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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended:
June 30, 2004

or

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____ to ____

Commission File Number: 0-32617

Horizon Telcom, Inc.
(Exact name of registrant as specified in its charter)

Ohio 31-1449037
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

68 East Main Street, Chillicothe, OH 45601-0480
(Address of principal executive offices) (Zip Code)

(740) 772-8200
(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 for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|

Indicated by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|

As of August 9, 2004, there were 90,561 shares of class A common stock and
271,983 shares of class B common stock outstanding.



HORIZON TELCOM, INC.
FORM 10-Q
SECOND QUARTER REPORT

TABLE OF CONTENTS

Page No.
--------

PART I FINANCIAL INFORMATION

Item 1. Financial Statements...............................................3

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.....................20

Item 3. Quantitative and Qualitative Disclosures
About Market Risk.................................................31

Item 4. Controls and Procedures...........................................31

PART II OTHER INFORMATION

Item 1. Legal Proceedings..................................................33

Item 2. Changes in Securities and Use of Proceeds..........................33

Item 3. Defaults Upon Senior Securities....................................33

Item 4. Submission of Matters to a Vote of Security Holders................33

Item 5. Other Information..................................................33

Item 6. Exhibits and Reports on Form 8-K...................................37

As used herein and except as the context may otherwise require, "the
Company," "we," "us," "our" or "Horizon Telcom" means, collectively, Horizon
Telcom, Inc., and its subsidiaries: The Chillicothe Telephone Company
("Chillicothe Telephone"), Horizon Technology, Inc. ("Horizon Technology"), and
Horizon Services, Inc. ("Horizon Services"). References to "Horizon PCS" refer
to Horizon PCS, Inc., and its subsidiaries: Horizon Personal Communications,
Inc. ("HPC"), and Bright Personal Communications Services, LLC ("Bright PCS").

On August 15, 2003, Horizon PCS filed for bankruptcy protection under
Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code").
Therefore, the results herein include the operations of Horizon PCS through
August 14, 2003. The Company no longer includes the results of Horizon PCS in
its consolidated results. See Note 2 to the Consolidated Financial Statements.


2


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HORIZON TELCOM, INC. AND SUBSIDIARIES

Consolidated Balance Sheets
As of June 30, 2004 and December 31, 2003
- --------------------------------------------------------------------------------



June 30, December 31,
2004 2003
-------------- ---------------
ASSETS (unaudited)
CURRENT ASSETS:

Cash and cash equivalents.................................................. $ 18,074,958 $ 17,086,826
Accounts receivable - subscriber, less allowance for doubtful accounts of
approximately $315,000 and $377,000 as of June 30, 2004 and December 31,
2003, respectively....................................................... 1,035,932 890,936
Accounts receivable - interexchange carriers, access charge pools and
other, less allowance for doubtful accounts of approximately $99,000 as
of June 30, 2004 and $96,000 as of December 31, 2003..................... 4,127,175 2,220,298
Inventories................................................................ 2,287,800 2,436,932
Investments, available-for-sale, at fair value............................. 944,629 1,515,900
Prepaid expenses and other current assets.................................. 3,608,393 4,149,491
--------------- ---------------
Total current assets................................................. 30,078,887 28,300,383
--------------- ---------------

OTHER ASSETS:
Debt issuance costs, net................................................... 320,696 336,996
Prepaid pension costs...................................................... 3,849,659 4,171,009
Intangible assets - pension................................................ 2,371,699 2,371,699
--------------- ---------------
Total other assets................................................... 6,542,054 6,879,704
--------------- ---------------

PROPERTY, PLANT AND EQUIPMENT, NET ........................................... 75,386,237 75,848,610
--------------- ---------------
Total assets.................................................... $ 112,007,178 $ 111,028,697
=============== ===============


(Continued on next page)

The accompanying notes are an integral part of
these consolidated financial statements.


3


HORIZON TELCOM, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (Continued)
As of June 30, 2004 and December 31, 2003
- --------------------------------------------------------------------------------



June 30, December 31,
2004 2003
-------------- ---------------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:

Accounts payable........................................................... $ 2,027,746 $ 1,804,400
Payable to Horizon PCS..................................................... 31,900 14,966
Accrued personal property, real estate and other taxes..................... 1,903,122 2,768,421
Accrued interest, payroll and other current liabilities.................... 5,936,408 4,200,456
Lines of credit............................................................ 200,000 1,000,000
--------------- ---------------
Total current liabilities............................................ 10,099,176 9,788,243
--------------- ---------------

LONG-TERM DEBT AND OTHER LIABILITIES:
Long-term debt............................................................. 42,000,000 42,000,000
Deferred income taxes, net................................................. 10,974,397 11,158,066
Postretirement benefit obligation.......................................... 10,016,324 8,538,689
Accrued pension costs...................................................... 2,804,302 2,804,302
Investment in Horizon PCS.................................................. 470,934,704 470,934,704
Other long-term liabilities................................................ 2,183,386 2,374,250
--------------- ---------------
Total long-term debt and other liabilities........................... 538,913,113 537,810,011
--------------- ---------------
Total liabilities.................................................. 549,012,289 547,598,254
--------------- ---------------

COMMITMENTS AND CONTINGENCIES (Note 13)

STOCKHOLDERS' EQUITY (DEFICIT):
Common stock - class A, no par value, 200,000 shares authorized, 99,726
shares issued and 90,561 shares outstanding at June 30, 2004 and December
31, 2003, stated at $4.25 per share...................................... 423,836 423,836
Common stock - class B, no par value, 500,000 shares authorized, 299,507
shares issued and 271,983 shares outstanding at June 30, 2004, and
299,450 shares issued and 271,926 shares outstanding at December 31,
2003, stated at $4.25 per share.......................................... 1,272,905 1,272,662
Treasury stock - 36,689 shares, at cost.................................... (5,504,700) (5,504,700)
Accumulated other comprehensive income (loss), net......................... 50,516 318,455
Additional paid-in capital................................................. 73,200,389 72,197,212
Deferred stock compensation................................................ (14,232) (15,522)
Retained deficit........................................................... (506,433,825) (505,261,500)
--------------- ---------------
Total stockholders' equity (deficit)............................... (437,005,111) (436,569,557)
--------------- ---------------
Total liabilities and stockholders' equity (deficit)............ $ 112,007,178 $ 111,028,697
=============== ===============


The accompanying notes are an integral part of
these consolidated financial statements.


4


HORIZON TELCOM, INC. AND SUBSIDIARIES

Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2004 and 2003 (unaudited)
- --------------------------------------------------------------------------------



For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------------- --------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------

OPERATING REVENUES:
PCS subscriber and roaming ........................... $ -- $ 61,419,109 $ -- $ 118,790,756
PCS equipment ........................................ -- 2,071,361 -- 3,889,457
Basic local and long-distance service ................ 3,766,749 3,713,394 7,567,794 7,350,075
Network access ....................................... 5,452,622 6,342,539 10,624,707 11,769,372
Other local exchange services ........................ 2,598,697 2,226,055 4,910,037 4,202,327
Internet access and information services ............. 967,401 1,030,579 1,909,596 2,039,959
All other ............................................ 1,258,074 -- 2,529,130 --
------------- ------------- ------------- -------------
Total operating revenues ......................... 14,043,543 76,803,037 27,541,264 148,041,946
------------- ------------- ------------- -------------
OPERATING EXPENSES:
Cost of goods sold ................................... 431,271 5,175,011 615,464 11,085,558
Cost of services (exclusive of items
shown separately below) ............................ 4,322,939 50,889,739 8,878,261 98,949,166
Selling and marketing ................................ 490,655 12,781,208 953,934 25,640,381
General and administrative (exclusive of
items shown separately below) ...................... 5,338,276 15,474,875 10,549,298 28,336,550
Non-cash compensation ................................ 645 96,609 1,290 193,218
(Gain) Loss on sale of property and equipment ........ -- (41,064) -- 216,312
Impairment of intangible assets and
property and equipment ............................. -- 73,760,278 -- 73,760,278
Depreciation and amortization ........................ 2,309,302 12,617,127 4,622,803 25,826,403
------------- ------------- ------------- -------------
Total operating expenses ......................... 12,893,088 170,753,783 25,621,050 264,007,866
------------- ------------- ------------- -------------
OPERATING INCOME (LOSS) ................................ 1,150,455 (93,950,746) 1,920,214 (115,965,920)
------------- ------------- ------------- -------------
NONOPERATING INCOME (EXPENSE):
Interest expense, net ................................ (701,792) (17,718,757) (1,402,127) (34,693,462)
Subsidiary preferred stock dividends ................. -- (3,151,448) -- (6,220,557)
Gain (loss) on sale of investment .................... 753,282 -- 753,282 --
Interest income and other, net ....................... 82,929 249,540 171,779 565,931
------------- ------------- ------------- -------------
Total nonoperating income (expense) .............. 134,419 (20,620,665) (477,066) (40,348,088)
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAX BENEFIT
(EXPENSE) and minority interest ...................... 1,284,874 (114,571,411) 1,443,148 (156,314,008)

INCOME TAX BENEFIT (EXPENSE) ........................... (623,636) 5,381,937 (672,859) 5,218,663

MINORITY INTEREST IN LOSS .............................. -- -- -- 24
------------- ------------- ------------- -------------
NET INCOME (LOSS) ...................................... $ 661,238 $(109,189,474) $ 770,289 $(151,095,321)
============= ============= ============= =============


The accompanying notes are an integral part of
these consolidated financial statements.


5




For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------------- --------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------

Net income (loss) per share:
Basic .................................................. $ 1.82 $ (301.22) $ 2.12 $ (416.83)
============= ============= ============= =============
Diluted ................................................ $ 1.82 $ (301.22) $ 2.12 $ (416.83)
============= ============= ============= =============
Weighted-average common shares outstanding:
Basic .................................................. 362,544 362,487 362,535 362,487
============= ============= ============= =============
Diluted ................................................ 362,704 362,487 362,698 362,487
============= ============= ============= =============


The accompanying notes are an integral part of
these consolidated financial statements.


6


HORIZON TELCOM, INC. AND SUBSIDIARIES

Consolidated Statements of Other Comprehensive Income (Loss)
For the Three and Six Months Ended June 30, 2004 and 2003 (unaudited)
- --------------------------------------------------------------------------------



For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------------- --------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------

NET INCOME (LOSS) ...................................... $ 661,238 $(109,189,474) $ 770,289 $(151,095,321)
============= ============= ============= =============
OTHER COMPREHENSIVE INCOME (LOSS)
Net unrealized gain (loss) on
hedging activities
-- 127,737 -- 461,644
Net unrealized gain (loss) on securities
available-for-sale, net of taxes of
$114,859 and $159,681 for the three
months ended June 30, 2004 and 2003,
respectively ......................................... 167,559 309,969 183,560 354,162

Reclassification adjustment for gains on
securities included in net income, net of
taxes of $309,497 for the three months
ended June 30, 2004 ................................ (451,499) -- (451,499) --
------------- ------------- ------------- -------------
COMPREHENSIVE INCOME (LOSS) ............................ $ 377,298 $(108,751,768) $ 502,350 $(150,279,515)
============= ============= ============= =============


The accompanying notes are an integral part of
these consolidated financial statements.


7


HORIZON TELCOM, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2004 and 2003 (unaudited)
- --------------------------------------------------------------------------------

Six Months Ended June 30,
2004 2003
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................ $ 770,289 $(151,095,321)
------------- -------------
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization .............. 4,622,803 25,826,403
Impairment of intangible assets and
property and equipment ................... -- 73,760,278
Deferred income tax benefit ................ -- (6,031,000)
Non-cash compensation expense .............. 1,290 193,218
Non-cash interest expense .................. 16,302 16,275,128
Loss on disposal of property, plant
and equipment ............................ -- 216,312
Non-cash preferred stock dividend
of subsidiary ............................ -- 6,220,557
Minority interest in subsidiary ............ -- (24)
Provision for bad debt expense ............. 254,144 3,843,309
Gain on sale of investments ................ (753,282) --
Decrease (Increase) in certain assets:
Accounts receivable ...................... (2,306,017) (7,454,660)
Inventories .............................. 149,132 841,161
Prepaid expenses and other
current assets ......................... 541,098 (1,366,006)
Increase (Decrease) in certain
liabilities:
Accounts payable ......................... 240,280 (7,172,592)
Payable to Sprint ........................ -- 4,088,607
Accrued liabilities and deferred
PCS service revenue .................... 870,654 13,836,172
Postretirement benefit obligation ........ 1,477,635 623,776
Other assets and liabilities, net ........ 69,496 1,239,731
------------- -------------
Total adjustments ...................... 5,183,535 124,940,370
------------- -------------
Net cash provided by (used in)
operating activities ............... 5,953,824 (26,154,951)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net .................. (4,102,603) (9,924,353)
Proceeds from sale of investments .......... 876,105 --
------------- -------------
Net cash used in investing
activities ......................... (3,226,498) (9,924,353)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on line of credit ............... -- 750,000
Repayments on line of credit ............... (800,000) --
Exercise of stock options .................. 3,420 24
Dividends paid ............................. (942,614) (942,454)
------------- -------------
Net cash provided by (used in)
financing activities ............... (1,739,194) (192,430)
------------- -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ........................... 988,132 (36,271,734)
CASH AND CASH EQUIVALENTS, beginning
of period .................................. 17,086,826 94,948,351
------------- -------------
CASH AND CASH EQUIVALENTS, end
of period .................................. $ 18,074,958 $ 58,676,617
============= =============

The accompanying notes are an integral part of
these consolidated financial statements.


8


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of June 30, 2004 and December 31, 2003
And for the Three and Six Months Ended June 30, 2004 and 2003 (unaudited)
- --------------------------------------------------------------------------------

NOTE 1 - General

The results of operations for the periods shown are not necessarily
indicative of the results to be expected for the fiscal year (See Note 2,
Accounting Impact). In the opinion of management, the information contained
herein reflects all adjustments necessary to make a fair statement of the
periods presented. The financial information presented herein should be read in
conjunction with the Company's Form 10-K for the year ended December 31, 2003,
which includes information and disclosures not presented herein.

NOTE 2 - Bankruptcy of Horizon PCS and Liquidity

Voluntary Bankruptcy Filing

On August 15, 2003, Horizon PCS, Inc., a Delaware corporation and
majority-owned subsidiary of Horizon Telcom, HPC, an Ohio corporation and
wholly-owned subsidiary of Horizon PCS Inc., and Bright PCS, an Ohio limited
liability company and majority-owned subsidiary of Horizon PCS, Inc.
(collectively, the "Debtors"), filed voluntary petitions for relief under the
Bankruptcy Code in the United States Bankruptcy Court for the Southern District
of Ohio (the "Bankruptcy Court"). The Debtors expect to continue to manage their
properties and operate their businesses in the ordinary course of business as
"debtors-in-possession" subject to the supervision and orders of the Bankruptcy
Court pursuant to Sections 1107(a) and 1108 of the Bankruptcy Code (the
"Bankruptcy Case"). In general, as debtors-in-possession, the Debtors are
authorized under the Bankruptcy Code to continue to operate as an ongoing
business, but may not engage in transactions outside the ordinary course of
business without the prior approval of the Bankruptcy Court. Under Section 362
of the Bankruptcy Code, the filing of a bankruptcy petition automatically stays
most actions against the Debtors, including most actions to collect pre-petition
indebtedness or to exercise control of the property of the Debtors' estate.
Absent an order of the Bankruptcy Court, substantially all pre-petition
liabilities will be subject to settlement under a plan of reorganization.
Horizon Telcom, due to its loan covenants, cannot provide capital or other
financial support to the Debtors. The Company believes Horizon Telcom operations
will continue independent of the outcome of the Bankruptcy Case. However, upon
conclusion of the Bankruptcy Case, the ownership interests of Horizon Telcom and
the other current stockholders in Horizon PCS may be reduced.

On June 27, 2004, Horizon PCS filed its plan of reorganization with the
bankruptcy court. On July 4, 2004, Horizon PCS filed a disclosure statement with
the bankruptcy court. On July 19, 2004, Horizon PCS completed a $125 million
bond offering at 11 3/8% as part of its reorganization plan. Horizon PCS
anticipates its reorganization plan being confirmed on September 21, 2004, and
emerging from bankruptcy a short time thereafter. Upon emergence under this
plan, Horizon Telcom's ownership in Horizon PCS may be reduced to an
insignificant amount.

While the long-term effect of the Bankruptcy Case cannot be determined,
management believes the Bankruptcy Case will not have a material adverse effect
on the liquidity of Horizon Telcom.

Accounting Impact

In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 94 "Consolidation of All Majority-Owned Subsidiaries" and Accounting
Research Bulletin ("ARB") No. 51 "Consolidated Financial Statements," when
control of a majority-owned subsidiary does not rest with the majority owners
(as, for instance, where the subsidiary is in legal reorganization or in
bankruptcy), ARB No. 51 precludes consolidation of the majority-owned
subsidiary. As a result, subsequent to August 14, 2003, Horizon Telcom no longer
consolidates the accounts and results of operations of Horizon PCS. Therefore,
Horizon Telcom's investment in Horizon PCS is the balance based on the
application of the equity method through August 14, 2003 and any cost based
activity subsequent to that date. Accordingly, the accompanying consolidated
balance sheet as of June 30, 2004 does not include the consolidated accounts of
Horizon PCS; it does however, include a negative investment of approximately
$470.9 million. In addition, the accompanying consolidated statement of
operations includes the consolidated results of operations of Horizon PCS
through August 14, 2003. Upon the emergence of Horizon PCS from bankruptcy, the


9


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of June 30, 2004 and December 31, 2003
And for the Three and Six Months Ended June 30, 2004 and 2003 (unaudited)
- --------------------------------------------------------------------------------

NOTE 2 - Bankruptcy of Horizon PCS and Liquidity (Continued)

negative investment will be reduced proportionately to the remaining ownership
percentage, if any, retained by Horizon Telcom.

NOTE 3 - Organization and Business Operations

The Company is a facilities-based telecommunications carrier that provides
a variety of voice and data services to commercial, residential/small business
and local market segments. The Company provides landline telephone service,
very-high digital subscriber line ("VDSL") television service and Internet
access services to the southern Ohio region, principally in and surrounding
Chillicothe, Ohio.

NOTE 4 - Summary of Significant Accounting Policies

Note 2 in the Notes to Consolidated Financial Statements in the Company's
Annual Report on Form 10-K for the year ended December 31, 2003, describes the
Company's significant accounting policies in greater detail than presented
herein.

Basis of Presentation

The accompanying consolidated financial statements reflect the operations
of Horizon Telcom, and its subsidiaries, Chillicothe Telephone, Horizon PCS
through August 14, 2003, Horizon Services and Horizon Technology, and have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles in the United States have been condensed or omitted
pursuant to such rules and regulations. All material intercompany transactions
and balances have been eliminated in consolidation.

Inventories

Inventories consist of equipment held for resale, materials and supplies
and installation-related work in progress held by Chillicothe Telephone.
Chillicothe Telephone inventories include the cost (determined by the first-in,
first-out method) of equipment to be used in the installation of telephone
systems, as well as costs related to direct sales orders in process.

Inventories consist of the following at June 30, 2004 and at December 31,
2003:

June 30, December 31,
2004 2003
---------- ------------
Equipment held for resale ........................ $ 122,402 $ 123,875
Materials, supplies and work in progress ......... 2,165,398 2,313,057
---------- ----------
Total inventories .............................. $2,287,800 $2,436,932
========== ==========

Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ materially
from those estimates.


10


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of June 30, 2004 and December 31, 2003
And for the Three and Six Months Ended June 30, 2004 and 2003 (unaudited)
- --------------------------------------------------------------------------------

NOTE 4 - Summary of Significant Accounting Policies (Continued)

Accounting for Rate Regulation

Chillicothe Telephone is subject to rate regulation. SFAS No. 71
"Accounting for the Effects of Certain Types of Rate Regulation" provides that
rate-regulated public utilities account for revenues and expenses and report
assets and liabilities consistent with the economic effect of the way in which
regulators establish rates. Chillicothe Telephone follows the accounting and
reporting requirements of SFAS No. 71. The Company has recorded regulatory
liabilities of approximately $1,487,000 and $509,000 as of June 30, 2004 and
December 31, 2003, respectively.

Property, Plant and Equipment

Property, plant and equipment, including improvements that extend useful
lives, are stated at cost (Note 7), while maintenance and repairs are charged to
operations as incurred. Construction work in progress includes expenditures for
the purchase of capital equipment, construction and items such as direct payroll
and related benefits and interest capitalized during construction.

The Company capitalizes interest pursuant to SFAS No. 34 "Capitalization
of Interest Cost." The Company capitalized interest of approximately $18,000 and
$645,000 for the six months ended June 30, 2004 and 2003, respectively. In
addition, the Company capitalized labor costs of approximately $1,246,000 and
$1,148,000 for the six months ended June 30, 2004 and 2003, respectively.

Stock-Based Compensation

The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations including Financial
Accounting Standards Board ("FASB") Interpretation No. 44, "Accounting for
Certain Transactions involving Stock Compensation an interpretation of APB
Opinion No. 25", to account for its fixed plan stock options. Under this method,
compensation expense is recorded on the date of grant only if the current market
price of the underlying stock exceeds the exercise price. SFAS No. 148,
"Accounting for Stock-Based Compensation -Transition and Disclosure - an
amendment of FASB Statement No. 123" established accounting and disclosure
requirements using a fair value-based method of accounting for stock-based
employee compensation plans. As allowed by SFAS No. 148, the Company has elected
to continue to apply the intrinsic value-based method of accounting described
above, and has adopted the disclosure requirements of SFAS No. 148.


11


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of June 30, 2004 and December 31, 2003
And for the Three and Six Months Ended June 30, 2004 and 2003 (unaudited)
- --------------------------------------------------------------------------------

NOTE 4 - Summary of Significant Accounting Policies (Continued)

The following table illustrates the effect on net income (loss) if the
fair-value-based method had been applied to all outstanding and unvested awards
in each of the three and six month periods ended June 30:



Three Months Ended June 30, Six Months Ended June 30,
2004 2003 2004 2003
-------- ------------- -------- -------------

Net income (loss)
As reported .................................... $661,238 $(109,189,474) $770,289 $(151,095,321)
Add: Stock-based employee
compensation expense included in
reported net income (loss) ..................... 645 96,609 1,290 193,218
Deduct: Total stock-based employee
compensation expense determined under
fair value base method for all awards .......... -- (182,626) -- (397,137)
-------- ------------- -------- -------------
Pro Forma net income (loss) ...................... $661,883 $(109,275,491) $771,579 $(151,299,240)
======== ============= ======== =============

Basic income (loss) per share:
As reported ...................................... $ 1.82 $ (301.22) $ 2.12 $ (416.83)
Pro forma ........................................ $ 1.83 $ (301.46) $ 2.13 $ (417.39)

Diluted income (loss) per share:
As reported ...................................... $ 1.82 $ (301.22) $ 2.12 $ (416.83)
Pro forma ........................................ $ 1.82 $ (301.46) $ 2.13 $ (417.39)


The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS No. 148 and Emerging Issues Task Force
("EITF") Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services." All transactions in which goods or services are the consideration
received for the issuance of equity instruments are accounted for based on the
fair value of the consideration received or the fair value of the equity
instrument issued, whichever is more reliably measurable. The measurement date
of the fair value of the equity instrument issued is the earlier of the date on
which the counter-party's performance is complete or the date on which it is
probable that performance will occur.

Net Income (Loss) per Share

The Company computes net income (loss) per common share in accordance with
SFAS No. 128, "Earnings per Share." Basic net income (loss) per share is
computed by dividing net income (loss) by the weighted-average outstanding
common shares for the period. The diluted weighted-average outstanding common
shares are calculated using the treasury stock method and take into account all
common stock equivalents. For periods in which a net loss occurs, no conversion
of common stock equivalents (options, warrants or convertible securities) has
been assumed in the calculations since the effect would be antidilutive.

Recent Accounting Pronouncements

In May 2004, FASB issued Staff Position 106-2 ("FSP 106-2"), "Accounting
and Disclosure Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003." FSP 106-2 relates to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003 (the "Act") signed
into law on December 8, 2003. The Act introduced a prescription drug benefit
under Medicare, as well as a federal subsidy to sponsors of retiree health care
benefit plans that provide a benefit that is at least actuarially equivalent to
Medicare. During the second quarter of 2004, the Company adopted the provisions
of FSP 106-2. The adoption of FSP 106-2 did not have a material impact on our
financial statements.


12


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of June 30, 2004 and December 31, 2003
And for the Three and Six Months Ended June 30, 2004 and 2003 (unaudited)
- --------------------------------------------------------------------------------

NOTE 4 - Summary of Significant Accounting Policies (Continued)

Reclassifications

Certain prior year amounts have been reclassified to conform with the 2004
presentation.

NOTE 5 - Segment Information

Operating segments are defined by SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, or decision-making
group, in deciding how to allocate resources and in assessing performance.
Accordingly, the Company is organized around individual business units. For the
quarter and six months ended June 30, 2004, the Company has determined that its
three operating segments are the local exchange company, the information
services business, and its wireless business. Prior periods have been restated
below reflecting these segments. Separate financial information is available for
these segments, and a chief decision maker resides over each segment, regularly
reviewing the operations of the segment. The information services business
segment includes one primary revenue stream: internet access. As discussed in
Note 2, subsequent to August 14, 2003, Horizon Telcom no longer consolidates the
accounts and results of operations of Horizon PCS and the accounts of Horizon
PCS are recorded as an investment using the cost method of accounting.
Accordingly, the wireless business segment does not include activity after
August 14, 2003.

Other business activities of the Company include revenue and expenses for
corporate support, including unallocated administrative expenses incurred at the
corporate level. Amounts related to these business activities are included below
under the heading "All other." All other assets represent common assets not
identified to an operating segment.

The Company evaluates the performance of the segments based on operating
earnings before the allocation of administrative expenses. Information about
interest income and expense and income taxes is not provided on a segment level.
The accounting policies of the segments are the same as described in the summary
of significant accounting policies.

The following table includes revenue, intercompany revenues, operating
earnings (loss), depreciation and amortization expense, and capital expenditures
for the quarters ended June 30, 2004 and 2003, and assets as of June 30, 2004
and December 31, 2003, for each segment and reconciling items necessary to total
to amounts reported in the financial statements:



Net Revenue
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------- ---------------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------

Wireless business .............................. $ -- $ 63,490,470 $ -- $122,680,213
Local exchange company ......................... 11,818,068 12,281,988 23,102,538 23,321,774
Information services business .................. 967,401 1,030,579 1,909,596 2,039,959
All other ...................................... 1,258,074 -- 2,529,130 --
------------ ------------ ------------ ------------
Total net revenues ......................... $ 14,043,543 $ 76,803,037 $ 27,541,264 $148,041,946
============ ============ ============ ============



13


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of June 30, 2004 and December 31, 2003
And for the Three and Six Months Ended June 30, 2004 and 2003 (unaudited)
- --------------------------------------------------------------------------------

NOTE 5 - Segment Information (Continued)



Intercompany Revenue
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------- ----------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------

Wireless business .............................. $ -- $ 17,351 $ -- $ 22,531
Local exchange company ......................... 151,513 294,637 292,398 609,320
Information services business .................. 158,572 174,509 354,074 306,045
All other ...................................... -- -- -- --
------------- ------------- ------------- -------------
Total intercompany revenues ................ $ 310,085 $ 486,497 $ 646,472 $ 937,896
============= ============= ============= =============




Operating Earnings (Loss)
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------- ----------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------

Wireless business .............................. $ -- $ (94,930,836) $ -- $(116,501,478)
Local exchange company ......................... 3,237,220 4,310,554 5,986,699 7,238,697
Information services business .................. (545,558) (394,360) (1,084,038) (843,133)
All other ...................................... (1,541,207) (2,936,104) (2,982,447) (5,860,006)
------------- ------------- ------------- -------------
Total operating income (loss) .............. $ 1,150,455 $ (93,950,746) $ 1,920,214 $(115,965,920)
============= ============= ============= =============




Depreciation and Amortization
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------- ----------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------

Wireless business .............................. $ -- $ 10,291,619 $ -- $ 21,152,305
Local exchange company ......................... 2,228,219 2,246,945 4,461,336 4,519,509
Information services business .................. 81,083 78,563 161,467 154,589
All other ...................................... -- -- -- --
------------- ------------- ------------- -------------
Total depreciation and amortization ........ $ 2,309,302 $ 12,617,127 $ 4,622,803 $ 25,826,403
============= ============= ============= =============




Capital Expenditures
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------- ----------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------

Wireless business .............................. $ -- $ 3,440,316 $ -- $ 5,649,629
Local exchange company ......................... 2,032,062 2,366,243 4,050,078 4,192,659
Information services business .................. 22,032 19,330 45,377 50,115
All other ...................................... 7,148 24,737 7,148 31,950
------------- ------------- ------------- -------------
Total capital expenditures ................. $ 2,061,242 $ 5,850,626 $ 4,102,603 $ 9,924,353
============= ============= ============= =============




Assets
June 30, December 31,
2004 2003
------------- -------------

Wireless business .............................. $ -- $ --
Local exchange company ......................... 108,215,869 105,431,823
Information services business .................. 1,265,247 1,511,220
All other ...................................... 2,526,062 4,085,654
------------- -------------
Total assets ............................... $ 112,007,178 $ 111,028,697
============= =============



14


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of June 30, 2004 and December 31, 2003
And for the Three and Six Months Ended June 30, 2004 and 2003 (unaudited)
- --------------------------------------------------------------------------------

NOTE 5 - Segment Information (Continued)

Net operating revenues by product and services were as follows for the three and
six months ended June 30:



Three Months Ended June 30, Six Months Ended June 30,
------------------------------- -------------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------

Wireless business:
PCS subscriber revenue ............................... $ -- $ 47,840,415 $ -- $ 91,414,189
PCS roaming revenue .................................. -- 13,578,695 -- 27,376,568
PCS equipment sales .................................. -- 2,071,360 -- 3,889,456
------------ ------------ ------------ ------------
Total wireless business ............................ -- 63,490,470 -- 122,680,213
------------ ------------ ------------ ------------

Local exchange company:
Basic local service .................................. 3,581,665 3,483,204 7,177,101 6,871,340
Long-distance service ................................ 185,084 230,190 390,693 478,735
Network access ....................................... 2,347,928 3,194,919 4,781,657 5,822,365
Universal Service Support Fund ....................... 3,104,694 3,147,620 5,843,050 5,947,007
Directory advertising, VDSL and equipment
sales .............................................. 2,128,775 1,747,988 3,924,724 3,240,667
Other related telephone service ...................... 469,922 478,067 985,313 961,660
------------ ------------ ------------ ------------
Total local exchange company ....................... 11,818,068 12,281,988 23,102,538 23,321,774
------------ ------------ ------------ ------------

Information services business:
Internet access services ............................. 548,304 668,301 1,121,302 1,372,043
Horizon long distance ................................ 219,165 209,403 452,732 417,406
Other information services ........................... 199,932 152,875 335,562 250,510
------------ ------------ ------------ ------------
Total information services business ................ 967,401 1,030,579 1,909,596 2,039,959
------------ ------------ ------------ ------------

Other:
Other miscellaneous revenues ......................... 1,258,074 -- 2,529,130 --
------------ ------------ ------------ ------------
Total other ........................................ 1,258,074 -- 2,529,130 --
------------ ------------ ------------ ------------
Total operating revenues ......................... $ 14,043,543 $ 76,803,037 $ 27,541,264 $148,041,946
============ ============ ============ ============



15


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of June 30, 2004 and December 31, 2003
And for the Three and Six Months Ended June 30, 2004 and 2003 (unaudited)
- --------------------------------------------------------------------------------

NOTE 6 - Investments

The following summarizes unrealized gains and losses on investments at
June 30, 2004, and December 31, 2003:

2004:



Unrealized Unrealized Fair
Cost Gain Loss Value
-------- ---------- ---------- ----------

Equity securities available-for-sale ..................... $130,338 $ 814,291 $ -- $ 944,629
======== ========== ====== ==========


2003:



Unrealized Unrealized Fair
Cost Gain Loss Value
-------- ---------- ---------- ----------

Equity securities available-for-sale .................... $250,000 $1,265,900 $ -- $1,515,900
======== ========== ====== ==========


NOTE 7 - Property, Plant and Equipment

Property, plant and equipment consists of the following:

June 30, December 31,
2004 2003
------------- -------------
Network assets ........................... $ 105,957,010 $ 103,594,174
Land and buildings ....................... 15,257,535 15,112,337
Computer and telecommunications
equipment .............................. 11,287,296 11,162,687
Furniture, vehicles and office
equipment .............................. 5,016,861 5,008,048
------------- -------------
Property, plant and equipment
in-service, at cost .................. 137,518,702 134,877,246
Accumulated depreciation ................. (63,237,223) (60,409,370)
------------- -------------
Property, plant and equipment
in-service, net .................... 74,281,479 74,467,876
Construction work in progress ............ 1,104,758 1,380,734
------------- -------------
Total property, plant and
equipment, net ................... $ 75,386,237 $ 75,848,610
============= =============

During the six months ended June 30, 2003, the Company incurred a loss of
approximately $216,000 related to closing of two of our PCS retail stores and a
planned PCS store that never opened.

During the six months ended June 30, 2003, Horizon PCS recorded a
liability of $22,600 and a cumulative change in accounting principle of $9,570
related to the adoption SFAS No. 143 for potential costs associated with certain
asset retirement obligations. The cumulative change in accounting principle is
included in "interest income and other, net" on the accompanying statement of
operations.

During the second quarter of 2003, Horizon PCS reduced the book value of
the network assets related to an impairment recorded on property and equipment
discussed below in Note 8.

NOTE 8 - Impairment of Horizon PCS Intangible Assets and Property and Equipment

Horizon PCS was not in compliance with the loan covenants as of June 30,
2003. This created the need for an impairment assessment of its intangible
assets and property and equipment as required by SFAS No. 144. Therefore,
Horizon PCS projected future undiscounted cash flows and determined they were
insufficient to recover the carrying amounts for the intangible assets and
property and equipment. This required Horizon PCS to recognize an impairment
loss for the excess of carrying value over fair value. To determine fair value,
Horizon PCS performed a valuation utilizing a cost approach adjusted for items
such as technological and functional obsolescence as appropriate.


16


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of June 30, 2004 and December 31, 2003
And for the Three and Six Months Ended June 30, 2004 and 2003 (unaudited)
- --------------------------------------------------------------------------------

NOTE 8 - Impairment of Horizon PCS Intangible Assets and Property and Equipment
(Continued)

Horizon PCS determined that the carrying value of the intangible assets
exceeded the fair value of the assets. As a result, Horizon PCS recorded
impairment on the intangible assets of approximately $39,152,000. As a result of
the impairment charge, Horizon PCS recorded a tax benefit of $6,031,000 due to
the reduction of a deferred tax liability related to the intangibles. As of June
30, 2003, net deferred income taxes were zero.

Additionally, Horizon PCS determined the fair market value of the property
and equipment was less than the carrying value of the assets. As a result,
Horizon PCS recorded an impairment on property and equipment of approximately
$34,609,000.

During 2002, Horizon PCS launched switches in Tennessee and Pennsylvania
and disconnected some switching equipment in Chillicothe, Ohio. As a result,
approximately $6.2 million of switching equipment was considered an impaired
asset as defined by SFAS No. 144. Accordingly, impairment expense for the three
and six months ended June 30, 2002, includes approximately $3.5 million of
expense related to the impaired assets. The total amount of depreciation
recorded to date on this equipment was approximately $5.6 million. This
equipment was sold for book value during 2003.

NOTE 9 - Other Current Liabilities

Accrued personal property, real estate and other taxes consisted of the
following as of:

June 30, December 31,
2004 2003
---------- ------------
Accrued real estate and
personal property taxes .................... $1,282,623 $2,360,235
All other accrued taxes ...................... 620,499 408,186
---------- ----------
Total accrued personal property,
real estate, and other taxes ............. $1,903,122 $2,768,421
========== ==========

Accrued interest, payroll and other current liabilities consisted of the
following as of:

June 30, December 31,
2004 2003
---------- ------------
Accrued directory commissions ................ $ 609,206 $ 151,295
Accrued interest ............................. 898,049 903,222
Accrued vacation and payroll ................. 1,599,287 1,232,321
Deferred revenue ............................. 1,315,311 331,179
Postretirement benefit
obligation - current ....................... 592,416 592,416
All other accrued liabilities ................ 922,139 990,023
---------- ----------
Total accrued interest, payroll
and other current liabilities ............ $5,936,408 $4,200,456
========== ==========

NOTE 10 - Lines of Credit

On December 15, 2002, Chillicothe Telephone entered into an agreement with
Huntington National Bank for a line of credit that provides maximum borrowings
of $15,000,000, payable on demand. Interest accrues on the outstanding balance
at a fluctuating rate tied to the LIBOR and is due and payable monthly. At June
30, 2004, the interest rate on the line of credit was 2.94%. As of June 30,
2004, Chillicothe Telephone had drawn $200,000 under this line of credit. The
line of credit expires October 15, 2004. The line of credit contains several
covenants requiring minimum tangible net worth, a fixed charge coverage ratio, a
funded debt to consolidated total capitalization ratio and an interest coverage
ratio. As of June 30, 2004, Chillicothe Telephone was in compliance with these
covenants.


17


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of June 30, 2004 and December 31, 2003
And for the Three and Six Months Ended June 30, 2004 and 2003 (unaudited)
- --------------------------------------------------------------------------------

NOTE 11 - Long-Term Debt

The components of long-term debt outstanding are as follows:

Interest Rate at
June 30, June 30, December 31,
2004 2004 2003
---------------- ----------- -----------
Chillicothe Telephone:
2002 Senior Notes ................. 6.64% $30,000,000 $30,000,000
1998 Senior Notes ................. 6.72% 12,000,000 12,000,000
----------- -----------
Total long-term debt .......... 0.00% $42,000,000 $42,000,000
----------- -----------

NOTE 12 - Pension Plans and Other Retirement Benefits



Pension Benefits Other Benefits Pension Benefits Other Benefits
------------------ ----------------- ----------------- -----------------
For the Three Months Ended June 30, For the Six Months Ended June 30,
2003 2004 2003* 2004 2003 2004 2003* 2004
------ ------ ------ ------ ------ ------ ------ ------
(in thousands) (in thousands)

Components of net
periodic benefit
cost:
Service cost ......................... $ 140 $ 197 $ 207 $ 233 $ 280 $ 394 $ 414 $ 466
Interest cost ........................ 296 339 345 373 592 678 690 746
Expected return
on plan assets ..................... (334) (372) -- -- (668) (744) -- --
Amortization of
transition
obligation ......................... -- (2) 56 56 -- (4) 112 112
Amortization of
prior service
cost ............................... 23 55 52 52 46 110 104 104
Recognized net
actuarial loss ..................... 61 63 118 132 122 126 236 264
------ ------ ------ ------ ------ ------ ------ ------
Net periodic benefit
cost ............................... $ 186 $ 280 $ 778 $ 846 $ 372 $ 560 $1,556 $1,692
====== ====== ====== ====== ====== ====== ====== ======


* Amounts in the other benefits column exclude Horizon PCS.

The Company previously disclosed in its financial statements for the year
ended December 31, 2003 that it expected to contribute $239,056 to its pension
plans and $592,416 to other benefit plans in 2004. As of June 30, 2004, $239,056
and $171,476 were contributed for pension plans and other benefit plans,
respectively.

In accordance with FASB staff position 106-2, the Company has yet to
determine whether its plan is actuarially equivalent to the Medicare
prescription-drug benefit. The Company will continue to make a determination of
its plan's equivalency and account for the effect of any subsidy in the period
corresponding to the plan's next measurement date. Accordingly, the numbers
included in the tables above and in the financial statements do not reflect any
effect from the accounting requirements of FASB staff position 106-2.

The Company eliminated retiree medical benefits for employees retiring
after July 15, 2004. The effects of this event are not included in the results
for the period ended June 30, 2004. During the second quarter of 2004, the
Company announced the reduction of benefits available to future retirees.
Employees who retire after July 15, 2004, will no longer be eligible for medical
benefits under the Horizon Retiree Medical Plan. They will be eligible to
participate in the Horizon Prescription Drug plan until Medicare Part D takes
effect in 2006. The Company has not yet determined the financial impact this
will have to future operations.


18


Notes to Consolidated Financial Statements
As of June 30, 2004 and December 31, 2003
And for the Three and Six Months Ended June 30, 2004 and 2003 (unaudited)
- --------------------------------------------------------------------------------

NOTE 13 - Commitments and Contingencies

Operating Leases

The Company leases office space and various equipment under several
operating leases.

Legal Matters

The Company is party to legal claims arising in the normal course of
business. Although the ultimate outcome of the claims cannot be ascertained at
this time, it is the opinion of management that none of these matters, when
resolved, will have a material adverse impact on the Company's results of
operations or financial condition.


19


ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q includes forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), which can be identified by the use of
forward-looking terminology such as: "may", "might", "could", "would",
"believe", "expect", "intend", "plan", "seek", "anticipate", "estimate",
"project" or "continue" or the negative thereof or other variations thereon or
comparable terminology. All statements other than statements of historical fact
included in this quarterly report on Form 10-Q, including without limitation,
the statements under "ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations" regarding our financial position and
liquidity are forward-looking statements. These forward-looking statements also
include, but are not limited to:

o changes in industry conditions created by the Federal
Telecommunications Act of 1996 (the "Telecom Act") and related state
and federal legislation and regulations;

o recovery of the substantial costs which will result from the
implementation and expansion of our new businesses;

o retention of our existing customer base and our ability to attract
new customers;

o rapid changes in technology;

o our future compliance with debt covenants;

o actions of our competitors;

o estimates of current and future population for our markets;

o statements regarding the effects of, or the outcome of, the Horizon
PCS bankruptcy filing and related proceedings;

o statements regarding our anticipated revenues, expense levels,
liquidity and capital resources and projections; and

o the anticipated impact of recent accounting pronouncements.

Although we believe the expectations reflected in such forward-looking
statements are reasonable, we can give no assurance such expectations will prove
to have been correct. Important factors with respect to any such forward-looking
statements, including certain risks and uncertainties that could cause actual
results to differ materially from our expectations ("Cautionary Statements"),
are disclosed in this quarterly report on Form 10-Q, including, without
limitation, in conjunction with the forward-looking statements included in this
quarterly report on Form 10-Q. Important factors that could cause actual results
to differ materially from those in the forward-looking statements included
herein include, but are not limited to:

o changes or advances in technology and the acceptance of new
technology in the marketplace;

o competition in the industry and markets in which we operate;

o changes in government regulation;

o general political economic and business conditions; and

o the impact and outcome of the Horizon PCS bankruptcy filing and
related proceedings.


20


These forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. All
subsequent written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by the
Cautionary Statements.

Overview

Horizon Telcom is a holding company, which, in addition to its majority
ownership of Horizon PCS, owns 100% of 1) Chillicothe Telephone, a local
telephone company, 2) Horizon Services, which provides administrative services
to other Horizon Telcom affiliates including Horizon PCS, and 3) Horizon
Technology, a long-distance and Internet services business.

Horizon Telcom provides a variety of voice and data services to
commercial, residential/small business and local market segments. Horizon Telcom
provides landline telephone service, VDSL television service and Internet access
services to the southern Ohio region, principally in and surrounding
Chillicothe, Ohio.

At June 30, 2004, Chillicothe Telephone serviced approximately 36,800
access lines in Chillicothe, Ohio and the surrounding area. Horizon Technology
provided Internet service to approximately 8,600 customers through its
bright.net Internet service.

Critical Accounting Policies and Estimates

On August 15, 2003, Horizon PCS filed voluntary petitions for relief under
Bankruptcy Code in the Bankruptcy Court. See Note 2 to the Consolidated
Financial Statements.

While the long-term effect of the Bankruptcy Case cannot be determined,
management believes the Bankruptcy Case will not have a material adverse effect
on the liquidity of Horizon Telcom. See the "Risk Factors" below for further
discussion.

In accordance with SFAS No. 94 "Consolidation of All Majority-Owned
Subsidiaries" and ARB No. 51 "Consolidated Financial Statements," when control
of a majority-owned subsidiary does not rest with the majority owners (as, for
instance, where the subsidiary is in legal reorganization or in bankruptcy), ARB
No. 51 precludes consolidation of the majority-owned subsidiary. As a result,
subsequent to August 14, 2003, Horizon Telcom no longer consolidates the
accounts and results of operations of Horizon PCS. Therefore, Horizon Telcom's
investment in Horizon PCS is the balance based on the application of the equity
method through August 14, 2003 and any cost based activity subsequent to that
date. Accordingly, the accompanying consolidated balance sheet as of June 30,
2004 does not include the consolidated accounts of Horizon PCS; it does however,
include a negative investment of approximately $470.9 million. In addition, the
accompanying consolidated statement of operations for the period ended June 30,
2004 includes the consolidated results of operations of Horizon PCS through
August 14, 2003. Upon the emergence of Horizon PCS from bankruptcy, the negative
investment will be reduced proportionately to the remaining ownership
percentage, if any, retained by Horizon Telcom.

Chillicothe Telephone is subject to rate regulation. SFAS No. 71
"Accounting for the Effects of Certain Types of Rate Regulation" provides that
rate-regulated public utilities account for revenues and expenses and report
assets and liabilities consistent with the economic effect of the way in which
regulators establish rates. Chillicothe Telephone follows the accounting and
reporting requirements of SFAS No. 71.


21


Results of Operations for the Three Months Ended June 30, 2004 Compared to the
Three Months Ended June 30, 2003

This discussion and analysis is presented on an operating segment basis.
The following unaudited table details the consolidated statements of income by
operating segment for the three months ended June 30, 2004 and 2003:



For the Three Months Ended, June 30,
- ------------------------------------------------------------------------------------------------------------------------------------
Wireless Local Exchange Information
Business(1) Company Services Business All Other Services
(Dollars in thousands) ----------------- ---------------------- ---------------------- ----------------------
2004 2003 2004 2003 2004 2003 2004 2003
OPERATING REVENUES: ----- --------- --------- --------- --------- --------- --------- ---------

PCS subscriber and
roaming ..................... $ -- $ 61,419 $ -- $ -- $ -- $ -- $ -- $ --
PCS equipment ................. -- 2,071 -- -- -- -- -- --
Basic local and
long-distance ............... -- -- 3,767 3,713 -- -- -- --
Network access ................ -- -- 5,453 6,343 -- -- -- --
Other local
exchange services ........... -- -- 2,598 2,226 -- -- -- --
Internet access and
informational
services .................... -- -- -- -- 967 1,031 -- --
All other ..................... -- -- -- -- -- -- 1,258 --
----- --------- --------- --------- --------- --------- --------- ---------
Total operating
revenues .................. -- 63,490 11,818 12,282 967 1,031 1,258 --
----- --------- --------- --------- --------- --------- --------- ---------
OPERATING EXPENSES:
Cost of PCS and
other equipment
sales ....................... -- 5,074 305 56 126 45 -- --
Cost of services .............. -- 46,841 3,593 3,330 825 814 (95) (95)
Selling and
marketing ................... -- 12,351 384 320 106 105 1 6
General and
administrative .............. -- 10,051 2,071 2,017 375 382 2,893 3,022
Non-cash
compensation ................ -- .93 -- 1 -- -- -- 3
Loss on disposal
of assets ................... -- (41) -- -- -- -- -- --
Depreciation and
amortization ................ -- 10,292 2,228 2,247 81 79 -- --
Impairment of
Horizon PCS
assets .................... -- 73,760 -- -- -- -- -- --
----- --------- --------- --------- --------- --------- --------- ---------
Total operating expenses .. -- 158,421 8,581 7,971 1,513 1,425 2,799 2,936
----- --------- --------- --------- --------- --------- --------- ---------
OPERATING INCOME
(LOSS) ........................ -- (94,931) 3,237 4,311 (546) (394) (1,541) (2,936)
----- --------- --------- --------- --------- --------- --------- ---------
NONOPERATING INCOME
(EXPENSE):
Interest expense,
net ......................... -- (17,011) (702) (708) -- -- -- --
Subsidiary
preferred stock
dividends ................... -- (3,151) -- -- -- -- -- --
Gain on sale of
investment .................. -- -- 753 -- -- -- -- --
Interest income
and other, net .............. -- 226 76 22 -- (2) 7 3
----- --------- --------- --------- --------- --------- --------- ---------
Total nonoperating
expense ..................... -- (19,936) 127 (686) -- (2) 7 3
----- --------- --------- --------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE
INCOME TAX
EXPENSE and minority
interest .................... -- (114,867) 3,364 3,625 (546) (396) (1,534) (2,933)

INCOME TAX (EXPENSE)
BENEFIT ....................... -- 6,031 (839) (820) 199 151 17 20

MINORITY INTEREST
IN LOSS ....................... -- -- -- -- -- -- -- --
----- --------- --------- --------- --------- --------- --------- ---------
NET INCOME (LOSS) ............... $ -- $(108,836) $ 2,525 $ 2,805 $ (347) $ (245) $ (1,517) $ (2,913)
===== ========= ========= ========= ========= ========= ========= =========
OTHER COMPREHENSIVE
INCOME (LOSS)
Net realized gain
(loss) on hedging
activities .................... -- 127 -- -- -- -- -- --
Net unrealized gain
(loss) on
securities
available-for-sale,
net of taxes .................. -- -- 168 310 -- -- -- --
Reclassification
adjustment for
gains included
in net income,
net of taxes ................ -- -- (452) -- -- -- -- --
----- --------- --------- --------- --------- --------- --------- ---------
COMPREHENSIVE INCOME
(LOSS) ........................ $ -- $(108,709) $ 2,241 $ 3,115 $ (347) $ (245) $ (1,517) $ (2,913)
===== ========= ========= ========= ========= ========= ========= =========


(1) Amounts in the wireless business column include the results of
Horizon PCS through August 14, 2003 (Note 2).


22


Local Exchange Company Segment and All Other Services

The following discussion details the results of operations of our local
exchange company segment and all other services not assigned to a segment for
the last fiscal quarter.

Results of Operations

Revenues. Network access revenue decreased by approximately $800,000 for
the three months ended June 30, 2004, to approximately $5.5 million. This
decrease was due to significantly lower rates for special access interstate and
intrastate revenues. Basic local and long distance revenues and other increased
approximately $100,000 to approximately $3.8 million for the three months ended
June 30, 2004 as compared to June 30, 2003. This increase was the result of an
increase in the Asymmetric Digital Subscriber Line ("ADSL") customer base.

Other local exchange services revenue for the local exchange company
segment increased by approximately $400,000 to approximately $2.6 million for
the three months ended June 30, 2004. This increase was primarily driven by one
contract awarded to Chillicothe Telephone involving equipment installation. This
project should be completed in 2004.

All other revenues for the all other services segment increased by
approximately $1.3 million to approximately $1.3 million for the three months
ended June 30, 2004. The increase was related to Horizon Services revenue
derived from certain support services provided to Horizon PCS. This revenue was
eliminated in consolidation prior to Horizon PCS' August 14, 2003 Bankruptcy
Case.

Cost of equipment sales. Cost of goods sold primarily consists of business
system sales and customer maintenance expenses. Cost of goods sold for the local
exchange company segment increased by approximately $200,000 to approximately
$300,000 for the three months ended June 30, 2004 as compared to the same period
in 2003. This increase is due to the contract mentioned above.

Cost of services. Cost of services includes customer care support and
network-related costs, including switching, access and circuit expenses. Cost of
services also includes expenses related to the installation of our VDSL service.

Cost of services for the three months ended June 30, 2004 for the local
exchange company segment increased approximately $300,000 to approximately $3.6
million as compared to the three months ended June 30, 2003. This increase was
due to increased payroll costs and programming fees related to VDSL.

Cost of services for the three months ended June 30, 2004 for all other
services was essentially flat at approximately ($100,000) compared to the same
period in 2003. This credit is from amortizing our deferred gain on sale of
towers.

Selling and marketing expenses. Selling and marketing expenses consist of
costs associated with local marketing and advertising programs including
marketing for VDSL. Selling and marketing expenses for the local exchange
company segment and all other services were approximately $400,000, essentially
flat for the three months ended June 30, 2004 as compared to the same three
months in 2003.

General and administrative expenses. General and administrative expenses
include the costs related to corporate support functions. These include finance
functions, billing and collections, accounting services, computer access and
administration, executive, supervisory, consulting, customer relations, human
resources and other administrative services. General and administrative expenses
for the local exchange company segment increased by approximately $100,000 to
approximately $2.1 million for the three months ended June 30, 2004 as compared
to the same period in 2003. This increase was the result of higher pension costs
and wages.

General and administrative expenses for all other services decreased by
approximately $100,000 to approximately $3.0 million for the three months ended
June 30, 2004. This decrease was the result of a decrease in the number of
leased computers.


23


Non-cash compensation expense. Non-cash compensation expense is the
amortization of the value of stock options granted in November 1999. Stock-based
compensation expense will continue to be recognized through the conclusion of
the vesting period for these options in 2005. Non-cash compensation expense for
the local exchange company segment and all other services was essentially flat
for the three months ended June 30, 2004 as compared to the same three months in
2003.

Depreciation and amortization expense. Depreciation and amortization
expense for the local exchange company segment was essentially flat at
approximately $2.2 million for the three months ended June 30, 2004 and 2003.

Interest expense, net. Interest expense for the local exchange company
segment and all other services for the three months ended June 30, 2004, was
essentially flat at approximately $700,000, as compared to the three months
ended June 30, 2003. Capitalized construction interest was approximately $7,000
and $5,000, for the three months ended June 30, 2004 and 2003, respectively.

Gain on sale of investment. The local exchange company segment recorded a
gain of approximately $800,000 related to the sale of approximately 50% of its
investments available-for-sale.

Interest income and other, net. The local exchange company segment
recorded approximately $70,000 of other income consisting of interest income and
rental revenue in the three months ended June 30, 2004 as compared to
approximately $22,000 during the same period in 2003.

Income tax expense. Income tax expense for the local exchange company
segment was essentially flat at approximately $800,000 for the three months
ended June 30, 2004 and 2003.

Net Income. The local exchange company segment reported net income of
approximately $2.5 million for the three months ended June 30, 2004, compared to
approximately $2.8 million for the same period in 2003. Net income has declined
as a result of lower revenue and higher operating expenses. Network access
revenue has declined while operating expenses, including cost of service, has
increased. We expect this trend to continue for the remainder of 2004.

Other comprehensive income (loss). The local exchange company recognized a
gain of approximately $168,000 in the second quarter of 2004, compared to a gain
of approximately $310,000 for the same period in 2003, related to the increase
in fair market value of its investments available-for-sale, net of taxes of
approximately $115,000 and $160,000, respectively. The increase in fair market
value was offset by the sale of approximately $452,000, or 50%, of the
investments available-for-sale in the current quarter.

Information Services Business Segment

The following discussion details the results of operations of our
information services business segment for the last fiscal quarter.

Results of Operations

Revenues. Internet access and information services were essentially flat
at $1.0 million for the three months ended June 30, 2004. We expect bright.net
revenues to decrease in future periods as the customer base continues to shift
from bright.net to other high speed services, including VDSL provided by
Chillicothe Telephone.

Cost of equipment sales. Cost of goods sold primarily consists of business
system sales and customer maintenance expenses. Cost of goods sold increased
approximately $100,000 for the three months ended June 30, 2004 as compared to
the same period in 2003.

Cost of services. Cost of services includes customer care support and
network-related costs. Cost of services for the three months ended June 30, 2004
for the information services business segment was essentially flat at $800,000.

Selling and marketing expenses. Selling and marketing expenses consist of
costs associated with local marketing and advertising programs. Selling and
marketing expenses for the information services business segment were


24


approximately $100,000, essentially flat for the three months ended June 30,
2004 as compared to the same three months in 2003.

General and administrative expenses. General and administrative expenses
include the costs related to corporate support functions. These include finance
functions, billing and collections, accounting services, computer access and
administration, executive, supervisory, consulting, customer relations, human
resources and other administrative services. General and administrative expenses
for the information services business segment were essentially flat at $400,000
for the three months ended June 30, 2004 as compared to the same period in 2003.

Depreciation and amortization expense. Depreciation and amortization
expense was essentially flat at approximately $100,000 for the three months
ended June 30, 2004 and 2003.

Income tax expense. Income tax benefit for the information services
business segment was essentially flat at approximately $200,000 for the three
months ended June 30, 2004 and 2003.

Net Loss. The information services business segment lost approximately
$300,000 during the three months ended June 30, 2004, slightly higher than the
same period in 2003. This loss does not include the corporate allocations from
Horizon Services of approximately $100,000. We expect these losses to continue
at this level for the remainder of 2004 as the information services segment
continues to build its customer base and expand its product offering.


25


Results of Operations for the Six Months Ended June 30, 2004 Compared to the Six
Months Ended June 30, 2003

This discussion and analysis is presented on an operating segment basis.
The following unaudited table details the consolidated statements of income by
operating segment for the six months ended June 30, 2004 and 2003:



For the Six Months Ended, June 30,
- ------------------------------------------------------------------------------------------------------------------------------------
Wireless Local Exchange Information
Business(1) Company Services Business All Other Services
(Dollars in thousands) ----------------- ---------------------- ---------------------- ----------------------
2004 2003 2004 2003 2004 2003 2004 2003
OPERATING REVENUES: ----- --------- --------- --------- --------- --------- --------- ---------

PCS subscriber
and roaming ................. $ -- $ 118,791 $ -- $ -- $ -- $ -- $ -- $ --
PCS equipment ................. -- 3,889 -- -- -- -- -- --
Basic local and
long-distance ............... -- -- 7,568 7,350 -- -- -- --
Network access ................ -- -- 10,625 11,769 -- -- -- --
Other local
exchange services ........... -- -- 4,910 4,203 -- -- -- --
Internet access
and information
services .................... -- -- -- -- 1,910 2,040 -- --
All other ..................... -- -- -- -- -- -- 2,529 --
----- --------- --------- --------- --------- --------- --------- ---------
Total operating
revenues .................. -- 122,680 23,103 23,322 1,910 2,040 2,529 --
----- --------- --------- --------- --------- --------- --------- ---------
OPERATING EXPENSES:
Cost of PCS and
other equipment
sales ....................... -- 10,829 426 188 190 69 -- --
Cost of services .............. -- 90,638 7,399 6,793 1,670 1,709 (191) (191)
Selling and
marketing ................... -- 24,792 753 654 199 189 2 6
General and
administrative .............. -- 17,608 4,077 3,926 773 761 5,699 6,040
Non-cash
compensation ................ -- .186 -- 2 -- -- 2 5
Loss on disposal
of assets ................... -- .216 -- -- -- -- -- --
Depreciation and
amortization ................ -- 21,152 4,462 4,520 161 155 -- --
Impairment of
Horizon PCS
assets ...................... -- 73,760 -- -- -- -- -- --
----- --------- --------- --------- --------- --------- --------- ---------
Total operating
expenses ................ -- 239,181 17,117 16,083 2,993 2,883 5,512 5,860
----- --------- --------- --------- --------- --------- --------- ---------

OPERATING INCOME (LOSS) ......... -- (116,501) 5,986 7,239 (1,083) (843) (2,983) (5,860)
----- --------- --------- --------- --------- --------- --------- ---------
NONOPERATING INCOME
(EXPENSE):
Interest expense, net ......... -- (33,284) (1,402) (1,409) -- -- -- --
Subsidiary preferred
stock dividends ............. -- (6,221) -- -- -- -- -- --
Gain on sale of
investment .................. -- -- 753 -- -- -- -- --
Interest income and
other, net .................. -- 526 142 34 (1) (1) 31 7
----- --------- --------- --------- --------- --------- --------- ---------
Total nonoperating
expense ..................... -- (38,979) (507) (1,375) (1) (1) 31 7
----- --------- --------- --------- --------- --------- --------- ---------
LOSS BEFORE INCOME
TAX EXPENSE AND
MINORITY INTEREST ............. -- (155,480) 5,479 5,864 (1,084) (844) (2,952) (5,853)

INCOME TAX (EXPENSE)
BENEFIT ....................... -- 6,031 (1,113) (1,162) 432 333 8 16

MINORITY INTEREST IN
LOSS .......................... -- -- -- -- -- -- -- --
----- --------- --------- --------- --------- --------- --------- ---------

NET INCOME (LOSS) ............... $ -- $(149,449) $ 4,366 $ 4,702 $ (652) $ (511) $ (2,944) $ (5,837)
===== ========= ========= ========= ========= ========= ========= =========
OTHER COMPREHENSIVE
INCOME (LOSS)
Net realized gain on
hedging activities ............ -- 462 -- -- -- -- -- --
Net unrealized gain
(loss) on securities
available-for-sale,
net of taxes .................. -- -- 184 354 -- -- -- --
Reclassification
adjustment for gains
included in net
income, net of
taxes ......................... -- -- (452) -- -- -- -- --
----- --------- --------- --------- --------- --------- --------- ---------
COMPREHENSIVE INCOME
(LOSS) ........................ $ -- $(148,987) $ 4,098 $ 5,056 $ (652) $ (511) $ (2,944) $ (5,837)
===== ========= ========= ========= ========= ========= ========= =========


(1) Amounts in the wireless business column include the results of
Horizon PCS through August 14, 2003 (Note 2).


26


Local Exchange Company Segment and All Other Services

The following discussion details the results of operations of our local
exchange company segment and all other services not assigned to a segment for
the past two fiscal quarters.

Results of Operations

Revenues. Network access revenues decreased by approximately $1.2 million
for the six months ended June 30, 2004, to approximately $10.6 million. This
decrease in access revenues was due to decreases in Universal Service Support
Fund ("USSF") revenues, and rate decreases in interstate and intrastate special
access revenues for the six months ended June 30, 2004 compared to the same
period in 2003. USSF revenues are provided by a federal fund and are used to
subsidize high cost carriers in rural markets. Basic local and long distance
revenue increased by approximately $200,000 to approximately $7.6 million for
the six months ended June 30, 2004. This increase was the result of increased
ADSL customers.

Other local exchange revenue for the local exchange company segment
increased by approximately $700,000 to $4.9 million for the six months ended
June 30, 2004. This increase was driven by a contract awarded to Chillicothe
Telephone involving equipment installation of approximately $400,000. This
project should be completed in 2004. VDSL revenue increased approximately
$300,000 as we continued to build our VDSL customer base.

All other revenues for the all other services segment increased by
approximately $2.5 million to approximately $2.5 million for the six months
ended June 30, 2004. The increase was related to Horizon Services revenue
derived from certain support services provided to Horizon PCS. This revenue was
eliminated in consolidation prior to Horizon PCS' August 14, 2003 Bankruptcy
Case.

Cost of equipment sales. Cost of goods sold primarily consists of business
system sales and customer maintenance expenses. Cost of goods sold for the local
exchange company segment increased approximately $200,000 for the six months
ended June 30, 2004 as compared to the same period in 2003. This increase is due
to the contract mentioned above.

Cost of services. Cost of services includes customer care support, and
network-related costs, including switching, access and circuit expenses. Cost of
services also includes expenses related to the installation of our VDSL service.

Cost of services for the six months ended June 30, 2004, was approximately
$7.4 million for the local exchange company segment, compared to approximately
$6.8 million for the six months ended June 30, 2003, an increase of
approximately $600,000. The increase is related to the continued installation
and programming expenses associated with our VDSL service and to increased
personnel wages and other related expenses.

Cost of services for the six months ended June 30, 2004 for all other
services was essentially flat at approximately ($200,000) compared to the same
period in 2003, due to amortizing a gain on sale of towers.

Selling and marketing expenses. Selling and marketing expenses consist of
costs associated with local marketing and advertising programs including
marketing for VDSL. Selling and marketing expenses for the local exchange
company segment was approximately $800,000 for the six months ended June 30,
2004, compared to approximately $700,000 for the six months ending June 30,
2003. The increase is related to additional payroll and related benefit
expenses.

General and administrative expenses. General and administrative expenses
include the costs related to corporate support functions. These include finance
functions, billing and collections, accounting services, computer access and
administration, executive, supervisory, consulting, customer relations, human
resources and other administrative services. General and administrative expenses
for the local exchange company segment increased by approximately $100,000 to
approximately $4.1 million for the six months ended June 30, 2004, primarily due
to an increase in payroll and related benefits.

General and administrative expenses for all other services was
approximately $5.7 million for the six months ended June 30, 2004 as compared to
$6.0 million for the six months ended June 30, 2003. This


27


decrease was the result of a decrease in the number of leased computers.

Non-cash compensation expense. Non-cash compensation expense is the
amortization of the value of stock options granted in November 1999. Stock-based
compensation expense will continue to be recognized through the conclusion of
the vesting period for these options in 2005. Non-cash compensation expense for
the local exchange company segment and all other services was essentially flat
for the six months ended June 30, 2004 compared to the same six months in 2003.

Depreciation and amortization expense. Depreciation and amortization
expense for the local exchange company segment was essentially flat at
approximately $4.5 million for the six months ended June 30, 2004 and 2003.

Interest expense, net. Interest expense for the local exchange company
segment and all other services for the six months ended June 30, 2004 and 2003
remained unchanged at approximately $1.4 million. Capitalized construction
interest was approximately $18,000 and $15,000, for the six months ended June
30, 2004 and 2003, respectively.

Gain on sale of investment. The local exchange company segment recorded a
gain of approximately $800,000 related to the sale of approximately 50% of its
investments available for sale.

Interest income and other, net. The local exchange company segment
recorded approximately $140,000 of other income in the six months ended June 30,
2004. In 2003, income of approximately $30,000 was recorded related to
non-operating corporate activity.

Income tax expense. Income tax expense for the local exchange company
segment was approximately $1.1 million for the six months ended June 30, 2004,
compared to approximately $1.2 million for the same period in 2003, reflecting
lower net income before tax in 2004. All other services was essentially flat at
an approximate tax benefit of $8,000 and $16,000 for the six months ended June
30, 2004 and 2003, respectively.

Net Income. The local exchange company segment reported net income of
approximately $4.4 million for the six months ended June 30, 2004, compared to
approximately $4.7 million for the same period in 2003. Net income has declined
as a result of lower revenue and higher operating expenses. Network access
revenue has declined while operating expenses, including cost of service, has
increased. We expect this trend to continue for the remainder of 2004.

Other comprehensive income (loss). The local exchange company segment
recognized approximately $184,000 of income for the six months ended June 30,
2004, compared to income of approximately $354,000 for the same period in 2003,
related to the increase in fair market value of its investments
available-for-sale, net of tax expense of approximately $126,000 and
approximately $182,000, respectively. The increase in fair market value was
offset by the sale of approximately $452,000, or 50%, of the investments
available-for-sale during the six months ended June 30, 2004.

Information Services Business Segment

The following discussion details the results of operations of our
information services business for the past two fiscal quarters.

Results of Operations

Revenues. Internet access and other revenues decreased by approximately
$100,000 to $1.9 million for the six months ended June 30, 2004. Other revenues
were impacted by decreased bright.net dial-up Internet service subscribers. We
believe a number of these lost dial-up customers have switched to high-speed
VDSL service on our local exchange company segment.

Cost of equipment sales. Cost of goods sold primarily consists of business
system sales and customer maintenance expenses. Cost of goods sold increased
approximately $100,000 for the six months ended June 30, 2004 as compared to the
same period in 2003.

Cost of services. Cost of services includes customer care support, and
network-related costs. Cost of


28


services for the six months ended June 30, 2004, was essentially flat at $1.7
million as compared to the same period for 2003.

Selling and marketing expenses. Selling and marketing expenses consist of
costs associated with local marketing and advertising programs. Selling and
marketing expense was essentially flat at approximately $200,000 for the six
months ended June 30, 2004 and 2003.

General and administrative expenses. General and administrative expenses
include the costs related to corporate support functions. These include finance
functions, billing and collections, accounting services, computer access and
administration, executive, supervisory, consulting, customer relations, human
resources and other administrative services. General and administrative expenses
for the information services business segment were essentially flat at
approximately $800,000 for the six months ended June 30, 2004 and 2003.

Depreciation and amortization expense. Depreciation and amortization
expense for the information services business segment was essentially flat at
approximately $200,000 for the six months ended June 30, 2004 and 2003.

Income tax expense. Income tax benefit for the information services
business segment was approximately $400,000 for the six months ended June 30,
2004, compared to approximately $300,000 for the same period in 2003, due to a
higher net loss before tax in 2004.

Net Loss. The information services business segment lost approximately
$700,000 during the six months ended June 30, 2004, as compared to a net loss of
approximately $500,000 during the same period in 2003. These losses do not
include the corporate allocations from Horizon Services of approximately
$200,000 for both the six months ended June 30, 2004 and 2003. We expect these
losses to continue at this level for the remainder of 2004 as the information
services segment continues to build its customer base and expand its product
offering.

Investment in Horizon PCS

At June 30, 2004, Horizon Telcom has an investment in Horizon PCS on its
balance sheet of a $470.9 million liability. This investment represents the
cumulative losses and cumulative investments made in Horizon PCS. Upon the
resolution of the Horizon PCS Bankruptcy Case, if Horizon Telcom ceases to be
the majority owner of Horizon PCS, this amount will be recognized as a gain on
the deconsolidation of Horizon PCS.

The outcome of Horizon PCS' bankruptcy could substantially impact the
operations of Horizon Services. Horizon Services currently performs functions
for all related companies. Should service to Horizon PCS be discontinued,
Horizon Services may be faced with restructuring its staffing and other support
services. However, management believes the Bankruptcy Case will not have a
material adverse effect on the liquidity of Horizon Telcom.


29


Liquidity and Capital Resources

The following table presents the estimated future outstanding long-term
debt at the end of each year and future required annual principal payments for
each year then ended associated with our financing based on our contractual
level of long-term indebtedness:



(Dollars in millions) Years Ending December 31,
---------------------------------------------------------------------
2004 2005 2006 2007 2008 Thereafter
------ ------ ------ ------ ------ ----------

Chillicothe Telephone:
1998 Senior notes, due 2018 (1) .......................... $ 12.0 $ 12.0 $ 12.0 $ 12.0 $ 12.0 $ --
Fixed interest rate .................................... 6.72% 6.72% 6.72% 6.72% 6.72% 6.72%
Principal payments ..................................... $ -- $ -- $ -- $ -- $ -- $ 12.0
2002 Senior notes, due 2012 (2) .......................... $ 30.0 $ 30.0 $ 30.0 $ 30.0 $ 30.0 $ --
Fixed interest rate .................................... 6.64% 6.64% 6.64% 6.64% 6.64% 6.64%
Principal payments ..................................... $ -- $ -- $ -- $ -- $ -- $ 30.0


----------
(1) On November 12, 2002, Chillicothe Telephone amended its 1998
$12,000,000 senior notes due 2018. The interest rate on the amended
notes is 6.72%, an increase of 10 basis points.

(2) In August 2002, Chillicothe Telephone issued $30,000,000 of 6.64%,
10-year senior notes due July 1, 2012. The proceeds of the offering
were used to retire a short-term line of credit and the non-current
portion of senior notes issued by Chillicothe Telephone in 1993.

Horizon Telcom, Chillicothe Telephone, Horizon Technology, and Horizon
Services are not obligated to assist Horizon PCS. While Horizon PCS faces
several liquidity issues, the liquidity of Horizon Telcom independent of Horizon
PCS is more favorable. Cash and working capital for Horizon Telcom is
approximately $18.1 million and approximately $20.0 million, respectively. We
feel that this level of working capital is adequate to maintain Horizon Telcom's
operations for the next twelve months. Horizon Telcom, net of Horizon PCS,
generated approximately $6.0 million of cash flow from operations during the six
months of 2004. Horizon Telcom, through its Horizon Services subsidiary,
recovered approximately $2.5 million from Horizon PCS for the six months ended
June 30, 2004. Future liquidity of Horizon Services will be impacted, perhaps
materially, from the successful reorganization of Horizon PCS.

Cash flow from operations for the local exchange company and other related
segments has historically been positive, but has been declining in recent years.
Operating income has also been declining over the past 3 years. We expect
operating income to continue declining in the near term, as revenues will remain
flat to slightly lower and expenses may increase slightly. Should this trend
continue or should conditions worsen, liquidity may be impacted. We have taken
steps internally to try to contain our rising costs. Beginning in July 2004, we
reduced the benefits to be offered to future retirees. We continue to review
other areas in an effort to improve our operating income.

In addition, we have not been subject to income tax payments over the last
3 years, due to higher tax depreciation resulting in a net taxable loss. We
expect this trend to reverse in the next several years, thus we expect to be
paying income taxes in the future, thus having an impact on liquidity. In
addition, in 2004, Chillicothe Telephone became subject to state income taxes.

We have made a pension contribution in the first quarter of 2004. The
amount of this contribution, while immaterial to the overall liquidity of
Horizon Telcom, could increase in future years if the pension plan does not
return favorable results. This contribution could have an impact on our future
liquidity. Future payments related to our post retirement benefit plans may
increase substantially which will also have an impact on our future liquidity.

Statement of Cash Flows. At June 30, 2004, we had cash and cash
equivalents of approximately $18.1 million, and working capital of approximately
$20.0 million. At December 31, 2003, we had cash and cash equivalents of
approximately $17.1 million and working capital of approximately $18.4 million.
The increase in cash and cash equivalents of approximately $1.0 million is
primarily attributable to proceeds from the sale of our investment of
approximately $850,000 and by cash provided by operating activities of
approximately $6.0 million, offset by the payment of $800,000 on the line of
credit, the payment of approximately $950,000 in dividends and funding our
capital expenditures of approximately $4.1 million.


30


Net cash provided by operating activities for the six months ended June
30, 2004, was approximately $5.9 million represented by net income of
approximately $770,000, and increases in depreciation, accrued liabilities and
post retirement benefits, offset by increases to accounts receivable. We expect
this amount of cash flow from operations to remain at the same, or slightly
lower, level for the rest of 2004.

Net cash used in investing activities was approximately $3.2 million for
the six months ended June 30, 2004, reflecting $4.1 million for the deployment
of capital necessary for our plant operations, offset by proceeds received from
the partial sale of investments. We expect capital expenditures for 2004 to
continue at this pace.

Net cash used in financing activities for the three months ended June 30,
2004, was approximately $1.7 million, reflecting Chillicothe Telephone's payment
on its line of credit for $800,000 and Horizon Telcom's payment of dividends of
approximately $943,000, during the first quarter of 2004.

Debt Covenants. As of June 30, 2004, Chillicothe Telephone was in
compliance with the covenants set forth in its senior notes.

Funding Requirements. The terms of Chillicothe Telephone's credit
agreement prohibits Chillicothe Telephone from providing funds to Horizon PCS
and its affiliates in the event that Horizon PCS or one of its affiliates
experiences a shortfall. The actual funds required to fund operating losses,
working capital needs and other capital needs may vary materially from our
estimates and additional funds may be required because of unforeseen delays,
cost overruns, unanticipated expenses, regulatory changes, engineering design
changes and required technological upgrades and other technological risks.

Inflation

We believe that inflation has not had and will not have an adverse
material effect on our results of operations.

Recent Accounting Pronouncements

In May 2004, FASB issued Staff Position 106-2 ("FSP 106-2"), "Accounting
and Disclosure Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003." FSP 106-2 relates to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003 (the "Act") signed
into law on December 8, 2003. The Act introduced a prescription drug benefit
under Medicare, as well as a federal subsidy to sponsors of retiree health care
benefit plans that provide a benefit that is at least actuarially equivalent to
Medicare. During the second quarter of 2004, the Company adopted the provisions
of FSP 106-2. The adoption of FSP 106-2 did not have a material impact on our
financial statements.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

We do not engage in commodity futures trading activities and do not enter
into derivative financial instruments for trading purposes. We also do not
engage in transactions in foreign currencies that would expose us to market
risk.

In the normal course of business, our operations are exposed to interest
rate risk on our secured credit facility. Our primary interest rate risk
exposures relate to the impact of interest rate movements on our ability to meet
interest expense requirements and meet financial covenants under our debt
instruments.

While we cannot predict our ability to refinance existing debt, we
continue to evaluate our interest rate risk on an ongoing basis. As of June 30,
2004, $42,000,000 of our $42,200,000 total debt is at a fixed rate. Currently, a
100 basis point increase in interest rates would increase our interest expense
approximately $2,000.

ITEM 4. Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer are responsible
for establishing and maintaining "disclosure controls and procedures" (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company. With the
participation of management, the Company's Chief Executive Officer and Chief
Financial Officer evaluated the Company's disclosure controls and procedures as
of June 30, 2004.


31


The Company's management, including the CEO and CFO, does not expect that
its disclosure controls and procedures will prevent all error and all fraud. A
control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
system, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdown can occur because of simple
error or mistake. The design of any system of controls also is based in part
upon certain assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions.

Based upon the Company's disclosure controls and procedures evaluation,
the CEO and CFO have concluded that, subject to the limitations noted above, the
Company's disclosure controls and procedures are effective to give reasonable
assurance that the information required to be disclosed by the Company in its
periodic reports is accumulated and communicated to management, including the
CEO and CFO, as appropriate to allow timely decisions regarding disclosure and
is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms.

There were no significant changes in the Company's internal controls or,
to the knowledge of the management of the Company, in other factors that could
significantly affect these controls during the quarter ended June 30, 2004.


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PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

None.

ITEM 2. Changes in Securities and Use of Proceeds

None.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Submission of Matters to a Vote of Security Holders

None.

ITEM 5. Other Information

RISK FACTORS

You should carefully consider the risks described below in evaluating our
businesses.

RISKS RELATED TO CHILLICOTHE TELEPHONE, LONG DISTANCE AND INTERNET BUSINESSES

The information set forth under this heading describes risk factors
relating to the business of our wholly-owned subsidiaries the Chillicothe
Telephone Company, Horizon Technology and Horizon Services. References under
this heading to "we," "us" and "our" are to those subsidiaries.

Significant competition in telecommunications services in our markets may cause
us to lose customers, or incur lower network access service minutes of use.

We face, or will face, significant competition in the markets in which we
currently provide local telephone, long distance, data and Internet services.
Many of our competitors are substantially larger and have greater financial,
technical and marketing resources than we do. In particular, larger competitors
have certain advantages over us, which could cause us to lose customers and
impede our ability to attract new customers, including:

o long-standing relationships and greater name recognition with
customers;

o financial, technical, marketing, personnel and other resources
substantially greater than ours;

o more capital to deploy services; and

o potential to lower prices of competitive services.

These factors place us at a disadvantage when we respond to our
competitors' pricing strategies, technological advances and other initiatives.
Additionally, our competitors may develop services that are superior to ours or
that achieve greater market acceptance.

We face competition from other current and potential market entrants,
including:

o domestic and international long distance providers seeking to enter,
re-enter or expand entry into our local communications marketplace;


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o other domestic and international competitive communications
providers, resellers, cable television companies and electric
utilities; and

o providers of broadband and Internet services.

A continuing trend toward combinations and strategic alliances in the
communications industry could give rise to significant new competitors. This
could cause us to lose customers and impede our ability to attract new
customers.

The restructuring of Horizon PCS may have adverse effects on Horizon Telcom.

Horizon Telcom has agreements and relationships with third parties,
including suppliers, subscribers and vendors that are integral to conducting its
day to day operations. A restructuring resulting from Horizon PCS' bankruptcy
filing could have a material adverse affect on the perception of Horizon Telcom
and the Horizon Telcom business and its prospects in the eyes of subscribers,
employees, suppliers, creditors and vendors. These persons may perceive that
there is increased risk in doing business with Horizon Telcom as a result of
Horizon PCS' restructuring. Some of these persons may terminate their
relationships with Horizon Telcom which would make it more difficult for Horizon
Telcom to conduct its business.

In the event that the services agreement between Horizon Telcom and Horizon PCS
is terminated for any reason, Horizon Telcom may not be able to reduce its
general and administrative costs in an amount sufficient to subsidize the
portion of the combined Company's costs currently borne by Horizon PCS.

On a net basis, we estimate that Horizon PCS will incur approximately $5.0
million of charges from Horizon Services (a subsidiary of Horizon Telcom) in
fiscal 2004. If the services agreement between Horizon Telcom and Horizon PCS is
terminated for any reason, Horizon Telcom and its subsidiaries (excluding
Horizon PCS) will lose this source of revenue and will be required to lower its
costs and expenses to meet its business plan. Horizon Telcom may have little
notice of any such termination. A failure to reduce these expenses in a timely
manner could adversely affect Horizon Telcom's liquidity, financial condition
and results of operations.

We may not be able to successfully integrate new technologies or respond
effectively to customer requirements.

The communications industry is subject to rapid and significant changes in
technology, frequent new service introductions and evolving industry standards.
We cannot predict the effect of these changes on us or our industry.
Technological developments may reduce the competitiveness of our networks and
require unbudgeted upgrades or the procurement of additional products that could
be expensive and time consuming. If we fail to adapt successfully to
technological changes or obsolescence or fail to obtain access to important new
technologies, we could lose customers and be limited in our ability to attract
new customers.

Chillicothe Telephone may lose landline customers as more households are
foregoing landlines completely in favor of wireless service.

If our back office and customer care systems are unable to meet the needs of our
customers, we may lose customers.

Sophisticated back office processes and information management systems are
vital to our anticipated growth and our ability to achieve operating
efficiencies. We cannot assure you that our systems will perform as expected as
we increase our number of customers. If these systems fail to perform as
expected, we could lose customers. The following could prevent our back office
and customer care systems from meeting the needs of our customers:

o failure of third-party vendors to deliver products and services in a
timely manner at acceptable costs;

o our failure to identify key information and processing needs;

o our failure to integrate products or services effectively;

o our failure to upgrade systems as necessary; or


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o our failure to attract and retain qualified systems support
personnel.

Furthermore, as our suppliers revise and upgrade their hardware, software
and equipment technology, we could encounter difficulties in affording and
integrating this new technology into our business or find that such new
hardware, software and technology is not appropriate for our business. In
addition, our right to use such hardware, software and technology depends upon
license agreements with third-party vendors. Vendors may cancel or elect not to
renew some of these agreements, which may adversely affect our business.

Because we operate in a heavily regulated industry, changes in regulation could
have a significant effect on our revenues and compliance costs.

We are subject to significant regulation that could change in a manner
adverse to us. We operate in a heavily regulated industry, and the
majority of our revenues generally have been supported by regulations,
including in the form of support for the provision of telephone services
in rural areas. Laws and regulations applicable to us and our competitors
may be, and have been, challenged in the courts, and could be changed by
Congress or regulators at any time. In addition, any of the following have
the potential to have a significant impact on us:

Risk of loss or reduction of network access charge revenues. Approximately
20% of Chillicothe Telephone's total revenues for the six months ended
June 30, 2004 came from network access charges which are paid to us by
intrastate carriers and interstate long distance carriers for originating
and terminating calls in the regions we serve. The amount of access charge
revenues that we receive is calculated based on guidelines set by federal
and state regulatory bodies, and such guidelines could change at any time.
The FCC continues to reform the federal access charge system. States often
mirror these federal rules in establishing intrastate access charges. It
is unknown at this time how changes to the FCC's access charge regime will
affect us. Federal policies being implemented by the FCC strongly favor
access charge reform, and our revenues from this source could be at risk.
Regulatory developments of this type could adversely affect our business.

Risk of loss or reduction of Universal Service Support Fund. We receive
Universal Service Support Fund ("USSF") revenues to support the high cost
of our operations in rural markets. For the six months ended June 30,
2004, USSF revenues accounted for approximately 25% of the total revenues
of Chillicothe Telephone. If we were unable to receive support from the
USSF, or if such support was reduced, we would be unable to operate as
profitably as before such reduction.

In addition, potential competitors generally cannot, under current laws,
receive the same USSF support enjoyed by Chillicothe Telephone.
Chillicothe Telephone therefore enjoys a competitive advantage, which
could, however, be removed by regulators at any time. The Telecom Act
provides that competitors could obtain the same support as we do if the
Public Utilities Commission of Ohio determines that granting such support
to competitors would be in the public interest. If such USSF support were
to become available to potential competitors, we might not be able to
compete as effectively or otherwise continue to operate as profitably in
our Chillicothe Telephone markets. Any shift USSF regulation could,
therefore, have an adverse effect on our business.

The method for calculating the amount of USSF support could change in
2004. It is unclear whether the chosen methodology will accurately reflect
the costs incurred by Chillicothe Telephone, and whether it will provide
for the same amount of USSF support that Chillicothe Telephone enjoyed in
the past. The outcome of any of these proceedings or other legislative or
regulatory changes could affect the amount of USSF support that we
receive, and could have an adverse effect on our business.

Risk of loss of protected status under interconnection rules. Chillicothe
Telephone takes the position that it does not have to comply with more
burdensome requirements in the Telecom Act governing the rights of
competitors to interconnect to our traditional telephone companies'
networks due to our status as a rural telephone company. If state
regulators decide that it is in the public's interest to impose these
interconnection requirements on us, more competitors could enter our
traditional telephone markets than are currently expected and we could
incur additional administrative and regulatory expenses as a result of
such newly imposed interconnection requirements.


35


Risks posed by costs of regulatory compliance. Regulations create
significant compliance costs for us. Chillicothe Telephone, which provides
intrastate services, is generally subject to certification, tariff filing
and other ongoing regulatory requirements by state regulators. Challenges
to these tariffs by regulators or third parties could cause us to incur
substantial legal and administrative expenses.

Regulatory changes in the telecommunications industry involve uncertainties, and
the resolution of these uncertainties could adversely affect our business by
facilitating greater competition against us, reducing potential revenues or
raising our costs.

The Telecom Act provides for significant changes in the telecommunications
industry, including the local telecommunications and long distance industries.
This federal statute and the related regulations remain subject to judicial
review and additional rulemakings of the FCC, thus making it difficult to
predict what effect the legislation will have on us, our operations and our
competitors. Several regulatory and judicial proceedings have recently
concluded, are underway or may soon be commenced, that address issues affecting
our operations and those of our competitors, which may cause significant changes
to our industry. We cannot predict the outcome of these developments, nor can we
assure that these changes will not have a material adverse effect on us.

RISKS RELATED TO HORIZON PCS

Horizon PCS has declared bankruptcy, which may cause Horizon Telcom to
lose all or a substantial portion of the value of its investment in Horizon PCS.
Since the amount of Horizon PCS' obligations under its credit facility and
senior and discount notes was greater than its cash and other assets at the time
such payment obligations were accelerated, the possibility exists that there
will be no assets available for distribution to Horizon Telcom and the other
stockholders of Horizon PCS. While Horizon Telcom has requested an equity
participation in the Horizon PCS Bankruptcy Case, there can be no assurance that
Horizon Telcom will receive an equity participation.


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ITEM 6. Exhibits and Reports on Form 8-K

Exhibits and Reports on Form 8-K

(A) Exhibits

3.1(a) Articles of Incorporation of Horizon Telcom, Inc.

3.2(a) Bylaws of Incorporation of Horizon Telcom, Inc.

4.1(a) Form of Stock Certificate.

31.1(b) Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.

31.2(b) Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.

32.1(b) Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.

32.2(b) Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.

----------
(a) Incorporated by reference to the exhibit with the same number
previously filed by the Registrant on Form 10 (Reg. No.
0-32617).

(b) Filed herewith.

(B) Reports on Form 8-K

None.


37


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.

HORIZON TELCOM, INC.
(Registrant)

Date: August 9, 2004 By: /s/ Thomas McKell
-------------------------
Thomas McKell
Chief Executive Officer

Date: August 9, 2004 By: /s/ Peter M. Holland
-------------------------
Peter M. Holland
Chief Financial Officer
(Principal Financial and
Chief Accounting Officer)


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