8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): May 6, 2008

Otelco Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware	1-32362	52-2126395
(State of Incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

505 Third Avenue East, Oneonta, AL 35121

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (205) 625-3574

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):

o  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition.

On May 6, 2008, Otelco Inc. announced its results of operations for its first quarter ended March 31, 2008.  A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

99.1 Press Release Dated May 6, 2008

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 hereunto duly authorized.

	OTELCO INC.
	(Registrant)
Date: May 6, 2008
	By:	/s/ Curtis L. Garner, Jr.
		Name: Curtis L. Garner, Jr.
		Title: Chief Financial Officer

EX-99.1

Contact: Curtis Garner

Chief Financial Officer

Otelco Inc.

205-625-3571

Curtis@otelcotel.com

Otelco Reports First Quarter Results

ONEONTA, Alabama (May 6, 2008) - Otelco Inc. (AMEX: OTT; TSX: OTT.un), the sole wireline telephone services provider in several rural communities in Alabama, Maine and Missouri, today announced results for its first quarter ended March 31, 2008. Key quarterly highlights for Otelco include:

· Total revenues of $17.9 million.

· Operating income of $5.1 million.

· Adjusted EBITDA (as defined below) of $8.9 million.

“Our business delivered solid operating and financial performance during the first quarter,” stated Mike Weaver, President and Chief Executive Officer of Otelco. “Key operating highlights include a 1.0% increase in access line equivalents when comparing the first quarter results with the fourth quarter of 2007. This increase is primarily attributable to a 4.7% increase in RLEC data lines and a 2.9% increase in CLEC voice lines. Our bundled product offerings including our digital high-speed data lines continue to be very successful as 38.0% of our eligible Alabama and Missouri customers now participate in one of these packages.

“We also delivered solid increases in revenue and operating income, which increased 4.0% and 7.8%, respectively, from the year-ago period. Adjusted EBITDA was $8.9 million for the quarter, a 1.7% increase from a year ago,” added Weaver. “Bottom line performance also improved from the year-ago period as we reported net income $0.4 million or diluted net income per share of $0.03 compared to a net loss of $0.1 million or $0.03 per diluted net income per share a year ago. We invested over $2.4 million in our infrastructure to serve both our current and future customers and delivered out thirteenth consecutive IDS distribution. That demonstrates our continued focus on generating solid operating and financial performance while also exploring strategic expansion opportunities to further grow our business.”

Distribution to IDS Holders

Each quarter, the Board considers the declaration of dividends during its normally scheduled meeting. For the first quarter of 2008, the Board is meeting on May 14, 2008. The scheduled interest and any dividend declared will be paid on June 30, 2008 to holders of record as of the close of business on June 13, 2008. The interest payment will cover the period from March 30, 2008 through June 29, 2008.

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Otelco Reports First Quarter Results

Page 2

May 6, 2008

First Quarter 2008 Financial Summary

(Dollars in thousands, except per share amounts)

							Change
	1Q 2007			1Q 2008			Amount			Percent
Revenues	$	17,172		$	17,859		$	687			4.0	%
Operating income	$	4,770		$	5,140		$	370			7.8	%
Interest expense	$	(5,376	)	$	(4,683	)	$	(693	)		(12.9	)%
Net income available to stockholders	$	(118	)	$	408		$	526			445.8	%
Basic net income per share	$	(0.01	)	$	0.03		$	0.04			400.0	%
Diluted net income per share	$	(0.03	)	$	0.03		$	0.06			200.0	%
Adjusted EBITDA(a)	$	8,700		$	8,854		$	154			1.8	%
Capital expenditures	$	1,375		$	2,413		$	1,038			75.5	%

Reconciliation of Adjusted EBITDA to Net Income
	Three Months Ended
	March 31,
	2007			2008
Adjusted EBITDA
Net Income	$	(118	)	$	408
Add:   Depreciation		2,980			2,756
Interest Expense, net of premium		4,978			4,097
Interest Expense - Caplet Cost		398			230
Interest Expense - Amortize Loan Cost		-			372
Interest Expense - Premium		-			(17	)
Gain/Loss from Investments		-			(44	)
Income Tax Expense		12			175
Change in Fair Value of Derivatives		(218	)		241
Loan Fees		19			19
Amortization - Intangibles		649			617
Adjusted EBITDA	$	8,700		$	8,854

^(a) Adjusted EBITDA is defined as consolidated net income (loss) plus interest expense, depreciation and amortization, income taxes and certain non-recurring fees, expenses or charges and other non-cash charges reducing consolidated net income. Adjusted EBITDA is not a measure calculated in accordance with generally acceptable accounting principles (GAAP). While providing useful information, Adjusted EBITDA should not be considered in isolation or as a substitute for consolidated statement of operations data prepared in accordance with GAAP. The Company believes Adjusted EBITDA is useful as a tool to analyze the Company on the basis of operating performance and leverage. The definition of Adjusted EBITDA corresponds to the definition of Adjusted EBITDA in the indenture governing the Company’s senior subordinated notes and its credit facility and certain of the covenants contained therein. The Company’s presentation of Adjusted EBITDA may not be comparable to similarly titled measures used by other companies.

Key Operating Statistics	2006		2007		1Q 2008
RLEC access lines
Voice lines		37,736		36,687		36,239
Data lines		10,016		12,160		12,729
Access Line Equivalents		47,752		48,847		48,968
CLEC access lines
Voice lines		14,267		16,973		17,457
Data lines		2,016		2,571		2,602
Access Line Equivalents		16,283		19,544		20,059
Total Otelco Access
Line Equivalents		64,035		68,391		69,027
Cable television customers		4,188		4,169		4,175
Dial-up internet customers		19,587		15,249		14,290

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Otelco Reports First Quarter Results

Page 3

May 6, 2008

FINANCIAL DISCUSSION FOR FIRST QUARTER 2008:

Revenue

Total revenues grew 4.0% in the three months ended March 31, 2008 to $17.9 million from $17.2 million in the three months ended March 31, 2007. The growth in revenue reflected growth in CLEC customers in Maine and increased digital Internet lines throughout the areas we serve. Local services revenue grew 6.0% in the first quarter to $6.7 million from $6.3 million in the quarter ended March 31, 2007. Network access revenue was flat in the first quarter at $6.4 million compared with the quarter ended March 31, 2007. Cable television revenue in the three months ended March 31, 2008 was flat at $0.5 million when compared to the three months ended March 31, 2007. Internet revenue for the first quarter 2008 increased 6.4% to $3.0 million from $2.8 million in the quarter ended March 31, 2007. Transport services revenue grew 12.8% to $1.1 million in the three months ended March 31, 2008 from $1.0 million in the same period in 2007.

Operating Expenses

Operating expenses in the three months ended March 31, 2008 increased 2.6% to $12.7 million from $12.4 million in the three months ended March 31, 2007. Cost of services increased 6.1% to $6.7 million from $6.3 million in the quarter ended March 31, 2007. The cost associated with increased CLEC revenue in Maine, increased long distance and Internet bandwidth requirements to support additional market penetration, and higher cost of living expense were partially offset by network and organizational efficiencies. Selling, general and administrative expenses increased 7.7% to $2.7 million in the quarter ended March 31, 2008 from $2.5 million in the quarter ended March 31, 2007. Acquisition investigation expenses, increased Sarbanes Oxley expense and higher cost of living expense were partially offset by lower operating taxes and organizational efficiencies. Depreciation and amortization for first quarter decreased 7.1% to $3.4 million from $3.6 million.

Interest Expense

Interest expense decreased 12.9% to $4.7 million in the quarter ended March 31, 2008 from $5.4 million a year ago, reflecting the reduction in total senior and subordinated debt after the sale of 3,000,000 Income Deposit Securities units in July 2007 and a lower margin on senior debt.

Adjusted EBITDA

Adjusted EBITDA for the three months ended March 31, 2008 was $8.9 million, up 1.7% over the same period in 2007. See financial tables for a reconciliation of Adjusted EBITDA to net income.

Balance Sheet

As of March 31, 2008, the Company had cash and cash equivalents of $13.1 million and total long-term debt of $170.0 million. The first quarter distribution of $5.3 million in interest and dividends to our share owners and $0.3 million to our bond holders occurred on March 31, 2008. This was the Company’s thirteenth consecutive distribution since going public in 2004.

Capital Expenditures

Capital expenditures were $2.4 million for the quarter. The Company added enhanced network capability to serve competitive customers in Maine; continued to upgrade its rural facilities in all three states, including additional data line capacity; and other upgrades to its network and switching facilities.

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Otelco Reports First Quarter Results

Page 4

May 6, 2008

First Quarter Earnings Conference Call

Otelco has scheduled a conference call, which will be broadcast live over the Internet, on Wednesday, May 7, 2008, at 11:00 a.m. ET. To participate in the call, dial (913) 312-0939and ask for the Otelco call 10 minutes prior to the start time. Investors, analysts and the general public will also have the opportunity to listen to the conference call free over the Internet by visiting the Company's Web site at www.otelcoinc.com or www.earnings.com. To listen to the live call online, please visit the Web site at least 15 minutes early to register, download and install any necessary audio software. For those who cannot listen to the live Web cast, a replay of the Web cast will be available on the Company's website at www.otelcoinc.com or www.earnings.com for 30 days. A one-week telephonic replay may also be accessed by calling 719-457-0820 and using the passcode 3009482.

ABOUT OTELCO

Otelco Inc., headquartered in Oneonta, Alabama, provides wireline telephone services in Alabama, Maine and Missouri. The Company’s services include local and long distance telephone, network access, transport, digital high-speed and dial-up Internet access, cable television and other telephone related services. With over 69,000 voice and data access lines, which are collectively referred to as access line equivalents, Otelco is among the top 40 largest local exchange carriers in the United States based on number of access line. Otelco operates six incumbent telephone companies serving rural markets, or rural local exchange carriers, each of which can trace its history as a local telecommunications provider as far back as the early 1900s. It also provides competitive telephone services through several subsidiaries. For more information, visit the Company’s web site at www.otelcoinc.com.

FORWARD LOOKING STATEMENTS

Statements in this press release that are not statements of historical or current fact constitute forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties, and other unknown factors that could cause the actual results of the Company to be materially different from the historical results or from any future results expressed or implied by such forward-looking statements. In addition to statements which explicitly describe such risks and uncertainties, readers are urged to consider statements labeled with the terms “believes”, “belief,” “expects,” ‘intends,” “anticipates,” “plans,” or similar terms to be uncertain and forward-looking. The forward-looking statements contained herein are also subject generally to other risks and uncertainties that are described from time to time in the Company’s filings with the Securities and Exchange Commission.

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Otelco Reports First Quarter Results

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May 6, 2008

OTELCO INC.

Consolidated Balance Sheets

	As of			As of
	December 31, 2007			March 31, 2008
				(unaudited)
Assets
Current Assets
Cash and cash equivalents	$	12,810,497		$	13,060,349
Accounts receivable:
Due from subscribers, net of allowance
for doubtful accounts of $257,862 and
$154,533 respectively		2,753,451			2,582,996
Unbilled receivables		2,616,867			2,613,341
Other		1,760,207			1,895,040
Materials and supplies		1,991,724			2,220,045
Prepaid expenses		1,149,180			929,204
Income tax receivable		469,546			214,440
Deferred income taxes		1,486,439			1,486,439
Total current assets		25,037,911			25,001,854
Property and equipment, net		54,610,355			54,094,244
Goodwill		134,570,435			134,570,435
Intangible assets, net		9,514,772			9,087,441
Investments		1,207,183			1,200,805
Deferred financing costs		5,878,943			5,506,116
Interest rate cap		1,510,951			175,154
Deferred charges		155,573			210,824
Total assets	$	232,486,123		$	229,846,873
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	2,058,989		$	1,949,632
Accrued expenses		3,716,880			3,906,316
Advanced billings and payments		2,077,713			2,094,662
Customer deposits		185,147			194,412
Total current liabilities		8,038,729			8,145,022
Deferred income taxes		25,223,656			25,223,656
Advance billings and payments		797,498			767,325
Other liabilities		183,756			176,801
Long-term notes payable		170,019,705			170,002,185
Total liabilities		204,263,344			204,314,989
Derivative liability		814,005			798,437
Class B common convertible to senior
subordinated notes		4,085,033			4,085,033
Stockholders’ equity
Class A Common stock, $.01 par value-authorized
20,000,000 shares; issued and outstanding 12,676,733
shares		126,767			126,767
Class B Common stock, $.01 par value-authorized
800,000 shares; issued and outstanding
544,671 shares		5,447			5,447
Additional paid in capital		28,215,056			25,980,782
Retained deficit		(4,084,797	)		(3,676,758	)
Accumulated other comprehensive income (loss)		(938,732	)		(1,787,824	)
Total stockholders’ equity		23,323,741			20,648,414
Total liabilities and stockholders’ equity	$	232,486,123		$	229,846,873

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Otelco Reports First Quarter Results

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May 6, 2008

OTELCO INC.

Consolidated Statements of Operations

(unaudited)

	Three Months Ended
	March 31,
	2007			2008
Revenues
Local services	$	6,348,496		$	6,726,190
Network access		6,437,589			6,437,654
Cable television		547,527			546,162
Internet		2,820,298			3,001,466
Transport services		1,018,483			1,147,948
Total revenues		17,172,393			17,859,420
Operating expenses
Cost of services and products		6,271,057			6,652,111
Selling, general and administrative
expenses		2,501,800			2,693,983
Depreciation and amortization		3,629,091			3,373,248
Total operating expenses		12,401,948			12,719,342
Income from operations		4,770,445			5,140,078
Other income (expense)
Interest expense		(5,376,264	)		(4,682,840	)
Change in fair value of derivative		217,868			(240,905	)
Other income		281,449			366,580
Total other expense		(4,876,947	)		(4,557,165	)
Income (loss) before income taxes		(106,502	)		582,913
Income tax expense		(11,705	)		(174,874	)
Net income (loss) available to common
stockholders	$	(118,207	)	$	408,039
Weighted average shares outstanding:
Basic		9,676,733			12,676,733
Diluted		10,221,404			13,221,404
Net income (loss) per share:
Basic	$	(0.01	)	$	0.03
Diluted	$	(0.03	)	$	0.03
Dividends declared per share	$	0.18		$	0.18

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Otelco Reports First Quarter Results

Page 7

May 6, 2008

OTELCO INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Three Months Ended
	March 31,
	2007			2008
Cash flows from operating activities:
Net income (loss)	$	(118,207	)	$	408,039
Adjustments to reconcile net income to cash
flows from operating activities:
Depreciation		2,980,190			2,756,265
Amortization		648,901			616,983
Interest rate caplet		227,478			230,232
Amortization of debt premium		-			(17,520	)
Amortization of loan costs		398,121			372,828
Change in fair value of derivative		(217,868	)		240,905
Provision for uncollectible revenue		17,242			54,756
Changes in assets and liabilities; net of assets and
liabilities acquired:
Accounts receivables		(113,935	)		(15,608	)
Material and supplies		(57,661	)		(228,321	)
Income tax receivable		-			219,976
Prepaid expenses and other assets		258,500			255,106
Accounts payable and accrued liabilities		(3,031,369	)		80,081
Advance billings and payments		23,892			(13,224	)
Other liabilities		8,810			2,310
Net cash from operating activities		1,024,094			4,962,808
Cash flows from investing activities:
Acquisition and construction of property and equipment		(1,374,914	)		(2,413,008	)
Proceeds from retirement of investment		7,871			-
Deferred charges		(6,428	)		(65,674	)
Net cash from investing activities		(1,373,471	)		(2,478,682	)
Cash flows from financing activities:
Cash dividends paid		(3,411,048	)		(2,234,274	)
Net cash from financing activities		(3,411,048	)		(2,234,274	)
Net increase (decrease) in cash and cash equivalents		(3,760,425	)		249,852
Cash and cash equivalents, beginning of period		14,401,849			12,810,497
Cash and cash equivalents, end of period	$	10,641,424		$	13,060,349
Supplemental disclosures of cash flow information:
Interest paid	$	7,401,647		$	4,222,443
Income taxes received	$	(173,718	)	$	(229,106	)