Note 2 - Reorganization

3 Months Ended

Mar. 31, 2013

Reorganization under Chapter 11 of US Bankruptcy Code Disclosure [Text Block]

2.         Reorganization

Reorganization Cases

On March 24, 2013 (the “Petition Date”), the Company and each of its direct and indirect subsidiaries filed voluntary petitions for reorganization (the “Reorganization Cases”) under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) in order to effectuate their prepackaged Chapter 11 plan of reorganization (the “Plan”). The Reorganization Cases are being jointly administered under the caption “In re Otelco Inc., et al.,” Case No. 13-10593.  Chapter 11 of the Bankruptcy Code is the principal business reorganization chapter of the Bankruptcy Code. Chapter 11 allows the Company to remain in possession of its assets, and to continue to manage and operate its business while restructuring its debt, without the need to liquidate and go out of business.

For information regarding the factors that led to the filing of the Reorganization Cases, see "Part II.—Item 8. Financial Statements and Supplementary Data —Note 1 Nature of Business" contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2012.

Recent Developments

On March 26, 2013, the Bankruptcy Court approved payment of prepetition claims for certain critical vendors of the Company.  This approval allowed the Company to maintain relationships with its vendors, and continue to operate its business during the bankruptcy proceedings.

Reporting Requirements

As a result of the filing of the Reorganization Cases, the Company is now required to file various documents with, and provide certain information to, the Bankruptcy Court, including statements of financial affairs, schedules of assets and liabilities, and monthly operating reports in forms prescribed by federal bankruptcy law. Such materials have been and will be prepared according to requirements of the Bankruptcy Code. While these materials accurately provide then-current information required under the Bankruptcy Code, they are nonetheless unaudited, are prepared in a format different from that used in the Company’s consolidated financial statements filed under the securities laws and certain of this financial information may be prepared on an unconsolidated basis. Accordingly, the Company believes that the substance and format of these materials do not allow meaningful comparison with its regular publicly-disclosed consolidated financial statements. Moreover, the materials filed with the Bankruptcy Court are not prepared for the purpose of providing a basis for an investment decision relating to the Company’s securities, or for comparison with other financial information filed with the Securities and Exchange Commission (the “SEC”).

Notifications

Shortly after the Petition Date, the Company began notifying current or potential creditors of the Reorganization Cases. Subject to certain exceptions under the Bankruptcy Code, the Reorganization Cases automatically enjoined, or stayed, the continuation of any judicial or administrative proceedings or other actions against the Company or its property to recover on, collect or secure a claim arising prior to the Petition Date. Thus, for example, most creditor actions to obtain possession of property from the Company, or to create, perfect or enforce any lien against the property of the Company, or to collect on monies owed or otherwise exercise rights or remedies with respect to a claim arising prior to the Petition Date are enjoined unless and until the Bankruptcy Court lifts the automatic stay. Vendors are being paid for goods furnished and services provided after the Petition Date in the ordinary course of business.

Defaults under Outstanding Debt Instruments

The filing of the Reorganization Cases constituted an event of default and triggered an immediate acceleration of debt outstanding under the terms of the Company’s senior credit facility and the indenture governing the Company’s senior subordinated notes.  In addition, the filing of the Reorganization Cases terminated the revolving loan commitments under the Company's senior credit facility. As stated above, any efforts to enforce the Company’s payment obligations under its senior credit facility and the indenture governing its senior subordinated notes are stayed while the Company remains in the bankruptcy process.

NASDAQ

On March 26, 2013 the Company received a deficiency letter (the “Notification Letter”) from The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that the Nasdaq Listing Qualifications Staff (the “Staff”) had determined that the Company’s Income Deposit Securities (“IDSs”) would be delisted from the Nasdaq.  The Staff reached its determination under Nasdaq Listing Rules 5101, 5110(b), and IM-5101-1 following the Company’s announcement on March 25, 2013 that the Company and each of its direct and indirect subsidiaries filed the Reorganization Cases in the Bankruptcy Court.  The Notification Letter stated that, absent an appeal, trading of the Company’s IDSs on Nasdaq would be suspended at the opening of business on April 4, 2013, and a Form 25-NSE would be filed with the SEC, which would remove the Company’s IDSs from the listing and registration on Nasdaq.  The Company has appealed the Staff’s determination to delist the Company’s IDSs and an oral hearing with respect to the appeal was held on May 2, 2013.  The suspension of trading of the Company’s IDSs on Nasdaq and the filing of the Form 25-NSE with the SEC will be stayed pending a decision on the appeal.

Financial Reporting in Reorganization

Financial Accounting Standards Board Accounting Standards Codification 852, Reorganizations (“ASC 852”), which is applicable to companies in Chapter 11 of the Bankruptcy Code, generally does not change the manner in which financial statements are prepared. However, it does require that the financial statements for periods subsequent to the filing of the Reorganization Cases distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Amounts that can be directly associated with the reorganization and restructuring of the business must be reported separately as reorganization items in the statements of operations. The balance sheet must distinguish pre-petition liabilities subject to compromise from both those pre-petition liabilities that are not subject to compromise and from post-petition liabilities. Liabilities that may be affected by a plan of reorganization must be reported at the amounts expected to be allowed, even if they may be settled for lesser amounts. In addition, cash provided by and used for reorganization items must be disclosed separately. The Company has applied ASC 852 effective as of the Petition Date, and has segregated those items as outlined above for all reporting periods subsequent to such date.

Reorganization Items

The Company has incurred and will continue to incur significant costs associated with the Reorganization Cases. The amount of these costs, which are being expensed as incurred, are expected to significantly affect the Company’s results of operations.  Reorganization items represent income or expense amounts that have been recognized as a direct result of the Reorganization Cases and are presented separately in the  consolidated statements of operations pursuant to ASC 852. Such items consist of the following:

	Three Months Ended March 31, 2013
Professional fees(a)	$	1,423,607
Total reorganization items	$	1,423,607

(a)Professional fees relate to legal and other professional costs directly associated with the reorganization process.

The Company has classified expenses directly related to the Reorganization Cases as reorganization items, including amounts incurred prior to the Petition Date.

Liabilities Subject to Compromise

Liabilities subject to compromise refer to liabilities incurred prior to the Petition Date for which the Company has not received approval from the Bankruptcy Court to pay or otherwise honor. These amounts represent management’s estimate of known or potential pre-Petition Date claims that are likely to be resolved in connection with the Reorganization Cases. Such claims remain subject to future adjustments. Adjustments may result from negotiations, actions of the Bankruptcy Court, rejection of the executory contracts and unexpired leases, the determination of the value securing claims, proofs of claim or other events.

Liabilities subject to compromise at March 31, 2013 consisted of the following:

	Three months Ended March 31, 2013
Senior secured credit facility(a)	$	161,380,368
Senior subordinated notes - held in IDS(b)		98,513,017
Senior subordinated notes - held seperately(c)		8,385,769
Accrued interest
Senior subordinated notes - held in IDS		9,715,868
Senior subordinated notes - held seperately		832,840
Total liabilites subject to compromise	$	278,827,862

(a)  Net of $619,632 loan cost.

(b) Net of $1,945,745 loan cost and premium of $1,298,231.

(c) Net of $114,231 loan cost.

Liabilities not subject to compromise include: (1) liabilities incurred after the Petition Date; (2) pre-Petition Date liabilities that the Company expects to pay in full, such as medical or retirement benefits; and (3) pre-Petition Date liabilities that have been approved for payment by the Bankruptcy Court and that the Company expects to pay (in advance of a plan of reorganization) in the ordinary course of business, including certain employee-related items such as salaries and vacation pay.

The classification of liabilities not subject to compromise versus liabilities subject to compromise is based on currently available information and management’s estimate of the amounts expected to be allowed. As the Reorganization Cases proceed and additional information and analysis is completed, or as the Bankruptcy Court rules on relevant matters, the classification and amounts within these two categories may change.

Interest

The Bankruptcy Court limits post-Petition Date interest on unsecured debt.  Interest that would have accrued on unsecured debt from the Petition Date to March 31, 2013 was $272,142.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern; however, if the Plan does not become effective, there may be  substantial doubt about the Company’s ability to do so. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.