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

                                   FORM 10-QSB

(Mark One)

|X|   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934

      For the quarterly period ended June 30, 2004.

|_|   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

      For the transition period from _______________________ to
      ______________________

                         Commission file number: 0-26525

                              BREDA TELEPHONE CORP.
        (Exact name of small business issuer as specified in its charter)

               Iowa                                               42-0895882
  (State or other jurisdiction                                 (I.R.S. Employer
of incorporation or organization)                            Identification No.)

                  112 E. Main, P.O. Box 190, Breda, Iowa 51436
                    (Address of principal executive offices)

                                 (712) 673-2311
                          (Issuer's telephone number)

      Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 |_|

      State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 31,204 shares of common stock,
no par value, at June 30, 2004.

      Transitional Small Business Disclosure Format (Check one): Yes |_| No |X|

<PAGE>

                         PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

                           BREDA TELEPHONE CORPORATION
                                AND SUBSIDIARIES
                                   BREDA, IOWA

                   CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                 For the Periods
                          Ended June 30, 2004 and 2003
                      and the Year Ended December 31, 2003

<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                 June 30,         December 31,
                                                                  2004               2003
                                                               (Unaudited)         (Audited)
                                                               -----------        ------------
<S>                                                            <C>                <C>
                                    ASSETS

CURRENT ASSETS
     Cash and cash equivalents                                 $   962,635        $ 1,205,550
     Temporary investments                                         436,209            361,543
     Accounts receivable                                           512,783            563,542
     Interest receivable                                            58,123             52,742
     Current portion of notes receivable                            69,000            144,000
         Less allowance of $75,000 in 2004
     Inventory, at average cost                                    133,848            108,007
     Other                                                          41,039             25,407
                                                               -----------        -----------
                                                                 2,213,637          2,460,791
                                                               -----------        -----------

OTHER NONCURRENT ASSETS
     Marketable securities                                       4,339,181          3,928,354
     Investments in unconsolidated affiliates at equity          4,373,907          3,942,275
     Other investments at cost                                     850,441            857,147
     Goodwill                                                      896,812            896,812
     Notes receivable, less current portion                        318,205            291,134
                                                               -----------        -----------
                                                                10,778,546          9,915,722
                                                               -----------        -----------

PROPERTY, PLANT AND EQUIPMENT                                    4,970,473          5,141,009
                                                               -----------        -----------

 TOTAL ASSETS                                                  $17,962,656        $17,517,522
                                                               ===========        ===========
</TABLE>


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


                                       2
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                        June 30,         December 31,
                                                                          2004               2003
                                                                      (Unaudited)         (Audited)
                                                                      -----------        ------------
<S>                                                                   <C>                <C>
                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
     Current portion of long-term debt                                $   149,017        $   144,183
     Accounts payable                                                     249,842            233,802
     Accrued taxes                                                        152,168            106,592
     Other                                                                 78,221            137,042
                                                                      -----------        -----------
                                                                          629,248            621,619
                                                                      -----------        -----------

LONG-TERM DEBT, less current portion                                    1,557,724          1,633,461
                                                                      -----------        -----------

DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES                         525,991            497,795
                                                                      -----------        -----------

STOCKHOLDERS' EQUITY
     Common stock - no par value, 5,000,000 shares authorized,
         31,204 and 31,694 shares issued and outstanding at
         $326 and $303 stated value, respectively                      10,172,504          9,603,282
     Retained earnings                                                  5,077,189          5,161,365
                                                                      -----------        -----------
                                                                       15,249,693         14,764,647
                                                                      -----------        -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                            $17,962,656        $17,517,522
                                                                      ===========        ===========
</TABLE>

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


                                       3
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
            For the Three and Six Months Ended June 30, 2004 and 2003

<TABLE>
<CAPTION>
                                               For the Three Months Ended         For the Six Months Ended
                                                  2004             2003             2004             2003
                                              -----------      -----------      -----------      -----------
<S>                                           <C>              <C>              <C>              <C>
OPERATING REVENUES                            $ 1,711,473      $ 1,517,356      $ 3,233,450      $ 3,207,999
                                              -----------      -----------      -----------      -----------

OPERATING EXPENSES
     Cost of services                             670,959          655,647        1,307,176        1,319,488
     Depreciation and amortization                258,658          244,690          500,430          505,157
     Selling, general, and administrative         432,701          430,369          922,851          923,389
                                              -----------      -----------      -----------      -----------
                                                1,362,318        1,330,706        2,730,457        2,748,034
                                              -----------      -----------      -----------      -----------

OPERATING INCOME                                  349,155          186,650          502,993          459,965
                                              -----------      -----------      -----------      -----------

OTHER INCOME (EXPENSES)
     Interest and dividend income                 103,242           59,083          160,876          115,761
     Interest expense                             (32,018)         (34,540)         (64,682)         (69,684)
     Loss on note receivable                      (75,000)              --          (75,000)              --
     Income from equity investments               315,371          118,927          630,619          406,924
     Other, net                                    (7,432)          (2,809)         (10,565)          (6,061)
                                              -----------      -----------      -----------      -----------
                                                  304,163          140,661          641,248          446,940
                                              -----------      -----------      -----------      -----------

INCOME BEFORE INCOME TAXES                        653,318          327,311        1,144,241          906,905
                                              -----------      -----------      -----------      -----------

INCOME TAXES                                      247,313          122,217          409,645          344,384
                                              -----------      -----------      -----------      -----------

NET INCOME                                    $   406,005      $   205,094      $   734,596      $   562,521
                                              ===========      ===========      ===========      ===========

NET INCOME PER COMMON SHARE                   $     12.93      $      6.30      $     23.34      $     17.20
                                              ===========      ===========      ===========      ===========
</TABLE>

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


                                       4
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

            CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                   Common Stock
                                             -------------------------          Retained
                                             Shares          Amount             Earnings             Total
                                             ------       ------------        -----------        ------------
<S>                                          <C>          <C>                 <C>                <C>
Balance at December 31, 2002 (Audited)       33,000       $  9,240,000        $ 4,824,971        $ 14,064,971

  Comprehensive Income:
    Net income                                                                  1,189,506           1,189,506

  Dividends paid                                                                  (98,436)            (98,436)

  Stated value stock adjustment                                754,676           (754,676)

  Common stock redeemed, net                 (1,306)          (391,394)                              (391,394)
                                             ------       ------------        -----------        ------------

Balance at December 31, 2003 (Audited)       31,694          9,603,282          5,161,365          14,764,647

  Comprehensive Income:
    Net income                                                                    734,596             734,596

  Dividends paid                                                                  (94,479)            (94,479)

  Stated value stock adjustment                                724,293           (724,293)

  Common stock redeemed, net                   (490)          (155,071)                              (155,071)
                                             ------       ------------        -----------        ------------

Balance at June 30, 2004 (Unaudited)         31,204       $ 10,172,504        $ 5,077,189        $ 15,249,693
                                             ======       ============        ===========        ============
</TABLE>

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


                                       5
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                 For the Six Months Ended June 30, 2004 and 2003

<TABLE>
<CAPTION>
                                                                                  2004            2003
                                                                              -----------     -----------
<S>                                                                           <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net income                                                               $   734,596     $   562,521
     Adjustments to reconcile net income
       to net cash provided by operating activities:
        Depreciation and amortization                                             500,430         505,157
        Deferred income taxes                                                      59,249          63,626
        Amortization of investment tax credits                                     (4,884)         (4,884)
        Equity income in unconsolidated affiliates, net of distribution
          received of $198,987 and $245,564 in 2004 and 2003, respectively       (431,632)       (161,360)
        Note receivable discount                                                   (5,764)         (7,606)
        Allowance on note receivable                                               75,000              --
     Changes in assets and liabilities:
        (Increase) Decrease in assets:                                              3,905         246,206
        Increase (Decrease) in liabilities:                                       (23,374)       (153,947)
                                                                              -----------     -----------
        Net cash provided by operating activities                                 907,526       1,049,713
                                                                              -----------     -----------

CASH FLOWS FROM INVESTING ACTIVITIES
     Capital expenditures                                                        (329,894)       (753,916)
     Purchase of investments                                                     (699,361)       (380,012)
     Purchase of equity investments                                                    --            (500)
     Purchase of other investments - at cost                                          (43)             --
     Issuance of notes receivable                                                 (45,307)             --
     Proceeds from the sale of investments                                        213,868         461,575
     Sale of other investments                                                      6,749           6,319
     Repayment of notes receivable                                                 24,000          24,000
                                                                              -----------     -----------
        Net cash used in investing activities                                    (829,988)       (642,534)
                                                                              -----------     -----------

CASH FLOWS FROM FINANCING ACTIVITIES
     Repayment of long term debt                                                  (70,903)        (66,378)
     Common stock redeemed, net                                                  (155,071)       (270,497)
     Dividends paid                                                               (94,479)        (98,436)
                                                                              -----------     -----------
        Net cash used in financing activities                                    (320,453)       (435,311)
                                                                              -----------     -----------

Net Increase (Decrease) in Cash and Cash Equivalents                             (242,915)        (28,132)

Cash and Cash Equivalents at Beginning of Period                                1,205,550       1,032,734
                                                                              -----------     -----------

Cash and Cash Equivalents at End of Period                                    $   962,635     $ 1,004,602
                                                                              ===========     ===========

Supplemental Disclosures of Cash Flow Information
     Cash paid during the period for:
         Interest                                                             $    64,682     $    69,684
         Income taxes                                                         $   310,375     $   406,500
</TABLE>

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


                                       6
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. CONSOLIDATED FINANCIAL STATEMENTS

      In the opinion of management, the accompanying condensed consolidated
      financial statements contain all adjustments (consisting of only normal
      recurring items) necessary to present fairly the financial position as of
      June 30, 2004 and December 31, 2003 and the results of operation and
      changes in cash flows for the three and six months ended June 30, 2004 and
      2003.

      Certain information and footnote disclosures normally included in annual
      financial statements prepared in accordance with accounting principles
      generally accepted in the Unites States of America have been condensed or
      omitted. It is suggested that these financial statements be read in
      conjunction with the financial statements and notes thereto included in
      the Company's December 31, 2003 audited financial statements. The results
      of operations for the three and six month period ended June 30, 2004 are
      not necessarily indicative of the operating results of the entire year.

      Certain reclassifications have been made to the 2003 financial statements
      to conform with the 2004 presentations.

NOTE 2. OPERATING SEGMENTS

      The Company organizes its business into three reportable segments: local
      exchange carrier (LEC) services, broadcast services and internet service
      provider (ISP) services. The LEC services segment provides telephone, data
      services and other services to customers in local exchanges. The broadcast
      services segment provides cable television services to customers in Iowa
      and Nebraska. The ISP services segment provides internet access to
      customers within the local exchanges and the surrounding areas.

      The Company's reportable business segments are strategic business units
      that offer different products and services. Each reportable segment is
      managed separately primarily because of different products, services and
      regulatory environments. LEC segments have been aggregated because of
      their similar characteristics.

      The segment's accounting policies are the same as those described in the
      summary of significant accounting policies.

<TABLE>
<CAPTION>
                                         Local                           Internet
            Six months ended            Exchange                         Service
             June 30, 2004               Carrier        Broadcast        Provider            Total
      --------------------------       ----------       ---------        ---------        ----------
<S>                                    <C>              <C>              <C>              <C>
      Revenues
           External customers          $2,503,223       $ 420,779        $ 309,448        $3,233,450
           Intersegment                        --              --               --                --
           Segment profit (loss)          873,399        (113,740)         (25,063)          734,596
      </TABLE>


                                       7
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2. OPERATING SEGMENTS (Continued)

<TABLE>
<CAPTION>
      --------------------------         Local                           Internet
            Six months ended            Exchange                         Service
             June 30, 2003               Carrier        Broadcast        Provider            Total
      --------------------------       ----------       ---------        ---------        ----------
<S>                                    <C>              <C>              <C>              <C>
      Revenues
           External customers          $2,421,605       $ 466,318        $ 320,076        $3,207,999
           Intersegment                        --              --               --                --
           Segment profit (loss)          705,245         (84,010)         (58,714)          562,521

<CAPTION>
      --------------------------         Local                           Internet
          Three months ended            Exchange                         Service
             June 30, 2004               Carrier        Broadcast        Provider            Total
      --------------------------       ----------       ---------        ---------        ----------
<S>                                    <C>              <C>              <C>              <C>
      Revenues
           External customers          $1,342,460       $ 213,286        $ 155,727        $1,711,473
           Intersegment                        --              --               --                --
           Segment profit (loss)          454,180         (51,569)           3,394           406,005

<CAPTION>
      --------------------------         Local                           Internet
          Three months ended            Exchange                         Service
             June 30, 2003               Carrier        Broadcast        Provider            Total
      --------------------------       ----------       ---------        ---------        ----------
<S>                                    <C>              <C>              <C>              <C>
      Revenues
           External customers          $1,130,808       $ 227,654        $ 158,894        $1,517,356
           Intersegment                        --              --               --                --
           Segment profit (loss)          262,206         (37,626)         (19,486)          205,094
</TABLE>


                                       8
<PAGE>

<TABLE>
<CAPTION>
           Reconciliation of               Three Months Ended                 Six Months Ended
          Segment Information           June 30,        June 30,         June 30,          June 30,
          -------------------             2004            2003             2004              2003
      --------------------------       ----------       ---------        ---------        ----------
<S>                                    <C>              <C>              <C>              <C>
      REVENUES:
        Total revenues for
          reportable segments          $1,711,473       $1,517,356       $3,233,450       $3,207,999
        Other revenues                         --              --               --                --
                                       ----------       ---------        ---------        ----------
               Consolidated Revenues   $1,711,473       $1,517,356       $3,233,450       $3,207,999
                                       ==========       =========        =========        ==========

      PROFIT:
        Total profit for
          reportable segments          $  406,005       $ 205,094        $ 734,596        $  562,521
        Other profit (loss)                    --              --               --                --
                                       ----------       ---------        ---------        ----------
        Net Income                     $  406,005       $ 205,094        $ 734,596        $  562,521
                                       ==========       =========        =========        ==========
</TABLE>

NOTE 3. NET INCOME PER COMMON SHARE

      Net income per common share for the three and six months ended June 30,
      2004 and 2003 was computed by dividing the weighted average number of
      shares of common stock outstanding into the net income. The weighted
      average number of shares of common stock outstanding for the three and six
      months ended June 30, 2004 and 2003 were 31,395 and 32,572 and 31,480 and
      32,710, respectively.

NOTE 4. STOCK VALUE ADJUSTMENT

      During May 2003, the board of directors authorized a $23 increase in the
      stated value of each share of common stock from $280 to $303. There were
      32,812 shares outstanding at the time of the value adjustment, which
      reduced earnings by $754,676.

      During May 2004, the board of directors authorized a $23 increase in the
      stated value of each share of common stock from $303 to $326. There were
      31,491 shares outstanding at the time of the value adjustment, which
      reduced earnings by $724,293.

               [THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK]


                                       9
<PAGE>

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

      Breda organizes its business into three reportable segments. Those
      segments are local exchange carrier services, broadcast services, and
      Internet service provider services. Breda has organized its business into
      those segments because the segments are each strategic business units that
      are managed separately and that offer different products and services in
      different regulatory environments.

      The local exchange carrier services segment provides telephone, data
      services, and other services to customers in the local exchanges served by
      Breda and its telephone subsidiaries. Breda has offered local exchange
      carrier services in the Carroll, Iowa market area since October, 2003,
      through BTC, Inc. Breda also provides long distance services to its
      customers in the local exchanges served by Breda and its telephone
      subsidiaries. The broadcast services segment provides cable television
      services to customers in a total of eighteen towns in Iowa and one town in
      Nebraska. The Internet service provider services segment provides Internet
      access to customers in the local exchanges and the surrounding areas and
      in the Carroll, Iowa market area through BTC, Inc.

      The segments in which Breda and its subsidiaries operate are as follows:

           Local Exchange Carrier
                  Breda
                  Prairie Telephone Co., Inc.
                  Westside Independent Telephone Company
                  BTC, Inc.

           Broadcast Services
                  Tele-Services, Ltd.

           Internet Service Provider
                  BTC, Inc.

      BTC, Inc. is a subsidiary of Prairie Telephone. BTC, Inc. provides
      Internet services to its customers and to the customers of Breda, Prairie
      Telephone and Westside Independent.

      Breda and its subsidiaries all conduct business under the names "W.I.N."
      or "Western Iowa Networks".

      The following table reflects, on a consolidated basis for Breda and its
      subsidiaries, the approximate percentage of Breda's and its subsidiaries'
      aggregate revenue which was


                                       10
<PAGE>

      derived from the three segments described above and from investments as of
      the close of, respectively, the second quarter of 2003 and the second
      quarter of 2004:

                                                            April-     April-
                                                             June       June
                                                             2003       2004

                     Local Exchange Carrier(1)               74.5%      78.4%
                     Broadcast(2)                            15.0%      12.5%
                     Internet Service Provider(3)            10.5%       9.1%
                                                            -----      -----
                                 Total                      100.0%     100.0%

            (1)   This segment includes (i) flat monthly fees charged to
                  subscribers by Breda, Prairie Telephone, Westside Independent
                  and BTC, Inc. for basic local telephone services, (ii)
                  universal services funding amounts and access charges payable
                  by long distance carriers for intrastate and interstate
                  exchange services provided to those long distance carriers,
                  (iii) fees from long distance providers for billing and
                  collection services for long distance calls made by
                  subscribers, (iv) per minute rates and calling plans rates for
                  long distance services, and (v) monthly cellular commissions,
                  advertising fees, and miscellaneous revenues. BTC, Inc. began
                  providing local telephone services in October, 2003. Prior to
                  that time, BTC, Inc. only provided long distance services and
                  Internet services.

            (2)   This segment includes monthly fees charged for basic and
                  premium cable services.

            (3)   This segment includes monthly fees charged for Internet
                  services.

      Six-months ended June 30, 2004 Compared to Six-months ended June 30, 2003

      NET INCOME

      Consolidated net income for the six-month period ended June 30, 2004 was
      $734,596, which was a $172,075, or 30.6%, increase when compared to the
      $562,521 of consolidated net income for the six-month period ended June
      30, 2003.

      The $172,075 increase in net income resulted from the following three
      factors:

            1)    Consolidated operating income, which is Operating Revenues
                  less Operating Expenses, generated from the local exchange
                  carrier segment, the broadcast services segment, and the
                  Internet service provider segment increased $43,028, or 9.4%,
                  for the six-month period ended June 30, 2004, when compared to
                  the six-month period ended June 30, 2003.


                                       11
<PAGE>

            2)    Other income (expense), which includes items such as interest
                  and dividend income, income from equity investments, interest
                  expense, and gains (losses) on the sale of investments and
                  property, increased $194,308, or 43.5%, for the six-month
                  period ended June 30, 2004, when compared to the six-month
                  period ended June 30, 2003.

            3)    Income taxes increased $65,261, or 19.0%, for the six-month
                  period ended June 30, 2004, when compared to the six-month
                  period ended June 30, 2003.

      OPERATING REVENUES

      There was an increase in total operating revenues for the six-month period
      ended June 30, 2004, when compared to the six-month period ended June 30,
      2003, of $25,451, or .8%. The segments making up total operating revenues
      and their contributions to the $25,451 increase between the two periods
      are as follows: local exchange carrier services - $81,618; broadcast
      services - ($45,539); and Internet service provider services - ($10,628).

      Local Exchange Carrier Services - $81,618

      Local exchange carrier services revenue accounted for 77.4% of the
      operating revenue in the six-month period ended June 30, 2004. The
      components of and their contributions to the $81,618 increase in local
      exchange carrier services revenue for the six-months ended June 30, 2004,
      when compared to the six-months ended June 30, 2003, are as follows: local
      network services - $65,538; network access services - $192,241; long
      distance services - $26,427; billing and collection services - ($228);
      cellular services - ($138,525); and miscellaneous - ($63,835).

      Local network services increased 22.9% and network access services
      revenues increased 15.9% in the six-month period ended June 30, 2004, when
      compared to the six-month period ended June 30, 2003. The increase in
      local network services revenues and a portion of the increase in network
      access services revenues were the result of new customers in the Carroll,
      Iowa market area which were generated by BTC, Inc. after BTC, Inc. began
      offering local exchange carrier services in October 2003. There was no
      corresponding customer base in the six-month period ended June 30, 2003.

      Breda also received a 24-month true-up adjustment in the amount of
      $148,362 from the NECA pool for the time period April 2002 through April
      2004 to incorporate a line haul lease agreement that Breda had in place
      with another independent telephone provider during that time period. The
      $148,362 adjustment was received in May 2004. Breda anticipates receiving
      additional monthly line haul compensation from the NECA pool of
      approximately $6,000 per month on a going forward basis.

      Breda has not experienced an adverse effect from the implementation in
      2003 of different methodologies for the support payment funding regulated
      by the FCC.


                                       12
<PAGE>

      Breda has had lower access revenues in both 2003 and 2004 because Qwest no
      longer pays access revenue for traffic originating with a wireless carrier
      that uses Qwest to deliver the traffic back to a number served by local
      exchange carriers, such as Breda, Prairie Telephone, and Westside
      Independent, who participate in the use of the switching and network
      facilities offered by Iowa Network Services.

      Access charges constitute a substantial part of Breda's, Prairie
      Telephone's and Westside Independent's revenues, and a material risk to
      them arises from the regulation of access charge rates and universal
      service funding by the FCC. Breda anticipates continuing pressure for the
      lowering of state and federal access charge rates, so future reductions in
      access charge rates are likely, along with the potential restructuring of
      universal service funding.

      Breda's long distance services revenue continues to grow because of the
      increase in its customer base for those services. Breda believes that long
      distance services should continue to be a growth area for Breda in 2004 as
      Breda continues to market this service as both a stand-alone service and
      as part of a package with other services, such as Internet services. There
      was a 46.0% increase in long distance services revenues for the six month
      period ended June 30, 2004 when compared to the six-month period ended
      June 30, 2003. The increase is a direct reflection of the 58.8% increase
      in Breda's long distance customer base, which has mainly resulted from new
      customers taking this service as part of a bundled service package which
      includes local exchange service and Internet service provider services in
      the Carroll, Iowa exchange area.

      The $138,525, or 20.4%, decrease in cellular sales revenue for the
      six-month period ended June 30, 2004, when compared to the six-month
      period June 30, 2003, reflects the decreased sales from all of Breda's
      service locations during the first six months of 2004. Breda began
      offering two-year contracts, instead of one-year contracts, in August
      2002, when U.S. Cellular revamped its commission structure to encourage
      two-year contracts. Breda generates retention commissions when a customer
      extends the term of the customer's existing cellular services contract or
      enters into a new contract to continue the customer's cellular services.
      The customers with one-year contracts expiring in 2003 continued to
      generate retention contracts, but those contracts and other new contracts
      are now on a two year term. Breda will accordingly experience a time gap
      between when customers would normally be entering new contracts if they
      had one year contracts versus when they would enter into new contracts if
      they had two year contracts. The change in contract length has therefore
      caused a delay in new contract sign-up for retentionable contracts.
      Customers may migrate to new contracts without penalty once they have
      fulfilled eighty percent of the original contract term, so the first
      customers obtaining two year contracts in 2002 will be eligible for new
      contracts beginning in May and June of 2004. Breda saw some increase in
      retention contracts during the months of May and June of 2004, and expects
      its retention commissions to go back to their customary levels in the
      coming months.


                                       13
<PAGE>

      Other factors contributing to the decrease in cellular sales revenue
      during the six-month period ended June 30, 2004, when compared to the
      six-month period ended June 30, 2003, were the down time caused by the
      hiring and training of a new outside cellular sales person, and the change
      in focus to the new services offered by Breda's local exchange services
      entry into the Carroll, Iowa market by two outside sales people, who had
      originally spent sales efforts on cellular services.

      Miscellaneous revenue decreased $63,835, or 36.7%, for the six-month
      period ended June 30, 2004, when compared to the six-month period ended
      June 30, 2003. Breda performed fiber installation contractual work for an
      outside corporation in the first quarter of 2003, which generated
      approximately $50,000 in miscellaneous revenue, before materials,
      equipment and labor costs. There was no corresponding work or revenue in
      the six-month period ending June 30, 2004. Breda also received a Qwest
      refund on co-location expenditures of approximately $28,229 during the
      second quarter of 2003. There was no corresponding entry in the six-month
      period ended June 30, 2004.

      Broadcast Services ($45,539)

      Broadcast services revenue decreased $45,539, or 9.8%, for the six-month
      period ended June 30, 2004, when compared to the six-month period ended
      June 30, 2003. Breda's subsidiary, Tele-Services, Ltd., continues to face
      competition from satellite providers that can now include local channels
      in their package offerings. Tele-Services, Ltd experienced a 9.9% decrease
      in its customer base when comparing the six-month period ended June 30,
      2004, to the six-month period ended June 30, 2003. Another factor faced by
      Tele-Services is the declining population base in the small rural
      communities served by Tele-Services, which adversely affects
      Tele-Services' current and prospective customer base. Tele-Services has
      combined head-ends in Breda, Arcadia, and Westside in order to reduce its
      operating costs through consolidation of equipment and maintenance costs.
      Breda is continuing to explore other consolidation opportunities in the
      other 16 communities which are served by Tele-Services.

      Tele-Services added channels in the latter part of the first quarter of
      2004 in many of the 19 communities which are served by Tele-Services.
      Tele-Services finalized and implemented most of those channel additions,
      and the corresponding rate increases, by May 1, 2004. Local channels have
      been added to six additional communities and Breda hopes to generate
      customer loyalty through this avenue of information on local community
      events, as well as the weather, and local news. Breda is also implementing
      paid advertising opportunities for businesses and individuals on the local
      channels in the communities that have the local channels.

      Internet Services ($10,628)

      Internet services revenue decreased $10,628, or 3.3%, for the six-month
      period ended June 30, 2004, when compared to the six-month period ended
      June 30, 2003. The decrease is directly attributable to the decrease in
      BTC Inc.'s Internet service customer


                                       14
<PAGE>

      base, which decrease is the result of the intense competition by multiple
      suppliers in the Carroll, Iowa, market area. Breda began bundling Internet
      services with long distance services and lowered its pricing for Internet
      services in 2001 in response to competitive pressures. Breda has continued
      with these programs in 2003 and 2004. The programs have, however, resulted
      in reduced Internet revenues in both 2003 and 2004 given the lower pricing
      by Breda for Internet services under those programs. Breda is gaining
      high-speed Internet customers in the Carroll Iowa area because BTC, Inc.
      is offering bundled services packages that include Internet services, as
      well as local telephone and other communication services. The new
      customers subscribing for those bundled services have helped stem the
      decrease in Internet services revenue that Breda had experienced in 2003.

      OPERATING EXPENSES

      There was a decrease in total operating expenses of $17,577, or .6%, for
      the six-month period ended June 30, 2004, when compared to the six-month
      period ended June 30, 2003. The components making up operating expenses
      are as follows: cost of services, depreciation and amortization, and
      selling, general and administration expenditures.

      Cost of services decreased $12,313, or .9%, for the six-month period ended
      June 30, 2004, when compared to the six-month period ended June 30, 2003.
      Most of the decrease in cost of services resulted from decreased Internet
      provision costs of $115,572 and decreased cellular services costs of
      $50,634. Internet provision costs decreased because Breda is no longer
      dependent on purchasing specialized circuits from Qwest in order to
      provide Internet service in the Carroll, Iowa market. As noted previously,
      Breda began offering local exchange carrier services in the Carroll, Iowa
      area through its subsidiary, BTC, Inc., in October 2003. In order to
      provide local exchange carrier services in the Carroll, Iowa market, Breda
      had to install circuits and trunks between the present independent local
      exchange carrier (Qwest) and Breda's switch. Breda is able to provide
      Internet provider service to the Carroll, Iowa market over those same
      trunks, which has significantly reduced Breda's underlying circuit cost to
      provide Internet services. The cost of utilities, payroll expenses, long
      distance costs, cable TV programming, and key system costs, did, however,
      all increase to net against the decreases in Internet provision costs and
      cellular services cost, resulting in an overall $12,313 decrease in cost
      of services for the six-month period ended June 30, 2004.

      Depreciation and amortization expense decreased $4,727, or .9%, for the
      six-month period ended June 30, 2004, when compared to the six-month
      period ended June 30, 2003. The decrease is attributable to the fact that
      some of Breda's assets have reached their maximum depreciable life, so
      even though the assets are still in use, there is no further depreciation
      expense that can be taken on the assets.

      Selling, general and administration expenses decreased $537, or 0.1%, for
      the six-month period ended June 30, 2004, when compared to the same
      six-month period in 2003. The referenced expenses were almost identical
      when comparing the two six-


                                       15
<PAGE>

      month periods, although wage and benefit costs did increase during the
      six-month period ended June 30, 2004. Some of the decrease in corporate
      expenses resulted from the timing of consulting and professional work, and
      it is anticipated that these expenses will be incurred in the remaining
      six months of the year.

      OPERATING INCOME

      The net result of the operating revenue and operating expenses was a
      increase of $43,028, or 9.4%, in operating income for the six-month period
      ended June 30, 2004, when compared to the same six-month period in 2003.

      OTHER INCOME (EXPENSE)

      Other income (expense) increased $194,308, or 43.5%, during the six-month
      period ended June 30, 2004, when compared to the same six-month period in
      2003. The increase was mainly attributable to three items. The first item
      is interest and dividend income, which increased $45,115, or 39.0%, when
      comparing the six-month period ended June 30, 2004, to the six-month
      period ended June 30, 2003. The increase in interest and dividend income
      was due to the increased investments in both temporary investments and
      marketable securities on which Breda generates interest income. Breda also
      reported $26,168 of National Rural Telecommunications Cooperative
      patronage capital as interest and dividend income during the six-month
      period ended June 30, 2004. There was no corresponding entry during the
      six-month period ended June 30, 2003.

      The second item is income from equity investments, which increased
      $223,695, or 55.0%, during the six-month period ended June 30, 2004, when
      compared to the same six-month period in 2003. The income from equity
      investments reported on Breda's financial statements is Breda's pro-rata
      share of the net income or net loss of each equity investment, based on
      Breda's percentage of ownership in each equity investment. The increase in
      equity investments reported on Breda's income statement for the six-month
      period ended June 30, 2004 is a reflection of the net increases and
      decreases in the net operating income of Breda's equity investments. Most
      of Breda's equity investments are in cellular partnerships. The cellular
      partnerships have been under market pressure from carriers such as AT&T,
      Sprint and Verizon, to renegotiate their roaming contracts at lower rates.
      As a result, the cellular partnerships making up Breda's equity
      investments are receiving less roaming revenue, even though the number of
      customers and the minutes of use have increased. Breda anticipates that
      these downward marketing pressures on roaming rates will continue for the
      foreseeable future.

      The third item is a $75,000 loss on a note receivable, which was recorded
      during the six-month period ended June 30, 2004, and for which there was
      no corresponding loss during the six-month period ended June 30, 2003.
      Breda determined that its investment in Desktop Media, LLC, which is
      evidenced by a note receivable on Breda's balance sheet, should be
      reviewed, and subsequently recorded an allowance and loss on this


                                       16
<PAGE>

      note receivable in the approximate amount of the principal payments that
      Breda has not received during the twelve-month period of 2003 and the
      first six months of 2004.

      INCOME BEFORE INCOME TAXES

      Income before income taxes increased $237,336, or 26.2%, for the six-month
      period ended June 30, 2004, when compared to the six-month period ended
      June 30, 2003. The $237,336 increase was the result of a $43,028 increase
      in operating income and a $194,308 increase in other income (expense).

      NET INCOME

      Income taxes increased $65,261, or 19.0%, for the six-month period ended
      June 30, 2004, when compared to the same period in 2003. The increase is a
      direct reflection of the increased income generated in the six-month
      period ended June 30, 2004. The effective tax rate in 2004 was 35.8%,
      versus 38.0% in 2003. The effective tax rate differs from the U.S.
      statutory rate due to state income taxes, and the proportion of
      investments with state tax exemptions.

      Net income increased $172,075, or 30.6%, for the six-month period ended
      June 30, 2004, when compared to the same period in 2003.

      Liquidity and Capital Resources at Twelve-months ended December 31, 2003

      Cash Flows

      Cash flows from operations were a steady source of funds for Breda in
      2003. Cash provided from operations was $2,414,760 in 2003. The cash flows
      from operations in 2003 were primarily attributable to a positive net
      income of $1,189,506, plus the addition of non-cash expenses of $1,382,873
      from depreciation, amortization, deferred income taxes, note receivable
      discount, and amortization of investment tax credits, which were then
      offset by $362,616 (net of cash distributions received of $676,786) of
      non-cash, equity income in unconsolidated affiliates. The net decrease in
      assets and liabilities of $204,997 was also added to net income to
      generate the net cash provided by operating activities of $2,414,760.

      Cash used in investing activities was $1,617,133 in 2003, and capital
      expenditures relating to ongoing business were $1,008,124 in 2003. A
      building was purchased for the relocation of Breda's and BTC, Inc.'s
      Carroll, Iowa services and operations for $246,000 in January 2003. Breda
      received $160,000 in February 2003 as an early payoff of a building
      contract note receivable. Breda's capital expenditures in 2003 were at a
      similar level to those made in 2002, after exclusion of the building
      purchase of $246,000. Capital used in investing activities in 2003
      included an additional $125,500 investment in RSA #1, Ltd. by Prairie
      Telephone in November 2003.


                                       17
<PAGE>

      Cash used in financing activities was $624,811 in 2003. Breda used cash in
      2003 to repay $134,981 of borrowings from the RTFC, to redeem common stock
      for $391,394, and to pay dividends of $98,436. Breda funds the redemption
      of its stock from cash flows from operations. Breda redeemed 1,306 shares
      during 2003.

      Working Capital

      Working capital was $1,839,172 as of December 31, 2003, compared to
      working capital of $1,950,070 as of December 31, 2002. The ratio of
      current assets to current liabilities was 4.0 to 1.0 as of December 31,
      2003, as compared to 3.6 to 1.0 as of December 31, 2002.

      Breda had a $228,418 decrease in current assets during the twelve-month
      period ended December 31, 2003, when compared to the twelve months ended
      December 31, 2002. The decrease in current assets was mainly attributable
      to a $75,300 increase in cash and temporary investments, which was offset
      by a $272,126 decrease in accounts receivable. Customer accounts
      receivable as of December 31, 2003 were comparable to customer accounts
      receivable as of December 31, 2002. The $272,126 decrease in accounts
      receivable was mainly attributable to a $201,897 reduction in the amount
      of outstanding payments due to Breda from interexchange carriers, and a
      decrease of $65,357 in the commissions due to Breda under its agency
      contract with U.S. Cellular.

      Noncurrent assets, which mainly consist of longer-term investments,
      increased $1,107,819 during the twelve-month period ended December 31,
      2003, when compared to the year ended December 31, 2002. Long term
      investments increased $791,778 during the twelve-month period ended
      December 31, 2003, when compared to the twelve months ended December 31,
      2002. Prairie Telephone loaned $500,000 to Desktop Media, L.L.C. on May 2,
      2001. The note is shown net of unamortized discounts of $16,866 and
      $31,208 at, respectively, December 31, 2003 and December 31, 2002.
      $291,134 is included in long-term note receivables, and $144,000 of the
      note is included in short-term note receivables as of December 31, 2003.
      (As previously noted, Breda recorded an allowance and loss of $75,000 on
      this note receivable during the six month period ended June 30, 2004.)
      Investments in unconsolidated affiliates at equity increased $488,116 for
      the twelve-month period ended December 31, 2003, when compared to the
      twelve months ended December 31, 2002. The increase represents Breda's pro
      rata share of the net income or net loss of each equity investment, based
      on Breda's percentage of ownership in each equity investment during the
      twelve-month period ended December 31, 2003.

      Tele-Services entered into a five-year contract with Toyne, Inc. in
      September 2001, pursuant to which Tele-Services sold its corporate
      building to Toyne, Inc. for $200,000. Tele-Services received a cash
      payment on October 1, 2002, and the remaining $160,000 balance was shown
      as $140,000 in long-term note receivables and $20,000 in short-term note
      receivables on Breda's balance sheet as of December 31, 2002. The $160,000
      balance was paid in full on February 14, 2003.


                                       18
<PAGE>

      Current liabilities decreased $117,519 for the twelve-month period ended
      December 31, 2003, when compared to the twelve months ended December 31,
      2002. Accounts payable decreased $29,077. A $3.00 per share dividend, for
      an aggregate amount of $98,436, was declared by Breda's board of directors
      to shareholders of record on March 10, 2003, and the dividend was paid on
      April 1, 2003. Accrued taxes decreased $60,487 for the twelve-month period
      ended December 31, 2003, when compared to the twelve months ended December
      31, 2002.

      Common stock had a net increase of $363,282 during the twelve-month period
      ended December 31, 2003, when compared to the twelve months ended December
      31, 2002. This increase resulted primarily from two items. One was the $23
      per share increase in outstanding shares value on May 20, 2003, and the
      other was a decrease in the number of outstanding shares through the
      redemption of 1,306 shares of common stock by Breda during the twelve
      month period ended December 31, 2003. The increase in retained earnings of
      $336,394 during the twelve month period ended December 31, 2003, when
      compared to the twelve months ended December 31, 2002, is the net effect
      of the stated value stock adjustment of $754,676, the dividends paid in
      2003 of $98,436, and the year-to-date net income as of December 31, 2003
      of $1,189,506.

      Liquidity and Capital Resources at Six-months ended June 30, 2004

      Cash Flows

      Cash provided from operations for the six-month periods ended June 30,
      2004 and June 30, 2003, was, respectively, $907,526 and $1,049,713. The
      cash flows from operations for the six-month period ended June 30, 2004
      were primarily attributable to a positive net income of $734,596, plus the
      addition of non-cash expenses such as depreciation, amortization, deferred
      income taxes, note receivable discount, loss on note receivable, and
      amortization of investment tax credits totaling $624,031, which were then
      offset by $431,632 of non-cash, equity income in unconsolidated
      affiliates. The net negative change in assets and liabilities of $19,469
      was also added to net income. The cash flows from operations for the
      six-month period ended June 30, 2003 were primarily attributable to a
      positive net income of $562,521, plus the addition of non-cash expenses
      such as depreciation, amortization, deferred income taxes, note receivable
      discount, and amortization of investment tax credits totaling $556,293,
      which were then offset by $161,360 of non-cash, equity income in
      unconsolidated affiliates. The net positive changes in assets and
      liabilities of $92,259 were also added to net income.

      Cash used in investing activities was $829,988 for the six-month period
      ended June 30, 2004, and $642,534 for the six-month period ended June 30,
      2003. Capital expenditures relating to ongoing business were $329,894 for
      the six-month period ended June 30, 2004, and $753,916 for the six-month
      period ended June 30, 2003. A building was purchased for the relocation of
      Breda's and BTC, Inc.'s Carroll, Iowa services and operations for $246,000
      in January 2003. As noted previously, Breda received $160,000 in February
      2003, as an early payoff of a building contract note


                                       19
<PAGE>

      receivable. Breda expects capital expenditures in 2004 to be at similar
      levels to those made in 2003.

      Breda advanced an additional $45,307 on its notes receivable to Desktop
      Media, LLC during the six-month period ended June 30, 2004. Breda also
      received payment on the outstanding note receivable of $24,000 during the
      six-month period ended June 30, 2004. Principal payments on the note
      receivable of $24,000 had also been made during the six-month period ended
      June 30, 2003.

      Cash used in financing activities was $320,453 for the six-month period
      ended June 30, 2004, and $435,311 for the six-month period ended June 30,
      2003. During the six-month period ended June 30, 2004, cash was used to
      repay $70,903 of long term debt, to pay dividends to the shareholders of
      $94,479, and to redeem common stock for $155,071. During the six-month
      period ended June 30, 2003, cash was used to repay $66,378 of long-term
      debt, to pay dividends to the shareholders of $98,436, and to redeem
      common stock for $270,497. Breda funds the redemption of its stock from
      cash flows from operations.

      Working Capital

      Working capital was $1,584,389 as of June 30, 2004, compared to working
      capital of $1,839,172 as of December 31, 2003. The ratio of current assets
      to current liabilities was 3.5 to 1.0 as of June 30, 2004, and 4.0 to 1.0
      as of December 31, 2003.

      Breda had a $247,154 decrease in current assets during the six-month
      period ended June 30, 2004, when compared to the year ended December 31,
      2003. The decrease in current assets was mainly attributable to a $168,249
      decrease in cash and temporary investments and a $50,759 decrease in
      accounts receivable. There was a corresponding $410,827 increase in
      long-term investments. Customer accounts receivable as of June 30, 2004
      were comparable to customer accounts receivable as of December 31, 2003.
      The $50,759 decrease in accounts receivable was mainly attributable to the
      decreased amounts owed to Breda and its subsidiaries from interexchange
      carriers for the use of Breda's networks to carry the interexchange
      carrier traffic to Breda's end users.

      Noncurrent assets, which mainly consist of longer-term investments,
      increased $862,824 during the six-month period ended June 30, 2004, when
      compared to the year ended December 31, 2003. Prairie Telephone loaned
      $500,000 to Desktop Media, L.L.C. on May 2, 2001. This note is shown net
      of unamortized discounts of $11,102 and $16,866, respectively, June 30,
      2004 and December 31, 2003, and an allowance of $75,000 as of June 30,
      2004. $318,205 is included in long-term note receivables, and $69,000 is
      included in short-term note receivables as of June 30, 2004.

      Investments in unconsolidated affiliates at equity increased $431,632 for
      the six-month period ended June 30, 2004, when compared to the year ended
      December 31, 2003. This increase represents Breda's pro rata share of the
      net income or net loss of each


                                       20
<PAGE>

      equity investment, based on Breda's percentage of ownership in each equity
      investment during the six-month period ended June 30, 2004.

      Current liabilities increased $7,629 for the six-month period ended June
      30, 2004, when compared to the year ended December 31, 2003. Accounts
      payable increased $16,040. A $3.00 per share dividend, for an aggregate
      amount of $94,479, was declared by Breda's board of directors to
      shareholders of record on March 17, 2004, and the dividend was paid on
      April 1, 2004. Accrued taxes increased $45,576 for the six-month period
      ended June 30, 2004, when compared to the year ended December 31, 2003.
      The increase was caused by the increase in accruals for federal and state
      income taxes as of June 30, 2004. Breda had federal and state income tax
      overpayments recorded as of June 30, 2003, which reduced Breda's overall
      accrued taxes liability as of June 30, 2003.

      Common stock had a net increase of $569,222 during the six-month period
      ended June 30, 2004, when compared to the year ended December 31, 2003.
      The increase resulted from the decrease in the number of outstanding
      shares through the redemption of 490 shares of common stock at an
      aggregate redemption price of $155,071, and the restatement of the
      outstanding shares of stock on May 18, 2004 to a per share price of $326,
      or a total adjustment of $724,293. The prior redemption value had been
      $303 per share. The decrease of $84,176 in retained earnings during the
      six-month period ended June 30, 2004, when compared to the year ended
      December 31, 2003, is the net effect of the $94,479 in dividends paid on
      April 1, 2004, the year-to-date net income as of June 30, 2004 of
      $734,596, and the $724,293 stated value stock adjustment for the
      outstanding shares on May 18, 2004.

      Breda anticipates that Breda's operational, investing and financing
      activities during the remainder of 2004 will be similar to 2003, and will
      be funded internally through operations and temporary investments.

      Three-months ended June 30, 2004 Compared to Three-months ended June 30,
      2003

      NET INCOME

      Consolidated net income for the three-month period ended June 30, 2004 was
      $406,005, which was a $200,911, or 98.0%, increase when compared to the
      $205,094 of consolidated net income for the three-month period ended June
      30, 2003.

      The $200,911 increase in net income resulted from the following three
      factors:

            1)    Consolidated operating income, which is Operating Revenues
                  less Operating Expenses, generated from the local exchange
                  carrier segment, the broadcast services segment, and the
                  Internet service provider segment, increased $162,505, or
                  87.1%, for the three-month period ended June 30, 2004, when
                  compared to the three-month period ended June 30, 2003.


                                       21
<PAGE>

            2)    Other income (expense), which includes items such as interest
                  and dividend income, income from equity investments, interest
                  expense, and gains (losses) on the sale of investments and
                  property, increased $163,502, or 116.2%, for the three-month
                  period ended June 30, 2004, when compared to the three-month
                  period ended June 30, 2003.

            3)    Income taxes increased $125,096, or 102.4%, for the
                  three-month period ended June 30, 2004, when compared to the
                  three-month period ended June 30, 2003.

      OPERATING REVENUES

      There was an increase in total operating revenues for the three-month
      period ended June 30, 2004, when compared to the three-month period ended
      June 30, 2003, of $194,117, or 12.8%. The segments making up total
      operating revenues and their contributions to the $194,117 increase
      between the two periods are as follows: local exchange carrier services -
      $211,652; broadcast services - ($14,368); and Internet service provider
      services - ($3,167).

      Local Exchange Carrier Services - $211,652

      Local exchange carrier services revenue accounted for 78.4% of the
      operating revenue in the three-month period ended June 30, 2004. The
      components of and their contributions to the $211,652 increase in local
      exchange carrier services revenue for the three-months ended June 30,
      2004, when compared to the three-months ended June 30, 2003 are as
      follows: local network services - $38,168; network access services -
      $156,935; long distance services - $19,803; billing and collection
      services - $431; cellular services - $4,269; and miscellaneous - ($7,954).

      Local network services increased 26.6% and network access services
      revenues increased 26.0% in the three-month period ended June 30, 2004,
      when compared to the three-month period ended June 30, 2003. The increase
      in local network services revenue and a portion of the increase in network
      access services revenue were the result of new customers in the Carroll,
      Iowa market area which were generated by BTC, Inc. after BTC, Inc. began
      offering local exchange carrier services in the Carroll, Iowa market area
      in October 2003. Breda also received a one-time, 24-month, line haul
      adjustment in the amount of $148,362 from the National Exchange Carrier
      Association in May 2004. NECA administers the FCC mandated pooling
      processes, and this adjustment was to incorporate a lease agreement that
      Breda had in place with another independent telephone company to haul
      traffic during that time period. Breda anticipates continuing to receive
      additional NECA pooling compensation because of this lease on a monthly
      basis. Breda estimates the increased compensation will be approximately
      $6,000 per month.


                                       22
<PAGE>

      Breda has not experienced an adverse effect from the implementation in
      2003 of different methodologies for the support payment funding regulated
      by the FCC.

      Breda has had lower access revenues in both 2003 and 2004 because Qwest no
      longer pays access revenue for traffic originating with a wireless carrier
      that uses Qwest to deliver the traffic back to a number served by local
      exchange carriers, such as Breda, Prairie Telephone, and Westside
      Independent, who participate in the use of the switching and network
      facilities offered by Iowa Network Services.

      Access charges constitute a substantial part of Breda's, Prairie
      Telephone's and Westside Independent's revenues, and a material risk to
      them arises from the regulation of access charge rates and universal
      service funding by the FCC. Breda anticipates continuing pressure for the
      lowering of state and federal access charge rates, so future reductions in
      access charge rates are likely, along with the potential restructuring of
      universal service funding.

      Breda's long distance services revenue continues to grow because of the
      increase in its customer base for those services. Breda believes that long
      distance services should continue to be a growth area for Breda in 2004 as
      Breda continues to market this service as both a stand-alone service and
      as part of a package with other services, such as Internet services. The
      three-month period ended June 30, 2004 reflected a $19,803, or 71.2%,
      increase in long distance services revenues when compared to the
      three-month period ended June 30, 2003. The increase is a direct
      reflection of the 67.3% increase in Breda's long distance customer base,
      which has mainly resulted from new customers taking this service as part
      of a bundled service package which includes local exchange carrier
      services and Internet service provider services in the Carroll, Iowa
      exchange area.

      The $4,269, or 1.5%, increase in cellular sales revenue for the
      three-month period ended June 30, 2004, when compared to the three-month
      period June 30, 2003, reflects increased equipment and services being
      purchased from the roll-out of new data and video options on the cellular
      equipment and service offerings. Breda's overall customer volume for new
      contracts and retention contracts was less than during the three-month
      period ended June 30, 2003. Breda began offering two-year contracts,
      instead of one-year contracts, in August 2002, when U.S. Cellular revamped
      its commission structure to encourage two-year contracts. Breda generates
      retention commissions when a customer extends the term of the customer's
      existing cellular services contract or enters into a new contract to
      continue the customer's cellular services. The customers with one-year
      contracts expiring in 2003 continued to generate retention contracts, but
      those contracts and other new contracts are now on a two-year term. Breda
      will accordingly experience a time gap between when customers would
      normally be entering new contracts if they had one-year contracts versus
      when they would enter into new contracts if they had two-year contracts.
      The change in contract length has therefore caused a delay in new contract
      sign-up for retentionable contracts. Customers may migrate to new
      contracts without penalty once they have fulfilled eighty percent of the
      original contract term, so the first customers obtaining two-year
      contracts in 2002 will


                                       23
<PAGE>

      be eligible for new contracts beginning in May and June of 2004. Breda is
      beginning to see its retention commissions increasing back to its
      customary level.

      Miscellaneous revenue decreased $7,954, or 12.0%, for the three-month
      period ended June 30, 2004, when compared to the three-month period ended
      June 30, 2003. The decrease in miscellaneous revenue mainly arose from the
      fact that BTC, Inc. received a Qwest refund on co-location expenditures of
      approximately $28,229 during the second quarter of 2003. There was no
      corresponding entry for the three-month period ended June 30, 2004.

      Broadcast Services ($14,368)

      Broadcast services revenue decreased $14,368, or 6.3%, for the three-month
      period ended June 30, 2004, when compared to the three-month period ended
      June 30, 2003. Breda's subsidiary, Tele-Services, Ltd., continues to face
      competition from satellite providers that can now include local channels
      in their package offerings. Tele-Services, Ltd experienced a 8.2% decrease
      in its customer base when comparing the three-month period ended June 30,
      2004, to the three-month period ended June 30, 2003. Another factor faced
      by Tele-Services is the declining population base in the small rural
      communities served by Tele-Services, which adversely affects
      Tele-Services' current and prospective customer base. Tele-Services has
      combined head-ends in Breda, Arcadia, and Westside in order to reduce its
      operating costs through consolidation of equipment and maintenance costs.
      Breda is continuing to explore other consolidation opportunities in the
      other 16 communities which are served by Tele-Services. Tele-Services
      finalized the addition of channels in many of the 19 communities served by
      Tele-Services during the three-month period ended June 30, 2004, and has
      also implemented the corresponding rate increases during the three-month
      period ended June 30, 2004. Local channels have been added to six
      additional communities and Breda hopes to generate customer loyalty
      through this avenue of information on local community events, as well as
      the weather, and local news. Breda is also implementing paid advertising
      opportunities for businesses and individuals on the local channels in the
      communities that have the local channels.

      Internet Services ($3,167)

      Internet services revenue decreased $3,167, or 2.0%, for the three-month
      period ended June 30, 2004, when compared to the three-month period ended
      June 30, 2003. The decrease in revenue is directly attributable to the
      decrease in BTC Inc.'s Internet service customer base, which decrease is
      the result of the intense competition by multiple suppliers in the
      Carroll, Iowa, market area. Breda began bundling Internet services with
      long distance services and lowered its pricing of the Internet services in
      2001 in response to competitive pressures. Breda has continued with these
      programs in 2003 and 2004. The programs have, however, resulted in reduced
      Internet services revenues in both 2003 and 2004 given the lower pricing
      by Breda for Internet services under those programs. Breda is gaining
      high-speed Internet customers due to the October, 2003 start-up of BTC,
      Inc.'s local exchange carrier services in the Carroll Iowa area


                                       24
<PAGE>

      because BTC, Inc. is offering bundled services packages that include
      Internet services, as well as local telephone and other communication
      services. The new customers taking bundled services in the Carroll, Iowa
      market area have helped stem the decrease in Internet services revenue
      that Breda had experienced in 2003.

      OPERATING EXPENSES

      There was a increase in total operating expenses of $31,612, or 2.4%, for
      the three-month period ended June 30, 2004, when compared to the
      three-month period ended June 30, 2003. The components making up operating
      expenses are as follows: cost of services, depreciation and amortization,
      and selling, general and administration expenditures.

      Cost of services increased $15,312, or 2.3%, for the three-month period
      ended June 30, 2004, when compared to the three-month period ended June
      30, 2003. While Internet provisioning costs decreased as noted below, all
      other costs, such as utilities, vehicle fuel, payroll, long distance
      provisioning and employee benefits all increased. The long distance
      provisioning costs were volume related since both the customer count and
      long distance services revenue had also increased. Internet costs
      decreased because Breda is no longer dependent on purchasing specialized
      circuits from Qwest in order to provide Internet service in the Carroll,
      Iowa market. As noted previously Breda began offering local exchange
      services in the Carroll, Iowa area through its subsidiary, BTC, Inc., in
      October 2003. In order to provide local exchange service in the Carroll,
      Iowa market, Breda had to install circuits and trunks between the present
      independent local exchange carrier (Qwest) and Breda's switch, to allow
      the completion of calls between these parties. Breda is able to provide
      Internet service to the Carroll, Iowa market over these same trunks, which
      has significantly reduced Breda's underlying circuit cost to provide
      Internet service.

      Depreciation and amortization expense increased $13,968, or 5.7%, for the
      three-month period ended June 30, 2004, when compared to the three-month
      period ended June 30, 2003. The increase is attributable to the capital
      investments in plant to provide the new service offerings in the Carroll,
      Iowa market, which are now being depreciated. There were no corresponding
      expenses for the three-month period ended June 30, 2003, because Breda
      commenced these operations in October 2003.

      Selling, general and administration expenses increased $2,332, or 0.5%,
      for the three-month period ended June 30, 2004, when compared to the same
      three-month period in 2003. While individual components of these expenses
      such as professional fees, and advertising fees showed timing and new
      services variations, the overall expenses were almost identical when
      comparing the two three-month periods.


                                       25
<PAGE>

      OPERATING INCOME

      The net result of the operating revenue and operating expenses was a
      increase of $162,505, or 87.1%, in operating income for the three-month
      period ended June 30, 2004, when compared to the same three-month period
      in 2003.

      OTHER INCOME (EXPENSE)

      Other income (expense) increased $163,502, or 116.2%, during the
      three-month period ended June 30, 2004, when compared to the same
      three-month period in 2003. The increase was mainly attributable to three
      items. The first item is interest and dividend income, which increased
      $44,159, or 74.7%, when comparing the three-month period ended June 30,
      2004, to the three-month period ended June 30, 2003. The increase in
      interest and dividend income was due to the increased investments in both
      temporary investments and marketable securities on which Breda is able to
      generate interest income. Breda also reported $26,168 of National Rural
      Telecommunications Cooperative patronage capital as interest and dividend
      income during the three-month period ended June 30, 2004. There was no
      corresponding entry during the three-month period ended June 30, 2003.

      The second item is income from equity investments, which increased
      $196,444, or 165.2%, during the three-month period ended June 30, 2004,
      when compared to the same three-month period in 2003. The income from
      equity investments reported on Breda's financial statements is Breda's
      pro-rata share of the net income or net loss of each equity investment,
      based on Breda's percentage of ownership in each equity investment. The
      increase in equity investments reported on Breda's income statement for
      the three-month period ended June 30, 2004 is a reflection of the net
      increases and decreases in the net operating income of Breda's equity
      investments. Most of Breda's equity investments are in cellular
      partnerships, which have been under market pressure from carriers such as
      AT&T, Sprint and Verizon, to renegotiate their roaming contracts at lower
      rates. As a result, the partnership investments making up Breda's equity
      investments are receiving less roaming revenue, even though the number of
      customers and the minutes of use have increased. Breda anticipates that
      these downward marketing pressures on roaming rates will continue for the
      foreseeable future.

      The third item is a $75,000 loss on a note receivable, which was recorded
      during the three-month period ended June 30, 2004, and for which there was
      no corresponding loss during the three-month period ended June 30, 2003.
      Breda reviewed its investment in Desktop Media, LLC, which is evidenced by
      a note receivable on Breda's balance sheet, and recorded an allowance and
      loss on this note receivable in the approximate amount of the principal
      payments that Breda has not received during the twelve-month period ended
      December 31, 2004, and the six-month period ended June 30, 2004.

      INCOME BEFORE INCOME TAXES

      Income before income taxes increased $326,007, or 99.6% for the
      three-month period ended June 30, 2004, when compared to the three-month
      period ended June 30, 2003.


                                       26
<PAGE>

      The $326,007 increase was the result of the $162,505 increase in operating
      income and the $163,502 increase in other income (expense).

      NET INCOME

      Income taxes increased $125,096, or 102.4%, for the three-month period
      ended June 30, 2004, when compared to the same period in 2003. The
      increase is a direct reflection of the increased income generated in the
      three-month period ended June 30, 2004. The effective tax rate in 2004 was
      37.9%, versus 37.3% in 2003. The effective tax rate differs from the U.S.
      statutory rate due to state income taxes, and the proportion of
      investments with state tax exemptions.

      Net income increased $200,911, or 98.0%, for the three-month period ended
      June 30, 2004, when compared to the same three-month period in 2003.

      Other Activities and Issues

      Breda received notification from the FBI on April 15, 2003 that the FBI
      would grant Breda, Prairie Telephone and Westside Independent an extension
      until June 30, 2004 for certain of their remaining deployment schedules
      under the Communications Assistance For Law Enforcement Act. The FCC
      decides whether or not to grant any such extension. In response to the
      FBI's Fourth Edition of the Flexible Deployment Assistance Guide on June
      15, 2004, Breda, Prairie and Westside Independent each submitted a Fourth
      Edition template for deployment and a request for extension until June 30,
      2006 for the J Standard and Punch List. Breda, Prairie and Westside
      Independent each also filed a copy of their Fourth Edition Flexible
      Assistance Deployment Guide filing, made with the FBI, with the FCC. While
      the FBI has acknowledged receipt of the Fourth Edition Template and the
      request for extension until June 30, 2006, no other response has been
      received from the FBI as of the date of this filing. Breda contemplates
      that the FCC will approve the FBI's determination or that additional time
      will otherwise be granted by the FCC, if necessary. BTC, Inc. receives its
      switching services from Breda, and is covered under the deployment
      schedule extension for Breda's switch. The Communications Assistance for
      Law Enforcement Act was passed by Congress in 1994 and sets forth the
      assistance capabilities that telecommunications carriers need to maintain
      so that they can support law enforcement in the conduct of lawfully
      authorized electronic surveillance. Breda, Prairie Telephone, Westside
      Independent and BTC, Inc. have been granted various extensions for
      compliance with the various requirements of that Act. Breda has licensed
      software that will allow it to become compliant with the Act within a
      short period of time should the FBI make a request for support.

      Another industry issue that could have future, significant ramifications
      for Breda and its subsidiaries is number portability requirements. Number
      portability provides residential and business telephone customers with the
      ability to retain their existing telephone numbers when switching from one
      telephone service provider to another. Congress enacted the
      Telecommunications Act of 1996 to establish a national framework that


                                       27
<PAGE>

      promotes competition and reduces regulation in the telecommunications
      markets. The Act requires that local exchange carriers, such as Breda and
      Breda's telephone-related subsidiaries, open up their networks to local
      competition. The Act imposed new obligations and responsibilities on
      telecommunications carriers, particularly incumbent local exchange
      carriers. Number portability was one of the obligations that the Act
      imposed on all local exchange carriers, and the Act required the FCC to
      promulgate rules to implement the number portability requirements. The
      number portability requirements are viewed as consistent with the purposes
      of the Act because consumers might be reluctant to switch local exchange
      carriers if they have to change their telephone number, so number
      portability is viewed as facilitating competition.

      The FCC's rules obligate incumbent local exchange carriers, such as Breda,
      Prairie Telephone and Westside Independent, to port numbers when the
      carrier receives a specific request from another telecommunications
      carrier (wireline or wireless) for number portability capability. The
      rules give incumbent local exchange carriers a maximum period of 180 days
      to implement number portability capability following receipt of a request,
      with the actual permissible time period dependent on the extent of the
      upgrades required to their switch in order to be able to provide number
      portability.

      An incumbent local exchange carrier's number portability obligations were
      initially centered on responding to porting requests from other wireline
      carriers. In late 2003, however, the FCC released a Memorandum Opinion and
      Order and Further Notice of Rulemaking, which clarified the circumstances
      under which its number portability rules apply to requests from wireless
      carriers. The determination of when an incumbent local exchange carrier
      must comply with a request for number portability from a wireless carrier
      depends upon the timing of the request, the type of carrier involved and
      whether the carrier is located within one of the 100 largest metropolitan
      statistical areas. The FCC's Memorandum Opinion and Order required or
      clarified that: a) as of November 24, 2003, wireline carriers that have
      received a request to port numbers in one of the 100 largest metropolitan
      statistical areas must port numbers to wireless carriers where the
      requesting wireless carrier's "coverage area" overlaps the geographic
      location of the rate center in which the customer's wireline number is
      provisioned, thus clarifying that the requesting wireless carrier does not
      need to have a point of interconnection in the wireline local exchange
      carrier rate center; b) the porting-in (wireless) carrier must maintain
      the number's original rate center designation following the port so that
      the calls to the ported number will continue to be rated as they were
      prior to porting; c) defined the wireless "coverage area" as the area in
      which wireless service can be received from the wireless carrier; d)
      wireline carriers may not require wireless carriers to enter into
      interconnection agreements as a precondition to porting between carriers;
      e) wireline carriers operating outside the 100 largest metropolitan
      statistical areas are not required to port numbers to wireless carriers
      until May 24, 2004 or six months after receipt of a porting request from
      another carrier, whichever is later, which is the earliest date that
      wireless carriers serving these areas are required to implement number
      portability; f) wireline carriers (both inside and outside of the 100
      largest metropolitan statistical areas) may file petitions with the FCC or
      the state public utility board for a waiver of their obligation to port
      numbers to wireless carriers if they can provide


                                       28
<PAGE>

      credible evidence demonstrating that porting is not technically feasible.

      The Iowa Utilities Board filed comments with the FCC in the matter of
      "Telephone Number Portability, CTIA's Petitions for Declaratory Ruling" on
      February 4, 2004. In their comments, the IUB expressed concern regarding
      the recovery of nonrecurring and recurring costs associated with providing
      wireless porting, especially for Iowa's rural exchanges where the access
      line counts are small. Prior to that time, various industry organizations
      cooperated in the filing of an "Emergency Joint Petition for Partial Stay
      and Clarification" with the FCC. The Petition asked the FCC not to enforce
      its wireless-wireline number portability order for companies that serve
      less than 2% of the nation's subscriber lines.

      On February 18, 2004, two Iowa industry associations, the Iowa Telecom
      Association and the Rural Iowa Independent Telephone Association, filed a
      petition with the IUB that requested a waiver of modification of the
      intermodal local number portability rules on behalf of all 2% carriers in
      Iowa. Generally speaking, "intermodal number portability" is the ability
      to port telephone numbers between wireline and wireless telecommunications
      service providers. Breda, Prairie Telephone and Westside Independent had
      requested these associations to include Breda, Prairie Telephone and
      Westside Independent in these joint filings. On April 23, 2004, the IUB
      issued a temporary suspension of local number portability compliance for
      participants in the joint petition filed by the Iowa Telecom Association
      and the Rural Iowa Independent Telephone Association until a final
      decision is reached by the IUB in early October 2004. While Breda, Prairie
      Telephone, Westside Independent and the other independent telephone
      companies that opted to participate in the ITA-RIITA docket have received
      a 180-day temporary suspension from the LNP requirements originally
      mandated by May 24, 2004, the IUB issued an order on July 23, 2004
      requiring all participating companies to provide company-specific
      information on LNP costs regarding the number of customers, the cost of
      LNP implementation, and expected cost per customer that would be reflected
      in the local number portability cost-recovery charge authorized by the
      FCC. The independent telephone companies participating in the ITA-RIITA
      docket, which includes Breda, Prairie Telephone and Westside Independent,
      were required to submit their individualized data to the ITA and RIITA by
      July 30, 2004, for filing with the IUB in advance of the August 10, 2004,
      hearing on the matter. The IUB could grant a suspension or modification of
      the LNP requirements on a company by company basis based on a) avoiding a
      significant adverse economic impact on users of telecommunications
      services generally, b) avoiding imposing a requirement that is unduly
      economically burdensome; c) avoiding imposing a requirement that is
      technically infeasible; or d) avoiding imposing a requirement that is
      inconsistent with the public interest, convenience, and necessity.

      If one of the wireless carriers who has intervened and participated in
      this docket can demonstrate circumstances that support lifting of the
      temporary stay of these requirements for an individual company, the IUB
      would consider removing the stay on a company-by-company basis.


                                       29
<PAGE>

      Breda has already received requests for number portability from wireless
      carriers in Breda's wireline service areas. The most recent requests from
      wireless carriers do appear to meet the FCC's rules for a bona fide
      request. Breda is continuing to work with consultants and others within
      the industry to determine the needed facility upgrades and to finalize the
      costs associated with implementing number portability so that it will be
      able to comply with the regulatory directives regarding number portability
      as they continue to be established and clarified.

      In 2003, Qwest began minute-of-use studies with the twenty companies in
      Iowa which had the highest number of intrastate minutes being billed to
      Qwest. Breda was one of those twenty companies. Based on discussions and
      research in October 2003 with Qwest and INS (which submits minutes of use
      information to Breda for billing purposes), it was determined that Qwest
      had not routed some of its traffic according to the Local Exchange Routing
      Guide because Qwest had routed some of its traffic to Breda's switch that
      should, instead, have been routed to a cellular switch. Qwest is now
      routing that traffic to the appropriate cellular switches. Breda estimates
      that it will lose approximately $200,000 per year of intrastate access
      revenue from Qwest in future years because of this routing change. Breda
      is not currently aware of any plans to make any retroactive adjustments to
      Breda's intrastate access revenues from Qwest based upon the results of
      the Qwest study.

      The regulation of access charge rates is an area of particular concern to
      Breda because a substantial amount of Breda's total consolidated revenues
      are derived from access charge revenues. Breda, Prairie Telephone,
      Westside Independent and BTC, Inc. receive access charge revenues from
      long distance carriers (sometimes referred to in the telephone industry as
      "inter-exchange carriers" or "IXCs") for providing intrastate and
      interstate exchange services to those long distance carriers. In more
      basic terms, they receive access charge revenues for originating and
      terminating long distance calls made by their subscribers. The access
      charge rate that can be charged for interstate long distance calls is
      determined by the FCC. The FCC can change those rates at any time, and the
      more recent changes have lowered access charge rates.

      Concerns had also been raised on the state level by the Iowa Legislature
      as well as the Iowa Utility Board regarding intra-state rates, and whether
      alternative intrastate inter-carrier compensation mechanisms should be
      investigated. A joint task force comprised of representatives from the
      Iowa Telecom Association and the Rural Iowa Independent Telephone
      Association, was formed in the spring of 2003 to compile data from the
      local telephone companies, such as Breda, in order to document and study
      the cost of access and make recommendations regarding Iowa access rates.
      Two industry, consulting firms joined this task force and the committee
      looked at not only the justification of the present intra-state access
      rates received by local telephone companies, but also looked at other
      revenue recovery alternatives.

      As of May 2004, the joint task force had completed its initial study and
      found that the overall results showed costs both higher and lower than the
      current intra-state access rates, and that the cost per minute for the
      intrastate access fell within a range of 2 cents


                                       30
<PAGE>

      to 16 cents. The task force is continuing to study specific results and
      impacts from not having data from 38 Iowa companies, and the fact that
      declining minutes of use will increase the average cost. The joint task
      force has been holding regional meetings and conferences to educate and
      present its information to the ITA and RIITA members on the issues and
      elements of their recommendation, and then plans to develop a final
      recommendation. Since access charge revenues constitute a substantial
      portion of Breda's total consolidated revenues, this is an area of
      material risk to Breda and its subsidiaries.

      Breda does not believe that any increase in intra-state access rates will
      be recommended by the task force and that, at best, intra-state access
      rates will stay the same. It is also possible, however, that intra-state
      access rates will be lowered, and if that occurs, it will have a negative
      impact on Breda's operating income. Breda does not believe, however, that
      it is possible to predict at this time whether intra-state access rates
      will be lowered, or if intrastate access rates are lowered, the amount of
      the decrease in those rates. It is therefore uncertain at this time
      whether this issue will result in an adverse effect on Breda's operating
      income. Breda anticipates continuing pressure for the lowering of both
      state and federal access charge rates.

      Another revenue recovery issue present in the industry since April 1999
      has been the nonpayment of access revenue by wireless carriers on traffic
      originating and terminating within the same major trading area (intraMTA).
      Breda and other local exchange carriers have not received payment for the
      termination of this wireless traffic over their networks to the end user.
      A joint task force of industry representatives and the Iowa Telecom
      Association had been working since the spring of 2003 to negotiate with
      wireless carriers on this issue. In late April 2004, the ITA Wireless
      Termination negotiating committee was successful in reaching an agreement
      with four wireless carriers - U.S. Cellular, Verizon Wireless, Spring PCA
      and Midwest Wireless. The intent of the joint task force had been that any
      independent telephone company who wished to participate in the negotiated
      wireless termination agreements with one of these carriers could "opt in"
      to one of the wireless termination agreements already on file at the IUB.
      In July 2004, the joint negotiating team learned that the wireless
      carriers had rejected the idea of allowing independent phone companies to
      "opt in" to one of the wireless termination agreements already on file at
      the IUB. Breda is presently reviewing the agreements negotiated with the
      wireless carriers to determine if it is beneficial to use part of or all
      of these agreements in Breda's negotiations with these carriers. The model
      agreement would provide compensation on a going forward basis, but past
      compensation is still under negotiation. The contracts provide for
      significantly less revenue per minute, and are reciprocal compensation
      agreements, which are arrangements between the parties in which each of
      the two carriers receives compensation from the other carrier for the
      transport and termination on each carrier's network facilities of IntraMTA
      telecommunications traffic that originates on the network facilities of
      the other carrier.

      A primary source of consolidated revenue is generated from Tele-Services'
      cable business. Tele-Services' operating revenues arise primarily from
      monthly fees for basic


                                       31
<PAGE>

      and premium cable services provided to its cable subscribers.
      Tele-Services' main competition is from satellite dish providers. The FCC
      now allows satellite dish providers to provide local channels, which has
      had an adverse effect on Tele-Services, given that its ability to provide
      local channels was, in the past, one reason subscribers might choose
      Tele-Services' cable services over a satellite dish. Other rulings and
      decisions by the FCC are possible, and may provide satellite dish
      providers, or other providers as changes in the telecommunications and
      cable industry occur, with equal or greater advantages than Tele-Services
      can offer to its subscribers, which could obviously have an adverse effect
      on Tele-Services' business. Changes in the telecommunications and cable
      industry are continually occurring, and technological advances may provide
      Tele-Services subscribers with other options. For example, Iowa Network
      Services is offering cable services in Iowa over existing telephone lines,
      and it is estimated that up to 70 independent telephone companies in
      mostly rural Iowa will be able to offer cable television programming over
      their telephone lines by 2005. This option, and others which might arise
      through other changes or advancements in technology, could have material
      adverse effects on Tele-Services in the future. Tele-Services is also
      faced with a declining population base in its service areas, which results
      in a lower potential customer base for Tele-Services, and with the need to
      upgrade its plant, equipment and cables in order to add more channel
      lineups so that it can stay competitive and continue to be able to obtain
      programming licenses.

      Tele-Services has worked with an engineering firm to look at and work on
      consolidating its head-end equipment with the goal being that the
      equipment will then be able to serve two or more communities, instead of
      just one community, resulting in lower maintenance costs for that
      equipment. Tele-Services did combine the head-ends on two systems into one
      head-end during first quarter 2004, which has allowed three communities to
      be served by one head-end and for these three communities to receive local
      channel services. During the second quarter of 2004, Tele-Services
      completed the upgrading of some of its cable TV systems and the installing
      of additional equipment and electronics to be able to provide more channel
      line-up options. Channel additions were completed in eleven of its
      nineteen communities by May 1, 2004, and Tele-Services completed adding
      channels to three additional communities during the months of May and June
      2004. Rate increases were implemented May 1, 2004 in the communities
      receiving the additional channels by May 1, 2004. Rates increases were
      implemented in the remaining three communities receiving channel additions
      in May and June 2004 on July 1, 2004. The cost of upgrades in 2004, and of
      any continuing or further head-end equipment consolidation, is estimated
      to be less than $300,000.

      Breda expanded its core business of providing local telephone services by
      beginning to offer those services in the Carroll, Iowa market area in
      October of 2003 through BTC, Inc. Prior to that time, BTC, Inc. only
      offered long distance services and Internet services in the Carroll, Iowa
      market area.

      BTC, Inc. is providing local telephone services in the Carroll, Iowa
      market by leasing local loops from the incumbent local exchange carrier in
      that market. The Telecommunications Act of 1996 fundamentally restructured
      local telephone markets


                                       32
<PAGE>

      by ending the monopolies that States historically could grant to local
      exchange carriers and by specifying that local telephone carriers must
      share their networks with competitors. States typically granted an
      exclusive franchise in each local service area to a local exchange
      carrier, which owned, among other things, the local loops (wires
      connecting telephones to switches), the switches (equipment directing
      calls to their destinations), and the transport trunks (wires carrying
      calls between switches) that constitute a local exchange network. A
      requesting carrier can now obtain such shared access by purchasing local
      telephone services at wholesale rates for resale to end-users, by leasing
      elements of the incumbent's network "on an unbundled basis," and by
      interconnecting its own facilities with the incumbent's network. Issues
      regarding the pricing of the unbundled network elements and the
      determination of which elements had to be made available to requesting
      competitors have provided many legal and regulatory challenges since the
      Telecommunications Act of 1996.

      In September 1999, the FCC's adopted rules that specified the portions of
      the nation's local telephone networks that incumbent local telephone
      companies had to make available to competitors seeking to provide local
      telephone service. The FCC's decision removed major uncertainty
      surrounding the unbundling obligations of the Telecommunications Act of
      1996 and was intended to accelerate the development of competitive choices
      in local services for consumers. The cost model that the FCC invented to
      determine what network "costs" and investments would be compensated to the
      incumbent local exchange carriers by the local telephone companies for the
      sharing of the network elements was based on estimated costs to construct
      and operate a hypothetical, efficiently designed network from scratch and
      was called TELRIC (total element long-run incremental cost). This was a
      forward looking rather than a historic measure.

      The FCC had determined to do a triennial review of its unbundled network
      elements policies, and on August 21, 2003 the FCC released its final
      576-page unbundled network element triennial review order. The purpose of
      reviewing unbundled network elements every three years was to recognize
      local telephone companies' progress in deploying their own infrastructure
      and to eliminate elements that incumbent local exchange carriers must
      unbundle as those elements become available from alternative sources. The
      six out of original seven network elements that are required to be
      unbundled are:

            l)    loops, including loops used to provide high-capacity and
                  advanced telecommunications services;

            2)    network interface devices;

            3)    local circuit switching (except for larger customers in major
                  urban markets);

            4)    dedicated and shared transport;

            5)    signaling and call-related databases; and

            6)    operations support systems.

      Due to a recent decision by the FCC not to appeal a circuit court's
      findings, Breda has been notified by Qwest that Qwest is seeking to
      renegotiate its interconnection


                                       33
<PAGE>

      agreement with Breda, and Breda believes that its costs for the unbundled
      network elements that Breda receives from Qwest will most likely increase
      due to those negotiations. Qwest has notified Breda that it is in the
      process of negotiating rates with MCI and Covad, and Qwest would extend
      those same terms and conditions to Breda upon the completion of those
      negotiations. Breda believes these rate increases will most likely not
      take effect until 2005, but there is nothing precluding any increases from
      happening earlier. The total monetary impact to Breda's operations is
      unknown at this time, but there will most likely be an increase in Breda's
      cost to provide service in the communities served by Breda and its
      telephone subsidiaries. Breda has not yet determined whether Breda will
      seek a rate increase from customers to offset this added expense.

      Breda, Prairie Telephone, Westside Independent and BTC, Inc. continue to
      face competition in providing dial-up and high-speed Internet access. For
      example, Breda has been experiencing price-point competition for Internet
      services from Iowa Telecom in three communities since the late fourth
      quarter 2000. Breda had been the sole provider of Internet services in
      those communities until that time. Iowa Telecom purchased the telephone
      exchanges for those communities in 1999 and began operating them on June
      1, 2000. In late 2000, Iowa Telecom expanded the services offered in those
      communities to include Internet services and at a lower price than is
      offered by Breda. As a result, Breda has lost Internet customers in the
      three communities. BTC, Inc. is experiencing intense pricing and free
      services competition in providing Internet access in its Carroll, Iowa
      market. There are at least five competitors in this relatively small
      market area, and BTC, Inc. has experienced a 12.8% decline in its dial-up
      customer base in this market since June 30, 2003.

      Breda continues to investigate new technology and product offerings in the
      Internet field that it can provide to its customers, or that could be
      considered value-added features to the already-existing product. For
      example, Breda began offering a dial-up accelerator product in June 2004
      which allows internet service providers, such as Breda, to deliver data
      services over their existing dial-up and wireless networks at up to six
      times the normal speed. This type of service would be considered an
      upgrade from dialup, but not a replacement for the high speed Internet
      service. Based on the initial customer demand for this service, Breda
      anticipates that there will be good future demand for this product from
      its dial-up customers.

      Breda continues to anticipate that it may need to enter into a new agency
      agreement with U.S. Cellular some time in 2004. Breda continues to be
      hopeful, based on its past negotiations with U.S. Cellular, that any new
      agreement will, at worst, have a neutral impact on Breda's cellular
      commissions revenue.

      Breda, Prairie Telephone and Westside Independent continue to face
      competition in the sale and lease of telephone, cellular and related
      equipment because there are numerous competitors who sell and lease that
      equipment.


                                       34
<PAGE>

      The cellular ventures in which Breda, Prairie Telephone and Westside
      Independent have invested continue to face ever increasing and changing
      competition in providing cellular services and equipment from the various
      competitors offering cellular and personal communication services.

      Breda's primary ongoing capital investment activity will currently
      continue to be additions to property, plant and equipment. Capital
      expenditures for 2003 were $1,008,124, and are currently expected to be
      approximately $692,637 in 2004.

      Breda believes that its present cash position along with its anticipated
      normal operating revenues will generate sufficient working capital for
      Breda and its subsidiaries to meet their current operating needs and
      maintain historical fixed asset addition levels.

      As discussed earlier, Breda's subsidiary, Prairie Telephone, has a note
      receivable with Desktop Media, L.L.C. The note with Desktop Media, L.L.C
      had an original balance of $500,000 and matured in 2006. Principal
      payments of $12,000 per month were to commence on May 1, 2003. Breda
      received four monthly principal payments of $12,000, totaling $48,000, in
      2003. On September 17, 2003 Prairie signed a principal deferral agreement
      with Desktop Media, L.L.C. to defer principal payments due in the months
      of September through December 2003. Prairie's ownership percentage in
      Desktop Media, L.L.C. was 10%. The principal deferral agreement increased
      Prairie's ownership to 17% in 2004, if at any time in the year 2004,
      Desktop Media, L.L.C. was not able to generate a minimum sustainable
      monthly profit of $36,000 or was unable to make a regularly scheduled
      principal payment. Both of these agreement stipulations were not met in
      the first quarter of 2004, and Prairie acquired 17% ownership of Desktop
      Media, L.L.C. Prairie advanced $45,307.23 to Desktop Media, L.L.C. on June
      9, 2004, to fund operational expenses until revenues were collected for
      services provided. In the second quarter of 2004, Prairie Telephone
      recorded an allowance and a corresponding expense of $75,000 in this note
      receivable.

      Cautionary Statement on Forward Looking Statements

      Various discussions and statements in this quarterly report are or contain
      forward looking statements that involve and are subject to various risks,
      uncertainties and assumptions. Forward looking statements include, but are
      not limited to, statements with respect to financial results and
      condition; anticipated future trends in business, revenues or net income;
      projections concerning operations and cash flow; business, growth and
      acquisition opportunities and strategies; management's plans and
      intentions for the future; competitive position; and other forecasts,
      projections and statements of expectation. Words such as "expects,"
      "estimates," "plans," "will," "anticipates," "contemplates," "forecasts,"
      "predicts," "projects," "prospects," "possible," "hopeful," "intends,"
      "believes," "seeks," "should," "thinks," "objectives" and other similar
      expressions or variations of those words or those types of words help
      identify forward looking statements. Forward looking statements are made
      based on numerous and varied estimates, projections, views, beliefs,
      strategies and assumptions made or existing at the time of such statements
      and are not guarantees of future results or


                                       35
<PAGE>

      performance. Breda disclaims any obligation to update or revise any
      forward looking statements based on the occurrence of future events, the
      receipt of new information, or otherwise.

      Actual future performance, outcomes and results may differ materially from
      those expressed in forward looking statements as a result of numerous and
      varied factors, risks and uncertainties, some that are known and some that
      are not, and nearly all of which are beyond the control of Breda and its
      management. It is not possible to predict or identify all such factors,
      risks and uncertainties, but some of the factors, risks and uncertainties
      affecting forward looking statements include, but are not limited to, the
      following:

            o     adverse changes by the Federal Communications Commission or
                  other regulatory authorities to the access charge rates that
                  can be charged by Breda and its subsidiaries to long distance
                  carriers or to the rules and other requirements regarding
                  access charge rates or access charges, whether instituted by
                  the regulatory authorities or at the request or by reason of
                  court or other actions taken by long distance carriers or
                  other interested persons;

            o     technological advances in the telecommunications, cable and
                  related industries, which are always occurring and at an ever
                  increasing rate, and any one or more of which may replace or
                  otherwise adversely affect in a material way the existing
                  technologies utilized by Breda and its subsidiaries;

            o     changes in employee relations, including the loss of a key
                  employee or employees;

            o     industry conditions and occurrences, including bankruptcies
                  and insolvencies of long distance carriers (such as Global
                  Crossing and WorldCom), and consolidations in the
                  telecommunications and cable industries, which may result in
                  competitors which are larger and better financed and with
                  greater geographic reach, allowing them to compete over
                  broader areas and more effectively;

            o     economic conditions at the national, regional and local
                  levels, which are always somewhat uncertain given that many
                  different tangible and intangible factors and occurrences can
                  affect the economy;

            o     political conditions and occurrences at the international,
                  national, regional and local levels, including rumors about,
                  or threats and/or acts of, terrorism or war;

            o     the general emotions and psychology of the economy, the
                  markets and consumers, which can at times seem to be totally
                  unrelated to actual economic or market conditions or other
                  more tangible factors;

            o     litigation;


                                       36
<PAGE>

            o     inaccurate assumptions or predictions by management;

            o     the ability to enter into and maintain agreements which are
                  necessary to provide services, and on favorable terms;

            o     ever increasing costs and expenses which are necessary to
                  Breda's and its subsidiaries' businesses but which are outside
                  of Breda's control, such as health and other insurance costs;

            o     acts or omissions of existing and/or new competitors and other
                  third parties, including offering lower prices or new or
                  substitute products or services and their use of new marketing
                  strategies and approaches or new third parties entering into
                  Breda's or any of its subsidiaries' marketing or service
                  areas;

            o     the risks associated with technological requirements,
                  technology substitution and changes and other technological
                  developments;

            o     changes in or more governmental laws, rules, regulations or
                  policies;

            o     reductions in or other changes to governmental programs
                  assisting or affecting the telecommunications, cable and
                  related industries, and in particular programs which aid
                  providers of those services to rural areas;

            o     the continued availability of financing, and on favorable
                  terms, and the cost of financing and consequences of leverage;
                  and

            o     the effects of ever increasing and changing competition and
                  relationships with other carriers and other parties, including
                  competition or relationships which result in Breda or its
                  subsidiaries having to develop new pricing for services, such
                  as interexchange access charges and wireless access charges,
                  or new marketing strategies or new product offerings, and the
                  related risk that Breda or its subsidiaries will not be able
                  to respond on a timely or profitable basis to competitive
                  changes or pressures.

      This section should also be read in conjunction with the financial
      statements and related notes included in Item 1 of Part I of this
      quarterly report.

Item 3. Controls and Procedures.

      The principal executive officer and the principal financial officer of
      Breda have evaluated the effectiveness of Breda's disclosure controls and
      procedures as of the end of the period covered by this quarterly report,
      and they have concluded that the disclosure controls and procedures have
      been effective for the purposes for which they are intended.


                                       37
<PAGE>

      No change in Breda's internal control over financial reporting occurred
      during the period covered by this quarterly report that has materially
      affected, or is reasonably likely to materially affect, Breda's internal
      control over financial reporting.

                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

      As of the date of this quarterly report, Breda was not aware of any
      pending legal proceeding to which Breda was a party or to which any of
      Breda's property was subject, other than for any routine litigation, if
      any, that was incidental to its business. As of the date of this quarterly
      report, Breda was not aware that any governmental authority was
      contemplating any proceeding against Breda or any of its property.

Item 2. Changes in Securities and Small Business Issuer Purchases of Equity
        Securities.

      No material modifications, limitations or qualifications of the type
      required to be reported under this Item occurred with respect to Breda's
      shares of common stock during the period of April 1, 2004 through June 30,
      2004.

      Breda did not issue any shares of its common stock during the period of
      April 1, 2004 through June 30, 2004.

      The following table provides information regarding Breda's purchases of
      its common stock from shareholders during the period of April 1, 2004
      through June 30, 2004.

              SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

<TABLE>
<CAPTION>
      -------------------------------------------------------------------------------------------------------
                                                                                             Maximum Number
                                                                       Total Number of      (or Approximate
                                                                      Shares Purchased     Dollar Value) of
                                                                         as Part of        Shares that May
                                Total Number                              Publicly         Yet Be Purchased
                                 of Shares          Average Price      Announced Plans     Under the Plans or
            Period              Purchased(1)        Paid per Share      or Programs(1)        Programs(1)
      -------------------------------------------------------------------------------------------------------
<S>                            <C>                <C>                        <C>                  <C>
      Month #1 (April 1,       2 Shares of
      2004-April 30, 2004      Common Stock       $303 per Share(2)
                                                                             -0-                  -0-
      -------------------------------------------------------------------------------------------------------
      Month #2 (May 1,         -0- Shares of
      2004-May 31, 2004)       Common Stock              N/A
                                                                             -0-                  -0-
      -------------------------------------------------------------------------------------------------------
      Month #3 (June 1,        287 Shares of
      2004-June 30, 2004)      Common Stock       $326 per Share(3)
                                                                             -0-                  -0-
      -------------------------------------------------------------------------------------------------------
      Total                         289                   --                 -0-                  -0-
      -------------------------------------------------------------------------------------------------------
</TABLE>


                                       38
<PAGE>

      (1)   All of the shares of common stock were purchased by Breda pursuant
            to the redemption right or the right of first refusal granted to
            Breda in its Amended and Restated Articles of Incorporation, or
            pursuant to the unsolicited request of the shareholder in question.
            Breda does not have any publicly announced plans or programs with
            respect to purchases of its common stock.

      (2)   The $303 per share redemption price was the per share redemption
            price that was announced by the board of directors at, and which
            became effective at, the May 20, 2003 annual meeting of Breda's
            shareholders.

      (3)   The $326 per share redemption price was the per share redemption
            price that was announced by the board of directors at, and which
            became effective at, the May 18, 2004 annual meeting of Breda's
            shareholders.

      There were no transfers of shares of Breda's common stock during the
      period of April 1, 2004 through June 30, 2004 with respect to which Breda
      did not exercise its right of first refusal to purchase those shares.

Item 3. Defaults Upon Senior Securities.

      There was no material default or any material arrearage or delinquency by
      Breda of the type required to be reported under this Item during the
      period of April 1, 2004 through June 30, 2004.

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

      The annual meeting of the shareholders of Breda was held on May 18, 2004.
      The only matters voted upon by the shareholders at the annual meeting were
      the election of three directors for Breda and the ratification of the
      appointment of Breda's auditors for the year 2004.

      Breda's board of directors consists of seven members, divided into three
      classes based upon the length of their term. Each member of the board of
      directors is elected to a three year term and until his or her successor
      is elected, and the terms of office of the directors are staggered so that
      three of the directors' terms expire in one year, two expire the next
      year, and two expire the following year.

      As indicated, one of the purposes of the annual meeting was to elect three
      directors. Two of those directors needed to be elected because the term of
      two directors expired at the annual meeting. The third director needed to
      be elected to serve the remaining two years of the three year term of
      Roger Nieland, who was a director of Breda who passed away unexpectedly on
      July 8, 2003.


                                       39
<PAGE>

      The two directors whose term expired at the annual meeting were Charles
      Thatcher and Larry Daniel. Mr. Daniel had served three consecutive terms
      as a director, and under Breda's policies Mr. Daniel must be off the board
      of directors for at least one year.

      There were two nominees for those two director positions. The nominees
      were Charles Thatcher and Neil Kanne, and they were both elected to serve
      as directors of Breda until the annual meeting of the shareholders of
      Breda to be held in the year 2007.

      As noted above, Roger Nieland, one of Breda's directors, passed away
      unexpectedly on July 8, 2003. Mr. Nieland had been a director of Breda
      since May, 2000, and he had been elected to serve another three year term
      as a director at the May 20, 2003 annual meeting of the shareholders of
      Breda. Breda's board of directors has the authority to fill any vacancy
      occurring on the board of directors through death by the affirmative vote
      of a majority of the remaining directors, but a director elected by the
      board of directors to fill a vacancy can only serve as a director until
      the next election of directors by the shareholders, at which time the
      shareholders must elect a director to serve for the remainder of the three
      year term of the vacant directorship. The board of directors exercised
      that authority at its August 12, 2003 meeting by electing Rick Anthofer to
      fill the vacancy created by Mr. Nieland's death until the 2004 annual
      meeting of the shareholders.

      The shareholders accordingly needed to elect a director to serve the
      remaining two years of the three year term of Roger Nieland. Rick Anthofer
      was nominated to fill that director position, and he was elected to serve
      as a director for the remainder of the three year term of Mr. Nieland. Mr.
      Anthofer will accordingly serve as a director until the annual meeting of
      the shareholders which is held in 2006.

      The number of votes cast for, against or withheld, and the number of
      abstentions and broker non-votes, with respect to the three nominees for
      election as a director of Breda was as follows:

                                           Against                      Broker
            Name                 For     or Withheld    Abstentions    Non-Votes
            ----                 ---     -----------    -----------    ---------

            Rick Anthofer        157          --             --           --
            Neil Kanne           174          --             --           --
            Charles Thatcher     153          --             --           --

      The other directors whose term of office as a director continued after the
      annual meeting of the shareholders are the following individuals:

                    David Grabner        Clifford Neumayer
                    Dean Schettler       John Wenck

      The only other matter voted upon by the shareholders at the annual meeting
      was the ratification of Kiesling Associates, LLP as Breda's auditors for
      the year 2004. The


                                       40
<PAGE>

      number of votes cast for, against or withheld, and the number of
      abstentions and broker non-votes, regarding this matter was as follows:

            For         Against or Withheld     Abstentions     Broker Non-Votes
            ---         -------------------     -----------     ----------------

            158                  8                  42                 --

Item 5. Other Information.

      Breda's board of directors amended the Amended and Restated Bylaws of
      Breda on April 13, 2004, and again on June 8, 2004.

      The April 13, 2004 amendment amended Section 4.3 of the Amended and
      Restated Bylaws to read as follows:

            Section 4.3 Tenure; Staggered Terms. Each director shall hold office
            for a period of three (3) years and until his or her successor shall
            have been elected and qualifies, or until his or her death,
            resignation, or removal. The terms of the directors shall be
            staggered, with approximately one-third of the directors' terms
            expiring each year.

            No member of the Board of Directors may serve more than three terms
            consecutively without being off the Board for at least one year.

      The amendments to Section 4.3 were clarifying in nature only, and did not
      materially change any matters with respect to Breda's directors or
      otherwise.

      The June 8, 2004 amendment amended Section 7.4 of the Amended and Restated
      Bylaws by adding the following subparagraph (c) to Section 7.4:

            (c) Any shareholder desiring to send communications to the Board of
            Directors may do so in writing by either delivering the writing to
            Breda's corporate office at 112 East Main, P.O. Box 190, Breda, Iowa
            51436, or by mailing the writing to that address, in either case, to
            the attention of the President of Breda. Breda will send a copy of
            each such writing directly to each director.

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

      (a)   A list of the exhibits included as part of this quarterly report is
            set forth in the Exhibit Index which immediately precedes such
            exhibits and is incorporated herein by this reference.


                                       41
<PAGE>

      (b)   Breda did not file any reports on Form 8-K during the period of
            April 1, 2004 through June 30, 2004.

               [THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK]


                                       42
<PAGE>

                                   SIGNATURES

      In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                        BREDA TELEPHONE CORP.


Date: August 13, 2004.                  By: /s/ Robert Boeckman
                                            ------------------------------------
                                            Robert Boeckman, Chief Operations
                                            Officer and Co-Chief Executive
                                            Officer


Date: August 13, 2004.                  By: /s/ Jane Morlok
                                            ------------------------------------
                                            Jane Morlok, Chief Financial Officer
                                            and Co-Chief Executive officer


                                       43
<PAGE>

                                  EXHIBIT INDEX
                             Exhibits to Form 10-QSB
                        Three Months Ended June 30, 2004
                             BREDA TELEPHONE CORP.

Description of Exhibit                                                      Page
----------------------                                                      ----

3.    Articles of Incorporation and Bylaws

      3.1   Amended and Restated Articles of Incorporation of Breda
            Telephone Corp. (Filed as Exhibit 3.1 to Breda's
            Registration Statement on Form 10-SB, and incorporated
            herein by this reference.)

      *3.2  Amended and Restated Bylaws of Breda Telephone Corp.             E-1

10.   Material Contracts

      10.1  Employment Agreement dated July 1, 2003 between Breda
            and Robert Boeckman. (Filed as Exhibit 10.1 to Breda's
            Form 10-QSB for the quarterly period ended June 30, 2003
            and filed August 12, 2003, and incorporated herein by
            this reference.)

      10.2  Employment Agreement dated July 1, 2003 between Breda
            and Jane Morlok. (Filed as Exhibit 10.2 to Breda's Form
            10-QSB for the quarterly period ended June 30, 2003 and
            filed August 12, 2003, and incorporated herein by this
            reference.)

*31.  Rule 13a-14(a)/15d-14(a) Certifications

      31.1  Rule 13a-14(a) Certification of Chief Operations                E-16
            Officer and Co-Chief Executive Officer

      31.2  Rule 13a-14(a) Certification of Chief Financial                 E-17
            Officer and Co-Chief Executive Officer

<PAGE>

*32.  Section 1350 Certifications

      32.1  Section 1350 Certification of Chief Operations                  E-18
            Officer and Co-Chief Executive Officer

      32.2  Section 1350 Certification of Chief Financial                   E-19
            Officer and Co-Chief Executive Officer

*Included with this filing.