Table of Contents





UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON,
DC 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,
2007
|  |                                                                                                                                     
|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934                                            

Commission File Number 0-3024

NEW ULM TELECOM, INC.(Exact Name of Registrant as Specified in Its
Charter)

|                                                                |  |                                      
|--------------------------------------------------------------- |  | -------------------------------------
|Minnesota                                                       |  | 41-0440990                           
|(State or Other Jurisdiction
 of Incorporation or Organization) |  | (I.R.S. Employer
 Identification No.)

27 North Minnesota Street
New Ulm, Minnesota 56073
(Address of Principal Executive Offices, Including Zip Code)

(507) 354-4111(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 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 o

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

|                          |                     |                        
|------------------------- | ------------------- | -----------------------
|Large Accelerated Filer o | Accelerated Filer x | Non-Accelerated Filer o

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

Indicate the
number of shares outstanding of each of the registrants classes of common
stock, as of August 8, 2007: 5,115,435 shares of common stock outstanding.





---

NEW ULM TELECOM, INC. AND SUBSIDIARIES
JUNE 30, 2007

|                              |         |                                                                                        |      
|----------------------------- | ------- | -------------------------------------------------------------------------------------- | -----
|PART I
 FINANCIAL INFORMATION |        
|                              |         |                                                                                        |      
|                              | Item 1  | Financial
 Statements                                                                  | 3-7  
|                              |         | Consolidated Balance Sheets                                                            | 3-4  
|                              |         | Consolidated Statements of Income                                                      | 5    
|                              |         | Consolidated Statements of Stockholders Equity                                        | 6    
|                              |         | Consolidated Statements of Cash Flows                                                  | 7    
|                              |         | Notes to Consolidated Financial Statements                                             | 8-13 
|                              | Item 2  | Managements Discussion and Analysis of Financial Condition and
 Results of Operations | 14-24
|                              | Item 3  | Quantitative and Qualitative Disclosures About Market Risk                             | 24   
|                              | Item 4  | Controls and Procedures                                                                | 25   
|                              |         |                                                                                        |      
|PART II OTHER INFORMATION     | 26-27  
|                              |         |                                                                                        |      
|                              | Item 1A | Risk Factors                                                                           | 26   
|                              |         |                                                                                        |      
|                              | Item 4  | Submission of Matters to a Vote of Security Holders                                    | 26-27
|                              |         |                                                                                        |      
|                              | Item 5  | Other Information                                                                      | 27   
|                              |         |                                                                                        |      
|                              | Item 6  | Exhibits                                                                               | 27   
|                              |         |                                                                                        |      
|SIGNATURES                    | 28     
|                              |         |                                                                                       
|INDEX TO EXHIBITS             | 29     

---

Table of Contents

NEW ULM TELECOM, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

|                                                                              |  |                |            |                     |   |            | 
|----------------------------------------------------------------------------- |  | -------------- | ---------- | ------------------- | - | ---------- | 
|                                                                              |  | June 30,
 2007 |            | December
 31,
 2006 |  
|                                                                              |  |                |            |                     |  
|                                                                              |  | (unaudited)    |            |                     |   |           
|CURRENT ASSETS                                                                |  |                |            |                     |   |            | 
|Cash and cash equivalents                                                     |  | $              | 11,167,964 |                     | $ | 30,457,707 | 
|Receivables, net of allowance for doubtful accounts
of $369,323 and
 $322,500 |  |                | 1,001,804  |                     |   | 1,337,367  | 
|Inventories                                                                   |  |                | 518,996    |                     |   | 239,707    | 
|Prepaid expenses                                                              |  |                | 146,161    |                     |   | 206,927    | 
|                                                                              |  |                |            |                     |   |            | 
|                                                                              |  |                | 12,834,925 |                     |   | 32,241,708 | 
|                                                                              |  |                |            |                     |   |            | 
|                                                                              |  |                |            |                     |   |            | 
|INVESTMENTS AND OTHER ASSETS                                                  |  |                |            |                     |   |            | 
|Investment in Hector Communications
Corporation                               |  |                | 19,429,238 |                     |   | 20,295,933 | 
|Goodwill and intangibles, net of
amortization                                 |  |                | 3,237,207  |                     |   | 3,238,233  | 
|Other                                                                         |  |                | 1,684,637  |                     |   | 1,572,902  | 
|                                                                              |  |                |            |                     |   |            | 
|                                                                              |  |                | 24,351,082 |                     |   | 25,107,068 | 
|                                                                              |  |                |            |                     |   |            | 
|                                                                              |  |                |            |                     |   |            | 
|PROPERTY, PLANT AND EQUIPMENT                                                 |  |                |            |                     |   |            | 
|Telecommunications plant                                                      |  |                | 61,052,174 |                     |   | 59,903,762 | 
|Other property and equipment                                                  |  |                | 3,075,074  |                     |   | 2,976,784  | 
|Video plant                                                                   |  |                | 2,636,516  |                     |   | 2,489,752  | 
|                                                                              |  |                |            |                     |   |            | 
|                                                                              |  |                | 66,763,764 |                     |   | 65,370,298 | 
|Less Accumulated Depreciation                                                 |  |                | 44,677,791 |                     |   | 42,663,233 | 
|                                                                              |  |                |            |                     |   |            | 
|                                                                              |  |                | 22,085,973 |                     |   | 22,707,065 | 
|                                                                              |  |                |            |                     |   |            | 
|                                                                              |  |                |            |                     |   |            | 
|TOTAL ASSETS                                                                  |  | $              | 59,271,980 |                     | $ | 80,055,841 | 
|                                                                              |  |                |            |                     |   |            | 

The accompanying notes are
an integral part of the financial statements.

3

---

Table of Contents

NEW ULM TELECOM, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (continued)

LIABILITIES AND STOCKHOLDERS EQUITY

|                                                                                                       |  |                |            |                     |   |            | 
|------------------------------------------------------------------------------------------------------ |  | -------------- | ---------- | ------------------- | - | ---------- | 
|                                                                                                       |  | June 30,
 2007 |            | December
 31,
 2006 |  
|                                                                                                       |  |                |            |                     |  
|                                                                                                       |  | (unaudited)    |            |                     |   |           
|CURRENT LIABILITIES                                                                                    |  |                |            |                     |   |            | 
|Current portion of long-term debt                                                                      |  | $              | 26,149     |                     | $ | 26,149     | 
|Accounts payable                                                                                       |  |                | 733,648    |                     |   | 294,756    | 
|Accrued income taxes                                                                                   |  |                | 163,887    |                     |   | 22,392,040 | 
|Other accrued taxes                                                                                    |  |                | 87,480     |                     |   | 76,828     | 
|Other accrued liabilities                                                                              |  |                | 652,614    |                     |   | 715,624    | 
|                                                                                                       |  |                |            |                     |   |            | 
|                                                                                                       |  |                | 1,663,778  |                     |   | 23,505,397 | 
|                                                                                                       |  |                |            |                     |   |            | 
|                                                                                                       |  |                |            |                     |   |            | 
|LONG-TERM DEBT, less current portion                                                                   |  |                | 63,177     |                     |   | 79,983     | 
|                                                                                                       |  |                |            |                     |   |            | 
|                                                                                                       |  |                |            |                     |   |            | 
|NON-CURRENT LIABILITIES                                                                                |  |                |            |                     |   |            | 
|Loan guarantee                                                                                         |  |                | 1,198,719  |                     |   | 2,478,474  | 
|Deferred income taxes                                                                                  |  |                | 3,405,994  |                     |   | 3,244,134  | 
|                                                                                                       |  |                |            |                     |   |            | 
|                                                                                                       |  |                | 4,604,713  |                     |   | 5,722,608  | 
|                                                                                                       |  |                |            |                     |   |            | 
|                                                                                                       |  |                |            |                     |   |            | 
|STOCKHOLDERS EQUITY                                                                                   |  |                |            |                     |   |            | 
|Preferred stock - $1.66 par value, 10,000,000 shares
authorized, no
 shares issued and outstanding     |  |                |           |                     |   |           | 
|Common stock - $1.66 par value, 90,000,000 shares
authorized,
 5,115,435 shares issued and outstanding |  |                | 8,525,725  |                     |   | 8,525,725  | 
|Retained earnings                                                                                      |  |                | 44,414,587 |                     |   | 42,222,128 | 
|                                                                                                       |  |                |            |                     |   |            | 
|                                                                                                       |  |                | 52,940,312 |                     |   | 50,747,853 | 
|                                                                                                       |  |                |            |                     |   |            | 
|                                                                                                       |  |                |            |                     |   |            | 
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                             |  | $              | 59,271,980 |                     | $ | 80,055,841 | 
|                                                                                                       |  |                |            |                     |   |            | 

The accompanying notes are
an integral part of the financial statements.

4

---

Table of Contents

NEW ULM TELECOM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
INCOME
(unaudited)

|                                                          |  |                               |           |                             |   |           |   |      |           |   |   |           |  
|--------------------------------------------------------- |  | ----------------------------- | --------- | --------------------------- | - | --------- | - | ---- | --------- | - | - | --------- | -
|                                                          |  | THREE
 MONTHS ENDED
 JUNE 30, |           | SIX MONTHS
 ENDED
 JUNE 30, |  
|                                                          |  | 2007                          |           | 2006                        |   | 2007      |   | 2006 |          
|                                                          |  |                               |           |                             |   |           |   |      |          
|OPERATING REVENUES                                        |  |                               |           |                             |   |           |   |      |           |   |   |           |  
|Local network                                             |  | $                             | 977,194   |                             | $ | 994,768   |   | $    | 1,911,908 |   | $ | 1,948,243 |  
|Network access                                            |  |                               | 1,366,375 |                             |   | 1,377,340 |   |      | 2,777,470 |   |   | 2,808,631 |  
|Directory advertising, billing and other
services         |  |                               | 161,574   |                             |   | 128,544   |   |      | 303,571   |   |   | 246,418   |  
|Video services                                            |  |                               | 583,525   |                             |   | 530,907   |   |      | 1,134,001 |   |   | 1,049,745 |  
|Internet services                                         |  |                               | 417,735   |                             |   | 391,815   |   |      | 824,729   |   |   | 777,898   |  
|Other nonregulated services                               |  |                               | 670,228   |                             |   | 556,239   |   |      | 1,302,059 |   |   | 1,192,974 |  
|                                                          |  |                               |           |                             |   |           |   |      |           |   |   |           |  
|                                                          |  |                               | 4,176,631 |                             |   | 3,979,613 |   |      | 8,253,738 |   |   | 8,023,909 |  
|                                                          |  |                               |           |                             |   |           |   |      |           |   |   |           |  
|                                                          |  |                               |           |                             |   |           |   |      |           |   |   |           |  
|OPERATING EXPENSES                                        |  |                               |           |                             |   |           |   |      |           |   |   |           |  
|Plant operations, excluding depreciation and
amortization |  |                               | 664,528   |                             |   | 643,401   |   |      | 1,229,773 |   |   | 1,243,461 |  
|Cost of video services                                    |  |                               | 414,269   |                             |   | 381,528   |   |      | 824,548   |   |   | 741,844   |  
|Cost of internet services                                 |  |                               | 161,283   |                             |   | 158,504   |   |      | 292,028   |   |   | 315,682   |  
|Cost of other nonregulated services                       |  |                               | 342,346   |                             |   | 276,120   |   |      | 680,746   |   |   | 551,496   |  
|Depreciation and amortization                             |  |                               | 1,004,573 |                             |   | 1,136,214 |   |      | 2,021,013 |   |   | 2,139,606 |  
|Selling, general and administrative                       |  |                               | 1,085,644 |                             |   | 909,184   |   |      | 2,089,371 |   |   | 1,895,744 |  
|                                                          |  |                               |           |                             |   |           |   |      |           |   |   |           |  
|                                                          |  |                               | 3,672,643 |                             |   | 3,504,951 |   |      | 7,137,479 |   |   | 6,887,833 |  
|                                                          |  |                               |           |                             |   |           |   |      |           |   |   |           |  
|                                                          |  |                               |           |                             |   |           |   |      |           |   |   |           |  
|OPERATING INCOME                                          |  |                               | 503,988   |                             |   | 474,662   |   |      | 1,116,259 |   |   | 1,136,076 |  
|                                                          |  |                               |           |                             |   |           |   |      |           |   |   |           |  
|                                                          |  |                               |           |                             |   |           |   |      |           |   |   |           |  
|OTHER (EXPENSES) INCOME                                   |  |                               |           |                             |   |           |   |      |           |   |   |           |  
|Interest expense                                          |  |                               | (1,442    | )                           |   | (223,523  | ) |      | (3,094    | ) |   | (438,260  | )
|Interest income                                           |  |                               | 343,886   |                             |   | 15,794    |   |      | 666,691   |   |   | 40,089    |  
|Cellular investment income                                |  |                               |          |                             |   | 1,821,088 |   |      |          |   |   | 3,732,674 |  
|Gain on Sale of MWH                                       |  |                               | 3,116,624 |                             |   |          |   |      | 3,116,624 |   |   |          |  
|Hector investment income                                  |  |                               | 218,423   |                             |   |          |   |      | 399,971   |   |   |          |  
|Other investment income (expense)                         |  |                               | (17,098   | )                           |   | (12,463   | ) |      | 107,302   |   |   | 140,148   |  
|                                                          |  |                               |           |                             |   |           |   |      |           |   |   |           |  
|                                                          |  |                               | 3,660,393 |                             |   | 1,600,896 |   |      | 4,287,494 |   |   | 3,474,651 |  
|                                                          |  |                               |           |                             |   |           |   |      |           |   |   |           |  
|                                                          |  |                               |           |                             |   |           |   |      |           |   |   |           |  
|INCOME BEFORE INCOME TAXES                                |  |                               | 4,164,381 |                             |   | 2,075,558 |   |      | 5,403,753 |   |   | 4,610,727 |  
|                                                          |  |                               |           |                             |   |           |   |      |           |   |   |           |  
|INCOME TAXES                                              |  |                               | 1,686,441 |                             |   | 840,576   |   |      | 2,188,207 |   |   | 1,867,186 |  
|                                                          |  |                               |           |                             |   |           |   |      |           |   |   |           |  
|                                                          |  |                               |           |                             |   |           |   |      |           |   |   |           |  
|NET INCOME                                                |  | $                             | 2,477,940 |                             | $ | 1,234,982 |   | $    | 3,215,546 |   | $ | 2,743,541 |  
|                                                          |  |                               |           |                             |   |           |   |      |           |   |   |           |  
|                                                          |  |                               |           |                             |   |           |   |      |           |   |   |           |  
|BASIC AND DILUTED NET INCOME PER SHARE                    |  | $                             | 0.48      |                             | $ | 0.24      |   | $    | 0.63      |   | $ | 0.54      |  
|                                                          |  |                               |           |                             |   |           |   |      |           |   |   |           |  
|                                                          |  |                               |           |                             |   |           |   |      |           |   |   |           |  
|DIVIDENDS PER SHARE                                       |  | $                             | 0.10      |                             | $ | 0.09      |   | $    | 0.20      |   | $ | 0.18      |  
|                                                          |  |                               |           |                             |   |           |   |      |           |   |   |           |  
|                                                          |  |                               |           |                             |   |           |   |      |           |   |   |           |  
|WEIGHTED AVERAGE SHARES OUTSTANDING                       |  |                               | 5,115,435 |                             |   | 5,115,435 |   |      | 5,115,435 |   |   | 5,115,435 |  
|                                                          |  |                               |           |                             |   |           |   |      |           |   |   |           |  

The accompanying notes are an
integral part of the financial statements.

5

---

Table of Contents

NEW ULM TELECOM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
STOCKHOLDERS EQUITY

YEAR ENDED DECEMBER 31, 2006 AND
SIX MONTHS ENDED JUNE 30, 2007

|                                      |  |               |           |                    |   |           |  |   |             |  
|------------------------------------- |  | ------------- | --------- | ------------------ | - | --------- |  | - | ----------- | -
|                                      |  | Common
 Stock |           | Retained
 Earnings |  
|                                      |  | Shares        |           | Amount             |   |          
|                                      |  |               |           |                    |   |           | 
|BALANCE on December 31,
 2005         |  |               | 5,115,435 |                    | $ | 8,525,725 |  | $ | 23,019,926  |  
|                                      |  |               |           |                    |   |           |  |   |             |  
|Net income                            |  |               |           |                    |   |           |  |   | 35,111,205  |  
|Dividends                             |  |               |           |                    |   |           |  |   | (15,909,003 | )
|                                      |  |               |           |                    |   |           |  |   |             |  
|                                      |  |               |           |                    |   |           |  |   |             |  
|BALANCE on December 31,
 2006         |  |               | 5,115,435 |                    | $ | 8,525,725 |  | $ | 42,222,128  |  
|                                      |  |               |           |                    |   |           |  |   |             |  
|Net income                            |  |               |           |                    |   |           |  |   | 3,215,546   |  
|Dividends                             |  |               |           |                    |   |           |  |   | (1,023,087  | )
|                                      |  |               |           |                    |   |           |  |   |             |  
|                                      |  |               |           |                    |   |           |  |   |             |  
|BALANCE on June 30, 2007
 (unaudited) |  |               | 5,115,435 |                    | $ | 8,525,725 |  | $ | 44,414,587  |  
|                                      |  |               |           |                    |   |           |  |   |             |  

The accompanying notes are
an integral part of the financial statements.

6

---

Table of Contents

NEW ULM TELECOM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
CASH FLOWS
(unaudited)

|                                                                                  |  | SIX MONTHS ENDED |            
|--------------------------------------------------------------------------------- |  | ---------------- | -----------
|                                                                                  |  |                  |            
|                                                                                  |  | JUNE 30, 2007    |            
|                                                                                  |  |                  |            
|CASH FLOWS FROM OPERATING ACTIVITIES                                              |  |                  |            
|Net income                                                                        |  | $                | 3,215,546  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                  |            
|Depreciation and amortization                                                     |  |                  | 2,021,013  
|Cellular investment income                                                        |  |                  |           
|Gain on Sale of MWH                                                               |  |                  | (3,116,624 
|Distributions from cellular investments                                           |  |                  |           
|Hector investment income                                                          |  |                  | (399,971   
|Deferred income taxes                                                             |  |                  | 161,860    
|(Increase) Decrease in:                                                           |  |                  |            
|Receivables                                                                       |  |                  | 335,563    
|Inventories                                                                       |  |                  | (279,289   
|Prepaid expenses                                                                  |  |                  | 60,766     
|Increase (Decrease) in:                                                           |  |                  |            
|Accounts payable                                                                  |  |                  | 445,075    
|Accrued income taxes                                                              |  |                  | (22,228,153
|Other accrued taxes                                                               |  |                  | 10,652     
|Other accrued liabilities                                                         |  |                  | (63,010    
|                                                                                  |  |                  |            
|Net cash provided by (used in) operating activities                               |  |                  | (19,836,572
|                                                                                  |  |                  |            
|                                                                                  |  |                  |            
|CASH FLOWS FROM INVESTING ACTIVITIES                                              |  |                  |            
|Additions to property, plant and equipment, net                                   |  |                  | (1,405,078 
|Proceeds from Sale of MWH                                                         |  |                  | 3,116,624  
|Other, net                                                                        |  |                  | (124,824   
|                                                                                  |  |                  |            
|Net cash provided by (used in) investing activities                               |  |                  | 1,586,722  
|                                                                                  |  |                  |            
|                                                                                  |  |                  |            
|CASH FLOWS FROM FINANCING ACTIVITIES                                              |  |                  |            
|Principal payments of long-term debt                                              |  |                  | (16,806    
|Dividends paid                                                                    |  |                  | (1,023,087 
|                                                                                  |  |                  |            
|Net cash used by financing activities                                             |  |                  | (1,039,893 
|                                                                                  |  |                  |            
|                                                                                  |  |                  |            
|                                                                                  |  |                  |            
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                         |  |                  | (19,289,743
|                                                                                  |  |                  |            
|CASH AND CASH EQUIVALENTS    at Beginning of Period                               |  |                  | 30,457,707 
|                                                                                  |  |                  |            
|                                                                                  |  |                  |            
|CASH AND CASH EQUIVALENTS    at End of Period                                     |  | $                | 11,167,964 
|                                                                                  |  |                  |            

The accompanying notes are an integral part of
the financial statements.

7

---

Table of Contents

NEW ULM TELECOM, INC. AND SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

NOTE 1  CONSOLIDATED FINANCIAL STATEMENTS

The
consolidated financial statements include the accounts of New Ulm Telecom, Inc.
and its wholly owned subsidiaries (Company). All material intercompany
transactions and accounts have been eliminated.

The
presentation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, and disclosure of
contingent assets and liabilities at the balance sheet date, and the reported
amounts of revenues and expenses during the reporting period. The estimates and
assumptions used in the accompanying consolidated financial statements are
based upon managements evaluation of the relevant facts and circumstances as
of the time of the financial statements. Actual results could differ from those
estimates.

Revenues are
recognized when earned, regardless of the period in which they are billed.
Interstate network access revenues are furnished in conjunction with
interexchange carriers and are determined by cost separation studies and
nationwide average schedules. Revenues include estimates pending finalization
of cost studies. Interstate network access revenues are based upon interstate
tariffs filed with the Federal Communications Commission (FCC) by the National
Exchange Carrier Association and state tariffs filed with state regulatory
agencies. Management believes recorded revenues are reasonable based on
estimates of cost separation studies, which are typically settled within two
years. Local network and intrastate access revenues are based on tariffs filed
with the state regulatory commissions. Revenues from system sales and services
are derived from the sale, installation, and servicing of communication
systems. In accordance with EITF 00-21, these deliverables are separate units
of accounting. Customer contracts of sales and installations are recognized using
the completed-contract method, which recognizes income when the contract is
substantially complete. Rental revenues are recognized over the rental period.

The provision
for income taxes consists of an amount for taxes currently payable and a
provision for tax consequences deferred to future periods. Deferred income
taxes are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax basis. Significant components of the
Companys deferred taxes arise from differences in the basis of property, plant
and equipment due to the use of accelerated depreciation methods for tax
purposes and partnerships due to the difference between book and tax income.
The Companys effective income tax rate is higher than the U.S. rate due to the
effect of state income taxes.

Effective
January 1, 2007, the Company adopted the provisions of Financial Accounting
Standards Board (FASB) Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes  an
interpretation of FASB Statement No. 109. The implementation of FIN
48 had no impact on the companys financial statements as the Company has no
unrecognized tax benefits. The Company is primarily subject to U.S. federal,
Minnesota, Iowa, Nebraska and Wisconsin income tax. Tax years

8

---

Table of Contents

subsequent to
2002 remain open to examination by U.S. federal and state tax authorities. The
Companys policy is to recognize interest and penalties related to income tax
matters in income tax expense. As of January 1, 2007, and June 30, 2007, the
Company had no accrual for interest or penalties related to income tax matters.

The balance
sheets and statement of stockholders equity as of June 30, 2007, and statements
of income and the statements of cash flows for the periods ended June 30, 2007
and 2006 have been prepared by the Company without audit. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations, and
changes in cash flows at June 30, 2007 and for the six-month periods ended June
30, 2007 and 2006 have been made.

The
accompanying unaudited interim financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted. These condensed financial statements should be read in conjunction
with the financial statements and notes thereto included in the Companys
Annual Report on Form 10-K for the year ended December 31, 2006. The results of
operations for the period ended June 30, 2007 are not necessarily indicative of
the operating results to be expected for the entire year.

NOTE 2  SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION

Cash
paid during the six months ended June 30:

| |              |  |      |            |      |   |           | 
| | ------------ |  | ---- | ---------- | ---- | - | --------- | 
| |              |  | 2007 |            | 2006 |  
| |              |  |      |            |      |  
| | Interest     |  | $    | 3,308      |      | $ | 435,249   | 
| | Income taxes |  | $    | 25,254,500 |      | $ | 3,011,000 | 

Noncash
investing activities included $6,183 and $367,859 during the periods ended June
30, 2007 and 2006, respectively, relating to plant and equipment additions
placed in service, which are reflected in accounts payable at June 30, 2007 and
2006.

The noncash
effect of the changes in loan guarantees and the respective investments in
Hector and FiberComm, LC were decreases in the amount of $1,279,755 and $17,415
during the periods ended June 30, 2007 and 2006, respectively.

NOTE 3  SECURED REDUCING REVOLVING CREDIT
FACILITY

In 2001, the
Company entered into a $15 million secured ten-year reducing revolving credit
facility with CoBank, ACB, maturing in 2011. The Company also entered into a
$10 million secured ten-year reducing revolving credit facility during 2001
with CoBank, ACB, maturing in 2011. In October 2006 and December 2006, the
Company made long-term debt repayments that extinguished its debt with CoBank,
ACB.

9

---

Table of Contents

NOTE 4  GOODWILL AND INTANGIBLE ASSETS

At June 30,
2007, the Company had goodwill for wireline acquisitions of $3,218,906. The
Company annually tests this as required under SFAS 142 and has determined that
the goodwill is not impaired.

Intangible
assets with definite lives are amortized over their useful lives. Amortization
expense is $2,052 per year.

NOTE 5  SEGMENT INFORMATION

The Company is
organized into three business segments: the Telecom Segment, the Cellular
Segment, and the Phonery Segment.

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Telecom
 Segment consists of the operations of its incumbent local exchange carriers
 (ILECs), its competitive local exchange carrier (CLEC), and its operations
 that provide Internet and video services. In addition, this Segment also has
 a 25.18% investment in FiberComm, LC, a competitive local exchange carrier
 (CLEC), in Sioux City, Iowa. The Company acquired a 33.33% ownership interest
 in Hector Communications Corporation (HCC) on November 3, 2006. HCC offers
 ILEC, CATV and Internet services to various communities in Minnesota and
 Wisconsin. The Company records its share of any income or loss from its
 investments in FiberComm, LC and HCC on the equity method.                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | The Cellular
 Segment includes the sales and service of cellular phones and accessories,
 and had a 9.88% cellular investment in Midwest Wireless Holdings, LLC (MWH)
 that was sold to Alltel on October 2, 2006. The cellular investment was
 recorded on the equity method on the financial statements and is presented in
 this note using the proportionate consolidation method. The Company recorded
 its 9.88% investment in MWH using the proportionate consolidation method so
 that it could be compared to the cellular industry, as well as the Companys
 other business segments, and because the Companys Chief Operating Decision
 Maker (CODM) reviewed the performance of MWH using the proportionate method.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | The Phonery
 Segment includes the sales and service of customer premise equipment (CPE),
 transport operations, and the resale of long distance toll service.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

No single
customer accounted for a material portion of the Companys revenues in any of
the last three years.

10

---

Table of Contents

NOTE 5  SEGMENT INFORMATION (continued)

Segment
information is as follows:

|                                                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|----------------------------------------------------------- |  | ------- | ----------- | -------- | - | ---------- | - | ------------ | --------- | ------------ | - | ----------- | - | - | ---------- | -
|                                                            |  | Telecom |             | Cellular |   | Phonery    |   |              |           |              |   |             |  
|                                                            |  | Segment |             | Segment  |   | Segment    |   | Eliminations |           | Consolidated |  
|                                                            |  |         |             |          |   |            |   |              |           |              |  
|Three Months Ended June 30, 2007                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|Operating Revenues                                          |  | $       | 3,751,781   |          | $ | 213,741    |   | $            | 456,487   |              | $ | (245,378    | ) | $ | 4,176,631  |  
|Depreciation and Amortization                               |  |         | 993,604     |          |   |           |   |              | 10,969    |              |   |            |   |   | 1,004,573  |  
|Operating Expenses, Excluding Depreciation and Amortization |  |         | 2,540,665   |          |   | 128,642    |   |              | 244,141   |              |   | (245,378    | ) |   | 2,668,070  |  
|                                                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|Operating Income                                            |  |         | 217,512     |          |   | 85,099     |   |              | 201,377   |              |   |            |   |   | 503,988    |  
|Interest Expense                                            |  |         | (1,442      | )        |   |           |   |              |          |              |   |            |   |   | (1,442     | )
|Gain on Sale of MWH                                         |  |         |            |          |   | 3,116,624  |   |              |          |              |   |            |   |   | 3,116,624  |  
|Hector Investment Income                                    |  |         | 218,423     |          |   |           |   |              |          |              |   |            |   |   | 218,423    |  
|Other Investment Income                                     |  |         | 114,498     |          |   | 212,290    |   |              |          |              |   |            |   |   | 326,788    |  
|Income Taxes                                                |  |         | (223,293    | )        |   | (1,381,651 | ) |              | (81,497   | )            |   |            |   |   | (1,686,441 | )
|                                                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|Net Income                                                  |  | $       | 325,698     |          | $ | 2,032,362  |   | $            | 119,880   |              | $ |            |   | $ | 2,477,940  |  
|                                                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|                                                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|Total Assets                                                |  | $       | 113,949,869 |          | $ | 61,915     |   | $            | 6,939,599 |              | $ | (61,679,403 | ) | $ | 59,271,980 |  
|                                                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|                                                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|Capital Expenditures                                        |  | $       | 611,569     |          | $ |           |   | $            |          |              | $ |            |   | $ | 611,569    |  
|                                                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|                                                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|                                                            |  | Telecom |             | Cellular |   | Phonery    |   |              |           |              |   |             |  
|                                                            |  | Segment |             | Segment  |   | Segment    |   | Eliminations |           | Consolidated |  
|                                                            |  |         |             |          |   |            |   |              |           |              |  
|Three Months Ended June 30, 2006                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|Operating Revenues                                          |  | $       | 3,661,180   |          | $ | 7,117,916  |   | $            | 422,696   |              | $ | (7,222,179  | ) | $ | 3,979,613  |  
|Depreciation and Amortization                               |  |         | 1,123,874   |          |   | 786,724    |   |              | 12,340    |              |   | (786,724    | ) |   | 1,136,214  |  
|Operating Expenses, Excluding Depreciation and Amortization |  |         | 2,297,913   |          |   | 4,284,286  |   |              | 214,823   |              |   | (4,428,285  | ) |   | 2,368,737  |  
|                                                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|Operating Income                                            |  |         | 239,393     |          |   | 2,046,906  |   |              | 195,533   |              |   | (2,007,170  | ) |   | 474,662    |  
|Interest Expense                                            |  |         | (190,214    | )        |   | (99,575    | ) |              |          |              |   | 66,266      |   |   | (223,523   | )
|Cellular Investment Income                                  |  |         |            |          |   |           |   |              |          |              |   | 1,821,088   |   |   | 1,821,088  |  
|Other Investment Income (Expense)                           |  |         | 3,331       |          |   | (119,816   | ) |              |          |              |   | 119,816     |   |   | 3,331      |  
|Income Taxes                                                |  |         | (22,475     | )        |   | (738,969   | ) |              | (79,132   | )            |   |            |   |   | (840,576   | )
|                                                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|Net Income                                                  |  | $       | 30,035      |          | $ | 1,088,546  |   | $            | 116,401   |              | $ |            |   | $ | 1,234,982  |  
|                                                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|                                                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|Total Assets                                                |  | $       | 90,029,239  |          | $ | 53,318,631 |   | $            | 6,363,650 |              | $ | (94,898,065 | ) | $ | 54,813,455 |  
|                                                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|                                                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|Capital Expenditures                                        |  | $       | 323,106     |          | $ | 788,622    |   | $            |          |              | $ | (788,622    | ) | $ | 323,106    |  
|                                                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  

11

---

Table of Contents

NOTE 5  SEGMENT INFORMATION (continued)

|                                                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|----------------------------------------------------------- |  | ------- | ----------- | -------- | - | ---------- | - | ------------ | --------- | ------------ | - | ----------- | - | - | ---------- | -
|                                                            |  | Telecom |             | Cellular |   | Phonery    |   |              |           |              |   |             |  
|                                                            |  | Segment |             | Segment  |   | Segment    |   | Eliminations |           | Consolidated |  
|                                                            |  |         |             |          |   |            |   |              |           |              |  
|Six Months Ended June 30, 2007                              |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|Operating Revenues                                          |  | $       | 7,435,574   |          | $ | 356,141    |   | $            | 945,918   |              | $ | (483,895    | ) | $ | 8,253,738  |  
|Depreciation and Amortization                               |  |         | 1,993,234   |          |   |           |   |              | 27,779    |              |   |            |   |   | 2,021,013  |  
|Operating Expenses, Excluding Depreciation and Amortization |  |         | 4,859,861   |          |   | 271,260    |   |              | 469,240   |              |   | (483,895    | ) |   | 5,116,466  |  
|                                                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|Operating Income                                            |  |         | 582,479     |          |   | 84,881     |   |              | 448,899   |              |   |            |   |   | 1,116,259  |  
|Interest Expense                                            |  |         | (3,094      | )        |   |           |   |              |          |              |   |            |   |   | (3,094     | )
|Gain on Sale of MWH                                         |  |         |            |          |   | 3,116,624  |   |              |          |              |   |            |   |   | 3,116,624  |  
|Hector Investment Income                                    |  |         | 399,971     |          |   |           |   |              |          |              |   |            |   |   | 399,971    |  
|Other Investment Income                                     |  |         | 561,703     |          |   | 212,290    |   |              |          |              |   |            |   |   | 773,993    |  
|Income Taxes                                                |  |         | (624,975    | )        |   | (1,381,563 | ) |              | (181,669  | )            |   |            |   |   | (2,188,207 | )
|                                                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|Net Income                                                  |  | $       | 916,084     |          | $ | 2,032,232  |   | $            | 267,230   |              | $ |            |   | $ | 3,215,546  |  
|                                                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|                                                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|Total Assets                                                |  | $       | 113,949,869 |          | $ | 61,915     |   | $            | 6,939,599 |              | $ | (61,679,403 | ) | $ | 59,271,980 |  
|                                                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|                                                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|Capital Expenditures                                        |  | $       | 1,405,078   |          | $ |           |   | $            |          |              | $ |            |   | $ | 1,405,078  |  
|                                                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|                                                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|                                                            |  | Telecom |             | Cellular |   | Phonery    |   |              |           |              |   |             |  
|                                                            |  | Segment |             | Segment  |   | Segment    |   | Eliminations |           | Consolidated |  
|                                                            |  |         |             |          |   |            |   |              |           |              |  
|Six Months Ended June 30, 2006                              |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|Operating Revenues                                          |  | $       | 7,301,636   |          | $ | 13,833,015 |   | $            | 954,301   |              | $ | (14,065,043 | ) | $ | 8,023,909  |  
|Depreciation and Amortization                               |  |         | 2,105,986   |          |   | 1,560,872  |   |              | 33,620    |              |   | (1,560,872  | ) |   | 2,139,606  |  
|Operating Expenses, Excluding Depreciation and Amortization |  |         | 4,603,338   |          |   | 8,199,890  |   |              | 445,225   |              |   | (8,500,226  | ) |   | 4,748,227  |  
|                                                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|Operating Income                                            |  |         | 592,312     |          |   | 4,072,253  |   |              | 475,456   |              |   | (4,003,945  | ) |   | 1,136,076  |  
|Interest Expense                                            |  |         | (374,599    | )        |   | (294,478   | ) |              |          |              |   | 230,817     |   |   | (438,260   | )
|Cellular Investment Income                                  |  |         |            |          |   |           |   |              |          |              |   | 3,732,674   |   |   | 3,732,674  |  
|Other Investment Income (Expense)                           |  |         | 180,237     |          |   | (40,454    | ) |              |          |              |   | 40,454      |   |   | 180,237    |  
|Income Taxes                                                |  |         | (162,275    | )        |   | (1,512,494 | ) |              | (192,417  | )            |   |            |   |   | (1,867,186 | )
|                                                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|Net Income                                                  |  | $       | 235,675     |          | $ | 2,224,827  |   | $            | 283,039   |              | $ |            |   | $ | 2,743,541  |  
|                                                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|                                                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|Total Assets                                                |  | $       | 90,029,239  |          | $ | 53,318,631 |   | $            | 6,363,650 |              | $ | (94,898,065 | ) | $ | 54,813,455 |  
|                                                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|                                                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  
|Capital Expenditures                                        |  | $       | 1,067,022   |          | $ | 1,569,431  |   | $            |          |              | $ | (1,569,431  | ) | $ | 1,067,022  |  
|                                                            |  |         |             |          |   |            |   |              |           |              |   |             |   |   |            |  

NOTE 6  SUBSEQUENT EVENTS

Pending Acquisition of Hutchinson Telephone
Company

On August 3,
2007, New Ulm Telecom, Inc. entered into an agreement and plan of merger with
Hutchinson Telephone Company (HTC) under which New Ulm will acquire HTC for
approximately $62 million in cash. After giving effect to closing date
adjustments for HTC cash and working capital, and transaction expenses, the
overall transaction size will be approximately $77 million. The transaction is
being structured as a reverse triangular merger under which a newly-formed
subsidiary of New Ulm, Hutchinson Acquisition Corp, will merge into HTC at
closing with HTC continuing as a subsidiary of New Ulm. The acquisition will
result in a combined company that provides phone, video and internet services
with over 50,000 connections in a number of Minnesota and Iowa communities.

12

---

Table of Contents

The proposed
transaction is subject to customary closing conditions, regulatory approvals
and approval by the shareholders of HTC. The transaction has been unanimously
approved by the Boards of Directors of New Ulm and HTC and is expected to close
late in the fourth quarter of 2007. New Ulm is funding the purchase from
available cash and borrowings from CoBank, ACB.

13

---

Table of Contents

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Companys future results of operation and
any forward-looking statements made in this Form 10-Q are subject to risks and
uncertainties, including, but not limited to, the effects of deregulation in
the telecommunications industry as a result of the Telecommunications Act of
1996. These forward-looking statements are subject to risks and uncertainties
that could cause the Companys actual results to differ materially from these
statements and the Company disclaims any obligation to update or revise any
forward-looking statements based on the occurrence of future events or the
receipt of new information. See Risk Factors in Item 1A of the 2006 Form
10-K.

OVERVIEW

|                                                                                                                             
|-----------------------------------------------------------------------------------------------------------------------------
|The Company
 is organized into three business segments, as described in Note 5 to the
 Financial Statements in this Form10-Q.

RESULTS OF OPERATIONS

CONSOLIDATED OPERATING RESULTS

The following
is a summarized discussion of consolidated results of operations. More detailed
discussion of operating results by segment follows this discussion.

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | OPERATING
 REVENUES:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Total
 operating revenues were $4,176,631 for the three months ended June 30, 2007,
 for an increase of 5.0% or $197,018 compared to the same period in 2006.
 Total operating revenues were $8,253,738 for the six months ended June 30,
 2007, for an increase of $229,829 or 2.9% compared to the same period in
 2006. All segments experienced increases.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | The Telecom
 segment continues to experience decreases in its local network and network
 access revenues, both common industry trends. These decreases have been
 offset by increases in revenues from its expanded service offerings: digital
 video, digital subscriber line (DSL), Internet service provision, and the
 operations of a Competitive Local Exchange Carrier (CLEC) in the City of
 Redwood Falls, Minnesota. The Telecom segment has invested heavily in its
 infrastructure, which has allowed it to enhance its local network so that it
 could offer a triple-play of services to its subscribers. In the
 telecommunications industry, a triple-play of services refers to offering
 telephone, Internet and video services over the same infrastructure. The
 Company expects that continued infrastructure investment will allow it to
 offer its customers new technologies, such as hi-definition television
 (HDTV), which the Company began offering during the second quarter in its New
 Ulm and Redwood Falls, Minnesota locations. The geographic expansion of its
 service offerings will provide this segment with future growth.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | The Telecom
 segments decrease in its network access revenues is the result of downward
 pricing pressure on access charges and a decrease in the access minutes of
 use. The decrease in network access revenues was minimized due to the
 Companys eligibility for high-cost loop funding through the Universal
 Service Fund for its ILEC operations in Springfield and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

14

---

Table of Contents

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Sanborn,
 Minnesota, and Aurelia, Iowa, and the immediately surrounding areas served by
 the affected ILECs. The Company continues to monitor the negative effects of
 network access pricing and the downward trend in access minutes of use that
 could affect future revenues in the Telecom sector in order to minimize the
 impact on the Company. Also, the FCC continues to examine inter-carrier
 compensation (payments from one telecommunications company to another for the
 use of their interconnecting networks). The FCC currently has an open docket
 on intercarrier compensation as well as several dockets on Voice over
 Internet Protocol (VoIP). The Company cannot predict the outcome of these
 proceedings nor can it estimate the impact, if any, on the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | The Company
 believes that, despite the regulatory and competitive challenges faced by the
 Telecom segment, the Company has positioned itself for future revenue growth.
 The Company believes that future growth will be realized through increases in
 revenue due to new and expanded service offerings. The Company also
 continually evaluates new and emerging technologies to keep the Companys
 service offerings innovative and competitive. The Company expects that
 continued infrastructure investment will allow the Company to continue to
 offer its customers new technologies as they emerge, and that geographic
 expansion of the Companys service offerings will provide this segment with
 continued future growth.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | The Cellular
 segment saw an increase in its sales and service revenues of cellular phones
 and accessories for the three months and the six months ended June 30, 2007.
 The Phonery segment experienced an increase in operating revenues for the
 three months and the six months ended June 30, 2007 due to increased sales of
 customer premise equipment (CPE).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | OPERATING
 EXPENSES:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Operating expenses
 for the three months ended June 30, 2007 increased $167,692, or 4.8%,
 compared to the same period in 2006. Operating expenses for the six months
 ended June 30, 2007 increased $249,646 or 3.6%. The Telecom segment was
 responsible for $143,771 of the increase in operating expenses for the six
 months ended June 30, 2007. Depreciation expense for the Telecom segment saw
 a decrease of $112,752 for the first six months of 2007 compared to 2006.
 Depreciation decreased due to some long-lived assets becoming fully
 depreciated even as the Company continues to make investments in the Telecom
 segments infrastructure. The increase in operating expenses, excluding
 depreciation and amortization, of $256,523 was due to the increased cost of
 providing services and an increasing customer base for the segments expanded
 services, such as digital video, DSL and Internet service. In addition,
 operating expenses increased due to additional costs incurred in connection
 with the Companys ongoing compliance with Sarbanes-Oxley Act Section 404.
 The remainder of the increase in the Telecom segment reflected the additional
 selling, general and administrative expenses associated with the commitment
 of the Company to compete in all aspects of communication services and to
 provide exceptional customer service for the Companys assortment of products
 and services to the communities that it serves. The Cellular and Phonery
 segments increased cost of goods sold accounted for the remainder of the
 increase.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | OPERATING
 INCOME:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Operating
 income for the three months ended June 30, 2007 increased $29,326 or 6.2%
 over                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

15

---

Table of Contents

| | the three
 months ended June 30, 2006. Operating income for the six months ended June
 30, 2007 decreased $19,817 or 1.7% compared to the six-month period ended June
 30, 2006. The decrease in income for the six months ended June 30, 2007 was
 primarily due to the increase in video and other nonregulated service
 expenses and the increase in general and administrative expenses, including
 Sarbanes-Oxley Act Section 404 compliance costs, from the Telecom segments
 operations and the increased cost of goods sold from the Cellular and Phonery
 segments.                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | OTHER
 INCOME:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | Overall,
 other income for the three months ended June 30, 2007 increased $2,059,497
 compared to the three months ended June 30, 2006. Other income increased
 $812,843 for the six months ended June 30, 2007 compared to the same period
 in 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | The
 Companys cellular investment income for the six months ended June 30, 2007
 decreased $3,732,674 due to the October 2006 sale of MWH to Alltel. The
 Company received $3.1 million in the first six month of 2007 due to the
 receipt of a portion of the escrow funds from Alltel in April 2007. The
 Companys investment income increased $399,971 for the six months ended June
 30, 2007 compared to the same period in 2006 due to the Companys 33.33%
 ownership interest in Hector Communications Corporation acquired on November
 3, 2006.                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | Other
 investment income decreased $32,846 for the six months ended June 30, 2007
 over the same period in 2006. This decrease was due to a decrease in the
 patronage income received from CoBank, a cooperative lender that specializes
 in agribusiness, communications, energy and water systems, and agricultural
 export financing, offset by an increase of investment income from Fibercom,
 L.C., a CLEC in Sioux City, Iowa for the six month period ended 2007 as
 compared to 2006.                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | There was an
 increase of $626,602 in interest income for the six months ended June 30,
 2007 compared to the same period in 2006. The increase was due to increased
 funds available for investment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | There was a
 $435,166 decrease in interest expense for the six-month period ended June 30,
 2007 compared to the same period in 2006. The decrease in interest expense was
 due to the Companys repayment of its outstanding CoBank, ACB debt in 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | NET INCOME:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | Net income
 was $2,477,940 for the three months ended June 30, 2007 compared with
 $1,234,982 for the same period in 2006. Net income was $3,215,546 for the
 six-month period ending June 30, 2007 compared with $2,743,541 compared with
 the same six-month period in 2006. The $1,242,958 or 100.6% increase in net
 income for the three months ended June 30, 2007 was primarily attributed to
 the increase in the gain on sale of MWH from the receipt of the first portion
 of the escrow funds received in early April 2007 and the increase in the
 Hector investment income, which were partially offset by the decrease in
 cellular investment income as a result of the October 2006 sale of the
 Companys interest in MWH.

16

---

Table of Contents

Summary of Operations

|                                       |  |                             |            |                           |   |           |   |      |            |   |   |            |  
|-------------------------------------- |  | --------------------------- | ---------- | ------------------------- | - | --------- | - | ---- | ---------- | - | - | ---------- | -
|                                       |  | Three Months Ended June 30, |            | Six Months Ended June 30, |  
|                                       |  |                             |            |                           |  
|                                       |  | 2007                        |            | 2006                      |   | 2007      |   | 2006 |           
|                                       |  |                             |            |                           |   |           |   |      |           
|                                       |  |                             |            |                           |   |           |   |      |           
|Operating
 Income:                     |  |                             |            |                           |   |           |   |      |            |   |   |            |  
|Telecom Segment                        |  | $                           | 217,512    |                           | $ | 239,393   |   | $    | 582,479    |   | $ | 592,312    |  
|Cellular Segment                       |  |                             | 85,099     |                           |   | 39,736    |   |      | 84,881     |   |   | 68,308     |  
|Phonery Segment                        |  |                             | 201,377    |                           |   | 195,533   |   |      | 448,899    |   |   | 475,456    |  
|                                       |  |                             |            |                           |   |           |   |      |            |   |   |            |  
|                                       |  |                             |            |                           |   |           |   |      |            |   |   |            |  
|Total                                  |  |                             | 503,988    |                           |   | 474,662   |   |      | 1,116,259  |   |   | 1,136,076  |  
|Other Income                           |  |                             | 3,661,835  |                           |   | 1,824,419 |   |      | 4,290,588  |   |   | 3,912,911  |  
|Interest Expense                       |  |                             | (1,442     | )                         |   | (223,523  | ) |      | (3,094     | ) |   | (438,260   | )
|Income Taxes                           |  |                             | (1,686,441 | )                         |   | (840,576  | ) |      | (2,188,207 | ) |   | (1,867,186 | )
|                                       |  |                             |            |                           |   |           |   |      |            |   |   |            |  
|                                       |  |                             |            |                           |   |           |   |      |            |   |   |            |  
|Net Income                             |  | $                           | 2,477,940  |                           | $ | 1,234,982 |   | $    | 3,215,546  |   | $ | 2,743,541  |  
|                                       |  |                             |            |                           |   |           |   |      |            |   |   |            |  
|                                       |  |                             |            |                           |   |           |   |      |            |   |   |            |  
|Basic and
 Diluted Earnings Per
 Share |  | $                           | .48        |                           | $ | .24       |   | $    | .63        |   | $ | .54        |  
|                                       |  |                             |            |                           |   |           |   |      |            |   |   |            |  
|Weighted
 Average Shares Outstanding   |  |                             | 5,115,435  |                           |   | 5,115,435 |   |      | 5,115,435  |   |   | 5,115,435  |  
|                                       |  |                             |            |                           |   |           |   |      |            |   |   |            |  

RESULTS OF OPERATIONS BY BUSINESS SEGMENT

Telecom Segment Operations

The Telecom
segment revenues represented 84.8% of the Companys consolidated operating
revenues for the three-month period ended June 30, 2007 and 85.1% of the
Companys consolidated operating revenues for the six-month period ended June
30, 2007, before intercompany eliminations. Revenues are primarily earned by
providing approximately 16,350 customers access to the local network in ILEC
and CLEC operations, and by providing inter-exchange access for long distance
network carriers. The Telecom segment also earns revenue by providing Internet
services, including high-speed DSL Internet access, and video services to its
subscribers, directory advertising, through billing and collecting for various
long distance companies, and for management and billing services provided to
HCC. This segment has invested in its infrastructure so that it can provide its
customers with the latest technological advances, including being able to offer
its triple-play of services. Total Telecom segment revenues for the
three-month period ending June 30, 2007 increased $90,601 or 2.5% compared to
the same period in 2006. Total Telecom segment revenues for the six-month
period ending June 30, 2007 increased $133,938 or 1.8% compared to the same
period in 2006. All information contained in the following table is before
intercompany eliminations.

17

---

Table of Contents

|                                                            |  | Three Months Ended June 30, |           | Six Months Ended June 30, |  
|----------------------------------------------------------- |  | --------------------------- | --------- | ------------------------- | -
|                                                            |  |                             |           |                           |  
|                                                            |  | 2007                        |           | 2006                      |  
|                                                            |  |                             |           |                           |  
|Operating Revenues:                                         |  |                             |           |                           |  
|Local Network                                               |  | $                           | 1,000,645 |                           | $
|Network Access                                              |  |                             | 1,373,773 |                           |  
|Other                                                       |  |                             | 1,377,363 |                           |  
|                                                            |  |                             |           |                           |  
|                                                            |  |                             |           |                           |  
|Total Operating Revenues                                    |  |                             | 3,751,781 |                           |  
|                                                            |  |                             |           |                           |  
|                                                            |  |                             |           |                           |  
|Operating Expenses, Excluding Depreciation and Amortization |  |                             | 2,540,665 |                           |  
|Depreciation and Amortization Expenses                      |  |                             | 993,604   |                           |  
|                                                            |  |                             |           |                           |  
|                                                            |  |                             |           |                           |  
|Total Operating Expenses                                    |  |                             | 3,534,269 |                           |  
|                                                            |  |                             |           |                           |  
|                                                            |  |                             |           |                           |  
|Operating Income                                            |  |                             | 217,512   |                           |  
|                                                            |  |                             |           |                           |  
|                                                            |  |                             |           |                           |  
|Net Income                                                  |  | $                           | 325,698   |                           | $
|                                                            |  |                             |           |                           |  

Local network
revenue decreased in the Telecom segment by $17,574 or 1.7% for the three months
ended June 30, 2007 compared to the same period in 2006. Local network revenue
decreased in the Telecom segment by $36,335 or 1.8% for the six months ended
June 30, 2007 compared to the same period in 2006. Local network revenue
decreased during these periods as a result of a decrease in access lines of
approximately 250 for the first three months of 2007 and approximately 350 for
the first six months of 2007 compared to the same periods in 2006. The decrease
in access lines is due to customers increasingly utilizing their wireless
phones and customers dropping second phone lines in their homes when they move
their Internet service from a dial-up platform to a DSL platform or a cable
platform.

Network access
revenue decreased $10,767 or 0.8% for the three months ended June 30, 2007
compared with the same period in 2006. Network access revenue decreased $30,897
or 1.1% for the six months ended June 30, 2007 compared to the same period in
2006. The decrease in network access revenue reflects the overall decrease in
minutes of use and the negative effects of downward pricing pressure on network
access pricing, a common industry trend. The Telecom segment experienced a 6.7%
decrease in access minutes for the six months ended June 30, 2007 compared to
the same period in 2006. In order to minimize the impact on the Company, the
Company continues to monitor the negative effects of network access pricing and
the downward trend in access minutes of use. The Telecom segment has maintained
and enhanced its infrastructure, and has invested over $8.5 million in capital
expenditures since 2004. These capital expenditures have enhanced this
segments infrastructure and have allowed the Company to receive additional
settlements from the National Exchange Carrier Association (NECA). The
additional investment in the local loop (access line cost) has made the Company
eligible for high-cost loop funding through the Universal Service Fund.

Other
operating revenues increased $118,942 or 9.5% for the three months ended June
30, 2007 compared with the same period in 2006. Other operating revenues
increased $201,170 or 8.1% for the six months ended June 30, 2007 compared with
the same period in 2006. Due to the infrastructure enhancements that have taken
place since 2000, the Telecom segment has been able to

18

---

Table of Contents

offer its
customers a triple-play of services over the existing infrastructure and
offer its services on a CLEC basis to the city of Redwood Falls, Minnesota. The
video product offered in New Ulm, Essig, Searles, Courtland, Springfield,
Sanborn and Redwood Falls, Minnesota was responsible for $36,801 of the
increase in these revenues for the six months ended June 30, 2007. The cable
television services offered in the Minnesota communities of Cologne, Mayer, New
Germany and New Market Township were responsible for $47,455 of the increase in
other operating revenues for the six months ended June 30, 2007. Approximately
$60,000 of the increase in other operating revenues was from the management
services and billing services that the Company provided to HCC. Internet
services were responsible for a $68,116 increase in operating revenues for the
six months ended June 30, 2007. These increases were slightly offset by a
decline in the amount of billing and collection revenue from interexchange
carriers.

Operating
expenses, excluding depreciation and amortization, increased $242,752 or 10.6%
for the three-month period ended June 30, 2007 and increased $256,523 or 5.6%
for the six-month period ended June 30, 2007 compared with the same periods in
2006. The increases in operating expenses were the result of increased selling,
general and administrative costs, particularly those associated with compliance
with Sarbanes-Oxley Act Section 404, and the increasing expenses associated with
the expanded array of services offered such as video and DSL that allow the
Company to offer the triple-play of services to its customers. The Telecom
segment has recognized the value in being able to compete in all aspects of
communication services. This realization has motivated the segment to enhance
its awareness of customer satisfaction (including 24 hours a day, 7 days a week
access to Internet support due to customers desire for this service), offer
additional services (video and DSL), pursue aggressive marketing to develop
brand recognition, and provide solutions for our customers evolving
communication needs. The Company has expanded its services and product
offerings in an effort to meet its objective of achieving 100% customer
satisfaction by making the customer its top priority, deserving the Companys
best service, attitude and consideration.

Depreciation
and amortization expenses decreased $130,270 or 11.6% for the three months
ended June 30, 2007 compared with the same period in 2006. Depreciation and
amortization expenses decreased $112,752 or 5.4% for the six months ended June
30, 2007 compared with the same period ended June 30, 2006. The decreases were
due to certain long-lived assets that have become fully depreciated, while
continuing to make investments in the Telecom segments infrastructure.

Operating
income decreased $21,881 or 9.1% for the three months ended June 30, 2007
compared with the same period in 2006. Operating income decreased $9,833 or
1.7% for the six months ended June 30, 2007 compared to the same period in
2006. The decrease in operating income for the six months ended June 30, 2007
was primarily due to decreases in network access revenues, increased cost of
providing additional services (video) to an increasing customer base, and
additional general and administrative expenses associated with the commitment
of the Telecom segment to effectively compete in all aspects of communication
services and to provide superior customer-focused service for the Telecom
segments complete array of products and services. These decreases in operating
income were partially offset by increased revenue for video and Internet
services due to an increase in customers, and the increase in revenues due to
the management and billing services that the company provides to HCC.

Cellular Segment

The Cellular
segment operations include the sales and service of cellular phones and
accessories, and the Companys 9.88% ownership interest in MWH (sold to Alltel
on October 2, 2006). The

19

---

Table of Contents

operating
revenue from sales of cellular phones and accessories increased by $80,198 for
the three month period ending June 30, 2007 and $117,468 for the six month
period ending June 30, 2007 as compared to the same periods in 2006, due
primarily to an increase in the sale of cellular phones. The cellular
partnership income decreased $1,821,088 for the three months ended June 30,
2007 compared to the same period ended in 2006, and decreased $3,732,674 for
the six months ended June 30, 2007 as compared to June 30, 2006 due to the sale
of MWH to Alltel on October 2, 2006. The Cellular segment had an increase of
$3,116,624 in the gain on sale of MWH due to the receipt of a portion of the
escrow funds in April 2007 for the six months ended June 30, 2007. The Cellular
segment information for its investment in MWH is shown in the following table
using the proportionate consolidation method. The Company recorded its 9.88%
investment in MWH using the proportionate consolidation method so that it could
be compared to the cellular industry, as well as the Companys other business
segments, and because the Companys CODM reviews the performance of MWH using
the proportionate method.

|                                                             |  |                             |   |                           |   |           |  |      |   |  |   |            |  | 
|------------------------------------------------------------ |  | --------------------------- | - | ------------------------- | - | --------- |  | ---- | - |  | - | ---------- |  | 
|                                                             |  | Three Months Ended June 30, |   | Six Months Ended June 30, |  
|                                                             |  |                             |   |                           |  
|                                                             |  | 2007                        |   | 2006                      |   | 2007      |  | 2006 |   | 
|                                                             |  |                             |   |                           |   |           |  |      |   | 
|                                                             |  |                             |   |                           |   |           |  |      |   |  |   |            |  | 
|Proportionate
 Method:                                       |  |                             |   |                           |   |           |  |      |   |  |   |            |  | 
|Operating Revenues                                           |  | $                           |  |                           | $ | 6,984,373 |  | $    |  |  | $ | 13,594,342 |  | 
|                                                             |  |                             |   |                           |   |           |  |      |   |  |   |            |  | 
|                                                             |  |                             |   |                           |   |           |  |      |   |  |   |            |  | 
|Operating Expenses, Excluding Depreciation
 and Amortization |  |                             |  |                           |   | 4,190,479 |  |      |  |  |   | 8,029,525  |  | 
|Depreciation and Amortization Expenses                       |  |                             |  |                           |   | 786,725   |  |      |  |  |   | 1,560,872  |  | 
|                                                             |  |                             |   |                           |   |           |  |      |   |  |   |            |  | 
|Total Operating Expenses                                     |  |                             |  |                           |   | 4,977,204 |  |      |  |  |   | 9,590,397  |  | 
|                                                             |  |                             |   |                           |   |           |  |      |   |  |   |            |  | 
|                                                             |  |                             |   |                           |   |           |  |      |   |  |   |            |  | 
|Operating
 Income                                            |  |                             |  |                           |   | 2,007,169 |  |      |  |  |   | 4,003,945  |  | 
|                                                             |  |                             |   |                           |   |           |  |      |   |  |   |            |  | 
|                                                             |  |                             |   |                           |   |           |  |      |   |  |   |            |  | 
|Net Income                                                   |  | $                           |  |                           | $ | 1,821,088 |  | $    |  |  | $ | 3,732,674  |  | 
|                                                             |  |                             |   |                           |   |           |  |      |   |  |   |            |  | 
|                                                             |  |                             |   |                           |   |           |  |     

A recap of
income for the cellular segment using the equity method to record earnings on
its investment in MWH, is contained in the following table.

20

---

Table of Contents

|                                                             |  |                             |           |                           |   |           |   |      |           |  |   |           |  
|------------------------------------------------------------ |  | --------------------------- | --------- | ------------------------- | - | --------- | - | ---- | --------- |  | - | --------- | -
|                                                             |  | Three Months Ended June 30, |           | Six Months Ended June 30, |  
|                                                             |  |                             |           |                           |  
|                                                             |  | 2007                        |           | 2006                      |   | 2007      |   | 2006 |          
|                                                             |  |                             |           |                           |   |           |   |      |          
|                                                            
|Operating Revenues:                                          |  | $                           | 213,741   |                           | $ | 133,543   |   | $    | 356,141   |  | $ | 238,673   |  
|                                                             |  |                             |           |                           |   |           |   |      |           |  |   |           |  
|                                                             |  |                             |           |                           |   |           |   |      |           |  |   |           |  
|Operating Expenses, Excluding Depreciation
 and Amortization |  |                             | 128,642   |                           |   | 93,807    |   |      | 271,260   |  |   | 170,365   |  
|Depreciation and Amortization Expenses                       |  |                             |          |                           |   |          |   |      |          |  |   |          |  
|                                                             |  |                             |           |                           |   |           |   |      |           |  |   |           |  
|Total Operating Expenses                                     |  |                             | 128,642   |                           |   | 93,807    |   |      | 271,260   |  |   | 170,365   |  
|                                                             |  |                             |           |                           |   |           |   |      |           |  |   |           |  
|                                                             |  |                             |           |                           |   |           |   |      |           |  |   |           |  
|Operating Income                                             |  |                             | 85,099    |                           |   | 39,736    |   |      | 84,881    |  |   | 68,308    |  
|                                                             |  |                             |           |                           |   |           |   |      |           |  |   |           |  
|                                                             |  |                             |           |                           |   |           |   |      |           |  |   |           |  
|Interest Expense                                             |  |                             |          |                           |   | (33,309   | ) |      |          |  |   | (63,661   | )
|Interest Income                                              |  |                             | 212,290   |                           |   |          |   |      | 212,290   |  |   |          |  
|Cellular Investment Income                                   |  |                             |          |                           |   | 1,821,088 |   |      |          |  |   | 3,732,674 |  
|Gain on Sale of MWH                                          |  |                             | 3,116,624 |                           |   |          |   |      | 3,116,624 |  |   |          |  
|                                                             |  |                             |           |                           |   |           |   |      |           |  |   |           |  
|Income Taxes                                                 |  |                             | 1,381,651 |                           |   | 738,969   |   |      | 1,381,563 |  |   | 1,512,494 |  
|                                                             |  |                             |           |                           |   |           |   |      |           |  |   |           |  
|                                                             |  |                             |           |                           |   |           |   |      |           |  |   |           |  
|Net Income                                                   |  | $                           | 2,032,362 |                           | $ | 1,088,546 |   | $    | 2,032,232 |  | $ | 2,224,827 |  
|                                                             |  |                             |           |                           |   |           |   |      |           |  |   |           |  

As previously
disclosed, on October 2, 2006, MWH was sold to Alltel.

Phonery Segment

The Phonery segment represented 10.3% of
the consolidated operating revenues for the three-month period ended June 30,
2007 and 10.8% of the consolidated operating revenues for the six-month period
ended June 30, 2007 before intercompany eliminations. Revenues are earned
primarily by sales, installation and service of business telephone systems and
data communications equipment. In addition, the Phonery segment leases network
capacity to provide additional network access revenues and resells long
distance toll service. This segments expertise is the quality installation and
maintenance of CPE, provision of customer long distance needs and transport
solutions in communication to end user customers. All information contained in
the following table is before intercompany eliminations.

|                                                             |  |                             |         |                           |   |         |  |      |         |  |   |         | 
|------------------------------------------------------------ |  | --------------------------- | ------- | ------------------------- | - | ------- |  | ---- | ------- |  | - | ------- | 
|                                                             |  | Three Months Ended June 30, |         | Six Months Ended June 30, |  
|                                                             |  |                             |         |                           |  
|                                                             |  | 2007                        |         | 2006                      |   | 2007    |  | 2006 |        
|                                                             |  |                             |         |                           |   |         |  |      |        
|                                                            
|Operating Revenues:                                          |  | $                           | 456,487 |                           | $ | 422,696 |  | $    | 945,918 |  | $ | 954,301 | 
|                                                             |  |                             |         |                           |   |         |  |      |         |  |   |         | 
|                                                             |  |                             |         |                           |   |         |  |      |         |  |   |         | 
|Operating Expenses, Excluding Depreciation
 and Amortization |  |                             | 244,141 |                           |   | 214,823 |  |      | 469,240 |  |   | 445,225 | 
|Depreciation and Amortization Expenses                       |  |                             | 10,969  |                           |   | 12,340  |  |      | 27,779  |  |   | 33,620  | 
|                                                             |  |                             |         |                           |   |         |  |      |         |  |   |         | 
|Total Operating Expenses                                     |  |                             | 255,110 |                           |   | 227,163 |  |      | 497,019 |  |   | 478,845 | 
|                                                             |  |                             |         |                           |   |         |  |      |         |  |   |         | 
|                                                             |  |                             |         |                           |   |         |  |      |         |  |   |         | 
|Operating Income                                             |  |                             | 201,377 |                           |   | 195,533 |  |      | 448,899 |  |   | 475,456 | 
|                                                             |  |                             |         |                           |   |         |  |      |         |  |   |         | 
|                                                             |  |                             |         |                           |   |         |  |      |         |  |   |         | 
|Net Income                                                   |  | $                           | 119,880 |                           | $ | 116,401 |  | $    | 267,230 |  | $ | 283,039 | 
|                                                             |  |                             |         |                           |   |         |  |      |         |  |   |         | 

Operating revenue increased $33,791 or
8.0%, for the three months ended June 30, 2007 compared to the same period
ended 2006. Operating revenue decreased $8,383 or 0.9% for the six months ended
June 30, 2007 compared to the same period in 2006. The Phonery segment
experienced

21

---

Table of Contents

decreased
operating revenues for the six months ended June 30, 2007 primarily due to
decreased revenues from the resale of long distance toll.

Operating
expenses, excluding depreciation and amortization increased $29,318 or 13.6%
for the three months ended June 30, 2007 and increased $24,015 or 5.4% for the
six months ended June 30, 2007 compared to the same periods in 2006. This
six-month increase in operating expenses is primarily due to increased cost of
goods sold. This segment strives for cost efficiencies, while continuing to
endeavor to reach the customer service goal of achieving 100% customer
satisfaction. This segment continues to seek new technologies to better serve
customer needs and to operate efficiently.

Depreciation
and amortization expenses decreased $1,371 or 11.1% for the three months ended
June 30, 2007 compared with the same period in 2006. Depreciation and
amortization expenses decreased $5,841 or 17.4% for the six months ended June
30, 2007 compared to the same period in 2006. These decreases were due to
long-lived asset that have become fully depreciated.

Operating
income increased by $5,844 or 3.0% for the three months ended June 30, 2007
compared to the three months ended June 30, 2006. This three-month increase in
income was primarily the result of the increase in operating revenues.
Operating income decreased $26,557 or 5.6% for the six months ended June 30,
2007 compared to the same period in 2006.

LIQUIDITY AND CAPITAL RESOURCES

Capital Structure

The total
long-term capital structure (long-term debt plus stockholders equity) for the
Company was $53,003,489 at June 30, 2007, reflecting 99.9% equity and 0.1%
debt. This compares to a capital structure of $50,827,836 at December 31, 2006,
reflecting 99.8% equity and 0.2% debt. Management believes adequate internal
and external resources are available to finance ongoing operating requirements,
including capital expenditures, business development, debt service and the
payment of dividends for at least the next 12 months.

Cash Flows

Cash used by
operations was $19,836,572 for the six-month period ended June 30, 2007
compared to cash provided by operations of $2,061,749 for the six-month period
ended June 30, 2006. The cash flows used by operations for the six months ended
June 30, 2007 were primarily due to the payment of income taxes, partially
offset by net income and non-cash expenses for depreciation and amortization.
Cash flows from operations for the six months ended June 30, 2006 were
primarily attributable to net income plus non-cash expenses for depreciation
and amortization.

Cash flows
provided by investing activities were $1,586,722 for the six months ended June
30, 2007 compared to cash flows used in investing activities of $1,361,030 for
the same period in 2006. In April 2007, the Company received $3,116,624, a
portion of the escrow funds from the MWH sale to Alltel. Capital expenditures
relating to on-going businesses were $1,405,078 during the first six months of
2007 as compared to $1,067,022 for the same period in 2006. The Company
operates in a capital-intensive business. The Company is continuing to upgrade
its local networks for changes in

22

---

Table of Contents

technology to
provide the most advanced services to its customers. The Company expects total
plant additions of approximately $4,000,000 in 2007.

Cash flows
used by financing activities were $1,039,893 for the six-month period ended
June 30, 2007 compared to cash flows used by financing activities of $2,179,073
for the six-month period ended June 30, 2006. Included in cash flows used in
financing activities were debt repayments and dividend payments.

Dividends

The Company
paid dividends of $1,023,087 during the first six months of 2007 and $920,778
during the first six months of 2006. This represented a dividend of $.10 per
share per quarter for 2007 and $.09 per share per quarter for 2006. The Company
continues to reinvest in its infrastructure while maintaining dividends to
shareholders. The Board of Directors reviews dividend declarations based on
anticipated earnings, capital requirements and the operating and financial
condition of the Company. The Company does not expect its payout of dividends
at the existing level to negatively affect the liquidity of the Company.

Receipt of Remaining Funds From MWH

Prior to the
sale of MWH, the Company owned approximately 9.88% of MWH. In November 2005,
MWH and Alltel entered into an agreement under which Alltel agreed to purchase
MWH. The transaction was closed October 2, 2006 after the satisfaction of
conditions and the receipt of regulatory approvals. Under the terms of the
agreement, all of the members of MWH sold their membership interests to Alltel.

Upon closing,
New Ulm Telecom, Inc. received approximately 90% of the sale proceeds
attributable to its interest or approximately $74 million on October 6, 2006.
Alltel delivered the other 10% to the escrow agent. The escrow account will be
used for any true-up adjustments, indemnifications, and other specified costs.
Funds not used for these purposes will be released to the members.

As of December
2006, the Companys prorated share of the amount in escrow was $8,170,263, plus
accrued interest. On April 5, 2007, the Company received payment of
approximately $3 million plus accrued interest from the escrow fund. As
previously disclosed, New Ulm expects to receive an additional payment of
approximately $5 million plus accrued interest in January 2008, from the
remaining amounts in escrow, subject to certain contingencies and fulfillment
of the escrow conditions. Due to the contingencies for release of the escrow
funds, the Company had not recorded a receivable for any part of the funds at
December 31, 2006 and June 30, 2007 and has not recorded a receivable for the
remaining escrow funds that the Company would receive in January 2008.

Financing Related to Acquisition of
Hutchinson Telephone Company

In connection with its
proposed acquisition of Hutchinson Telephone Company, described above in Note 6
of Notes to Financial Statements, New Ulm intends to establish a credit
facility with CoBank, ACB, to finance a portion of the purchase price and to
establish a working capital line of credit. The Company expects to close on the
credit facility concurrent with the closing of the acquisition.

23

---

Table of Contents

Working Capital

The Company
had working capital of $11,171,147 as of June 30, 2007, compared to working
capital of $8,736,311 as of December 31, 2006. The ratio of current assets to
current liabilities was 7.7:1.0 as of June 30, 2007 and 1.4:1.0 as of December
31, 2006.

Long-Term Debt

See Note 3 on
page 9 of this Form 10-Q.

Other

The Company
has not conducted a public equity offering. It operates with original equity
capital, retained earnings and indebtedness.

By utilizing
cash flow from operations and current cash balances, the Company feels it has
adequate resources to meet its anticipated operating, capital expenditures, and
debt service requirements.

Recent Accounting Developments

In February
2007, the FASB issued Statement of Financial Accounting Standards No. 159,
The Fair Value Option for Financial Assets and Financial Liabilities (SFAS
159). The Statement permits entities to choose to measure at fair value many
financial instruments and certain other items that are not currently required
to be measured at fair value. The objective is to improve financial reporting
by providing entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. SFAS 159 will be effective
for the first fiscal year that begins after November 15, 2007. The Company
has not yet assessed the impact of this Statement on the Companys financial statements.

In July 2006,
the Financial Accounting Standards Board (the FASB) issued FASB Interpretation
No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109. FIN 48 clarifies the accounting
for income taxes by prescribing the minimum recognition threshold a tax
position is required to meet before being recognized in the financial
statements. FIN 48 also provides guidance on derecognition, measurement,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. FIN 48 applies to all tax positions related to
income taxes subject to FASB Statement No. 109, Accounting for Income
Taxes (FASB No. 109). FIN 48 is effective for fiscal years beginning after
December 15, 2006. Differences between the amounts recognized in the
statements of financial position prior to the adoption of FIN 48 and the
amounts reported after adoption should be accounted for as a cumulative-effect
adjustment recorded to the beginning balance of retained earnings. The
Companys implementation of FIN 48 had no impact on its financial statements as
the Company has no unrecognized tax benefits.

ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK

The Company
does not have operations subject to risks of foreign currency fluctuations, nor
does the Company use derivative financial instruments in its operations or
investment portfolio.

24

---

Table of Contents

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and
Procedures

As of
December 31, 2006, the management of the Company carried out an assessment
under the supervision of and with the participation of the Companys Chief
Executive Officer, the Chief Financial Officer and Chief Operating Officer, of
the effectiveness of the design and operation of the Companys disclosure
controls and procedures pursuant to Exchange Act Rules 13a-15(b) and
15d-15(b). In the course of completing managements assessment of the Companys
internal control over financial reporting, management has identified a control
deficiency that is a material weakness, as reported in the Companys Annual
Report on Form 10-K for 2006 which was filed on March 28, 2007 (the 2006
Form 10-K). As of the date of that assessment, the Chief Executive Officer,
the Chief Financial Officer and Chief Operating Officer concluded that as a
result of the material weakness, the Companys disclosure controls and
procedures were not effective as of December 31, 2006.

A material
weakness is a significant deficiency (as defined in Public Company Accounting
Oversight Board Auditing Standard No. 2), or combination of significant
deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be
prevented or detected.

The Companys
management with the participation of the Chief Executive Officer and the Chief
Financial Officer, evaluated the effectiveness of the Companys disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-(e)) as of the end of the period covered by this Quarterly Report on Form
10-Q. Based upon that evaluation they have concluded that the Companys
disclosure controls and procedures are not effective in ensuring that all
material information required to be filed with the Securities and Exchange
Commission is recorded, processed, summarized and reported within the time
period specified in the rules and forms of the Commission because of the
material weakness in its internal control over financial reporting as discussed
and reported in the Companys 2006 Form 10-K.

In light of
the material weaknesses described in the 2006 Form 10-K, management continues
to monitor its carrier access billings and has determined appropriate
remediation steps to ensure all access revenues are accurately billed and
expects to have these steps completed by year-end. Management believes that the
interim consolidated financial statements included in this report fairly
present in all material respects our financial condition, results of operations
and cash flows for the period presented.

(b) Changes in Internal Control over
Financial Reporting

There have been no changes in
our internal control over financial reporting during the quarter ended
June 30, 2007 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.

25

---

Table of Contents

PART II.
OTHER INFORMATION

ITEM 1A. RISK FACTORS

Other than the additional risk factors described
below, there have been no material changes to the risk factors described in our
annual report on Form 10-K for the year ended December 31, 2006.

There
can be no assurance that we will be able to successfully complete the
acquisition of Hutchinson Telephone Company or to operate it successfully after
the acquisition.

As described above in Note 6
of Notes to Financial Statements, on August 3, 2007, New Ulm Telecom, Inc.
entered into an agreement and plan of merger with Hutchinson Telephone Company
(HTC) under which New Ulm will acquire HTC for approximately $62 million in
cash. There can be no assurance that we will obtain the required
federal, state and local regulatory approvals needed for consummation of the
merger, obtain the required approval by the shareholders of HTC, or operate the
combined company in a profitable manner after the merger.

There can be no assurance that we will receive the
escrow proceeds from the sale of our interest in MWH in their entirety.

In connection with the acquisition of MWH by Alltel in
October 2006, New Ulm received approximately 90% of the sale proceeds
attributable to its interest or approximately $74 million on October 6, 2006.
Alltel delivered the other 10% to the escrow agent. The escrow account will be
used for any true-up adjustments, indemnifications, and other specified costs.
Funds not used for these purposes will be released to the members. As of
December 2006, the Companys prorated share of the amount in escrow was
$8,170,263, plus accrued interest. On April 5, 2007, the Company received a
payment from the escrow fund of approximately $3 million plus accrued interest.
As previously disclosed, New Ulm expects to receive an additional payment of
approximately $5 million plus accrued interest in January 2008 from the
remaining amounts in escrow, subject to certain contingencies and fulfillment
of the escrow conditions. Due to the contingencies for release of the escrow funds,
the Company had not recorded a receivable for any part of the funds at December
31, 2006 and June 30, 2007 and has not recorded a receivable for the remaining
escrow funds that the Company would receive in January 2008.

ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The annual meeting of the stockholders of the Company
was held May 31, 2007 in New Ulm, Minnesota. The total number of shares
outstanding and entitled to vote at the meeting was 5,115,435 of which
3,742,367 shares were present either in person or by proxy. The election of
directors was the only matter presented to stockholders.

Two directors were elected to serve three-year terms.
The names of the directors elected at the annual meeting and the applicable
votes were as follows:

|             |           |          |                   | 
|------------ | --------- | -------- | ----------------- | 
|DIRECTOR     | FOR       | WITHHELD | BROKER
 NON-VOTES | 
|             |           |          |                   | 
|James Jensen | 3,677,770 | 64,597   | 443,787           | 
|Perry Meyer  | 3,680,986 | 61,381   | 443,787           | 

26

---

Table of Contents

The Board Members continuing and whose terms expire at
subsequent annual meetings are as follows:

| |                     |                     | 
| | ------------------- | ------------------- | 
| | 2008 Annual Meeting | 2009 Annual Meeting | 
| |                     |                     | 
| | Paul Erick          | Rosemary Dittrich   | 
| | Duane Lambrecht     | Mary Ellen Domeier  | 
| |                     | Gary Nelson         | 

ITEM 5.
OTHER INFORMATION

Receipt
of Remaining Funds from Sale of Midwest Wireless Holding

As previously disclosed, on October 6, 2006, New Ulm
received approximately 90% of the sale proceeds attributable to its interest in
MWH or approximately $74 million. The purchaser Alltel delivered the other 10%
to the escrow agent. The escrow account will be used for any true-up
adjustments, indemnifications, and other specified costs. Funds not used for
these purposes will be released to the members.

As of December 2006, the Companys prorated share of
the amount in escrow was $8,170,263, plus accrued interest. On April 5, 2007,
the Company received payment of approximately $3 million plus accrued interest
from the escrow fund. New Ulm expects to receive an additional payment of
approximately $5 million plus accrued interest in January 2008, from the
remaining amounts in escrow, subject to certain contingencies and fulfillment
of the escrow conditions. Due to the contingencies for release of the escrow
funds, the Company had not recorded a receivable for any part of the funds at
December 31, 2006 and June 30, 2007 and has not recorded a receivable for the remaining
escrow funds that the Company would receive in January 2008.

Pending
Acquisition of Hutchinson Telephone Company

As described in Note 6 of Note to Financial
Statements, on August 3, 2007, New Ulm Telecom, Inc. entered into an agreement
and plan of merger with Hutchinson Telephone Company (HTC) under which New
Ulm will acquire HTC.

ITEM 6.
EXHIBITS

| |     |                                                       
| | --- | ------------------------------------------------------
| | (a) | Exhibits                                              
| |     |                                                       
| |     | See Index to Exhibits on page 29 of this Form
 10-Q.

27

---

Table of Contents

SIGNATURES

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.

|                      |    |                                            
|--------------------- | -- | -------------------------------------------
|                      |    | NEW ULM TELECOM, INC.                      
|                      |    |                                            
|Dated: August 8, 2007 | By | /s/ Bill Otis                              
|                      |    |                                            
|                      |    | Bill Otis, President                       
|                      |    |                                            
|Dated: August 8, 2007 | By | /s/ Nancy Blankenhagen                     
|                      |    |                                            
|                      |    | Nancy Blankenhagen, Chief Financial Officer

28

---

Table of Contents

INDEX TO EXHIBITS

|                |  |                                                                                                                                                         
|--------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
 Number |  | Description                                                                                                                                             
|                |  |                                                                                                                                                         
|                |  |                                                                                                                                                         
|2.1             |  | Agreement and Plan of Merger, dated August 3, 2007,
 by and among New Ulm Telecom, Inc., Hutchinson Acquisition Corp. and
 Hutchinson Telephone Company.
|                |  |                                                                                                                                                         
|31.1            |  | Chief Executive Officer Certification Pursuant to
 Exchange Act Rule 13a-14, As Adopted Pursuant to Section 302 of the
 Sarbanes-Oxley Act of 2002      
|                |  |                                                                                                                                                         
|31.2            |  | Chief Financial Officer Certification Pursuant to
 Exchange Act Rule 13a-14, As Adopted Pursuant to Section 302 of the
 Sarbanes-Oxley Act of 2002      
|                |  |                                                                                                                                                         
|32.1            |  | Chief Executive Officer Certification Pursuant to 18
 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley
 Act of 2002        
|                |  |                                                                                                                                                         
|32.2            |  | Chief Financial Officer Certification Pursuant to 18
 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley
 Act of 2002        

29

---