----

----

|  (Mark One) |                                                                                                                                                                                                                  |
|------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |                                                                                                                                                                                                                  |
| x                | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934                                                                                                                               |
|             |                                                                                                                                                                                                                  |
|             | For the quarterly period ended June 30, 2010                                                                                                                                                                          |
|             |                                                                                                                                                                                                                  |
|             | Or                                                                                                                                                                                                                    |
|             |                                                                                                                                                                                                                  |
| o                | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934                                                                                                                              |
|             |                                                                                                                                                                                                                  |
|             | For the transition period from                               to |

----

| Delaware                                         |   | 52-2126395                           |
|--------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction of incorporation or |   | (I.R.S. Employer Identification No.) |
| organization)                                    |   |                                 |
|                                             |   |                                 |
| 505 Third Avenue East, Oneonta, Alabama          |   | 35121                                |
| (Address of Principal Executive Offices)         |   | (Zip Code)                           |
|                                             |   |                                 |

----

----

| Yes  x | No  o |
|------------------|-----------------|

| Yes  o | No  o |
|------------------|-----------------|

----

| Large accelerated filero | Accelerated filerx | Non-accelerated filero | Smaller reporting companyo |
|--------------------------|--------------------|------------------------|----------------------------|

| Yes  o | No  x |
|------------------|-----------------|

| Class                                            |   | Outstanding at August 5, 2010 |
|--------------------------------------------------|--------|-------------------------------|
| Class A Common Stock ($0.01 par value per share) |   | 13,221,404                    |
| Class B Common Stock ($0.01 par value per share) |   | 0                             |

----

|                                    | Page                                                                                                   |
|-----------------------------------------|--------------------------------------------------------------------------------------------------------|
|                                    |                                                                                                   |
| PART I  FINANCIAL INFORMATION | 2                                                                                                      |
| Item 1.                                 | Financial Statements                                                                                   | 2 |
|                                    | Consolidated Balance Sheets as of December 31, 2009 and June 30, 2010                                  | 2 |
|                                    | Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2009 and 2010 | 3 |
|                                    | Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2010                  | 4 |
|                                    | Notes to Consolidated Financial Statements                                                             | 5 |
| Item 2.                                 | Management’s Discussion and Analysis of Financial Condition and Results of Operations            | 12 |
| Item 3.                                 | Quantitative and Qualitative Disclosures about Market Risk                                             | 21 |
| Item 4.                                 | Controls and Procedures                                                                                | 21 |
|                                    |                                                                                                   |   |
| PART II  OTHER INFORMATION    | 22                                                                                                     |
| Item 6.                                 | Exhibits                                                                                               | 22 |

----

----

| Item 1. | Financial Statements |
|---------|----------------------|

|                                                                                                                                    |    | December 31, |        |   | June 30,    |   |
|-----------------------------------------------------------------------------------------------------------------------------------------|---------|--------------|-------------|--------|-------------|--------|
|                                                                                                                                    |    | 2009         |        |   | 2010        |   |
|                                                                                                                                    |    |         |        |   | (unaudited) |   |
| Assets                                                                                                                                  |    |         |        |   |        |   |
| Current assets                                                                                                                          |    |         |        |   |        |   |
| Cash and cash equivalents                                                                                                               |    | $            | 17,731,044  |   |        | $      | 22,743,256 |   |
| Accounts receivable:                                                                                                                    |    |         |        |   |        |   |   |   |
| Due from subscribers, net of allowance for doubtful accountsof $473,572 and $254,645, respectively                                      |    |         | 4,650,909   |   |        |   | 4,584,262 |   |
| Unbilled receivables                                                                                                                    |    |         | 2,444,979   |   |        |   | 2,425,742 |   |
| Other                                                                                                                                   |    |         | 3,200,945   |   |        |   | 3,218,327 |   |
| Materials and supplies                                                                                                                  |    |         | 1,969,966   |   |        |   | 1,994,968 |   |
| Prepaid expenses                                                                                                                        |    |         | 1,342,249   |   |        |   | 968,598 |   |
| Income tax receivable                                                                                                                   |    |         | 389,486     |   |        |   | - |   |
| Deferred income taxes                                                                                                                   |    |         | 744,531     |   |        |   | 744,531 |   |
| Total current assets                                                                                                                    |    |         | 32,474,109  |   |        |   | 36,679,684 |   |
|                                                                                                                                    |    |         |        |   |        |   |   |   |
| Property and equipment, net                                                                                                             |    |         | 69,028,973  |   |        |   | 65,451,303 |   |
| Goodwill                                                                                                                                |    |         | 188,190,078 |   |        |   | 188,190,078 |   |
| Intangible assets, net                                                                                                                  |    |         | 34,218,115  |   |        |   | 29,966,542 |   |
| Investments                                                                                                                             |    |         | 1,991,158   |   |        |   | 1,978,404 |   |
| Deferred financing costs                                                                                                                |    |         | 6,964,015   |   |        |   | 6,441,873 |   |
| Deferred income taxes                                                                                                                   |    |         | 4,482,430   |   |        |   | 4,482,430 |   |
| Other assets                                                                                                                            |    |         | 179,325     |   |        |   | 127,553 |   |
| Total assets                                                                                                                            |    | $            | 337,528,203 |   |        | $      | 333,317,867 |   |
|                                                                                                                                    |    |         |        |   |        |   |   |   |
| Liabilities and Stockholders’ Equity                                                                                              |    |         |        |   |        |   |   |   |
| Current liabilities                                                                                                                     |    |         |        |   |        |   |   |   |
| Accounts payable                                                                                                                        |    | $            | 3,145,728   |   |        | $      | 2,191,810 |   |
| Accrued expenses                                                                                                                        |    |         | 6,167,023   |   |        |   | 6,680,436 |   |
| Advance billings and payments                                                                                                           |    |         | 1,665,422   |   |        |   | 1,627,670 |   |
| Deferred income taxes                                                                                                                   |    |         | 394,850     |   |        |   | 394,850 |   |
| Customer deposits                                                                                                                       |    |         | 172,109     |   |        |   | 179,229 |   |
| Total current liabilities                                                                                                               |    |         | 11,545,132  |   |        |   | 11,073,995 |   |
|                                                                                                                                    |    |         |        |   |        |   |   |   |
| Deferred income taxes                                                                                                                   |    |         | 42,239,262  |   |        |   | 42,239,262 |   |
| Interest rate swaps                                                                                                                     |    |         | 1,592,813   |   |        |   | 2,655,262 |   |
| Advance billings and payments                                                                                                           |    |         | 698,352     |   |        |   | 677,660 |   |
| Other liabilities                                                                                                                       |    |         | 165,968     |   |        |   | 156,807 |   |
| Long-term notes payable                                                                                                                 |    |         | 273,717,301 |   |        |   | 277,757,514 |   |
| Total liabilities                                                                                                                       |    |         | 329,958,828 |   |        |   | 334,560,500 |   |
|                                                                                                                                    |    |         |        |   |        |   |   |   |
| Class B common convertible to senior subordinated notes                                                                                 |    |         | 4,085,033   |   |        |   | - |   |
|                                                                                                                                    |    |         |        |   |        |   |   |   |
| Stockholders’ equity                                                                                                              |    |         |        |   |        |   |   |   |
| Class A Common Stock, $.01 par value-authorized 20,000,000 shares;issued and outstanding 12,676,733 and 13,221,404 shares, respectively | 126,767 |         |        |   | 132,214     |   |
| Class B Common Stock, $.01 par value-authorized 800,000 shares;issued and outstanding 544,671 and 0 shares, respectively                |    |         | 5,447       |   |        |   | - |   |
| Additional paid in capital                                                                                                              |    |         | 10,340,862  |   |        |   | 5,582,263 |   |
| Retained deficit                                                                                                                        |    |         | (6,988,734  | )      |        |   | (6,957,110 | ) |
| Total stockholders’ equity                                                                                                        |    |         | 3,484,342   |   |        |   | (1,242,633 | ) |
| Total liabilities and stockholders’ equity                                                                                        |    | $            | 337,528,203 |   |        | $      | 333,317,867 |   |
|                                                                                                                                    |    |         |        |   |        |   |   |   |
|                                                                                                                                    |    |         |        |   |        |   |   |   |

----

|                                               |   | Three Months EndedJune 30, |       |   | Six Months EndedJune 30, |   |
|----------------------------------------------------|--------|----------------------------|------------|--------|--------------------------|--------|
|                                               |   | 2009                       |       |   | 2010                     |   |   | 2009 |   |   | 2010 |   |
|                                               |   |                       |       |   |                     |   |   |   |   |   |   |   |
| Revenues                                           |   |                       |       |   |                     |   |   |   |   |   |   |   |
| Local services                                     |   | $                          | 12,063,419 |   |                     | $      | 12,286,314 |   |   | $ | 23,918,400 |   |   | $ | 24,524,988 |   |
| Network access                                     |   |                       | 8,265,063  |   |                     |   | 8,603,635 |   |   |   | 16,359,196 |   |   |   | 16,588,604 |   |
| Cable television                                   |   |                       | 612,363    |   |                     |   | 698,739 |   |   |   | 1,219,050 |   |   |   | 1,364,574 |   |
| Internet                                           |   |                       | 3,500,149  |   |                     |   | 3,527,126 |   |   |   | 7,041,826 |   |   |   | 7,038,232 |   |
| Transport services                                 |   |                       | 1,355,677  |   |                     |   | 1,395,130 |   |   |   | 2,758,376 |   |   |   | 2,788,755 |   |
| Total revenues                                     |   |                       | 25,796,671 |   |                     |   | 26,510,944 |   |   |   | 51,296,848 |   |   |   | 52,305,153 |   |
| Operating expenses                                 |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Cost of services and products                      |   |                       | 10,133,256 |   |                     |   | 10,427,781 |   |   |   | 20,799,712 |   |   |   | 21,037,973 |   |
| Selling, general and administrative expenses       |   |                       | 3,342,855  |   |                     |   | 3,236,515 |   |   |   | 6,919,529 |   |   |   | 6,467,512 |   |
| Depreciation and amortization                      |   |                       | 6,604,748  |   |                     |   | 5,835,311 |   |   |   | 13,396,586 |   |   |   | 11,919,602 |   |
| Total operating expenses                           |   |                       | 20,080,859 |   |                     |   | 19,499,607 |   |   |   | 41,115,827 |   |   |   | 39,425,087 |   |
|                                               |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Income from operations                             |   |                       | 5,715,812  |   |                     |   | 7,011,337 |   |   |   | 10,181,021 |   |   |   | 12,880,066 |   |
|                                               |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Other income (expense)                             |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                   |   |                       | (6,446,902 | )      |                     |   | (6,179,470 | ) |   |   | (13,045,855 | ) |   |   | (12,168,112 | ) |
| Change in fair value of derivatives                |   |                       | 1,289,832  |   |                     |   | (176,279 | ) |   |   | 338,729 |   |   |   | (1,062,449 | ) |
| Other income                                       |   |                       | 12,510     |   |                     |   | 24,027 |   |   |   | 238,371 |   |   |   | 382,859 |   |
| Total other expense                                |   |                       | (5,144,560 | )      |                     |   | (6,331,722 | ) |   |   | (12,468,755 | ) |   |   | (12,847,702 | ) |
|                                               |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss) before income tax                    |   |                       | 571,252    |   |                     |   | 679,615 |   |   |   | (2,287,734 | ) |   |   | 32,364 |   |
| Income tax (expense) benefit                       |   |                       | (60,552    | )      |                     |   | (262,339 | ) |   |   | 964,401 |   |   |   | (744 | ) |
|                                               |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss) available to common stockholders |   | $                          | 510,700    |   |                     | $      | 417,276 |   |   | $ | (1,323,333 | ) |   | $ | 31,620 |   |
|                                               |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average shares outstanding:               |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                              |   |                       | 12,676,733 |   |                     |   | 12,812,901 |   |   |   | 12,676,733 |   |   |   | 12,747,540 |   |
| Diluted                                            |   |                       | 13,221,404 |   |                     |   | 13,221,404 |   |   |   | 13,221,404 |   |   |   | 13,221,404 |   |
| Basic net income (loss) per share                  |   | $                          | 0.04       |   |                     | $      | 0.03 |   |   | $ | (0.10 | ) |   | $ | 0.00 |   |
| Diluted net income (loss) per share                |   | $                          | 0.03       |   |                     | $      | 0.03 |   |   | $ | (0.11 | ) |   | $ | 0.00 |   |
|                                               |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Dividends declared per share                       |   | $                          | 0.18       |   |                     | $      | 0.18 |   |   | $ | 0.35 |   |   | $ | 0.35 |   |
|                                               |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
|                                               |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |

----

|                                                                         |   | Six Months EndedJune 30, |       |
|------------------------------------------------------------------------------|--------|--------------------------|------------|
|                                                                         |   | 2009                     |       |   | 2010 |   |
| Cash flows from operating activities:                                        |   |                     |       |   |   |   |
| Net income (loss)                                                            |   | $                        | (1,323,333 | ) |   | $ | 31,620 |   |
| Adjustments to reconcile net income to cash flows from operating activities: |   |                     |       |   |   |   |   |   |
| Depreciation                                                                 |   |                     | 7,176,803  |   |   |   | 6,900,218 |   |
| Amortization                                                                 |   |                     | 6,219,783  |   |   |   | 5,019,383 |   |
| Interest rate caplet                                                         |   |                     | 699,783    |   |   |   | - |   |
| Amortization of debt premium                                                 |   |                     | (39,918    | ) |   |   | (44,820 | ) |
| Amortization of loan costs                                                   |   |                     | 675,953    |   |   |   | 677,302 |   |
| Change in fair value of derivatives                                          |   |                     | (338,729   | ) |   |   | 1,062,449 |   |
| Provision for uncollectible revenue                                          |   |                     | 149,765    |   |   |   | 65,581 |   |
| Changes in assets and liabilities; net of assets and liabilities acquired:   |   |                     |       |   |   |   |   |   |
| Accounts receivables                                                         |   |                     | 86,941     |   |   |   | 53,458 |   |
| Material and supplies                                                        |   |                     | 239,576    |   |   |   | (25,002 | ) |
| Prepaid expenses and other assets                                            |   |                     | 234,189    |   |   |   | 373,651 |   |
| Income tax receivable                                                        |   |                     | -          |   |   |   | 389,486 |   |
| Accounts payable and accrued liabilities                                     |   |                     | (518,565   | ) |   |   | (428,566 | ) |
| Advance billings and payments                                                |   |                     | (46,205    | ) |   |   | (58,444 | ) |
| Other liabilities                                                            |   |                     | (30,003    | ) |   |   | (2,041 | ) |
|                                                                         |   |                     |       |   |   |   |   |   |
| Net cash from operating activities                                           |   |                     | 13,186,040 |   |   |   | 14,014,275 |   |
|                                                                         |   |                     |       |   |   |   |   |   |
| Cash flows from investing activities:                                        |   |                     |       |   |   |   |   |   |
| Acquisition and construction of property and equipment                       |   |                     | (3,577,514 | ) |   |   | (4,087,263 | ) |
| Adjustment to the purchase of the CR Companies                               |   |                     | 170,175    |   |   |   | - |   |
| Deferred charges                                                             |   |                     | -          |   |   |   | (1,041 | ) |
|                                                                         |   |                     |       |   |   |   |   |   |
| Net cash used in investing activities                                        |   |                     | (3,407,339 | ) |   |   | (4,088,304 | ) |
|                                                                         |   |                     |       |   |   |   |   |   |
| Cash flows from financing activities:                                        |   |                     |       |   |   |   |   |   |
| Cash dividends paid                                                          |   |                     | (4,468,548 | ) |   |   | (4,564,546 | ) |
| Direct cost of exchange of Class B shares for Class A shares                 |   |                     | -          |   |   |   | (194,053 | ) |
| Loan origination costs                                                       |   |                     | -          |   |   |   | (155,160 | ) |
|                                                                         |   |                     |       |   |   |   |   |   |
| Net cash used in financing activities                                        |   |                     | (4,468,548 | ) |   |   | (4,913,759 | ) |
|                                                                         |   |                     |       |   |   |   |   |   |
| Net increase in cash and cash equivalents                                    |   |                     | 5,310,153  |   |   |   | 5,012,212 |   |
| Cash and cash equivalents, beginning of period                               |   |                     | 13,542,255 |   |   |   | 17,731,044 |   |
|                                                                         |   |                     |       |   |   |   |   |   |
| Cash and cash equivalents, end of period                                     |   | $                        | 18,852,408 |   |   | $ | 22,743,256 |   |
|                                                                         |   |                     |       |   |   |   |   |   |
| Supplemental disclosures of cash flow information:                           |   |                     |       |   |   |   |   |   |
| Interest paid                                                                |   | $                        | 12,018,858 |   |   | $ | 11,535,629 |   |
|                                                                         |   |                     |       |   |   |   |   |   |
| Income taxes received                                                        |   | $                        | (15,342    | ) |   | $ | (289,163 | ) |
|                                                                         |   |                     |       |   |   |   |   |   |
|                                                                         |   |                     |       |   |   |   |   |   |

----

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 1.     | Organization and Basis of Financial Reporting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | Basis of Presentation and Principles of Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | The consolidated financial statements include the accounts of Otelco Inc. (the “Company”) and its subsidiaries, all of which are either directly or indirectly wholly owned. These include:  Otelco Telecommunications LLC (“OTC”); Otelco Telephone LLC (“OTP”); Hopper Telecommunications Company, Inc. (“HTC”); Brindlee Mountain Telephone Company (“BMTC”); Blountsville Telephone Company, Inc. (“BTC”); Mid-Missouri Holding Corp. (“MMH”) and its wholly owned subsidiary Mid-Missouri Telephone Company (“MMT”) and its wholly owned subsidiary Imagination, Inc.; Mid-Maine Telecom, Inc. (“MMTI”); Mid-Maine TelPlus (“MMTP”); The Granby Telephone & Telegraph Co. of Mass. (“GTT”); War Acquisition Corporation (“WT”); The Pine Tree Telephone and Telegraph Company (“PTT”); Saco River Telegraph and Telephone Company (“SRT”); CRC Communications of Maine, Inc. (“PTN”); and Communications Design Acquisition Corporation (“CDAC”).                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | The accompanying consolidated financial statements include the accounts of the Company and all of the aforesaid subsidiaries after elimination of all material intercompany balances and transactions.  The unaudited operating results for the three months and six months ended June 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | The consolidated financial statements and notes included in this Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2009.  The interim consolidated financial information herein is unaudited.  The information reflects all adjustments (which include only normal recurring adjustments), which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods included in the report.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | Certain prior year amounts have been reclassified to conform with the current year’s presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | Recently Adopted Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | In February 2010, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2010-09, Amendments to Certain Recognition and Disclosure Requirements (“ASU 2010-09”), an update to Accounting Standards Codification (“ASC”) 855, Subsequent Events.  ASU 2010-09 eliminates the requirement for a Securities and Exchange Commission (“SEC”) filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements.  Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of accounting principles generally accepted in the United States.  The FASB believes these amendments remove potential conflicts with the SEC’s literature.  ASU 2010-09 is effective upon issuance except for the use of the issued date for conduit debt obligors, which is effective for interim or annual periods ending after June 15, 2010.  The adoption of this update did not have a material impact on our consolidated financial statements. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | Recent Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements – a consensus of the FASB Emerging Issues Task Force (“ASU 2009-13”), an update to ASC 605, Revenue Recognition.  ASU 2009-13 provides application guidance on whether multiple deliverables exist, how the deliverables should be separated, and how the consideration should be allocated to one or more units of accounting.  ASU 2009-13 establishes a selling price hierarchy for determining the selling price of a deliverable.  The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific evidence is not available, or estimated selling price if neither vendor-specific nor third-party evidence is available.  The Company will be required to apply this guidance prospectively for revenue arrangements entered into or materially modified for fiscal years beginning on or after June 15, 2010; however, earlier application is permitted.  The Company has not determined the impact that this update may have on its consolidated financial statements.        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | In January 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair Value Measurements (“ASU 2010-06”), an update to ASC 820, Fair Value Measurements and Disclosures (“ASC 820”).  ASU 2010-06 provides more robust disclosures about (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements, and (4) the transfers between Levels 1, 2, and 3.  The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements.  Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.  The Company has not determined the impact that this update may have on its consolidated financial statements.                                                                                                                     |

----

| 2.     | Commitments and Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | From time to time, we may be involved in various claims, legal actions and regulatory proceedings incidental to and in the ordinary course of business, including administrative hearings of the Alabama, Maine, Massachusetts, Missouri, New Hampshire, and West Virginia Public Service Commissions relating primarily to rate making.  Currently, none of the legal proceedings are expected to have a material adverse effect on our business.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.     | Other Accounts Receivable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | The Company reached a settlement with respect to certain contracts with FairPoint Communications, Inc. which filed for bankruptcy on October 25, 2009.  The settlement was approved by the bankruptcy court on April 27, 2010 and the contracts are in effect.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.     | Income Deposit Securities Issued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | On June 8, 2010, the Company issued 544,671 Income Deposit Securities (“IDSs”), representing an aggregate of 544,671 shares of our Class A common stock and $4,085,033 aggregate principal amount of our 13% senior subordinated notes due 2019, in exchange for all 544,671 shares of our issued and outstanding Class B common stock.  There were no proceeds to the Company from this exchange.  The $4.1 million of senior subordinated notes was reclassified from the mezzanine section of the balance sheet to long-term notes payable.  Interest on the $4.1 million of senior subordinated notes was reflected in interest expense in the statement of operations from June 8, 2010 through June 30, 2010.  The direct cost of the exchange was $349,213.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 5.     | Derivative and Hedge Activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | An interest rate cap was purchased on December 21, 2004, coincident with the closing of our initial public offering and the recapitalization of our senior notes payable. The interest rate cap was purchased to mitigate the risk of rising interest rates to limit or cap the rate at 3% for the three month LIBOR index plus the applicable margin on $80 million in senior debt for five years. On July 5, 2007, the Company repaid $55,353,032 in debt, reducing its senior debt below the level of the rate cap. The cap was considered an effective hedge for the remaining senior debt as all critical terms of the interest rate cap were identical to the underlying debt it hedged. The balance of the cap at that time was considered as an investment and adjustments were made to accumulated other comprehensive income to reflect this change. On October 31, 2008, the Company entered into a second amended and restated credit agreement, increasing senior debt to $173.5 million in conjunction with the acquisition of three entities from Country Road Communications LLC.  The full $80 million rate cap was accounted for as an effective hedge from that date through the end of the rate cap on December 20, 2009.                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | The cost of the effective portion of the interest rate cap was expensed as interest over the effective life of the hedge in accordance with the quarterly value of the caplets as determined at the date of inception.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | The second amended and restated credit agreement requires that the Company acquire interest rate protection for at least half of the $173.5 million senior debt through at least October 31, 2010. Accordingly, the Company has acquired two interest rate swaps with approved counterparties.  The first swap has a notional amount of $90 million with the Company paying a fixed rate of 1.85% and the counterparty paying a variable rate based upon the three month LIBOR interest rate. It is effective from February 9, 2009 through February 8, 2012. The second swap has a notional amount of $60 million with the Company paying a fixed rate of 2.0475% and the counterparty paying a variable rate based upon the three month LIBOR interest rate. It is effective from February 9, 2010 through February 8, 2012. From an accounting perspective, the documentation for both swaps does not meet the technical requirements of ASC 815, Derivatives and Hedging, to allow the swaps to be considered highly effective hedging instruments and therefore the swaps do not qualify for hedge accounting.  The change in fair value of the swaps is charged or credited to income as a change in fair value of derivatives.  Over the life of the swaps, the cumulative change in value will be zero. |

----

| 6.     | Income (Loss) per Common Share and Potential Common Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | Basic income per common share is computed by dividing net income (loss) by the weighted-average number of shares outstanding for the period.  Diluted income (loss) per common share reflects the potential dilution that would occur had all of the issued and outstanding shares of Class B common stock been exchanged for IDSs at the beginning of the period.  On June 8, 2010, all of the Company’s issued and outstanding shares of Class B common stock were exchanged for IDSs on a one-for-one basis.  Each of the IDSs issued in the exchange includes a Class A common share. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | A reconciliation of the common shares for the Company’s basic and diluted income (loss) per common share calculation is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

|                                                                    |   | Three Months EndedJune 30, |       |   | Six Months EndedJune 30, |   |
|-------------------------------------------------------------------------|--------|----------------------------|------------|--------|--------------------------|--------|
|                                                                    |   | 2009                       |       |   | 2010                     |   |   | 2009 |   |   | 2010 |   |
|                                                                    |   |                       |       |   |                     |   |   |   |   |   |   |   |
| Weighted average common shares-basic                                    |   |                       | 12,676,733 |   |                     |   | 12,812,901 |   |   |   | 12,676,733 |   |   |   | 12,747,540 |   |
|                                                                    |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Effect of dilutive securities                                           |   |                       | 544,671    |   |                     |   | 408,503 |   |   |   | 544,671 |   |   |   | 473,864 |   |
|                                                                    |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Weighted-average common shares and potential common shares-diluted |   |                       | 13,221,404 |   |                     |   | 13,221,404 |   |   |   | 13,221,404 |   |   |   | 13,221,404 |   |
|                                                                    |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss) available to common stockholders                      |   | $                          | 510,700    |   |                     | $      | 417,276 |   |   | $ | (1,323,333 | ) |   | $ | 31,620 |   |
|                                                                    |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss) per basic share                                       |   | $                          | 0.04       |   |                     | $      | 0.03 |   |   | $ | (0.10 | ) |   | $ | 0.00 |   |
|                                                                    |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss) available to common stockholders                      |   | $                          | 510,700    |   |                     | $      | 417,276 |   |   | $ | (1,323,333 | ) |   | $ | 31,620 |   |
| Less: Change in fair value of B share derivative                        |   |                       | (62,882    | )      |                     |   | - |   |   |   | (74,462 | ) |   |   | - |   |
|                                                                    |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss) available for diluted shares                          |   | $                          | 447,818    |   |                     | $      | 417,276 |   |   | $ | (1,397,795 | ) |   | $ | 31,620 |   |
|                                                                    |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss) per diluted share                                     |   | $                          | 0.03       |   |                     | $      | 0.03 |   |   | $ | (0.11 | ) |   | $ | 0.00 |   |
|                                                                    |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |

| 7.     | Fair Value Measurements                                                                                                                                           |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                              |
|   | In accordance with ASC 820, the following table represents the Company’s fair value hierarchy for its financial assets and liabilities as of June 30, 2010: |
|   |                                                                                                                                                              |

|                          |   | June 30, 2010 |       |
|-------------------------------|--------|---------------|------------|
|                          |   | Fair Value    |       |   | Level 1 (1) |   |   | Level 2 (2) |   |   | Level 3 (3) |   |
| Assets                        |   |          |       |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents     |   | $             | 22,743,256 |   |   | $ | 22,743,256 |   |   | $ | - |   |   | $ | - |   |
| Co-operative patronage shares |   |          | 1,542,495  |   |   |   | - |   |   |   | - |   |   |   | 1,542,495 |   |
| Total assets                  |   | $             | 24,285,751 |   |   | $ | 22,743,256 |   |   | $ | - |   |   | $ | 1,542,495 |   |
| Liabilities                   |   |          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest rate swaps           |   | $             | 2,655,262  |   |   | $ | - |   |   | $ | 2,655,262 |   |   | $ | - |   |
| Total liabilities             |   | $             | 2,655,262  |   |   | $ | - |   |   | $ | 2,655,262 |   |   | $ | - |   |

----

|   | (1) | Quoted prices in active markets for identical assets. |
|--------|-----|-------------------------------------------------------|
|   | (2) | Significant other observable inputs.                  |
|   | (3) | Significant unobservable inputs.                      |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | The Company retains its cash and cash equivalents in short-term interest bearing instruments whose value is observable on a daily basis. Patronage shares have been issued primarily by one of our lenders which operates as a co-operative.  The Company does not pay for these shares but receives them as a non-cash dividend. The market for these shares is limited to the issuing organization and subject to uncertainty of future redemption for cash. These shares are valued at approximately 55% of their originally issued value. While the issuer and the Company expect these shares to be worth their issued value, the current valuation recognizes some uncertainty of their future redemption value. |

----

|   | The interest rate swaps are valued at the end of the quarter by market experts in that business based on similar transactions and rates in an active financial market.                                                                                                                                                                                                                                                                                                                                                                                                                    |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 8.     | Subsidiary Guarantees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | The Company has no independent assets or operations separate from its operating subsidiaries.  The guarantees of its senior subordinated notes by 12 of its 14 operating subsidiaries are full and unconditional, joint and several.  The operating subsidiaries have no independent long-term notes payable.  There are no significant restrictions on the ability of the Company to obtain funds from its operating subsidiaries by dividend or loan.  The condensed consolidated financial information is provided for the guarantor entities. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | The following tables present condensed consolidating balance sheets as of December 31, 2009 and June 30, 2010; condensed consolidating statements of operations for the three months ended June 30, 2009 and 2010; condensed consolidating statements of operations for the six months ended June 30, 2009 and 2010; and condensed consolidating statements of cash flows for the six months ended June 30, 2009 and 2010.                                                                                                                                                                |

|                                                    |   | Parent |        |   | GuarantorSubsidiaries |   |        | Non-GuarantorSubsidiaries |   |   | Eliminations |   |   | Consolidated |         |
|---------------------------------------------------------|--------|--------|-------------|--------|-----------------------|--------|-------------|---------------------------|--------|--------|--------------|--------|--------|--------------|--------------|
| ASSETS                                                  |   |   |        |   |                  |   |        |                      |   |   |         |   |   |         |         |
|                                                    |   |   |        |   |                  |   |        |                      |   |   |         |   |   |         |         |
| Current assets                                          |   |   |        |   |                  |   |        |                      |   |   |         |   |   |         |         |
| Cash and cash equivalents                               |   | $      | -           |   |                  | $      | 17,617,266  |                      |   | $      | 113,778      |   |   | $            | -            |   |   | $ | 17,731,044 |   |
| Accounts receivable, net                                |   |   | -           |   |                  |   | 9,354,246   |                      |   |   | 942,587      |   |   |         | -            |   |   |   | 10,296,833 |   |
| Materials and supplies                                  |   |   | -           |   |                  |   | 938,766     |                      |   |   | 1,031,200    |   |   |         | -            |   |   |   | 1,969,966 |   |
| Prepaid expenses                                        |   |   | 76,219      |   |                  |   | 1,192,272   |                      |   |   | 73,758       |   |   |         | -            |   |   |   | 1,342,249 |   |
| Income tax receivables                                  |   |   | 389,486     |   |                  |   | -           |                      |   |   | -            |   |   |         | -            |   |   |   | 389,486 |   |
| Deferred income taxes                                   |   |   | 744,531     |   |                  |   | -           |                      |   |   | -            |   |   |         | -            |   |   |   | 744,531 |   |
| Investment in subsidiaries                              |   |   | 113,558,790 |   |                  |   | -           |                      |   |   | -            |   |   |         | (113,558,790 | ) |   |   | - |   |
| Intercompany receivable                                 |   |   | 129,450,605 |   |                  |   | -           |                      |   |   | -            |   |   |         | (129,450,605 | ) |   |   | - |   |
| Total current assets                                    |   |   | 244,219,631 |   |                  |   | 29,102,550  |                      |   |   | 2,161,323    |   |   |         | (243,009,395 | ) |   |   | 32,474,109 |   |
|                                                    |   |   |        |   |                  |   |        |                      |   |   |         |   |   |         |         |   |   |   |   |   |
| Property and equipment, net                             |   |   | -           |   |                  |   | 57,762,888  |                      |   |   | 11,266,085   |   |   |         | -            |   |   |   | 69,028,973 |   |
| Goodwill                                                |   |   | -           |   |                  |   | 190,126,718 |                      |   |   | (1,936,640   | )      |   |         | -            |   |   |   | 188,190,078 |   |
| Intangible assets, net                                  |   |   | -           |   |                  |   | 31,361,923  |                      |   |   | 2,856,192    |   |   |         | -            |   |   |   | 34,218,115 |   |
| Investments                                             |   |   | 1,000       |   |                  |   | 1,661,027   |                      |   |   | 329,131      |   |   |         | -            |   |   |   | 1,991,158 |   |
| Deferred income taxes                                   |   |   | 4,482,430   |   |                  |   | -           |                      |   |   | -            |   |   |         | -            |   |   |   | 4,482,430 |   |
| Other long-term assets                                  |   |   | 7,519,753   |   |                  |   | (376,413    | )                         |   |   | -            |   |   |         | -            |   |   |   | 7,143,340 |   |
|                                                    |   |   |        |   |                  |   |        |                      |   |   |         |   |   |         |         |   |   |   |   |   |
| Total assets                                            |   | $      | 256,222,814 |   |                  | $      | 309,638,693 |                      |   | $      | 14,676,091   |   |   | $            | (243,009,395 | ) |   | $ | 337,528,203 |   |
|                                                    |   |   |        |   |                  |   |        |                      |   |   |         |   |   |         |         |   |   |   |   |   |
|                                                    |   |   |        |   |                  |   |        |                      |   |   |         |   |   |         |         |   |   |   |   |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY              |   |   |        |   |                  |   |        |                      |   |   |         |   |   |         |         |   |   |   |   |   |
|                                                    |   |   |        |   |                  |   |        |                      |   |   |         |   |   |         |         |   |   |   |   |   |
| Current liabilities                                     |   |   |        |   |                  |   |        |                      |   |   |         |   |   |         |         |   |   |   |   |   |
| Accounts payable and accrued expenses                   |   | $      | 2,549,577   |   |                  | $      | 5,650,086   |                      |   | $      | 1,113,088    |   |   | $            | -            |   |   | $ | 9,312,751 |   |
| Intercompany payables                                   |   |   | -           |   |                  |   | 123,837,610 |                      |   |   | 5,612,995    |   |   |         | (129,450,605 | ) |   |   | - |   |
| Other current liabilities                               |   |   | 394,850     |   |                  |   | 1,758,112   |                      |   |   | 79,419       |   |   |         | -            |   |   |   | 2,232,381 |   |
| Total current liabilities                               |   |   | 2,944,427   |   |                  |   | 131,245,808 |                      |   |   | 6,805,502    |   |   |         | (129,450,605 | ) |   |   | 11,545,132 |   |
|                                                    |   |   |        |   |                  |   |        |                      |   |   |         |   |   |         |         |   |   |   |   |   |
| Deferred income taxes                                   |   |   | 10,662,374  |   |                  |   | 28,184,570  |                      |   |   | 3,392,318    |   |   |         | -            |   |   |   | 42,239,262 |   |
| Other liabilities                                       |   |   | 1,592,813   |   |                  |   | 864,320     |                      |   |   | -            |   |   |         | -            |   |   |   | 2,457,133 |   |
| Long-term notes payable                                 |   |   | 233,453,825 |   |                  |   | 40,263,476  |                      |   |   | -            |   |   |         | -            |   |   |   | 273,717,301 |   |
| Class B common convertible to senior subordinated notes |   |   | 4,085,033   |   |                  |   | -           |                      |   |   | -            |   |   |         | -            |   |   |   | 4,085,033 |   |
| Stockholders’ equity                              |   |   | 3,484,342   |   |                  |   | 109,080,519 |                      |   |   | 4,478,271    |   |   |         | (113,558,790 | ) |   |   | 3,484,342 |   |
|                                                    |   |   |        |   |                  |   |        |                      |   |   |         |   |   |         |         |   |   |   |   |   |
| Total liabilities and stockholders’ equity        |   | $      | 256,222,814 |   |                  | $      | 309,638,693 |                      |   | $      | 14,676,091   |   |   | $            | (243,009,395 | ) |   | $ | 337,528,203 |   |

----

|                                             |   | Parent |         |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiaries |   |   | Eliminations |   |   | Consolidated |         |
|--------------------------------------------------|--------|--------|--------------|--------|-----------------------|--------|--------------|---------------------------|--------|--------|--------------|--------|--------|--------------|--------------|
| ASSETS                                           |   |   |         |   |                  |   |         |                      |   |   |         |   |   |         |         |
|                                             |   |   |         |   |                  |   |         |                      |   |   |         |   |   |         |         |
| Current assets                                   |   |   |         |   |                  |   |         |                      |   |   |         |   |   |         |         |
| Cash and cash equivalents                        |   | $      | -            |   |                  | $      | 22,599,607   |                      |   | $      | 143,649      |   |   | $            | -            |   |   | $ | 22,743,256 |   |
| Accounts receivable, net                         |   |   | -            |   |                  |   | 9,419,236    |                      |   |   | 809,095      |   |   |         | -            |   |   |   | 10,228,331 |   |
| Materials and supplies                           |   |   | -            |   |                  |   | 1,022,065    |                      |   |   | 972,903      |   |   |         | -            |   |   |   | 1,994,968 |   |
| Prepaid expenses                                 |   |   | 77,875       |   |                  |   | 835,373      |                      |   |   | 55,350       |   |   |         | -            |   |   |   | 968,598 |   |
| Deferred income taxes                            |   |   | 744,531      |   |                  |   | -            |                      |   |   | -            |   |   |         | -            |   |   |   | 744,531 |   |
| Investment in subsidiaries                       |   |   | 126,272,743  |   |                  |   | -            |                      |   |   | -            |   |   |         | (126,272,743 | ) |   |   | - |   |
| Intercompany receivable                          |   |   | (118,235,194 | )      |                  |   | -            |                      |   |   | -            |   |   |         | 118,235,194  |   |   |   | - |   |
| Total current assets                             |   |   | 8,859,955    |   |                  |   | 33,876,281   |                      |   |   | 1,980,997    |   |   |         | (8,037,549   | ) |   |   | 36,679,684 |   |
|                                             |   |   |         |   |                  |   |         |                      |   |   |         |   |   |         |         |   |   |   |   |   |
| Property and equipment, net                      |   |   | -            |   |                  |   | 55,335,698   |                      |   |   | 10,115,605   |   |   |         | -            |   |   |   | 65,451,303 |   |
| Goodwill                                         |   |   | 239,970,317  |   |                  |   | (49,843,599  | )                         |   |   | (1,936,640   | )      |   |         | -            |   |   |   | 188,190,078 |   |
| Intangible assets, net                           |   |   | -            |   |                  |   | 27,234,532   |                      |   |   | 2,732,010    |   |   |         | -            |   |   |   | 29,966,542 |   |
| Investments                                      |   |   | 1,203,605    |   |                  |   | 445,668      |                      |   |   | 329,131      |   |   |         | -            |   |   |   | 1,978,404 |   |
| Deferred income taxes                            |   |   | 4,482,430    |   |                  |   | -            |                      |   |   | -            |   |   |         | -            |   |   |   | 4,482,430 |   |
| Other long-term assets                           |   |   | 6,441,873    |   |                  |   | 127,553      |                      |   |   | -            |   |   |         | -            |   |   |   | 6,569,426 |   |
|                                             |   |   |         |   |                  |   |         |                      |   |   |         |   |   |         |         |   |   |   |   |   |
| Total assets                                     |   | $      | 260,958,180  |   |                  | $      | 67,176,133   |                      |   | $      | 13,221,103   |   |   | $            | (8,037,549   | ) |   | $ | 333,317,867 |   |
|                                             |   |   |         |   |                  |   |         |                      |   |   |         |   |   |         |         |   |   |   |   |   |
|                                             |   |   |         |   |                  |   |         |                      |   |   |         |   |   |         |         |   |   |   |   |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY       |   |   |         |   |                  |   |         |                      |   |   |         |   |   |         |         |   |   |   |   |   |
|                                             |   |   |         |   |                  |   |         |                      |   |   |         |   |   |         |         |   |   |   |   |   |
| Current liabilities                              |   |   |         |   |                  |   |         |                      |   |   |         |   |   |         |         |   |   |   |   |   |
| Accounts payable and accrued expenses            |   | $      | 1,847,763    |   |                  | $      | 5,317,532    |                      |   | $      | 1,706,951    |   |   | $            | -            |   |   | $ | 8,872,246 |   |
| Intercompany payables                            |   |   | -            |   |                  |   | (120,761,262 | )                         |   |   | 2,526,068    |   |   |         | 118,235,194  |   |   |   | - |   |
| Other current liabilities                        |   |   | 394,850      |   |                  |   | 1,725,704    |                      |   |   | 81,195       |   |   |         | -            |   |   |   | 2,201,749 |   |
| Total current liabilities                        |   |   | 2,242,613    |   |                  |   | (113,718,026 | )                         |   |   | 4,314,214    |   |   |         | 118,235,194  |   |   |   | 11,073,995 |   |
|                                             |   |   |         |   |                  |   |         |                      |   |   |         |   |   |         |         |   |   |   |   |   |
| Deferred income taxes                            |   |   | 19,808,900   |   |                  |   | 19,038,044   |                      |   |   | 3,392,318    |   |   |         | -            |   |   |   | 42,239,262 |   |
| Other liabilities                                |   |   | 2,655,262    |   |                  |   | 834,467      |                      |   |   | -            |   |   |         | -            |   |   |   | 3,489,729 |   |
| Long-term notes payable                          |   |   | 237,494,038  |   |                  |   | 40,263,476   |                      |   |   | -            |   |   |         | -            |   |   |   | 277,757,514 |   |
| Stockholders’ equity                       |   |   | (1,242,633   | )      |                  |   | 120,758,172  |                      |   |   | 5,514,571    |   |   |         | (126,272,743 | ) |   |   | (1,242,633 | ) |
|                                             |   |   |         |   |                  |   |         |                      |   |   |         |   |   |         |         |   |   |   |   |   |
| Total liabilities and stockholders’ equity |   | $      | 260,958,180  |   |                  | $      | 67,176,133   |                      |   | $      | 13,221,103   |   |   | $            | (8,037,549   | ) |   | $ | 333,317,867 |   |

|                              |   | Parent |       |   | GuarantorSubsidiaries |   |        | Non-GuarantorSubsidiaries |   |   | Eliminations |   |   | Consolidated |       |
|-----------------------------------|--------|--------|------------|--------|-----------------------|--------|-------------|---------------------------|--------|--------|--------------|--------|--------|--------------|------------|
|                              |   |   |       |   |                  |   |        |                      |   |   |         |   |   |         |       |
| Revenue                           |   | $      | 700,138    |   |                  | $      | 24,908,849  |                      |   | $      | 2,897,581    |   |   | $            | (2,709,897 | ) |   | $ | 25,796,671 |   |
| Operating expenses                |   |   | (700,138   | )      |                  |   | (20,055,598 | )                         |   |   | (2,035,020   | )      |   |         | 2,709,897  |   |   |   | (20,080,859 | ) |
| Income from operations            |   |   | -          |   |                  |   | 4,853,251   |                      |   |   | 862,561      |   |   |         | -          |   |   |   | 5,715,812 |   |
| Other expense                     |   |   | (5,052,138 | )      |                  |   | (92,411     | )                         |   |   | (11          | )      |   |         | -          |   |   |   | (5,144,560 | ) |
| Earnings from subsidiaries        |   |   | 5,623,390  |   |                  |   | -           |                      |   |   | -            |   |   |         | (5,623,390 | ) |   |   | - |   |
| Income before income tax          |   |   | 571,252    |   |                  |   | 4,760,840   |                      |   |   | 862,550      |   |   |         | (5,623,390 | ) |   |   | 571,252 |   |
| Income tax expense                |   |   | (60,552    | )      |                  |   | -           |                      |   |   | -            |   |   |         | -          |   |   |   | (60,552 | ) |
|                              |   |   |       |   |                  |   |        |                      |   |   |         |   |   |         |       |   |   |   |   |   |
| Net income to common stockholders |   | $      | 510,700    |   |                  | $      | 4,760,840   |                      |   | $      | 862,550      |   |   | $            | (5,623,390 | ) |   | $ | 510,700 |   |

----

|                              |   | Parent |       |   | GuarantorSubsidiaries |   |        | Non-GuarantorSubsidiaries |   |   | Eliminations |   |   | Consolidated |       |
|-----------------------------------|--------|--------|------------|--------|-----------------------|--------|-------------|---------------------------|--------|--------|--------------|--------|--------|--------------|------------|
|                              |   |   |       |   |                  |   |        |                      |   |   |         |   |   |         |       |
| Revenue                           |   | $      | 801,566    |   |                  | $      | 25,763,717  |                      |   | $      | 2,755,166    |   |   | $            | (2,809,505 | ) |   | $ | 26,510,944 |   |
| Operating expenses                |   |   | (801,566   | )      |                  |   | (19,287,396 | )                         |   |   | (2,220,150   | )      |   |         | 2,809,505  |   |   |   | (19,499,607 | ) |
| Income from operations            |   |   | -          |   |                  |   | 6,476,321   |                      |   |   | 535,016      |   |   |         | -          |   |   |   | 7,011,337 |   |
| Other expense                     |   |   | (6,244,557 | )      |                  |   | (87,131     | )                         |   |   | (34          | )      |   |         | -          |   |   |   | (6,331,722 | ) |
| Earnings from subsidiaries        |   |   | 6,924,172  |   |                  |   | -           |                      |   |   | -            |   |   |         | (6,924,172 | ) |   |   | - |   |
| Income before income tax          |   |   | 679,615    |   |                  |   | 6,389,190   |                      |   |   | 534,982      |   |   |         | (6,924,172 | ) |   |   | 679,615 |   |
| Income tax expense                |   |   | (262,339   | )      |                  |   | -           |                      |   |   | -            |   |   |         | -          |   |   |   | (262,339 | ) |
|                              |   |   |       |   |                  |   |        |                      |   |   |         |   |   |         |       |   |   |   |   |   |
| Net income to common stockholders |   | $      | 417,276    |   |                  | $      | 6,389,190   |                      |   | $      | 534,982      |   |   | $            | (6,924,172 | ) |   | $ | 417,276 |   |

|                                     |   | Parent |        |   | GuarantorSubsidiaries |   |        | Non-GuarantorSubsidiaries |   |   | Eliminations |   |   | Consolidated |       |
|------------------------------------------|--------|--------|-------------|--------|-----------------------|--------|-------------|---------------------------|--------|--------|--------------|--------|--------|--------------|------------|
|                                     |   |   |        |   |                  |   |        |                      |   |   |         |   |   |         |       |
| Revenue                                  |   | $      | 1,534,430   |   |                  | $      | 49,426,210  |                      |   | $      | 5,842,340    |   |   | $            | (5,506,132 | ) |   | $ | 51,296,848 |   |
| Operating expenses                       |   |   | (1,534,430  | )      |                  |   | (40,863,271 | )                         |   |   | (4,224,258   | )      |   |         | 5,506,132  |   |   |   | (41,115,827 | ) |
| Income from operations                   |   |   | -           |   |                  |   | 8,562,939   |                      |   |   | 1,618,082    |   |   |         | -          |   |   |   | 10,181,021 |   |
| Other income (expense)                   |   |   | (12,255,217 | )      |                  |   | (215,019    | )                         |   |   | 1,481        |   |   |         | -          |   |   |   | (12,468,755 | ) |
| Earnings from subsidiaries               |   |   | 9,967,483   |   |                  |   | -           |                      |   |   | -            |   |   |         | (9,967,483 | ) |   |   | - |   |
| Income (loss) before income tax          |   |   | (2,287,734  | )      |                  |   | 8,347,920   |                      |   |   | 1,619,563    |   |   |         | (9,967,483 | ) |   |   | (2,287,734 | ) |
| Income tax benefit                       |   |   | 964,401     |   |                  |   | -           |                      |   |   | -            |   |   |         | -          |   |   |   | 964,401 |   |
|                                     |   |   |        |   |                  |   |        |                      |   |   |         |   |   |         |       |   |   |   |   |   |
| Net income (loss) to common stockholders |   | $      | (1,323,333  | )      |                  | $      | 8,347,920   |                      |   | $      | 1,619,563    |   |   | $            | (9,967,483 | ) |   | $ | (1,323,333 | ) |

|                              |   | Parent |        |   | GuarantorSubsidiaries |   |        | Non-GuarantorSubsidiaries |   |   | Eliminations |   |   | Consolidated |        |
|-----------------------------------|--------|--------|-------------|--------|-----------------------|--------|-------------|---------------------------|--------|--------|--------------|--------|--------|--------------|-------------|
|                              |   |   |        |   |                  |   |        |                      |   |   |         |   |   |         |        |
| Revenue                           |   | $      | 1,621,079   |   |                  | $      | 50,767,112  |                      |   | $      | 5,551,502    |   |   | $            | (5,634,540  | ) |   | $ | 52,305,153 |   |
| Operating expenses                |   |   | (1,621,079  | )      |                  |   | (38,923,398 | )                         |   |   | (4,515,150   | )      |   |         | 5,634,540   |   |   |   | (39,425,087 | ) |
| Income from operations            |   |   | -           |   |                  |   | 11,843,714  |                      |   |   | 1,036,352    |   |   |         | -           |   |   |   | 12,880,066 |   |
| Other expense                     |   |   | (12,681,589 | )      |                  |   | (166,063    | )                         |   |   | (50          | )      |   |         | -           |   |   |   | (12,847,702 | ) |
| Earnings from subsidiaries        |   |   | 12,713,953  |   |                  |   | -           |                      |   |   | -            |   |   |         | (12,713,953 | ) |   |   | - |   |
| Income before income tax          |   |   | 32,364      |   |                  |   | 11,677,651  |                      |   |   | 1,036,302    |   |   |         | (12,713,953 | ) |   |   | 32,364 |   |
| Income tax expense                |   |   | (744        | )      |                  |   | -           |                      |   |   | -            |   |   |         | -           |   |   |   | (744 | ) |
|                              |   |   |        |   |                  |   |        |                      |   |   |         |   |   |         |        |   |   |   |   |   |
| Net income to common stockholders |   | $      | 31,620      |   |                  | $      | 11,677,651  |                      |   | $      | 1,036,302    |   |   | $            | (12,713,953 | ) |   | $ | 31,620 |   |

----

|                                                                                  |   | Parent |        |   | GuarantorSubsidiaries |   |        | Non-GuarantorSubsidiaries |   |   | Eliminations |   |   | Consolidated |       |
|---------------------------------------------------------------------------------------|--------|--------|-------------|--------|-----------------------|--------|-------------|---------------------------|--------|--------|--------------|--------|--------|--------------|------------|
|                                                                                  |   |   |        |   |                  |   |        |                      |   |   |         |   |   |         |       |
| Cash flows from operating activities:                                                 |   |   |        |   |                  |   |        |                      |   |   |         |   |   |         |       |
| Net income (loss)                                                                     |   | $      | (1,323,333  | )      |                  | $      | 8,347,920   |                      |   | $      | 1,619,563    |   |   | $            | (9,967,483 | ) |   | $ | (1,323,333 | ) |
| Adjustment to reconcile net income (loss) to cashflows from operating activities |   |   | 997,089     |   |                  |   | 11,895,013  |                      |   |   | 1,651,338    |   |   |         | -          |   |   |   | 14,543,440 |   |
| Changes in assets and liabilities, net ofassets and liabilities acquired         |   |   | 14,762,275  |   |                  |   | (12,017,282 | )                         |   |   | (2,779,060   | )      |   |         | -          |   |   |   | (34,067 | ) |
| Net cash provided by operating activities                                             |   |   | 14,436,031  |   |                  |   | 8,225,651   |                      |   |   | 491,841      |   |   |         | (9,967,483 | ) |   |   | 13,186,040 |   |
| Cash flows used in investing activities                                               |   |   | -           |   |                  |   | (2,933,420  | )                         |   |   | (473,919     | )      |   |         | -          |   |   |   | (3,407,339 | ) |
| Cash flows used in financing activities                                               |   |   | (14,436,031 | )      |                  |   | -           |                      |   |   | -            |   |   |         | 9,967,483  |   |   |   | (4,468,548 | ) |
| Net increase in cash and cash equivalents                                             |   |   | -           |   |                  |   | 5,292,231   |                      |   |   | 17,922       |   |   |         | -          |   |   |   | 5,310,153 |   |
|                                                                                  |   |   |        |   |                  |   |        |                      |   |   |         |   |   |         |       |   |   |   |   |   |
| Cash and cash equivalents, beginning of period                                        |   |   | -           |   |                  |   | 13,521,138  |                      |   |   | 21,117       |   |   |         | -          |   |   |   | 13,542,255 |   |
|                                                                                  |   |   |        |   |                  |   |        |                      |   |   |         |   |   |         |       |   |   |   |   |   |
| Cash and cash equivalents, end of period                                              |   | $      | -           |   |                  | $      | 18,813,369  |                      |   | $      | 39,039       |   |   | $            | -          |   |   | $ | 18,852,408 |   |

|                                                                          |   | Parent |        |   | GuarantorSubsidiaries |   |        | Non-GuarantorSubsidiaries |   |   | Eliminations |   |   | Consolidated |        |
|-------------------------------------------------------------------------------|--------|--------|-------------|--------|-----------------------|--------|-------------|---------------------------|--------|--------|--------------|--------|--------|--------------|-------------|
|                                                                          |   |   |        |   |                  |   |        |                      |   |   |         |   |   |         |        |
| Cash flows from operating activities:                                         |   |   |        |   |                  |   |        |                      |   |   |         |   |   |         |        |
| Net income                                                                    |   | $      | 31,620      |   |                  | $      | 11,677,651  |                      |   | $      | 1,036,302    |   |   | $            | (12,713,953 | ) |   | $ | 31,620 |   |
| Adjustment to reconcile net income to cashflows from operating activities     |   |   | 1,694,931   |   |                  |   | 10,259,423  |                      |   |   | 1,725,759    |   |   |         | -           |   |   |   | 13,680,113 |   |
| Changes in assets and liabilities, net ofassets and liabilities acquired |   |   | 15,901,162  |   |                  |   | (13,286,240 | )                         |   |   | (2,312,380   | )      |   |         | -           |   |   |   | 302,542 |   |
| Net cash provided by operating activities                                     |   |   | 17,627,713  |   |                  |   | 8,650,834   |                      |   |   | 449,681      |   |   |         | (12,713,953 | ) |   |   | 14,014,275 |   |
| Cash flows used in investing activities                                       |   |   | -           |   |                  |   | (3,668,494  | )                         |   |   | (419,810     | )      |   |         | -           |   |   |   | (4,088,304 | ) |
| Cash flows used in financing activities                                       |   |   | (17,627,713 | )      |                  |   | 1           |                      |   |   | -            |   |   |         | 12,713,953  |   |   |   | (4,913,759 | ) |
| Net increase in cash and cash equivalents                                     |   |   | -           |   |                  |   | 4,982,341   |                      |   |   | 29,871       |   |   |         | -           |   |   |   | 5,012,212 |   |
|                                                                          |   |   |        |   |                  |   |        |                      |   |   |         |   |   |         |        |   |   |   |   |   |
| Cash and cash equivalents, beginning of period                                |   |   | -           |   |                  |   | 17,617,266  |                      |   |   | 113,778      |   |   |         | -           |   |   |   | 17,731,044 |   |
|                                                                          |   |   |        |   |                  |   |        |                      |   |   |         |   |   |         |        |   |   |   |   |   |
| Cash and cash equivalents, end of period                                      |   | $      | -           |   |                  | $      | 22,599,607  |                      |   | $      | 143,649      |   |   | $            | -           |   |   | $ | 22,743,256 |   |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 9.     | Revenue Concentrations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | Revenues for interstate access services are based on reimbursement of costs and an allowed rate of return.  Revenues of this nature are received from the National Exchange Carrier Association in the form of monthly settlements.  Such revenues amounted to 10.3% and 9.8% of the Company’s total revenues from continuing operations for the six months ended June 30, 2009 and 2010, respectively.                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | The Company has a contract through 2012 with Time Warner Cable (“TW”) for the provision of wholesale network connections to TW’s customers in Maine and New Hampshire. TW represented approximately 8.7% and 10.3% of the Company’s consolidated revenue for the six months ended June 30, 2009 and 2010, respectively.  Other unrelated telecommunications providers also pay the Company access revenue for terminating calls through it to TW’s customers. |

----

| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|---------|---------------------------------------------------------------------------------------------|

|   | ● | Local services.  We receive revenues from providing local exchange telecommunications services in our ten rural territories, from the wholesale network services in New England, and on a competitive basis throughout Maine and New Hampshire. These revenues include monthly subscription charges for basic service, calling beyond the local territory on a fixed price and on a per minute basis, local private line services and enhanced calling features, such as voicemail, caller identification, call waiting and call forwarding. We also provide billing and collections services for other carriers under contract and receive revenues from directory advertising. A growing portion of our rural subscribers take bundled service plans which include multiple services, including unlimited domestic calling, for a flat monthly fee.                                                                                                                                               |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | ● | Network access.  We receive revenues from charges established to compensate us for the origination, transport and termination of calls of long distance and other interexchange carriers. These include subscriber line charges imposed on end users and switched and special access charges paid by carriers. Switched access charges for long distance services within Alabama, Massachusetts, Maine, Missouri, New Hampshire and West Virginia are based on rates approved by the Alabama Public Service Commission, the Massachusetts Department of Telecommunications and Cable, the Maine Public Utilities Commission (“MPUC”), the Missouri Public Service Commission, the New Hampshire Public Utilities Commission (“NHPUC”) and the West Virginia Public Service Commission, respectively, where appropriate. Switched and special access charges for interstate and international services are based on rates approved by the Federal Communications Commission. |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | ● | Cable television.  We offer basic, digital, high-definition, digital video recording and pay per view cable television services to a portion of our telephone service territory in both Alabama and Missouri, including Internet Protocol television (“IPTV”) in Alabama.  We are a reseller of satellite services for DirecTV.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | ● | Internet.  We receive revenues from monthly recurring charges for digital high-speed data lines, dial-up internet access and ancillary services such as web hosting and computer virus protection.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | ● | Transport services.  We receive monthly recurring revenues for the rental of fiber to transport data and other telecommunications services in Maine.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

----

|                              |   | At and For theYear EndedDecember 31, |    |   | At and For theThree MonthsEndedMarch 31, |   |    | At and For theThree MonthsEndedJune 30, |   |
|-----------------------------------|--------|--------------------------------------|---------|--------|------------------------------------------|--------|---------|-----------------------------------------|--------|
|                              |   | 2008                                 |    |   | 2009                                     |   |    | 2010                                    |   |   | 2010 |   |
| Otelco access line equivalents(1) |   |                                 | 100,043 |   |                                     |   | 100,356 |                                    |   |   | 100,522 |   |   |   | 100,126 |   |
| RLEC and other services:          |   |                                 |    |   |                                     |   |    |                                    |   |   |   |   |   |   |   |   |
| Voice access lines                |   |                                 | 51,530  |   |                                     |   | 48,215  |                                    |   |   | 47,552 |   |   |   | 46,788 |   |
| Data access lines                 |   |                                 | 18,709  |   |                                     |   | 20,066  |                                    |   |   | 20,614 |   |   |   | 20,703 |   |
| Access line equivalents(1)        |   |                                 | 70,239  |   |                                     |   | 68,281  |                                    |   |   | 68,166 |   |   |   | 67,491 |   |
| Cable television customers        |   |                                 | 4,082   |   |                                     |   | 4,195   |                                    |   |   | 4,239 |   |   |   | 4,205 |   |
| Additional internet customers     |   |                                 | 11,864  |   |                                     |   | 9,116   |                                    |   |   | 8,528 |   |   |   | 8,048 |   |
| RLEC dial-up                      |   |                                 | 1,183   |   |                                     |   | 786     |                                    |   |   | 656 |   |   |   | 551 |   |
| Other dial-up                     |   |                                 | 9,213   |   |                                     |   | 6,439   |                                    |   |   | 5,765 |   |   |   | 5,340 |   |
| Other data lines                  |   |                                 | 1,468   |   |                                     |   | 1,891   |                                    |   |   | 2,107 |   |   |   | 2,157 |   |
| Revenues (dollars in millions)    |   | $                                    | 54.4    |   |                                     | $      | 61.3    |                                    |   | $ | 14.7 |   |   | $ | 14.4 |   |
|                              |   |                                 |    |   |                                     |   |    |                                    |   |   |   |   |   |   |   |   |
| CLEC:                             |   |                                 |    |   |                                     |   |    |                                    |   |   |   |   |   |   |   |   |
| Voice access lines                |   |                                 | 26,558  |   |                                     |   | 28,647  |                                    |   |   | 28,889 |   |   |   | 29,070 |   |
| Data access lines                 |   |                                 | 3,246   |   |                                     |   | 3,428   |                                    |   |   | 3,467 |   |   |   | 3,565 |   |
| Access line equivalents(1)        |   |                                 | 29,804  |   |                                     |   | 32,075  |                                    |   |   | 32,356 |   |   |   | 32,635 |   |
| Wholesale network connections     |   |                                 | 98,187  |   |                                     |   | 132,324 |                                    |   |   | 137,318 |   |   |   | 142,837 |   |
| Revenues (dollars in millions)    |   | $                                    | 22.7    |   |                                     | $      | 42.5    |                                    |   | $ | 11.1 |   |   | $ | 12.1 |   |

----

| (1) | We define access line equivalents as voice access lines and data access lines (including cable modems, digital subscriber lines, and dedicated data access trunks). |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|                                               |   | Three Months Ended June 30, |   |   | Six Months Ended June 30, |   |
|----------------------------------------------------|--------|-----------------------------|--------|--------|---------------------------|--------|
|                                               |   | 2009                        |   |   | 2010                      |   |   | 2009 |   |   | 2010 |   |
| Revenues                                           |   |                        |   |   |                      |   |   |   |   |   |   |   |
| Local services                                     |   |                        | 46.8   | %      |                      |   | 46.3 | % |   |   | 46.6 | % |   |   | 46.9 | % |
| Network access                                     |   |                        | 31.9   |   |                      |   | 32.5 |   |   |   | 31.9 |   |   |   | 31.7 |   |
| Cable television                                   |   |                        | 2.4    |   |                      |   | 2.6 |   |   |   | 2.4 |   |   |   | 2.6 |   |
| Internet                                           |   |                        | 13.6   |   |                      |   | 13.3 |   |   |   | 13.7 |   |   |   | 13.5 |   |
| Transport services                                 |   |                        | 5.3    |   |                      |   | 5.3 |   |   |   | 5.4 |   |   |   | 5.3 |   |
| Total revenues                                     |   |                        | 100.0  | %      |                      |   | 100.0 | % |   |   | 100.0 | % |   |   | 100.0 | % |
| Operating expenses                                 |   |                        |   |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Cost of services and products                      |   |                        | 39.3   | %      |                      |   | 39.4 | % |   |   | 40.6 | % |   |   | 40.2 | % |
| Selling, general and administrative expenses       |   |                        | 13.0   |   |                      |   | 12.2 |   |   |   | 13.5 |   |   |   | 12.4 |   |
| Depreciation and amortization                      |   |                        | 25.6   |   |                      |   | 22.0 |   |   |   | 26.1 |   |   |   | 22.8 |   |
| Total operating expenses                           |   |                        | 77.9   |   |                      |   | 73.6 |   |   |   | 80.2 |   |   |   | 75.4 |   |
|                                               |   |                        |   |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Income from operations                             |   |                        | 22.1   |   |                      |   | 26.4 |   |   |   | 19.8 |   |   |   | 24.6 |   |
|                                               |   |                        |   |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Other income (expense)                             |   |                        |   |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                   |   |                        | (25.0  | )      |                      |   | (23.2 | ) |   |   | (25.4 | ) |   |   | (23.3 | ) |
| Change in fair value of derivatives                |   |                        | 5.0    |   |                      |   | (0.7 | ) |   |   | 0.6 |   |   |   | (2.0 | ) |
| Other income                                       |   |                        | 0.1    |   |                      |   | 0.1 |   |   |   | 0.5 |   |   |   | 0.8 |   |
| Total other expense                                |   |                        | (19.9  | )      |                      |   | (23.8 | ) |   |   | (24.3 | ) |   |   | (24.5 | ) |
|                                               |   |                        |   |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss) before income tax                    |   |                        | 2.2    |   |                      |   | 2.6 |   |   |   | (4.5 | ) |   |   | 0.1 |   |
|                                               |   |                        |   |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Income tax (expense) benefit                       |   |                        | (0.2   | )      |                      |   | (1.0 | ) |   |   | 1.9 |   |   |   | (0.0 | ) |
|                                               |   |                        |   |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss) available to common stockholders |   |                        | 2.0    | %      |                      |   | 1.6 | % |   |   | (2.6 | )% |   |   | 0.1 | % |
|                                               |   |                        |   |   |                      |   |   |   |   |   |   |   |   |   |   |   |

|               |   | Three Months EndedJune 30, |   |   | Change |   |
|--------------------|--------|----------------------------|--------|--------|--------|--------|
|               |   | 2009                       |   |   | 2010   |   |   | Amount |   |   | Percent |   |
|               |   | (dollars in thousands)     |   |
| Local services     |   | $                          | 12,064 |   |   | $      | 12,286 |   |   | $ | 222 |   |   |   | 1.8 | % |
| Network access     |   |                       | 8,265  |   |   |   | 8,604 |   |   |   | 339 |   |   |   | 4.1 |   |
| Cable television   |   |                       | 612    |   |   |   | 699 |   |   |   | 87 |   |   |   | 14.2 |   |
| Internet           |   |                       | 3,500  |   |   |   | 3,527 |   |   |   | 27 |   |   |   | 0.8 |   |
| Transport services |   |                       | 1,356  |   |   |   | 1,395 |   |   |   | 39 |   |   |   | 2.9 |   |
| Total              |   | $                          | 25,797 |   |   | $      | 26,511 |   |   | $ | 714 |   |   |   | 2.8 |   |

----

|               |   | Six Months EndedJune 30, |   |   | Change |   |
|--------------------|--------|--------------------------|--------|--------|--------|--------|
|               |   | 2009                     |   |   | 2010   |   |   | Amount |   |   | Percent |   |
|               |   | (dollars in thousands)   |   |
| Local services     |   | $                        | 23,919 |   |   | $      | 24,525 |   |   | $ | 606 |   |   |   | 2.5 | % |
| Network access     |   |                     | 16,359 |   |   |   | 16,589 |   |   |   | 230 |   |   |   | 1.4 |   |
| Cable television   |   |                     | 1,219  |   |   |   | 1,364 |   |   |   | 145 |   |   |   | 11.9 |   |
| Internet           |   |                     | 7,042  |   |   |   | 7,038 |   |   |   | (4 | ) |   |   | (0.1 | ) |
| Transport services |   |                     | 2,758  |   |   |   | 2,789 |   |   |   | 31 |   |   |   | 1.1 |   |
| Total              |   | $                        | 51,297 |   |   | $      | 52,305 |   |   | $ | 1,008 |   |   |   | 2.0 |   |

----

|                                         |   | Three Months EndedJune 30, |   |   | Change |   |
|----------------------------------------------|--------|----------------------------|--------|--------|--------|--------|
|                                         |   | 2009                       |   |   | 2010   |   |   | Amount |   |   | Percent |   |
|                                         |   | (dollars in thousands)     |   |
| Cost of services and products                |   | $                          | 10,133 |   |   | $      | 10,428 |   |   | $ | 295 |   |   |   | 2.9 | % |
| Selling, general and administrative expenses |   |                       | 3,343  |   |   |   | 3,237 |   |   |   | (106 | ) |   |   | (3.2 | ) |
| Depreciation and amortization                |   |                       | 6,605  |   |   |   | 5,835 |   |   |   | (770 | ) |   |   | (11.7 | ) |
| Total                                        |   | $                          | 20,081 |   |   | $      | 19,500 |   |   | $ | (581 | ) |   |   | (2.9 | ) |

|                                         |   | Six Months EndedJune 30, |   |   | Change |   |
|----------------------------------------------|--------|--------------------------|--------|--------|--------|--------|
|                                         |   | 2009                     |   |   | 2010   |   |   | Amount |   |   | Percent |   |
|                                         |   | (dollars in thousands)   |   |
| Cost of services and products                |   | $                        | 20,800 |   |   | $      | 21,038 |   |   | $ | 238 |   |   |   | 1.1 | % |
| Selling, general and administrative expenses |   |                     | 6,919  |   |   |   | 6,467 |   |   |   | (452 | ) |   |   | (6.5 | ) |
| Depreciation and amortization                |   |                     | 13,397 |   |   |   | 11,920 |   |   |   | (1,477 | ) |   |   | (11.0 | ) |
| Total                                        |   | $                        | 41,116 |   |   | $      | 39,425 |   |   | $ | (1,691 | ) |   |   | (4.1 | ) |

----

|                                |   | Three Months EndedJune 30, |   |   | Change |   |
|-------------------------------------|--------|----------------------------|--------|--------|--------|--------|
|                                |   | 2009                       |   |   | 2010   |   |   | Amount |   |   | Percent |   |
|                                |   | (dollars in thousands)     |   |
| Interest expense                    |   | $                          | (6,447 | )      |   | $      | (6,179 | ) |   | $ | (268 | ) |   |   | (4.2 | )% |
| Change in fair value of derivatives |   |                       | 1,290  |   |   |   | (176 | ) |   |   | (1,466 | ) |   | NM |   |
| Other income                        |   |                       | 12     |   |   |   | 24 |   |   |   | 12 |   |   |   | 100.0 |   |
| Income tax expense                  |   |                       | (60    | )      |   |   | (262 | ) |   |   | (202 | ) |   | NM |   |

|                                |   | Six Months EndedJune 30, |    |   | Change |   |
|-------------------------------------|--------|--------------------------|---------|--------|--------|--------|
|                                |   | 2009                     |    |   | 2010   |   |   | Amount |   |   | Percent |   |
|                                |   | (dollars in thousands)   |    |
| Interest expense                    |   | $                        | (13,046 | )      |   | $      | (12,168 | ) |   | $ | (878 | ) |   |   | (6.7 | )% |
| Change in fair value of derivatives |   |                     | 339     |   |   |   | (1,062 | ) |   |   | (1,401 | ) |   | NM |   |
| Other income                        |   |                     | 238     |   |   |   | 383 |   |   |   | 145 |   |   |   | 60.9 |   |
| Income tax benefit                  |   |                     | 964     |   |   |   | 0 |   |   |   | (964 | ) |   | NM |   |

----

----

|                                         |   | Total  |        |   | Less than1 Year |   |       | 1-3years |   |   | 3-5years   |   |   | More than5 years |        |
|----------------------------------------------|--------|--------|-------------|--------|-----------------|--------|------------|----------|--------|--------|------------|--------|--------|------------------|-------------|
| Second amended and restated credit agreement |   |   |        |   |            |   |       |     |   |   |       |   |   |             |        |
| Term                                         |   | $      | 168,500,000 |   |            | $      | -          |     |   | $      | -          |   |   | $                | 168,500,000 |   |   | $ | - |   |
| Revolver (1)                                 |   |   | -           |   |            |   | -          |     |   |   | -          |   |   |             | -           |   |   |   | - |   |
| Senior subordinated notes                    |   |   | 107,660,531 |   |            |   | -          |     |   |   | -          |   |   |             | -           |   |   |   | 107,660,531 |   |
| Expected interest expense (2)                |   |   | 168,041,080 |   |            |   | 23,950,737 |     |   |   | 49,202,379 |   |   |             | 31,906,554  |   |   |   | 62,981,410 |   |
| Total                                        |   | $      | 444,201,611 |   |            | $      | 23,950,737 |     |   | $      | 49,202,379 |   |   | $                | 200,406,554 |   |   | $ | 170,641,941 |   |

----

| (1) | We have a $15.0 million revolving loan facility with an October 2013 maturity available. No amounts were drawn on this facility on June 30, 2010 or during the six months ended June 30, 2010. The Company pays a commitment fee of 0.50% per annum, payable quarterly in arrears, on the unused portion of the revolving loan facility.                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Expected interest payments to be made in future periods reflect anticipated interest payments related to our $168.5 million senior credit facility and our $107.7 million senior subordinated notes at 13.0%, including those associated with our IDSs and those sold separately. Interest on the senior credit facility reflects a LIBOR three month rate of from 1.5% to 2.7% plus a margin of 4.0%, reflecting the impacts of interest rate hedging. We have assumed in the presentation above that we will hold the senior credit facility until maturity in 2013 and the senior subordinated notes until maturity in 2019. No interest payment is included for the revolving loan facility because of the variability and timing of advances and repayments thereunder. |

|                                                                         |   | Six MonthsEnded June 30, |   |
|------------------------------------------------------------------------------|--------|--------------------------|--------|
|                                                                         |   | 2009                     |   |   | 2010 |   |
|                                                                         |   | (dollars in thousands)   |   |
| Cash generation                                                              |   |                     |   |   |   |   |
| Revenues                                                                     |   | $                        | 51,297 |   |   | $ | 52,305 |   |
| Other income                                                                 |   |                     | 238    |   |   |   | 383 |   |
| Cash received from operations                                                |   |                     | 51,535 |   |   |   | 52,688 |   |
| Cost of services and products                                                |   |                     | 20,800 |   |   |   | 21,038 |   |
| Selling, general and administrative expenses                                 |   |                     | 6,920  |   |   |   | 6,468 |   |
| Cash consumed by operations                                                  |   |                     | 27,720 |   |   |   | 27,506 |   |
| Cash generated from operations                                               |   | $                        | 23,815 |   |   | $ | 25,182 |   |
|                                                                         |   |                     |   |   |   |   |   |   |
| Cash utilization                                                             |   |                     |   |   |   |   |   |   |
| Capital investment in operations                                             |   | $                        | 3,578  |   |   | $ | 4,087 |   |
| Senior debt interest and fees                                                |   |                     | 5,046  |   |   |   | 4,841 |   |
| Interest on senior subordinated notes                                        |   |                     | 6,732  |   |   |   | 6,765 |   |
| Dividends                                                                    |   |                     | 4,469  |   |   |   | 4,565 |   |
| Cash utilized by the Company                                                 |   | $                        | 19,825 |   |   | $ | 20,258 |   |
|                                                                         |   |                     |   |   |   |   |   |   |
| Percentage of cash utilized by the Company of cash generated from operations |   |                     | 83.3   | % |   |   | 80.5 | % |

----

| Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
|---------|------------------------------------------------------------|

| Item 4. | Controls and Procedures |
|---------|-------------------------|

----

| Item 6. | Exhibits |
|---------|----------|

----

| Date:  August 5, 2010 | OTELCO INC. |                      |
|---------------------------------|-------------|---------------------------|
|                            |        |                      |   |
|                            |        |                      |   |
|                            | By:         | /s/ Curtis L. Garner, Jr. |   |
|                            |        | Curtis L. Garner, Jr.     |   |
|                            |        | Chief Financial Officer   |   |

----

| Exhibit No. |   | Description                                                                                                                                          |
|-------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                                                                 |
| 31.1        |   | Certificate pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934 of the Chief Executive Officer                    |
|        |   |                                                                                                                                                 |
| 31.2        |   | Certificate pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934 of the Chief Financial Officer                    |
|        |   |                                                                                                                                                 |
| 32.1        |   | Certificate pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Executive Officer |
|        |   |                                                                                                                                                 |
| 32.2        |   | Certificate pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Financial Officer |