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 September 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: 31,202 shares of common stock,
no par value, at September 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 September 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>
                                                             September 30,       December 31,
                                                                  2004               2003
                                                              (Unaudited)         (Audited)
                                                             -------------      -------------
<S>                                                          <C>                <C>
                                  ASSETS

CURRENT ASSETS
     Cash and cash equivalents                               $   1,156,784      $   1,205,550
     Temporary investments                                         484,284            361,543
     Accounts receivable                                           489,693            563,542
     Interest receivable                                            57,984             52,742
     Current portion of notes receivable                            69,000            144,000
         Less allowance of $75,000 in 2004
     Inventory, at average cost                                    184,639            108,007
     Other                                                          41,464             25,407
                                                             -------------      -------------
                                                                 2,483,848          2,460,791

OTHER NONCURRENT ASSETS
     Marketable securities                                       4,441,398          3,928,354
     Investments in unconsolidated affiliates at equity          4,636,004          3,942,275
     Other investments at cost                                     850,441            857,147
     Goodwill                                                      896,812            896,812
     Notes receivable, less current portion                        307,354            291,134
                                                             -------------      -------------
                                                                11,132,009          9,915,722

PROPERTY, PLANT AND EQUIPMENT                                    4,885,803          5,141,009
                                                             -------------      -------------

 TOTAL ASSETS                                                $  18,501,660      $  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>
                                                                    September 30,       December 31,
                                                                         2004              2003
                                                                     (Unaudited)         (Audited)
                                                                    -------------      -------------
<S>                                                                 <C>                <C>
                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
     Current portion of long-term debt                              $     151,495      $     144,183
     Accounts payable                                                     409,556            233,802
     Accrued taxes                                                         76,347            106,592
     Other                                                                 94,241            137,042
                                                                    -------------      -------------
                                                                          731,639            621,619
                                                                    -------------      -------------

LONG-TERM DEBT, less current portion                                    1,518,909          1,633,461
                                                                    -------------      -------------

DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES                         740,142            497,795
                                                                    -------------      -------------

STOCKHOLDERS' EQUITY
     Common stock - no par value, 5,000,000 shares authorized,
         31,202 and 31,694 shares issued and outstanding at
         $326 and $303 stated value, respectively                      10,171,852          9,603,282
     Retained earnings                                                  5,339,118          5,161,365
                                                                    -------------      -------------
                                                                       15,510,970         14,764,647
                                                                    -------------      -------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                          $  18,501,660      $  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 Nine Months Ended September 30, 2004 and 2003

<TABLE>
<CAPTION>
                                                For the Three Months Ended           For the Nine Months Ended
                                                   2004              2003              2004              2003
                                               -----------       -----------       -----------       -----------
<S>                                            <C>               <C>               <C>               <C>
OPERATING REVENUES                             $ 1,623,410       $ 1,576,678       $ 4,856,861       $ 4,784,677
                                               -----------       -----------       -----------       -----------

OPERATING EXPENSES
     Cost of services                              740,293           628,321         2,047,469         1,948,683
     Depreciation and amortization                 265,088           256,143           765,518           761,300
     Selling, general, and administrative          555,410           426,930         1,478,262         1,349,445
                                               -----------       -----------       -----------       -----------
                                                 1,560,791         1,311,394         4,291,249         4,059,428
                                               -----------       -----------       -----------       -----------

OPERATING INCOME                                    62,619           265,284           565,612           725,249
                                               -----------       -----------       -----------       -----------

OTHER INCOME (EXPENSES)
     Interest and dividend income                   51,802            50,003           212,678           165,764
     Interest expense                              (31,362)          (33,925)          (96,044)         (103,609)
     Loss on note receivable                            --                --           (75,000)               --
     Income from equity investments                346,954           313,763           977,573           720,687
     Other, net                                    (13,975)           16,591           (24,540)           10,530
                                               -----------       -----------       -----------       -----------
                                                   353,419           346,432           994,667           793,372
                                               -----------       -----------       -----------       -----------

INCOME BEFORE INCOME TAXES                         416,038           611,716         1,560,279         1,518,621
                                               -----------       -----------       -----------       -----------

INCOME TAXES                                       154,109           216,196           563,754           560,580
                                               -----------       -----------       -----------       -----------

NET INCOME                                     $   261,929       $   395,520       $   996,525       $   958,041
                                               ===========       ===========       ===========       ===========

NET INCOME PER COMMON SHARE                    $      8.39       $     12.42       $     31.75       $     29.55
                                               ===========       ===========       ===========       ===========
</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                                                                         996,525            996,525

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

  Stated value stock adjustment                                      724,293          (724,293)
  Common stock redeemed, net                         (492)          (155,723)                            (155,723)
                                               ----------       ------------       -----------       ------------

Balance at September 30, 2004 (Unaudited)          31,202       $ 10,171,852       $ 5,339,118       $ 15,510,970
                                               ==========       ============       ===========       ============
</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 Nine Months Ended September 30, 2004 and 2003

<TABLE>
<CAPTION>
                                                                                    2004              2003
                                                                                -----------       -----------
<S>                                                                             <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net income                                                                 $   996,525       $   958,041
     Adjustments to reconcile net income
       to net cash provided by operating activities:
        Depreciation and amortization                                               765,518           761,300
        Deferred income taxes                                                       275,842           350,684
        Amortization of investment tax credits                                       (7,327)           (7,327)
        Equity income in unconsolidated affiliates, net of distribution
          received of $283,844 and $328,899 in 2004 and 2003, respectively         (693,729)         (391,788)
        Note receivable discount                                                     (8,246)          (11,088)
        Loss on impairment of note receivable                                        75,000                --
     Changes in assets and liabilities:
        (Increase) Decrease in assets:                                              (24,082)          100,539
        Increase (Decrease) in liabilities:                                          76,540          (180,298)
                                                                                -----------       -----------
        Net cash provided by operating activities                                 1,456,041         1,580,063
                                                                                -----------       -----------

CASH FLOWS FROM INVESTING ACTIVITIES
     Capital expenditures                                                          (510,312)         (878,470)
     Purchase of investments                                                     (1,132,131)       (1,014,648)
     Purchase of other investments - at cost                                            (43)             (500)
     Issuance of notes receivable                                                   (45,307)               --
     Proceeds from the sale of investments                                          496,346           749,842
     Sale of other investments                                                        6,749             6,319
     Repayment of notes receivable                                                   37,333           208,000
                                                                                -----------       -----------
        Net cash used in investing activities                                    (1,147,365)         (929,457)
                                                                                -----------       -----------

CASH FLOWS FROM FINANCING ACTIVITIES
     Repayment of long term debt                                                   (107,240)         (100,397)
     Common stock redeemed, net                                                    (155,723)         (377,153)
     Dividends paid                                                                 (94,479)          (98,436)
                                                                                -----------       -----------
        Net cash used in financing activities                                      (357,442)         (575,986)
                                                                                -----------       -----------

Net Increase (Decrease) in Cash and Cash Equivalents                                (48,766)           74,620

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

Cash and Cash Equivalents at End of Period                                      $ 1,156,784       $ 1,107,354
                                                                                ===========       ===========

Supplemental Disclosures of Cash Flow Information
     Cash paid during the period for:
         Interest                                                               $    96,044       $   103,609
         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 September 30, 2004 and December
            31, 2003 and the results of operation and changes in cash flows for
            the three and nine months ended September 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
            nine month period ended September 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.

            Certain reclassifications have been made to the operating segment
            information being reported. Prior to September 30, 2004, CLEC
            operations which commenced in October 2003 were included with
            internet services. CLEC operations have been reclassed for the three
            and nine months ended September 30, 2004 to the LEC segment.

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

<TABLE>
<CAPTION>
                                              Local                         Internet
                 Nine months ended           Exchange                       Service
                September 30, 2004            Carrier       Broadcast       Provider         Total
            --------------------------      ----------      ---------       --------      ----------
<S>                                         <C>             <C>             <C>           <C>
            Revenues
                 External customers         $3,757,988      $ 638,915       $459,958      $4,856,861
                 Intersegment                       --             --             --              --
                 Segment profit (loss)       1,088,589       (166,723)        74,659         996,525
</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
                 Nine months ended           Exchange                         Service
                September 30, 2003            Carrier        Broadcast        Provider          Total
            ------------------------        ----------      ----------       ----------       ----------
<S>                                         <C>             <C>              <C>              <C>
            Revenues
                 External customers         $3,622,442      $  685,426       $  476,809       $4,784,677
                 Intersegment                       --              --               --               --
                 Segment profit (loss)       1,173,865        (115,296)        (100,528)         958,041

<CAPTION>
            ------------------------           Local                          Internet
                Three months ended           Exchange                         Service
                September 30, 2004            Carrier        Broadcast        Provider          Total
            ------------------------        ----------      ----------       ----------       ----------
<S>                                         <C>             <C>              <C>              <C>
            Revenues
                 External customers         $1,254,764      $  218,136       $  150,510       $1,623,410
                 Intersegment                       --              --               --               --
                 Segment profit (loss)         286,824         (52,983)          28,088          261,929

<CAPTION>
            ------------------------           Local                          Internet
                Three months ended           Exchange                         Service
                September 30, 2003            Carrier        Broadcast        Provider          Total
            ------------------------        ----------      ----------       ----------       ----------
<S>                                         <C>             <C>              <C>              <C>
            Revenues
                 External customers         $1,201,575      $  218,370       $  156,733       $1,576,678
                 Intersegment                       --              --               --               --
                 Segment profit (loss)         468,620         (31,286)         (41,814)         395,520
</TABLE>


                                       8
<PAGE>

<TABLE>
<CAPTION>
                                                      Three Months Ended                   Nine Months Ended
                  Reconciliation of             September 30,     September 30,     September 30,     September 30,
                Segment Information                  2004              2003              2004              2003
                -------------------             -------------     ------------      -------------     -------------
<S>                                             <C>               <C>               <C>               <C>
            REVENUES:
                 Total revenues for
                   reportable segments          $  1,623,410      $  1,576,678      $  4,856,861      $  4,784,677
                 Other revenues                           --                --                --                --
                                                ------------      ------------      ------------      ------------
                     Consolidated Revenues      $  1,623,410      $  1,576,678      $  4,856,861      $  4,784,677
                                                ============      ============      ============      ============

            PROFIT:
                 Total profit for
                   reportable segments          $    261,929      $    395,520      $    996,525      $    958,041
                 Other profit (loss)                      --                --                --                --
                                                ------------      ------------      ------------      ------------
                     Net Income                 $    261,929      $    395,520      $    996,525      $    958,041
                                                ============      ============      ============      ============
</TABLE>

NOTE 3.     NET INCOME PER COMMON SHARE

            Net income per common share for the three and nine months ended
            September 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 nine months ended September 30, 2004
            and 2003 were 31,203 and 31,841 and 31,387 and 32,421, 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. BTC, Inc. is also a
            competitive, local exchange carrier providing local telephone
            service to urban and rural customers in the Carroll, Iowa exchange,
            where Qwest is the incumbent local exchange carrier.

            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 the third quarter of 2004 and the third quarter
            of 2003, respectively:

                                                       July-          July-
                                                       September      September
                                                       2003           2004

                   Local Exchange Carrier(1)           75.7%           77.4%
                   Broadcast(2)                        14.3%           13.1%
                   Internet Service Provider(3)        10.0%            9.5%
                                                      -----           -----
                             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.

      Nine-months ended September 30, 2004 Compared to Nine-months ended
      September 30, 2003

            NET INCOME

            Consolidated net income for the nine-month period ended September
            30, 2004 was $996,525, which was a $38,484, or 4.0%, increase when
            compared to the $958,041 of consolidated net income for the
            nine-month period ended September 30, 2003.

            The 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 decreased $159,637, or
                  22.0%, for the nine-month period ended September 30, 2004,
                  when compared to the nine-month period ended September 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 $201,295, or 25.4%, for the nine-month
                  period ended September 30, 2004, when compared to the
                  nine-month period ended September 30, 2003.

            3)    Income taxes increased $3,174, or 0.6%, for the nine-month
                  period ended September 30, 2004, when compared to the
                  nine-month period ended September 30, 2003.

            OPERATING REVENUES

            There was an increase in total operating revenues for the nine-month
            period ended September 30, 2004, when compared to the nine-month
            period ended September 30, 2003, of $72,184, or 1.5%. The segments
            making up total operating revenues and their contributions to the
            $72,184 increase between the two periods are as follows: local
            exchange carrier services - $135,546; broadcast services -
            ($46,511); and Internet service provider services - ($16,851).

            Local Exchange Carrier Services - $135,546

            Local exchange carrier services revenue accounted for 77.4% of the
            operating revenue in the nine-month period ended September 30, 2004.
            The components of, and their contributions to, the $135,546 increase
            in local exchange carrier services revenue for the nine-months ended
            September 30, 2004, when compared to the nine-months ended September
            30, 2003, are as follows: local network services - $111,192; network
            access services - $180,822; long distance services - $66,599;
            billing and collection services - ($1,953); cellular services -
            ($141,640); and miscellaneous - ($79,474).

            Local network services revenues increased 25.7% and network access
            services revenues increased 9.8% in the nine-month period ended
            September 30, 2004, when compared to the nine-month period ended
            September 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 after BTC, Inc. began offering local exchange
            carrier services in October 2003. There was no corresponding
            customer base in the nine-month period ended September 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.


                                       12
<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 and universal service funding 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 81.8% increase in long
            distance services revenues for the nine-month period ended September
            30, 2004, when compared to the nine-month period ended September 30,
            2003. The increase is a direct reflection of the 65.9% 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 $141,640, or 14.4%, decrease in cellular sales revenue for the
            nine-month period ended September 30, 2004, when compared to the
            nine-month period ended September 30, 2003, reflects the decreased
            sales from all of Breda's service locations during the first nine
            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 has accordingly
            experienced 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 were eligible for new contracts
            beginning in May and June of 2004. Breda has seen some


                                       13
<PAGE>

            increase in retention contracts during the months since May 2004,
            and expects its retention commissions to go back to their customary
            levels in the coming months. Breda has also experienced some
            saturation in its cellular markets and has seen a small decrease in
            first-time customer contracts.

            Other factors contributing to the decrease in cellular sales revenue
            during the nine-month period ended September 30, 2004, when compared
            to the nine-month period ended September 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 local exchange
            services offered by BTC, Inc. in the Carroll, Iowa market by two
            outside sales people, who had originally spent sales efforts on
            cellular services.

            Miscellaneous revenue decreased $79,474, or 32.2%, for the
            nine-month period ended September 30, 2004, when compared to the
            nine-month period ended September 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 nine-month period
            ending September 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 nine-month
            period ended September 30, 2004.

            Broadcast Services ($46,511)

            Broadcast services revenue decreased $46,511, or 6.8%, for the
            nine-month period ended September 30, 2004, when compared to the
            nine-month period ended September 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 an 8.9% decrease in its
            customer base when comparing the nine-month period ended September
            30, 2004, to the nine-month period ended September 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 sixteen communities
            that are served by Tele-Services.

            Tele-Services added channels in the latter part of the first quarter
            of 2004 in many of the nineteen communities that 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.


                                       14
<PAGE>

            Internet Services ($16,851)

            Internet services revenue decreased $16,851, or 3.5%, for the
            nine-month period ended September 30, 2004, when compared to the
            nine-month period ended September 30, 2003. The decrease 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 for Internet services in 2001 in response to
            competitive pressures. Breda has continued those 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, where BTC, Inc. is
            offering bundled services packages that include Internet services,
            local telephone and other communication services. While new
            customers subscribing for those bundled services have helped stem
            the decrease in Internet services revenue occurring in 2003 and
            2004, Breda was forced by competitive pressures to reduce its
            pricing for its high speed Internet services as of October 1, 2004.
            The price decrease will begin to lower Internet services revenue
            during the last quarter of 2004.

            OPERATING EXPENSES

            There was an increase in total operating expenses of $231,821, or
            5.7%, for the nine-month period ended September 30, 2004, when
            compared to the nine-month period ended September 30, 2003. The
            components making up operating expenses are as follows: cost of
            services, depreciation and amortization, and selling, general and
            administration expenses.

            Cost of services increased $99,809, or 5.1%, for the nine-month
            period ended September 30, 2004, when compared to the nine-month
            period ended September 30, 2003. The major components of the
            increase in cost of services resulted from increased cable TV
            programming costs of $10,782, decreased Internet provision costs of
            $153,041, increased long distance provisioning costs of $52,156 and
            increased plant related costs of $190,118.

            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 those services, 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 service to the Carroll, Iowa market over those same trunks,
            which has significantly reduced Breda's underlying circuit cost to
            provide Internet services. As also noted previously, Breda
            experienced an 81.8% increase in its long distance services revenue
            for the nine month period ended September 30, 2004, when compared to
            the nine month period ended September 30, 2003. Since Breda is a
            reseller of long


                                       15
<PAGE>

            distance services, Breda's corresponding cost of purchasing those
            services for resale directly correlates to the increased customer
            base and usage for those services. The increase in plant specific
            costs also includes the installation charges that Breda pays to
            Qwest for the provisioning of the underlying loop so that BTC, Inc.
            can offer local exchange carrier services in the Carroll, Iowa
            market area. These charges are paid to Qwest for each new customer
            of BTC, Inc.

            The cost of utilities, payroll expenses, long distance costs, cable
            TV programming, and key system costs all increased to net against
            the decrease in Internet provision costs, resulting in an overall
            $99,809 increase in cost of services for the nine-month period ended
            September 30, 2004.

            Depreciation and amortization expense increased $4,218, or 0.6%, for
            the nine-month period ended September 30, 2004, when compared to the
            nine-month period ended September 30, 2003, and is attributable to
            the capital investments in plant to provide the new service
            offerings in the Carroll, Iowa market, which are now being
            depreciated.

            Selling, general and administration expenses increased $127,794, or
            9.5%, for the nine-month period ended September 30, 2004, when
            compared to the same nine-month period in 2003. Customer operations
            increased $116,596, or 21.3%, for the nine-month period ended
            September 30, 2004, when compared to the same nine-month period in
            2003. The increased costs were mainly attributable to the increased
            labor, benefits, and advertising costs arising from BTC, Inc.'s
            roll-out of its local exchange carrier services in the Carroll, Iowa
            market. Property taxes also increased $31,763, or 32.6%, in the
            nine-month period ended September 30, 2004, when compared to the
            nine-month period ended September 30, 2003.

            OPERATING INCOME

            The net result of the operating revenue and operating expenses was a
            decrease of $159,637, or 22.0%, in operating income for the
            nine-month period ended September 30, 2004, when compared to the
            same nine-month period in 2003.

            OTHER INCOME (EXPENSE)

            Other income (expense) increased $201,295, or 25.4%, during the
            nine-month period ended September 30, 2004, when compared to the
            same nine-month period in 2003. The increase was mainly attributable
            to three items.

            The first item is interest and dividend income, which increased
            $46,914, or 28.3%, when comparing the nine-month period ended
            September 30, 2004, to the nine-month period ended September 30,
            2003. The increase in interest and dividend income was due to the
            increase in both temporary investments and investments in marketable
            securities on which Breda generates interest income. Breda also
            reported $26,168 of National Rural Telecommunications Cooperative
            patronage capital as interest and


                                       16
<PAGE>

            dividend income during the nine-month period ended September 30,
            2004. There was no corresponding entry during the nine-month period
            ended September 30, 2003.

            The second item is income from equity investments, which increased
            $256,886, or 35.6%, during the nine-month period ended September 30,
            2004, when compared to the same nine-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 nine-month period ended
            September 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 nine-month period ended September 30, 2004, and
            for which there was no corresponding loss during the nine-month
            period ended September 30, 2003. Breda determined that Prairie
            Telephone's 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 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 $41,658, or 2.7%, for the
            nine-month period ended September 30, 2004, when compared to the
            nine-month period ended September 30, 2003. The $41,658 increase was
            the result of a $159,637 decrease in operating income and a $201,295
            increase in other income (expense).

            NET INCOME

            Income taxes increased $3,174, or 0.6%, for the nine-month period
            ended September 30, 2004, when compared to the same period in 2003.
            The increase is a direct reflection of the increased income
            generated in the nine-month period ended September 30, 2004. The
            effective tax rate in 2004 was 36.1%, versus 36.9% 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 $38,484, or 4.0%, for the nine-month period
            ended September 30, 2004, when compared to the same period in 2003.


                                       17
<PAGE>

            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.

            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.


                                       18
<PAGE>

            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. 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.

            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 Nine-months ended September 30,
            2004

            Cash Flows


                                       19
<PAGE>

            Cash provided from operations for the nine-month periods ended
            September 30, 2004 and September 30, 2003 was, respectively,
            $1,456,041 and $1,580,063. The cash flows from operations for the
            nine-month period ended September 30, 2004 were primarily
            attributable to a positive net income of $996,525, 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 $1,100,787, which
            were then offset by $693,729 of non-cash, equity income in
            unconsolidated affiliates. The net change in assets and liabilities
            of $52,458 was also added to net income. The cash flows from
            operations for the nine-month period ended September 30, 2003 were
            primarily attributable to a positive net income of $958,041, plus
            the addition of non-cash expenses such as depreciation,
            amortization, deferred income taxes, note receivable discount, and
            amortization of investment tax credits totaling $1,093,569, which
            were then offset by $391,788 of non-cash, equity income in
            unconsolidated affiliates. The net change in assets and liabilities
            of ($79,759) was also included in net income.

            Cash used in investing activities was $1,147,365 for the nine-month
            period ended September 30, 2004, and was $929,457 for the nine-month
            period ended September 30, 2003. Capital expenditures relating to
            ongoing business were $510,312 for the nine-month period ended
            September 30, 2004, and $878,470 for the nine-month period ended
            September 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 receivable. Breda expects capital expenditures for non-building
            expenditures in 2004 to be at similar levels to those made in 2003.

            Prairie Telephone advanced an additional $45,307 on its notes
            receivable to Desktop Media, L.L.C. during the nine-month period
            ended September 30, 2004. Prairie Telephone also received payment on
            the outstanding note receivable of $37,333 during the nine-month
            period ended September 30, 2004. Principal payments on the note
            receivable of $208,000 had also been made during the nine-month
            period ended September 30, 2003.

            Cash used in financing activities was $357,442 for the nine-month
            period ended September 30, 2004, and $575,986 for the nine-month
            period ended September 30, 2003. During the nine-month period ended
            September 30, 2004, cash was used to repay $107,240 of long term
            debt, to pay dividends to the shareholders of $94,479, and to redeem
            common stock for $155,723. During the nine-month period ended
            September 30, 2003, cash was used to repay $100,397 of long-term
            debt, to pay dividends to the shareholders of $98,436, and to redeem
            common stock for $377,153. Breda funds the redemption of its stock
            from cash flows from operations.

            Working Capital


                                       20
<PAGE>

            Working capital was $1,752,209 as of September 30, 2004, compared to
            working capital of $1,839,172 as of December 31, 2003. The ratio of
            current assets to current liabilities was 3.4 to 1.0 as of September
            30, 2004, and 4.0 to 1.0 as of December 31, 2003.

            Breda had a $23,057 increase in current assets during the nine-month
            period ended September 30, 2004, when compared to the year ended
            December 31, 2003. The increase in current assets was mainly
            attributable to a $73,975 increase in cash and temporary investments
            and a $73,849 decrease in accounts receivable. There was a
            corresponding $513,044 increase in long-term investments. Customer
            accounts receivable as of September 30, 2004 were comparable to
            customer accounts receivable as of December 31, 2003. The $73,849
            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 $1,216,287 during the nine-month period ended September
            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.
            The note is shown net of unamortized discounts of $8,620 and $16,866
            as of, respectively, September 30, 2004 and December 31, 2003, and
            an allowance of $75,000 as of September 30, 2004. $307,354 is
            included in long-term note receivables, and $69,000 is included in
            short-term note receivables as of September 30, 2004.

            Investments in unconsolidated affiliates at equity increased
            $693,729 for the nine-month period ended September 30, 2004, when
            compared to the year ended December 31, 2003. 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 nine-month period ended September
            30, 2004.

            Current liabilities increased $110,020 for the nine-month period
            ended September 30, 2004, when compared to the year ended December
            31, 2003. Accounts payable increased $175,754. Invoices received but
            not paid as of September 30, 2004, included $114,213 in engineering
            fees and supplies for a fiber project, and $23,434 of retail
            cellular inventory items. Accrued taxes decreased $30,245 for the
            nine-month period ended September 30, 2004, when compared to the
            year ended December 31, 2003. The decrease was caused by the
            decrease in accruals for federal and state income taxes as of
            September 30, 2004. Breda had federal and state income tax
            overpayments recorded as of September 30, 2004, which reduced
            Breda's overall accrued taxes liability as of September 30, 2004.

            Common stock had a net increase of $568,570 during the nine-month
            period ended September 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 492 shares of
            common stock at an aggregate redemption price of


                                       21
<PAGE>

            $155,723, 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
            increase of $177,753 in retained earnings during the nine-month
            period ended September 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 September
            30, 2004 of $996,525, 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 September 30, 2004 Compared to Three-months ended
            September 30, 2003

            NET INCOME

            Consolidated net income for the three-month period ended September
            30, 2004 was $261,929, which was a $133,591, or 33.8%, decrease when
            compared to the $395,520 of consolidated net income for the
            three-month period ended September 30, 2003.

            The decrease 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,
                        decreased $202,665, or 76.4%, for the three-month period
                        ended September 30, 2004, when compared to the
                        three-month period ended September 30, 2003.

                  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 $6,987, or
                        2.0%, for the three-month period ended September 30,
                        2004, when compared to the three-month period ended
                        September 30, 2003.

                  3)    Income taxes decreased $62,087, or 28.7%, for the
                        three-month period ended September 30, 2004, when
                        compared to the three-month period ended September 30,
                        2003.

            OPERATING REVENUES

            There was an increase in total operating revenues for the
            three-month period ended September 30, 2004, when compared to the
            three-month period ended September 30, 2003, of $46,733, or 3.0%.
            The segments making up total operating revenues and their
            contributions to the $46,733 increase between the two periods are as
            follows: local


                                       22
<PAGE>

            exchange carrier services - $53,190; broadcast services - ($234);
            and Internet service provider services - ($6,223).

            Local Exchange Carrier Services - $53,190

            Local exchange carrier services revenue accounted for 77.3% of the
            operating revenue in the three-month period ended September 30,
            2004. The components of, and their contributions to, the $53,190
            increase in local exchange carrier services revenue for the
            three-months ended September 30, 2004, when compared to the
            three-months ended September 30, 2003 are as follows: local network
            services - $45,654; network access services - ($12,125); long
            distance services - $40,172; billing and collection services -
            ($1,725); cellular services - ($3,115); and miscellaneous -
            ($15,671).

            Local network services revenue increased 31.2% and network access
            services revenue decreased 1.9% in the three-month period ended
            September 30, 2004, when compared to the three-month period ended
            September 30, 2003. The increase in local network services revenue
            was 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 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 and universal service funding 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 $40,172, or 167.6%, increase
            in long distance services revenues during the three-month period
            ended September 30, 2004, when compared to the three-month period
            ended September 30, 2003. The increase is a direct reflection of the
            79.3% increase in Breda's long distance customer base, which has
            mainly resulted from new customers in the Carroll, Iowa market area
            taking this service as part of a


                                       23
<PAGE>

            bundled service package which includes local exchange carrier
            services and Internet service provider services.

            The $3,115, or 1.0%, decrease in cellular sales revenue for the
            three-month period ended September 30, 2004, when compared to the
            three-month period September 30, 2003, reflects the decreased sales
            from all of Breda's service locations during the three months ended
            September 30, 2004. Breda's overall customer volume for new
            contracts and retention contracts during the three months ended
            September 30, 2004 was less than during the three-month period ended
            September 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 were 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 $15,671, or 21.4%, for the
            three-month period ended September 30, 2004, when compared to the
            three-month period ended September 30, 2003. The decrease in
            miscellaneous revenue mainly arose from the fact that Breda received
            funds for educational expenses from Des Moines Area Community
            College of approximately $21,250 during the third quarter of 2003.
            There was no corresponding entry for the three-month period ended
            September 30, 2004.

            Broadcast Services ($234)

            Broadcast services revenue decreased $234, or 0.1%, for the
            three-month period ended September 30, 2004, when compared to the
            three-month period ended September 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 experienced a 6.9% decrease in its customer
            base when comparing the three-month period ended September 30, 2004,
            to the three-month period ended September 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 sixteen other communities that
            are served by


                                       24
<PAGE>

            Tele-Services. Tele-Services finalized the addition of channels in
            many of the nineteen communities served by Tele-Services during the
            three-month period ended September 30, 2004, and also implemented
            the corresponding rate increases during the three-month period ended
            September 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 ($6,223)

            Internet services revenue decreased $6,223, or 4.0%, for the
            three-month period ended September 30, 2004, when compared to the
            three-month period ended September 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 those 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, where BTC, Inc. is offering bundled services packages that
            include Internet services, 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 and 2004, but, due to the
            competitive environment for Internet services, Breda reduced its
            pricing for high speed Internet services effective October 1, 2004.
            The decrease will have an adverse effect on Breda's future Internet
            services revenues because although Breda feels that this action will
            help maintain its existing customer base, Breda does not believe
            that it will draw significant new customers to its high speed
            Internet services. Breda does not, therefore, anticipate that the
            decrease in revenue which will be caused by the downward price
            adjustment will be offset by increased numbers of high speed
            Internet customers.

            OPERATING EXPENSES

            There was an increase in total operating expenses of $249,398, or
            19.0%, for the three-month period ended September 30, 2004, when
            compared to the three-month period ended September 30, 2003. The
            components making up operating expenses are as follows: cost of
            services, depreciation and amortization, and selling, general and
            administration expenses.

            Cost of services increased $112,123, or 17.8%, for the three-month
            period ended September 30, 2004, when compared to the three-month
            period ended September 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


                                       25
<PAGE>

            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. Breda began
            offering local exchange carrier services in the Carroll, Iowa area
            through its subsidiary, BTC, Inc., in October 2003. In order to
            provide those services, 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 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 $8,944, or 3.5%, for
            the three-month period ended September 30, 2004, when compared to
            the three-month period ended September 30, 2003. The increase is
            attributable to the capital investments in plant which were made 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 September 30, 2003, because Breda
            commenced the new service offerings in October 2003.

            Selling, general and administration expenses increased $128,331, or
            30.0%, for the three-month period ended September 30, 2004, when
            compared to the same three-month period in 2003. Property taxes
            increased $33,457, or 116.4%, for the three month period ended
            September 30, 2004, when compared to the three-month period ended
            September 30, 2003. Customer operations increased $42,322, or 21.7%,
            when comparing the same three-month periods, while corporation
            operations increased $52,552, or 25.8%, when comparing the
            three-month periods. The increases in labor and benefit costs and
            the timing of payments for legal, accounting and consulting fee
            expenditures were the main reasons for these increases when
            comparing the three month period ended September 30, 2004 to the
            three-month period ended September 30, 2003.

            OPERATING INCOME

            The net result of the operating revenue and operating expenses was a
            decrease of $202,665, or 76.4%, in operating income for the
            three-month period ended September 30, 2004, when compared to the
            same three-month period in 2003.

            OTHER INCOME (EXPENSE)

            Other income (expense) increased $6,987, or 2.0%, during the
            three-month period ended September 30, 2004, when compared to the
            same three-month period in 2003. The increase was mainly
            attributable to four items.

            The first item is interest and dividend income, which increased
            $1,799, or 3.6%, when comparing the three-month period ended
            September 30, 2004, to the three-month period ended September 30,
            2003. The increase in interest and dividend income was


                                       26
<PAGE>

            due to the increase in both temporary investments and investments in
            marketable securities on which Breda is able to generate interest
            income. There was no corresponding entry during the three-month
            period ended September 30, 2003.

            The second item is income from equity investments, which increased
            $33,191, or 10.6%, during the three-month period ended September 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 September 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 cellular 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 remaining two items factoring into the $6,987 increase in Other
            Income were the $2,563 decrease in interest expense on Breda's long
            term debt and the $30,566 decrease in other income for the
            three-month period ended September 30, 2004, when compared to the
            three-month period ended September 30, 2003. The decrease in other
            income resulted from the loss on the early redemption of some
            temporary investments and the reduction in miscellaneous
            non-regulatory income.

            INCOME BEFORE INCOME TAXES

            Income before income taxes decreased $195,678, or 32.0%, for the
            three-month period ended September 30, 2004, when compared to the
            three-month period ended September 30, 2003. The decrease was the
            result of the $202,665 decrease in operating income and the $6,987
            increase in other income (expense).

            NET INCOME

            Income taxes decreased $62,087, or 28.7%, for the three-month period
            ended September 30, 2004, when compared to the same period in 2003.
            The decrease is a direct reflection of the decreased income
            generated in the three-month period ended September 30, 2004. The
            effective tax rate for the three month period ended September 30,
            2004 was 37.0%, versus 35.3% 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 decreased $133,591, or 33.8%, for the three-month period
            ended September 30, 2004, when compared to the same three-month
            period in 2003.


                                       27
<PAGE>

            Other Activities and Issues

            Breda received notification from the FBI on September 16, 2004 that
            the FBI would grant Breda, Prairie Telephone and Westside
            Independent an extension until June 30, 2006 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, but Breda anticipates that the FCC will follow the
            FBI's approach. In response to the FBI's Fourth Edition of the
            Flexible Deployment Assistance Guide on June 15, 2004, Breda,
            Prairie Telephone and Westside Independent each had 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 Telephone and Westside Independent each also filed a copy of
            their Fourth Edition Flexible Assistance Deployment Guide filing
            with the FCC. 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.

            An 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. One of the intended results of the Telecommunications Act
            of 1996 is to promote competition and reduce 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.


                                       28
<PAGE>

            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 were 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 was
            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 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
            Telecommunications 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


                                       29
<PAGE>

            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 180 day temporary suspension of
            local number portability compliance for participants in the joint
            petition filed by the Iowa Telecommunications Association and the
            Rural Iowa Independent Telephone Association until a final decision
            was reached by the IUB in early October 2004. The IUB later issued
            an order on July 23, 2004 requiring all participating companies to
            provide company-specific information on local number portability
            costs regarding the number of customers, the cost of local number
            portability implementation, and expected cost per customer that
            would be reflected in the local number portability cost-recovery
            charge authorized by the FCC. Breda, Prairie Telephone and Westside
            Independent were required to submit their individualized data to the
            Iowa Telecommunications Association and the Rural Iowa Independent
            Telephone Association by July 30, 2004, for filing with the IUB in
            advance of the August 10, 2004, hearing on the matter. The IUB could
            have granted a suspension or modification of the local number
            portability 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.

            The IUB issued its order on October 6, 2004. Under the IUB's order,
            all Iowa companies were given extensions ranging from six month to
            eighteen months from the date of the IUB order, or in some cases
            until six months after the company received a bonafide request for
            number portability from a wireless carrier. All of the telephone
            companies were grouped into five classifications with varying
            suspension dates based on a) the number of wireless service
            providers in their service area, b) if there is an independent cable
            system in their service area, c) if the local number portability
            implementation cost per customer per month is more or less than
            $1.00, d) if the company has a MITEL switch. Breda and Prairie
            Telephone were classified in the group receiving six month
            extensions, and Westside Independent was classified in the group
            receiving a one year extension.

            On October 26, 2004, the Iowa Telecommunications Association and the
            Rural Iowa Independent Telephone Association filed an Application
            for Rehearing of the IUB's October 6, 2004 order. The application
            requests the IUB to reconsider its order and to a) clarify that the
            suspension period commences from the date of the order, b) put the
            companies with MITEL switches in the appropriate groups, c) clarify
            the time period for Group 5, d) eliminate the presence of an
            independent cable television provider as a determining criteria, and
            e) use the cost factor only in conjunction with the number of
            wireless carriers and not as an independent criteria.

            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


                                       30
<PAGE>

            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.

            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 FCC determines the access
            charge rate that can be charged for interstate long distance calls.
            The FCC can change those rates at any time, and the more recent
            changes have lowered access charge rates.

            Over the last fourteen months, various groups in the
            telecommunications industry representing incumbent local exchange
            carriers, competitive local exchange carriers, interexchange
            carriers, next-generation network providers, rural telephone
            companies, and wireless service providers have attempted to develop
            comprehensive plans for intercarrier compensation and universal
            service reform because they believe that the current myriad of
            disparate intercarrier compensation regimes is not sustainable in
            its present form and cannot be fixed. The focus in the industry has
            been especially strong on the Intercarrier Compensation Forum, which
            is a group of carriers given an unofficial but widely acknowledged
            charge by the FCC to develop a reform plan for intercarrier
            compensation. Other coalitions, such as Expanded Portland Group and
            Alliance for Rational Intercarrier Compensation have also proposed
            specific plans to the industry and the FCC. The United States
            Telecom Association is also developing a plan for consideration by
            the industry and the FCC. Each of the proposed plans could have
            significant ramifications for Breda and its subsidiaries, and Breda
            continues to monitor these proposals. Breda anticipates that any
            changes in its interexchange carrier compensation or universal
            service compensation as a result of one or a combination of these
            proposals would occur after 2005.

            Concerns have also been raised on the state level by the Iowa
            Legislature and the Iowa Utilities 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 Telecommunications 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 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


                                       31
<PAGE>

            rates, and that the cost per minute for intrastate access fell
            within a range of 2 cents to 16 cents. The task force is continuing
            to study the impact of 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 Iowa
            Telecommunications Association and the Rural Iowa Independent
            Telephone Association 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 does,
            however, anticipate 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, Sprint 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 continuing to monitor its options, finalize its
            interMTA data, and is 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 the carriers.
            The model agreement would provide compensation on only a going
            forward basis, but past compensation is still under negotiation. The
            agreements provide for significantly less revenue per minute, and
            are reciprocal compensation agreements, which means generally that
            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.


                                       32
<PAGE>

            One source of consolidated revenue is Tele-Services' cable business.
            Tele-Services' operating revenues are generated primarily from
            monthly fees for basic 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 those 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 the nineteen communities served by Tele-Services 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 effective May 1, 2004 in the communities which were
            receiving the additional channels by May 1, 2004. Rates increases
            were implemented on July 1, 2004 for the remaining three communities
            which received the channel additions in May and June 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.


                                       33
<PAGE>

            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 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 shared access
            to a network 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
            enactment of the Telecommunications Act of 1996.

            In September 1999, the FCC 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.


                                       34
<PAGE>

            Breda has been notified by Qwest that Qwest is seeking to
            renegotiate its interconnection agreement with Breda, and Breda has
            received notification that costs for the unbundled network elements
            that Breda receives from Qwest will 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. The total monetary impact to Breda's operations is
            believed to be minimal 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 impose a rate increase on its
            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 20.8%
            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's sub-agent
            for U.S. Cellular services terminated its contractual arrangement
            with Breda on September 17, 2004. Breda presently has no plans to
            recruit a new sub-agent since Breda already has two retail outlets
            in the market that was served by this sub-agent.


                                       35
<PAGE>

            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.

            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 $700,000 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. Prairie Telephone received four monthly principal
            payments of $12,000, totaling $48,000, in 2003. On September 17,
            2003 Prairie Telephone signed a principal deferral agreement with
            Desktop Media, L.L.C. which deferred the principal payments due in
            the months of September through December 2003, and which also
            provided that Prairie Telephone's ownership in Desktop Media, L.L.C.
            would be increased from 10% to 17% 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 those stipulations were not met
            in the first quarter of 2004, and Prairie Telephone accordingly
            acquired an additional 7% ownership of Desktop Media, L.L.C. Prairie
            Telephone 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. Prairie Telephone received payment of $13,333 on
            the advanced amount in September 2004. 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,"


                                       36
<PAGE>

            "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 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;


                                       37
<PAGE>

                  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;

                  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     new third parties entering into Breda's or any of its
                        subsidiaries' marketing or service areas.

                  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;

                  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.


                                       38
<PAGE>

            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.

            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.     Unregistered Sales of Equity Securities and Use of Proceeds.

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

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


                                       39
<PAGE>

              SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

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

            (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 $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 July 1, 2004 through September 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 July 1, 2004 through September 30, 2004.

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

            No matters were submitted to a vote of the shareholders of Breda,
            through the solicitation of proxies or otherwise, during the period
            of July 1, 2004 through September 30, 2004.

Item 5.     Other Information.

            There were no material changes during the period of July 1, 2004
            through September 30, 2004 to the procedures by which the
            shareholders of Breda may recommend nominees to Breda's board of
            directors.

Item 6.    Exhibits.

            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.


                                       40
<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: November 12, 2004.              By: /s/ Robert Boeckman
                                          --------------------------------------
                                          Robert Boeckman, Chief Operations
                                          Officer and Co-Chief Executive Officer


Date: November 12, 2004.              By: /s/ Jane Morlok
                                          --------------------------------------
                                          Jane Morlok, Chief Financial Officer
                                          and Co-Chief Executive officer


                                       41
<PAGE>

                                  EXHIBIT INDEX
                             Exhibits to Form 10-QSB
                      Three Months Ended September 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. (Filed as Exhibit 3.2 to Breda's Form
            10-QSB for the quarterly period ended June 30,
            2004 and filed August 13, 2004, and incorporated
            herein by this reference.)

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                            E-1
            Operations Officer and Co-Chief Executive
            Officer

      31.2  Rule 13a-14(a) Certification of Chief                            E-2
            Financial Officer and Co-Chief Executive Officer

<PAGE>

*32.  Section 1350 Certifications

      32.1  Section 1350 Certification of Chief Operations                   E-3
            Officer and Co-Chief Executive Officer

      32.2  Section 1350 Certification of Chief Financial                    E-4
            Officer and Co-Chief Executive Officer

*Included with this filing.