Otelco (OTEL) 10-Q/A 2007 Q1 Quarterly report (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A
Amendment No. 2

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2007 or
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to

Commission File Number: 1-32362

OTELCO INC.

(Exact name of registrant as specified in its charter)

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)

(205) 625-3574

(Registrant’s telephone number, including area code)

N/A

 (Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ýNo ¨

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

Large accelerated filer o  Accelerated filer ý  Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨No ý

APPLICABLE ONLY TO CORPORATE USERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at May 9, 2007
Class A Common Stock ($0.01 par value per share)	9,676,733
Class B Common Stock ($0.01 par value per share)	544,671

Unless the context otherwise requires, the words “we”, “us”, “our”, “the Company” and “Otelco” refer to Otelco Inc., a Delaware corporation.

EXPLANATORY NOTE

This Quarterly Report on Form 10-Q/A is being filed to amend and restate Note 7 to our consolidated financial statements contained in “Item 1. Financial Statements” of our Quarterly Report on Form 10-Q for the three months ended March 31, 2007 to provide additional information pursuant to Rule 3-10 of Regulation S-X. Except as discussed above, we have not modified or updated disclosure presented in the original Quarterly Report on Form 10-Q. Accordingly, this Form 10-Q/A does not reflect events that occurred after the filing of the original Quarterly Report on Form 10-Q or modify or update those disclosures affected by subsequent events. Accordingly, this Amendment No. 2 to our Form 10-Q/A should be read in conjunction with Amendment No. 1 to our Form 10-Q/A and periodic filings made with the SEC subsequent to the date of the filing of the original Quarterly Report on Form 10-Q, including any amendments to those filings, as well as any Current Reports filed on Form 8-K subsequent to the date of the filing of the original Quarterly Report on Form 10-Q.

In addition, in accordance with applicable SEC rules, this Form 10-Q/A includes updated certifications from our Chief Executive Officer and Chief Financial Officer.

1

PART I FINANCIAL INFORMATION

Item. 1. Financial Statements

Note to Consolidated Financial Statements

7. Subsidiary Guarantees

The Company has no independent assets or operations separate from its operating subsidiaries. The guarantees of its senior subordinated notes by five of its seven 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. In 2004, the impact of the non-guarantor subsidiaries of the parent was minor. The condensed consolidated financial information is provided for the guarantor entities.

The following tables present condensed consolidating balance sheets as of March 31, 2007; December 31, 2006; and March 31, 2006; condensed consolidating statements of earnings for the three months ended March 31, 2007 and March 31, 2006 and condensed consolidating statements of cash flows for the three months ended March 31, 2007 and March 31, 2006.

2

Otelco Inc.

Notes To Consolidated Financial Statements

Condensed Consolidating Balance Sheet

March 31, 2007

	Parent			Guarantor		Non-Guarantor			Eliminations			Consolidated
				Subsidiaries		Subsidiaries
ASSETS
Current assets
Cash and cash equivalents	$	-		$	10,630,629	$	10,795		$	-		$	10,641,424
Accounts receivable, net		26,070			5,762,096		1,241,957			-			7,030,123
Materials and supplies		-			845,050		1,175,549			-			2,020,599
Prepaid and other current assets		67,667			686,695		50,085			-			804,447
Deferred income taxes		832,946			-		-			-			832,946
Investment in subsidiaries		79,452,675			-		-			(79,452,675	)		-
Intercompany receivables		24,794,085			-		-			(24,794,085	)		-
Total current assets		105,173,443			17,924,470		2,478,386			(104,246,760	)		21,329,539
Property and equipment, net		-			41,822,122		16,893,537			-			58,715,659
Goodwill		-			136,339,810		(1,936,640	)		-			134,403,170
Intangibles assets, net		-			7,307,852		3,576,445			-			10,884,297
Investments		1,000			899,814		325,187			-			1,226,001
Other long-term assets		9,638,954			627,999		-			-			10,266,753
Total assets	$	114,813,197		$	204,922,067	$	21,336,915		$	(104,246,760	)	$	236,825,419
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payables and accrued expenses	$	739,450		$	2,403,385	$	1,404,870		$	-		$	4,547,705
Intercompany payables		-			7,738,345		17,055,740			(24,794,085	)		-
Other current liabilities		-			2,267,282		89,572			-			2,356,854
Total current liabilities		739,450			12,409,012		18,550,182			(24,794,085	)		6,904,559
Deferred income taxes		4,728,411			17,544,383		2,506,140			-			24,778,934
Other liabilities		-			180,082		-			-			180,082
Long-term notes payables		105,458,990			95,616,508		-			-			201,075,498
Derivative liability		1,890,008			-		-			-			1,890,008
Class B common convertible to senior subordinated notes		4,085,033			-		-			-			4,085,033
Stockholders' equity (deficit)		(2,088,695	)		79,172,082		280,593			(79,452,675	)		(2,088,695	)
Total liabilities and stockholders' equity (deficit)	$	114,813,197		$	204,922,067	$	21,336,915		$	(104,246,760	)	$	236,825,419

3

Otelco Inc.

Notes to Consoldiated Financial Statements

Condensed Consolidated Statement of Operations

For the Three Months Ended March 31, 2007

				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Revenue	$	727,815		$	15,287,319		$	3,245,673		$	(2,088,414	)	$	17,172,393
Operating expenses		(823,899	)		(11,236,178	)		(2,430,285	)		2,088,414			(12,401,948	)
Income from operations		(96,084	)		4,051,141			815,388			-			4,770,445
Other income (expense)		(3,711,167	)		(1,165,780	)		-			-			(4,876,947	)
Earnings from subsidiaries		3,700,749			-			-			(3,700,749	)		-
Income before income tax and accretion expense		(106,502	)		2,885,361			815,388			(3,700,749	)		(106,502	)
Income tax expense		(11,705	)		-			-			-			(11,705	)
Accretion of class B common convertible
to senior subordinated notes		-			-			-			-			-
Net income (loss) to common stockholders	$	(118,207	)	$	2,885,361		$	815,388		$	(3,700,749	)	$	(118,207	)

4

Otelco Inc.

Notes to Consolidated Financial Statements

Condensed Consolidating Statement of Cash Flows

For the Three Months Ended March 31, 2007

				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	(118,207	)	$	2,885,361		$	815,388		$	(3,700,749	)	$	(118,207	)
Adjustment to reconcile net income (loss)
to cash flows from operating activities		341,197			2,584,933			1,127,934			-			4,054,064
Changes in assets and liabilities, net of
assets and liabilities acquired		5,183,283			(8,035,947	)		(1,764,623	)		-			(4,617,287	)
Cash flows from investing activities					(1,180,561	)		(192,910	)		-			(1,373,471	)
Cash flows from financing activities		(1,705,524	)		-			-			-			(1,705,524	)
Net increase (decrease) in cash and cash equivalents		3,700,749			(3,746,214	)		(14,211	)		(3,700,749	)		(3,760,425	)
Cash and cash equivalents, beginning of period		-			14,376,843			25,006			-			14,401,849
Cash and cash equivalents, end of period	$	-		$	10,630,629		$	10,795		$	-		$	10,641,424

5

Otelco Inc.

Notes To Consolidated Financial Statements

Condensed Consolidating Balance Sheet

December 31, 2006

	Parent		Guarantor		Non-Guarantor			Eliminations			Consolidated
			Subsidiaries		Subsidiaries
ASSETS
Current assets
Cash and cash equivalents	$	-	$	14,376,843	$	25,006		$	-		$	14,401,849
Accounts receivable, net		21,028		6,050,195		1,038,770			-			7,109,993
Materials and supplies		-		847,045		1,115,893			-			1,962,938
Prepaid and other current assets		3,487		1,006,316		53,144			-			1,062,947
Deferred income taxes		766,225		-		-			-			766,225
Investment in subsidiaries		75,751,926		-		-			(75,751,926	)		-
Intercompany receivables		34,232,103		-		-			(34,232,103	)		-
Total current assets		110,774,769		22,280,399		2,232,813			(109,984,029	)		25,303,952
Property and equipment, net		-		42,745,710		17,748,079			-			60,493,789
Goodwill		-		136,118,949		(1,936,640	)		-			134,182,309
Intangibles assets, net		-		7,689,851		3,650,955			-			11,340,806
Investments		1,000		914,093		325,157			-			1,240,250
Other long-term assets		10,589,917		701,264		-			-			11,291,181
Total assets	$	121,365,686	$	210,450,236	$	22,020,394		$	(109,984,029	)	$	243,852,287
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payables and accrued expenses	$	4,924,962	$	3,081,839	$	1,233,497		$	-		$	9,240,298
Intercompany payables		-		15,495,558		18,736,545			(34,232,103	)		-
Other current liabilities		-		2,238,188		79,009			-			2,317,197
Total current liabilities		4,924,962		20,815,585		20,049,051			(34,232,103	)		11,557,495
Deferred income taxes		4,661,690		17,544,383		2,506,140			-			24,712,213
Other liabilities		-		187,037		-			-			187,037
Long-term notes payables		105,458,990		95,616,508		-			-			201,075,498
Derivative liability		2,107,877		-		-			-			2,107,877
Class B common convertible to senior subordinated notes		4,085,033		-		-			-			4,085,033
Stockholders' equity (deficit)		127,134		76,286,723		(534,797	)		(75,751,926	)		127,134
Total liabilities and stockholders' equity (deficit)	$	121,365,686	$	210,450,236	$	22,020,394		$	(109,984,029	)	$	243,852,287

6

Otelco Inc.

Notes To Consolidated Financial Statements

Condensed Consolidating Balance Sheet

March 31, 2006

	Parent		Guarantor		Non-Guarantor			Eliminations			Consolidated
			Subsidiaries		Subsidiaries
ASSETS
Current assets
Cash and cash equivalents	$	-	$	5,455,136	$	131,078			-		$	5,586,214
Accounts receivable, net		30,340		4,026,161		459,714			-			4,516,215
Materials and supplies		-		905,129		24,427			-			929,556
Prepaid and other current assets		828,087		394,041		40,808			-			1,262,936
Deferred income taxes		872,675		-		-			-			872,675
Investment in subsidiaries		69,411,194		-		-			(69,411,194	)		-
Intercompany receivables		36,553,287		-		-			(36,553,287	)		-
Total current assets		107,695,583		10,780,467		656,027			(105,964,481	)		13,167,596
Property and equipment, net		-		32,552,463		11,251,488			-			43,803,951
Goodwill		-		116,355,199		3,076,794			-			119,431,993
Intangibles assets, net		-		-		1,536,655			-			1,536,655
Investments		1,000		955,783		16,530			-			973,313
Other long-term assets		12,675,282		-		-			-			12,675,282
Total assets	$	120,371,865	$	160,643,912	$	16,537,494			(105,964,481	)	$	191,588,790
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payables and accrued expenses	$	251,887	$	2,393,885	$	219,476			-		$	2,865,248
Intercompany payables		-		21,099,506		15,453,782			(36,553,287	)		-
Other current liabilities		-		1,463,437		12,912			-			1,476,349
Total current liabilities		251,887		24,956,827		15,686,170			(36,553,287	)		4,341,597
Deferred income taxes		4,019,721		9,173,477		2,152,692			-			15,345,890
Other liabilities		-		184,538		-			-			184,538
Long-term notes payables		105,458,990		55,616,508		-			-			161,075,498
Derivative liability		1,650,353		-		-			-			1,650,353
Class B common convertible to senior subordinated notes		3,766,186		-		-			-			3,766,186
Stockholders' equity (deficit)		5,224,728		70,712,562		(1,301,368	)		(69,411,194	)		5,224,728
Total liabilities and stockholders' equity (deficit)	$	120,371,865	$	160,643,912	$	16,537,494			(105,964,481	)	$	191,588,790

7

Otelco Inc.

Notes to Consoldiated Financial Statements

Condensed Consolidated Statement of Operations

For the Three Months Ended March 31, 2006

				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Revenue	$	628,629		$	10,723,155		$	1,645,972		$	(1,484,359	)	$	11,513,397
Operating expenses		(774,199	)		(6,538,197	)		(986,332	)		1,484,359			(6,814,369	)
Income from operations		(145,570	)		4,184,958			659,640			-			4,699,028
Other income (expense)		(3,063,744	)		(1,118,751	)		-			-			(4,182,495	)
Earnings from subsidiaries		3,725,847			-			-			(3,725,847	)		-
Income before income tax and accretion expense		516,533			3,066,207			659,640			(3,725,847	)		516,533
Income tax expense		(161,210	)		-			-			-			(161,210	)
Accretion of class B common convertible
to senior subordinated notes		(110,732	)		-			-			-			(110,732	)
Net income (loss) to common stockholders	$	244,591		$	3,066,207		$	659,640		$	(3,725,847	)	$	244,591

8

Otelco Inc.

Notes to Consolidated Financial Statements

Condensed Consolidating Statement of Cash Flows

For the Three Months Ended March 31, 2006

				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	244,591		$	3,066,207		$	659,640		$	(3,725,847	)	$	244,591
Adjustment to reconcile net income (loss)
to cash flows from operating activities		437,389			1,626,910			380,380			-			2,444,679
Changes in assets and liabilities, net of
assets and liabilities acquired		4,764,281			(3,821,571	)		(864,263	)		-			78,447
Cash flows from investing activities		(14,890	)		(928,349	)		(101,973	)		-			(1,045,212	)
Cash flows from financing activities		(1,705,524	)		-			-			-			(1,705,524	)
Net increase (decrease) in cash and cash equivalents		3,725,847			(56,803	)		73,784			(3,725,847	)		16,981
Cash and cash equivalents, beginning of period		-			5,511,939			57,294			-			5,569,233
Cash and cash equivalents, end of period	$	-		$	5,455,136		$	131,078		$	-		$	5,586,214

9

PART II OTHER INFORMATION

Item. 6. Exhibits

Exhibits

See Exhibit Index.

10

Signatures

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

Date: June 25, 2007	OTELCO INC.
	By: /s/ Curtis L. Garner, Jr.
	Curtis L. Garner, Jr.
	Chief Financial Officer

EXHIBIT INDEX

Exhibit No.	Description
31.1	Certificate pursuant to Rule 13A-14(a) or Rule 15d-14(a) of 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) of 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