cooperative that will
allow us to offer DIRECTV satellite television service to our customers. This
agreement will not require us to make any significant capital expenditures to
provide this service.

    Effective January 1, 2005, we converted from being treated as a
partnership for federal and state income tax purposes to a C corporation.
Accordingly, rather than passing through our income, losses and credits to
MRTC, we will begin filing a consolidated federal income tax return with our
subsidiaries pursuant to tax sharing agreements we will enter into with those
subsidiaries.  In addition, we will begin filing the appropriate state income
tax returns.  Prior to this conversion, our corporate subsidiary, MRH, filed
a consolidated federal income tax return on behalf of itself and its
corporate subsidiaries.  We do not expect this conversion will have a
material impact on financial position, results of operations or cash flows
though we do anticipate that the amount of cash paid for income taxes will
increase as the result of the decrease in our interest expense from our debt
refinancing.

    Based on our business plan, we currently project that cash and cash
equivalents on hand, available borrowings under our $75.0 million 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 outcome of current litigation with the Department of Justice
    regarding the claim that two of our subsidiaries received erroneous
    refunds;
  * the extent to which we consummate any significant additional
    acquisitions;
  * our success in maintaining a net positive cash flow in our edge-out
    operations;
  * the demand for our services in our existing markets;
  * the increase in competitive services in our existing markets for voice
    and broadband services;
  * our ability to acquire, maintain, develop, upgrade and integrate the
    necessary operating support systems and other back office systems; and
  * regulatory, technological and competitive developments.

    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
new 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 purchase all of their
member units at an amount equal to the fair market value of the units. We may
be required to fund this obligation of our parent company.


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 has not yet become effective. These 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


                                      26

<PAGE>


nor shall there by any sale of these 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.


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. These investments are limited primarily to U.S. Treasury agreement
and agency securities, certain time deposits and high quality repurchase
agreements and commercial paper. We do not invest in any derivative or
commodity type instruments. Accordingly, we are subject to minimal market
risk on our investments.

    After our debt refinancing on July 29, 2005, our outstanding long-term
debt consists of a $475.0 million term loan bearing a variable interest rate
(6.04% as of August 4, 2005) and $198.0 million of senior notes with a stated
fixed interest rate of 13.25%.  We intend to enter into hedging agreements
with one or more banks to fix the interest rate on a portion of our term loan
and we are currently reviewing our options.  We are uncertain at this time
what the timing or terms of the hedging agreements will be or the extent to
which we will hedge our term loan.  Therefore, until the hedging agreements
are in place, we are subject to interest rate market risk if interest rates
rise.  A one percent increase in interest rates would result in an increase
in our interest expense of approximately $4.8 million.  We are not subject to
interest rate market risk on our senior notes.


ITEM 4 - CONTROLS AND PROCEDURES
--------------------------------

(a) Disclosure Controls and Procedures

    Our management, with the participation of our Chairman and 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 Securities Exchange Act of
1934, as amended (the "Exchange Act")), as of the end of the period covered
by this report.  Based on such evaluation, the Chairman and Chief Executive
Officer and Chief Financial Officer have concluded that, as of the end of
such period, our disclosure controls and procedures are effective.


(b) Internal Control Over Financial Reporting

    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.

                                     27


<PAGE>

                                   Part II

Item 6.  EXHIBITS

  (a)  Exhibits

    Exhibit
    Number                            Description
    -------        ----------------------------------------------------------
     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:  August 4, 2005                 /s/  PAUL H. SUNU
                                      ---------------------------------------
                                      Name:  Paul H. Sunu
                                      Title:  Managing Director, Chief
                                              Financial Officer and Secretary



                                     28




<PAGE>


                                EXHIBIT INDEX

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

     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







                                      29

<PAGE>