UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549


________________





FORM
10-Q


________________


(Mark
One)





x
            QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For the
quarterly period ended September 30, 2009


or


o
            TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For the
transition period from ______________________ to
_______________________





Commission
      File Number: 0-26525


____________________





BREDA
      TELEPHONE CORP.


(Exact
      name of registrant as specified in its
charter)


_____________________





Iowa
            42-0895882(State
      or other jurisdiction of incorporation or organization)
            (I.R.S.
      Employer Identification No.)112
      E. Main, P.O. Box 190, Breda, Iowa
            51436(Address
      of principal executive offices)
            (Zip
      Code)





712-673-2311


(Registrant's
      telephone number, including area
code)





N/A


(Former
      name, former address and former fiscal year, if changed since last
      report)


______________________





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


þ
Yes    o   No





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).


o   Yes     o   No










Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of "large accelerated filer,"
"accelerated filer" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act.





Large
      accelerated filer  o
            Accelerated
      filer  oNon-accelerated
      filer  o
            Smaller
      reporting company  þ





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  o   Yes    þ   No





Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:  30,851 shares of common
stock, no par value, at November 1, 2009.





BREDATELEPHONE CORP.


FORM
10-Q


For
the Quarter Ended September 30, 2009





INDEX





PagePart
      I.
            Financial
      InformationItem
      1.
            Unaudited Financial Statements
            1a)
            Balance Sheets
            2b)
            Statements of Income
            3c)
            Statements of Stockholders’ Equity
            4d)
            Statements of Cash Flows
            5e)
            Notes to Unaudited Financial Statements
            6Item
      2.
            Management's Discussion and Analysis of Financial Condition and
      Results of Operations
            10Item
      3.
            Quantitative and Qualitative Disclosures About Market
      Risk
            45Item
      4T.
            Controls and Procedures
            45Part
      II.
            Other
      InformationItem
      1.
            Legal Proceedings
            46Item
      1A.
            Risk Factors
            46Item
      2.
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            46Item
      3.
            Defaults Upon Senior Securities
            47Item
      4.
            Submission of Matters to a Vote of Security
      Holders
            47Item
      5.
            Other Information
            47Item
      6.
            Exhibits
            48Signatures
            50Exhibits
      Filed With This ReportRule
      13a-14(a) Certification of Chief Executive Officer
            E-1Rule
      13a-14(a) Certification of Chief Financial Officer
            E-2Section
      1350 Certification of Chief Executive Officer
            E-3Section
      1350 Certification of Chief Financial Officer
            E-4


Index


PARTI - FINANCIAL INFORMATION





Item
      1.
            Unaudited
      Financial Statements.





Breda
Telephone Corp.


And
Subsidiaries


Breda,
IA





Condensed
Consolidated Financial Statements


For
the Periods


Ended
September 30, 2009 and 2008


And
the Year Ended December 31, 2008


1
 Index


BREDATELEPHONE CORP. AND SUBSIDIARIES


BREDA,
IOWA





CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)


September
30, 2009 and December 31, 2008





September
      30,
            
            
            December
      31,2009
            
            
            2008 (Restated)ASSETSCURRENT
      ASSETSCash
      and cash equivalents
            
            $
            3,121,662
            
            
            $
            1,317,462Marketable
      securities
            
            
            619,448
            
            
            
            604,435Accounts
      receivable, net of allowances of $2,306,841 and $3,415,824 in 2009 and
      2008, respectively
            
            
            1,666,883
            
            
            
            3,290,640Interest
      receivable
            
            
            74,049
            
            
            
            81,730Notes
      receivable, less impairment of $0 in each 2009 and 2008
            
            
            -
            
            
            
            73,759Inventory,
      at average cost
            
            
            176,945
            
            
            
            227,731Prepaid
      income taxes
            
            
            809,957
            
            
            
            406,451Other
            
            
            104,177
            
            
            
            112,438Deferred
      income taxes
            
            
            937,696
            
            
            
            718,5957,510,817
            
            
            
            6,833,241OTHER
      NONCURRENT ASSETSMarketable
      securities
            
            
            5,355,586
            
            
            
            5,440,550Investments
      in unconsolidated affiliates at equity
            
            
            8,866,669
            
            
            
            8,525,861Other
      investments at cost
            
            
            652,685
            
            
            
            673,590Goodwill
            
            
            918,715
            
            
            
            896,812Note
      receivable
            
            
            -
            
            
            
            -15,793,655
            
            
            
            15,536,813PROPERTY,
      PLANT AND EQUIPMENT
            
            
            7,205,341
            
            
            
            6,857,853TOTAL
      ASSETS
            
            $
            30,509,813
            
            
            $
            29,227,907LIABILITIES AND STOCKHOLDERS'
      EQUITYCURRENT
      LIABILITIESCurrent
      portion of long-term debt
            
            $
            -
            
            
            $
            200,507Accounts
      payable
            
            
            1,730,560
            
            
            
            1,751,822Accrued
      taxes
            
            
            118,030
            
            
            
            191,943Other
            
            
            155,052
            
            
            
            124,5362,003,642
            
            
            
            2,268,808LONG-TERM
      DEBT, less current portion
            
            
            -
            
            
            
            750,988OTHER
      NONCURRENT LIABILITIES
            
            
            2,740,158
            
            
            
            1,947,128STOCKHOLDERS'
      EQUITYCommon
      stock, Class A - no par value, 5,000,000 shares authorized, 26,378 and
      27,924 shares issued and outstanding at $547 and $509 stated values,
      respectively
            
            
            14,428,766
            
            
            
            14,213,316Common
      stock, Class B - no par value, 5,000,000 shares authorized, 4,473 and
      2,927 shares issued and outstanding at $547 and $509 stated values,
      respectively
            
            
            2,446,731
            
            
            
            1,489,843Retained
      earnings
            
            
            8,824,926
            
            
            
            8,421,63025,700,423
            
            
            
            24,124,789MINORITY
      INTEREST
            
            
            65,590
            
            
            
            136,194TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
            
            $
            30,509,813
            
            
            $
            29,227,907





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


2
 Index


BREDATELEPHONE CORP. AND SUBSIDIARIES


BREDA,
IOWA





CONDENSED
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


For
the Three and Nine Months Ended September 30, 2009 and 2008





For
      the Three Months Ended
            
            
            For
      the Nine Months Ended2009
            
            
            2008 (Restated)
            
            
            2009
            
            
            2008 (Restated)OPERATING
      REVENUES
            
            $
            2,035,986
            
            
            $
            2,778,373
            
            
            $
            6,484,517
            
            
            $
            8,697,403OPERATING
      EXPENSESCost
      of services
            
            
            1,152,852
            
            
            
            1,349,870
            
            
            
            3,210,538
            
            
            
            4,185,910Depreciation
      and amortization
            
            
            253,087
            
            
            
            243,257
            
            
            
            780,945
            
            
            
            752,801Selling,
      general, and administrative
            
            
            548,706
            
            
            
            562,236
            
            
            
            1,859,505
            
            
            
            1,785,7411,954,645
            
            
            
            2,155,363
            
            
            
            5,850,988
            
            
            
            6,724,452OPERATING
      INCOME
            
            
            81,341
            
            
            
            623,010
            
            
            
            633,529
            
            
            
            1,972,951OTHER
      INCOME (EXPENSES)Interest
      and dividend income
            
            
            59,563
            
            
            
            70,442
            
            
            
            331,212
            
            
            
            363,191Gain
      or (Loss) on sale of investments
            
            
            524
            
            
            
            (500
            )
            
            
            1,358
            
            
            
            4,301Gain
      or (Loss) on disposal of assets
            
            
            (65,530
            )
            
            
            (3,362
            )
            
            
            (71,883
            )
            
            
            5,711Interest
      expense
            
            
            (129
            )
            
            
            (18,689
            )
            
            
            (26,086
            )
            
            
            (59,717
            )Income
      from equity investments
            
            
            80,704
            
            
            
            533,713
            
            
            
            1,376,076
            
            
            
            1,050,749Gain
      on impairment of note receivable
            
            
            445,252
            
            
            
            -
            
            
            
            445,252
            
            
            
            -Other,
      net
            
            
            (2,597
            )
            
            
            (23,365
            )
            
            
            (22,655
            )
            
            
            (35,401
            )517,787
            
            
            
            558,239
            
            
            
            2,033,274
            
            
            
            1,328,834INCOME
      BEFORE INCOME TAXES
            
            
            599,128
            
            
            
            1,181,249
            
            
            
            2,666,803
            
            
            
            3,301,785INCOME
      TAXES
            
            
            233,267
            
            
            
            325,999
            
            
            
            846,870
            
            
            
            1,135,827NET
      INCOME BEFORE MINORITY INTEREST
            
            
            365,861
            
            
            
            855,250
            
            
            
            1,819,933
            
            
            
            2,165,958MINORITY
      INTEREST
            
            
            134
            
            
            
            (1,223
            )
            
            
            2,509
            
            
            
            (1,458
            )NET
      INCOME
            
            $
            365,995
            
            
            $
            854,027
            
            
            $
            1,822,442
            
            
            $
            2,164,500NET
      INCOME PER COMMON SHARE
            
            $
            11.86
            
            
            $
            27.68
            
            
            $
            59.07
            
            
            $
            70.14DIVIDENDS
      PER COMMON SHARE
            
            
            -
            
            
            
            -
            
            
            $
            8.00
            
            
            $
            8.00





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


3
 Index


BREDATELEPHONE CORP. AND SUBSIDIARIES


BREDA,
IOWA





CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)





Common
      Stock, A and B Class
            
            
            RetainedShares
            
            
            Amount
            
            
            Earnings
            
            
            TotalBalance
      at December 31, 2007
            
            
            30,936
            
            
            $
            14,137,752
            
            
            $
            8,344,135
            
            
            $
            22,481,887Comprehensive
      income:Net
      Income
            
            
            
            
            
            
            
            
            
            
            1,928,555
            
            
            
            1,928,555Dividends
      paid
            
            
            
            
            
            
            
            
            
            
            (246,808
            )
            
            
            (246,808
            )Common
      stock redeemed, net
            
            
            (85
            )
            
            
            (38,845
            )
            
            
            
            
            
            
            (38,845
            )Stated
      value stock adjustment
            
            
            
            
            
            
            1,604,252
            
            
            
            (1,604,252
            )Balance
      at December 31, 2008
            
            
            30,851
            
            
            
            15,703,159
            
            
            
            8,421,630
            
            
            
            24,124,789Comprehensive
      income:Net
      Income
            
            
            
            
            
            
            
            
            
            
            1,822,442
            
            
            
            1,822,442Dividends
      paid
            
            
            
            
            
            
            
            
            
            
            (246,808
            )
            
            
            (246,808
            )Stated
      value stock adjustment
            
            
            
            
            
            
            1,172,338
            
            
            
            (1,172,338
            )Balance
      at September 30, 2009
            
            
            30,851
            
            
            $
            16,875,497
            
            
            $
            8,824,926
            
            
            $
            25,700,423





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


4
 Index


BREDATELEPHONE CORP. AND SUBSIDIARIES


BREDA,
IOWA





CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


For
the Nine Months Ended September 30, 2009 and 2008





2009
            
            
            2008 (Restated)CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income
            
            $
            1,822,442
            
            
            $
            2,164,500Adjustments
      to reconcile net income to cash provided by operating
      activities:Depreciation
      and amortization
            
            
            780,945
            
            
            
            752,801Minority
      interest
            
            
            (2,509
            )
            
            
            1,458Deferred
      income taxes
            
            
            573,929
            
            
            
            16,935Amortization
      of investment premium/discount - net
            
            
            27,368
            
            
            
            34,029Equity
      income in unconsolidated affiliates, net of distributions received of
      $1,045,268 and $1,219,255 in 2009 and 2008, respectively
            
            
            (330,808
            )
            
            
            167,777(Gain)
      or loss on disposal of property
            
            
            71,883
            
            
            
            (5,711
            )Gain
      on impairment of note receivable
            
            
            (445,252
            )
            
            
            0Gain
      on sale of marketable securities
            
            
            (1,358
            )
            
            
            (4,301
            )Changes
      in assets and liabilities:(Increase)
      or decrease in assets
            
            
            1,265,076
            
            
            
            (2,850,401
            )Increase
      or (decrease) in liabilities
            
            
            (65,999
            )
            
            
            871,268Net
      cash provided by operating activities
            
            $
            3,695,717
            
            
            $
            1,148,355CASH
      FLOWS FROM INVESTING ACTIVITIESCapital
      expenditures
            
            
            (1,278,570
            )
            
            
            (2,339,866
            )Proceeds
      from the sale of assets
            
            
            79,594
            
            
            
            9,073Purchase
      of marketable securities
            
            
            (451,885
            )
            
            
            (309,819
            )Purchase
      of equity investments
            
            
            (10,000
            )
            
            
            (720,000
            )Purchase
      of other investments - at cost
            
            
            (2,956
            )
            
            
            (9,077
            )Purchase
      of investment in a subsidiary
            
            
            (68,095
            )
            
            
            0Proceeds
      from the sale of marketable securities
            
            
            495,826
            
            
            
            1,947,584Proceeds
      from the sale of other investments - at cost
            
            
            23,861
            
            
            
            27,953Proceeds
      from the receipt of principal on note receivable
            
            
            519,011
            
            
            
            254,384Net
      cash used in investing activities
            
            $
            (693,214
            )
            
            $
            (1,139,768
            )CASH
      FLOWS FROM FINANCING ACTIVITIESRepayment
      of long term debt
            
            
            (951,495
            )
            
            
            (139,616
            )Common
      stock redeemed, net
            
            
            0
            
            
            
            (38,845
            )Dividends
      paid
            
            
            (246,808
            )
            
            
            (246,808
            )Net
      cash used in financing activities
            
            $
            (1,198,303
            )
            
            $
            (425,269
            )Net
      Increase (Decrease) in Cash and Cash Equivalents
            
            $
            1,804,200
            
            
            $
            (416,682
            )Cash
      and Cash Equivalents at Beginning of Period
            
            
            1,317,462
            
            
            
            1,175,084Cash
      and Cash Equivalents at End of Period
            
            $
            3,121,662
            
            
            $
            758,402Supplemental
      Disclosures of Cash Flow InformationCash
      paid during the period for:Interest
            
            $
            26,086
            
            
            $
            59,717Income
      taxes
            
            $
            676,446
            
            
            $
            1,111,742





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


5
 Index


BREDATELEPHONE CORP. AND SUBSIDIARIES


BREDA,
IOWA





NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
1. CONDENSED 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, 2009 and
December 31, 2008 and the results of operation and changes in cash flows for the
three and nine months ended September 30, 2009 and 2008.





Certain
information and footnote disclosures normally included in annual financial
statements prepared in accordance with accounting principles generally accepted
in the United 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,
2008 financial statements.  The results of operations for the three
and nine month period ended September 30, 2009 are not necessarily indicative of
the operating results of the entire year.





Carroll
County Wireless, L.L.C. became a subsidiary of Breda Telephone Corp. on January
1, 2009, when Breda purchased the membership units of one of the three original
investors in Carroll County Wireless, L.L.C. and Breda increased its ownership
percentage from 33.33% to 66.67%.  As a result beginning in 2009,
Breda will present its investment in Carroll County Wireless using the
consolidation method.  In order to conform with the 2009 presentation,
Breda’s 33.33% interest in Carroll County Wireless at September 30, 2008 and
December 31, 2008 is also presented in the financial statements using the
consolidation method.





The table
below outlines the effect of these changes to the financial
statements:





DifferenceTotal
      assets
              
              $
              136,195Total
      liabilities and equity
              
              
              136,195DifferenceOperating
      revenues
              
              $
              33,846Operating
      expenses
              
              
              31,675Operating
      income
              
              
              2,171Income
      before income taxes
              
              
              1,458




Certain
reclassifications have been made to the 2008 financial statements to conform
with the 2009 presentations.


6
 Index


BREDA
TELEPHONE CORP. AND SUBSIDIARIES


BREDA,
IOWA





NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
2. NONCASH INVESTING
ACTIVITIES





Noncash
investing activities included $1,340 and $62,233 during the nine months ended
September 30, 2009 and September 30, 2008, respectively, relating to plant and
equipment additions under construction during the period, which are reflected in
accounts payable at September 30, 2009 and September 30, 2008.





NOTE
3. 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 provided services to customers in Nebraska through June 30,
2009.  The Beaver Lake, NE cable TV system was sold as of July 1,
2009.    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.


7
 Index


BREDA
TELEPHONE CORP. AND SUBSIDIARIES


BREDA,
IOWA





NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




NOTE
3. OPERATING SEGMENTS
(continued)





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





Local
            
            
            
            
            
            InternetNine Months Ended
            
            Exchange
            
            
            
            
            
            ServiceSeptember 30, 2009
            
            Carrier
            
            
            Broadcast
            
            
            Provider
            
            
            TotalRevenues
            
            $
            5,577,600
            
            
            $
            333,828
            
            
            $
            573,089
            
            
            $
            6,484,517Segment
      profit (loss)
            
            
            2,160,929
            
            
            
            (142,999
            )
            
            
            (195,488
            )
            
            
            1,822,442





Local
            
            
            
            
            
            InternetNine Months Ended
            
            Exchange
            
            
            
            
            
            ServiceSeptember 30, 2008
            
            Carrier
            
            
            Broadcast
            
            
            Provider
            
            
            TotalRevenues
            
            $
            7,659,441
            
            
            $
            504,843
            
            
            $
            533,119
            
            
            $
            8,697,403Segment
      profit (loss)
            
            
            2,816,732
            
            
            
            (152,286
            )
            
            
            (499,946
            )
            
            
            2,164,500





Local
            
            
            
            
            
            InternetThree Months Ended
            
            Exchange
            
            
            
            
            
            ServiceSeptember 30, 2009
            
            Carrier
            
            
            Broadcast
            
            
            Provider
            
            
            TotalRevenues
            
            $
            1,794,481
            
            
            $
            48,111
            
            
            $
            193,394
            
            
            $
            2,035,986Segment
      profit (loss)
            
            
            455,048
            
            
            
            (26,071
            )
            
            
            (62,982
            )
            
            
            365,995





Local
            
            
            
            
            
            InternetThree Months Ended
            
            Exchange
            
            
            
            
            
            ServiceSeptember 30, 2008
            
            Carrier
            
            
            Broadcast
            
            
            Provider
            
            
            TotalRevenues
            
            $
            2,436,077
            
            
            $
            162,271
            
            
            $
            180,025
            
            
            $
            2,778,373Segment
      profit (loss)
            
            
            1,026,508
            
            
            
            (50,773
            )
            
            
            (121,708
            )
            
            
            854,027


8
 Index


BREDA
TELEPHONE CORP. AND SUBSIDIARIES


BREDA,
IOWA





NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
4. NET INCOME PER COMMON
SHARE





Net
income per common share for September 30, 2009 and 2008 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, 2009 and 2008 were
30,851 and 30,851, and 30,851 and 30,861 respectively.





NOTE
5. STOCK VALUE
ADJUSTMENT





During
April 2009, the board of directors authorized a $38 increase in the stated value
of each share of common stock from $509 to $547.  There were 30,851
shares outstanding at the time of the value adjustment, which reduced retained
earnings by $1,172,338.





During
March 2008, the board of directors authorized a $52 increase in the stated value
of each share of common stock from $457 to $509.  There were 30,851
shares outstanding at the time of the value adjustment, which reduced retained
earnings by $1,604,252.





NOTE
6. PURCHASE
COMMITMENTS





As of
September 30, 2009, purchase commitments for the construction of the fiber to
the home project in Breda’s CLEC in Carroll, Iowa totaled
$6,868,038.41.  Breda is financing the project with a $10,000,000
broadband loan from Rural Utilities Services.  Construction commenced
on the fiber project in September 2009, and it is anticipated that it will be a
two-year project.  On October 2, 2009, Breda received its first RUS
loan advance in the amount of $1,000,000.


9
 Index


Item2.
            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations.





Cautionary
Statement on Forward Looking Statements and Industry and Market
Data





Various
discussions and statements in this Item and other sections of this quarterly
report are or contain forward-looking statements that express Breda's current
beliefs, forecasts, projections and predictions about future
events.  All statements other than statements of historical fact are
forward looking statements, and include statements with respect to financial
results and condition; anticipated trends in business, revenues, net income, net
profits or net losses; projections concerning operations, capital needs and cash
flow; investment, business, growth, expansion, acquisition and divestiture
opportunities and strategies; management's plans or intentions for the future;
competitive position or circumstances; and other forecasts, projections and
statements of expectation.  Words such as "expects," "estimates,"
"plans," "anticipates," "forecasts," "prospects," "predicts," "projects,"
"believes," "seeks," "should," "could," "may," "contemplates," "thinks,"
"future," "strategy," "potential," "possible," "intends," "hopes," "objectives,"
and other similar expressions or variations of those words or those types of
words help identify forward looking statements.





Forward
looking statements involve and are subject to various material risks,
uncertainties and assumptions.  Forward looking statements are
necessarily subjective and 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 guaranties of future results or
performance.  Forecasts and projections are also in all events likely
to be inaccurate, at least to some degree, and especially over long periods of
time, and in particular in a rapidly changing industry such as the
communications industry.  Forecasts and projections are also currently
difficult to make with any degree of reliability or certainty given the very
difficult and uncertain credit, market and other economic circumstances in
existence at the time of the preparation of this quarterly
report.  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.  Breda cannot
guarantee Breda's future results, performance or business conditions, and strong
or undue reliance must not be placed on any forward-looking
statements.





Actual
future performance, outcomes and results may differ materially from those
suggested by or 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 many of which are beyond the control of Breda and Breda's
management.  It is not possible to predict or identify all of those
factors, risks and uncertainties, but they include inaccurate assumptions or
predictions by management, the accuracy and completeness of the publicly
available information upon which part of Breda's business strategy is based and
the various factors, risks and uncertainties set forth in this quarterly report
and in the "Cautionary Statement on Forward Looking Statements and Industry and
Market Data", "Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" sections of Breda's Annual Report on Form
10-K for the year ended December 31, 2008.


10
 Index


Breda
      may have obtained industry, market, competitive position and other data
      used in this quarterly report or in Breda's general business plan from
      Breda's own research or internal surveys, studies conducted by other
      persons and/or from trade or industry associations or general publications
      and other publicly available information.  Breda attempts to
      utilize third party sources of information which Breda believes to be
      materially complete, accurate, balanced and reliable, but there is no
      assurance of the accuracy, completeness or reliability of any third party
      information.  For example, a trade or industry association for
      an industry may present information in a manner that is more favorable to
      that industry than would be presented by an independent
      source.  Industry publications and surveys and other publicly
      available sources of information also generally state that they have
      obtained information from third party sources believed to be reliable, but
      do not guarantee the accuracy or completeness of any
      information.





Overview





General





Breda is
a provider of telecommunication services to residential and business customers
in the west central region and the southwest region of rural
Iowa.  Breda and its wholly-owned subsidiaries, Prairie Telephone Co.,
Inc., Westside Independent Telephone Company, Tele-Services, Ltd. and BTC, Inc.,
all conduct business under the names "W.I.N." or "Western Iowa
Networks".  Breda also owns approximately 66.67% of the outstanding
membership units of Carroll County Wireless, L.L.C., and the results of
operations of Carroll County Wireless, L.L.C. are included in Breda's
consolidated financial statements.  Carroll County Wireless, L.L.C.
holds the PCS spectrum for nearly all of Carroll County, Iowa.  PCS
spectrum is bandwidth allocated by the Federal Communications Commission which
can be used in the transmission of voice, data and television
communications.





The
telecommunication services provided by Breda or its subsidiaries include long
distance services, dial-up and high-speed Internet services, satellite Internet
services, and cable TV services.





Breda and
its telephone subsidiaries operate seven telephone exchanges as the historical
or incumbent local exchange carrier.  BTC, Inc. offers competitive
local exchange carrier services to residential and business customers in
Carroll, Iowa.  Qwest is the incumbent local exchange carrier for that
area.


11
 Index


Carroll
County Wireless, L.L.C.'s revenues are derived from fees paid to it under
roaming agreements through i wireless agreements with other wireless
carriers.  Breda is not actively or directly marketing i wireless
services to customers in Breda's telephone exchanges.





Operating
      Segments





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.





Local
      Exchange Carrier Services.This segment provides
      telephone (including long distance services), data services, and other
      services to customers in the local exchanges served by Breda and its
      telephone subsidiaries.  This segment also includes the revenue
      generated by Carroll County Wireless, L.L.C. through its i wireless
      agreements with other wireless
carriers.





Broadcast
      Services.This
      segment provided cable television services to customers in a total of
      twelve towns in Iowa and one town in Nebraska from January 1, 2009 through
      June 30, 2009.  Tele-Services sold seven of its southern Iowa
      cable TV systems and its cable system for Beaver Lake, Nebraska on July 1,
      2009, and Tele-Services bought the cable television system in Breda's
      Macedonia, Iowa telephone exchange effective August 1, 2009. Tele-Services
      was therefore providing cable television services to six Iowa communities
      as of the date of this quarterly
report.





Internet
      Services.This segment provides Internet access to customers in the local
      exchanges and the surrounding areas and in the Carroll, Iowa market
      area.  The Internet services are provided 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.


Carroll
County Wireless, L.L.C.


12
 Index


Broadcast
Services


Tele-Services,
Ltd.





Internet
Service Provider


BTC,
Inc.





Factors
Affecting Breda's Operating Performance





Breda
believes that a number of industry and company-specific factors are affecting
and will continue to affect Breda's results of operations.  These
factors include the following:





·
            The
      effect on Breda's revenues of declining numbers of access lines caused by
      customer migration to cell phone usage only; technology advances allowing
      the provisioning of Internet services on the same access line as voice
      service; technology advances provisioning residential and business voice
      services over data circuits (VOIP); and the declining population base in
      the rural areas served by Breda.





Breda's
strategic response to these trends includes efforts to introduce and provide
enhanced local services and additional services like voice mail, dial-up and DSL
Internet access, long distance services, and to provide cellular services
through its agency agreement with U.S. Cellular.  Breda also seeks to
maximize its telecom industry offerings by partnering with surrounding telephone
companies in wireless service ventures and through investment in cellular
partnerships within the state of Iowa and surrounding states.  Breda
has also undertaken to compete with Qwest for voice, long distance, and Internet
service customers in Carroll, Iowa.





·
            The
      effect on Breda's revenues from current and potential future changes in
      access rate regulation at the state and federal
  levels.





·
            The
      effect on Breda's revenues from rate and pricing structures caused by the
      competition of multiple providers in the Carroll, Iowa
      market.  The incumbent local exchange carrier (Qwest), the local
      cable TV provider (Mediacom) and additional outside competitors in that
      market have all partnered with telecommunication providers that can bring
      additional service components to complete a bundled service offering to
      the customer in what is known in the industry as the "triple
      play".  Customers receive local phone service, blocks of long
      distance service minutes, Internet services, and broadcast services (cable
      TV or satellite TV) for a competitive
price.


13
 Index


Breda has
switching capabilities for the Carroll, Iowa market that allows Breda to offer
another type of high-speed Internet services, in addition to its voice, long
distance and present Internet services.  The switching capabilities
also allow Breda to be able to bring fiber to the home, which would be an
overbuild of the Carroll market, and would allow Breda to be self-reliant in
providing communication services to that community because Breda would then no
longer need to lease access lines from Qwest to provide
services.  BTC, Inc. received final approval notification from the
Rural Utilities Services on March 13, 2009 (written notification was received on
April 16, 2009) for its $10,000,000 broadband loan application to overbuild the
Carroll non-rural market with fiber to the home.  Breda began the
approximately two-year project in September 2009.





Breda
continues to evaluate modifying its package offerings and adjusting its pricing
structures in order to attempt to remain competitive.





·
            The
      effect on Breda's revenues from decreased customer counts for dial-up
      Internet as well as cable TV services.  Competition and bundled
      services, declining population bases in some of Breda's rural service
      areas, and cost of technology upgrades play a role in the competition for
      and retention of customers.  Tele-Services has consolidated its
      cable TV programming transmission equipment in the communities where it is
      geographically feasible, in order to reduce system and service costs which
      are incurred to provide the cable TV services.  Tele-Services
      discontinued cable TV services in the third quarter of 2008 to 127
      customers in the small Iowa rural communities of Bayard, Lohrville, and
      Thurman.  Breda did not have voice services in those towns and
      the head ends in those towns could not be
      consolidated.  Tele-Services sold seven of its southern Iowa
      cable TV systems and its one Nebraska cable TV system on July 1,
      2009.  Tele-Services purchased the cable system in Macedonia,
      Iowa on August 1, 2009.





·
            The
      effect on Breda's revenues from decreased access revenue caused by a
      decrease in the number of long distance calls originating from, or
      terminating to, an access line in one of Breda's telephone
      exchanges.  The proliferation of wireless phone usage, and the
      designation of new technology by the Federal Communication Commission as
      data services, instead of voice services, have both decreased the "minutes
      of use" on Breda's networks, which results in less access revenue, and
      caused the access payment structure to be renegotiated by the new
      technology providers and wireless
providers.


14
 Index


Revenues





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 derived from the three segments described above and
from investments for the three-month periods ended September 30, 2009, and
September 30, 2008, respectively:





%
      of Total RevenuesThree
      Months Ended
            
            
            for
      the Three Months EndedSeptember 30,
            
            
            Ended September 30,2009
            
            
            2008 (Restated)
            
            
            2009
            
            
            2008 (Restated)OPERATING
      REVENUESLocal
      exchange carrier services
            
            $
            1,794,518
            
            
            $
            2,436,076
            
            
            
            88.1
            %
            
            
            87.7
            %Broadcast
      services
            
            
            48,074
            
            
            
            162,271
            
            
            
            2.4
            %
            
            
            5.8
            %Internet
      services
            
            
            193,394
            
            
            
            180,026
            
            
            
            9.5
            %
            
            
            6.5
            %$
            2,035,986
            
            
            $
            2,778,373
            
            
            
            100.0
            %
            
            
            100.0
            %





Local Exchange Carrier
Services.Breda's revenue in this segment comes from the
following sources:





1.
            Local Network
      Services.  These revenues include monthly subscription
      charges for basic service and enhanced calling features, such as voice
      mail and caller ID, which are billed to individual residential and
      business customers.





2.
            Network Access
      Services.   These revenues are generated from
      charges established to compensate Breda for the origination, transport and
      termination of calls generated by the customers of long distance carriers
      and for calls transported and terminated to the customers of wireless
      carriers.  These revenues are received from carriers such as
      AT&T, Verizon, MCI, and Sprint.  Breda also receives
      federally administered universal service support as a result of the
      interstate switched access support provisions put into place by the
      Federal Communications Commission.  The Universal Service Fund
      was started as a mechanism to promote phone service accessibility for
      everyone at affordable rates and comparable service.  The access
      charges for long distance services within Iowa are based on rates approved
      by the Iowa Utilities Board.  Switched and special access
      charges for interstate and international services are based on rates
      approved by the Federal Communications Commission.  The
      transport and termination charges paid by wireless carriers are specified
      in interconnection agreements negotiated with each individual wireless
      carrier.


15
 Index


3.
            Long Distance
      Services.  Breda generates revenues for providing long
      distance services to its customers.  This revenue category also
      includes fees related to the provision of directory assistance and
      operator assistance services.





4.
            Cellular
      Services.  Breda is an agent for the U.S. Cellular
      service area in Iowa, and Breda generates commission revenue from the sale
      of the wireless calling plans offered by U.S. Cellular to Breda's
      customers.  Breda also generates revenue from the sale of phones
      and accessories needed to receive wireless phone
  service.





5.
            Billing and Collection
      Services.  Breda receives revenue for performing billing
      and collection services for long distance carriers.  Breda
      receives a minimal percentage of the long distance call dollars that Breda
      receives and processes through its customer billing system.  The
      customer receives one bill, which includes both local and long distance
      charges, instead of receiving a separate bill from their long distance
      carrier.





6.
            Miscellaneous.
      Phone-related services generated by Breda include revenues from directory
      publishing, directory advertising, inside line care, the sale and
      maintenance of customer premise equipment, the sale and maintenance of
      phone systems, and the sale of pager services.  A significant
      revenue source is the rental of Breda's fiber optic toll trunks to other
      telecommunication providers.  Breda receives roaming revenue
      from Carroll County Wireless, L.L.C.'s roaming agreements with other
      wireless carriers.





Broadcast
Services.Revenues are generated in this segment from the
monthly fees charged to customers for basic and premium cable TV
services.





Internet
Services.The bulk of this segment's revenue is generated from
monthly dial-up and high-speed Internet access services fees which are billed to
residential and business customers.  Revenues are also generated from
the sale of Internet equipment modems and routers, and from customer
trouble-shooting and maintenance support fees.  The revenue that is
generated through the offering of a satellite-based Internet service and a
wireless Internet service are also included in Internet Services
revenues.





Operating
Expenses





Operating
Expense Categories.





Breda's
operating expenses are categorized as cost of services; depreciation and
amortization; and selling, general and administration.


16
 Index


Cost of
Services.This category includes expense for salaries and
wages relating to plant operation and maintenance; network access costs; long
distance provisioning costs; conference bridge provisioning costs; salary, wage,
equipment, training, and advertising costs for cellular and retail services;
postage; utilities; Internet service provisioning costs, and wireless roaming
provisioning costs.





Depreciation and
amortization.This category of costs includes depreciation of
the telecommunication equipment and network; Internet services equipment; cable
TV programming equipment and transmission equipment; buildings; wireless tower
and equipment, and amortization of intangible assets.





Selling, General and
Administration.This category includes expenses for legal and
accounting services; wages and benefits; contract service payments; travel,
meals and lodging; investment fees; board of director fees and expense
reimbursements; insurance premiums; supplies; advertising and promotion costs;
dues and subscriptions; property taxes; and all customer service operations,
marketing and sales operations, and administrative operations
costs.





Results
of Operations





The
following table sets forth certain items reflected in Breda's consolidated
statements of operations for the periods indicated, expressed as a percentage of
total revenues:





Three
      Months Ended
            
            
            Nine
      Months EndedSeptember 30,
            
            
            September 30,2009
            
            
            2008 (Restated)
            
            
            2009
            
            
            2008 (Restated)Operating
      revenues
            
            
            100
            %
            
            
            100
            %
            
            
            100
            %
            
            
            100
            %Cost
      of services
            
            
            57
            %
            
            
            48
            %
            
            
            49
            %
            
            
            48
            %Depreciation
      and amortization
            
            
            12
            %
            
            
            9
            %
            
            
            12
            %
            
            
            8
            %Selling,
      general and administrative
            
            
            27
            %
            
            
            20
            %
            
            
            29
            %
            
            
            21
            %Operating
      income
            
            
            4
            %
            
            
            23
            %
            
            
            10
            %
            
            
            23
            %Other
      income (expenses)
            
            
            25
            %
            
            
            20
            %
            
            
            31
            %
            
            
            15
            %Income
      taxes
            
            
            11
            %
            
            
            12
            %
            
            
            13
            %
            
            
            13
            %Net
      income
            
            
            18
            %
            
            
            31
            %
            
            
            28
            %
            
            
            25
            %





Three
Months Ended September 30, 2009 and 2008





The table
below sets forth the components of Breda's revenues for the three months ended
September 30, 2009, compared to the same period in 2008.


17
 Index




Three
      Months EndedSeptember 30,
            
            
            Change2009
            
            
            2008 (Restated)
            
            
            Amount
            
            
            PercentOPERATING
      REVENUESLocal
      Exchange CarrierLocal
      network services
            
            $
            254,311
            
            
            $
            233,945
            
            
            $
            20,366
            
            
            
            8.7
            %Network
      access services
            
            
            1,577,225
            
            
            
            2,222,850
            
            
            
            (645,625
            )
            
            
            -29.0
            %Long
      distance services
            
            
            59,205
            
            
            
            62,646
            
            
            
            (3,441
            )
            
            
            -5.5
            %Cellular
      services
            
            
            316,852
            
            
            
            469,753
            
            
            
            (152,901
            )
            
            
            -32.5
            %Billing
      and collection services
            
            
            2,655
            
            
            
            2,614
            
            
            
            41
            
            
            
            1.6
            %Uncollectibles
            
            
            (479,329
            )
            
            
            (604,465
            )
            
            
            125,136
            
            
            
            -20.7
            %Miscellaneous
            
            
            63,599
            
            
            
            48,733
            
            
            
            14,866
            
            
            
            30.5
            %$
            1,794,518
            
            
            $
            2,436,076
            
            
            $
            (641,558
            )
            
            
            -26.3
            %Broadcast
      Services
            
            $
            48,074
            
            
            $
            162,271
            
            
            $
            (114,197
            )
            
            
            -70.4
            %Internet
      services
            
            $
            193,394
            
            
            $
            180,026
            
            
            $
            13,368
            
            
            
            7.4
            %$
            2,035,986
            
            
            $
            2,778,373
            
            
            $
            (742,387
            )
            
            
            -26.7
            %





There was
a decrease in total operating revenues for the three-month period ended
September 30, 2009, when compared to the three-month period ended September 30,
2008, of $742,387, or 26.7%.





Local
Exchange Carrier Services – ($641,558)





Local
exchange carrier services revenues accounted for 88.1% of all operating revenue
in the three-month period ended September 30, 2009.  There was a
$641,558, or 26.3%, decrease in local exchange carrier services revenues for the
three-month period ended September 30, 2009, when compared to the three-month
period ended September 30, 2008.





Local
network services revenues increased $20,366, or 8.7%, for the three months ended
September 30, 2009, as compared to the same period in 2008, because of the
increased number of customers taking phone service from BTC, Inc. in Carroll,
Iowa.  While the CLEC operation shows growth in its subscriber base,
Breda is experiencing declines in the subscriber bases of its rural ILEC
exchanges.  Breda implemented a $3.50 per month rate increase for its
customers in its Breda, Lidderdale and Westside exchanges who subscribe to local
phone service.  The rate increase became effective on February 1,
2009, and the increase affected approximately 1,145 customers.





Breda's
long distance services revenue decreased $3,441, or 5.5%, for the three months
ended September 30, 2009, when compared to the three-month period ended
September 30, 2008.  Breda has experienced the industry-wide trend
whereby subscribers are utilizing their package of minutes on their cell phone
plans to make more of their long distance calls instead of using their long
distance service through their local telephone provider such as
Breda.


18
 Index


Network
access services decreased $645,625, or 29.0%, for the three-month period ended
September 30, 2009, when compared to the three-month period ended September 30,
2008.   This decrease mainly resulted from three
factors:  1) decreased terminating access revenues generated from
traffic delivered to Breda’s conference bridge in Carroll, Iowa; 2) decreased
intrastate access revenue caused by the Iowa Utilities Board’s 3.1 cent per
minute reduction for switching revenue and the common carrier line rate elements
which became effective on February 9, 2009; and 3) the almost 50% reduction in
high cost loop funding from the universal service fund which went into effect
January 1, 2009.





Breda has
contracted with conference bridge vendors for the transport of long distance
calls over Breda’s networks.  Breda initially began billing for these
services in September 2006, and began billing for additional conference bridge
services in March 2007.  Breda's provider of the conference bridge
minutes decreased its use of the bridges in Breda’s location while negotiations
were being conducted with carriers for the payment of access revenue on this
traffic.  Breda has negotiated settlement agreements with its main
carriers such as AT&T and Verizon, and the access rates included in the
access revenue for its conference bridge traffic for the three months ended
September 30, 2009, reflects discounted rates based on volume, instead of
Breda’s normal access tariff rates.  The settlement rates reflect an
approximate 70% discount from Breda’s tariffed rates.  Breda estimates
that the reduction in conference bridge minutes and the lower negotiated rates
resulted in an approximate $457,520 decrease in network access revenue for the
three-month period ended September 30, 2009, when compared to the three-month
period ended September 30, 2008.





Breda,
along with all other Iowa carriers subject to the Iowa Utilities Board’s ruling
that became effective on February 9, 2009, also experienced a 3.1 cent per
minute reduction in its intrastate access rate received on all intrastate access
minutes.  Breda estimates that this reduction in intrastate access
rates resulted in a $79,281 reduction for the three months ended September 30,
2009, when compared to the three-months ended September 30, 2008.





Breda
also experienced a decrease in 2009 for its high cost loop support
payment.  The National Exchange Carriers Association filed its 2009
Modification of the Average Schedule Universal Service High Cost Loop Support
Formula with the FCC on August 29, 2008.  In this filing, which the
FCC accepted and became effective on January 1, 2009, there were modifications
to the formula used to calculate interstate universal service fund high cost
loop expense adjustments for average schedule companies.  Breda
estimates that the reduction in this universal service fund payment during the
three months ended September 30, 2009 was approximately $120,609.





Breda
continues to add customers to its Carroll, Iowa, CLEC customer base, and
therefore also to its long distance services customer base.  These
customers generate access revenue when they use Breda's networks to make long
distance calls.  However, as noted previously, more customers are
using their wireless plans to make long distance calls, so Breda’s overall toll
minutes on which access revenue is generated continues to
decrease.


19
 Index


Cellular
services decreased $152,901, or 32.5%, for the three-month period ended
September 30, 2009, when compared to the three-month period ended September 30,
2008.  The overall number of customers served between the two
three-month periods decreased 17.7%, and there was a corresponding decrease in
the amount of commissions received on the cellular services sold and a
corresponding decrease in cellular equipment sales for the three-month period
ended September 30, 2009, when compared to the three-month period ended
September 30, 2008.





Uncollectibles
decreased $125,136, or 20.7%, for the three-month period ended September 30,
2009, when compared to the three-month period ended September 30,
2008.  This decrease is mainly attributable to the decrease in
allowance for doubtful interexchange carrier accounts taken by Breda for
estimated uncollectible conference bridge network access
revenues.  Breda has entered into settlement agreements with some of
its major carriers such as AT&T and Verizon for the payment of access
revenue on conference bridge services.  These negotiated rates are
discounted for volume, which decreased uncollectibles because there is no longer
an estimated amount booked for the difference in Breda’s access rates versus the
anticipated settlement rate. Breda had set up the allowance because historically
carriers have received concessions in payment disputes, which allow them to pay
only a portion of what they owe to telephone companies.  Verizon and
Breda reached agreement on May 6, 2009 on their dispute regarding the payment of
access charges for conference bridging services.  As per the terms of
the agreement, Verizon dismissed the complaint Verizon had filed with the Iowa
Utilities Board on May 29, 2008.





Miscellaneous
revenue increased $14,866, or 30.5%, for the three-month period ended September
30, 2009, when compared to the three-month period ended September 30,
2008.   Other nonregulated services revenue decreased $1,862, or
12.5%, for the three-month period ended September 30, 2009, when compared to the
three-month period ended September 30, 2008, and is mainly attributable to the
decrease in the number of phone systems sold and an overall decrease in customer
premise equipment rental.  Roaming revenue for wireless minutes of
service decreased $2,318, or 20.0%, for the three-month period ended September
30, 2009, when compared to the three-month period ended September 30, 2008, with
the decrease resulting from the lower rates negotiated on roaming
agreements.  The  increase in miscellaneous revenue is
mainly attributable to increased tower rent revenue, and increased directory
listing revenue for the three-month period ended September 30, 2009, when
compared to the three-month period ended September 30, 2008.


20
 Index


Billing
and collection revenue, which is not included in miscellaneous revenue,
increased $41, or 1.6%, for the three month period ended September 30, 2009,
when compared to the same three month period in 2008.  Billing and
collection revenue remains an overall decreasing revenue stream since most
carriers now bill for their own long distance services instead of paying a
carrier, such as Breda, to bill these services for them.





Broadcast
Services – ($114,197)





Broadcast
services revenue decreased $114,197, or 70.4%, for the three-month period ended
September 30, 2009, when compared to the three-month period ended September 30,
2008. The broadcast services revenue decrease is attributable to the decrease in
the number of cable TV subscribers between the two three-month
periods.  Tele-Services discontinued operations in the three small
cable TV communities of Bayard, Lohrville and Thurman in the second quarter of
2008.  Tele-Services also sold its cable TV properties in the Iowa
communities of Churdan and Grand Junction in the fourth quarter of
2008.  Tele-Services sold seven of its southern Iowa cable television
systems and its Beaver Lake, Nebraska cable television system on July 1,
2009.  The latter sales affected approximately 1,146
customers.  On August 1, 2009, Tele-Services purchased the cable
television system for Macedonia, Iowa.  This purchase added
approximately 68 customers to Tele-Services’ customer base, and most of those
cable television customers already received  telephone service from
Breda.    Breda was providing cable TV service to 628
subscribers as of September 30, 2009, compared to 1,905 customers on September
30, 2008.





Internet
Services – $13,368





Internet
services revenue increased $13,368, or 7.4%, for the three-month period ended
September 30, 2009, when compared to the three-month period ended September 30,
2008.  Breda experienced a 24.3% increase in its high-speed Internet
customer base when comparing the two periods, which has helped offset the
decrease in Breda’s dialup Internet customer base.  The decrease in
dialup Internet customers is the result of the intense competition by multiple
suppliers in the Carroll, Iowa market area, and the migration of customers to
high-speed Internet because of an overall decrease in the price for high-speed
Internet.  Breda is gaining high-speed Internet customers in the
Carroll, Iowa area because BTC, Inc. is offering bundled services packages that
include Internet services, as well as local telephone and other communication
services.  In July 2009, Breda added bandwidth options between 3MB and
10 MB for its customers in Breda, Iowa.  On November 1, 2009, Breda
began offering 3MB and 5MB high-speed Internet options in its ILEC communities
of Macedonia, Farragut, Lidderdale, Pacific Junction and Westside,
Iowa.


21
 Index


OPERATING
EXPENSES





The table
below sets forth the components of Breda's operating costs for the three months
ended September 30, 2009, compared to the same period in 2008.





Three
      Months EndedSeptember 30,
            
            
            Change2009
            
            
            2008 (Restated)
            
            
            Amount
            
            
            PercentOPERATING
      EXPENSESCost
      of servicesPlant
      specific operations
            
            $
            560,734
            
            
            $
            583,428
            
            
            $
            (22,694
            )
            
            
            -3.9
            %Plant
      nonspecific operations
            
            
            125,081
            
            
            
            109,555
            
            
            
            15,526
            
            
            
            14.2
            %Cost
      of long distance
            
            
            49,013
            
            
            
            54,919
            
            
            
            (5,906
            )
            
            
            -10.8
            %Cost
      of cellular
            
            
            300,707
            
            
            
            376,718
            
            
            
            (76,011
            )
            
            
            -20.2
            %Cost
      of internet
            
            
            71,155
            
            
            
            116,737
            
            
            
            (45,582
            )
            
            
            -39.0
            %Cost
      of programming
            
            
            46,162
            
            
            
            108,513
            
            
            
            (62,351
            )
            
            
            -57.5
            %Total
      cost of services
            
            $
            1,152,852
            
            
            $
            1,349,870
            
            
            $
            (197,018
            )
            
            
            -14.6
            %Depreciation
      and amortization
            
            $
            253,087
            
            
            $
            243,257
            
            
            $
            9,830
            
            
            
            4.0
            %Selling,
      general and administrativeCustomer
      operations
            
            $
            183,822
            
            
            $
            209,188
            
            
            $
            (25,366
            )
            
            
            -12.1
            %Corporate
      operations
            
            
            376,614
            
            
            
            324,752
            
            
            
            51,862
            
            
            
            16.0
            %General
      taxes
            
            
            (11,730
            )
            
            
            28,296
            
            
            
            (40,026
            )
            
            
            -141.5
            %Total
      selling, general and administrative
            
            $
            548,706
            
            
            $
            562,236
            
            
            $
            (13,530
            )
            
            
            -2.4
            %$
            1,954,645
            
            
            $
            2,155,363
            
            
            $
            (200,718
            )
            
            
            -9.3
            %





Cost
of Services – ($197,018)





Cost of
services decreased $197,018, or 14.6%, for the three-month period ended
September 30, 2009, when compared to the three-month period ended September 30,
2008.  Plant specific operations decreased $22,694, or
3.9%.  The plant specific expenditures decreased for central office
equipment, outside plant expense, land and building expense, distribution system
expense and buried cable expense.   Conference bridge
provisioning increased $13,535 when comparing the three-month period ended
September 30, 2009 with the three-month period ended September 30, 2008, because
of the additional transport costs added for increased capacity for additional
conference bridging services.  Conference bridge marketing fees are
also included in conference bridge provisioning and are dependent on both the
volume of minutes and the revenue received for the minutes.  As noted
previously, Breda has finalized settlement agreements with some of the carriers
for discounted rates.  The conference bridge provisioning expense for
marketing fees decreased because of both rate and volume decreases arising out
of those settlements.





Plant
nonspecific operations increased $15,526, or 14.2%, due mainly to increased
postage, utility, testing, labor and provisioning costs.  Long
distance provisioning costs decreased $5,906, or 10.8%, and reflects the
decrease in overall minutes even though the rate per minute costs that Breda
must pay to its brokers to provide long distance services to its customers
continues to increase.


22
 Index


Cellular
provisioning costs decreased $76,011, or 20.2%, and reflects the decreased cost
of equipment and accessories to serve the 17.7% decrease in the cellular
customers base during the three months ended September 30, 2009, when compared
to the three-month period ended September 30, 2008.





Internet
provisioning costs decreased $45,582, or 39.0%, and resulted from Breda’s
upgrade of its network and its ability to provision its Internet services over
Ethernet, which not only allows Breda to provision at a lower cost, but because
of its increased bandwidth capabilities, Breda can also provision many more
customers on these facilities without having to expand its
capacity.  Breda’s cost of nonregulated services decreased $6,063, or
37.3%, which decrease is attributable to decreased customer premise equipment
provisioning and to the decreased number of key systems sold during the three
months ended September 30, 2009, when compared to the three month period ended
September 30, 2008.





As noted
previously, Tele-Services sold two of its cable TV communities and turned down
three other cable TV communities in 2008.  Tele-Services also sold
seven of its remaining cable TV communities on July 1, 2009.  The
decrease in the number of cable TV customers due to those actions is reflected
in the programming fees which decreased $62,351, or 57.5%, for the three-month
period ended September 30, 2009, when compared to the three-month period ended
September 30, 2008.  Even though Tele-Services is a member of an
industry programming purchasing group, Tele-Services continues to see
significant increases in the programming rates paid by Tele-Services in order to
offer its cable TV offerings.  Tele-Services also began paying
retransmission agreement fees on January 1, 2009, for local broadcast
stations.  Those fees are included in the programming fees for the
three-month period ended September 30, 2009, but there are no corresponding fees
in the three-month period ended September 30, 2008.





Depreciation
and Amortization –$9,830





Depreciation
and amortization expense increased $9,830, or 4.0%, for the three-month period
ended September 30, 2009, when compared to the three-month period ended
September 30, 2008.  Breda is depreciating a new OC-192 fiber optic
ring and four meta-switches, which all became operational in the latter part of
2008.  Breda is also depreciating over $1,000,000 in new plant assets
for a switch in its CLEC operations and for Emergency Alert Equipment in
Tele-Services' cable TV operations from 2006, and for a new operating software
support system, network upgrades, and new and upgraded Internet service
facilities beginning in 2007 and continuing into 2009.  Many of
Breda’s assets, especially its cable televisions systems and equipment, have
begun to reach the end of their depreciable life, so depreciation expense is
somewhat offset by the depreciation that is no longer available for those older
systems or equipment.


23
 Index


Selling,
General and Administration –($13,530)





Selling,
general and administration expenses decreased $13,530, or 2.4%, for the
three-month period ended September 30, 2009, when compared to the three-month
period ended September 30, 2008.  Customer operations decreased
$25,366, or 12.1%, for the three-month period ended September 30, 2009, when
compared to the three-month period ended September 30, 2008, and mainly resulted
from decreased wages and benefits when a full time position was not replaced
when it became vacant.




Corporate
operations increased $51,862, or 16.0%, during the three-month period ended
September 30, 2009, when compared to the same period in 2008, mainly because of
increased consultant, accounting and legal fees.  Breda hired outside
consultants to facilitate the risk assessment, documentation, testing, and
implementation of its SEC-mandated internal control program for both financial
controls and information technology controls.  Breda had legal and
consulting fees associated with strategic planning opportunities regarding its
investment in Alpine Communications, L.C., Hilbert Communications, LLC, the 700
MHz auction, its fiber to the home project in Carroll, as well as its strategic
planning for its own operations in 2009.  There were less consultant
activities in the three-month period ended September 30, 2008.





Property
and general taxes expense decreased $40,026, or 141.5%, for the three-month
period ended September 30, 2009, when compared to the three-month period ended
September 30, 2008, and is a function of the assessed valuation and tax rate
each year.





OTHER
INCOME (EXPENSE)





The table
below sets forth the components of other income (expense) for the three-month
period ended September 30, 2009, compared to the same period in
2008.





Three
      Months EndedSeptember 30,
            
            
            Change2009
            
            
            2008 (Restated)
            
            
            Amount
            
            
            PercentOTHER
      INCOME (EXPENSE)Interest
      and dividend income
            
            $
            59,563
            
            
            $
            70,442
            
            
            $
            (10,879
            )
            
            
            -15.4
            %Gain
      or (Loss) on sale of investments
            
            
            524
            
            
            
            (500
            )
            
            
            1,024
            
            
            
            204.8
            %Gain
      or (Loss) on disposal of assets
            
            
            (65,530
            )
            
            
            (3,362
            )
            
            
            (62,168
            )
            
            
            1,849.1
            %Interest
      expense
            
            
            (129
            )
            
            
            (18,689
            )
            
            
            18,560
            
            
            
            -99.3
            %Income
      from equity investments
            
            
            80,704
            
            
            
            533,713
            
            
            
            (453,009
            )
            
            
            -84.9
            %Gain
      on impairment of note receivable
            
            
            445,252
            
            
            
            -
            
            
            
            445,252
            
            
            
            -100.0
            %Other,
      net
            
            
            (2,597
            )
            
            
            (23,365
            )
            
            
            20,768
            
            
            
            88.9
            %$
            517,787
            
            
            $
            558,239
            
            
            $
            (40,452
            )
            
            
            -7.2
            %





Interest and Dividend
Income.Interest and dividend income decreased $10,879, or
15.4%, for the three-month period ended September 30, 2009, when compared to the
three-month period ended September 30, 2008.  This decrease in
interest and dividend income was due to decreased interest rates on Breda’s
temporary investments and marketable securities when comparing the two
three-month periods.


24
 Index


Gain or (loss) on sale of
investments.Both the $524 gain on sale of investments for the
three-month period ended September 30, 2009, and the $500 loss on sale of
investments for the three-month period ended September 30, 2008, represent the
loss on the redemption of temporary investments.





Gain or (loss) on disposal of
assets.The $65,530 loss on disposal of assets for the three-month period
ended September 30, 2009, was a combination of the approximate $57,000 loss on
the sale of the Tele-Services cable TV properties, the approximate $14,000 loss
on the retirement of two DMS 10 switches after the installation of two new soft
switches, and the approximate $6,000 gain on the sale of a service vehicle and
the sale of some central office fiber cards and shelves.  The $3,362
loss on disposal of assets for the three-month period ended September 30, 2008,
resulted from the sale or trade-in of service vehicles and work
equipment.





Interest
Expense.The $18,560, or 99.3%, decrease in interest expense
for the three-month period ended September 30, 2009, when compared to the
three-month period ended September 30, 2008, is the result of the reduction of
the Rural Telephone Finance Cooperative loan balance on which interest is
calculated because of the payment of the scheduled principal payments on the
loan, and the final prepayment of all remaining principal on April 30,
2009.  The interest rate on the RTFC loan was fixed at 7.35% for a
10-year period which ended on July 17, 2008.  The RTFC loan reverted
to a variable rate loan on that date.  Interest accrued at the rate of
6.5% for the time period of July 17, 2008 through September 30, 2008, and
accrued at the rate of 7.0% for time period of October 1, 2008 through April 30,
2009 when the loan was paid in full.  A prepayment fee of $4,513.01
was paid in addition to the interest and principal on April 30,
2009.





Income from Equity
Investments.Income from equity investments decreased
$453,009, or 84.9%, for the three-month period ended September 30, 2009, when
compared to the three-month period ended September 30, 2008.  The
equity investments income shown 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
decrease in income from equity investments reported on Breda's income statement
for the three-month period ended September 30, 2009 is a reflection of the net
increases and decreases in the net income of Breda's equity
investments.  Most of the decrease for the three-month period ended
September 30, 2009, came from the investment in Hilbert Communications, LLC and
from the investment in Quad Co.  Most of Breda's equity investments
are in cellular partnerships.  Some of these cellular investments now
receive universal service funding, which has increased their overall operating
revenue.  An additional source of income from equity investments
arises from Breda’s ownership interest in Alpine Communications, L.C., an
operating telephone company in northeastern Iowa, and in Hilbert Communications,
LLC, a telecommunications and information technology services company operating
mainly in Wisconsin.


25
 Index


Gain on Impairment of Note
Receivable.There was a $445,252 gain on impairment of note
receivable for the three-month period ended September 30, 2009, and for which
there was no comparable entry for three-month period ended September 30,
2008.  Breda had a note receivable with Spiralight Networks dated
October 1, 2007, which carried an interest rate of 8.5%.  In 2008
Breda had recorded an impairment on this note in the amount of
$445,252.  Breda received payment in full on July 2,
2009.





Other, net.The $20,768, or
88.9%, increase in other net income for the three-month period ended September
30, 2009, when compared to the three-month period ended September 30, 2008, is
mainly attributable to the change in partnership-related costs.





Income Tax
Expense.Income taxes decreased $92,732, or 28.4%, for the
three-month period ended September 30, 2009, when compared to the same period in
2008.  The effective tax rate in 2009 is 38.93%, compared to a 27.60%
tax rate in 2008.  The effective tax rate differs from the U.S.
statutory rate due to state income taxes, and the proportion of income from
investments which are exempt from income tax.





Net Income.Net
income decreased $488,032, or 57.1%, for the three-month period ended September
30, 2009, when compared to the same period in 2008.





Nine
Months Ended September 30, 2009 and 2008





The table
below sets forth the components of Breda's revenues for the nine months ended
September 30, 2009, compared to the same period in 2008.


26
 Index




Nine
      Months EndedSeptember 30,
            
            
            Change2009
            
            
            2008
            
            
            Amount
            
            
            PercentOPERATING
      REVENUESLocal
      Exchange CarrierLocal
      network services
            
            $
            739,061
            
            
            $
            703,182
            
            
            $
            35,879
            
            
            
            5.1
            %Network
      access services
            
            
            4,396,152
            
            
            
            7,269,155
            
            
            
            (2,873,003
            )
            
            
            -39.5
            %Long
      distance services
            
            
            187,510
            
            
            
            205,148
            
            
            
            (17,638
            )
            
            
            -8.6
            %Cellular
      services
            
            
            1,188,419
            
            
            
            1,225,751
            
            
            
            (37,332
            )
            
            
            -3.0
            %Billing
      and collection services
            
            
            7,258
            
            
            
            10,067
            
            
            
            (2,809
            )
            
            
            -27.9
            %Uncollectibles
            
            
            (1,092,158
            )
            
            
            (1,928,450
            )
            
            
            836,292
            
            
            
            -43.4
            %Miscellaneous
            
            
            151,440
            
            
            
            174,588
            
            
            
            (23,148
            )
            
            
            -13.3
            %$
            5,577,682
            
            
            $
            7,659,441
            
            
            $
            (2,081,759
            )
            
            
            -27.2
            %Broadcast
      Services
            
            $
            333,746
            
            
            $
            504,843
            
            
            $
            (171,097
            )
            
            
            -33.9
            %Internet
      services
            
            $
            573,089
            
            
            $
            533,119
            
            
            $
            39,970
            
            
            
            7.5
            %$
            6,484,517
            
            
            $
            8,697,403
            
            
            $
            (2,212,886
            )
            
            
            -25.4
            %





There was
an decrease in total operating revenues for the nine-month period ended
September 30, 2009, when compared to the nine-month period ended September 30,
2008, of $2,212,886, or 25.4%.





Local
Exchange Carrier Services – ($2,081,759)





Local
exchange carrier services revenues accounted for 86% of all operating revenues
in the nine-month period ended September 30, 2009.  There was a
$2,081,759, or 27.2%, decrease in local exchange carrier services revenues for
the nine-month period ended September 30, 2009, when compared to the nine-month
period ended September 30, 2008.





Local
network services revenues increased $35,879, or 5.1%, for the nine months ended
September 30, 2009, as compared to the same period in 2008, primarily because of
the increased number of customers taking phone service from BTC, Inc. in
Carroll, Iowa.  While the CLEC operation shows growth in its
subscriber base, Breda is experiencing declines in the subscriber bases of its
rural ILEC exchanges.  Breda also implemented a $3.50 per month rate
increase for its customers in its Breda, Lidderdale and Westside exchanges who
subscribe to local phone service.  The rate increase became effective
on February 1, 2009, and the increase affected approximately 1,145
customers.





Breda's
long distance services revenue decreased $17,638, or 8.6%, for the nine months
ended September 30, 2009, when compared to the nine-month period ended September
30, 2008. Breda experienced a 0.7% increase in its long distance customer base
when comparing the two periods, and the increase has helped offset a general
decrease in the average minutes used by each customer on a monthly
basis.  Breda has received a good response to its package offerings
that include local and long distance service from both residential and business
customers.  Breda believes that the decrease in the average minutes
used by customers arises from the industry wide trend of subscriber's using
their cell phones rather than using their local telephone provider to make long
distance calls.


27
 Index


Network
access services decreased $2,873,003, or 39.5%, for the nine-month period ended
September 30, 2009, when compared to the nine-month period ended September 30,
2008.  This decrease mainly resulted from decreased terminating access
revenues received from traffic delivered to Breda’s conference bridge in
Carroll, Iowa.  Breda has contracted with conference bridge vendors
for the transport of long distance calls over Breda's networks.  Breda
initially began billing for these services in September 2006, and began billing
for additional conference bridge services in March 2007.  Breda’s
conference bridge services generated approximately $2,702,600 of access revenue
for the nine-month period ended September 30, 2009, compared to approximately
$4,832,580 for the nine-month period ended September 30, 2008.  The
conference bridge services minutes of use decreased by approximately 26,225,685
when comparing the nine-month period ended September 30, 2009, with the
nine-month period ended September 30, 2008.  Breda’s provider of
conference bridge minutes decreased the volume of traffic it was sending to the
conference bridges in Breda’s location while negotiations were underway with
interexchange carriers on the payment of access revenue for this traffic. Breda
has negotiated settlement agreements with its main carriers such as AT&T and
Verizon, and the access rates included in the access revenue for its conference
bridge traffic for the nine months ended September 30, 2009, reflects discounted
rates based on volume, instead of Breda’s normal access tariff
rates.  The settlement rates reflect an approximate 70% discount from
Breda’s tariffed rates.





Breda's
access revenue has also been adversely affected by the Iowa Utilities Board’s
ruling which became effective on February 9, 2009, and which decreased the
intrastate access rate on all intrastate minutes by 3.1 cents per
minute.  Breda estimates that this reduction in intrastate access
rates resulted in an approximate $244,320 decrease in network access revenue for
the nine-month period ended September 30, 2009, when compared to the nine-month
period ended September 30, 2008.





Breda
also experienced a decrease in 2009 for its high cost loop support
payment.  The National Exchange Carriers Association filed its 2009
Modification of the Average Schedule Universal Service High Cost Loop Support
Formula with the FCC on August 29, 2008, which was accepted by the FCC, and
became effective on January 1, 2009.  The filing resulted in
modifications to the formula used to calculate interstate universal service fund
high cost loop expense adjustments for average schedule
companies.  Breda estimates that the reduction in this universal
service fund payment during the nine months ended September 30, 2009 was
approximately $364,151.


28
 Index


Breda
continues to add customers to its Carroll, Iowa, CLEC customer base, and
therefore also to its long distance services customer base.  These
customers generate access revenue when they use Breda’s networks to make long
distance calls.  However, as noted previously, more customers are
using their wireless plans to make long distance calls, so Breda’s overall toll
minutes on which access revenue is generated continues to decrease.





Cellular
services decreased $37,332, or 3.0%, for the nine-month period ended September
30, 2009, when compared to the nine-month period ended September 30, 2008.
Breda’s cellular customer activations decreased 3.3% during the nine-month
period ended September 30, 2009 when compared to the nine-month period ended
September 30, 2008, and is the reason for the decreased revenue when comparing
the two nine-month periods.





Billing
and collection services decreased $2,809, or 27.9%, during the nine-month period
ended September 30, 2009 when compared to the nine-month period ended September
30, 2008.  This revenue correlates directly to the amount of long
distance minutes that Breda’s customers use on carrier long distance plans where
Breda bills the carrier’s toll on the same invoice that Breda sends to its
customers. Breda receives a small fee for performing these billing services for
the carriers. Breda believes this revenue stream will continue to decrease as
most carriers now bill for their own long distance services.





Uncollectibles
decreased $836,292, or 43.4%, for the nine-month period ended September 30,
2009, when compared to the nine-month period ended September 30,
2008.  The decrease is mainly attributable to the decrease in
allowance for doubtful interexchange carrier accounts taken by Breda for
estimated uncollectible conference bridge network access
revenues.  Breda has entered into settlement agreements with some of
its major carriers such as AT&T and Verizon for the payment of access
revenue on conference bridge services.  These negotiated rates are
discounted for volume, which decreased uncollectibles because there is no longer
an estimated amount booked for the difference in Breda’s access rates versus the
anticipated settlement rate.  Breda had set up the allowance because
historically carriers have received concessions in payment disputes, which allow
them to pay only a portion of what they owe to telephone
companies.


29
 Index


Miscellaneous
revenues decreased $23,148, or 13.3%, for the nine-month period ended September
30, 2009, when compared to the nine-month period ended September 30, 2008. Other
nonregulated services revenue decreased $16,631, or 31.8%, for the nine-month
period ended September 30, 2009, when compared to the nine-month period ended
September 30, 2008, and is mainly attributable to the decrease in the number of
phone systems sold and an overall decrease in customer premise equipment
rental.  Roaming revenue for wireless minutes of service decreased
$11,257, or 34.1%, for the nine-month period ended September 30, 2009, when
compared to the nine-month period ended September 30, 2008, and is the result of
the lower rates negotiated on roaming agreements.  In 2008 Breda
recorded a miscellaneous payment from MCI in the amount of $9,511 for the
settlement of outstanding carrier bankruptcy activities from prior years, and
for which there was no corresponding revenue for the nine-month period ended
September 30, 2009.  The remaining increases in miscellaneous revenues
when comparing the nine-month period ended September 30, 2009 to the nine-month
period ended September 30, 2008 resulted from increases in director listing
services and rent revenue.





Broadcast
Services – ($171,097)





Broadcast
services revenue decreased $171,097, or 33.9%, for the nine-month period ended
September 30, 2009, when compared to the nine-month period ended September 30,
2008.  The broadcast services revenue decrease is attributable to the
decrease in the number of cable TV subscribers between the two nine-month
periods.  Tele-Services discontinued operations in the three small
cable TV communities of Bayard, Lohrville and Thurman in the second quarter of
2008.  Tele-Services also sold its cable TV properties in the Iowa
communities of Churdan and Grand Junction in the fourth quarter of
2008.  Tele-Services sold seven of its southern Iowa cable television
systems and its Beaver Lake, Nebraska cable television system on July 1,
2009.  The latter sale affected approximately 1,146
customers.  On August 1, 2009, Tele-Services purchased the cable
television system for Macedonia, Iowa.  This purchase added
approximately 68 customers to Tele-Services’ customer base.  Most of
those cable television customers already received telephone service from
Breda.  Breda was providing cable TV service to 628 subscribers as of
September 30, 2009, compared to 1,905 customers on September 30,
2008.





Internet
Services – $39,970





Internet
services revenue increased $39,970, or 7.5%, for the nine-month period ended
September 30, 2009, when compared to the nine-month period ended September 30,
2008.  Breda experienced a decrease of 37.7% in its dial-up customer
base and a 27.9% increase in its high-speed Internet customer base when
comparing the two nine-month periods.  The decrease in dialup Internet
customers is the result of the intense competition by multiple suppliers in the
Carroll, Iowa market area, and the migration of customers to high speed Internet
because of an overall decrease in the price for high speed
Internet.  Breda is gaining high-speed Internet customers in the
Carroll, Iowa area because BTC, Inc. is offering bundled services packages that
include Internet services, as well as local telephone and other communication
services.  On November 1, 2008, Breda implemented both lowered rates
and increased bandwidth for its residential customers in Carroll,
Iowa.  All current customers receiving 256K on that date began
receiving 1 MB of bandwidth, and all customers receiving 1 MB of bandwidth began
receiving 3 MB of bandwidth on that date. On November 1, 2008, residential
pricing for 1 MB of service dropped from $47.99 per month to $29.99 per
month.  In July 2009, Breda added bandwidth options between 3MB and 10
MB for its customers in Breda, Iowa.  On November 1, 2009, Breda began
offering 3MB and 5MB high-speed Internet options in its ILEC communities of
Macedonia, Farragut, Lidderdale, Pacific Junction and Westside,
Iowa.


30
 Index


OPERATING
EXPENSES





The table
below sets forth the components of Breda's operating costs for the nine months
ended September 30, 2009, compared to the same period in 2008.





Nine
      Months EndedSeptember 30,
            
            
            Change2009
            
            
            2008
            
            
            Amount
            
            
            PercentOPERATING
      EXPENSESCost
      of servicesPlant
      specific operations
            
            $
            1,382,015
            
            
            $
            2,054,165
            
            
            $
            (672,150
            )
            
            
            -32.7
            %Plant
      nonspecific operations
            
            
            329,216
            
            
            
            294,412
            
            
            
            34,804
            
            
            
            11.8
            %Cost
      of long distance
            
            
            150,690
            
            
            
            174,613
            
            
            
            (23,923
            )
            
            
            -13.7
            %Cost
      of cellular
            
            
            883,732
            
            
            
            981,831
            
            
            
            (98,099
            )
            
            
            -10.0
            %Cost
      of internet
            
            
            202,039
            
            
            
            342,424
            
            
            
            (140,385
            )
            
            
            -41.0
            %Cost
      of programming
            
            
            262,846
            
            
            
            338,465
            
            
            
            (75,619
            )
            
            
            -22.3
            %Total
      cost of services
            
            $
            3,210,538
            
            
            $
            4,185,910
            
            
            $
            (975,372
            )
            
            
            -23.3
            %Depreciation
      and amortization
            
            $
            780,945
            
            
            $
            752,801
            
            
            $
            28,144
            
            
            
            3.7
            %Selling,
      general and administrativeCustomer
      operations
            
            $
            629,623
            
            
            $
            663,130
            
            
            $
            (33,507
            )
            
            
            -5.1
            %Corporate
      operations
            
            
            1,163,292
            
            
            
            986,233
            
            
            
            177,059
            
            
            
            18.0
            %General
      taxes
            
            
            66,590
            
            
            
            136,378
            
            
            
            (69,788
            )
            
            
            -51.2
            %Total
      selling, general and administrative
            
            $
            1,859,505
            
            
            $
            1,785,741
            
            
            $
            73,764
            
            
            
            4.1
            %$
            5,850,988
            
            
            $
            6,724,452
            
            
            $
            (873,464
            )
            
            
            -13.0
            %





Cost of
Services – ($975,372)





Cost of
services decreased $975,372, or 23.3%, for the nine-month period ended September
30, 2009, when compared to the nine-month period ended September 30,
2008.  Plant specific operations decreased $672,150, or 32.7%, with
$594,254 of the decrease mainly attributable to a decrease in the marketing and
provisioning costs to provide conference bridging services.  Marketing
fees are dependent on both the volume of the minutes and the revenue received
for the minutes.  As noted previously, Breda has finalized settlement
agreements with some of the carriers for discounted rates.  The
conference bridge provisioning expense decreased because of both rate and volume
decreases arising out of those settlements.  Other plant specific
costs that decreased when comparing the two nine-month periods ended September
30, 2009, and September 30, 2008, were costs to provision non-regulated services
such as key systems and customer premise equipment, outside plant maintenance
and repairs, and fiber lease expense.


31
 Index


Plant
nonspecific operations increased $34,804, or 11.8%, due mainly to increased
postage, utility, testing and provisioning costs.





Long
distance provisioning costs decreased $23,923, or 13.7%, and reflects the
decrease in overall minutes even though the rate per minute costs that Breda
must pay to its brokers to provide long distance services to its customers
continues to increase. Breda had a 0.7% increase in customers subscribing to
Breda’s long distance services for the nine-month period ended September 30,
2009, when compared to the nine-month period ended September 30,
2008.





Cellular
provisioning costs, which includes the purchase of phones and accessories, and
labor costs, decreased $98,099, or 10.0%, and reflects the decreased cost of
equipment and accessories to serve the 3.03% decrease in the cellular customers
for the nine-month period ended September 30, 2009 when compared to the
nine-month period ended September 30, 2008.





Internet
provisioning costs decreased $140,385, or 41.0%, during the nine-month period
ended September 30, 2009, when compared to the nine-month period ended September
30, 2008.  This decrease resulted from Breda’s upgrade of its network
and its ability to provision its Internet services over Ethernet, which not only
allows Breda to provision at a lower cost, but because of its increased
bandwidth capabilities, Breda can also provision many more customers on these
facilities without having to expand its capacity.





As noted
previously, Tele-Services’ sold two of its cable TV communities and turned down
three other cable TV communities in 2008.  Tele-Services also sold
seven of its remaining cable TV communities on July 1, 2009. The decrease in the
number of cable TV customers due to those actions is reflected in the
programming fees which decreased $75,619, or 22.3%, for the nine-month period
ended September 30, 2009, when compared to the nine-month period ended September
30, 2008.  Even though Tele-Services is a member of an industry
programming purchasing group, Tele-Services continues to see significant
increases in the programming rates paid by Tele-Services in order to offer its
cable TV offerings.  Tele-Services also began paying retransmission
agreement fees on January 1, 2009, for local broadcast
stations.  Those fees are included in the programming fees for the
nine-month period ended September 30, 2009, but there are no corresponding fees
in the nine-month period ended September 30, 2008.


32
 Index


Depreciation
and Amortization – $28,144





Depreciation
and amortization expense increased $28,144, or 3.7%, for the nine-month period
ended September 30, 2009, when compared to the nine-month period ended September
30, 2008.  Breda had significant capital investments in outside plant
equipment, switches and in new financial and provisioning software during 2007
and 2008.  The depreciation on some of these items is reflected in the
nine-month period ended September 30, 2009, but was not applicable to the
nine-month period ended September 30, 2008.





Selling,
General and Administration – $73,764





Selling,
general and administration expenses increased $73,764, or 4.1%, for the
nine-month period ended September 30, 2009, when compared to the nine-month
period ended September 30, 2008.  Customer operations decreased
$33,507, or 5.1%, for the nine-month period ended September 30, 2009 when
compared to the nine-month period ended September 30, 2008, and mainly resulted
from decreased wages and benefits when a full time position was not replaced
when it became vacant.





Corporate
operations increased $177,059, or 18.0%, when comparing the nine-month periods.
Breda hired outside consultants to facilitate the risk assessment,
documentation, testing, and implementation of its SEC-mandated internal control
program for both financial controls and information technology
controls.  Breda had legal and consulting fees associated with
strategic planning opportunities regarding its investment in Alpine
Communications, L.C., Hilbert Communications, LLC, the 700 MHz auction, its
fiber to the home project in Carroll, as well as its strategic planning for its
own operations in 2009.  There were less consultant activities in the
nine-month period ended September 30, 2008.  Breda also added a
full-time IT staff member in the latter part of September 2009, for which there
would be no personnel costs for the nine-month period ended September 30,
2008.





Property and general taxes expense
decreased $69,788, or 51.2%, when comparing the nine-month period ended
September 30, 2009 to the nine-month period ended September 30,
2008.  The decrease resulted in part from the decrease in property
subject to property tax as a result of the sale of some of Tele-Services' cable
television properties.  Any increase or decrease in property tax
expense is based on the annual valuation assessments received each year from the
county assessors.





OTHER
INCOME (EXPENSE)





The table
below sets forth the components of other income (expense) for the nine-month
period ended September 30, 2009, compared to the same period in
2008.


33
 Index




Nine
      Months EndedSeptember 30,
            
            
            Change2009
            
            
            2008
            
            
            Amount
            
            
            PercentOTHER
      INCOME (EXPENSE)Interest
      and dividend income
            
            $
            331,212
            
            
            $
            363,191
            
            
            $
            (31,979
            )
            
            
            -8.8
            %Gain
      or (Loss) on sale of investments
            
            
            1,358
            
            
            
            4,301
            
            
            
            (2,943
            )
            
            
            -68.4
            %Gain
      or (Loss) on disposal of assets
            
            
            (71,883
            )
            
            
            5,711
            
            
            
            (77,594
            )
            
            
            -1,358.7
            %Interest
      expense
            
            
            (26,086
            )
            
            
            (59,717
            )
            
            
            33,631
            
            
            
            -56.3
            %Income
      from equity investments
            
            
            1,376,076
            
            
            
            1,050,749
            
            
            
            325,327
            
            
            
            31.0
            %Gain
      on impairment of note receivable
            
            
            445,252
            
            
            
            -
            
            
            
            445,252
            
            
            
            -100.0
            %Other,
      net
            
            
            (22,655
            )
            
            
            (35,401
            )
            
            
            12,746
            
            
            
            36.0
            %$
            2,033,274
            
            
            $
            1,328,834
            
            
            $
            704,440
            
            
            
            53.0
            %





Interest and Dividend
Income.Interest and dividend income decreased $31,979, or
8.8%, for the nine-month period ended September 30, 2009, when compared to the
nine-month period ended September 30, 2008.  This decrease in interest
and dividend income was due mainly to decreased interest rates on both temporary
investments and marketable securities on which Breda generates interest
income.  Two of Breda’s subsidiaries, Prairie Telephone and Westside
Independent, received dividends totaling $133,321 from their investment in Iowa
Network Services during the nine-month period ending September 30, 2009, and for
which the corresponding income during the nine-month period ended September 30,
2008 was $104,162.  Breda also generates interest income on its
outstanding notes receivable.





Gain or (loss) on sale of
investments.Both the $1,358 gain on sale of investments for the
nine-month period ended September 30, 2009, and the $4,301 gain on sale of
investments for the nine-month period ended September 30, 2008, represent the
gain on the redemption of temporary investments.





Gain or (loss) on disposal of
assets.The $71,883 loss on disposal of assets for the nine-month period
ended September 30, 2009, was a combination of the approximate $57,000 loss on
the sale of the Tele-Services cable TV properties, the approximately $14,000
loss on the retirement of two DMS 10 switches after the installation of two new
soft switches, and the net gains and losses on the sale of service vehicles and
other central office fiber cards and shelves.  The $5,711 gain on
disposal of assets for the nine-month period ended September 30, 2008, resulted
from the sale of service vehicles.





Interest
Expense.The $33,631, or 56.3%, decrease in interest expense
for the nine-month period ended September 30, 2009, when compared to the
nine-month period ended September 30, 2008, is the result of the reduction of
the Rural Telephone Finance Cooperative loan balance on which interest is
calculated because of the payment of the scheduled principal payments on the
loan, and the final prepayment of all remaining principal on April 30,
2009.  The interest rate on the RTFC loan was fixed at 7.35% for a
10-year period which ended on July 17, 2008.  The RTFC loan reverted
to a variable rate loan on that date.  Interest accrued at the rate of
6.5% for the time period of July 17, 2008 through September 30, 2008, and
accrued at the rate of 7.0% for time period of October 1, 2008 through April 30,
2009 when the loan was paid in full.  A prepayment fee of $4,513.01
was paid in addition to the interest and principal on April 30,
2009.


34
 Index


Income from Equity
Investments.Income from equity investments increased
$325,327, or 31.0%, for the nine-month period ended September 30, 2009, when
compared to the nine-month period ended September 30, 2008.  The
equity investments income shown 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 income from equity investments reported on Breda's income statement
for the nine-month period ended September 30, 2009 is a reflection of the net
increases and decreases in the net income of Breda's equity
investments.  Most of Breda's equity investments are in cellular
partnerships.  Some of these cellular investments now receive
universal service funding, which has increased their overall operating
revenue.  An additional source of income from equity investments
arises from Breda’s ownership interest in Alpine Communications, L.C., an
operating telephone company in northeastern Iowa, and in Hilbert Communications,
LLC, a telecommunications and information technology services company operating
in Wisconsin and Illinois.  Hilbert Communications, LLC includes the
operations of Bug Tussel, LLC, a wireless cell site provider, and of Spiralight
Network, LLC, a fiber optic network provider in rural areas of Wisconsin and
Illinois.  Prairie Telephone and all unit holders in Spiralight
Network, L.L.C. and in Bug Tussel Wireless, L.L.C., in addition to all of the
unit holders in various related telecommunications entities, executed an
Exchange Agreement with Hilbert Communications, LLC, whereby Prairie Telephone
and the other investors received newly issued units in Hilbert Communications,
LLC in exchange for the units they owned in the various related
telecommunications entities.  The transaction with Hilbert
Communications, LLC was effective as of January 15, 2009.  Prairie
Telephone owned 8.5% of Hilbert Communications, LLC until July 1,
2009.  On that date, additional investors were issued units in Hilbert
Communications, LLC, which reduced Prairie Telephone's ownership interest in
Hilbert Communications, LLC from 8.5% to 6.87%.





Gain on Impairment of Note
Receivable.There was a $445,252 gain on impairment of note
receivable for the nine-month period ended September 30, 2009, and for which
there was no comparable entry for nine-month period ended September 30,
2008.  Breda had a note receivable with Spiralight Networks dated
October 1, 2007, which carried an interest rate of 8.5%.  Breda had
recorded an impairment on this note in 2008 in the amount of
$445,252.  Breda received payment in full on July 2, 2009 for the
Spiralight Networks note receivable.


35
 Index


Other, net.The $12,746, or
36.0%, increase in other net income for the nine-month period ended September
30, 2009, when compared to the nine-month period ended September 30, 2008, is
mainly attributable to the change in partnership-related costs.





Income Tax
Expense.Income taxes decreased $288,957, or 25.4%, for the
nine-month period ended September 30, 2009, when compared to the same period in
2008.  The effective tax rate in 2009 is 31.76%, compared to a 34.40%
tax rate in 2008.  The effective tax rate differs from the U.S.
statutory rate due to state income taxes, and the proportion of income from
investments which are exempt from income tax.





Net Income.Net
income decreased $342,058, or 15.8%, for the nine-month period ended September
30, 2009, when compared to the same period in 2008.





Liquidity
and Capital Resources





Breda's
short-term and long-term liquidity requirements arise primarily from the
following:  operations and working capital requirements; capital
expenditures; interest payments on any bank or other financing; dividend
payments on Breda's common stock; redemption of Breda's common stock; and
potential industry-related acquisitions or investments.





Breda
intends to fund the operations, working capital requirements, capital
expenditures, interest payments, dividend payments, and stock redemptions from
cash from operations.  Breda also intends to fund any smaller
industry-related acquisitions or investments from cash from operations. For the
nine months ended September 30, 2009 and September 30, 2008, cash provided by
operating activities was $3,695,717 and $1,148,355 respectively.





To fund
any significant future acquisitions or investments, Breda would consider the
redemption of its short-term and long-term marketable securities investments;
the use of its revolving lines of credit with the Rural Telephone Finance
Cooperative; or the addition of long-term debt from industry
lenders.  Breda presently has an unused line of credit with the Rural
Telephone Finance Cooperative of $1,500,000, and Prairie Telephone has an unused
line of credit with the Rural Telephone Finance Cooperative of
$500,000.  Breda believes that its present revenues would be able to
sustain the costs of additional debt if the need arose.  All potential
acquisitions or investments will, however, be evaluated on their own merits for,
among other things, potential cash and revenue production, and if the potential
return on investment will be sufficient to incur the additional
debt.  As noted previously, Breda began a fiber overbuild of the
Carroll, Iowa non-rural market in September 2009.  Breda is financing
that project with a $10,000,000 broadband loan from Rural Utilities
Services.


36
 Index


Breda has
historically funded its operations and capital expenditure requirements
primarily from cash from operations.  The following table summarizes
Breda's short-term liquidity, as of September 30, 2009, and December 31,
2008.





As
      ofSeptember
      30,
            
            
            December
      31,2009
            
            
            2008
      (Restated)Short-Term
      LiquidityCurrent
      Assets
            
            $
            7,510,817
            
            
            $
            6,833,241Current
      Liabilities
            
            
            2,003,642
            
            
            
            2,268,808Net
      Working Capital
            
            $
            5,507,175
            
            
            $
            4,564,433Cash
      and Cash Equivalents
            
            $
            3,121,662
            
            
            $
            1,317,462Short
      Term Marketable Securities
            
            $
            619,448
            
            
            $
            604,435Available
      on Line of Credit
            
            $
            2,000,000
            
            
            $
            2,000,000





Current
assets increased $677,576, or 9.9%, for the nine-month period ended September
30, 2009, when compared to the year ended December 31,
2008.   There was a $1,819,213 increase in cash, cash
equivalents, and marketable securities, which resulted mainly from Breda’s
receipt of settlement payments from access carriers.  There was also a
corresponding decrease of $1,623,757 in accounts receivable, which was due to
the settlement agreement reached with AT&T and Verizon for payments
regarding conference bridge access services.  There was a $403,506
increase in prepaid income taxes.  Breda had a decrease of $73,759 in
notes receivable upon Breda’s receipt of payment in full for the $480,000
Spiralight Network, LLC note receivable in July
2009.    Prior to September 30, 2009, Breda held a $480,000
promissory note, less allowance of $445,253, from its unconsolidated affiliate,
Spiralight Network, LLC, which earned interest at the rate of 8.5% per
annum.  As part of the Exchange Agreement effected January 16, 2009,
Breda's units in Spiralight Network, LLC were exchanged for units in Hilbert
Communications, LLC and Breda's $480,000 promissory note from Spiralight
Network, LLC became the obligation of Hilbert Communications, LLC.  On
July 6, 2009 Breda received payment in full of the $480,000 promissory note plus
accrued interest of $20,955.56.





Current
liabilities decreased $265,166, or 11.7%, for the nine-month period ended
September 30, 2009, when compared to the year ended December 31,
2008.  Accounts payable increased $21,262, or 1.2%, when comparing the
two periods, which is mainly attributable to a net increase from combining a
decrease in the amount incurred as of September 30, 2009 for the provisioning of
conference bridge services as compared to the amounts incurred for those
services as of December 31, 2008, and an increase in outstanding construction
expenditures from Breda’s fiber-to-the-home overbuild project in Carroll,
Iowa.  Accrued taxes decreased $73,913, or 38.5%, for the nine-month
period ended September 30, 2009, when compared to the year ended December 31,
2008.  The decrease in accrued taxes was primarily the result of the
decrease in federal and state income taxes payable due to the ongoing decreased
revenue received pursuant to the conference bridge settlement
agreements.  There was also an increase in other accrued liabilities
of $30,516, or 24.5%, for the nine-month period ended September 30, 2009, when
compared to other current liabilities for the period ended December 31,
2008.  The increase in other accrued liabilities is mainly
attributable to an increase in accrued payroll for the nine-month period ended
September 30, 2009, when compared with the year ended December 31,
2008.


37
 Index


The
following table summarizes Breda's sources and uses of cash for the nine months
ended September 30, 2009 and 2008.





For
      the Nine Months EndedSeptember
      30,2009
            
            
            2008
      (Restated)Net
      Cash Provided (Used)Operating
      Activities
            
            $
            3,695,717
            
            
            $
            1,148,355Investing
      Activities
            
            
            (693,214
            )
            
            
            (1,139,768
            )Financing
      Activities
            
            
            (1,198,303
            )
            
            
            (425,269
            )





For the
nine months ended September 30, 2009 and 2008, cash provided by operating
activities was $3,695,717 and $1,148,355, respectively.





Cash used
in investing activities was $693,214 for the nine-month period ended September
30, 2009, as compared to $1,139,768 for the nine-month period ended September
30, 2008.  Capital expenditures for the nine-month period ended
September 30, 2009 were $1,278,570, and were $2,339,866 for the same period in
2008.  The purchase of an additional one-third equity interest in
Carroll County Wireless, LLC for $90,000 was included in the nine-month period
ended September 30, 2009, and a $720,000 investment in Telephone Acquisition
Company was included in the nine-month period ended September 30,
2008.    The purchase of marketable securities was $451,885
for the nine-month period ended September 30, 2009, and was $309,819 for the
nine-month period ended September 30, 2008.  Proceeds from the sale of
marketable securities were $495,826 in the nine-month period ended September 30,
2009, and were $1,947,584 in the nine-month period ended September 30,
2008.





Cash used
in financing activities was $1,198,303 for the nine-month period ended September
30, 2009, as compared to $425,269 for the nine-month period ended September 30,
2008.  Breda's outstanding RTFC loan was paid in full on April 30,
2009.  During the nine-month period ended September 30, 2009, cash was
used to repay $951,495 of long-term debt.  Cash used to pay dividends
to shareholders during the nine-month periods ended September 30, 2009 and
September 30, 2008 were $246,808 and $246,808, respectively.  The
dividends paid in 2009 and 2008 were both $8 per share.


38
 Index


Long
Term Debt





Breda had
no long term debt as of September 30, 2009.  Breda previously had long
term debt with the Rural Telephone Finance Cooperative, but Breda prepaid in
full its remaining long-term debt with the Rural Telephone Finance Cooperative
on April 30, 2009.





Obligations
and Commitments





Breda's
ongoing capital commitments include capital expenditures and any debt service
requirements.  For the nine months ended September 30, 2009, capital
expenditures were $1,278,570.  As of September 30, 2009, purchase
commitments for the construction of the fiber to the home project in Breda’s
CLEC in Carroll, Iowa totaled $6,868,038.41.  Breda is financing the
project with a $10,000,000 broadband loan from Rural Utilities
Services.  Construction commenced on the fiber project in September
2009, and it is anticipated that it will be a two-year project.  On
October 2, 2009,  Breda received $1,000,000 of its
$10,000,000  loan commitment from the Rural Utilities Services (RUS)
for expenditures related to its fiber-to-the home project in Carroll,
Iowa.





Breda
believes that cash provided by operations and current cash balances will be
adequate to meet Breda's foreseeable operational, capital expenditure, and debt
service requirements.  However, Breda's actual cash needs and the
availability of required funding may differ from Breda's expectations and
estimates, and those differences could be material.  Future capital
requirements will depend on many factors, including, among others, the demand
for Breda's services in Breda's existing markets and regulatory, technological
and competitive developments.





Off-Balance
Sheet Risk and Concentration of Credit Risk; Investment Policy





Breda has
no off-balance sheet exposure or risk.





Breda has
certain financial instruments which could potentially subject Breda to
concentrations of credit risk.  These financial instruments consist
primarily of trade receivables and cash and temporary cash
investments.





Breda
adheres to an investment policy with respect to marketable securities which
allows investments in the following:





·
            Securities
      issued or guaranteed by the U.S. government or its
    agencies.


39
 Index


·
            Corporate
      or municipal bonds rated "A" or better by a major rating
      service.





·
            Money
      market funds investing in U.S. government, U.S. agency or highly rated
      municipal securities.





Other
Activities and Issues





The
American Recovery and Reinvestment Act (ARRA) of 2009 was signed into law by
President Obama on February 17, 2009, which included the Broadband Technology
Opportunities Program (BTOP) and the Broadband Initiatives Program (BIP). The
National Telecommunications and Information Administration (NTIA) and the United
States Department of Agriculture’s (USDA) Rural Utilities Service (RUS) jointly
issued a Notice of Funds Availability (NOFA) and solicitation of applications on
July 1, 2009, describing the availability of funds and application requirements
for the broadband initiatives contained in the ARRA.  The BTOP was
funded at $4.7 billion and provides grants to support the deployment of
broadband infrastructure in unserved and underserved areas, to enhance broadband
capacity at public computer centers, and to encourage sustainable adoption of
broadband service.  The intent is for these projects to then spur job
creation and stimulate long-term economic growth and opportunity per the ARRA
objectives.





The
requirements to determine eligibility for applications for unserved areas and
underserved areas (last mile projects and middle mile projects) involved
specific data for contiguous census blocks where minimum percentages of
households in the proposed funded service area lacked access to minimum
broadband speeds.  One of the other requirements that there be a
sustainable business plan for the proposed project was a major obstacle for
Breda as it evaluated its options under these programs.  Breda
subsequently determined to stop its application processes for these
funds.





On
September 9, 2009, when the NTIA launched its initial, searchable database of
the broadband applications, it was determined that already roughly 40
applications were filed whose project descriptions referenced Iowa or whose
application listed Iowa as the applicant’s home-state address, and whose
applications covered hundreds of Iowa communities, many of which are already
served by telephone companies such as Breda.  Breda, along with other
Iowa telcos, have subsequently been required to review each application with
Iowa references, and to exercise their right to object to applications that are
seeking funding in their existing service areas.  These objections are
especially important when those applications contain misstatements or errors
about whether or not broadband service is available.  Breda will
continue to monitor the applications filed under this program and to object to
applications that infringe upon its service areas.


40
 Index


The
National Exchange Carrier Association (NECA) has been delegated some authority
by the FCC regarding the regulation of interstate access charge
rates.  In December 2008, NECA filed changes with the FCC to the NECA
Tariff F.C.C. No. 5.  It was determined that rates in the traffic
sensitive switched access category would increase on average by 5.8%, and rates
in the traffic sensitive special access category would increase on average by
6.3%.   The FCC granted an effective date for these rates of July
1, 2009.





The Iowa
Telephone Association Access Service Tariff No. 1 (ITA Tariff) mirrors the NECA
tariff in many respects for intrastate traffic.  Breda concurs in this
tariff and is therefore subject to the rates outlined in the ITA
tariff.  Prior to July 1, 2009, the intrastate rates that mirrored the
NECA interstate rates that went into effect on 7-1-2007 were still being used by
Breda and the other Iowa companies that concurred in the ITA tariff because
while the ITA filed the 9-1-2007 tariff which was allowed to go into effect, it
was later challenged by Sprint, Verizon and AT&T, and the intrastate rate
changes were put on hold, and reverted back to the 7-1-2007 rates.





The IUB
conducted a hearing on the 7-1-2007 ITA Intrastate Access Tariff on April 1 and
2, 2008.  Sprint, Verizon and AT&T asked the IUB to reduce the
intrastate access rates in the ITA tariff to the NECA interstate
levels.  Specifically, the interexchange carriers requested that the
IUB eliminate the 1.5 cent transport interconnection charge, reduce the local
switching charge by 1.9 cents, and eliminate the 3-cent common carrier line
charge.  The total requested reduction would have been 6.4 cents on
each intrastate minute.  The IUB issued a final order on May 30, 2008
where it directed the ITA to, within 30 days, remove the 1.5 cent transport
interconnection rate element and to lower the local switching rate element to
2.4435 cents per minute to mirror the NECA interstate tariff
rate.  After various delays, the IUB ruling became effective on
February 7, 2009, and Breda’s access rate decreased 3.1 cents per minute for all
intrastate access minutes.  Breda estimates that the decrease in
intrastate access rates will decrease Breda’s network access revenues by
approximately $221,455 a year.





On May
31, 2009, the ITA received approval from the IUB to allow the intrastate access
rates in the ITA tariff, and which mirror the NECA tariff, to be effective on
the same date as the interstate rates in the NECA tariff, and effective on July
1, 2009, the intrastate access rates mirrored the interstate access rates,
except for the 3-cent common carrier line charges as previously
discussed.





In its
final order on May 30, 2008, the IUB also stated that it would open a rule
making to determine whether to eliminate the 3-cent common carrier line charge.
On September 4, 2009, the IUB denied Sprint’s request to start a rulemaking
docket for the purpose of eliminating the carrier common line
charge.  The IUB noted that it would consider CCL in its docket on
Universal Service.  The IUB also noted that it was not concluding that
CCL should necessarily be related to a possible universal service fund, only
that the issues ought to be considered together.


41
 Index


In early
October 2008, Verizon and AT&T submitted a proposal to the FCC that would,
among other things, establish a unified $.0007 terminating access rate for all
rate of return carriers, like Breda, and would apply to all traffic exchanged
with or on the public switched telephone network, including IP based
traffic.  The $.0007 access proposal by Verizon and AT&T would
have relieved Verizon, AT&T and other larger carriers of more than $8
billion in annual access and intercarrier compensation
responsibilities.  Most small telephone company costs are above five
cents per minute to provide this service on their volume of minutes, and Breda
is no exception.   This proposal has the potential to cripple the
rural telephone industry.  There has been no further action by the FCC
since the 2008 election, and Breda believes that no action will occur until all
appointees to the FCC have been approved by Congress.





Breda
believes that changes in access charges will likely occur, and that if any of
the plans known today are adopted, as currently proposed, there will be
substantial reductions in access revenues.  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 and
its subsidiaries are also subject to risk regarding changes in intrastate access
charge rates because concerns have been raised by the Iowa legislature and the
IUB regarding intrastate rates, and whether alternative intrastate intercarrier
compensation mechanisms should be investigated.  Various individuals
and consulting representatives have been analyzing and attempting to develop
comments relating to a potential state universal service fund.  The
IUB had postponed comments until October 26, 2009, and there were a number of
significant details that had not yet been discussed or determined by the
IUB.  On October 28, 2008, the ITA filed its comments on whether Iowa
needs a state USF funding mechanism.  In its filing, the ITA linked
the state USF discussion with the tariff battle that consumed much of 2008 and
reminded the IUB of the severe impact of proposed access
reduction.  The ITA noted that if access policy changes cause
high-cost carriers, such as Breda, to be unable to recover their costs of
providing intrastate services from increased local rates to the customer and
reduced access charges, then a state USF would be necessary as a cost recovery
mechanism.





Breda
believes it is likely that the discussion of a state universal service fund will
need to be coordinated with emerging FCC developments.  The FCC has
announced it will issue additional guidance on its plans for the universal
service fund in the spring of 2010, or shortly after it releases its National
Broadband Plan in February 2010.  While various industry organizations
have compiled data and worked on this issue since 2003, no final plan had been
adopted on a statewide level.  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.


42
 Index


Universal
service funding is also an important part of Breda's consolidated revenues, and
the regulation of universal service funding by the FCC is another area of
material risk to Breda and its subsidiaries.  The universal service
funds are also now being paid to more telecommunications providers than in the
past.  Breda anticipates that there may be changes in the future on
how universal service funds are disbursed among the numerous eligible
telecommunications providers.





On August
29, 2008, NECA filed its 2009 Modifications of the Average Schedule USAC High
Cost Loop (HCL) support formula for companies that have less than 700 access
lines per exchange.  These revisions are made each year, but the
projected 2009 impacts were much greater than previous years and would have more
of a negative effect on average schedule companies, such as
Breda.  The modifications were effective on January 1,
2009.  During each year the capped National Average Cost Per Loop
(NACPL) adjusts upward because of quarterly data submissions by cost
companies.  Because of this upward adjustment in the NACPL, which
serves as a base to determine the HCL for average schedule companies such as
Breda, the payments to average schedule companies for all months of the year are
reduced.  Although cost per loop values for most of the average
schedule companies are projected to increase, the payments to average schedule
companies would be reduced, due to the cap on payments.  The estimated
HCL support paid to rural companies in 2009 was expected to decrease by $13.3
million.  As noted previously, Breda is experiecing a decrease in its
HCL support payments for 2009 of approximately $213,924, or
49.45%.  Breda is also experiencing a decrease in its local switching
support payments for 2009 of  at least $17,314, or 8.16%.





On May 1,
2008, the FCC voted in favor of an interim cap on payments to competitive
eligible telecommunications carriers under the USF High Cost funding
program.  Most CETC recipients are wireless carriers, and the FCC is
attempting to slow the growth of payments to CETC’s, which have grown from
approximately $1.5 million in 2000 to more than $1 billion in
2007.  On July 2, 2008, the Federal Register published the FCC order
adopting an interim cap on USF payments to CETCs.  The order became
effective on August 1, 2008, and is still in place as of the date of this
report.





Breda
believes that federal universal service fund criteria will continue to change,
but Breda is unable to determine estimated time frames or estimated financial
ramifications of all of the provisions as of the date of this
report.  The decrease in intrastate access rates implemented by the
IUB on February 7, 2009, and the changes being implemented on the federal level
with the federal universal service fund, have caused Breda and its
representative industry members to study the feasibility of a state universal
service fund.  Given the preliminary nature of these studies and
discussions, however, Breda is not able to estimate what financial
ramifications, if any, could come from such a fund.


43
 Index


Phantom
traffic is another issue related to intercarrier
compensation.  Studies have shown that a sizable portion (sometimes up
to 20-30%) of traffic now terminating on ILEC switches is being delivered in a
form in which billing information is absent, lost, stripped or
altered.  Studies have also shown that ILEC's, such as Breda, could be
losing between 10-15% of revenue as a result of phantom
traffic.  Another problem is that even when the originating service
provider of the phantom traffic is discovered, it is difficult to get proper
payment from the provider, in part because there are no penalties imposed for
failing to make payment.  Breda and other carriers believe that
penalty and arbitration provisions should also be implemented in addition to the
proposed "truth in labeling" requirements.  The Iowa
Telecommunications Association "Qwest Committee" is also working with Qwest to
address the issue of phantom traffic that traverses its network, and for which
Qwest refuses to pay terminating access charges to ILEC's.  No final
resolution had come out of these efforts as of the date of this
report.





Breda
filed a collection actions suit on October 29, 2009 against Sprint regarding
payment of access revenue for conference bridging services.  Breda
continues to individually attempt to negotiate settlement agreements with
carriers disputing the volume of minutes and the interstate and intrastate
switched access charges billed to them by BTC, Inc.   BTC, Inc.
is working with legal counsel for assistance in its collection actions against
the various carriers that are withholding network access service
revenues.  In addition to working with legal and industry consultants
on collection actions, BTC, Inc. is also monitoring the outcome of the various
court proceedings in Iowa, Minnesota, and New York, as well as oral arguments
and proceedings before the FCC and the IUB.  While BTC, Inc.’s
situation is not identical to these proceedings, some of the rulings will be
applicable to BTC, Inc.’s situation.  The FCC has ruled in prior cases
involving carrier non-payment of access charges that carriers could not take
these kinds of “self-help” actions and could not block traffic traversing their
networks.





On
September 18, 2009, the IUB filed an Order Initiating a Rule Making to consider
proposed amendments to its rules to address High Volume Access Service (HVAS)
and the effect HVAS can have on a telco’s revenues from intrastate switched
access services.  The IUB has concluded that HVAS calls cannot be
billed for access services pursuant to an association tariff, such as the ITA
tariff in which Breda concurs, because of their fact-sensitive and
individualized nature.  The IUB is looking to require telcos providing
HVAS to file an individual tariff for that service.  The telcos would
continue to concur in an association tariff for all other access
services.  The IUB outlined various other provisions regarding HVAS
and requested comments by October 27, 2009.  Oral presentation on the
proposed rules is scheduled for December 8, 2009.


44
 Index


The
Deficit Reduction Omnibus Reconciliation Act of 2005 included the digital
television transition legislation.  The Act established February 17,
2009 as the deadline for broadcasters to transition from analog to digital
spectrum, but in February 2009, a bill was passed that postponed the DTV
transition until June 12, 2009.  All of Tele-Services' cable service
systems are analog systems.  Tele-Services has installed the equipment
in each of its cable TV communities to receive and convert the digital signal to
an analog signal, and is in compliance with all requirements of the Deficit
Reduction Omnibus Reconciliation Act of 2005.  If Tele-Services were
to provide total digital transmission of all programming, it would require
significant upgrades to Tele-Services' plant, equipment, and
cables.





As noted
previously, Tele-Services sold seven of its southern Iowa cable television
systems, and its Beaver Lake, NE system on July 1, 2009.  This sale
affected approximately 1,146 customers.  Tele-Services also turned
down three of its smallest communities in second quarter 2008, and sold two
additional communities in the fourth quarter 2008.   With its
purchase of the Macedonia, Iowa, cable television system on August 1, 2009,
Tele-Services now serves approximately six hundred twenty nine subscribers in
six Iowa communities,





BTC
utilized the Statewide Cable Franchise Bill by filing an Application for
Certificate of Franchise Authority with the IUB on March 19,
2009.  BTC received IUB approval on April 8, 2009 to provide video
services to the city of Carroll, Iowa as part of its fiber-to-the-home
project.  As indicated previously, BTC received RUS release of funds
approval on March 13, 2009 for this project.  The construction phase
of the fiber to the home overbuild project in Carroll, Iowa, began in early
September 2009.  It is anticipated that the fiber-to-the-home project
in Carroll, Iowa will take two years for completion.





Item3.
            Quantitative
      and Qualitative Disclosures About Market
Risk.





This Item
is not applicable to smaller reporting companies such as Breda.





Item4T.
            Controls
      and Procedures.





Evaluation
      of Disclosure Controls and
Procedures





The
      principal executive officer and the principal financial officer of Breda
      have evaluated the effectiveness of Breda's disclosure controls and
      procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act
      of 1934) 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.  Breda is not yet required to report on internal
      control over financial reporting because it meets the definition of a
      small company.  Breda believes that a control system, no matter
      how well designed and operated, cannot provide absolute assurance that the
      objectives of the control system are met, and no evaluation of controls
      can provide absolute assurance that all control issues and instances of
      fraud, if any, within a company have been
  detected.


45
 Index


Changes
      in Internal Control Over Financial
Reporting





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


Item1.
            Legal
      Proceedings.





Except
      as noted in the following paragraph, as of the date of this quarterly
      report, Breda was not aware of any material pending legal proceeding to
      which Breda or any of its subsidiaries was a party or of which any of
      Breda's or any of its subsidiaries' respective property was the subject,
      other than ordinary routine litigation, if any, that was incidental to
      Breda's or the subsidiaries' respective business.  As of the
      date of this quarterly report, Breda was not aware that any governmental
      authority was contemplating any material proceeding against Breda or any
      of its subsidiaries or any of their respective
  property.





BTC,
      Inc. filed a collection action suit against Sprint Communications Company
      L.P. on October 29, 2009 in the United States District Court, Northern
      District of Iowa, Central Division.  The suit was filed against
      Sprint Communications Company L.P. because Sprint has not paid BTC, Inc.
      the carrier switched access charges billed to Sprint since October 1,
      2007.  The amount of unpaid Sprint access charges totaled
      $1,766,132.22 as of October 1,
2009.





Item1A.
            Risk
      Factors.





This Item
is not applicable to smaller reporting companies such as Breda.





Item2.
            Unregistered
      Sales of Equity Securities and Use of
Proceeds.





Breda
      did not sell any shares of its common stock during the period of July 1,
      2009 through September 30, 2009.





None of
Breda's shares of common stock were purchased by or on behalf of Breda or any
affiliated purchaser (as defined in Rule 10b-18(a)(3) of the Securities Exchange
Act of 1934) of Breda during the period of July 1, 2009 through September 30,
2009.  Breda does not have any publicly announced plans or programs
with respect to purchases of its common stock.


46
 Index


There
were transfers of 657 shares of Breda's common stock by 12 different
shareholders during the period of July 1, 2009 through September 30, 2009 with
respect to which Breda did not exercise Breda's right of first refusal to
purchase the shares.  Two of those 657 shares were sold for $394 per
share, 23 of those 657 shares were sold for $509 per share, and 195 of those 657
shares were sold for $547 per share.  The remaining 437 shares were
transferred without the payment of any purchase price or other
consideration.  The latter transfers were to family members, including
out of the estates of deceased shareholders.





Item3.
            Defaults
      Upon Senior Securities.





There
      has been no material default in the payment of principal, interest, a
      sinking or purchase fund installment, or any other material default not
      cured within thirty days, with respect to any indebtedness of Breda or any
      of its subsidiaries exceeding 5% of the total assets of Breda and its
      consolidated subsidiaries.





No
      material arrearage in the payment of dividends or any other material
      delinquency not cured within thirty days has occurred with respect to any
      class of preferred stock of Breda or any of its subsidiaries which is
      registered or which ranks prior to Breda's common
  stock.





Item4.
            Submission
      of Matters to a Vote of Security
Holders.





No matter
was submitted to a vote of the shareholders of Breda, through the solicitation
of proxies or otherwise, during the period of July 1, 2009 through September 30,
2009.





Item5.
            Other
      Information.





There was
no information required to be disclosed in a report on Form 8-K during the
period of July 1, 2009 through September 30, 2009, which was not reported on a
Form 8-K.





There
were no material changes during the period of July 1, 2009 through September 30,
2009 to the procedures by which the shareholders of Breda may recommend nominees
to Breda’s board of directors.




47
 Index




Item6.
              Exhibits.
 
 The
following exhibits are filed as part of this quarterly
report.  Exhibits previously filed are incorporated by reference, as
noted.


Incorporated
      by ReferenceExhibit
            
            Filed
      Herewith;
            
            Period
            
            FilingNumber
            Exhibit Description
            Page Number
            Form
            Ending
            Exhibit
            Date3.1
            Articles
      of Restatement
            
            10-QSB
            3/31/07
            3.1
            5/14/073.2
            Second
      Amended and Restated Bylaws
            
            8-K
            
            3.2
            4/4/0710.1
            Employment
      Agreement dated July 10, 2008 with Jane Morlok (See Exhibit 10.1.1 for an
      Addendum to this Agreement)
            
            10-Q
            9/30/08
            10.1
            11/13/0810.1.1
            June
      9, 2009 Addendum to Employment Agreement of Jane Morlok
            
            10-Q
            6/30/09
            10.1.1
            8/14/0910.3
            Employment
      Agreement dated June 9, 2009 with Charles Deisback
            
            10-Q
            6/30/09
            10.3
            8/14/0910.4
            Employment
      Agreement dated June 9, 2009 with Kevin Batcher
            
            10-Q
            6/30/09
            10.4
            8/14/0931
            Rule
      13a-14(a) Certifications31.1
            Certification
      of Chief Executive Officer
            E-131.2
            Certification
      of Chief Financial Officer
            E-3


48
 Index




32
            Section
      1350 Certifications32.1
            Certification
      of Chief Executive Officer
            E-532.2
            Certification
      of Chief Financial Officer
            E-6





[THE REST
OF THIS PAGE IS INTENTIONALLY LEFT BLANK]


49
 Index


SIGNATURES





Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.





BREDA
      TELEPHONE CORP.November
      12, 2009
            By:
            /s/  Charles
    DeisbeckName:  Charles
      DeisbeckTitle:    Chief  Executive
      OfficerNovember
      12, 2009
            By:
            /s/  Jane MorlokName:  Jane
      MorlokTitle:    Chief
      Financial Officer


50
 Index


EXHIBIT
INDEX





Exhibits
Filed With Form 10-Q


of
Breda Telephone Corp.


For
the Quarter Ended September 30, 2009





Description of Exhibit.
            Page31.
            Rule
      13a-14(a) Certifications31.1
            Rule
      13a-14(a) Certification of Chief Executive Officer
            E-131.2
            Rule
      13a-14(a) Certification of Chief Financial Officer
            E-232.
            Section
      1350 Certifications32.1
            Section
      1350 Certification of Chief Executive Officer
            E-332.2
            Section
      1350 Certification of Chief Financial Officer
            E-4