NEW ULM TELECOM INC (Form: 10-Q, Received: 05/10/2007 15:39:50)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007

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

Commission File Number 0-3024

NEW ULM TELECOM, INC.

(Exact Name of Registrant as Specified in Its Charter)

Minnesota

41-0440990

(State or Other Jurisdiction

of Incorporation or Organization)

(I.R.S. Employer

Identification No.)

27 North Minnesota Street

New Ulm, Minnesota 56073

(Address of Principal Executive Offices, Including Zip Code)

(507) 354-4111

(Registrant’s Telephone Number, Including Area Code)

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

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

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

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

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of May 10, 2007: 5,115,435 shares of common stock outstanding.

NEW ULM TELECOM, INC. AND SUBSIDIARIES

MARCH 31, 2007

PART I FINANCIAL INFORMATION

	Item 1	Financial Statements	3-7
		Unaudited Consolidated Balance Sheets	3-4
		Unaudited Consolidated Statements of Income	5
		Unaudited Consolidated Statements of Stockholders’ Equity	6
		Unaudited Consolidated Statements of Cash Flows	7
		Notes to Unaudited Consolidated Financial Statements	8-11
	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12-21
	Item 3	Quantitative and Qualitative Disclosures About Market Risk	21
	Item 4	Controls and Procedures	21-22

PART II OTHER INFORMATION			23

	Item 1A	Risk Factors	23

	Item 5	Other Information	23

	Item 6	Exhibits	23

SIGNATURES			24

INDEX TO EXHIBITS			25

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NEW ULM TELECOM, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

ASSETS

	March 31, 2007		December 31, 2006
CURRENT ASSETS
Cash and cash equivalents	$	9,862,473	$	30,457,707
Receivables, net of allowance for doubtful accounts of $449,828 and $322,500		1,208,419		1,337,367
Inventories		311,050		239,707
Prepaid expenses		175,555		206,927
		11,557,497		32,241,708

INVESTMENTS AND OTHER ASSETS
Investment in Hector Communications Corporation		20,477,481		20,295,933
Goodwill and intangibles, net of amortization		3,237,720		3,238,233
Other		1,660,575		1,572,902
		25,375,776		25,107,068

PROPERTY, PLANT AND EQUIPMENT
Telecommunications plant		60,566,120		59,903,762
Other property and equipment		3,063,953		2,976,784
Video plant		2,545,339		2,489,752
		66,175,412		65,370,298
Less Accumulated Depreciation		43,679,324		42,663,233
		22,496,088		22,707,065

TOTAL ASSETS	$	59,429,361	$	80,055,841

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

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NEW ULM TELECOM, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS (continued)

LIABILITIES AND STOCKHOLDERS’ EQUITY

	March 31, 2007		December 31, 2006
CURRENT LIABILITIES
Current portion of long-term debt	$	26,149	$	26,149
Accounts payable		546,246		294,756
Accrued income taxes		1,315,087		22,392,040
Other accrued taxes		92,247		76,828
Other accrued liabilities		607,749		715,624
		2,587,478		23,505,397

LONG-TERM DEBT, less current portion		71,891		79,983

NON-CURRENT LIABILITIES
Loan guarantee		2,478,474		2,478,474
Deferred income taxes		3,317,603		3,244,134
		5,796,077		5,722,608

STOCKHOLDERS’ EQUITY
Preferred stock - $1.66 par value, 10,000,000 shares authorized, 0 shares issued and outstanding		—		—
Common stock - $1.66 par value, 90,000,000 shares and 90,000,000 authorized, 5,115,435 and 5,115,435 shares issued and outstanding		8,525,725		8,525,725
Retained earnings		42,448,190		42,222,128
		50,973,915		50,747,853

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	59,429,361	$	80,055,841

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

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NEW ULM TELECOM, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

	THREE MONTHS ENDED MARCH 31,
	2007			2006
OPERATING REVENUES
Local network	$	934,714		$	953,475
Network access		1,411,095			1,431,291
Directory advertising, billing and other services		141,997			117,874
Video services		550,476			518,838
Internet services		406,994			386,083
Other nonregulated services		631,831			636,735
		4,077,107			4,044,296

OPERATING EXPENSES
Plant operations, excluding depreciation and amortization		565,245			600,060
Cost of video services		410,279			360,316
Cost of internet services		130,745			157,178
Cost of other nonregulated services		338,400			275,376
Depreciation and amortization		1,016,440			1,003,392
Selling, general and administrative		1,003,727			986,560
		3,464,836			3,382,882

OPERATING INCOME		612,271			661,414

OTHER (EXPENSES) INCOME
Interest expense		(1,652	)		(214,737	)
Interest income		322,805			24,295
Cellular investment income		—			1,911,586
Hector investment income		181,548			—
Other investment income		124,400			152,611
		627,101			1,873,755

INCOME BEFORE INCOME TAXES		1,239,372			2,535,169

INCOME TAXES		501,766			1,026,610

NET INCOME	$	737,606		$	1,508,559

BASIC AND DILUTED NET INCOME PER SHARE	$	0.14		$	0.29

DIVIDENDS PER SHARE	$	0.10		$	0.09

WEIGHTED AVERAGE SHARES OUTSTANDING		5,115,435			5,115,435

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

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NEW ULM TELECOM, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

YEAR ENDED DECEMBER 31, 2006 AND THREE MONTHS ENDED MARCH 31, 2007

	Common Stock			Retained
	Shares	Amount		Earnings
BALANCE on December 31, 2005	5,115,435	$	8,525,725	$	23,019,926

Net income					35,111,205
Dividends					(15,909,003	)

BALANCE on December 31, 2006	5,115,435	$	8,525,725	$	42,222,128

Net income					737,606
Dividends					(511,544	)

BALANCE on March 31, 2007	5,115,435	$	8,525,725	$	42,448,190

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

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NEW ULM TELECOM, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

	THREE MONTHS ENDED
	MARCH 31, 2007			MARCH 31, 2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	737,606		$	1,508,559
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,016,440			1,003,392
Cellular investment income		—			(1,911,586	)
Distributions from cellular investments		—			996,499
Hector investment income		(181,548	)		—
Decrease in:
Receivables		128,948			148,192
Inventories		(71,343	)		2,443
Prepaid expenses		31,372			34,911
Increase (Decrease) in:
Accounts payable		240,049			137,158
Accrued income taxes		(21,076,953	)		172,610
Other accrued taxes		15,419			18,310
Other accrued liabilities		(107,875	)		190,770
Deferred income taxes		73,469			—
Net cash provided (used) by operating activities		(19,194,416	)		2,301,258

CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment, net		(793,509	)		(743,916	)
Other, net		(87,673	)		(13,060	)
Net cash used in investing activities		(881,182	)		(756,976	)

CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments of Long-Term Debt		(8,092	)		(625,000	)
Dividends Paid		(511,544	)		(460,389	)
Net Cash Used by Financing Activities		(519,636	)		(1,085,389	)


NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(20,595,234	)		458,893

CASH AND CASH EQUIVALENTS
at Beginning of Period		30,457,707			2,706,764

CASH AND CASH EQUIVALENTS
at End of Period	$	9,862,473		$	3,165,657

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

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NEW ULM TELECOM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

Effective January 1, 2007, the Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109. The implementation of FIN 48 had no impact on the company’s financial statements as the Company has no unrecognized tax benefits. The Company is primarily subject to U.S. federal, Minnesota, Iowa, Nebraska and Wisconsin income tax. Tax years subsequent to 2002 remain open to examination by U.S. federal and state tax authorities. The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense. As of January 1, 2007, and March 31, 2007, the Company had no accrual for interest or penalties related to income tax matters.

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The balance sheets and statement of stockholders’ equity as of March 31, 2007, and statements of income and the statements of cash flows for the periods ended March 31, 2007 and 2006 have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and changes in cash flows at March 31, 2007 and for the three-month periods ended March 31, 2007 and 2006 have been made.

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

NOTE 2 – SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid during the three months ended March 31:

	2007		2006
Interest	$	3,085	$	206,439
Income taxes	$	21,505,250	$	854,000

Noncash investing activities included $163,901 and $157,155 during the periods ended March 31, 2007 and 2006, relating to plant and equipment additions placed in service, which are reflected in accounts payable at March 31, 2007 and 2006.

NOTE 3 – SECURED REDUCING REVOLVING CREDIT FACILITY

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

NOTE 4 – GOODWILL AND INTANGIBLE ASSETS

At March 31, 2007, the Company had goodwill for wireline acquisitions of $3,218,906. The Company annually tests this as required under SFAS 142 and has determined that the goodwill is not impaired at the last assessment.

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

NOTE 5 – SEGMENT INFORMATION

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

•

The Telecom Segment consists of the operations of its incumbent local exchange carriers (ILECs), its competitive local exchange carrier (CLEC), and its operations that provide Internet and video services. In addition, this Segment also has a 25.18% investment in FiberComm, LC, a competitive local exchange carrier (CLEC), in Sioux City, Iowa. The Company acquired a 33.33% ownership interest in Hector Communications Corporation (HCC) on November 3, 2006. HCC offers ILEC, CATV and Internet services to various communities in Minnesota and Wisconsin.

•

The Cellular Segment includes the sales and service of cellular phones and accessories, and had a 9.88% cellular investment in Midwest Wireless Holdings, LLC (MWH) that was sold to Alltel on October 2, 2006. The cellular investment in the Cellular Segment was recorded on the equity method on the financial statements and is presented in this note using the proportionate consolidation method. The Company recorded its 9.88% investment in MWH using the proportionate consolidation method so that it could be compared to the cellular industry, as well as the Company’s other business segments, and because the Company’s Chief Operating Decision Maker (CODM) reviewed the performance of MWH using the proportionate method.

•

The Phonery Segment includes the sales and service of customer premise equipment (CPE), transport operations, and the resale of long distance toll service.

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

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Segment information is as follows:

	Telecom Segment			Cellular Segment			Phonery Segment			Eliminations			Consolidated
Three Months Ended March 31, 2007
Operating Revenues	$	3,683,793		$	142,400		$	489,431		$	(238,517	)	$	4,077,107
Depreciation and Amortization		999,630			—			16,810			—			1,016,440
Operating Expenses, Excluding Depreciation and Amortization		2,319,196			142,618			225,099			(238,517	)		2,448,396
Operating Income		364,967			(218	)		247,522			—			612,271
Interest Expense		(1,652	)		—			—			—			(1,652	)
Hector Investment Income		181,548			—			—			—			181,548
Other Investment Income		447,205			—			—			—			447,205
Income (Taxes) Benefit		(401,682	)		88			(100,172	)		—			(501,766	)
Net Income	$	590,386		$	(130	)	$	147,350		$	—		$	737,606

Total Assets	$	115,113,220		$	60,607		$	6,751,870		$	(62,496,336	)	$	59,429,361

Capital Expenditures	$	793,509		$	—		$	—		$	—		$	793,509


	Telecom Segment			Cellular Segment			Phonery Segment			Eliminations			Consolidated
Three Months Ended March 31, 2006
Operating Revenues	$	3,640,456		$	6,715,099		$	531,605		$	(6,842,864	)	$	4,044,296
Depreciation and Amortization		982,112			774,148			21,280			(774,148	)		1,003,392

Operating Expenses, Excluding Depreciation and Amortization		2,305,425			3,915,604			230,402			(4,071,941	)		2,379,490
Operating Income		352,919			2,025,347			279,923			(1,996,775	)		661,414
Interest Expense		(184,385	)		(194,903	)		—			164,551			(214,737	)
Cellular Investment Income		—			—			—			1,911,586			1,911,586
Other Investment Income		176,906			79,362			—			(79,362	)		176,906
Income Taxes		(139,800	)		(773,525	)		(113,285	)		—			(1,026,610	)
Net Income	$	205,640		$	1,136,281		$	166,638		$	—		$	1,508,559

Total Assets	$	93,221,525		$	52,384,184		$	4,858,983		$	(94,604,697	)	$	55,859,995

Capital Expenditures	$	743,916		$	780,809		$	—		$	(780,809	)	$	743,916

NOTE 6 – SUBSEQUENT EVENTS

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

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

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

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

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

OVERVIEW

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

•

The Cellular Segment includes the sales and service of cellular phones and accessories, and had a 9.88% cellular investment in Midwest Wireless Holdings, LLC (MWH) that was sold to Alltel on October 2, 2006. The cellular investment in the Cellular Segment was recorded on the equity method on the financial statements and is presented in this note using the proportionate consolidation method. The Company recorded its 9.88% investment in MWH using the proportionate consolidation method so that it could be compared to the cellular industry, as well as the Company’s other business segments, and because the Company’s CODM reviewed the performance of MWH using the proportionate method.

•

The Phonery Segment includes the sales and service of customer premise equipment (CPE), transport operations, and the resale of long distance toll service.

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

RESULTS OF OPERATIONS

CONSOLIDATED OPERATING RESULTS

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

OPERATING REVENUES:

Total operating revenues were $4,077,107 for the three months ended March 31, 2007, for an increase of 0.8% or $32,811 compared to the same period in 2006. The Telecom and Cellular segments experienced small increases in operating revenue over the same period in 2006, while the Phonery segment experienced a decrease.

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The Telecom segment continues to experience decreases in its local network and network access revenues, both common industry trends. These decreases have been offset by increases in revenues from new and expanded service offerings: digital video, digital subscriber line (DSL), Internet service provision, and the operations of a Competitive Local Exchange Carrier (CLEC) in the City of Redwood Falls, Minnesota. The Telecom segment has invested heavily in its infrastructure, which has allowed it to enhance its local network so that it could offer a “triple-play” of services to its subscribers. In the telecommunications industry, a “triple-play” of services refers to offering telephone, Internet, and video services over the same infrastructure. The Company expects that continued infrastructure investment will allow it to offer its customers new technologies as they emerge, such as hi-definition television (HDTV). The geographic expansion of its service offerings will provide this segment with future growth.

The Telecom segment’s decrease in its network access revenues is the result of downward pricing pressure on access charges and a decrease in the access minutes of use. The decrease in network access revenues was minimized due to the Company’s eligibility for high-cost loop funding through the Universal Service Fund for its ILEC operations in Springfield and Sanborn, Minnesota, and Aurelia, Iowa, and the immediately surrounding areas served by the affected ILECs. The Company continues to monitor the negative effects of network access pricing and the downward trend in access minutes of use that could affect future revenues in the Telecom sector in order to minimize the impact on the Company. Also, the FCC continues to examine inter-carrier compensation (payments from one telecommunications company to another for the use of their interconnecting networks). The FCC currently has an open docket on intercarrier compensation as well as several dockets on Voice over Internet Protocol (VoIP). The Company cannot predict the outcome of these proceedings nor can it estimate the impact, if any, on the Company.

The Company believes that, despite the regulatory and competitive challenges faced by the Telecom segment, the Company has positioned itself for future revenue growth. The Company believes that future growth will be realized through increases in revenue due to new and expanded service offerings. The Company also continually evaluates new and emerging technologies to keep the Company’s service offerings innovative and competitive.

The Cellular segment saw an increase in its sales and service revenues of cellular phones and accessories. The Phonery segment experienced a decrease in operating revenues due to decreased revenues from transport operations, offset by increased sales of customer premise equipment (CPE).

OPERATING EXPENSES:

Operating expenses for the three months ended March 31, 2007 increased $81,954, or 2.4%, compared to the same period in 2006, with the Telecom and Cellular segments responsible for the increase. The Telecom segment was responsible for $31,289 of the increase in operating expenses. Depreciation expense for the Telecom segment saw an increase of $17,518 in 2007 compared to 2006. This increase was due to the Company’s continued investment in the Telecom segment’s infrastructure. The increase in operating expenses, excluding depreciation and amortization, was attributed to the increased cost of providing services and an increasing customer base for the segment’s expanded services, such as digital video, DSL, and Internet service. In addition, operating expenses increased due to increased costs to comply with the Sarbanes-Oxley Act Section 404. The remainder of the increase in the Telecom segment reflected the additional selling, general and administrative expenses associated with the commitment of the Company to compete in all aspects of communication services and to provide exceptional customer service for the Company’s assortment of products and services to the communities that it serves. The Cellular segment accounted for a $66,060 increase in operating expenses due to increased cost of goods sold.

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OPERATING INCOME:

Operating income for the three months ended March 31, 2007 decreased $49,143 or 7.4% over the three months ended March 31, 2006. The decrease in income was primarily due to the increase in video and other nonregulated service expenses and the increase in general and administrative expenses, including Sarbanes-Oxley Act Section 404 compliance costs, from the Telecom segment’s operations.

OTHER INCOME:

Overall, other income for the three months ended March 31, 2007 decreased $1,246,654 compared to the three months ended March 31, 2006.

The Company’s cellular investment income decreased $1,911,586 due to the sale of MWH to Alltel. The Company’s investment income in Hector Communications Corporation was $181,548 due to the Company’s 33.33% ownership interest acquired on November 3, 2006.

Other investment income decreased $28,211 for the three months ended March 31, 2007 over the same period in 2006. This was due to a decrease in the investment income from CoBank, a lender that specializes in agribusiness, communications, energy and water systems, and agricultural export financing, offset by an increase of investment income from Fibercom, L.C., a CLEC in Sioux City, Iowa for the three month period ended 2007 as compared to 2006.

There was a $213,085 decrease in interest expense for the three-month period ended March 31, 2007 compared to the same period in 2006. The decrease in interest expense was due to the Company’s repayment of its outstanding CoBank, ACB debt in 2006.

There was a $298,510 increase in interest income for the three-month period ended March 31, 2007 compared to the same period in 2006. This was due to having more funds available for investment.

NET INCOME:

Net income was $737,606 for the three months ended March 31, 2007 compared with $1,508,559 for the same period in 2006. This $770,953, or 51.1%, decrease was primarily attributed to the decrease in cellular investment income as a result of the October 2006 sale of its interest in MWH.

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Summary of Operations

	Three Months Ended March 31,
	2007			2006
Operating Income:
Telecom Segment	$	364,967		$	352,919
Cellular Segment		(218	)		28,572
Phonery Segment		247,522			279,923

Total		612,271			661,414

Other Income		628,753			2,088,492
Interest Expense		(1,652	)		(214,737	)
Income Taxes		(501,766	)		(1,026,610	)


Net Income	$	737,606		$	1,508,559

Basic and Diluted Earnings Per Share	$	.14		$	.29

Weighted Average Shares Outstanding		5,115,435			5,115,435

RESULTS OF OPERATIONS BY BUSINESS SEGMENT

Telecom Segment Operations

The Telecom segment revenues represented 85.4% of the Company’s consolidated operating revenues for the three-months ended March 31, 2007 before intercompany eliminations. Revenues are primarily earned by providing approximately 16,450 customers access to the local network in ILEC and CLEC operations, and by providing inter-exchange access for long distance network carriers. The Telecom segment also earns revenue by providing Internet services, including high-speed DSL Internet access, and video services to its subscribers, directory advertising, through billing and collecting for various long distance companies, and for management services provided to HCC. This segment has invested in its infrastructure so that it can provide its customers with the latest technological advances, including being able to offer its “triple-play” of services. Total Telecom segment revenues for the three-months ending March 31, 2007 increased $43,337 or 1.2% compared to the same period last year. All information contained in the following table is before intercompany eliminations.

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	Three Months Ended March 31,
	2007		2006
Operating Revenues:
Local Network	$	958,165	$	976,926
Network Access		1,418,361		1,438,491
Other		1,307,267		1,225,039

Total Operating Revenues		3,683,793		3,640,456

Operating Expenses, Excluding Depreciation and Amortization		2,319,196		2,305,425
Depreciation and Amortization Expenses		999,630		982,112

Total Operating Expenses		3,318,826		3,287,537

Operating Income		364,967		352,919

Net Income	$	590,386	$	205,640

Local network revenue decreased in the Telecom segment by $18,761 or 1.9% for the three months ended March 31, 2007 compared to the same period in 2006. Local network revenue decreased during this period as a result of a decrease of approximately 250 access lines for the first quarter of 2007 compared to the same period in 2006. The decrease in access lines is due to customers increasingly utilizing their wireless phones and customers dropping second phone lines in their homes when they move their Internet service from a dial-up platform to a DSL platform.

Network access revenue decreased $20,130 or 1.4% for the three months ended March 31, 2007 compared with the same period in 2006. The decrease in network access revenue reflects the overall decrease in minutes of use and the negative effects of downward pricing pressure on network access pricing, a common industry trend. In order to minimize the impact on the Company, the Company continues to monitor the negative effects of network access pricing and the downward trend in access minutes of use. The Telecom segment has maintained and enhanced its infrastructure, and has invested approximately $8 million in capital expenditures since 2004. These capital expenditures have enhanced this segment’s infrastructure and have allowed the Company to receive additional settlements from the National Exchange Carrier Association (NECA). The additional investment in the local loop (access line cost) has made the Company eligible for high-cost loop funding through the Universal Service Fund. The Telecom segment experienced a 4.1% decrease in access minutes for the three months ended March 31, 2007 as compared to the same period in 2006, a common industry trend.

Other operating revenues increased $82,228 or 6.7% for the three months ended March 31, 2007 compared with the same period in 2006. Due to the infrastructure enhancements that have taken place since 2000, the Telecom segment has been able to offer its customers a “triple-play” of services over the existing infrastructure and offer its services on a CLEC basis to the city of Redwood Falls, Minnesota. The video product offered in New Ulm, Essig, Searles, Courtland, Springfield, Sanborn and Redwood Falls, Minnesota was responsible for $10,193 of the increase in these revenues. The cable television services offered in the Minnesota communities of Cologne, Mayer, New Germany, and New Market Township were responsible for $23,647 of the increase in other operating revenues. Approximately $20,000 of the increase in other operating revenues was from the management services that the Company provided to HCC. The remainder of the revenue increase was attributed to Telecom segment’s sale of Internet services.

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Operating expenses, excluding depreciation and amortization, increased $13,771 or 0.6% for the three-months ended March 31, 2007 compared with the same period in 2006. The increases in operating expenses were the result of increased selling, general and administrative costs, particularly those associated with compliance with Sarbanes-Oxley Act Section 404, and the increasing expenses associated with the expanded array of services offered, such as video and DSL that allow the Company to offer the “triple-play” of services to its customers. The Telecom segment has recognized the value in being able to compete in all aspects of communication services. This realization has motivated the segment to enhance its awareness of customer satisfaction (including 24 hours a day, 7 days a week access to Internet support due to customers’ desire for this service), offer additional services (video and DSL), pursue aggressive marketing to develop brand recognition, and provide solutions for our customers’ evolving communication needs. The Company has expanded its services and product offerings in an effort to meet its objective of achieving 100% customer satisfaction by making the customer its top priority, deserving the Company’s best service, attitude and consideration.

Depreciation and amortization expenses increased $17,518 or 1.8% for the three months ended March 31, 2007 compared with the same period in 2006. The increase was due to the Company’s continued investment in the Telecom segment’s infrastructure.

Operating income increased $12,048 or 3.4% for the three months ended March 31, 2007 compared with the same period in 2006. The increase in operating income was primarily due to the increase in revenues for video and Internet services due to an increase in customers, and the increase in revenues due to the management services that the Company provides to HCC. This is partially offset by the cost of providing additional services (video and DSL) to an increasing customer base, and additional general and administrative expenses associated with the commitment of the Telecom segment to effectively compete in all aspects of communication services and to provide superior customer-focused service for the Telecom segment’s complete array of products and services. The Company is always striving for cost efficiencies and technological improvement to enhance its operating margins for the Telecom segment. The $43,337 increase in revenues combined with a $31,289 increase in operating expenses resulted in the $12,048 increase in operating income.

Cellular Segment

The Cellular segment operations include the sales and service of cellular phones and accessories, and the Company’s 9.88% ownership interest in MWH (sold to Alltel on October 2, 2006). The operating revenue from sales of cellular phones and accessories increased by $37,270 for the three month period ending March 31, 2007 compared to March 31, 2006, due primarily to an increase in the sale of cellular phones. The cellular partnership income decreased $1,911,586 for the three months ended March 31, 2007 compared to the same period in 2006 due to the sale of MWH to Alltel on October 2, 2006. The Cellular segment information for its investment in MWH is shown in the following table using the proportionate consolidation method. The Company recorded its 9.88% investment in MWH using the proportionate consolidation method so that it could be compared to the cellular industry, as well as the Company’s other business segments, and because the Company’s CODM reviewed the performance of MWH using the proportionate method.

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	Three Months Ended March 31,
	2007		2006
Proportionate Method:
Operating Revenues	$	—	$	6,609,969

Operating Expenses, Excluding Depreciation and Amortization		—		3,839,046
Depreciation and Amortization Expenses		—		774,148

Total Operating Expenses		—		4,613,194

Operating Income		—		1,996,775

Cellular Investment Income	$	—	$	1,911,586

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

	Three Months Ended March 31,
	2007			2006
Operating Revenues:	$	142,400		$	105,130

Operating Expenses, Excluding Depreciation and Amortization		142,618			76,558
Depreciation and Amortization Expenses		—			—

Total Operating Expenses		142,618			76,558

Operating Income		(218	)		28,572

Interest Expense		—			(30,352	)
Cellular Investment Income		—			1,911,586

Income (Taxes) Benefit		88			(773,525	)

Net Income	$	(130	)	$	1,136,281

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

Phonery Segment

The Phonery segment represented 11.3% of the consolidated operating revenues for the three-months ended March 31, 2007 before intercompany eliminations. Revenues are earned primarily by sales, installation and service of business telephone systems and data communications equipment. In addition, the Phonery segment leases network capacity to provide additional network access revenues and resells long distance toll service. This segment’s expertise is the quality installation and maintenance of customer premise equipment (CPE), provision of customer long distance needs and transport solutions in communication to end user customers. All information contained in the following table is before intercompany eliminations.

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	Three Months Ended March 31,
	2007		2006
Operating Revenues:	$	489,431	$	531,605

Operating Expenses, Excluding Depreciation and Amortization		225,099		230,402
Depreciation and Amortization Expenses		16,810		21,280

Total Operating Expenses		241,909		251,682

Operating Income		247,522		279,923

Net Income	$	147,350	$	166,638

Operating revenue decreased $42,174, or 7.9%, for the three months ended March 31, 2007 compared to the same period in 2006. The Phonery segment’s revenues decreased due to reductions in leased network capacity revenues (approximately $65,000) and resale of long distance toll revenues (approximately $7,000). These decreases were partially offset by increased sales of CPE.

Operating expenses, excluding depreciation and amortization, decreased $5,303 or 2.3% for the three months ended March 31, 2007 compared to the three months ended March 31, 2006. This decrease in operating expenses occurs as this segment strives for cost efficiencies, while continuing to endeavor to reach the customer service goal of achieving 100% customer satisfaction. This segment continues to seek new technologies to better serve customer needs and to operate efficiently.

Depreciation and amortization expenses decreased $4,470 or 21.0% for the three months ended March 31, 2007 compared to the same period ended 2006. The 2007 decrease was due to certain long-lived assets that have become fully depreciated.

Operating income decreased by $32,401 or 11.6% for the three months ended March 31, 2007 compared to the three months ended March 31, 2006. This decrease in income was the result of the decreased income from leased network access, and resale of long distance toll.

LIQUIDITY AND CAPITAL RESOURCES

Capital Structure

The total long-term capital structure (long-term debt plus shareholders’ equity) for the Company was $51,045,806 at March 31, 2007, reflecting 99.9% equity and 0.1% debt. This compares to a capital structure of $50,827,836 at December 31, 2006, reflecting 99.8% equity and 0.2% debt. Management believes adequate internal and external resources are available to finance ongoing operating requirements, including capital expenditures, business development, debt service and the payment of dividends for at least the next 12 months.

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Cash Flows

Cash used by operations was $19,194,416 for the three-month period ended March 31, 2007 compared to cash provided by operations of $2,301,258 for the three-month period ended March 31, 2006. The cash flows used by operations for the three months ended March 31, 2007 were primarily due to the payment of income taxes, partially offset by net income and non-cash expenses for depreciation and amortization. Cash flows from operations for the three months ended March 31, 2006 was primarily attributable to net income plus non-cash expenses for depreciation and amortization.

Cash flows used in investing activities were $881,182 for the three months ended March 31, 2007 compared to $756,976 for the same period in 2006. Capital expenditures relating to on-going businesses were $793,509 during the first three months of 2007 as compared to $743,916 for the same period in 2006. The Company operates in a capital-intensive business. The Company is continuing to upgrade its local networks for changes in technology to provide the most advanced services to its customers. The Company expects total plant additions of approximately $7,000,000 in 2007.

Cash flows used by financing activities were $519,636 for the three-months ended March 31, 2007 compared to cash flows used by financing activities of $1,085,389 for the three-months ended March 31, 2006. Included in cash flows used in financing activities were debt repayments and dividend payments.

Dividends

The Company paid dividends of $511,544 during the first quarter of 2007 and $460,389 during the first quarter of 2006. This represented a dividend of $.10 per share for the first quarter of 2007 and $.09 per share for the first quarter of 2006. The Company continues to reinvest in its infrastructure while maintaining dividends to shareholders. The Board of Directors reviews dividend declarations based on anticipated earnings, capital requirements and the operating and financial condition of the Company. The Company does not expect the payment of regular dividends at the existing level to negatively affect its liquidity.

Sale of MWH

See Note 6 on page 11 of this Form 10-Q.

Working Capital

The Company had working capital of $8,970,019 as of March 31, 2007, compared to working capital of $8,736,311 as of December 31, 2006. The ratio of current assets to current liabilities was 4.5:1.0 as of March 31, 2007 and 1.4:1.0 as of December 31, 2006.

Long-Term Debt

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

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Other

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

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

Recent Accounting Developments

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

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

ITEM 3 . QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4 . CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

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

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

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

In light of the material weaknesses described in the 2006 Form 10-K, management continues to monitor its carrier access billings and is determining appropriate remediation steps to ensure all access revenues have been accurately billed. Accordingly, management believes that the interim consolidated financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the period presented.

(b) Changes in Internal Control over Financial Reporting

During the first quarter of 2007, the Company implemented various improvements to internal controls, which included: (i) password practices improved and expanded, (ii) implemented an Information Security Policy and trained all personnel on this policy, (iii) implemented vendor approval process, including a new vendor form requiring authorized signature prior to adding a new vendor for payment, (iv) improved financial reporting process by implementing use of a formal disclosure checklist for financial filings and instituted procedures for approval of calculations for material estimates, (v) trained all employees on the disaster recovery plan and made this training part of new employee orientation, (vi) improved procedures for storage of system backups, and (vii) instituted criminal background checks on new hires.

No other changes to internal controls over financial reporting have come to the Company’s management’s attention during the three months ended March 31, 2007 that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1A . RISK FACTORS

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

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

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

ITEM 5 . OTHER INFORMATION

Sale of MWH

See Note 6 on page 11 of this Form 10-Q.

Employment Agreement

In connection with the filing of the Form 8-K dated July 18, 2006, the Exhibit 10.2 with respect to Ms. Barbara Bornhoft, Vice President and Chief Operating Officer, contained typographical errors. A copy of the corrected employment agreement is attached as Exhibit 10.1 to this Form 10-Q.

ITEM 6 . EXHIBITS

(a)

Exhibits

See “Index to Exhibits” on page 25 of this Form 10-Q.

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SIGNATURES

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

	NEW ULM TELECOM, INC.
Dated: May 10, 2007	By	/s/ Bill Otis
		Bill Otis, President and Chief Executive Officer

Dated: May 10, 2007		By	/s/ Nancy Blankenhagen
			Nancy Blankenhagen, Chief Financial Officer

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INDEX TO EXHIBITS

Exhibit

Number

Description

10.1	Employment Agreement dated as of July 1, 2006, by and between New Ulm Telecom, Inc. and Ms. Barbara Bornhoft (Corrected)

31.1	Chief Executive Officer Certification Pursuant to Exchange Act Rule 13a-14, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	Chief Financial Officer Certification Pursuant to Exchange Act Rule 13a-14, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1	Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2	Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 10.1

NEW ULM TELECOM, INC.

EXECUTIVE EMPLOYMENT AGREEMENT

THIS EXECUTIVE AGREEMENT (“Agreement”) is made and entered into as of the 1 ^st day of July, 2006, by and between New Ulm Telecom, Inc. (the “Company”), and Barbara Bornhoft (the “Executive”).

WITNESSETH:

WHEREAS, the Company desires to provide the Executive with specified benefits in the event of Executive’s termination of employment under certain circumstances and to enter into mutual covenants in exchange for such benefits, and the Executive desires to enter into this Agreement and to accept such benefits, subject to the terms and provisions of this Agreement;

NOW, THEREFORE, In consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the receipt of which is mutually acknowledged, the Company and the Executive (individually a “Party” and together the “Parties”) agree as follows:

Definitions.

A. “Affiliate” of a person or other entity shall mean a person or other entity that directly or indirectly controls, is controlled by, or is under common control with the person or other entity specified.

B. “Annual Incentive Award” shall mean the annual incentive compensation that may be paid to the Executive under the New Ulm Telecom Management Incentive Plan, as specified in Section 3 below and in the New Ulm Telecom Management Incentive Plan document.

C. “Board” shall mean the Board of Directors of the Company.

“Cause” shall mean:

(1)

gross malfeasance of the Executive of a material nature;

(2) the Executive is convicted of a felony or pleads nolo contendere (i.e., no contest) or guilty to a felony under Minnesota law or other federal, state or local law;

(3) willful misconduct of the Executive with regard to the Company having a material adverse effect on the Company; and

(4) refusal to, or failure to attempt in good faith to, perform the Executive’s duties or to follow the written legal direction of the Board.

“Change of Control” shall mean the occurrence of any of the following events:

(1) the sale, exchange, lease or other disposition of all or substantially all of the assets of the Company to a person or group of related persons (as such terms are defined in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934),

(2) a merger or consolidation as a result of which 50% or more of the voting securities of the Company are held by third parties,

(3)

a sale to a third party of more than 50% of the voting securities of the Company,

(4) a change in the composition of the Board such that the individuals who, as of the Effective Date, constitute the Board cease for any reason to constitute a majority of the Board; provided, however, that for purposes of this definition, any individual who becomes a member of the Board subsequent to the Effective Date, whose election, or nomination for election, by the company’s stockholders was approved by a vote of at least a majority of those individuals who are members of the Board and who were also members of the Board as of the Effective Date.

F. Disability” shall mean the definition(s) of disability under the terms of the disability insurance policy or policies that may be provided to the Executive.

“Effective Date” shall mean the date as of which this Agreement was entered into.

“Term of Agreement” shall mean the period specified in Section 2 below.

I. “Termination for Good Reason” shall mean termination by the Executive of her employment at the Executive’s initiative following the occurrence of any of the following events without her prior written consent:

(1) a reduction in the Executive’s base salary or other cash compensation or in her ability to participate in or to receive benefits from any welfare benefit and/or compensation plans without a counter-balancing increase in another element of Executive’s welfare benefits and/or total compensation package;

(2) a material diminution in the Executive’s duties or the assignment to the Executive of duties which are materially inconsistent with her duties or which materially impair the Executive’s ability to function as the Vice President of the Company;

(3) the relocation of the Company’s principal office, or the Executive’s own office location, as assigned to the Executive by the Company to a location more than 35 miles from New Ulm, Minnesota.

Term of Agreement.

The Term of Agreement shall begin on the Effective Date, and shall extend to July 1, 2007, and then shall automatically renew for successive one (1) year terms, unless terminated on a written notice given by either Party 90-days prior to the Effective Date of the renewal period. Notwithstanding the foregoing, the Term of Agreement may be earlier terminated by either Party in accordance with the provisions of Section 5 below.

Salary and Incentive Compensation

A. Base Salary. Base salary shall be paid at a rate of $110,000 per annum. This base salary may be increased, but not decreased, annually by the Board. The Board may consider the Executive’s performance, the financial strength of the Company, and the competitive market in determining salary increases each year.

Incentive Compensation.

(1) The Executive may, at the Board’s discretion, be awarded incentive compensation under the New Ulm Telecom Management Incentive Plan, in the form of a cash incentive (Annual Incentive Award) on an annual basis.

(2) The target incentive for the Executive is 15% of base salary. The maximum incentive award payable under the plan is 30% of base salary (2 times the target). The minimum incentive award payable under the plan is $0.

(3) Annual Incentive Awards are determined as described in the New Ulm Telecom Management Incentive Plan document, and are generally based on net income, operating revenue and customer service performance versus goal.

(4) The Board will approve the Executive’s incentive plan goals for each year by the end of the first quarter of that year. After the fiscal year has been completed and performance results have been audited and approved by the Board, the Board will assess performance results versus goal. If available, Annual Incentive Awards are typically paid within two and one-half months following the end of the fiscal year.

Benefits

A. Standard Benefits. The Executive shall be eligible to participate in standard employee benefit programs (including medical, dental, life and disability insurance, which shall be effective as of and from the date of the employment hereunder) as the Company shall maintain from time-to-time for the benefit of all employees.

B. Automobile Reimbursement. The Executive will be reimbursed for all automobile expenses related to business travel, including vehicle lease or payment costs approved by the Board. All personal use of the automobile provided to the Executive will be tracked and reported separately as W-2 income to the Executive.

C. Vacation. The Executive shall be entitled to five (5) weeks paid vacation and three (3) personal days per annum under the Company’s paid time off program for executives, and with such additional paid vacation time as the Board may reasonably determine or is consistent with the Company’s vacation policy as is exists from time-to-time. Unused vacation shall accrue on an annual basis and will be paid on termination. The maximum amount of vacation that may be paid on termination is equal to the annual accrual rate multiplied by 2, or 10 weeks.

Termination of Employment

A. Termination Due to Death. In the event that the Executive’s employment is terminated due to her death, the Executive’s estate or her beneficiaries, as the case may be, shall be entitled to the following benefits:

(1)

Base salary through the end of the month in which death occurs;

(2) Annual Incentive Award for the year in which the Executive’s death occurs, equal to the target award for that fiscal year, payable in a single installment promptly after her death.

B. Termination Due to Disability. In the event that the Executive’s employment is terminated due to her Disability, he shall be entitled to the following benefits:

(1) Disability benefits in accordance with the long-term disability program then in effect for the Executive;

(2)

Base salary through the end of the month in which disability benefits commence;

(3) Annual Incentive Award for the year in which the Executive’s termination occurs, equal to the target award for that fiscal year, payable in a single installment promptly after her termination.

Termination by the Company for Cause.

(1) A termination for Cause shall not take effect unless the provisions of this paragraph (1) are complied with. The Executive shall be given written notice by the Board of the intention to terminate him for Cause, such notice (A) to state in detail the particular act or acts or failure or failures to act that constitute the grounds on which the proposed termination for Cause is based and (B) to be given within six months of the Board learning of such act or acts or failure or failures to act. The Executive shall have 30 calendar days after the date that such written notice has been given to the Executive in which to cure such conduct to the extent such cure is possible. If, at the end of the thirty day period, the Board confirms that, in its judgment, grounds for Cause on the basis of the original notice still exist, the Executive shall thereupon be terminated for cause.

(2)

In the event the Company terminates the Executive’s employment for Cause:

(a) Executive shall be entitled to base salary through the date of the termination; and

(b) The Executive will forfeit the Annual Incentive Award earned during the fiscal year in which she terminated.

D. Termination without Cause or Termination for Good Reason. In the event the Executive’s employment is terminated by the Company without Cause, other than due to Disability or death, or in the event there is a Termination for Good Reason, the Executive shall be entitled to the following benefits:

(1)

Base salary through the date of termination;

(2) Base salary, at the annualized rate in effect on the date of termination, for a period of twelve (12) months following such termination.

E. Termination resulting from a Change in Control. If, within 12 months of a Change in Control, the Executive’s employment is terminated by the Company without Cause, other than due to Disability or death, or if there is a Termination for Good Reason, the Executive shall be entitled to receive the following benefits:

(1)

Base salary through the date of termination;

(2)

Lump sum award equal to twelve (12) months of base salary, paid following termination.

Voluntary Termination; Retirement.

(1) A termination of Employment by the Executive on her own initiative, other than a termination due to death or Disability or a Termination for Good Reason or retirement following the end of the Term of Employment, shall have the same consequences as provided in Section 5(C)(2) for a termination for Cause. A voluntary termination under this Section 5(F) shall be effective 30 calendar days after prior written notice is received by the Company.

G. No Mitigation; No Offset. In the event of any termination of employment under this Section 5, the Executive shall be under no obligation to seek other employment and there shall be no offset against amounts due the Executive under this Agreement on account of any remuneration attributable to any subsequent employment that he may obtain.

H. Nature of Payments. Any amounts due under this Section 5 are in the nature of severance payments considered to be reasonable by the Company and are not in the nature of a penalty.

Confidentiality.

A. The Executive agrees that he will not, at any time during the Term of Agreement or thereafter, disclose or use any trade secret, proprietary or confidential information of the Company or any subsidiary or Affiliate of the Company, obtain during the course of her employment, except as required in the course of such employment or with the written permission of the company or, as applicable, any subsidiary or Affiliate of the Company or as may be required by law, provided that, if the Executive receives legal process with regard to disclosure of such information, he shall promptly notify the Company and cooperate with the Company in seeking a protective order.

B. The Executive agrees that at the time of the termination of her employment with the Company, whether at the instance of the Executive or the Company, and regardless of the reasons therefor, she will deliver to the Company, and not keep or deliver to anyone else, any and all notes, files, memoranda, papers and, in general, any and all physical matter containing information, including any and all documents significant to the conduct of the business of the Company or any subsidiary or Affiliate of the Company which are in her possession, except for any documents for which the Company or any subsidiary or Affiliate of the Company has given written consent to removal at the time of the termination of the Executive’s employment and her personal rolodex, phone book and similar items.

C. The Executive agrees that the Company’s remedies at law would be inadequate in the event of a breach or threatened breach of this Section 6; accordingly, the Company shall be entitled, in addition to its rights at law, to an injunction and other equitable relief without the need to post a bond.

Noncompetition and Nonsolicitation.

A. During the Term of Agreement, and for a period of 12 months after the date the Executive’s employment terminates, the Executive shall not, without the prior approval of the Board, in the same or a similar capacity, engage in or invest in, or aid or assist anyone else in the conduct of any business which directly competes with the business of the Company and its subsidiaries and Affiliates as conducted during the term hereof. In any court of competent jurisdiction shall determine that any of the provisions of this Section 7 shall not be enforceable because of the duration or scope thereof, the parties hereto agree that said court shall have the power to reduce the duration and scope of such provision to the extent necessary to make it enforceable and this Agreement in its reduced form shall be valid and enforceable to the extent permitted by law; and

B. During the Term of Agreement and for a period of 12 months after the date the Executive’s employment terminates, Executive shall not attempt, directly or indirectly, to induce any employee of the Company, or any subsidiary or any Affiliate thereof, to be employed or perform services elsewhere.

C. Subject to the provisions of Sections 7(A), 7(B) and 7(D) and notwithstanding any other provisions of this Agreement, any and all payments (except those made from Company-sponsored tax-qualified pension or welfare plans), benefits or other entitlements to which the Executive may be eligible in accordance with the terms hereof, may be forfeited, whether or not in pay status, at the discretion of the Company, if the Executive breaches the provisions as set forth in Section 7(A) or 7(B). The payments, benefits and other entitlements hereunder are being made in part in consideration of the obligations of this Section 7 and in particular the post-employment payments, benefits and other entitlements are being made in consideration of, and dependent upon, compliance with this Section 7.

D. Anything in Section 7(C) to the contrary notwithstanding, no forfeiture or cancellation shall take place with respect to any payments, benefits or entitlements hereunder or under any other award agreement, plan or practice unless the Company shall have first given the Executive written notice of its intent to so forfeit, or cancel or pay out and Executive has not, within 30 calendar days of giving such notice, ceased such unpermitted activity, provided that the foregoing prior notice procedure shall not be required with respect to:

(1) An activity which the Executive initiated after the Company had informed the Executive in writing that it believed such activity violated Section 7(A) or 7(B);

(2) Any competitive activity regarding products or services which are part of a line of business which represents more than 5% of the Company’s consolidated gross revenues for its most recent completed fiscal year at the time the competitive activity commences.

E. Nothing in this Section 7 shall prohibit the Executive from being a passive owner of not more than one percent of the outstanding common stock, capital stock and equity of any firm, corporation or enterprise so long as the Executive has no active participation in the management of business of such firm, corporation or enterprise.

Resolution of Disputes.

Any disputes arising under or in connection with this Agreement shall be resolved by third party mediation of the dispute and, failing that, by binding arbitration, to be held in New Ulm, Minnesota, in accordance with the rules and procedures of the American Arbitration Association. Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. Each Party shall bear her or its own costs of mediation, arbitration or litigation, except that the Company shall bear all such costs if the Executive prevails in such mediation, arbitration or litigation on any material issue.

Indemnification.

A. The Company agrees that if the Executive is made a party, or is threatened to be made a party, to any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”), by reason of the fact that he is or was a director, officer or employee of the Company or is or was serving at the request of the company as a director, officer, member, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether or not the basis of such Proceeding is the Executive’s alleged action in an official capacity while serving as a director, officer, member, employee or agent, the Executive shall be indemnified and held harmless by the Company to the fullest extent legally permitted or authorized by the Company’s certificate of incorporation or by-laws or resolutions of the Company’s Board of Directors or, if greater, by the laws of the State of Minnesota, against all cost, expense, liability and loss (including, without limitation, attorney’s fees, judgments, fines, ERISA excise taxes or other liabilities or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by the Executive in connection therewith, and such indemnification shall continue as to the Executive even if he has ceased to be a director, member, employee or agent of the Company or other entity and shall inure to the benefit of the executive’s heirs, executors and administrators. The Company shall advance to the Executive all reasonable costs and expenses incurred by him in connection with a Proceeding within 30 calendar days after receipt by the Company of a written request for such advance. Such request shall include an undertaking by the Executive to repay the amount of such advance if it shall ultimately be determined that he is not entitled to be indemnified against such costs and expenses.

B. Neither the failure of the Company (including its Board, independent legal counsel or members) to have made a determination prior to the commencement of any proceeding concerning payment of amounts claimed by the Executive under Section 9(A) above that indemnification of the Executive is proper because she has met the applicable standard of conduct, nor a determination by the Company (including its Board, independent legal counsel or members) that the Executive has not met such applicable standard of conduct, shall create a presumption that the Executive has not met the applicable standard of conduct.

C. The Company agrees to continue and maintain a directors’ and officers’ liability insurance policy covering the Executive to the extent the Company provides such coverage for its other executive officers.

10.

Assignability; Binding Nature.

This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors, heirs (in the case of the Executive) and assigns. Rights or obligations of the Company under this Agreement may be assigned or transferred by the Company pursuant to a merger or consolidation in which the Company is not the continuing entity, or the sale or liquidation of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and such assignee or transferee assumes the liabilities, obligations and duties of the Company, as contained in this Agreement, either contractually or as a matter of law. The Company further agrees that, in the event of a sale of assets or liquidation as described in the preceding sentence, it shall take whatever action it reasonably can in order to cause such assignee or transferee to expressly assume the liabilities, obligations and duties of the Company hereunder. No rights or obligations of the Executive under this Agreement may be assigned or transferred by the Executive other than her rights to compensation and benefits, which may be transferred only by Will or operation of law.

11.

Representation.

The Company represents and warrants that it is fully authorized and empowered to enter into this Agreement and that the performance of its obligations under this Agreement will not violate any agreement between it and any other person, firm or organization. The Executive represents that the performance of her obligations under this Agreement will not violate any agreement between her and any other person, firm or organization that would be violated by the performance of her obligations under this Agreement.

12.

Entire Agreement.

This Agreement contains the entire understanding and agreement between the Parties concerning the subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, between the Parties with respect thereto.

13.

Amendment or Waiver.

No provision in this Agreement may be amended unless such amendment is agreed to in writing and signed by the Executive and an authorized officer of the Company. No waiver by either Party of any breach by the other Party of any condition or provision contained in this Agreement to be performed by such other Party shall be deemed a waiver of a similar or dissimilar condition or provision at the same or any prior or subsequent time. Any waiver must be in writing and signed by the Executive and approved by the Board.

14.

Severability.

In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law so as to achieve the purposes of this Agreement.

15.

Survivorship.

Except as otherwise expressly set forth in this Agreement, the respective rights and obligations of the Parties hereunder shall survive any termination of the Executive’s employment. This Agreement itself (as distinguished from the Executive’s employment) may not be terminated by either Party without the written consent of the other Party.

16.

References.

In the event of the Executive’s death or a judicial determination of her incompetence, reference in this Agreement to the Executive shall be deemed, where appropriate, to refer to her beneficiary, estate or other legal representative.

17.

Governing Law/Jurisdiction.

This Agreement shall be governed in accordance with the laws of Minnesota without reference to principles of conflict of laws.

18.

Notices.

All notices and other communications required or permitted hereunder shall be in writing and shall be deemed given when (a) delivered personally, (b) sent by certified or registered mail, postage prepaid, return receipt requested or (c) delivered by overnight courier (provided that a written acknowledgment of receipt is obtained by the overnight courier) to the Party concerned at the address indicated below or to such changed address as such Party may subsequently give such notice of:

If to the Company:

New Ulm Telecom, Inc.

27 North Minnesota Street

New Ulm, MN 56073

ATTENTION:

Perry Meyer

Board of Directors, Compensation Committee Chair

If to the Executive:

Barbara Bornhoft

c/o NU Telecom, Inc.

27 North Minnesota Street

New Ulm, MN 56073

19.

Headings.

The headings of the sections contained in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement.

IN WITNESS WHEREOF, the undersigned have executed this Agreement to be effective as of the date first written above.

		NEW ULM TELECOM, INC
Dated:	July 12, 2006	By:	/s/ James P. Jensen
			James P. Jensen, Chairman of the Board


Dated:	July 11, 2006	/s/ Barbara Bornhoft
		Barbara Bornhoft Vice President/COO

EXHIBIT 31.1

SARBANES-OXLEY SECTION 302 CERTIFICATION

I, Bill Otis, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of New Ulm Telecom, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.	The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s Board of Directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial data; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: May 10, 2007		By	/s/	Bill Otis
				Bill Otis President and Chief Executive Officer

EXHIBIT 31.2

SARBANES-OXLEY SECTION 302 CERTIFICATION

I, Nancy Blankenhagen, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of New Ulm Telecom, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

5.	The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s Board of Directors (or persons performing the equivalent functions):

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: May 10, 2007		By	/s/	Nancy Blankenhagen
				Nancy Blankenhagen Chief Financial Officer

EXHIBIT 32.1

SARBANES-OXLEY SECTION 906 CERTIFICATION

In connection with the Quarterly Report of New Ulm Telecom, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Bill Otis, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 10, 2007		By	/s/	Bill Otis
				Bill Otis President and Chief Executive Officer

EXHIBIT 32.2

SARBANES-OXLEY SECTION 906 CERTIFICATION

In connection with the Quarterly Report of New Ulm Telecom, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Nancy Blankenhagen, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 10, 2007		By	/s/	Nancy Blankenhagen
				Nancy Blankenhagen Chief Financial Officer