UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 Form
10-KSB/A
 Amendment
No. 2
 
 (Mark
One)
 
 x
              ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For the
fiscal year ended: December 31, 2006
 
 o
              TRANSITION
      REPORT UNDER 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.
 (Name of
small business issuer in its charter)
 
 Iowa
              
              42-0895882(State
      or other jurisdiction of incorporation or organization)
              
              (I.R.S.
      Employer Identification No.)112
      East Main, P.O. Box 190, Breda, Iowa
              
              51436(Address
      of principal executive offices)
              
              (Zip
      Code)
 Registrant's
telephone number: (712) 673-2311
 
 Securities
registered under Section 12(b) of the Exchange Act: NONE
 Securities
registered under Section 12(g) of the Exchange Act:
 
 Common
Stock, no par value
 (Title of
class)
 
 Check
whether the registrant is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act.  o
 
 Check
whether the registrant (1) filed all reports required to be filed by Section 13
or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90
days.  Yes  x   No  o
 
 Check if there is no disclosure of
delinquent filers in response to Item 405 of Regulation S-B contained in this
form, and no disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).   Yes  o   No  x
 
 State
registrant's revenues for its most recent fiscal year:
$8,667,053.
  
  State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates: $12,060,734, as of March 1, 2007.  The registrant's
stock is not listed on any exchange or otherwise publicly traded, and the value
of the registrant's stock for this purpose has been based upon the current $394
per share redemption price of the registrant's stock as determined by its board
of directors.  In determining this figure, the registrant has assumed
that all of its directors and officers and its chief executive officer, chief
operations officer and chief financial officer are affiliates, but this
assumption shall not apply to or be conclusive for any other
purpose.
 
 State the
number of shares outstanding of each of the registrant's classes of common
equity, as of the latest practicable date: 31,016 shares of common stock, no par
value, at March 1, 2007.
 
 Transitional
Small Business Disclosure Format (check one):    Yes o   No
x
 
 
 
  EXPLANATORY
NOTE
 
 Breda
Telephone Corp. ("Breda") is filing this Amendment No. 2 to its Annual Report on
Form 10-KSB for the fiscal year ended December 31, 2006 which was originally
filed with the Securities and Exchange Commission on March 28, 2007 (the
"Original 10-KSB") and amended December 20, 2007 (“Amendment No. 1”) to amend
the Original 10-KSB by substituting the "Item 7 Financial Information" for the
financial statements contained in Item 7 in the Original 10-KSB. Amendment No. 2
substitutes “Item 7 Financial Information” for Item 7 of Amendment No. 1 (being
the audited financial statements of Breda for the year ended December 31, 2006)
and, more specifically, adds and includes the now unqualified audit opinion of
Kiesling Associates LLP.  Other than the addition of the referenced
audit opinion, all of the information in the financial statements, and the other
information in the Original 10-KSB, remains unchanged and is not otherwise
amended hereby.
 
 The
original audit opinion was dated May 24, 2007.  The attached
unqualified opinion is dated November 17, 2008.  In the attached
opinion, the auditors state that in their report dated January 27, 2006 (except
for West Iowa Cellular, Inc. and RSA #7, Ltd. described in Note 4, for which the
date is August 23, 2007), they had expressed an opinion that they were unable to
examine evidence regarding the investment and earnings of RSA No. 9 Limited
Partnership.  As of the date of this opinion the auditors were able to
obtain audited financial statements for 2005 supporting the Company's investment
in RSA No. 9 Limited Partnership as described in Note 4 to the financial
statements.
 
 Except
with respect to the scope of the opinion, there were no changes to the financial
statements for the years ending December 31, 2006 and December 31,
2005.
 
 This Form
10-KSB/A does not modify or update other information in the Original 10-KSB and
does not purport to provide an update of any developments regarding Breda
subsequent to the filing of the Original 10-KSB.
















Item
      7.
            Financial
      Statements





Breda
Telephone Corp.


And
Subsidiaries


Breda,
IA





Consolidated
Financial Statements


For
the Years


Ended
December 31, 2006 and 2005





-2-





BREDATELEPHONE CORPORATION


BREDA,
IOWA





Contents





PageIndependent
      Auditors’ Report
            
            4Consolidated
      Financial Statements:Consolidated Balance Sheets
            
            5 –
      6Consolidated Statements of Income
            
            7Consolidated Statements of Stockholders’
    Equity
            
            8Consolidated Statements of Cash Flows
            
            9Notes to Consolidated Financial
Statements
            
            10–
      27





-3-
 Table of Contents





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors


Breda
Telephone Corporation and Subsidiaries


Breda,
Iowa





We have
audited the accompanying consolidated balance sheets of Breda Telephone
Corporation (an Iowa corporation) and subsidiaries as of December 31, 2006 and
2005, and the related consolidated statements of income, stockholders' equity
and cash flows for the years then ended.  These consolidated financial
statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement.  The company is not required to have, nor were we
engaged to perform an audit of its internal control over financial
reporting.  Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting.  Accordingly, we express no such opinion.  An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements.  An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as, evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.





In our
report dated January 27, 2006, except for West Iowa Cellular, Inc. and RSA #7,
Ltd. described in Note 4, for which the date is August 23, 2007, we expressed an
opinion that we were unable to examine evidence regarding the investment and
earnings of RSA No. 9 Limited Partnership.  As of the date of this
opinion we were able to obtain audited financial statements for 2005 supporting
the Company’s investment in RSA No. 9 Limited Partnership as described in Note
4.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Breda Telephone Corporation
and subsidiaries as of December 31, 2006 and 2005, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of
America.





West Des
Moines, Iowa


May 24,
2007, except for West Iowa Cellular, Inc.


and RSA
#7, Ltd., for which the date is August 23,


2007, and
RSA No. 9 Limited Partnership, for which


the date
is November 17, 2008, described in Note 4.





-4-
 Table of Contents




BREDATELEPHONE CORP. AND SUBSIDIARIES


BREDA,
IOWA




CONDENSED
CONSOLIDATED BALANCE SHEETS


December
31, 2006 and 2005


December
      31,
              
              
              December
      31,2006
              
              
              2005(Restated)ASSETSCURRENT
      ASSETSCash
      and cash equivalents
              
              $
              777,708
              
              
              $
              739,741Marketable
      securities
              
              
              643,119
              
              
              
              635,409Accounts
      receivable, net of allowances of $46,750 and $13,700 in 2006 and 2005,
      respectively
              
              
              995,861
              
              
              
              952,579Interest
      receivable
              
              
              82,241
              
              
              
              107,229Current
      portion of note receivable
              
              
              220,283
              
              
              
              144,000Inventory,
      at average cost
              
              
              151,659
              
              
              
              122,953Other
              
              
              47,440
              
              
              
              42,196Deferred
      income taxes
              
              
              12,291
              
              
              
              22,7942,930,602
              
              
              
              2,766,901OTHER
      NONCURRENT ASSETSMarketable
      securities
              
              
              6,775,348
              
              
              
              5,463,298Investments
      in unconsolidated affiliates at equity
              
              
              7,562,375
              
              
              
              5,883,404Other
      investments at cost
              
              
              622,554
              
              
              
              790,066Goodwill
              
              
              896,812
              
              
              
              896,812Note
      receivable
              
              
              -
              
              
              
              75,46915,857,089
              
              
              
              13,109,049PROPERTY,
      PLANT AND EQUIPMENT
              
              
              4,509,149
              
              
              
              5,215,291TOTAL
      ASSETS
              
              $
              23,296,840
              
              
              $
              21,091,241
  The
accompanying notes are an integral part of these consolidated financial
statements.
  -5-
 Table of Contents
  BREDA
TELEPHONE CORP. AND SUBSIDIARIES
 BREDA,
IOWA
  CONDENSED
CONSOLIDATED BALANCE SHEETS
 December
31, 2006 and 2005
  December
      31,
              
              
              December
      31,2006
              
              
              2005(Restated)LIABILITIES AND STOCKHOLDERS'
      EQUITYCURRENT
      LIABILITIESCurrent
      portion of long-term debt
              
              $
              175,729
              
              
              $
              164,513Accounts
      payable
              
              
              178,331
              
              
              
              428,211Accrued
      taxes
              
              
              123,301
              
              
              
              378,871Other
              
              
              63,417
              
              
              
              143,582540,778
              
              
              
              1,115,177LONG-TERM
      DEBT, less current portion
              
              
              1,139,205
              
              
              
              1,314,935OTHER
      NONCURRENT LIABILITIES
              
              
              1,359,628
              
              
              
              1,002,858STOCKHOLDERS'
      EQUITYCommon
      stock - no par value, 5,000,000 shares authorized, 31,016 and 31,023
      shares issued and outstanding at $394 and $357 stated values,
      respectively
              
              
              12,220,304
              
              
              
              11,075,211Retained
      earnings
              
              
              8,036,925
              
              
              
              6,583,06020,257,229
              
              
              
              17,658,271TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
              
              $
              23,296,840
              
              
              $
              21,091,241




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




-6-
 Table of Contents





BREDA TELEPHONE CORP. AND SUBSIDIARIES
 BREDA,
IOWA
  CONDENSED CONSOLIDATED STATEMENTS
OF INCOME


For
the years ended December 31, 2006 and 2005





For
      the Years Ended2006
            
            
            2005(Restated)OPERATING
      REVENUES
            
            $
            8,667,053
            
            
            $
            7,446,337OPERATING
      EXPENSESCost
      of services
            
            
            4,109,781
            
            
            
            3,531,798Depreciation
      and amortization
            
            
            960,685
            
            
            
            931,294Selling,
      general, and administrative
            
            
            2,181,342
            
            
            
            1,955,3797,251,808
            
            
            
            6,418,471OPERATING
      INCOME
            
            
            1,415,245
            
            
            
            1,027,866OTHER
      INCOME (EXPENSES)Interest
      and dividend income
            
            
            391,562
            
            
            
            462,382Gain
      or (loss) on sale of investments
            
            
            1,165,392
            
            
            
            (2,754
            )Gain
      or (loss) on disposal of assets
            
            
            (21,714
            )
            
            
            33,385Interest
      expense
            
            
            (108,774
            )
            
            
            (105,409
            )Income
      from equity investments
            
            
            1,872,028
            
            
            
            1,341,698Other,
      net
            
            
            5,770
            
            
            
            (9,880
            )3,304,264
            
            
            
            1,719,422INCOME
      BEFORE INCOME TAXES
            
            
            4,719,509
            
            
            
            2,747,288INCOME
      TAXES
            
            
            1,900,632
            
            
            
            869,351NET
      INCOME
            
            $
            2,818,877
            
            
            $
            1,877,937NET
      INCOME PER COMMON SHARE
            
            $
            90.87
            
            
            $
            60.40




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




-7-
 Table of Contents





BREDATELEPHONE CORP. AND SUBSIDIARIES
 BREDA,
IOWA
  CONDENSED CONSOLIDATED STATEMENTS
OF STOCKHOLDERS’ EQUITY





Common
      Stock
            
            
            RetainedShares
            
            
            Amount
            
            
            Earnings
            
            
            TotalBalance
      at December 31, 2004 (Restated)
            
            
            31,170
            
            
            $
            10,161,420
            
            
            $
            5,889,583
            
            
            $
            16,051,003Comprehensive
      income:Net
      Income
            
            
            
            
            
            
            
            
            
            
            1,877,937
            
            
            
            1,877,937Dividends
      paid
            
            
            
            
            
            
            
            
            
            
            (218,190
            )
            
            
            (218,190
            )Common
      stock redeemed, net
            
            
            (147
            )
            
            
            (52,479
            )
            
            
            
            
            
            
            (52,479
            )Stated
      value stock adjustment
            
            
            
            
            
            
            966,270
            
            
            
            (966,270
            )Balance
      at December 31, 2005 (Restated)
            
            
            31,023
            
            
            
            11,075,211
            
            
            
            6,583,060
            
            
            
            17,658,271Comprehensive
      income:Net
      Income
            
            
            
            
            
            
            
            
            
            
            2,818,877
            
            
            
            2,818,877Dividends
      paid
            
            
            
            
            
            
            
            
            
            
            (217,161
            )
            
            
            (217,161
            )Common
      stock redeemed, net
            
            
            (7
            )
            
            
            (2,758
            )
            
            
            
            
            
            
            (2,758
            )Stated
      value stock adjustment
            
            
            
            
            
            
            1,147,851
            
            
            
            (1,147,851
            )Balance
      at December 31, 2006
            
            
            31,016
            
            
            $
            12,220,304
            
            
            $
            8,036,925
            
            
            $
            20,257,229





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





-8-
 Table of Contents





BREDATELEPHONE CORP. AND SUBSIDIARIES
 BREDA,
IOWA
  CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS


For
the years ended December 31, 2006 and 2005





2006
            
            
            2005(Restated)CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income
            
            $
            2,818,877
            
            
            $
            1,877,937Adjustments
      to reconcile net income to cash provided by operating
      activities:Depreciation
      and amortization
            
            
            960,685
            
            
            
            931,294Deferred
      income taxes
            
            
            367,274
            
            
            
            50,699Amortization
      of investment tax credits
            
            
            -
            
            
            
            (4,701
            )Amortization
      of investment premium/discount - net
            
            
            97,488
            
            
            
            64,521Equity
      income in unconsolidated affiliates, net of distributions received of
      $1,153,057 and $847,902 in 2006 and 2005, respectively
            
            
            (718,971
            )
            
            
            (493,795
            )Realized
      (gain) or loss on sale of property
            
            
            21,714
            
            
            
            (33,444
            )Note
      receivable discount
            
            
            (814
            )
            
            
            (5,609
            )Gain
      on sale of investments - at cost
            
            
            (1,165,392
            )
            
            
            -Changes
      in assets and liabilities:(Increase)
      Decrease in assets:
            
            
            (52,245
            )
            
            
            (342,586
            )Increase
      (Decrease) in liabilities:
            
            
            (587,657
            )
            
            
            371,513Net
      cash provided by operating activities
            
            
            1,740,959
            
            
            
            2,415,829CASH
      FLOWS FROM INVESTING ACTIVITIESCapital
      expenditures
            
            
            (390,462
            )
            
            
            (1,488,128
            )Proceeds
      from the sale of assets
            
            
            116,247
            
            
            
            53,863Purchase
      of marketable securities
            
            
            (3,177,070
            )
            
            
            (1,100,603
            )Purchase
      of equity investments
            
            
            (960,000
            )
            
            
            (403,264
            )Purchase
      of other investments - at cost
            
            
            (5,978
            )
            
            
            (3,340
            )Proceeds
      from the sale of property
            
            
            -
            
            
            
            53,863Proceeds
      from the sale of marketable securities
            
            
            1,755,003
            
            
            
            587,190Proceeds
      from the sale of other investments - at cost
            
            
            1,343,701
            
            
            
            7,209Repayment
      of notes receivable
            
            
            -
            
            
            
            5,000Net
      cash used in investing activities
            
            
            (1,318,559
            )
            
            
            (2,288,210
            )CASH
      FLOWS FROM FINANCING ACTIVITIESRepayment
      of long term debt
            
            
            (164,514
            )
            
            
            (154,013
            )Common
      stock redeemed, net
            
            
            (2,758
            )
            
            
            (52,479
            )Dividends
      paid
            
            
            (217,161
            )
            
            
            (218,190
            )Net
      cash used in financing activites
            
            $
            (384,433
            )
            
            $
            (424,682
            )Net
      Increase or (Decrease) in Cash and Cash Equivalents
            
            $
            37,967
            
            
            $
            (297,063
            )Cash
      and Cash Equivalents at Beginning of Period
            
            
            739,741
            
            
            
            1,036,804Cash
      and Cash Equivalents at End of Period
            
            $
            777,708
            
            
            $
            739,741




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




-9-
 Table of Contents





NOTE 1.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES





Nature of
Business





The Breda
Telephone Corporation (herein referred to as “the Company”) is a provider of
telecommunications exchange and local access services, long distance services,
cable television services and Internet services in a service area located
primarily in western Iowa.  The Company is also involved in retail
sales of cellular equipment and service plans for cellular partnerships of which
it owns interests, and sales of other telecommunications equipment.





Basis of
Presentation





The
accounting policies of the Company and its subsidiaries conform to accounting
principles generally accepted in the United States of
America.  Management uses estimates and assumptions in preparing its
consolidated financial statements.  Those estimates and assumptions
affect the reported amounts of assets, liabilities, revenues, and expenses, and
the disclosure of contingent revenues and expenses.  Telephone
operations reflect practices appropriate to the telephone
industry.  The accounting records of the telephone companies are
maintained in accordance with the Uniform System of Accounts for Class A and B
Telephone Companies prescribed by the Federal Communications Commission (FCC) as
modified by the state regulatory authority.





The
accounting records for the Company’s cable television operations are maintained
in accordance with the Uniform System of Accounts for CATV Companies prescribed
by the National Association of Regulatory Utility Commissioners.





Principles of
Consolidation





The
consolidated financial statements include the accounts of the Company and its
100% owned subsidiaries, Prairie Telephone Co., Inc., Tele-Services, Ltd., and
Westside Independent Telephone Company.  The financial statements of
Prairie Telephone Co., Inc. include the accounts of Prairie and its 100% owned
subsidiary, BTC, Inc.  All material intercompany transactions have
been eliminated in consolidation.





Cash
Equivalents





All
highly liquid investments with a maturity of three months or less at the time of
purchase are considered cash equivalents.





Investments





Marketable
debt and equity securities bought and held principally for selling in the near
future are classified as trading securities and carried at fair
value.  Unrealized holding gains and losses on trading securities are
reported in earnings.  Marketable debt and equity securities
classified as available-for-sale are carried at fair value with unrealized
holding gains and losses recorded as a separate component of stockholders’
equity.





-10-
 Table of Contents





NOTE
      1.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)





Investments
(Continued)





Debt
securities for which the Company has both the positive intent and ability to
hold to maturity are classified as held-to-maturity and are carried at amortized
cost. The Company uses the specific identification method of computing realized
gains and losses.





Nonmarketable
equity investments, over which the Company has significant influence or a 20%
ownership, are reflected on the equity method. Other nonmarketable equity
investments are stated at cost.





Inventory





Inventory
includes both merchandise held for resale and material and
supplies.  Merchandise held for resale is recorded at the lower of
cost or market with cost determined by the average cost
method.  Materials and supplies, used in the construction of the
Company’s facilities to provide telecommunications services, are recorded at
average cost.





Goodwill





Goodwill
is deemed to have an indefinite life and is stated at the lower of cost or fair
value.  The asset is subject to periodic impairment
tests.





Property, Plant and
Equipment





Telephone
and cable television plant are capitalized at original cost including the
capitalized cost of salaries and wages, materials, certain payroll taxes,
employee benefits and interest incurred during the construction
period.





The
Company provides for depreciation for financial reporting purposes on the
straight-line method by the application of rates based on the estimated service
lives of the various classes of depreciable property.  These estimates
are subject to change in the near term.





Renewals
and betterments of units of property are charged to telephone and cable
television plant in service.  When plant is retired, its cost is
removed from the asset account and charged against accumulated depreciation less
any salvage realized.  No gains or losses are recognized in connection
with routine retirements of depreciable property.  Repairs and
renewals of minor items of property are included in plant specific operations
expense.





Repairs
of other property, as well as renewals of minor items of property are included
in plant specific operations expense.  A gain or loss is recognized
when other property is sold or retired.





-11-
 Table of Contents





NOTE
      1.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)





Long-Lived
Assets





The
Company would provide for impairment losses on long-lived assets when indicators
of impairment are present and the estimated undiscounted cash flows to be
generated by those assets are less than the assets’ carrying
amount.  Based on current conditions, management does not believe any
of its long-lived assets are impaired.





Income
Taxes





Income
taxes are accounted for using a liability method and provide for the tax effects
of transactions reported in the consolidated financial statements including both
taxes currently due and deferred.  Deferred taxes are adjusted to
reflect deferred tax consequences at current enacted tax
rates.  Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax
purposes.  Significant components of the Company’s deferred taxes
arise from differences between the book and tax basis of plant assets, certain
investments and goodwill.  The deferred tax assets and liabilities
represent the future tax return consequences of those differences, which will
either be taxable or deductible, when the assets and liabilities are recovered
or settled.





Revenue
Recognition





The
Company recognizes revenues when earned regardless of the period in which they
are billed.  The Company is required to provide telephone service to
subscribers within its defined service territory.





Local
network, Internet and cable television service revenues are recognized over the
period a subscriber is connected to the network.





Network
access and long distance service revenues are derived from charges for access to
the Company’s local exchange network.  The interstate portion of
access revenues is based on an average schedule settlement formula administered
by the National Exchange Carrier Association (NECA), which is regulated by the
FCC.  The intrastate portion of access revenues is billed based upon
the Company’s tariff for access charges filed with the Iowa Utilities Board
(IUB).  The charges developed from these tariffs are used to bill the
connecting long distance provider and revenues are recognized in the period the
traffic is transported based on the minutes of traffic carried.  Long
distance revenues are recognized at the time a call is placed based on the
minutes of traffic processed at contracted rates.





Other
revenues include contractually determined arrangements for the provision of
billing and collecting services and are recognized in the period when the
services are performed.  Cellular sales and commission revenues are
recognized at the time of customer activation.





The
Company uses the reserve method to recognize uncollectible customer
accounts.





-12-
 Table of Contents





NOTE
      1.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)





Reclassifications





Certain
reclassifications have been made to the 2005 consolidated financial statements
to conform with the 2006 presentation.







NOTE
      2.
            MARKETABLE
      SECURITIES





The
amortized cost and fair value of held-to-maturity securities are:




Gross
            
            
            GrossAmortized
            
            
            Unrealized
            
            
            Unrealized
            
            
            FairCost
            
            
            Gains
            
            
            Losses
            
            
            ValueDecember 31, 2006Held-to-Maturity:Municipal
      bonds
            
            $
            4,687,740
            
            
            $
            29,188
            
            
            $
            (54,495
            )
            
            $
            4,662,433Government
      securities
            
            
            2,730,727
            
            
            
            9,981
            
            
            
            (45,299
            )
            
            
            2,695,409$
            7,418,467
            
            
            $
            39,169
            
            
            $
            (99,794
            )
            
            $
            7,357,842December 31, 2005Held-to-Maturity:Municipal
      bonds
            
            $
            4,735,425
            
            
            $
            31,136
            
            
            $
            (64,618
            )
            
            $
            4,701,943Government
      securities
            
            
            1,363,282
            
            
            
            1,177
            
            
            
            (32,305
            )
            
            
            1,332,154$
            6,098,707
            
            
            $
            32,313
            
            
            $
            (96,923
            )
            
            $
            6,034,0972006
            
            
            
            2005Amounts
      classified as:Current
            
            $
            643,119
            
            
            $
            635,409Noncurrent
            
            
            6,775,348
            
            
            
            5,463,298Total
            
            $
            7,418,467
            
            
            $
            6,098,707




The
amortized cost and fair value of marketable debt securities at December 31,
2006, by contractual maturity are shown below.  Expected maturities
may differ from contractual maturities because the issuers of the securities may
have the right to prepay obligations without prepayment penalties.




AmortizedCost
            
            
            Fair
      ValueDue
      in one year or less
            
            $
            643,119
            
            
            $
            633,028Due
      after one year through three years
            
            
            893,372
            
            
            
            886,323Due
      after three years through five years
            
            
            1,450,537
            
            
            
            1,435,142Due
      after five years
            
            
            4,431,439
            
            
            
            4,403,350$
            7,418,467
            
            
            $
            7,357,843





-13-
 Table of Contents





NOTE
      3.
            NOTE
      RECEIVABLE





Note
receivable consists of the following:





2006
            
            
            2005Desktop
      Media, L.L.C. - 8.75%
            
            
            439,974
            
            
            
            439,160Allowance
            
            
            (219,691
            )
            
            
            (219,691
            )220,283
            
            
            
            219,469Less
      current portion
            
            
            220,283
            
            
            
            144,000$
            -
            
            
            $
            75,469





The note
with Desktop Media, L.L.C., (Desktop) had an original balance of $500,000 and an
original maturity in 2006.  Interest on the note balance accrues at
the rate of prime plus 1 percent (prime + 1%) per annum.  The interest
rate is adjusted on the anniversary of the note.  The note is shown
net of an unamortized discount of $814 at December 31,
2005.  Principal payments of $12,000 plus interest were due the first
of each month beginning May of 2003 and were due each month thereafter until
paid in full.  On September 17, 2003, the Company signed a principal
deferral agreement with Desktop to defer principal payments due in the months of
September through December 2003.





The
Company has recorded allowances of $219,691 and $219,691 at December 31, 2006
and 2005, respectively due to the fact that it has not received the scheduled
monthly principal payments required by the note agreement.  In 2005,
the Company recorded an additional allowance of $46,717 on the note
receivable.  The Company’s ownership in Desktop Media, L.L.C.
increased to 17% in 2004 when certain conditions of a loan deferral agreement
were not met, and as a result, the Company subsequently began to report its
Desktop investment on the equity basis.  The additional allowance
represents losses in excess of the Company’s cost in the Desktop
investment.





-14-
 Table of Contents





NOTE
      4.
            OTHER
      INVESTMENTS





INVESTMENTS
IN UNCONSOLIDATED AFFILIATES AT EQUITY





Investments
in unconsolidated affiliates at equity include investments in partnerships,
limited liability companies and joint ventures as follows:




20052006
            
            
            (Restated)Alpine
      Communications, L.C.
            
            $
            2,064,675
            
            
            $
            1,849,883West
      Iowa Cellular, Inc.
            
            
            1,321,626
            
            
            
            1,084,694RSA
      #1, Ltd.
            
            
            1,204,368
            
            
            
            1,084,056RSA
      #7, Ltd.
            
            
            451,619
            
            
            
            356,856RSA
      #9, Ltd.
            
            
            769,064
            
            
            
            920,170Desktop
      Media, L.L.C.
            
            
            -
            
            
            
            -Quad
      County Communications
            
            
            56,068
            
            
            
            60,341Carroll
      County Wireless, L.L.C.
            
            
            63,038
            
            
            
            62,329Guthrie
      Group, L.L.C.
            
            
            54,619
            
            
            
            57,612Bug
      Tussel, L.L.C.
            
            
            617,298
            
            
            
            407,463Spiralight,
      L.L.C.
            
            
            960,000
            
            
            
            -$
            7,562,375
            
            
            $
            5,883,404





The
Company has a 17.42% ownership interest in Alpine Communications, L.C. (Alpine)
at December 31, 2006 and 2005.  Alpine owns and operates several
wireline telephone exchanges in northeastern Iowa, along with providing Internet
and cable television services in and around its wireline service
territory.





The
following is a summary of condensed financial information pertaining to the
company described above as of December 31, 2006 and 2005 and the twelve months
then ended.





Alpine
      Communications, L.C.20052006
            
            
            (Restated)Assets
            
            $
            19,104,618
            
            
            $
            19,071,667Liabilities
            
            
            8,205,197
            
            
            
            9,404,785Equity
            
            $
            10,899,421
            
            
            $
            9,666,882Revenues
            
            $
            7,614,739
            
            
            $
            7,371,191Expenses
            
            
            5,327,827
            
            
            
            5,148,710Net
      Income
            
            $
            2,286,912
            
            
            $
            2,222,481





The
Company’s percentage ownership interests in partnerships providing cellular
telephone services within their respective service areas at December 31, 2006
and 2005 are as follows:





West
      Iowa Cellular, Inc.,
            
            
            25.0
            %RSA
      #1, Ltd.
            
            
            10.3
            %RSA
      #7, Ltd.
            
            
            7.1
            %RSA
      #9, Ltd.
            
            
            16.7
            %





-15-
 Table of Contents





NOTE
      4.
            OTHER
      INVESTMENTS (Continued)





The
following is a summary of condensed financial information pertaining to the
companies described above as of December 31, 2006 and 2005 and the twelve months
then ended.





2006West
      IowaCellular,
      Inc.
            
            
            RSA
      #1
            
            
            RSA
      #7
            
            
            RSA
      #9Assets
            
            $
            5,627,101
            
            
            $
            11,825,263
            
            
            $
            9,614,812
            
            
            $
            6,239,458Liabilities
            
            
            340,599
            
            
            
            966,659
            
            
            
            3,302,667
            
            
            
            1,625,995Equity
            
            $
            5,286,502
            
            
            $
            10,858,604
            
            
            $
            6,312,145
            
            
            $
            4,613,463Revenues
            
            $
            2,328,612
            
            
            $
            8,193,772
            
            
            $
            16,900,499
            
            
            $
            10,828,447Expenses
            
            
            980,885
            
            
            
            6,021,512
            
            
            
            13,176,017
            
            
            
            8,318,020Net
      Income
            
            $
            1,347,727
            
            
            $
            2,172,260
            
            
            $
            3,724,482
            
            
            $
            2,510,4272005 (Restated)West
      IowaCellular,
      Inc.
            
            
            RSA
      #1
            
            
            RSA
      #7
            
            
            RSA
      #9Assets
            
            $
            4,578,572
            
            
            $
            10,554,590
            
            
            $
            8,398,053
            
            
            $
            6,861,727Liabilities
            
            
            239,797
            
            
            
            927,484
            
            
            
            3,410,390
            
            
            
            1,341,813Equity
            
            $
            4,338,775
            
            
            $
            9,627,106
            
            
            $
            4,987,663
            
            
            $
            5,519,914Revenues
            
            $
            1,603,705
            
            
            $
            7,360,677
            
            
            $
            14,342,030
            
            
            $
            11,242,490Expenses
            
            
            664,214
            
            
            
            6,117,008
            
            
            
            11,651,894
            
            
            
            9,315,996Net
      Income
            
            $
            939,491
            
            
            $
            1,243,669
            
            
            $
            2,690,136
            
            
            $
            1,926,494





The
Company has a 17% ownership in Desktop at December 31, 2006 and
2005.  Desktop operates in southeastern Minnesota and is a provider of
Internet and telephone services.





This
investment is accounted for under the equity method with the Company recognizing
their proportionate share of income and losses to the extent that the investment
exceeds losses.  Accordingly, the recorded investment amount in
Desktop was eliminated at December 31, 2004.  In 2005, additional
losses in excess of the basis totaling $46,717 were applied against the
outstanding note receivable.





-16-
 Table of Contents





NOTE
      4.
            OTHER
      INVESTMENTS (Continued)





The
following is a summary of condensed financial information pertaining to the
company described above as of December 31, 2006 and 2005 and the twelve months
then ended.





Desktop
      Media, L.L.C.20052006
            
            
            (Restated)Assets
            
            $
            516,434
            
            
            $
            541,973Liabilities
            
            
            1,926,356
            
            
            
            1,821,559Equity
            
            $
            (1,409,922
            )
            
            $
            (1,279,586
            )Revenues
            
            $
            2,230,723
            
            
            $
            2,273,744Expenses
            
            
            2,443,209
            
            
            
            2,493,224Net
      Income
            
            $
            (212,486
            )
            
            $
            (219,480
            )





In
January 2006, an interested party proposed a Letter of Intent to purchase
Desktop Media, L.L.C. of which the Company is a 17% owner.  In
February 2007, a proposed Purchase Agreement was prepared by the same interested
party and presented to Desktop Media, L.L.C.’s owners.  If
negotiations are successful, the Company expects its portion of the proceeds
from the sale to be approximately $26,000.  Upon sale of Desktop
Media, L.L.C., the Company would also expect to receive $439,974 for its note
receivable from Desktop Media, L.L.C.





The
Company has a 33.33% ownership interest in Quad County Communications (Quad
County) at December 31, 2006 and 2005.  This entity owns and operates
a fiber optic network.





The
following is a summary of condensed financial information pertaining to the
company described above as of December 31, 2006 and 2005 and the twelve months
then ended.





Quad
      County Communications20052006
            
            
            (Restated)Assets
            
            $
            174,882
            
            
            $
            188,842Liabilities
            
            
            6,677
            
            
            
            7,818Equity
            
            $
            168,205
            
            
            $
            181,024Revenues
            
            $
            24,088
            
            
            $
            12,250Expenses
            
            
            51,831
            
            
            
            52,047Net
      Income
            
            $
            (27,743
            )
            
            $
            (39,797
            )





The
Company’s percentage interests in Carroll County Wireless, L.L.C. and Guthrie
Group, L.L.C. are each 33.33% at December 31, 2006 and 2005.  Both
companies have purchased the licenses to provide personal communication services
(PCS); however, neither company has begun providing PCS services as of December
31, 2006.





-17-
 Table of Contents





NOTE
      4.
            OTHER
      INVESTMENTS (Continued)





The
following is a summary of condensed financial information pertaining to the
companies described above as of December 31, 2006 and 2005 and the twelve months
then ended.





2006Carroll
      County
            
            
            GuthrieWireless,
      L.L.C.
            
            
            Group,
      L.L.C.Assets
            
            $
            189,113
            
            
            $
            163,856Liabilities
            
            
            -
            
            
            
            -Equity
            
            $
            189,113
            
            
            $
            163,856Revenues
            
            $
            29,685
            
            
            $
            3,089Expenses
            
            
            27,559
            
            
            
            12,069Net
      Income
            
            $
            2,126
            
            
            $
            (8,980
            )2005 (Restated)Carroll
      County
            
            GuthrieWireless,
      L.L.C.
            
            
            Group,
      L.L.C.Assets
            
            $
            186,987
            
            
            $
            181,618Liabilities
            
            
            -
            
            
            
            8,782Equity
            
            $
            186,987
            
            
            $
            172,836Revenues
            
            $
            11
            
            
            $
            -Expenses
            
            
            8,604
            
            
            
            4,319Net
      Income
            
            $
            (8,593
            )
            
            $
            (4,319
            )





The
Company has a 9.94% ownership interest in Bug Tussel Wireless LLC (Bug Tussel)
at December 31, 2006 and 2005.  Bug Tussel has constructed a wireless
network in rural Wisconsin, which provides roaming services to cellular carriers
offering service in the state.





The
following is a summary of condensed financial information pertaining to the
company described above as of December 31, 2006 and 2005 and the twelve months
then ended.





Bug
      Tussel, L.L.C.20052006
            
            
            (Restated)Assets
            
            $
            9,671,295
            
            
            $
            4,892,164Liabilities
            
            
            4,740,197
            
            
            
            2,035,188Equity
            
            $
            4,931,098
            
            
            $
            2,856,976Revenues
            
            $
            8,351,715
            
            
            $
            2,814,063Expenses
            
            
            5,966,644
            
            
            
            1,946,990Net
      Income
            
            $
            2,385,071
            
            
            $
            867,073





The
Company purchased a 30% interest in a new entity, Spiralight Network, L.L.C. on
December 28, 2006.  Spiralight Network, L.L.C. provides fiber
transport services in Wisconsin, Illinois and Minnesota.  The
investment will be accounted for on the equity method of
accounting.  No income or loss was recognized in 2006 due to the short
period of ownership.





-18-
 Table of Contents





NOTE
      4.
            OTHER
      INVESTMENTS (Continued)





Partnershipinvestments above with
less than a 20% ownership are carried at equity due to the level of influence
the Company has with respect to each investment.  Investments in
limited liability companies are on the equity method if ownership is more than
3-5%.





LONG-TERM
INVESTMENTS AT COST





Long-term
investments at cost include nonmarketable equity securities and certificates as
follows:




2006
            
            
            2005NECA
      Services, Inc. - stock
            
            $
            300,000
            
            
            $
            300,000Rural
      Telephone Finance Cooperative - certificates
            
            
            178,616
            
            
            
            182,193Rural
      Telephone Bank - stock
            
            
            -
            
            
            
            165,789Iowa
      Network Services - stock
            
            
            78,705
            
            
            
            78,705NRTC
      Patronage Capital - certificates
            
            
            54,233
            
            
            
            52,379Other
            
            
            11,000
            
            
            
            11,000$
            622,554
            
            
            $
            790,066





Other
investments include $165,789 at December 31, 2005, related to Rural Telephone
Bank  (RTB) Class B and C stock. The RTB Class B stock was purchased
from the RTB as a condition of obtaining long-term financing.  Holders
of RTB Class B stock are entitled to patronage dividends in the form of
additional Class B stock. Any Class C stock was obtained through purchase or at
the Company’s option, through the conversion of previously acquired Class B
stock as the related loans were repaid.  In 2005, the RTB board
announced plans to redeem the outstanding stock of the bank and liquidate the
bank. Under the plan, the RTB’s outstanding loans will be transferred to the
RUS.   The RTB stock held by the Company was redeemed at par
value after the execution of a redemption agreement with the RTB in the second
quarter of 2006.  Proceeds from the redemption totaled
$1,336,000.





NOTE
      5.
            GOODWILL





Goodwill
consists of the following:




2006
            
            
            2005Balance,
      beginning of year
            
            $
            896,812
            
            
            $
            896,812Goodwill
      acquired
            
            
            -
            
            
            
            -Goodwill
      impairment
            
            
            -
            
            
            
            -Balance,
      end of year
            
            $
            896,812
            
            
            $
            896,812





The
Company annually assesses its recorded balances of goodwill and indefinite lived
intangible assets.  As a result, the Company determined no impairment
needed to be recorded for the years ended December 31, 2006 and
2005.





-19-
 Table of Contents





NOTE
      6.
            PROPERTY,
      PLANT AND EQUIPMENT





Property,
plant and equipment includes the following:




2006
            
            
            2005Telephone
      plant in service:Land
            
            $
            41,508
            
            
            $
            41,508Buildings
            
            
            1,412,256
            
            
            
            1,588,518Other
      general support assets
            
            
            1,713,384
            
            
            
            1,708,212Central
      office assets
            
            
            4,028,301
            
            
            
            3,965,624Cable
      and wire facilities
            
            
            4,870,035
            
            
            
            4,670,268Other
      plant and equipment
            
            
            991,668
            
            
            
            902,12713,057,152
            
            
            
            12,876,257Cable
      television plant in service:Land
            
            $
            8,846
            
            
            $
            11,661Buildings
            
            
            132,673
            
            
            
            132,673Other
      plant and equipment
            
            
            222,146
            
            
            
            159,304Towers,
      antennas and head end equipment
            
            
            1,603,930
            
            
            
            1,592,410Cable
      and wire facilities
            
            
            1,573,544
            
            
            
            1,573,544Franchises
            
            
            30,092
            
            
            
            30,0923,571,231
            
            
            
            3,499,684Total
      property, plant and equipment
            
            
            16,628,383
            
            
            
            16,375,941Less
      accumulated depreciation
            
            
            12,119,234
            
            
            
            11,202,5734,509,149
            
            
            
            5,173,368Plant
      under construction
            
            
            -
            
            
            
            41,923$
            4,509,149
            
            
            $
            5,215,291





Telephone
cable and wire facilities of approximately $688,000 and cable television head
end equipment of approximately $506,000 were fully depreciated in
2006.  Depreciation on depreciable property resulted in composite
rates of 5.8% and 5.9% for 2006 and 2005, respectively.





-20-
 Table of Contents





NOTE
      7.
            INCOME
      TAXES





Income
taxes reflected in the Consolidated Statements of Income consist of the
following:




20052006
            
            
            (Restated)Federal
      income taxes:Current
      tax expense
            
            $
            1,208,959
            
            
            $
            596,898Deferred
      tax expense
            
            
            275,838
            
            
            
            35,264Amortization
      of investment tax credits
            
            
            -
            
            
            
            (4,701
            )State
      income taxes:Current
      tax expense
            
            
            324,399
            
            
            
            226,455Deferred
      tax expense
            
            
            91,436
            
            
            
            15,435Total
      income tax expense
            
            $
            1,900,632
            
            
            $
            869,351





Deferred
federal and state tax liabilities and assets reflected in the Consolidated
Balance Sheets are summarized as follows:





20052006
            
            
            (Restated)Deferred
      tax liabilitiesFederal
            
            $
            1,156,574
            
            
            $
            894,953State
            
            
            356,426
            
            
            
            276,287Total
      deferred tax liabilities
            
            
            1,513,000
            
            
            
            1,171,240Deferred
      tax assetsFederal
            
            
            (125,259
            )
            
            
            (143,679
            )State
            
            
            (40,404
            )
            
            
            (47,497
            )Total
      deferred tax assets
            
            
            (165,663
            )
            
            
            (191,176
            )Net
      deferred tax liabilities
            
            $
            1,347,337
            
            
            $
            980,064Current
      portion
            
            $
            (12,291
            )
            
            $
            (22,794
            )Long-term
      portion
            
            
            1,359,628
            
            
            
            1,002,858Net
      deferred tax liability
            
            $
            1,347,337
            
            
            $
            980,064





The tax
provision differs from the expense that would result from applying the federal
statutory rates to income before income taxes as the result of state income
taxes, tax exempt interest, dividends received deduction, and the amortization
of investment tax credits.





Cash paid
for income taxes and estimated income taxes for 2006 and 2005 totaled $1,798,064
and $679,800, respectively.





-21-
 Table of Contents





NOTE
      7.
            INCOME
      TAXES (Continued)





The
following is a reconciliation of the statutory federal income tax rate of 34% to
the Company’s effective income tax rate:





20052006
            
            
            (Restated)Statutory
      federal income tax rate
            
            
            34.0
            %
            
            
            34.0
            %State
      income taxes, net of federal benefit
            
            
            10.1
            %
            
            
            10.1
            %Amortization
      of investment tax credits
            
            
            -
            %
            
            
            (0.1
            )
      %Dividends
      received deduction
            
            
            (0.6
            )
      %
            
            
            (1.5
            )
      %Tax
      exempt interest
            
            
            (3.7
            )
      %
            
            
            (5.0
            )
      %Other
            
            
            0.5
            %
            
            
            (5.9
            )
      %Effective
      income tax rate
            
            
            40.3
            %
            
            
            31.6
            %





The
Company files consolidated tax returns including their subsidiaries, Prairie
Telephone Co., Inc., Westside Independent Telephone Company and Tele-Services,
Ltd. for income tax purposes.  For financial reporting purposes,
income taxes are presented as if each member of the consolidated group were a
separate taxpayer.





NOTE
      8.
            LONG-TERM
      DEBT





Long-term
debt consists of:




2006
            
            
            2005Rural
      Telephone Finance Cooperative7.35%
      (Fixed Rate)
            
            $
            1,314,934
            
            
            $
            1,479,448Less
      current portion
            
            
            175,729
            
            
            
            164,513$
            1,139,205
            
            
            $
            1,314,935





The
annual requirements for principal payments on long-term debt for the next five
years are as follows:




2007
            
            $
            175,7292008
            
            
            187,7102009
            
            
            200,5072010
            
            
            214,1772011
            
            
            228,779





Substantially
all assets of the Company are pledged as security for the long-term debt under
certain loan agreements with the Rural Telephone Finance Cooperative
(RTFC).  These mortgage notes are to be repaid in equal quarterly
installments covering principal and interest beginning two to three years after
date of issue and expiring by the year 2013.





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NOTE
      8.
            LONG-TERM
      (Continued)





The
security and loan agreements underlying the RTFC notes contain certain
restrictions on distributions to stockholders, investment in, or loans to
others, and payment of management fees or an increase in management
fees.  The Company is restricted from making any distributions, except
as might be specifically authorized in writing in advance by the RTFC
noteholders, unless minimum net worth exceeds 40% and distributions are limited
to certain levels of prior year cash margins.  In addition, the
Company is required to achieve a debt service coverage ratio of not less than
1.25 and a times interest earned ratio of not less than 1.5.





The
Company has a line of credit with the RTFC for $1,500,000.  The
approved line of credit is available until November 15, 2010.  The
interest rate at December 31, 2006 is 8.2%.  No funds were advanced
under the line at December 31, 2006.  In addition, the Company has a
line of credit with the RTFC for $500,000.  This approved line of
credit is available until November 30, 2010.  The interest rate at
December 31, 2006 is 8.2%.  No funds were advanced under the line at
December 31, 2006.





Cash paid
for interest for 2006 and 2005, net of amounts capitalized, totaled $108,774 and
$116,809, respectively.





NOTE
      9.
            OPERATING
      SEGMENTS INFORMATION





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





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





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 Table of Contents





NOTE
      9.
            OPERATING
      SEGMENTS INFORMATION (Continued)





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





Local
            
            
            
            
            
            InternetExchange
            
            
            
            
            
            Service2006
            
            Carrier
            
            
            Broadcast
            
            
            Provider
            
            
            TotalRevenues
      and sales
            
            
            7,315,068
            
            
            
            724,957
            
            
            
            627,028
            
            
            $
            8,667,053Interest
      income
            
            
            372,967
            
            
            
            16,385
            
            
            
            2,210
            
            
            
            391,562Interest
      expense
            
            
            108,774
            
            
            
            -
            
            
            
            -
            
            
            
            108,774Depreciation
      and amortization
            
            
            668,691
            
            
            
            144,894
            
            
            
            147,100
            
            
            
            960,685Income
      tax expense (benefit)
            
            
            2,035,978
            
            
            
            (132,002
            )
            
            
            (3,344
            )
            
            
            1,900,632Segment
      profit (loss)
            
            
            3,510,729
            
            
            
            (184,972
            )
            
            
            (506,880
            )
            
            
            2,818,877Segment
      assets
            
            
            21,416,179
            
            
            
            748,796
            
            
            
            1,131,865
            
            
            
            23,296,840Expenditures
      for segment assets
            
            
            246,657
            
            
            
            71,548
            
            
            
            72,257
            
            
            
            390,4622005 (Restated)Revenues
      and sales
            
            $
            6,063,713
            
            
            $
            803,561
            
            
            $
            579,063
            
            
            $
            7,446,337Interest
      income
            
            
            446,657
            
            
            
            14,924
            
            
            
            801
            
            
            
            462,382Interest
      expense
            
            
            105,409
            
            
            
            -
            
            
            
            -
            
            
            
            105,409Depreciation
      and amortization
            
            
            644,533
            
            
            
            187,918
            
            
            
            98,843
            
            
            
            931,294Income
      tax expense (benefit)
            
            
            1,000,148
            
            
            
            (118,130
            )
            
            
            (12,667
            )
            
            
            869,351Segment
      profit (loss)
            
            
            2,382,331
            
            
            
            (193,859
            )
            
            
            (310,535
            )
            
            
            1,877,937Segment
      assets
            
            
            19,091,355
            
            
            
            826,904
            
            
            
            1,172,982
            
            
            
            21,091,241Expenditures
      for segment assets
            
            
            738,485
            
            
            
            206,885
            
            
            
            542,758
            
            
            
            1,488,128





NOTE
      10.
            NET
      INCOME PER COMMON SHARE





Net
income per common share for 2006 and 2005 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 years ended December 31, 2006 and 2005 were 31,021 and
31,092, respectively.





NOTE
      11.
            STOCK
      VALUE ADJUSTMENT





During
July 2006, the board of directors authorized a $37 increase in the stated value
of each share of common stock from $357 to $394.  There were 31,023
shares outstanding at the time of the value adjustment, which reduced retained
earnings by $1,147,851.





During
May 2005, the board of directors authorized a $31 increase in the stated value
of each share of common stock from $326 to $357.  There were 31,170
shares outstanding at the time of the value adjustment, which reduced retained
earnings by $966,270.





-24-
 Table of Contents





NOTE
      12.
            STOCK
      RESTRICTIONS





The
Company has one class of common stock.  Each shareholder is entitled
to one vote regardless of the number of shares owned.  Restrictions on
the stock include the following:





·
            Individuals
      purchasing new shares of stock must be living within the service areas of
      the Company and subscribe to its telephone services.  In
      addition, new stockholders are limited to purchasing no more than thirty
      shares of stock directly from the
Company.





·
            Stockholders
      are limited to ownership of not more than one percent of the outstanding
      shares of stock unless ownership was prior to the restated Articles of
      Incorporation.





·
            Stockholders
      shall not sell any shares of stock owned unless the Company has been given
      first right of refusal.





·
            In
      households with multiple individuals, only one person must be deemed the
      subscriber of Company services.





·
            A
      one-time stock transfer to a family member (spouse, child, grandchild,
      parent, grandparent, or sibling) is allowed for shareholders of record for
      the shares they held in 1995 even if such transferee resides outside of
      the telephone exchange service area and is not a subscriber of the
      Company’s telephone services.





·
            Stock
      transfers require consent of the board of
  directors.





The
Company may adopt bylaws, which may further restrict the transfer or ownership
of capital stock of the Company.





NOTE
      13.
            EMPLOYEE
      BENEFITS





The
Company has a defined benefit pension plan covering most
employees.  The multi employer retirement program is with the National
Telephone Cooperative Association (NTCA) and has been approved by the Internal
Revenue Service.  Pension costs expensed and capitalized for 2006 and
2005 were $144,376 and $149,427, respectively.  The Company makes
annual contributions to the plan equal to amounts accrued for pension
expense.





-25-
 Table of Contents





NOTE
      14.
            ASSET
      RETIREMENT OBLIGATION





Generally
accepted accounting principles require entities to record the fair value of a
liability for legal obligations associated with an asset retirement in the
period in which the obligations are incurred.  When the liability is
initially recorded, the entity capitalizes the cost of the asset retirement
obligation by increasing the carrying amount of the related long-lived
asset.  Over time, the liability is accreted to its present value each
period, and the capitalized cost is depreciated over the useful life of the
related asset.





The
Company has determined it does not have a material legal obligation to remove
long-term assets and accordingly, there have been no liabilities recorded for
the years ended December 31, 2006 and 2005.





NOTE
      15.
            RELATED
      PARTY TRANSACTIONS





The
Company receives commission revenue from RSA #9, Ltd. Partnership (RSA #9) based
on cellular service activation and retention.  The Company has a 16.7%
ownership interest in RSA #9.  Commissions received by the Company for
the years ended December 31, 2006 and 2005 were approximately $1,111,000 and
$1,144,000, respectively.  At December 31, 2006 and 2005, $147,351 and
$125,260 were due from RSA #9 for commissions.





NOTE
      16.
            CONCENTRATIONS
      OF CREDIT RISK





The
Company grants credit to local service customers, all of whom are located in the
service area, broadcast customers, Internet customers and telecommunications
intrastate and interstate long distance carriers.





The
Company received 51% of its 2006 revenues from access revenues and assistance
provided by the Federal Universal Service Fund.  As a result of the
Telecommunications Act of 1996, the manner in which access revenues and
Universal Service Funds are determined is currently being modified by regulatory
bodies.





Financial
instruments that potentially subject the Company to concentrations of credit
risk consist principally of cash and cash equivalents, along with both temporary
and long-term investments.  The Company places its cash, cash
equivalents and investments in several financial institutions which limits the
amount of credit exposure in any one financial institution.





The
Company maintains its cash in bank deposit accounts which, at times, may exceed
federally insured limits.  The Company has not experienced any losses
in such accounts.  The Company believes it is not exposed to any
significant credit risk on cash and cash equivalents.





NOTE
      17.
            CHANGE
      IN ACCOUNTING METHOD





The
Company has restated its income from equity investments for the year ended
December 31, 2005.  The Company determined to restate its income from
equity investments from the accepted method of a twelve-month period ending
September 30th to a
better method of a twelve-month period ending December 31st,
when calendar year financial statements became available for each of the years
ending 2005 and 2006 for these investments.  The Company determined to
make the change in accounting method to have uniformity in its reporting period
for all of the financial information presented in its financial
statements.





-26-
 Table of Contents





NOTE
      17.
            CHANGE
      IN ACCOUNTING METHOD (Continued)





The
change in accounting method in 2005 resulted in a $103,976 increase in income
from equity investments.  Net of the income tax expense increase of
$40,775, the 2005 net income increased $63,201.  Net income per common
share increased to $60.40 per share from $58.37 per share.





The
result of the change in accounting method is a change in retained earnings at
December 31, 2004 of $153,315.





NOTE
      18.
            NONCASH
      INVESTING ACTIVITIES





Noncash
investing activities included $2,042 during the year ended December 31, 2006
relating to plant and equipment additions placed in service during 2006, which
are reflected in accounts payable at year end.





-27-
 Table of Contents





Item
      13.
            Exhibits





A list of
the exhibits included as part of this Form 10-KSB/A is set forth in the Exhibit
Index which immediately precedes such exhibits and is incorporated herein by
this reference.








[THE REST
OF THIS PAGE IS INTENTIONALLY LEFT BLANK]





-28-
 Table of Contents





SIGNATURES





In accordance with Section 13 or 15(d)
of the Exchange Act, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.





BREDA
      TELEPHONE CORP.Date:
      December 14, 2009
            
            By:
            /s/ Charles DeisbeckCharles
      Deisbeck, Chief Executive OfficerBy:
            /s/ Jane MorlokJane
      Morlok, Chief Financial Officer





In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.





By:
            /s/ Daniel Nieland
            
            By:
            /s/ Neil KanneDaniel
      Nieland, Vice President and Director
            
            
            Neil
      Kanne, Secretary and DirectorDate:  December
      14, 2009
            
            
            Date:  December
      14, 2009By:
            /s/ Rick Anthofer
            
            By:
            /s/ Dr. Dan McDermottRick
      Anthofer, Treasurer and Director
            
            
            Dr.
      Dan McDermott, DirectorDate:  December
      14, 2009
            
            
            Date:  December
      14, 2009By:
            /s/ Clifford Neumayer
            
            By:
            /s/ Dean ShettlerClifford
      Neumayer, Director
            
            
            Dean
      Shettler, DirectorDate:  December
      14, 2009
            
            
            Date:  December
      14, 2009By:
            /s/ Charles Thatcher
            
            By:
            /s/ Jane MorlokCharles
      Thatcher, President and Director
            
            
            Jane
      Morlok, Chief Financial OfficerDate:  December
      14, 2009
            
            
            Date:
      December 14, 2009By:
            /s/ Charles DeisbeckCharles
      Deisbeck, Chief Executive OfficerDate:
      December 14, 2009





-29-
 Table of Contents





EXHIBIT
INDEX


Exhibits
to Form 10-KSB/A of Breda Telephone Corp.


for
the Fiscal Year Ended December 31, 2006





Description of
Exhibit.





*31.
            
            Rule
      13a-14(a)/15d-14(a) Certifications31.1
            
            Rule
      13(a)-14(a) Certification of Chief Executive Officer
            E-131.2
            
            Rule
      13(a)-14(a) Certification of Chief Financial Officer
            E-2*32.
            
            Section
      1350 Certifications32.1
            
            Section
      1350 Certification of Chief Executive Officer
            E-332.2
            
            Section
      1350 Certification of Chief Financial Officer
            E-4





*Included
with this filing.