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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

Commission File Number 0-3024

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

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.

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

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of August 8, 2006: 5,115,435 shares of common stock outstanding.

NEW ULM TELECOM, INC. AND SUBSIDIARIES
JUNE 30, 2006

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NEW ULM TELECOM, INC. AND SUBSIDIARIES

PART I.   FINANCIAL INFORMATION

ITEM I.   FINANCIAL STATEMENTS

UNAUDITED CONSOLIDATED BALANCE SHEETS

ASSETS

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

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

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, 2005 AND
SIX MONTHS ENDED JUNE 30, 2006

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

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 (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. The Company’s financial statements are also affected by depreciation rates prescribed by regulators, which may result in different depreciation rates than for an unregulated enterprise.

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

Income taxes have been calculated in proportion to the earnings and tax credits generated by operations. The Company’s effective income tax rate is higher than the U.S. rate due to the effect of state income taxes.

The balance sheets and statement of stockholders’ equity as of June 30, 2006, and statements of income and the statements of cash flows for the periods ended June 30, 2006 and 2005 have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and changes in cash flows at June 30, 2006 and for the six-month periods ended June 30, 2006 and 2005 have been made.

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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, 2005. The results of operations for the period ended June 30, 2006 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 June 30:

Noncash investing activities included $367,859 and $64,422 during the periods ended June 30, 2006 and 2005, respectively, relating to plant and equipment additions placed in service, which are reflected in accounts payable at June 30, 2006 and 2005.

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. At June 30, 2006, there were $8,250,000 of direct borrowings outstanding under this facility. Interest on this loan is variable based on CoBank ACB’s reference rate, and 30-day fixed based on the Company’s leverage ratio. The amounts of borrowings at 30-day fixed and variable rates fluctuate over time. The variable interest rate on this loan was 7.01% at June 30, 2006. The 30-day fixed interest rate on this loan was 6.35% at June 30, 2006. The Company also entered into a $10 million secured ten-year reducing revolving credit facility during 2001 with CoBank, ACB, maturing in 2011. At June 30, 2006, there were $5,500,000 of direct borrowings outstanding under this facility. Interest on this loan is variable based on CoBank ACB’s reference rate, and 30-day fixed based on the Company’s leverage ratio. The amounts of borrowings at 30-day fixed and variable rates fluctuate over time. The variable interest rate on this loan was 7.01% at June 30, 2006. The 30-day fixed interest rate on this loan was 6.35% at June 30, 2006.

NOTE 4 – GOODWILL AND INTANGIBLE ASSETS

At June 30, 2006, the Company had goodwill for wireline acquisitions of $3,218,906, and goodwill associated with equity investments, included in cellular investments, of $4,890,389. The Company annually tests the goodwill of $3,218,906 associated with wireline acquisitions under SFAS 142 and has determined that the goodwill associated with this investment is unimpaired. The cellular investment goodwill of $4,890,389 was considered under APB Opinion 18 and it was determined to not be impaired.

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The Company owned 9.88% of Midwest Wireless Holdings, LLC (MWH) at June 30, 2006 (9.88% at December 31, 2005). The Company accounts for its investment in MWH using the equity method, and earnings from the investment are material to the Company’s net income. At December 31, 2005, MWH had investments in cellular, Local Multipoint Distribution Service (LMDS) and Personal Communications Service (PCS) licenses totaling $212,093,566. At June 30, 2006 MWH determined that these licenses have indefinite useful lives and are not impaired.

The components of goodwill are summarized below:

Definite lived intangibles are summarized below:

Intangible assets with definite lives are amortized over their useful lives. The estimated amortization expense for intangible assets will be $2,052 per year for the next five years.

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. The Cellular Segment includes the sales and service of cellular phones and accessories, and a 9.88% cellular investment in MWH. The cellular investment in the Cellular Segment is recorded on the equity method on the financial statements and is presented in this note using the proportionate consolidation method. The Company records its 9.88% investment in MWH using the proportionate consolidation method so that it can 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) reviews 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:

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NOTE 5 – SEGMENT INFORMATION (continued)

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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 any forward-looking statements made in this Form 10-Q are subject to risks and uncertainties, including, but not limited to, the effects of deregulation in the telecommunications industry as a result of the Telecommunications Act of 1996. These forward-looking statements are subject to risks and uncertainties that could cause the Company’s actual results to differ materially from these statements and the Company disclaims any obligation to update or revise any forward-looking statements based on the occurrence of future events or the receipt of new information. See “Risk Factors” in Item 1A of the 2005 Form 10-K.

OVERVIEW

The Company operates three business segments. The majority of its operations consist of the Telecom segment, which provides telephone services, Internet services, and cable television services to numerous communities in Minnesota and Iowa. A second segment, the Cellular segment, includes the sales and service of cellular phones and accessories, and a 9.88% interest in Midwest Wireless Holdings L.L.C. (MWH) and records this investment on the equity method of accounting. The Company uses proportionate consolidation in its segment reporting because this is how the Chief Operating Decision Maker (CODM) reviews the performance of MWH. The third segment, the Phonery segment, includes the sales and service of customer premise equipment, transport operations, and the resale of long distance toll service.

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.

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Summary of Operations

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RESULTS OF OPERATIONS BY BUSINESS SEGMENT

Telecom Segment Operations

The Telecom segment revenues represented 86.8% of the Company’s consolidated operating revenues for the three-month period ended June 30, 2006 and 85.7% of the Company’s consolidated operating revenues for the six-month period ended June 30, 2006, before intercompany eliminations. Revenues are primarily earned by providing approximately 16,300 customers access to the local network in Minnesota and Iowa, 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, and through billing and collecting for various long distance companies. This segment has invested in its infrastructure so that it can provide its customers with the latest technological advances, including being able to offer its “triple-play” of services. Total Telecom segment revenues for the three-month period ending June 30, 2006 decreased $362,181 or 8.3% compared to the same period in 2005. Total Telecom segment revenues for the six-month period ending June 30, 2006 decreased $231,415 or 2.8% compared to the same period in 2005. All information contained in the following table is before intercompany eliminations.

Local network revenue decreased in the Telecom segment by $23,542 or 2.3% for the three months ended June 30, 2006 compared to the same period in 2005. Local network revenue decreased in the Telecom segment by $63,694 or 3.1% for the six months ended June 30, 2006 compared to the same period in 2005. Local network revenue decreased during these periods as a result of a decrease in access lines of approximately 220 for the first three months of 2006 and approximately 700 for the first six months of 2006 compared to the same periods in 2005, and reduced charges for DSL wholesale service. The decrease in access lines is due to customers increasingly utilizing their wireless phones and customers dropping second phone lines in their homes when they move their Internet service from a dial-up platform to a DSL platform or a cable platform.

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Network access revenue decreased $412,373 or 22.9% for the three months ended June 30, 2006 compared with the same period in 2005. Network access revenue decreased $429,869 or 13.2% for the six months ended June 30, 2006 compared to the same period in 2005. The decrease in network access revenue reflects the overall decrease in minutes of use and the negative effects of downward pricing pressure on network access pricing, a common industry trend. The Telecom segment experienced a 10.8% decrease in access minutes for the six months ended June 30, 2006 compared to the same period in 2005. Also, the network access revenues declined for the period ended June 30, 2006 compared to 2005 as a result of a 2005 change in estimate that increased 2005 revenues by $493,178. The 2005 adjustment to the prior years’ estimate was due to interstate settlement adjustments resulting from changes in expense and plant investment levels relating to operating results and cost separation procedures and rate of return experience. In order to minimize the impact on the Company, the Company continues to monitor the negative effects of network access pricing and the downward trend in access minutes of use. The Telecom segment has maintained and enhanced its infrastructure, and has invested over $10 million in capital expenditures since 2003. These capital expenditures have allowed the Company to receive additional settlements from the National Exchange Carrier Association (NECA). The additional investment in the local loop (access line cost) has made the Company eligible for high-cost loop funding through the Universal Service Fund.

Other operating revenues increased $59,549 or 5.0% for the three months ended June 30, 2006 compared with the same period in 2005. Other operating revenues increased $115,112 or 4.9% for the six months ended June 30, 2006 compared with the same period in 2005. 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, MN. The video product offered in New Ulm, Essig, Searles, Courtland, Springfield, Sanborn and Redwood Falls, MN was responsible for $51,223 of the increase in these revenues for the six months ended June 30, 2006. The remainder of the revenue increase was attributed to Telecom segment’s sale of Internet services.

Operating expenses, excluding depreciation and amortization, increased $98,939 or 4.5% for the three-month period ended June 30, 2006 and increased $202,389 for the six-month period ended June 30, 2006 compared with the same periods in 2005. The increases in cash operating expenses were the result of increased selling, general and administrative costs, 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 continued growth in video and DSL customers also contributed to the increase in cash operating expenses. 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. The Company also strives for cost efficiencies and technological improvements to enhance its operating margins for the Telecom segment.

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Depreciation and amortization expenses increased $97,307 or 9.5% for the three months ended June 30, 2006 compared with the same period in 2005. Depreciation and amortization expenses increased $25,722 or 1.2% for the six months ended June 30, 2006 compared with the same period ended June 30, 2005. The increases were due to the Company’s continued investments in the Telecom segment’s infrastructure.

Operating income decreased $572,612 or 70.5% for the three months ended June 30, 2006 compared with the same period in 2005. Operating income decreased $606,562 or 50.6% for the six months ended June 30, 2006 compared to the same period in 2005. The decrease in operating income for the six months ended June 30, 2006 was primarily due to decreases in network access revenues compared to the same period in 2005. The decrease in operating income was also partially due to 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 $378,451 decrease in revenues combined with a $228,111 increase in operating expenses resulted in the $606,562 decrease in operating income for the six months ended June 30, 2006.

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. The operating income from sales of cellular phones and accessories increased by $10,543 for the three month period ending June 30, 2006 and $27,023 for the six month period ending June 30, 2006 as compared to the same periods in 2005, due primarily to an increase in the sale of cellular phones. The cellular partnership income increased $219,448 or 13.7% for the three months ended June 30, 2006 compared to the same period ended in 2005, and increased $839,455 or 29.0% for the six months ended June 30, 2006 as compared to June 30, 2005. These increases were the result of revenue and income growth as MWH continues to gain market share and offer customers new phones, new features and new service plan options. The Cellular segment information for its investment in MWH is shown in the following table using the proportionate consolidation method. The Company records its 9.88% investment in MWH using the proportionate consolidation method so that it can be compared to the cellular industry, as well as the Company’s other business segments, and because the Company’s CODM reviews the performance of MWH using the proportionate method.

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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.

Phonery Segment

The Phonery segment represented 10.0% of the consolidated operating revenues for the three-month period ended June 30, 2006 and 11.23% of the consolidated operating revenues for the six-month period ended June 30, 2006 before intercompany eliminations. Revenues are earned primarily by sales, installation and service of business telephone systems and data communications equipment. In addition, the Phonery segment leases network capacity to provide additional network access revenues and resells long distance toll service. This segment’s expertise is the quality installation and maintenance of CPE, provision of customer long distance needs and transport solutions in communication to end user customers. All information contained in the following table is before intercompany eliminations.

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Operating revenue decreased $22,077 or 15.9%, for the three months ended June 30, 2006 compared to the same period ended 2005. Operating revenue increased $50,920 or 5.6% for the six months ended June 30, 2006 compared to the same period in 2005. The Phonery segment experienced increased operating revenues for the six months ended June 30, 2006 due to increased sales of CPE, and increased revenues from transport operations. These increases were offset by a decrease in the resale of long distance toll revenues of approximately $15,000.

Operating expenses, excluding depreciation and amortization increased $11,288 or 5.5% for the three months ended June 30, 2006 and decreased $5,775 or 1.3% for the six months ended June 30, 2006 compared to the same periods in 2005. This six-month 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 $8,940 or 4.3% for the three months ended June 30, 2006 compared with the same period in 2005. Depreciation and amortization expenses decreased $8,940 or 2.1% for the six months ended June 30, 2006 compared to the same period in 2005. These decreases were due to long-lived asset that have become fully depreciated.

Operating income decreased by $24,425 or 11.1% for the three months ended June 30, 2006 compared to the three months ended June 30, 2005. This three-month decrease in income was primarily the result of the decrease in operating revenues. Operating income increased $65,635 or 16.0% for the six months ended June 30, 2006 compared to the same period in 2005. The six-month increase in operating income was the result of increased operating revenues and decreased operating expenses.

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LIQUIDITY AND CAPITAL RESOURCES

Capital Structure

The total long-term capital structure (long-term debt plus stockholders’ equity) for the Company was $44,707,749 at June 30, 2006, reflecting 74.6% equity and 25.4% debt. This compares to a capital structure of $44,143,281 at December 31, 2005, reflecting 71.5% equity and 28.5% debt. Management believes adequate internal and external resources are available to finance ongoing operating requirements, including capital expenditures, business development, debt service and the payment of dividends for at least the next 12 months.

Cash Flows

Cash provided by operations was $2,061,749 for the six-month period ended June 30, 2006 compared to $3,481,534 for the six-month period ended June 30, 2005. This $1,419,785 decrease is mainly the result of the increase in cellular investment income, the decrease in receivables and the decrease in accrued income taxes. Cash flows from operations for the six months ended June 30, 2006 and 2005 were primarily attributable to net income plus non-cash expenses for depreciation and amortization.

Cash flows used in investing activities were $1,361,030 for the six months ended June 30, 2006 compared to $1,076,011 for the same period in 2005. Capital expenditures relating to on-going businesses were $1,067,022 during the first six months of 2006 as compared to $987,069 for the same period in 2005. 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 $3,235,000 in 2006.

Cash flows used by financing activities were $2,179,073 for the six-month period ended June 30, 2006 compared to cash flows used by financing activities of $2,102,234 for the six-month period ended June 30, 2005. Included in cash flows used in financing activities were debt repayments and dividend payments.

Dividends

The Company paid dividends of $920,778 during the first six months of 2006 and $852,234 during the first six months of 2005. This represented a dividend of $.09 per share per quarter for 2006 and $.0833 per share per quarter for 2005. The Board of Directors makes dividend declarations based on anticipated earnings, capital requirements and the operating and financial condition of the Company. The Company has made no announcements or plans to change the dividends above or below historic levels for the remainder of 2006. The Company does not expect its payout of dividends at the existing level to negatively affect the liquidity of the Company.

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Sale of MWH

As previously disclosed, on November 17, 2005, MWH and Alltel Corporation (Alltel) entered into a definitive agreement under which Alltel agreed to purchase MWH. The total compensation to be paid by Alltel is $1.075 billion, including payments to MWH shareholders, payments to minority interest holders in certain MWH properties and assumption of MWH’s outstanding debt.

If the transaction is consummated, the Company expects its portion of the proceeds from the sale before taxes to be approximately $80 Million, with approximately 90% of the proceeds to be received shortly after closing and the remaining amount to be paid at six months and at fifteen months after closing.

United States Cellular Corporation initiated proceedings at the FCC and in Delaware State Court, however, contesting the definitive agreement. In an opinion dated June 7, 2006, the Delaware State Court found in favor of MWH, and the transaction is currently moving forward towards closing. MWH currently expects to close the transaction late in the third quarter or early in the fourth quarter of 2006, subject to the satisfaction of customary conditions and receipt of regulatory approvals. See Item 5, Other Information on this Form 10-Q on page 27.

Although the Company had not definitely determined how it would use the proceeds from the sale of MWH, it is currently analyzing a number of alternatives, including the reduction of its indebtedness, the payment of a special dividend and the acquisition of one or more businesses that would complement its existing business segments, and is proceeding with the acquisition of Hector Communication Corporation described below.

Pending Acquisition of Hector Communications Corporation

On June 27, 2006, New Ulm Telecom, Inc. entered into a definitive agreement to acquire a one-third interest in Hector Communications Corporation through a recently formed corporation, Hector Acquisition Corporation (HAC), which is equally owned by New Ulm Telecom, Inc., Blue Earth Valley Communications, Inc. and Arvig Enterprises, Inc. Under the terms of the Agreement and Plan of Merger, Hector Communications Corporation and HAC would merge, with Hector Communications Corporation becoming the surviving corporation. The aggregate consideration to the shareholders of Hector Communication Corporation and other transaction expenses will be approximately $155 million. The closing of this transaction is contingent upon the closing of the MWH sale to Alltel, along with the satisfaction of customary conditions and receipt of regulatory approvals. New Ulm intends to finance its portion of the transaction through a combination of proceeds from the MWH sale, working capital and possible borrowings.

Working Capital

The Company had a working capital deficit of $702,006 as of June 30, 2006, compared to working capital deficit of $643,919 as of December 31, 2005. The increase of $58,087 in working capital deficit reflects the Company’s decrease in cash and cash equivalents. The ratio of current assets to current liabilities was 1.0:1.2 as of June 30, 2006 and 1.0:1.2 as of December 31, 2005.

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Long-Term Debt

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

Other

The Company has not conducted a public equity offering. It operates with original equity capital, retained earnings and indebtedness in the form of senior debt. The Company believes its current debt to total capital proportions of 25 to 75 percent will be adequate for the foreseeable future.

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 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 does not believe that the adoption of FIN 48 will have a material impact on the consolidated financial statements.

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. The Company’s earnings are affected by changes in interest rates as its long-term debt is based on a national variable rate and a 30-day fixed rate based on the Company’s leverage ratio. The amounts of borrowings at 30-day fixed and variable rates fluctuate over time. If interest rates for the portion of the Company’s long-term debt based on variable rates and 30-day fixed rates, which ranged between 5.92% and 7.01%, had averaged 10% more for the first six months of 2006, the Company’s interest expense would have increased approximately $44,000. In October 2005, the Company began converting a portion of its variable-rate debt to short-term fixed rate debt to mitigate its exposure to rising interest rates.

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ITEM 4.   CONTROLS AND PROCEDURES

The Company maintains a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed, is accumulated and communicated to management timely. At the end of the period covered by this report, the Company carried out an evaluation under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be disclosed in periodic filings with the SEC.

There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these internal controls subsequent to the date of the Company’s most recent evaluation.

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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, 2005.

Ability to Complete Acquisition of Hector Communications Corporation

On June 27, 2006, New Ulm Telecom, Inc. entered into a definitive agreement to acquire a one-third interest in Hector Communications Corporation through a recently formed corporation, Hector Acquisition Corporation. The acquisition of any new business always carries with it certain risks. There can be no assurance that New Ulm, together with its partners, will be able to profitably manage Hector Communications Corporation.

New Ulm must comply with the Section 404 in connection with its 2006 year end financial statements

As of June 30, 2006 (the last day of the second quarter of the Company’s fiscal year), the market capitalization for the Company’s common stock held by non-affiliates (persons other than directors and officers) was approximately $81 million. The Company will therefore become an accelerated filer in connection with its filing of the financial statements for the year ended December 31, 2006. As a result, the Company will be required to obtain certification from its independent outside accountants that its internal control procedures are in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 and related SEC rules. The Company expects to incur additional expenses in the third and fourth quarters of 2006 in preparing to meet this certification. The Company also expects additional expenses in connection with its 2006 audit and certification by the public accountants in achieving these certifications.

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

The annual meeting of the stockholders of the Company was held May 18, 2006 in New Ulm, MN. The total number of shares outstanding and entitled to vote at the meeting was 5,115,435 of which 3,802,264 shares were present either in person or by proxy. The election of directors was the only matter presented to stockholders.

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

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

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ITEM 5.   OTHER INFORMATION

Sale of MWH

As previously disclosed, on November 17, 2005, MWH and Alltel Corporation (Alltel) entered into a definitive agreement under which Alltel agreed to purchase MWH. The total compensation to be paid by Alltel totals $1.075 billion, including payments to MWH shareholders, payments to minority interest holders in certain MWH properties and assumption of MWH’s outstanding debt. If the transaction is consummated, the Company expects its portion of the proceeds from the sale before taxes to be approximately $80 Million, with approximately 90% of the proceeds to be received shortly after closing and the remaining amount to be paid at six months and at fifteen months after closing.

United States Cellular Corporation initiated proceedings at the FCC and in Delaware State Court, however, contesting the definitive agreement. In an opinion dated June 7, 2006, the Delaware State Court found in favor of MWH, and the transaction is currently moving forward towards closing. MWH currently expects to close the transaction late in the third quarter or early in the fourth quarter of 2006, subject to the satisfaction of customary conditions and receipt of regulatory approvals.

Although the Company has not definitely determined how it would use the proceeds from the sale of Midwest, it is currently analyzing a number of alternatives, including the reduction of its indebtedness, the payment of a special dividend and the acquisition of one or more businesses that would complement its existing business segments, such as the acquisition of Hector described below.

Pending Acquisition of Hector Communications Corporation

On June 27, 2006, New Ulm Telecom, Inc. entered into a definitive agreement to acquire a one-third interest in Hector Communications Corporation through a recently formed corporation, Hector Acquisition Corporation (HAC), which is equally owned by New Ulm Telecom, Inc., Blue Earth Valley Communications, Inc. and Arvig Enterprises, Inc. Under the terms of the Agreement and Plan of Merger, Hector Communication Corporation and HAC would merge, with Hector Communication Corporation becoming the surviving corporation. The aggregate consideration of the shareholders of Hector Communication Corporation and other transaction expenses will be approximately $155 million. The closing of this transaction is contingent upon the closing of the MWH sale to Alltel, along with the satisfaction of customary conditions and receipt of regulatory approvals. New Ulm intends to finance its portion of the transaction through a combination of proceeds from the MWH sale, working capital and possible borrowings.

ITEM 6.   EXHIBITS

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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.

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INDEX TO EXHIBITS

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