U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   Form 10-KSB

            |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended: December 31, 2004.

        |_| 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                           (I.R.S. Employer
     incorporation or organization)                          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 (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 |_|

      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|

      State registrant's revenues for its most recent fiscal year: $6,774,357

      State the  aggregate  market  value of the  voting and  non-voting  common
equity  held  by  non-affiliates:   $10,061,338,   as  of  March  1,  2005.  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 $326 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 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:  31,170 shares of common
stock, no par value, at March 1, 2005.

      Transitional Small Business Disclosure Format:    Yes |_| No |X|

<PAGE>

Cautionary Statement on Forward Looking Statements.

      Various Items in this annual  report,  including Item 1 and Item 6, are or
contain  forward  looking  statements  that  involve  and are subject to various
risks,  uncertainties and assumptions.  Forward looking statements include,  but
are not limited to,  statements with respect to financial results and condition;
anticipated  future  trends in  business,  revenues or net  income;  projections
concerning   operations  and  cash  flow;   business,   growth  and  acquisition
opportunities and strategies;  management's plans and intentions for the future;
competitive  position;  and  other  forecasts,  projections  and  statements  of
expectation.   Words   such  as   "expects,"   "estimates,"   "plans,"   "will,"
"anticipates," "contemplates," "forecasts," "predicts," "projects", "prospects",
"possible,"  "hopeful,"  "intends,"  "believes,"  "seeks,"  "should,"  "thinks,"
"objectives" and other similar expressions or variations of those words or those
types of  words  help  identify  forward  looking  statements.  Forward  looking
statements are made based on numerous and varied estimates,  projections, views,
beliefs,  strategies  and  assumptions  made  or  existing  at the  time of such
statements  and are not  guarantees  of future  results  or  performance.  Breda
disclaims  any  obligation  to update or revise any forward  looking  statements
based on the occurrence of future  events,  the receipt of new  information,  or
otherwise.

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

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

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

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


                                       (i)
<PAGE>

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

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

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

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

            o     litigation;

            o     inaccurate assumptions or predictions by management;

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

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

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

            o     acts or omissions of existing and/or new competitors and other
                  third  parties,  including  offering  lower  prices  or new or
                  substitute products or services and their use of new marketing
                  strategies and approaches;

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

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


                                      (ii)
<PAGE>

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

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

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

               [THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK]


                                      (iii)
<PAGE>

                                     PART I

Item 1. Description of Business.

      General.

      Breda Telephone Corp. is an Iowa corporation with its principal offices in
      Breda,  Iowa.  Breda was  incorporated  in 1964 to provide local telephone
      services to Breda, Iowa and the surrounding rural area.

      Breda's  principal  business  is  still  providing   telephone   services.
      Telephone  services  are also  provided by three of Breda's  wholly  owned
      subsidiaries,  Prairie Telephone Co., Inc., Westside Independent Telephone
      Company  and BTC,  Inc. A total of eight Iowa towns and their  surrounding
      rural areas  currently  receive  telephone  services  from Breda,  Prairie
      Telephone, Westside Independent or BTC, Inc.

      Prairie Telephone is an Iowa corporation that was incorporated in 1968.

      Westside Independent is an Iowa corporation that was incorporated in 1957.
      Breda acquired the stock of Westside Independent in June, 1998.

      BTC, Inc. is an Iowa  corporation that was incorporated in 1997. BTC, Inc.
      has provided  internet  access  services in the Carroll,  Iowa market area
      since 1997.  BTC,  Inc.  also  provides  internet  access  services to the
      customers  of  Breda,  Prairie  Telephone  and  Westside  Independent  who
      subscribe  for Internet  services.  BTC,  Inc. has provided  long distance
      services in the  Carroll,  Iowa market  area since July,  2000,  and local
      telephone  services  since  October,  2003.  BTC, Inc.  provides the local
      telephone services through leasing loops from the incumbent local exchange
      carrier in the Carroll,  Iowa area.  BTC, Inc. also provides long distance
      services  to the  customers  of  Breda,  Prairie  Telephone  and  Westside
      Independent  who  subscribe  for long  distance  services.  BTC, Inc. is a
      wholly owned subsidiary of Prairie Telephone.

      Tele-Services,   Ltd.  is  also  a  wholly  owned   subsidiary  of  Breda.
      Tele-Services provides cable television services to eighteen towns in Iowa
      and one town in Nebraska.  Tele-Services  is an Iowa  corporation that was
      incorporated in 1983.

      Breda's  and its  subsidiaries'  telephone,  internet  services  and cable
      television  businesses  are  discussed in more detail  below.  Some of the
      other miscellaneous  business operations of Breda and its subsidiaries are
      also discussed below.

      Local Exchange Carrier Services.

      Breda,  Prairie  Telephone,  Westside  Independent  and BTC, Inc.  provide
      telephone services to the following eight Iowa towns and their surrounding
      rural areas:


                                       1
<PAGE>

            o   Breda, Iowa                      o   Pacific Junction, Iowa
            o   Lidderdale, Iowa                 o   Yale, Iowa
            o   Macedonia, Iowa                  o   Westside, Iowa
            o   Farragut, Iowa                   o   Carroll, Iowa


      All of the towns are in central and southern Iowa.

      Breda  provides  services  to Breda,  Lidderdale  and  Macedonia.  Prairie
      Telephone  provides  services  to  Farragut,  Pacific  Junction  and Yale.
      Westside Independent provides services to Westside, and BTC, Inc. provides
      services to Carroll. The surrounding rural areas that are served are those
      within  approximately  a ten mile to  fifteen  mile  radius of each of the
      towns.

      The primary services of Breda, Prairie Telephone, Westside Independent and
      BTC,  Inc. are  providing  their  subscribers  with basic local  telephone
      service and access  services  for long  distance  calls  outside the local
      calling  area.  As of December 31, 2004,  they were serving  approximately
      3,226 telephone numbers and related access lines. Breda, Prairie Telephone
      and Westside  Independent  derive their principal  revenues from providing
      those services.

      BTC, Inc.'s principal revenue sources in 2004 were from providing Internet
      services, long distance services, basic local telephone service and access
      services for long distance  calls  outside of BTC,  Inc.'s  Carroll,  Iowa
      local calling area. BTC, Inc. provides Internet services and long distance
      services for its own  customers  and for the  customers of Breda,  Prairie
      Telephone  and Westside  Independent.  As noted above,  BTC,  Inc. did not
      offer local telephone services until October of 2003.

      Breda, Prairie Telephone,  Westside Independent and BTC, Inc. also provide
      other  telephone  related  services.  For  example,  they  sell and  lease
      telephone equipment to their subscribers,  provide inside wiring and other
      installation,  maintenance and repair services to their  subscribers,  and
      provide custom  calling  services to their  subscribers.  They also derive
      revenues  from  providing  billing and  collection  services for some long
      distance carriers for the long distance calls made by their subscribers.

      Breda,  Prairie  Telephone,  Westside  Independent  and BTC,  Inc. are all
      subject to  regulation  by the Iowa  Utilities  Board.  They operate their
      telephone  businesses  pursuant  to  certificates  and  various  rules and
      regulations promulgated by the IUB. Although not anticipated to occur, the
      IUB could terminate their right to provide services if they fail to comply
      with those rules and regulations.


                                       2
<PAGE>

      As indicated  above,  the IUB  regulates or has the  authority to regulate
      many aspects of Breda's,  Prairie Telephone's,  Westside Independent's and
      BTC, Inc.'s telephone businesses.  The material areas of regulation are as
      follows:

            o     Breda,  Prairie Telephone,  Westside Independent and BTC, Inc.
                  are treated as "service regulated"  telephone companies by the
                  IUB,  which  means that they must  comply with the IUB's rules
                  and  regulations  regarding  the quality of the  services  and
                  facilities provided to subscribers.  The regulations establish
                  minimum  standards of quality for the services and  facilities
                  provided by Breda, Prairie Telephone, Westside Independent and
                  BTC, Inc.  Their existing  services and facilities  meet those
                  standards.  The regulations  also require them to maintain and
                  repair  their  existing  facilities  as  necessary in order to
                  continue  to  meet  at  least  those  minimum  standards.  The
                  regulations  also  establish  time frames  within which Breda,
                  Prairie  Telephone,  Westside  Independent  and BTC, Inc. must
                  respond to requests for services from their  subscribers.  The
                  regulations  can be amended to increase the minimum  standards
                  or to require that  additional  services be made  available to
                  subscribers.  Past  amendments have not,  however,  caused any
                  material difficulties for Breda, Prairie Telephone or Westside
                  Independent.

            o     The IUB must  approve of any  expansion  beyond the  telephone
                  service areas currently  served by Breda,  Prairie  Telephone,
                  Westside  Independent  and BTC, Inc. The primary  factors that
                  will be considered by the IUB in the event of a request for an
                  expansion  will be the  managerial,  financial  and  technical
                  abilities of Breda, Prairie Telephone, Westside Independent or
                  BTC, Inc., as the case may be. Although they do not anticipate
                  material  difficulties in the event of any proposed expansion,
                  there is no assurance  that any future  proposed  expansion in
                  the  service  areas  of  Breda,  Prairie  Telephone,  Westside
                  Independent  or BTC,  Inc.  will be approved by the IUB.  (The
                  approval of the Federal Communications Commission will also be
                  necessary for any proposed expansion, as discussed below.)

            o     The IUB has designated  Breda,  Prairie Telephone and Westside
                  Independent as "eligible  telecommunications  carriers."  This
                  designation  allows  them to receive  the  universal  services
                  funding  component  of the  support  payment  funding  program
                  administered by the Federal Communications Commission.  Breda,
                  Prairie Telephone and Westside Independent were able to obtain
                  the  designation  because  they are able to  provide  services
                  defined in the Iowa  Administrative  Code,  Utilities Division
                  199,  Chapter  39,  as  services  supported  by the  Universal
                  Services  Fund.  Although  not  anticipated  to  occur,  their
                  designation as an eligible telecommunications carrier could be
                  lost if they fail to provide  the  services  supported  by the
                  universal  services  program,  which  would  result in them no
                  longer being able to receive universal services


                                       3
<PAGE>

                  funding. Those services are, however, currently only the basic
                  local telephone services provided by Breda,  Prairie Telephone
                  and Westside Independent.  This designation therefore does not
                  materially affect the operation of their  businesses,  and the
                  designation  was obtained  solely  because it was necessary in
                  order to be eligible to receive  universal  services  funding.
                  They  received  universal  services  funding of  approximately
                  $657,290 in the  aggregate in 2002,  $806,146 in the aggregate
                  in  2003  and  $814,188  in  the  aggregate  in  2004.   Breda
                  anticipates receiving universal services funding in 2005 in an
                  amount comparable to that received in 2004.

                  BTC,    Inc.   has   been    designated    as   an   "eligible
                  telecommunications  carrier" by the IUB.  BTC,  Inc. does not,
                  however,  receive any universal  service  funding because BTC,
                  Inc., as a competitive  local exchange carrier in the Carroll,
                  Iowa  market,  would only be  eligible  to  receive  universal
                  service funds if the incumbent local exchange  carrier (Qwest)
                  receives those funds.  Since Qwest does not receive  universal
                  service funding for the Carroll, Iowa market, BTC, Inc. is not
                  eligible for universal service funding.

            o     Breda,  Prairie Telephone,  Westside Independent and BTC, Inc.
                  are currently  treated as rural telephone  companies under the
                  Telecommunications  Act of 1996.  This  treatment may at times
                  exempt them from some of the  interconnection and other duties
                  which are imposed on other telephone companies that might make
                  it easier for  potential  competitors  to  compete  with those
                  companies. The IUB may withhold this exemption, however, if it
                  finds  that  a  request   by  a   potential   competitor   for
                  interconnection with Breda's,  Prairie  Telephone's,  Westside
                  Independent's   or  BTC,   Inc.'s   networks   is  not  unduly
                  economically  burdensome,  is not technically unfeasible,  and
                  would not affect the provision of universal service. It is not
                  possible to predict  whether a  competitor  will ever  request
                  interconnection or whether the request would be granted by the
                  IUB.  If  a  request  is  made  and  the  IUB  withholds  this
                  exemption,   however,   Breda,  Prairie  Telephone,   Westside
                  Independent and BTC, Inc. would face  competition in providing
                  telephone services that they have not faced in the past.

      Breda,  Prairie  Telephone,  Westside  Independent  and BTC, Inc. are also
      subject  to  regulation  by the  Federal  Communications  Commission.  The
      material areas of regulation by the FCC are as follows:

            o     The FCC  regulates  the amount of the access charge rates that
                  can  be  charged  by  Breda,   Prairie   Telephone,   Westside
                  Independent  and BTC, Inc. for interstate long distance calls.
                  The National  Exchange Carrier  Association has been delegated
                  some  authority by the FCC regarding the  regulation of access
                  charge  rates,  but  all  changes  proposed  by  the  National
                  Exchange Carrier  Association must be approved by the FCC. The
                  regulation  of access  charge  rates is an area of  particular
                  concern to Breda, Prairie Telephone, Westside


                                       4
<PAGE>

                  Independent and BTC, Inc., and is discussed below.

            o     The FCC must  approve of any  expansion  beyond the  telephone
                  service areas currently  served by Breda,  Prairie  Telephone,
                  Westside  Independent  and BTC, Inc. The primary  factors that
                  will be considered by the FCC in the event of a request for an
                  expansion  will be the  managerial,  financial  and  technical
                  abilities of Breda, Prairie Telephone, Westside Independent or
                  BTC, Inc., as the case may be, and the antitrust  implications
                  of the expansion. Although they do not anticipate any material
                  difficulties in the event of any proposed expansion,  there is
                  no guarantee that any future proposed expansion in the service
                  areas of Breda,  Prairie  Telephone,  Westside  Independent or
                  BTC., Inc. will be approved by the FCC.

            o     The FCC regulates the amount of support  payment  funding that
                  will be  received by Breda,  Prairie  Telephone  and  Westside
                  Independent,  and a  material  risk to Breda  arises  from the
                  regulation of support payment funding by the FCC since support
                  payment  funding  constitutes  a  substantial  part of Breda's
                  revenues.  The FCC regulates support payment funding primarily
                  by targeting how the support payment funding received from the
                  National  Exchange  Carriers  Association  and  the  Universal
                  Service  Administrative  Company will be  allocated  among the
                  various possible recipients of the funding. The allocation may
                  vary from year to year  depending on the FCC's  determination.
                  It is  therefore  not  possible  to  predict  how the FCC will
                  allocate  the  support  payment  funding in any year,  and the
                  amount of support payment funding  received by Breda,  Prairie
                  Telephone  and  Westside  Independent  will  vary from year to
                  year. For example,  they received,  in the aggregate,  support
                  payment funding of $1,373,246 in 2002,  $1,421,167 in 2003 and
                  $1,495,150 in 2004.  Those  amounts  include the amount of the
                  universal  services  funding  component which is listed in the
                  above discussion regarding the IUB. BTC, Inc. does not receive
                  support  payment funding from the National  Exchange  Carriers
                  Association  because BTC,  Inc. is not eligible to be a member
                  of the National Exchange Carriers Association  because,  among
                  other  reasons,  BTC, Inc. is not an incumbent  local exchange
                  carrier.   BTC,  Inc.  does  not  receive   universal  service
                  administrative  company  support  payment funding because BTC,
                  Inc. is a competitive  local exchange  carrier in the Carroll,
                  Iowa market,  which means that BTC,  Inc. is only  eligible to
                  receive the funding if the incumbent local exchange carrier is
                  eligible to receive the funding.  Qwest is the incumbent local
                  exchange carrier in the Carroll, Iowa market, and Qwest is not
                  eligible to receive the funding.

      The regulation of access charge rates is an area of particular  concern to
      Breda because a substantial amount of Breda's total consolidated  revenues
      are  derived  from  access  charge  revenues.  Breda,  Prairie  Telephone,
      Westside  Independent  and BTC, Inc.  receive access charge  revenues from
      long distance carriers (sometimes referred to in the telephone industry as
      "inter-exchange   carriers"  or  "IXCs")  for  providing   intrastate


                                       5
<PAGE>

      and interstate exchange services to those long distance carriers.  In more
      basic terms,  they receive  access  charge  revenues for  originating  and
      terminating  long distance  calls made and received by their  subscribers.
      The FCC  determines  the  access  charge  rate  that  can be  charged  for
      interstate  long  distance  calls.  The FCC can change  those rates at any
      time, and the more recent changes have lowered access charge rates.

      In a press release issued on February 10, 2005, the FCC announced plans to
      replace the current  intercarrier  compensation  system that distinguishes
      between  different  types of  carriers  and  services,  such as local  and
      long-distance,  or wireless  and  wireline,  and replace it with a unified
      intercarrier  compensation regime. Through a future rulemaking proceeding,
      the FCC will be  seeking  comment on seven  proposed  plans  submitted  by
      various  participants  in the  industry.  Among the questions the FCC will
      examine is the effect any change will have on consumers  and the universal
      service  fund,  which is intended to help provide  affordable  service for
      rural  and low  income  Americans.  The FCC  indicated  that it  would  be
      particularly  receptive to any plan that offers expanded choices and lower
      rates to rural consumers. The FCC will be seeking comment on the following
      seven proposed plans:

            1.    Intercarrier  Compensation Forum,  representing nine carriers.
                  This plan would  reduce most per minute  termination  rates to
                  zero over a six-year period.

            2.    Alliance for Rational Intercarrier Compensation,  representing
                  small rural providers serving high-cost areas. This plan would
                  unify  per-minute  rates  at a  level  based  on  a  carrier's
                  embedded costs.

            3.    Expanded  Portland  Group,  comprised  of small and  mid-sized
                  rural local exchange  carriers.  This plan includes two phases
                  which would eventually convert per-minute intercarrier charges
                  to capacity-based charges.

            4.    Cost-Based Intercarrier  Compensation Coalition,  representing
                  competitive local exchange carriers.  This plan would create a
                  cost-based  termination  rate in each  geographic area for all
                  types of traffic.

            5.    Home  Telephone  Company  and PBT  Telecom.  This  plan  would
                  replace the current regimes with connection-based intercarrier
                  charges.

            6.    Western Wireless.  This plan would reduce intercarrier charges
                  in equal steps over four years to bill-and-keep arrangements.

            7.    National Association of State Utility Consumer Advocates. This
                  plan would  reduce  certain  intercarrier  rate  levels over a
                  five-year period.

      Another  plan that the FCC is expected  to give  serious  attention  to is
      still being  drafted by the National  Association  of  Regulatory  Utility
      Commissioners.  The plan being


                                       6
<PAGE>

      drafted by the National  Association of Regulatory  Utility  Commissioners
      will apparently  attempt to blend together the various  proposed plans for
      intercarrier  compensation  reform that have already been presented to the
      FCC. The Iowa Telecom Association and the Rural Iowa Independent Telephone
      Association  are  actively  working  with  the  National   Association  of
      Regulatory  Utility   Commissioners  to  challenge  the  drastic  proposed
      reduction in access charges. Breda believes that changes in access charges
      may  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,  Prairie  Telephone,  Westside  Independent and BTC, Inc. each have
      agreements  with Iowa  Network  Services.  Under  those  agreements,  Iowa
      Network Services provides Breda,  Prairie Telephone,  Westside Independent
      and BTC,  Inc.  with the lines and services  necessary for them to provide
      their telephone  subscribers with, among other things,  caller ID services
      and  what  is  sometimes   referred  to  in  the  telephone   industry  as
      "centralized  equal  access." As a practical  matter,  that access is what
      allows  their  subscribers  to choose  long  distance  carriers.  Breda's,
      Prairie  Telephone's,  Westside  Independent's  and BTC, Inc.'s  telephone
      systems  are tied into Iowa  Network  Services'  fiber  optic  network and
      switches.  Although it is not  anticipated to occur,  if their  agreements
      with Iowa Network Services were terminated, it would be difficult for them
      to find a replacement  for Iowa Network  Services,  and it would be costly
      for them to  internalize  all of those  services.  Prairie  Telephone  and
      Westside  Independent  are each  shareholders  of Iowa  Network  Services.
      Prairie Telephone and Westside Independent each currently own less than 1%
      of Iowa Network Services' outstanding stock.

      Telephone  services  providers  like Breda,  Prairie  Telephone,  Westside
      Independent and BTC, Inc. are subject to competition from other providers.
      As a result of the Telecommunications Act of 1996, telephone companies are
      no longer  afforded  exclusive  franchise  service areas.  Under that Act,
      competitors  can  now  offer  telephone   services  to  Breda's,   Prairie
      Telephone's,  Westside Independent's and BTC, Inc.'s subscribers, and also
      request access to their lines and network facilities in order to offer any
      type of service that can be provided  through those lines and  facilities.
      The Act and the  regulations  promulgated by the FCC and state  regulatory
      agencies  to  implement  various  parts of the Act could  have a  material
      adverse effect on Breda, Prairie Telephone,  Westside Independent and BTC,
      Inc. because they open up Breda,  Prairie Telephone,  Westside Independent
      and BTC, Inc. to competition that they were not subject to in the past.

      One recent  example  of the  increased  competition  in Iowa  occurred  on
      October 18, 2004,  when the IUB issued an Order  Approving an Amendment to
      the Approved  Application for Public  Convenience to MCC Telephony of Iowa
      (MCC) to provide service in "any area of Iowa where MCC affiliates own and
      operate  a cable  system


                                       7
<PAGE>

      and offer  high-speed  cable modems." MCC is a subsidiary of Mediacom that
      intends to provide VoIP (voice over Internet  protocol)  service.  The IUB
      had  approved  an earlier  application  of MCC to serve  only those  areas
      currently served by Qwest.  Mediacom is the cable service provider in BTC,
      Inc.'s Carroll, Iowa market area.

      Another  example  of the  increased  competition  threat  in Iowa  was the
      deregulation  actions  taken  by the IUB  during  2004.  One of the  IUB's
      rulings deregulated 20 actual exchanges instead of specific services.  The
      IUB also decided to deregulate rates, but maintain service regulation,  in
      19 of these  individual  exchanges  where a  competitor  had  overbuilt an
      exchange and the competitor had obtained over 50% of the market share. The
      IUB found that effective  competition  existed in these exchanges and that
      the  exchanges  should be  deregulated,  but that the IUB  would  maintain
      mechanisms to monitor the  competition  and service in the exchanges.  The
      IUB  decided to require  that a  deregulation  accounting  be filed by the
      deregulated company,  although it appears that the IUB may agree to accept
      cost-allocation   manuals   from  the   company  in  place  of  an  actual
      deregulation  accounting plan. The IUB also deregulated the Council Bluffs
      exchange, both for rates and service. The IUB did not deregulate the Sioux
      City business market because the competition was not  facilities-based and
      because of uncertainty in the regulations of unbundled  network  elements.
      The IUB also did not deregulate second lines because of a lack of evidence
      supporting the existence of effective competition.

      In 2004, Breda and Prairie  Telephone joined with eight other  independent
      telephone  companies  in southwest  Iowa in putting  together a network to
      provide and improve the delivery of voice,  data and video services over a
      fiber optic-based infrastructure. The South West Iowa Network is supported
      by  Iowa  Network  Services,  and  collectively  provides  service  in  28
      exchanges  in  southwest  Iowa.  This  network will be used to deliver the
      triple-play  (voice,  data and  video),  as well as to  provide a scalable
      converged  infrastructure  for each company to connect to other  companies
      and  services  outside  Iowa.  Breda  and  Prairie  Telephone  have  three
      exchanges  connected  to  this  network  in  southwest  Iowa.   Additional
      construction was completed during 2004, and the network became operational
      on October 24, 2004.

      There  are  numerous  telephone  companies  which  have  filed to  provide
      telephone services  throughout all of Iowa. To date,  however,  no company
      has chosen to compete in any of Breda's,  Prairie  Telephone's or Westside
      Independent's  service  areas.  Breda  does  not  know  the  plans  of any
      companies,  but Breda  currently  believes the  possibility of any company
      entering any of those service areas in 2005 is small.  BTC, Inc.  provides
      telephone  services in the Carroll,  Iowa market  area.  There are already
      other  companies  providing  telephone  services  in that area,  and Breda
      believes  that  the  likelihood  of  additional  local  exchange  carriers
      entering the Carroll,  Iowa market area in 2005 is imminent.  For example,
      Mediacom,  which is the ninth  largest  cable  television  operator in the
      United States and the local cable provider in the Carroll,  Iowa,  market,
      has  expressed an intention to provide a phone  service  offering  through
      Mediacom's  partnership  with Sprint.  MCC  Telephony of Iowa  (Mediacom's


                                       8
<PAGE>

      voice subsidiary) filed a voice exchange tariff and service territory maps
      with the IUB on December  27,  2004,  and the IUB  approved the tariff and
      maps on March 14,  2005.  The  providing  of voice  exchange  tariffs  and
      service  territory  maps are  usually  the last steps  required by the IUB
      before actually providing service.  The IUB also granted MCC's certificate
      of public  convenience to offer service in numerous areas throughout Iowa.
      Breda believes that Mediacom will roll out its voice offering along with a
      high speed  Internet  offering in the Carroll,  Iowa market.  Mediacom has
      recently  been quoted in media  reports as  indicating  that it will begin
      deploying  those  services  in  Iowa  in  the  near  future.   Breda  also
      anticipates  that it will face new  competition  from other  providers  of
      newer VoIP (voice over Internet  protocol)  technologies,  such as Vonnage
      and Skype, in all of its exchanges.  Breda anticipates that Mediacom's and
      any such other  offerings  will result in a reduction  of revenue.  If any
      other telephone  companies also at some point determine to provide service
      in any of Breda's,  Prairie  Telephone's,  Westside  Independent's or BTC,
      Inc.'s service areas, there would also likely be a reduction in revenue.

      Breda,  Prairie  Telephone,   Westside  Independent  and  BTC,  Inc.  also
      experience  competition in providing access services and other services to
      long  distance  carriers.  For example,  they  experience  competition  in
      providing  access  services for long distance when their  subscribers  use
      private line transport,  switched voice and data services,  microwave,  or
      cellular  or  personal   communications   service.  In  those  cases,  the
      subscriber   is  not  using   Breda's,   Prairie   Telephone's,   Westside
      Independent's  or BTC, Inc.'s networks or switches,  so they cannot charge
      access charges to the long distance carrier. Various other competitors and
      forms  of  competition   are  also  likely  to  arise  in  the  future  as
      technological  advances  continue to occur in the  telecommunications  and
      cable industries.

      An industry issue that had significant  ramifications  for Breda,  Prairie
      Telephone  and Westside  Independent  during 2004 was number  portability.
      Number portability  provides  residential and business telephone customers
      with the ability to retain their existing telephone numbers when switching
      from one telephone service provider to another. Number portability was one
      of the obligations that the  Telecommunications Act of 1996 imposed on all
      local exchange carriers,  and the Act required the FCC to promulgate rules
      to implement the number portability  requirements.  The number portability
      requirements  are viewed as consistent  with the purpose of the Act, which
      is to, in general,  facilitate  competition,  because  consumers  might be
      reluctant to switch local  exchange  carriers if they have to change their
      telephone number.

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


                                       9
<PAGE>

      portability.  Because  of the  small  number  of  customers  in the  rural
      exchanges who would want to port their  numbers,  small rural carriers had
      hoped to delay the costs of the  upgrades  until they needed to change out
      their switches.

      On  February  18,  2004,   two  Iowa  industry   associations,   the  Iowa
      Telecommunications  Association and the Rural Iowa  Independent  Telephone
      Association,  filed a petition with the IUB that requested a waiver of the
      wireless-wireline  number  portability  rules on  behalf of all 2% or less
      carriers in Iowa. Breda,  Prairie Telephone and Westside  Independent were
      included in these joint filings.

      The IUB initially responded to the petition by issuing a 180 day temporary
      suspension of the  wireless-wireline  number  portability  rule, and later
      issued an order requiring all companies  participating  in the petition to
      provide the IUB with various company-specific  information,  including the
      number  of  customers  of the  company,  the  cost of  number  portability
      implementation  and expected costs per customer that would be reflected in
      the number  portability cost recovery charge authorized by the FCC. Breda,
      Prairie   Telephone  and  Westside   Independent   all   submitted   their
      individualized  data in response  to the IUB's order in July of 2004.  The
      IUB issued its final order in response to the petition on October 6, 2004.
      Under the IUB's order,  all companies  participating  in the petition were
      given extensions ranging from six months to 18 months from the date of the
      IUB order, or in some cases until six months after the company  received a
      bona fide request for number  portability from a wireless  carrier.  Breda
      and Prairie  Telephone were  classified in the group receiving a six month
      extension,  and Westside Independent was classified in the group receiving
      a one year extension.

      On October 26, 2004, the Iowa Telecommunications Association and the Rural
      Iowa Independent  Telephone Association filed an application for rehearing
      of the IUB's October 6, 2004 order.  The application  requested the IUB to
      reconsider its order and to clarify various other matters.

      As noted above, Breda and Prairie Telephone received six-month extensions,
      and  Westside  Independent  received a  twelve-month  extension.  Software
      upgrades and service agreements to implement number portability for Breda,
      Prairie  Telephone  and  Westside  Independent  had all been  completed in
      preparation  for the  six-month  extension  date of April 6,  2005.  Final
      routing and translation  work was being scheduled as the last  outstanding
      process for number  portability  implementation  when word was received on
      March 11,  2005,  that the U.S.  Court of Appeals  for the DC Circuit  had
      suspended the FCC's November 10, 2003  Intermodal  LNP Order  implementing
      wireline to wireless  local number  portability.  The court ruled that the
      FCC failed to follow regulatory  guidelines designed to examine the impact
      of its orders on small  businesses such as rural carriers.  The court sent
      the  FCC's  Order  back to the FCC  with  directions  to  prepare  a final
      regulatory  flexibility  analysis showing the impact of its Order on small
      carriers and their  customers,  and until that  analysis is complete,  the
      court  stayed  the  effect of the  Order  solely  as it  applied  to


                                       10
<PAGE>

      those  carriers  that  qualified as small  entities  under the  regulatory
      flexibility analysis.  Under that analysis, a wireline  telecommunications
      carrier with 1,500 or fewer  employees is defined as a small  entity.  The
      IUB  subsequently  reported  that  the  court  ruling  would  suspend  LNP
      implementation in Iowa until further notice from the FCC.

      While Breda anticipates that LNP  implementation in Iowa is merely delayed
      until  after the  regulatory  flexibility  analysis  is  prepared,  it has
      stopped all LNP compliance  work. Breda estimates its cost to complete the
      remaining  translation  and  routing  work to  become  number  portability
      compliant is less than  $10,000.  BTC,  Inc.  already has the hardware and
      software capabilities and is able to port customer telephone numbers.

      The  Communications  Assistance For Law Enforcement Act was passed in 1994
      and  sets  forth  the  assistance   capabilities  that  telecommunications
      carriers need to maintain so that they can support law  enforcement in the
      conduct of lawfully authorized  electronic  surveillance.  Breda,  Prairie
      Telephone and Westside  Independent  have been granted various  extensions
      from time to time for compliance with the various requirements of the Act.
      Breda  received  notification  from the FBI on September 16, 2004 that the
      FBI would grant Breda,  Prairie Telephone and Westside Independent another
      extension  until June 30,  2006 for  certain of the  remaining  deployment
      schedules  under the Act. The FCC decides whether or not to grant any such
      extension,  but  Breda  anticipates  that the FCC will  follow  the  FBI's
      approach.  As of the time of this filing,  however,  Breda has received no
      further  documentation  from the FCC.  BTC,  Inc.  receives its  switching
      services  from  Breda,  and BTC,  Inc.  is  covered  under the  deployment
      schedule (including any extensions of the schedule) for Breda's switch.

      On  March  1,  2005,   Breda's  board  of  directors   authorized  Prairie
      Telephone's  purchase of 5,000 units of Bug Tussel  Wireless,  L.L.C.  Bug
      Tussel  Wireless,  L.L.C.  is  located in Green  Bay,  Wisconsin,  and its
      operating  plan  involves  erecting  tower  sites for  wireless  services.
      Prairie  Telephone's  investment  of $200,000 was made in March 2005,  and
      Prairie Telephone currently owns 7.87% of the issued and outstanding units
      of Bug Tussel Wireless, L.L.C. This investment will be accounted for using
      the equity method of accounting.

      Some of the  cellular  ventures  in which  Breda,  Prairie  Telephone  and
      Westside  Independent  have  invested  provide  cellular  services  in the
      telephone  exchange  areas  serviced  by them  and by BTC,  Inc.  Cellular
      services are competitive  with the telephone  services  provided by Breda,
      Prairie  Telephone,  Westside  Independent  and BTC,  Inc.  Breda does not
      believe,  however,  that investments in cellular ventures are inconsistent
      or in conflict with Breda's,  Prairie Telephone's,  Westside Independent's
      or BTC, Inc.'s overall business,  in particular  because those investments
      are  one  method  of   attempting   to   diversify   across  the   various
      telecommunications  technologies  which were  available at the time of the
      preparation of this annual report.


                                       11
<PAGE>

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

      Revenues  are also  generated  from sales of  cellular  phones and related
      service  packages  which are made  pursuant to Breda's June 1, 1999 agency
      agreement with U.S. Cellular.  The agreement allows Breda to sell cellular
      phones and related packages to the public, and Breda receives  commissions
      on those sales.  Breda and U.S. Cellular have been attempting to negotiate
      a new  agreement  since  approximately  May of  2001.  U.S.  Cellular  has
      provided  Breda with at least two proposed new  agreements,  but Breda did
      not execute either of those agreements  because Breda had serious concerns
      about the agreements, including that Breda would receive lower commissions
      under the new  agreements.  Although  it is  likely  that some form of new
      agreement  will need to be entered into with U.S.  Cellular at some point,
      Breda's  position is that it is  continuing  to operate  under its June 1,
      1999 agency agreement with U.S.  Cellular.  The agency agreement  provides
      that it  automatically  renews  for a period  of one year on each  June 1,
      unless either Breda or U.S.  Cellular  gives the other  written  notice of
      nonrenewal  at least  thirty  days  before the end of the current one year
      term, but subject to immediate  termination if there is a material  breach
      of the agency agreement.  As indicated above, Breda anticipates that a new
      agency  agreement will need to be entered into with U.S.  Cellular at some
      point. Breda is hopeful, however, based on its past negotiations with U.S.
      Cellular,  that any new agreement will, at worst, have a neutral impact on
      Breda's cellular commissions revenue.

      Breda's sub-agent for U.S.  Cellular  services  terminated its contractual
      arrangement with Breda on September 17, 2004. Breda presently has no plans
      to recruit a new sub-agent because Breda already has two retail outlets in
      the Carroll, Iowa market that was served by this sub-agent. The two retail
      outlets are located at Breda's and BTC, Inc.'s office in Carroll, Iowa and
      the Wal-Mart store in Carroll, Iowa.

      Breda, Prairie Telephone, Westside Independent and BTC, Inc. also sell and
      lease telephone,  cellular and related equipment. They face competition in
      this area because there are numerous  competitors  who sell and lease that
      equipment.

      The competition in most of the areas mentioned in the preceding paragraphs
      centers primarily around cost, service and experience.

      Broadcast Services.

      Tele-Services  owns and  operates  the  cable  television  systems  in the
      following eighteen Iowa towns:


                                       12
<PAGE>

      o    Arcadia               o    Grand Junction           o    Riverton
      o    Auburn                o    Hamburg                  o    Sidney
      o    Bayard                o    Lohrville                o    Tabor
      o    Breda                 o    Malvern                  o    Thurman
      o    Churdan               o    Neola                    o    Treynor
      o    Farragut              o    Oakland                  o    Westside

      Tele-Services  also owns and operates the cable television  system for the
      town of Beaver Lake, Nebraska.

      As of December 31, 2004,  Tele-Services  was  providing  cable  television
      services to approximately 2,665 subscribers.

      Tele-Services  derives its principal  revenues from the monthly fees which
      are charged to its cable  subscribers for basic and premium cable services
      provided to those subscribers.

      Tele-Services  provides  cable  services to each of the towns  pursuant to
      franchises  or  agreements  with  each  of  those  towns.   Those  various
      franchises  or  agreements  will  expire by their  terms in the  following
      months:

            o    Arcadia - August, 2009            o    Malvern - October, 2016
            o    Auburn - January, 2009            o    Neola - September, 2005
            o    Bayard - May, 2008                o    Riverton - June, 2013
            o    Beaver Lake - December, 2006      o    Oakland - November, 2009
            o    Breda - Year-to-Year Basis        o    Sidney - October, 2010
            o    Churdan - June, 2008              o    Tabor - September, 2016
            o    Farragut - January, 2008          o    Thurman - December, 2015
            o    Grand Junction - May, 2008        o    Treynor - October, 2020
            o    Hamburg - Year-to-year Basis      o    Westside - June, 2009
            o    Lohrville - March, 2008

      Tele-Services does not anticipate that any of its franchises or agreements
      will be terminated before the above normal expiration dates. Tele-Services
      also  hopes to be able to renew or extend  the  franchises  or  agreements
      before they expire,  but no assurance can be given that any  franchises or
      agreements can or will be renewed or extended.

      The  termination of a franchise or agreement would allow that town to deny
      Tele-Services  access to its cables for maintenance and services purposes.
      This would create  difficulties for  Tele-Services in properly serving its
      subscribers and providing cable services to that town.


                                       13
<PAGE>

      The  franchises or agreements  with the towns require the giving of notice
      to the towns before  Tele-Services  can change their cable services rates,
      and some of those franchises or agreements may require the approval of the
      town for any  increases in those rates.  Although  Tele-Services  does not
      anticipate  any  material  difficulties  with  any  future  proposed  rate
      increases,  there is no guarantee  that future  proposed  increases can be
      implemented in any of the towns.

      Tele-Services   did   implement   rate   increases  in  2004  as  part  of
      Tele-Services'  adding  various  channels  to its  line-up in 14 of the 19
      communities that are served by  Tele-Services.  The channel additions were
      completed in 11  communities  by May 1, 2004, and by June 30, 2004 for the
      remaining 3 communities which received the additional  channels.  The rate
      increases were implemented  effective May 1, 2004 in the communities which
      were  receiving  the  additional  channels  by that  date,  and  the  rate
      increases  were  implemented  on July 1,  2004 for the  communities  which
      received  the channel  additions in May and June of 2004.  Local  channels
      were also added in six of the communities served by Tele-Services.

      Tele-Services'  franchises  or  agreements  with the  towns  do not  grant
      Tele-Services  the exclusive right to provide cable services in the towns,
      and other cable service providers can provide cable services in the towns.
      There currently are not, however, any other cable service providers in any
      of the towns. Although difficult to predict,  Tele-Services currently also
      does not contemplate any cable services  competitor  coming into the towns
      given, among other things, the smaller size of the towns.

      Tele-Services   does  face   competition  in  other  forms.  For  example,
      Tele-Services  experiences  strong competition from wireless and satellite
      dish providers,  and that competition has been increasing in recent years.
      The FCC began to allow  satellite dish providers to provide local channels
      in 1999. This fact has had an adverse effect on Tele-Services  because its
      ability to provide local channels was, in the past, one reason subscribers
      might choose  Tele-Services'  cable services over a satellite dish.  Other
      rulings and decisions by the FCC are possible,  and may provide  satellite
      dish  or  other   providers   with  equal  or  greater   advantages   than
      Tele-Services  can offer to its  subscribers,  which  could  have  further
      adverse effects on Tele-Services'  business.  The  telecommunications  and
      cable industry are also continually changing,  and technological  advances
      may provide  Tele-Services'  subscribers with other options.  For example,
      Iowa Network  Services is offering  cable  services in Iowa over  existing
      telephone lines,  and it is estimated that up to 70 independent  telephone
      companies  in mostly  rural  Iowa will be able to offer  cable  television
      programming  over their telephone  lines by 2005. This option,  and others
      which might arise  through other changes or  advancements  in  technology,
      could have material adverse effects on Tele-Services in the future.


                                       14
<PAGE>

      Another issue faced by Tele-Services  is the declining  population base in
      the small rural communities  served by  Tele-Services,  which results in a
      lower potential customer base for Tele-Services.

      Tele-Services is also faced with the need to upgrade its plant,  equipment
      and  cables  in  order  to add more  channel  lineups  so that it can stay
      competitive  and continue to be able to obtain  programming  licenses.  As
      noted above,  Tele-Services did add additional  channels to its line-up in
      2004, which required Tele-Services to upgrade some of its cable TV systems
      and install  additional  equipment  and  electronics.  Those  upgrades and
      installations   were   completed   during  the  second  quarter  of  2004.
      Tele-Services  also  combined the head-ends on two of its systems into one
      head-end  during  the  first  quarter  of 2004,  which has  allowed  three
      communities to be served by one head-end,  and for those three communities
      to receive local channel services. Tele-Services is continuing to evaluate
      the  possibility  of other  head-end  combinations.  The  primary  goal of
      Tele-Services in consolidating its head-end equipment is for the equipment
      to be  able  to  serve  two or  more  communities,  instead  of  just  one
      community,  with the intended  result of lower  maintenance  costs for the
      equipment.  The cost of Tele-Services  upgrades in 2004 was  approximately
      $100,100, and is estimated to be approximately $205,200 for 2005.

      Tele-Services  is regulated by the FCC. The rules and  regulations  of the
      FCC primarily relate to general operational and technical issues, and they
      do not affect rates or expansions of service  areas.  As discussed  above,
      Tele-Services'  cable  services are also regulated in the sense that those
      services are provided  pursuant to franchises  or agreements  with each of
      the towns in which Tele-Services currently provides cable services.

      Internet Service Provider.

      BTC, Inc.  provides dial-up and high speed internet access services to its
      customers  and to  customers  of Breda,  Prairie  Telephone  and  Westside
      Independent.  BTC, Inc. was  providing  internet  access to  approximately
      1,837  subscribers as of December 31, 2004. Of that amount,  approximately
      1,211 were  subscribers  from BTC, Inc.'s  Carroll,  Iowa market area. The
      area  served by BTC is  currently  limited to  Carroll,  Iowa and  various
      communities surrounding Carroll, Iowa.

      Breda,  Prairie Telephone,  Westside Independent and BTC, Inc. continue to
      face ever  increasing  competition  in  providing  dial-up  and high speed
      internet  access.  For example,  Breda has been  experiencing  price-point
      competition for Internet  services from Iowa Telecom in three  communities
      since the late fourth  quarter  2000.  Breda had been the sole provider of
      Internet  services  in those  communities  until that time.  Iowa  Telecom
      purchased the telephone  exchanges for those communities in 1999 and began
      operating  them on June 1, 2000. In late 2000,  Iowa Telecom  expanded the
      services offered in those  communities to include Internet services and at
      a lower  price


                                       15
<PAGE>

      than is offered by Breda. As a result,  Breda has lost Internet  customers
      in the three  communities.  BTC, Inc. is experiencing  intense pricing and
      free services  competition  in providing  internet  access in its Carroll,
      Iowa market.  There are at least five competitors in this relatively small
      market area,  and BTC, Inc.  experienced  a 19.2%  decrease in its dial-up
      customer base in this market during the calendar year 2004.  BTC, Inc. had
      experienced a 18.9% decrease in its dial-up  customer base in the Carroll,
      Iowa market area in 2003, and a 15.5% decrease in 2002.

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

      Breda also entered into a marketing and  distribution  agreement  with the
      National Rural Telecommunications  Cooperative (NRTC) on May 13, 2004, for
      the distribution of satellite and high speed Internet service.  One reason
      Breda  entered into this  agreement  was to provide  Breda with a means to
      provide  high  speed  Internet  service  to its rural  customers,  who may
      otherwise  lack the  opportunity  to obtain  high speed  Internet  service
      through  existing  broadband  options,  such  as  cable  modem,  DSL,  and
      wireless,  because of distance  and  location  factors.  NRTC has a master
      distribution agreement with WildBlue  Communications,  Inc., through which
      NRTC  has  obtained  rights  to  market,   promote,  sell  and  distribute
      satellite-based Internet access services and related products to end users
      in the  continental  United  States,  including  through  NRTC's  eligible
      members, such as Breda. Breda also entered into an agreement with DIRECTV,
      Inc. to offer direct  broadcast  satellite  service (video) in conjunction
      with its satellite Internet service. The Anik F2 satellite was launched by
      August 30, 2004, and WildBlue is testing its gateways.  Breda  anticipates
      that all testing will be completed in its gateway by May 1, 2005, and that
      Breda will be able to provide  this  service to its  customers on or about
      May 15, 2005.

      Breda still believes, however, that it will need to continue to pursue new
      marketing  approaches  in order to  attempt  to retain  and  increase  its
      Internet  customer  base,  and that there will be  continuing  competitive
      pressures to lower  dial-up  rates and to provide  higher  speed  Internet
      access.

      One step that Breda had taken to lower Breda's  underlying  Internet costs
      was through  Prairie  Telephone's  acquisition in October of 2001 of a 10%
      ownership interest in Desktop Media, L.L.C. Desktop Media, L.L.C. provided
      Internet   service   provider   support  services  to  Breda  and  Breda's
      subsidiaries from approximately November 1, 2001 through March 4, 2003, at
      which time Breda  moved its end user  help-desk


                                       16
<PAGE>

      technical support to eCi Technical Support  Solutions.  (Prairie Telephone
      retained its 10%  ownership  interest in Desktop  Media,  L.L.C.)  Breda's
      desire to further lower its underlying  Internet costs in order to compete
      at a lower price point for Internet  services was a critical factor in the
      move to eCi. Two other  factors were Breda's  desire to offer its Internet
      customers  24-hour  a day,  7-day  a week  end  user  help-desk  technical
      support,  and to be able to brand  these  services  under its own name for
      customer  service  continuity.  eCi Technical  Support  Solutions sold its
      interest in its technical  support  division to Caleris,  Inc. on December
      31, 2003. Breda has been satisfied with the services  provided by Caleris,
      Inc., and  contemplates  continuing to obtain  technical  support services
      through Caleris, Inc.

      Breda expects the overall  potential  customer base for Internet access to
      continue to  increase,  but it is becoming  more  difficult  to predict if
      Breda or its subsidiaries  will experience any increases in their Internet
      customer base given the increasingly  competitive  pressures in this area.
      It is also  possible  that Breda and its  subsidiaries  might  continue to
      experience declines in their Internet customer base. Also, as noted above,
      competitive  pressures  regarding pricing may lead to little or no growth,
      or  even  declines,  in  Internet  service  revenues,  even  if  Breda  is
      successful in increasing its Internet customer base.

      Other.

      Breda and BTC, Inc.  moved their  Carroll,  Iowa  operations to a building
      located at 603 N. Adams,  Carroll,  Iowa on October 4, 2003.  The building
      has approximately  4,450 square feet, which is over two times the space of
      the former  location in Carroll.  The new building  allowed BTC,  Inc. and
      Breda to consolidate their operations in the Carroll, Iowa market. The new
      location is also  affording  Breda the  opportunity  to expand its service
      offerings in the Carroll market. Breda uses a portion of the building as a
      retail  store for the sale and lease of  telephone,  cellular  and related
      equipment and merchandise.  Breda had used a portion of BTC, Inc.'s former
      building in Carroll since April, 2000 for the same purposes.

      Miscellaneous Business.

      Breda and some of its subsidiaries are also engaged in other miscellaneous
      businesses.

      For example,  in March of 1999  Prairie  Telephone  acquired  spectrum for
      providing personal  communications services in the Yale telephone exchange
      area.  Spectrum is bandwidth allocated by the FCC which can be used in the
      transmission  of  voice,  data  and  television   communication.   Prairie
      Telephone  is also one of the  members of Guthrie  Group,  L.L.C.  Guthrie
      Group,  L.L.C.  has acquired  spectrum for some  telephone  exchange areas
      located in Guthrie County, Iowa.


                                       17
<PAGE>

      Breda also acquired spectrum in 1999 for providing personal communications
      services in the Breda and Lidderdale  exchange areas. Breda is a member of
      Carroll  County  Wireless,  L.L.C.,  and Breda later sold that spectrum to
      Carroll County Wireless,  L.L.C., at Breda's cost. The two other telephone
      companies who are members of Carroll  County  Wireless,  L.L.C.  also sold
      their  respective  personal  communications  services  licenses to Carroll
      County Wireless,  L.L.C. at their cost.  Carroll County  Wireless,  L.L.C.
      also acquired other personal  communications services licenses for various
      areas in  Carroll  County,  Iowa,  and  Carroll  County  Wireless,  L.L.C.
      currently holds personal  communications  services licenses for nearly all
      of Carroll County, Iowa.

      Both Breda and Prairie  Telephone  obtained their personal  communications
      services spectrum from Iowa Wireless, which was formed by Western Wireless
      Corporation  and Iowa Network  Services,  Inc. The original  Participation
      Agreement  called for Iowa Wireless,  which changed its name to i wireless
      in early 2004, to disaggregate/partition and sell to the individual equity
      holders of Iowa Network  Services,  Inc. up to ten MHz in certain  defined
      areas. A separate Spectrum Partitioning  Agreement required i wireless and
      the spectrum  acquiring telcos,  such as Breda and Prairie  Telephone,  to
      construct  facilities  by June  23,  2000 to  serve  with a  signal  level
      sufficient to provide  adequate service to at least one-third of the total
      population  of the Des Moines Major  Trading Area  covering the combined A
      Block  spectrum  licensed  service areas of Iowa  Wireless,  Western PCS 1
      Corporation and the  participating  telcos.  Build-out  provisions in this
      agreement also required that two-thirds of the total population of the Des
      Moines  Majoring  Area  covering the same  combined  service areas of Iowa
      Wireless,  Western PCS 1 and the telcos have a signal level  sufficient to
      provide adequate service by June 23, 2005.

      The members of both Carroll  County  Wireless,  L.L.C.  and Guthrie Group,
      L.L.C. have recently  authorized the funding to erect their first tower in
      their  respective  service  areas in  order  to meet  the  June  23,  2005
      deadline.  Prairie  Telephone  paid its  proportionate  share of the first
      Guthrie Group L.L.C.  capital call,  which was $50,000,  in February 2005.
      Breda  also  paid its  proportionate  share of the  first  Carroll  County
      Wireless, L.L.C. capital call, which was $30,000, in February 2005.

      Breda,  Prairie  Telephone,  Westside  Independent  and BTC,  Inc.  do not
      currently  own spectrum for all of the  telephone  exchange  service areas
      serviced  by them,  and  there is no  guarantee  that they will be able to
      acquire spectrum for all of those areas.  Also, Breda,  Prairie Telephone,
      Westside  Independent  and BTC,  Inc. will face  competition  in providing
      personal  communications  services  because  no  exclusive  rights  can be
      acquired with respect to that technology.

      Prairie  Telephone  became a 10% owner of Desktop Media,  L.L.C. on May 2,
      2001.  At that time,  Breda  received  its help desk  services for Breda's
      Internet customers from Desktop Media, L.L.C. Breda now uses Caleris, Inc.
      to provide its help desk


                                       18
<PAGE>

      services.  Prairie Telephone also loaned $500,000 to Desktop Media, L.L.C.
      on May 2, 2001, and advanced an additional $45,307 on June 9, 2004 to fund
      operational  expenses until service revenues were collected.  On September
      17, 2003,  Prairie  Telephone signed a principal  deferral  agreement with
      Desktop Media,  L.L.C.  which  deferred the principal  payments due in the
      months of September  through  December  2003, and which also provided that
      Prairie Telephone's  ownership in Desktop Media, L.L.C. would be increased
      from 10% to 17% if at any time in the year 2004 Desktop Media,  L.L.C. was
      not able to generate a minimum  sustainable  monthly profit of $36,000, or
      was unable to make a regularly scheduled principal payment.  Both of these
      stipulations  were  not met in the  first  quarter  of 2004,  and  Prairie
      Telephone  accordingly  acquired an  additional  7%  ownership  of Desktop
      Media, L.L.C.

      The  outstanding  balance on Prairie  Telephone's  loans to Desktop Media,
      L.L.C.  is  $444,974.   Prairie  Telephone  subsequently   authorized  the
      initiation of the notice of default process against Desktop Media,  L.L.C.
      in February 2005, and Prairie Telephone, along with the other two lenders,
      are proceeding with this legal action.  Prairie Telephone does not know at
      this  time if it will be able  to  recover  all of the  monies  due on the
      loans.

      Revenues may also arise from  investments  in other entities which provide
      cellular  phone  services  or  which  invest  in other  cellular  phone or
      telecommunications ventures. For example, Prairie Telephone is an investor
      in RSA  #1,  Ltd.  and  RSA #7,  Ltd.  Those  entities  are  Iowa  limited
      partnerships which provide cellular services in rural areas in central and
      southern Iowa. Prairie Telephone  exercised its right of first refusal and
      purchased its portion of Air Touch's  interest in RSA #1, Ltd. on December
      12,  2003.  The purchase  price was  $125,000.  The  purchase  resulted in
      Prairie Telephone  obtaining an additional 1.14% interest in RSA #1, Ltd.,
      which  increased  Prairie  Telephone's  total  interest in RSA #1, Ltd. to
      10.28%.

      Prairie  Telephone  also owns .67% of Iowa Network  Services'  outstanding
      stock.   Westside   Independent  owns  .45%  of  Iowa  Network   Services'
      outstanding stock.

      Breda is an investor in RSA #9, Ltd. and West Iowa Cellular, Inc. Westside
      Independent  is also an investor  in West Iowa  Cellular,  Inc.  West Iowa
      Cellular,  Inc. and RSA #9, Ltd. provide cellular  services in rural areas
      in southern and central Iowa.

      Breda  also  owns   17.4229%  of  the   membership   interests  in  Alpine
      Communications, L.C., which provides telecommunications exchange and local
      access services,  long distance service,  and cable television  service in
      service areas located  primarily in Clayton County in  northeastern  Iowa.
      Alpine  Communications sold its consulting division to Iowa Telecom during
      2003, and moved its corporate  headquarters  from Des Moines,  Iowa to its
      facilities in Clayton County, Iowa.

      Breda's  share of the earnings or losses of some of these  investments  is
      reported on Breda's  income  statement  on the equity  basis.  Some of the
      investments may be a


                                       19
<PAGE>

      source of cash flow for Breda,  Prairie Telephone and Westside Independent
      through  distributions which may be made by the entities.  Breda,  Prairie
      Telephone  and  Westside   Independent  do  not,   however,   control  any
      distribution  decisions for any of those entities, so no distributions are
      ever  guaranteed,  and the  timing and  amount of any  distributions  will
      likely vary greatly from year to year.

      Breda  receives a nominal annual fee from Alpine  Communications,  L.C. in
      consideration  for Breda's chief operations  officer serving as an officer
      of the management committee of Alpine Communications, L.C.

      The value of  Breda's,  Prairie  Telephone's  and  Westside  Independent's
      investments in the above entities and of their other  investments may vary
      significantly  from  year to  year.  They may also  face  difficulties  in
      realizing  upon some of their  investments  because  there is no public or
      other active market for those investments and because some of the entities
      in  which  they  have  invested  have  agreements  in  place  which  place
      limitations or  restrictions  on their ability to transfer their ownership
      interests in those  entities to third parties.  Some of those  limitations
      and  restrictions  are in the form of a right of first refusal under which
      the  entity  is given the  right to match  any  offer  received  by Breda,
      Prairie Telephone or Westside Independent.

      Breda,  Prairie Telephone and Westside  Independent each own 10,000 shares
      of common  stock in NECA  Services,  Inc.  ("NSI"),  which is a for-profit
      corporation  that was  organized to carry on and expand  various  business
      opportunities  which may from time to time be  presented  to the  National
      Exchange Carrier Association,  Inc. ("NECA").  NSI's officers are also the
      officers  of NECA,  and they  have  experience  in the  telecommunications
      industry.  It  is  currently   contemplated  that  non-regulated  business
      opportunities will be conducted by NSI so that NECA can concentrate on its
      traditional core tariff and pooling services.  For example, the NECA board
      has  authorized  the  assignment  of  certain  National  Exchange  Carrier
      Association  contracts  to  NSI,  which  include  the  contract  with  the
      Universal  Service  Administrative  Company  for  support  of the  federal
      schools and libraries and rural health care universal service programs.

      There is no  assurance  that any of Breda,  Prairie  Telephone or Westside
      Independent  will ever  receive  any  returns on or other value from their
      investment in NECA,  whether by distributions or increases in the value of
      NECA's common stock. The board of directors of NECA did, however,  declare
      a $.50 per share dividend in 2003, and a $.75 per share dividend in 2004.

      There are  substantial  restrictions  imposed upon the ability to transfer
      shares in NECA, all of which  potentially  adversely  affect the value and
      marketability of the NECA stock.


                                       20
<PAGE>

      Breda  and  its  subsidiaries   also  have  various  other   miscellaneous
      investments.  Some of those  investments  are  described in the  financial
      statements included in Item 7 of this annual report.

      Neither Breda nor any of its subsidiaries  engage in any material research
      and development activities.

      Service Marks.

      Breda has  registered  the mark "W.I.N.  Western Iowa  Networks"  with the
      United States Patent and Trademark Office,  and Breda and its subsidiaries
      have all conducted their  businesses  under the names "W.I.N." or "Western
      Iowa Networks"  since the second  quarter of 2001.  Breda hopes the use of
      the mark and logos will create an integrated,  unified marketing  approach
      for all of the  products and  services of Breda and its  subsidiaries  and
      will increase awareness of those products and services.

      Employees.

      As of December 31,  2004,  Breda had 35 full time  employees,  and no part
      time employees.  Breda employs all of those employees, but those employees
      also  provide  the labor and  services  for  Prairie  Telephone,  Westside
      Independent,  Tele-Services and BTC, Inc. The salaries and other costs and
      expenses of the employees are allocated  among Breda and its  subsidiaries
      based on time sheet  allocations.  There  currently are not any collective
      bargaining or other labor  agreements with any of Breda's  employees,  and
      only two of Breda's employees have written  employment  agreements.  Those
      employment  agreements are with the chief operations officer and the chief
      financial officer of Breda. Breda may utilize part-time employees on an as
      needed basis.

Item 2. Description of Property.

      Breda and some of its subsidiaries  own or lease various real estate.  The
      following  paragraphs  briefly  describe that real estate and how the real
      estate is currently used.

      Breda owns or leases the following real estate:

            o     Breda's corporate offices are located at 112 East Main, Breda,
                  Iowa. The building has approximately 7,680 square feet, and is
                  utilized by Breda, Tele-Services,  Prairie Telephone, Westside
                  Independent and BTC, Inc.

            o     Breda's  corporate  office  building was  constructed  on real
                  estate  that was already  owned by Breda.  There was already a
                  building on the real estate, and that building was attached to
                  the  corporate  office  building as part of  constructing  the
                  corporate  office  building.  The building is Breda's  central


                                       21
<PAGE>

                  office building and it houses equipment used to switch, record
                  and  transmit  telephone  calls.  This  type of  equipment  is
                  sometimes  referred  to in the  industry  as  "central  office
                  equipment."  The  equipment  is  used in  providing  telephone
                  services to Breda and the surrounding rural area. The building
                  has approximately 960 square feet. As noted, Breda's corporate
                  office  building  is also  located  on a portion  of this real
                  estate.

            o     Breda owns certain  real estate and a warehouse  which is also
                  located at 112 East  Main,  Breda,  Iowa.  The  warehouse  has
                  approximately  6,720 square feet,  and is used  primarily  for
                  storage  of   inventory   and   various   equipment   (trucks,
                  generators, trailers, plows, etc.).

            o     Breda owns the real  estate and  building  located at 109 West
                  Second Street, Lidderdale, Iowa. The building houses equipment
                  used to  switch,  record and  transmit  telephone  calls.  The
                  equipment   is  used  in  providing   telephone   services  to
                  Lidderdale  and the  surrounding  rural area. The building has
                  approximately 600 square feet.

            o     Breda owns the real  estate and  building  located at 310 Main
                  Street, Macedonia, Iowa. The building houses equipment used to
                  switch,  record and transmit telephone calls. The equipment is
                  used in  providing  telephone  services to  Macedonia  and the
                  surrounding  rural area.  The building has  approximately  600
                  square feet.

            o     Breda leases a portion of the building  owned by BTC,  Inc. at
                  603 N. Adams, Carroll, Iowa. Breda utilizes its portion of the
                  building  as  a  retail  store  for  the  sale  and  lease  of
                  telephone,  cellular and related  equipment  and  merchandise.

      Prairie Telephone owns or leases the following real estate:

            o     Prairie  Telephone's  corporate offices are located in Breda's
                  corporate office building at 112 East Main, Breda, Iowa.

            o     Prairie Telephone owns the real estate and building located at
                  508  Dupont  Street,   Farragut,  Iowa.  The  building  houses
                  equipment used to switch, record and transmit telephone calls.
                  The  equipment  is used in  providing  telephone  services  to
                  Farragut  and the  surrounding  rural area.  The  building has
                  approximately 2,400 square feet.

            o     Prairie  Telephone  owns a warehouse  which is also located at
                  508  Dupont   Street,   Farragut,   Iowa.  The  warehouse  has
                  approximately  2,600 square  feet,  and is used for storage of
                  inventory and equipment (trucks, generators,  trailers, plows,
                  etc.).


                                       22
<PAGE>

            o     Prairie Telephone owns the real estate and building located at
                  707 Phillips Street, Farragut, Iowa. The building was formerly
                  used to house equipment used in providing  telephone services,
                  but is currently vacant.

            o     Prairie Telephone owns the real estate and building located at
                  804 Washington  Avenue,  Pacific Junction,  Iowa. The building
                  houses equipment used to switch, record and transmit telephone
                  calls. The equipment is used in providing  telephone  services
                  to  Pacific  Junction  and the  surrounding  rural  area.  The
                  building has approximately 2,000 square feet.

            o     Prairie Telephone owns the real estate and building located at
                  600 Washington  Street,  Pacific Junction,  Iowa. The building
                  was  formerly  used  to  house  equipment  used  in  providing
                  telephone services, but is currently vacant.

            o     Prairie Telephone owns the real estate and building located at
                  226 Main,  Yale,  Iowa. The building houses  equipment used to
                  switch,  record and transmit telephone calls. The equipment is
                  used  in  providing   telephone   services  to  Yale  and  the
                  surrounding rural area. The building has  approximately  1,125
                  square feet.

      BTC,  Inc.  owns the real  estate and  building  located at 603 N.  Adams,
      Carroll,  Iowa.  BTC, Inc. and Breda moved their Carroll,  Iowa operations
      from their  former  location  to 603 N.  Adams on  October  4,  2003.  The
      building  has  approximately   4,450  square  feet.  The  building  houses
      equipment used by BTC, Inc. in providing  telephone  services and internet
      access  services.  Breda  leases a portion  of the  building  for use as a
      retail  store for the sale and lease of  telephone,  cellular  and related
      equipment and merchandise.

      BTC, Inc. also owns the real estate and building located at 526 N. Carroll
      Street,  Carroll,  Iowa. The building has approximately 1,804 square feet.
      BTC, Inc. and Breda  previously used the building for their Carroll,  Iowa
      operations,  but all  equipment  housed in the  building  and all services
      provided out of the building were moved to 603 N. Adams, Carroll, Iowa, in
      October,  2003,  as discussed in the  preceding  paragraph.  BTC, Inc. has
      retained a realty company to attempt to sell or lease the building.

      Westside  Independent  owns the real  estate and  building  located at 131
      South Main Street,  Westside,  Iowa. The building houses equipment used to
      switch,  record and transmit  telephone  calls.  The  equipment is used in
      providing  telephone  services to Westside and the surrounding rural area.
      The building also houses some equipment used by Tele-Services in its cable
      business.  The  building  has  also  been  used as the


                                       23
<PAGE>

      city offices for Westside,  Iowa, since approximately April 1, 2003. Breda
      does  not  charge  any  rent to the  city of  Westside  for its use of the
      building. The building was also previously used for Westside Independent's
      corporate offices. The building has approximately 1,600 square feet.

      Tele-Services owns buildings located in twenty different towns which house
      some  equipment  used  to  receive,  descramble  and  transmit  television
      signals.  This type of  equipment  is  sometimes  referred to in the cable
      industry as "head-end  equipment."  The buildings each have  approximately
      150 square feet.  The  buildings are located on real estate in each of the
      towns,  which is  generally  made  available  to  Tele-Services  under its
      franchise or other agreement with those towns, but  Tele-Services'  use of
      some of the real estate is pursuant to an oral agreement. Some of the real
      estate  is  owned  by  the  towns.   Tele-Services  pays  a  very  nominal
      consideration  for the use of some of the real  estate,  but in some cases
      Tele-Services is not required to pay any consideration. Tele-Services does
      not believe it will be difficult or cost  prohibitive to obtain other real
      estate for the buildings or the equipment,  if that becomes  necessary for
      some reason.

      All of the real estate and substantially all of the other assets of Breda,
      Prairie  Telephone and Tele-Services are subject to mortgages and security
      agreements  given by those  corporations  to the Rural  Telephone  Finance
      Cooperative  to stand as  security  and  collateral  for the loan which is
      described in the following paragraph.

      The  aggregate  amount  outstanding  as of December 31, 2004 under Breda's
      existing loan agreement with the Rural Telephone  Finance  Cooperative was
      $1,633,461.  The loan has a fifteen  year term that  matures in  September
      2013.

      Prairie  Telephone and Breda also have lines of credit  available from the
      Rural  Telephone  Finance  Cooperative  in the amounts  of,  respectively,
      $500,000 and  $1,500,000.  Those lines of credit will currently  expire on
      November  30, 2005 and  December 1, 2005,  respectively.  No amounts  were
      outstanding under either of those lines of credit on December 31, 2004.

      The Rural Telephone Finance Cooperative  required Westside  Independent to
      execute  a  guaranty  of the  loan  made by the  Rural  Telephone  Finance
      Cooperative  to Breda to finance the purchase of Westside  Independent  by
      Breda and the  purchase  of a related  company,  Westside  Communications,
      Inc., by Tele-Services.  Both of those purchases occurred in June of 1998.
      (Westside  Communications,  Inc. was dissolved effective December 2, 1999,
      and its assets were  transferred to  Tele-Services at that time.) Westside
      Independent's  guaranty is secured by a mortgage  and  security  agreement
      which covers its real estate and substantially all of its other assets.

      Breda believes that its and its subsidiaries'  real estate,  buildings and
      other  improvements were adequate to conduct their businesses as conducted
      or proposed to be conducted at the time of the  preparation of this annual
      report.  Breda also believes


                                       24
<PAGE>

      that  its and its  subsidiaries'  buildings  and  improvements  have  been
      maintained  in good  repair  and  condition,  ordinary  wear  and tear and
      depreciation excepted.  Breda also believes the buildings and improvements
      are adequately insured.

      Breda, Prairie Telephone, Westside Independent and BTC, Inc. also each own
      various equipment used to switch,  record and transmit  telephone calls in
      the areas  serviced by them.  This  equipment  is all housed in  buildings
      owned or leased by them,  as  discussed  above.  Breda  believes  that the
      normal and ordinary  useful life of this type of equipment is from between
      approximately  5-12 years. The current  equipment was purchased at various
      times over the period of 1998 to 2004. Breda believes the equipment is now
      in good operating condition and repair, considering ordinary wear and tear
      and depreciation.  Breda, Prairie Telephone, Westside Independent and BTC,
      Inc. also own  miscellaneous  lines,  cables and other  equipment  used to
      provide telephone services and internet access.

      Tele-Services  owns  various  equipment  used to receive,  descramble  and
      transmit cable signals,  including various electronic  receiving equipment
      and electronic  conductors and devices.  The equipment is sometimes called
      "head end"  equipment.  Breda believes that the normal and ordinary useful
      life of this type of  equipment  is  approximately  10 years.  The current
      equipment was purchased  over the period from 1984 to 2004.  The equipment
      is located in various towns as discussed  above.  Tele-Services  also owns
      other miscellaneous cables and equipment used in its business.

      Breda, Prairie Telephone,  Westside Independent,  Tele-Services,  and BTC,
      Inc. also hold various  easements  for their  various  telephone and cable
      lines and other  property.  Some of those  easements are on or across real
      estate of the cities, while others are on or across private property.

Item 3. Legal Proceedings.

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

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

      No matters were submitted to a vote of the shareholders of Breda,  through
      the solicitation of proxies or otherwise,  during the period of October 1,
      2004 through December 31, 2004.


                                       25
<PAGE>

                                     PART II

Item 5. Market for Common Equity, Related Stockholder Matters and Small Business
        Issuer Purchases of Equity Securities.

      Breda is authorized to issue 5,000,000  shares of common stock.  Breda had
      31,170  shares of its common stock issued and  outstanding  as of December
      31,  2004.  Those  shares  were  held  by   approximately   563  different
      shareholders.

      Breda's common stock is not listed on any exchange, and there is no public
      trading market for Breda's common stock.  Breda has not agreed to register
      any shares of its common stock under any federal or state securities laws.
      An  investment  in Breda's  common  stock is also not a liquid  investment
      because the Restated  Articles of Incorporation of Breda establish various
      conditions  on the issuance of, and various  restrictions  on the transfer
      of, shares of its common stock.  Those  conditions  and  restrictions  are
      summarized in the following paragraphs.

      The common stock can only be issued to:

            o     residents of the Breda or Lidderdale  telephone exchange areas
                  served by Breda who subscribe to Breda's  telephone  services,
                  and

            o     entities which have their  principal  place of business in the
                  Breda or Lidderdale  telephone  exchange areas served by Breda
                  and which subscribe to Breda's telephone services.

      As  indicated,  only  residents  of the  Breda  and  Lidderdale  telephone
      exchange  service  areas served by Breda are  eligible to purchase  stock.
      Although Breda also provides telephone services to Macedonia, Iowa and the
      surrounding area,  residents of Macedonia,  Iowa and the surrounding rural
      area cannot  acquire any shares of common  stock of Breda even if they are
      receiving telephone services from Breda.  Subscribers to any services from
      any of Breda's  subsidiaries  cannot buy common stock of Breda unless they
      also meet the requirements discussed above in this paragraph.

      Since  approximately  January  1,  1996,  no person  has been  allowed  to
      purchase more than thirty shares of common stock from Breda. A shareholder
      can own more than thirty shares, subject to the 1% limitation discussed in
      the following  paragraph,  but only thirty shares can be acquired  through
      the issuance of the shares by Breda. Breda has not issued any shares since
      1998, and Breda presently has no plans to issue any additional shares.

      No  shareholder  may own more than 1% of the total issued and  outstanding
      common stock of Breda unless:


                                       26
<PAGE>

            o     the shareholder  already  exceeded that percentage on February
                  28, 1995, or

            o     the  shareholder  goes over 1% as a result of Breda  redeeming
                  shares of its common stock from other shareholders.

      In either of those cases,  the shareholder may not increase the percentage
      of shares owned by the  shareholder.  If a shareholder  owns 5% or more of
      the ownership  interests of an entity which owns shares of Breda's  common
      stock,  the shares of Breda's  common stock held by that entity and by the
      shareholder  will  be  added  together  for  determining  whether  the  1%
      limitation is exceeded.

      There can generally  only be one  shareholder  for each  telephone  number
      served by Breda. There can also generally only be one shareholder for each
      household  receiving  telephone services from Breda, even if the household
      has more than one telephone number.

      Breda's  board of  directors  determines  the purchase  price  payable for
      newly-issued  shares of Breda's  common stock.  Breda's board of directors
      also  determines  the  redemption  price  that will be paid by Breda if it
      elects to redeem a  shareholder's  shares in any of the  circumstances  in
      which Breda has the right to purchase  those shares.  Breda has that right
      if:

            o     the  shareholder is no longer  receiving  services from Breda,
                  unless the shareholder already was not receiving services from
                  Breda on February 28, 1995;

            o     the  shareholder  no longer resides in the Breda or Lidderdale
                  telephone   exchange   areas  served  by  Breda,   unless  the
                  shareholder  already  resided  outside those areas on February
                  28, 1995; or

            o     the shareholder dies, unless the heir of the shares of Breda's
                  stock meets the  eligibility  requirements  for  ownership  of
                  Breda's stock.

      The board of directors had historically established the issuance price and
      the redemption price at approximately  75% of the book value of Breda, but
      in 2002, the board began to establish those prices at approximately 70% of
      the book value of Breda. The board of directors has historically made this
      determination in March, April or May of each year, based upon Breda's then
      most recent year-end  audited  financial  statements.  Breda's fiscal year
      ends on December  31. The price is then  generally  announced  and becomes
      effective at the annual  shareholders  meeting for that year. The issuance
      price and the redemption  price as so determined by the board of directors
      then  generally   applies  until  the  board  of  directors  makes  a  new


                                       27
<PAGE>

      determination and announces the new price at the next annual  shareholders
      meeting.

      Under this  approach,  the issuance  price and  redemption  price in 1995,
      1996, 1997, 1998 and 1999 was, respectively, $27, $31, $41, $64 and $82.

      The board of directors departed from its historical practice,  however, on
      November 2, 1999, by adopting a resolution  fixing the issuance  price for
      newly-issued  shares and the  redemption  price to be $149 per share.  The
      $149 amount was not based on Breda's  book  value,  but rather was roughly
      based upon the  average  sales  price of $150.58  per share in the auction
      that was held in October of 1999.  The  auction is  discussed  below.  The
      board of directors  took that action  because it believed  the  referenced
      auction  provided it with a basis to make a more current  determination on
      this issue.  The board of directors also believed that it was  appropriate
      to make a new  determination  of the issuance price and  redemption  price
      given the sale of Breda's direct broadcast  satellite operation on January
      11,  1999.  The  sale of that  operation  resulted  in a  pre-tax  gain of
      $7,436,415.  The sale was not  included  in Breda's  books until the first
      quarter of 1999,  and was  therefore  not  included  in the 1998  year-end
      financial  statements which had been utilized by the board of directors in
      establishing the $82 purchase price in early 1999.

      The board of directors returned to its historical practices at its meeting
      on March  13,  2000,  at which  time the  board  of  directors  adopted  a
      resolution  fixing the  issuance  price and  redemption  price for Breda's
      shares  of  common  stock  to be $180  per  share.  The  $180  amount  was
      determined based upon Breda's 1999 audited financial  statements,  and was
      announced at, and became  effective at, the May 17, 2000 annual meeting of
      the  shareholders of Breda. If the above  described  historical  practices
      were followed,  the $180 per share amount would have  continued  until the
      next annual determination was made by the board of directors and announced
      at the annual shareholders meeting for 2001.

      The board of  directors  determined  to again  depart from its  historical
      practices on this issue,  however,  at a meeting of the board of directors
      held on June 12, 2000. At that meeting, the directors adopted a resolution
      fixing the issuance  price for newly issued shares of Breda's common stock
      and the  redemption  price for Breda's  shares of common stock at $235 per
      share. The board of directors took this action because it believed that it
      was appropriate to make a new  determination of the issuance price and the
      redemption  price to reflect the receipt by Prairie  Telephone  of most of
      the net after-tax  proceeds of the sale by Prairie Telephone of its shares
      of stock in Central  Iowa  Cellular,  Inc.  The $235 per share  amount was
      determined by taking  approximately 75% of the then net after-tax proceeds
      of the sale on a per share basis and adding that figure to the  previously
      determined   issuance  and  redemption   price  of  $180  per  share.  The
      shareholders  of Breda were notified of the increase in the issuance price
      and the  redemption  price for Breda's shares of common stock from $180 to
      $235 per share by letter dated June 14, 2000.


                                       28
<PAGE>

      At the time the board made its  determination  on June 12,  2000,  Prairie
      Telephone had received, in the aggregate, approximately $5,108,280, before
      taxes,   and  it  was  estimated  that  Prairie   Telephone  would  retain
      approximately  $3,147,676  of that amount,  after  taxes.  For purposes of
      determining the new issuance price and redemption  price discussed  above,
      Prairie  Telephone's  basis in its 3,000 shares of common stock of Central
      Iowa  Cellular,  Inc. of  approximately  $206,770  was  deducted  from the
      after-tax  amount of  $3,147,676.  As  indicated,  the board of  directors
      believed this was a material event which made it appropriate to make a new
      determination  of the issuance  price and  redemption  price for shares of
      Breda's common stock.

      The board of directors has followed  Breda's  historical  practices  since
      that time, by announcing a new issuance and redemption price of:

            o     $258  per  share at the May 16,  2001  annual  meeting  of the
                  shareholders,

            o     $280  per  share at the May 21,  2002  annual  meeting  of the
                  shareholders,

            o     $303.00 per share at the May 20,  2003  annual  meeting of the
                  shareholders, and

            o     $326  per  share at the May 18,  2004  annual  meeting  of the
                  shareholders.

      The per share  amount was  established  based upon  Breda's  book value as
      reflected  in its  most  recent  year-end  audited  financial  statements,
      consistent with Breda's historical practices, except that, since 2002, the
      redemption price has been set at approximately 70% of the book value.

      The board of directors currently intends to continue to address this issue
      on  an  annual  basis  consistent  with  the  above  described  historical
      practices  of the board of  directors,  except that the board of directors
      may  determine  to depart  from those  historical  practices  again in the
      future  in the  event of the  occurrence  of what the  board of  directors
      believes are material or significant events.

      The issuance and redemption  price as determined by the board of directors
      has  increased  from $27 per  share in 1995  (based  on the 1994  year-end
      audited  financial  statements  of  Breda) to the  current  $326 per share
      amount  described  above.  Breda does not believe  that the amount of this
      increase  is  indicative  of  potential  future  increases,   however,  in
      particular given that:

            o     The  referenced  increase was due primarily to two  "one-time"
                  material  events,  those  being  the  sale of  Breda's  direct
                  broadcast   satellite   operation  and  the  sale  of  Prairie
                  Telephone's stock in Central Iowa Cellular, Inc., and


                                       29
<PAGE>

            o     Breda does not  currently  foresee  any  material  increase in
                  revenues  from  its or any of  its  subsidiaries'  normal  and
                  ordinary  course  business  operations,  and,  in  fact,  sees
                  continuing downside pressure on those revenues.

      Since there is no public trading market or any other principal  market for
      Breda's common stock,  repurchases  of common stock by Breda  currently is
      the primary method for a shareholder to be able to sell the  shareholder's
      shares.  Breda's  repurchases  of its common stock are discussed  below in
      this Item.

      As  discussed  below,  an  auction  was held in  October,  1999,  at which
      shareholders  desiring to sell their  shares of Breda's  common stock were
      given the  opportunity  to sell those shares to other Breda  shareholders.
      There are no current plans,  however, to arrange any other auctions in the
      future. Breda does maintain a list of shareholders  desiring to sell their
      shares,  and of other  shareholders  desiring to purchase those shares, as
      discussed below.

      In any of the  circumstances  where  Breda  has  the  right  to  redeem  a
      shareholder's shares, a shareholder may, with the consent of Breda's board
      of directors,  transfer the shareholder's  shares to another person who is
      eligible  to be a  shareholder  by reason  of the fact that the  person is
      receiving  services  from Breda and is residing in the Breda or Lidderdale
      telephone exchange areas served by Breda.

      No  shareholder  can sell or transfer any of his or her shares of Breda to
      any person who is not  otherwise  eligible to be a  shareholder  in Breda,
      with one  exception.  The exception is that a person who was a shareholder
      on July 20, 1995,  may make a one time  transfer of the shares held by the
      person on that date to a family member of the  shareholder  (which means a
      spouse, natural born or adopted child, grandchild, parent, grandparent, or
      sibling),  even if the family member is not receiving  services from Breda
      and is not residing in the Breda or Lidderdale  telephone  exchange  areas
      served by Breda. These transfers are not subject to Breda's right of first
      refusal described in the following paragraph.  Any family member receiving
      shares by this process does not have the same right, however, and can only
      sell or transfer  the shares in  accordance  with the Amended and Restated
      Articles of Incorporation of Breda.

      Any  shareholder  who wants to sell or transfer his or her shares in Breda
      to another  shareholder or person who is eligible to be a shareholder must
      first give Breda the right to purchase the shares.  The  shareholder  must
      give Breda at least sixty days prior written  notice of the proposed sale,
      including a copy of the written  offer to purchase  the shares.  Breda may
      elect to purchase the shares for the same price offered to the shareholder
      at any time  within  sixty days  after it  receives  the  notice  from the
      shareholder.  If Breda elects to buy the shares,  it must pay the purchase
      price in full upon the shareholder surrendering the stock certificates for
      the shares to Breda.

      Breda's  bylaws may also contain  provisions  restricting  the transfer of
      shares.  The current  bylaws do not contain any  restrictions,  other than
      some of those  described  in


                                       30
<PAGE>

      this  annual  report,  but the bylaws can be amended by the  directors  or
      shareholders at any time.

      The following table provides  information  regarding  Breda's purchases of
      its common  stock from  shareholders  during the period of October 1, 2004
      through December 31, 2004.

              SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

<TABLE>
<CAPTION>
      ----------------------------------------------------------------------------------------------
                                                                                         Maximum
                                                                  Total Number          Number (or
                                                                   of Shares           Approximate
                                                                  Purchased as        Dollar Value)
                                                                    Part of           of Shares that
                                                                   Publicly            May Yet Be
                          Total Number       Average Price         Announced            Purchased
                           of Shares           Paid per            Plans or         Under the Plans
        Period            Purchased(1)         Share(2)           Programs(1)         or Programs(1)
      ----------------------------------------------------------------------------------------------
<S>                       <C>                <C>                      <C>                  <C>
      Month #1
      (October 1,         0 Shares of
      2004-October        Common
      31, 2004            Stock                     N/A               -0-                  -0-
      ----------------------------------------------------------------------------------------------
      Month #2
      (November 1,        12 Shares of
      2004-November       Common             $326.00 per
      30, 2004)           Stock              Share                    -0-                  -0-
      ----------------------------------------------------------------------------------------------
      Month #3
      (December 1,        20 Shares of
      2004-December       Common             $326.00 per
      31, 2004)           Stock              Share                    -0-                  -0-
      ----------------------------------------------------------------------------------------------
      Total                     32               $326.00              -0-                  -0-
      ----------------------------------------------------------------------------------------------
</TABLE>

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

      (2)   All of the  shares of common  stock were  purchased  by Breda at the
            $326 redemption price that was established by the board of directors
            at the May 18, 2004 annual meeting of Breda's shareholders.

      Given that  repurchases of common stock by Breda currently are the primary
      method for a shareholder to be able to sell the shareholder's  shares, the
      following  paragraphs provide additional  information on Breda's purchases
      of its common stock from its


                                       31
<PAGE>

      shareholders from 1996 through 2004.

      Over  the  period  of  January  1,  1996  through  June  24,  1996,  Breda
      repurchased  four hundred and twenty-four  shares of its common stock from
      two shareholders, at a purchase price of $27 per share. Over the period of
      June 25, 1996 through February 20, 1997, Breda  repurchased  seven hundred
      and   eighty-nine   shares  of  its  common  stock  from  nine   different
      shareholders,  at a purchase  price of $31 per  share.  Over the period of
      February 21, 1997 through March 1, 1998,  Breda  repurchased  one thousand
      nine  hundred  and  ninety-six  shares of its common  stock from  fourteen
      different  shareholders,  at a purchase  price of $41 per share.  Over the
      period of March 2, 1998 through December 31, 1998, Breda repurchased three
      hundred and  fifty-eight  shares of its common  stock from five  different
      shareholders, at a purchase price of $64 per share.

      No shares were  repurchased  by Breda in 1999,  except  that in  November,
      1999,  Breda  effectuated a repurchase  of forty shares by depositing  the
      purchase  price  for  those  forty  shares  with  the   appropriate   Iowa
      authorities  under  Iowa's  escheat  laws.  The forty  shares were held of
      record by twenty  different  shareholders  that  Breda had been  unable to
      locate.  The purchase  price utilized for this purpose was $149 per share.
      Breda also  deposited  the amount of the April 21, 1999  dividend that was
      otherwise payable on the forty shares. The total amount deposited by Breda
      was  $6,080,  with  $120 of that  amount  being  for the  April  21,  1999
      dividend.

      During 2000, Breda repurchased four hundred forty-one shares of its common
      stock from fourteen  different  shareholders,  at a purchase price of $235
      per share.

      During 2001, Breda repurchased a total of 2,216 shares of its common stock
      from twenty-six different shareholders. Two hundred twenty of those shares
      were  purchased at $235 per share,  and the rest of those  shares  (1,996)
      were purchased at $258 per share.

      Breda  repurchased a total of 2,025 shares of its common stock during 2002
      from thirty-two different shareholders.  Two hundred eighty-seven of those
      shares were purchased for $258 per share. The rest of those shares (1,738)
      were purchased for $280 per share.

      Breda  repurchased a total of 1,306 shares of its common stock during 2003
      from 23 different  shareholders.  One hundred eighty-eight of those shares
      were  purchased at $280 per share,  and the rest of those  shares  (1,118)
      were purchased for $303 per share.

      During 2004,  Breda  repurchased a total of 524 shares of its common stock
      from 13  different  shareholders.  Two hundred  three of those shares were
      purchased at $303 per share. The rest of those shares (321) were purchased
      for $326 per share.


                                       32
<PAGE>

      There were transfers  among the  shareholders  of Breda during some of the
      above periods for which Breda did not exercise its right of first refusal.
      Some of those transfers are noted below.

      Breda's  ability  to  repurchase  any of its  shares is subject to certain
      restrictions in its loan agreements with the RTFC. Those  restrictions are
      discussed below in this Item.

      Breda has no plans to and has not agreed to register  any of its shares of
      common stock under any federal or state  securities  laws. Since Breda has
      been subject to the reporting  requirements of the Securities Exchange Act
      of 1934 for a period of over ninety  days,  Rule 144 under the  Securities
      Act of 1933  would be  available  to permit the resale of shares of common
      stock by shareholders,  subject to certain restrictions  contained in Rule
      144,  including the  requirement  that the shareholder has held his or her
      shares  for a period  of one year  prior  to the  date of  resale.  Once a
      shareholder  (other  than a  shareholder  who is an officer or director of
      Breda)  has held his or her  shares  of  common  stock for a period of two
      years,  the  shareholder  would  be  able to  resell  the  shares  without
      restriction  under Rule 144. As discussed  above,  however,  the governing
      documents of Breda impose numerous  material  limitations and restrictions
      on a  shareholder's  ability  to sell or  transfer  any  shares of Breda's
      common stock.

      The  marketability and value of Breda's shares of common stock may also be
      limited or  adversely  affected  by some of the other  terms of the common
      stock. For example,  each shareholder is entitled to only one vote on each
      matter presented to the  shareholders,  regardless of the number of shares
      of common  stock held by the  shareholder,  with one  exception  regarding
      shareholders   who  previously   held  Class  A  stock  of  Breda.   Those
      shareholders have one vote for each share of former Class A stock that was
      held by  them on  February  28,  1995,  and  continuing  until  one of the
      following occurs:

            o     the shareholder no longer receives service from Breda,

            o     the  shareholder  no longer resides in the Breda or Lidderdale
                  telephone exchange area served by Breda,

            o     the shareholder dies, or

            o     the shareholder  transfers the shareholder's shares to someone
                  else.

      As of December 31, 2004,  there were 22 shareholders  with multiple voting
      rights arising from their prior ownership of the former Class A stock, and
      they have one vote for each  share of the  former  Class A stock  that was
      held by them on February 28, 1995.  Those 22 shareholders  held a total of
      61 shares of Class A stock on that date.

      An auction was held on October 24, 1999,  where  shareholders  desiring to
      sell their shares of Breda's  common stock were given the  opportunity  to
      sell  those  shares  to other  Breda  shareholders  desiring  to  purchase
      additional  shares of Breda's  common


                                       33
<PAGE>

      stock.  Breda paid the costs of the auction,  except that the sellers paid
      the auction fees and clerking  fees related to their  shares.  The auction
      was provided for the  convenience of Breda's  shareholders,  and no shares
      were  repurchased or issued by Breda  pursuant to the auction.  A total of
      1,924 shares of common stock were sold by 32 different  shareholders to 25
      other  shareholders  of Breda,  for purchase  prices ranging from $145 per
      share to $180 per share.  As discussed  above,  Breda had a right of first
      refusal to purchase all of the shares sold in the auction, but elected not
      to exercise its right. Breda did, however, offer to purchase shares in the
      auction  for  $142  per  share,  but no  shareholder  chose  to  sell  the
      shareholder's  shares  to  Breda  at  that  price.  The  $142  figure  was
      approximately  60% of Breda's  book value per share as of the close of the
      second  quarter  in 1999.  No  officers  or  directors  of  Breda  sold or
      purchased  any  shares in the  auction.  Breda  does not have any plans to
      arrange any other auctions in the future.

      The  board  of  directors  of  Breda  determined  in late  1999  to  allow
      shareholders  to advise  Breda of the fact that they desire to sell any or
      all of their shares of Breda's common stock to any qualified buyer, and to
      allow  qualified  buyers to advise  Breda of the fact that they  desire to
      purchase shares of Breda's common stock from other  shareholders of Breda.
      Breda will keep a list of those  shareholders  and qualified  buyers,  and
      make the list available to all of the shareholders and qualified buyers on
      the list. A qualified  buyer is a person who is a resident of the Breda or
      Lidderdale  telephone  exchange  areas served by Breda who  subscribes  to
      Breda's telephone services,  or an entity which has its principal place of
      business in the Breda or  Lidderdale  telephone  exchange  areas served by
      Breda and which subscribes to Breda's telephone services.

      A person or entity cannot,  however, be a qualified buyer if the person or
      entity  already  owns  more than 1% of the total  issued  and  outstanding
      shares of common stock of Breda.  Also, a qualified  buyer cannot purchase
      shares  from  any  shareholder  of  Breda to the  extent  that the  shares
      purchased by the qualified  buyer would cause the  qualified  buyer to own
      more than 1% of the total issued and outstanding shares of common stock of
      Breda. If a person owns 5% or more of the ownership interests of an entity
      which owns shares of Breda's  common stock,  the shares of Breda's  common
      stock held by that  entity and by the person  will be added  together  for
      determining  whether the 1% limitation  is exceeded.  The 1% limitation is
      set forth in the Amended and Restated Articles of Incorporation of Breda.

      The terms of any sale between a shareholder  and a qualified buyer will be
      negotiated  by  them,  and no one is  required  to sell or buy any  shares
      because  their  name is on the  list.  Breda  also  retains  its  right to
      purchase any shares which are  intended to be sold by any  shareholder  to
      any qualified  buyer under the right of first refusal  granted to Breda in
      its Amended and Restated Articles of Incorporation.

      During the calendar  year 2000,  five  separate  sales of shares  occurred
      between  shareholders  on the list.  Two sales each  involved  two shares,
      which were sold for


                                       34
<PAGE>

      $235 per share. One sale involved  fifty-three shares, which were sold for
      $235 per share. One sale involved  thirty-one shares,  which were sold for
      $155 per share. One sale involved two shares, which were sold for $149 per
      share.  Breda elected not to exercise its right of first refusal on any of
      these shares.

      During the calendar year 2001,  three  separate  sales of shares  occurred
      between  shareholders  on the list.  Two sales each involved seven shares,
      which were sold for $258 per share.  The other sale  involved  forty-three
      shares,  which were also sold for $258 per  share.  Breda  elected  not to
      exercise its right of first refusal on any of these shares.

      During the calendar year 2002,  three  separate  sales of shares  occurred
      between shareholders on the list. Two sales involved two shares which were
      sold for $258 per share.  The other sale involved  three shares which were
      also sold for $258 per share.  Breda  elected not to exercise its right of
      first refusal on any of these shares.

      During  the  calendar  year  2003,  one sale of  shares  occurred  between
      shareholders  on the list.  The sale involved two shares,  which were sold
      for $280 per share.

      There were no sales of shares between  shareholders on the list during the
      calendar year 2004.

      Breda does not participate in, and has no responsibility for,  negotiating
      the terms and conditions of any sale of shares between anyone on the list.

      Breda has declared  and paid seven  dividends  to its  shareholders  since
      Breda was  incorporated in 1964. The first six dividends were declared on,
      respectively,  March 15, 1999,  March 13, 2000,  March 12, 2001,  April 8,
      2002,  March 10, 2003, and March 16, 2004.  Each of those dividends was in
      the  amount  of  $3.00  per  share.  The  aggregate   dividend  paid  was,
      respectively,   $113,166,   $113,046,  $111,087,  $104,214,  $98,436,  and
      $94,479.  Breda also declared a $7.00 per share dividend on March 1, 2005,
      payable  to  shareholders  of  record  on March 15,  2005.  The  aggregate
      dividend was $218,190.

      Payment  of  dividends  is  within  the  discretion  of  Breda's  board of
      directors,  and out of funds legally available therefor as provided in the
      Iowa  Business  Corporation  Act.  Breda's  ability  to  declare  and  pay
      dividends  is  also  restricted  by  some  of the  covenants  in its  loan
      agreements with the RTFC.  Under those  agreements,  Breda may not pay any
      dividends without the prior written approval of the RTFC unless, after the
      payment,  Breda is in compliance  with the various  ratios,  net worth and
      margin  requirements set forth in the loan agreements.  Breda also may not
      pay any dividends if Breda is in default  under the loan  agreements or if
      the payment of the dividends would cause Breda to be in breach of the loan
      agreements.


                                       35
<PAGE>

      The  restrictions  in the RTFC  loan  agreements  also  apply  to  Breda's
      purchase or redemption of any of its stock and to any other  distributions
      to its  shareholders,  so the  restrictions  may also preclude  Breda from
      being able to  repurchase  its shares of stock as  otherwise  discussed in
      this Item.

      Breda does not currently  believe,  however,  that the restrictions in the
      RTFC loan  agreements  will  preclude  Breda from paying any  dividends or
      distributions  or from  repurchasing  any of its  shares of common  stock,
      should Breda otherwise determine to do so.

      No shares of stock were issued by Breda in 2004.  There are  currently  no
      outstanding  warrants,  options or other  rights to purchase any shares of
      common  stock of  Breda,  and  there  are also  currently  no  outstanding
      securities which are convertible or exchangeable  into or for common stock
      of Breda.  Breda's  shares of common  stock are not  convertible  into any
      other securities.

Item 6. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations.

      Overview.

      This Item should be read in conjunction  with Item 1 of this annual report
      and with the financial  statements and related notes included in Item 7 of
      this annual report.

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

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


                                       36
<PAGE>

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

            Local Exchange Carrier

                              Breda
                              Prairie Telephone
                              Westside Independent
                              BTC, Inc.

            Broadcast Services

                              Tele-Services

            Internet Service Provider

                              BTC, Inc.

      BTC,  Inc.  is a  subsidiary  of Prairie  Telephone.  BTC,  Inc.  provides
      Internet services to its customers and to the customers of Breda,  Prairie
      Telephone and Westside Independent who subscribe for Internet services. As
      noted above,  BTC, Inc. is also a local exchange  carrier  providing local
      and long  distance  telephone  services to customers in the Carroll,  Iowa
      market area, where Qwest is the incumbent local exchange carrier.

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

      Breda's  primary  source of  consolidated  revenues is from the  telephone
      services provided by Breda,  Prairie Telephone,  Westside  Independent and
      BTC, Inc. The operating  revenues  from  telephone  services are primarily
      derived from the following types of fees and charges:

      o     Flat monthly fees charged to subscribers  for basic local  telephone
            services.  As of March 1, 2005, those fees varied from approximately
            $11.50  to  $35.00  per  month.   The  monthly  fee  is  higher  for
            subscribers who elect to have additional services and features, such
            as custom features.

      o     Access  charge  revenues  payable  by  long  distance  carriers  for
            intrastate and interstate  exchange  services provided to those long
            distance  carriers.  Access  charge  rates may be at a flat or fixed
            rate or may depend upon usage. As discussed in Item 1 of this annual
            report, interstate and intrastate access charge rates are subject to
            regulation  by  various  governmental  authorities.   Access  charge
            revenues  constitute  a  substantial  part of  Breda's  consolidated
            revenues, and a material risk to Breda arises from the regulation of
            access charge rates by those authorities.  As discussed in Item 1 of
            this annual  report,  the FCC has indicated  that it will be seeking
            comments on seven proposed plans addressing access charge rates, and
            Breda  believes  there may be  changes  made to the  current  access


                                       37
<PAGE>

            charge rate system.  Breda also believes that if any of the proposed
            plans are adopted in their current form,  they will likely result in
            substantial reductions in Breda's access revenues.

            The access  charge rate payable to telephone  companies  like Breda,
            Prairie Telephone,  Westside Independent and BTC, Inc. which utilize
            the "average schedule" basis for receiving inter-state access charge
            revenues,  is currently based on, among other things,  the number of
            miles of their cable over which they transfer  long  distance  calls
            made by their subscribers.  Breda's total access charge revenues had
            been increasing in past years,  and that trend continued in 2004 due
            to traffic  routing  changes and because  BTC,  Inc.  began to offer
            local phone  service in the  Carroll,  Iowa market in October  2003.
            Customers that moved their service from the incumbent  local carrier
            to BTC, Inc. also usually  selected  Breda's long distance  service,
            which  has  increased  the  overall  number of  customers  utilizing
            Breda's network to make long distance calls. The increased  customer
            count has  increased  the overall  minutes of use for long  distance
            calls,  which has  increased  Breda's  access  revenue.  Breda  has,
            however,  seen  some  decrease  in its  minutes  of use  because  of
            competition from wireless  carriers offering calling plans with such
            features  as  unlimited  nights and  weekend  calls.  Those types of
            features lead customers having both wireless and wireline service to
            use their wireless calling plans to make long distance calls,  which
            results in less traffic  being  carried over the wireline  networks.
            Also,  the Iowa Utilities  Board has ruled that wireless  traffic is
            considered local traffic,  so the wireless carriers are not entering
            into  interconnection  agreements with the wireline carriers for use
            of their networks. The wireline carriers, such as Breda, accordingly
            receive less traffic  over their  networks,  and received no payment
            for the traffic that the wireless  carriers routed over the wireline
            networks  from April 1999 until May 2004,  when,  as noted  later in
            this  annual  report,  Breda  negotiated  reciprocal  transport  and
            termination agreements with some of the wireless carriers.  Breda is
            not able to quantify the dollars that Breda and its subsidiaries did
            not receive for wireless traffic over that period of time.

            As  indicated   above,   Breda,   Prairie   Telephone  and  Westside
            Independent  utilize  the  "average  schedule"  basis for  receiving
            inter-state  access charge  revenues.  This is the approach taken by
            most smaller  telephone  companies.  Another approach  available for
            receiving access charge revenues is the "cost"  approach.  Telephone
            companies  make filings with the FCC, which set forth their costs of
            providing  long  distance  services.   Under  the  average  schedule
            approach,  access  charge  rates are based  upon,  in  general,  the
            average of all of those costs across a sample of telephone companies
            and certain other factors  intended to take into account the size of
            the particular telephone company in question.

            Concerns  have  also  been  raised  on the  state  level by the Iowa
            Legislature  and the  Iowa  Utilities  Board  regarding  intra-state
            rates, and whether alternative intrastate inter-carrier compensation
            mechanisms  should be investigated.  A joint task force


                                       38
<PAGE>

            comprised  of  representatives  from  the  Iowa   Telecommunications
            Association and the Rural Iowa Independent Telephone Association was
            formed  in the  spring  of 2003  to  compile  data  from  the  local
            telephone  companies,  such as Breda, in order to document and study
            the cost of access and make  recommendations  regarding  Iowa access
            rates. Two industry consulting firms joined this task force, and the
            committee  looked  at not  only  the  justification  of the  present
            intra-state access rates received by local telephone companies,  but
            also at other revenue recovery alternatives.

            The joint task force  completed  its initial  study in May, 2004 and
            found that the overall  results  showed  costs both higher and lower
            than the current  intra-state  access  rates,  and that the cost per
            minute for  intrastate  access  fell within a range of 2 cents to 16
            cents.  The task  force is  continuing  to study  the  impact of not
            having  data from 38 Iowa  companies,  and the fact  that  declining
            minutes of use will increase the average cost.  The joint task force
            had been holding  regional  meetings and  conferences to educate and
            present its information to the Iowa  Telecommunications  Association
            and the Rural Iowa Independent  Telephone Association members on the
            issues and elements of their  recommendation.  Since  access  charge
            revenues   constitute  a   substantial   portion  of  Breda's  total
            consolidated revenues, this is an area of material risk to Breda and
            its subsidiaries.

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

            Another  revenue  recovery issue present in the industry since April
            1999 has been the nonpayment of access revenue by wireless  carriers
            on traffic originating and terminating within the same major trading
            area  (intraMTA).  Breda and other local exchange  carriers have not
            received  payment for the termination of this wireless  traffic over
            their  networks  to the end user.  A joint  task  force of  industry
            representatives  and the Iowa Telecom  Association  had been working
            since the spring of 2003 to negotiate with wireless carriers on this
            issue. In late April 2004, the ITA Wireless Termination  negotiating
            committee was successful in reaching an agreement with four wireless
            carriers - U.S. Cellular,  Verizon Wireless,  Sprint PCA and Midwest
            Wireless.  The  intent  of the  joint  task  force had been that any
            independent  telephone  company  who  wished to  participate  in the
            negotiated  wireless  termination   agreements  with  one  of  these
            carriers  could  "opt  in"  to  one  of  the  wireless   termination
            agreements  already  on file at the IUB.  In July  2004,  the


                                       39
<PAGE>

            joint  negotiating  team  learned  that the  wireless  carriers  had
            rejected the idea of allowing  independent  phone  companies to "opt
            in" to one of the wireless termination agreements already on file at
            the IUB.  The  latter  fact  meant  that any  independent  telephone
            company  that  wished to  participate  in the  wireless  termination
            agreements with Midwest  Wireless,  Verizon,  US Cellular and Sprint
            needed to execute  their own separate  agreement  with each wireless
            carrier.   The  ITA  Wireless  Termination   negotiating   committee
            continued its efforts to pursue past  compensation from the wireless
            carriers  for minutes  from April 1999 to March 31,  2004,  and also
            continued its attempts to convince the remaining  wireless carriers,
            including AT&T and Nextel, to sign the "model" agreement. I Wireless
            agreed to be bound by the model agreement in January 2005.

            On  August  6,  2004,  the  board of  directors  of the  Rural  Iowa
            Independent  Telephone  Association  approved  the filing of a model
            wireless  termination  tariff, and the tariff was filed with the IUB
            on August 10, 2004.  If the tariff  would have been  approved by the
            IUB,  it would  have given  independent  local  telephone  companies
            another option in resolving the wireless  terminating  traffic issue
            because  the  companies  would have been able to choose to adopt the
            tariff or to enter into the model  wireless  termination  agreement.
            The tariff  would  also have  provided  authority  for  billing  the
            wireless  service  providers  that  did not  sign an  agreement  but
            continued to terminate traffic on an independent telephone company's
            network. The tariff would have specified that the traffic covered by
            the tariff was subject to a service  establishment  charge and a per
            minute of use charge.  The tariff would have also  provided  billing
            information,   allowed   verification   of  the   information,   and
            discontinuance  of service if the wireless  company failed to pay as
            required under the tariff.

            On August 31, 2004,  the Iowa Telecom  Association  filed a Petition
            for Arbitration  with the IUB seeking  compensation  for terminating
            wireless traffic from 1999 to May 2004 from US Cellular, Verizon and
            Sprint PCS. The Iowa Telecon  Association  had  calculated the total
            amount  of   identified   wireless   traffic  for  the  entire  Iowa
            independent industry at approximately $6.5 million. On September 15,
            2004, the wireless  carriers filed their  responses to the Petition,
            including a denial that they owed anything, and a claim that the IUB
            had no jurisdiction over the matter.

            On November 19, 2004 the IUB  dismissed  the  Petition  filed by the
            Iowa  Telecon   Association  on  the  basis  that  the  IUB  had  no
            jurisdiction  over the matter. On December 9, 2004, the Iowa Telecon
            Association filed an application for rehearing,  but the application
            for rehearing was denied by the IUB on January 6, 2005.

            In late February 2005, the FCC issued a Declaratory Ruling and Order
            in an  attempt  to  clarify  some of the  intercarrier  compensation
            disputes surrounding wireless terminating traffic.  Under the Order,
            existing  tariffs would not be illegal


                                       40
<PAGE>

            and  collections  under  those  tariffs  could be  retained by rural
            independent telephone companies,  but new tariffs would no longer be
            valid and  companies  would need to reach  negotiated  agreements to
            exchange the traffic.

            Because of the above regulatory activities, Breda began negotiations
            with  the five  wireless  carriers  who had  adopted  the ITA  Model
            Wireless Termination Agreement,  and by late January 2005 had signed
            agreements with Sprint, US Cellular, i-wireless and Midwest Wireless
            for each of Breda, Prairie Telephone,  Westside Independent and BTC,
            Inc. The agreements with Sprint,  US Cellular and i-wireless  became
            effective  as of May 1, 2004,  and the  Midwest  Wireless  agreement
            became effective January 27, 2005. Breda continues to negotiate with
            Verizon,  and  anticipates  that an  agreement  will be signed  with
            Verizon for each Breda,  Prairie Telephone and Westside  Independent
            within  30  days.  Verizon  will  not  sign a  Wireless  Termination
            Agreement  with BTC, Inc.  since it is a competitive  local exchange
            carrier.

            The agreements  generally  provide for  compensation on only a going
            forward basis. The agreements provide for significantly less revenue
            per minute, and are reciprocal compensation agreements,  which means
            generally that each of the two carriers  receives  compensation from
            the  other  carrier  for  the  transport  and  termination  on  each
            carrier's network facilities of IntraMTA  telecommunications traffic
            that originates on the network facilities of the other carrier.

      o     Revenue  from the sale and  lease  of  customer  premises  telephone
            equipment and other similar items and other  miscellaneous  customer
            services,  such as custom calling services.  Since the completion of
            the upgrading of their telephone  switches in 1998 and 1999,  Breda,
            Prairie  Telephone and Westside  Independent have had the capability
            and  are  offering  many  more  custom  calling  features  to  their
            subscribers.  BTC, Inc. also offers custom  calling  features to its
            subscribers. Revenues from custom calling features are not, however,
            a material source of revenue.

      o     Fees  from  long  distance  providers  for  billing  and  collection
            services for long distance calls made by subscribers. Breda, Prairie
            Telephone and Westside Independent have been experiencing  increased
            competition   in  this  area  over  the  past  three  years.   Their
            competitors  include other third parties  providing  these services,
            and competition  from the long distance  providers  themselves since
            some  providers  have  decided  to  handle  their  own  billing  and
            collection.  Breda may at some  point make a  determination  to stop
            providing billing and collection services for other carriers.

      o     Fees  from per  minute  rate  plans  and  calling  plan fees on long
            distance  calls made by  subscribers  of Breda,  Prairie  Telephone,
            Westside  Independent  and  BTC,  Inc.  Breda  experienced  a  44.5%
            increase in its long distance customer base from


                                       41
<PAGE>

            December  of 2002 to  December of 2003,  and a 50.7%  increase  from
            December of 2003 to December of 2004.

      o     Breda,  Prairie Telephone,  Westside  Independent and BTC, Inc. each
            generate revenues from providing  Internet access and from sales and
            leases of other  equipment  and  facilities  for  private  line data
            transmission,  such as local area networks, virtual private networks
            and wide area  networks.  As noted in Item 1, they are  experiencing
            intense  services  and pricing  competition  in  providing  Internet
            access.

      Breda's other primary  source of  consolidated  revenue is generated  from
      Tele-Services'  cable  business.  Tele-Services'  operating  revenues  are
      generated primarily from monthly fees for basic and premium cable services
      provided to its cable subscribers.  Tele-Services' main competition at the
      time of the  preparation  of this annual  report was from  satellite  dish
      providers.  The FCC has allowed  satellite dish providers to provide local
      channels since 1999. This fact has had an adverse effect on  Tele-Services
      because its ability to provide local channels was, in the past, one reason
      subscribers  might choose  Tele-Services'  cable services over a satellite
      dish. Other rulings and decisions by the FCC are possible, and may provide
      satellite dish or other  providers with equal or greater  advantages  than
      Tele-Services can offer to its subscribers,  which could result in further
      adverse effects on Tele-Services'  business.  The  telecommunications  and
      cable industries are also continually changing, and technological advances
      may provide  Tele-Services  subscribers  with other options.  For example,
      Iowa Network  Services is offering  cable  services in Iowa over  existing
      telephone lines,  and it is estimated that up to 70 independent  telephone
      companies  in mostly  rural  Iowa will be able to offer  cable  television
      programming  over their telephone  lines by 2005. This option,  and others
      which might arise  through other changes or  advancements  in  technology,
      could have  material  adverse  effects  on  Tele-Services  in the  future.
      Tele-Services  is  also  faced  with a  declining  population  base in its
      service areas, which results in a lower potential customer base.

      Another issue faced by  Tele-Services  is that the companies which provide
      programming  licensing to cable services providers are requiring the cable
      services  providers to include  particular  channels on their systems as a
      condition of receiving a programming  license.  Tele-Services  anticipates
      that it will  continue to need to upgrade its plant,  equipment and cables
      in order to add more channel  line-ups so that it will continue to be able
      to obtain programming licenses and in order to stay competitive.

      Other  miscellaneous  sources of revenue are  discussed  in the  financial
      statements included in Section 7 of this annual report.

      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 as of the close


                                       42
<PAGE>

      of each of the past two fiscal years:

                                                    2003       2004
                                                    ----       ----

            Local Exchange Carrier (1)              75.5%      78.5%
            Broadcast (2)                           14.5%      12.5%
            Internet Service Provider (3)           10.0%       9.0%
                                                    ----       ----

                              Total                  100%       100%

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

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

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

      Twelve-months  ended  December 31, 2004  Compared to  Twelve-months  ended
      December 31, 2003

      NET INCOME

      Consolidated  net income for the  twelve-month  period ended  December 31,
      2004 was  $1,393,675,  which  was a  $204,169,  or  17.2%,  increase  when
      compared to the $1,189,506 of consolidated net income for the twelve-month
      period ended December 31, 2003.

      The $204,169  increase in net income  resulted  from the  following  three
      factors:

            1)    Consolidated  operating  income,  which is Operating  Revenues
                  less  Operating  Expenses,  generated  from the local exchange
                  carrier  segment,  the  broadcast  services  segment,  and the
                  Internet  service  provider  segment  increased  $133,734,  or
                  18.7%,  for the  twelve-month  period ended December 31, 2004,
                  when compared to the  twelve-month  period ended  December 31,
                  2003.


                                       43
<PAGE>

            2)    Other income (expense),  which includes items such as interest
                  and dividend income, income from equity investments,  interest
                  expense,  and gains  (losses) on the sale of  investments  and
                  property,  increased $193,323,  or 16.3%, for the twelve-month
                  period  ended   December  31,  2004,   when  compared  to  the
                  twelve-month period ended December 31, 2003.

            3)    Income taxes increased $84,295, or 11.9%, for the twelve-month
                  period  ended   December  31,  2004,   when  compared  to  the
                  twelve-month period ended December 31, 2003.

      OPERATING REVENUES

      There was an increase in total  operating  revenues  for the  twelve-month
      period ended December 31, 2004, when compared to the  twelve-month  period
      ended  December 31, 2003,  of $509,749,  or 8.1%.  The segments  making up
      total operating revenues and their  contributions to the $509,749 increase
      between the two periods are as follows:  local exchange carrier services -
      $591,689;  broadcast  services - ($59,601);  and Internet service provider
      services - ($22,339).

      Local Exchange Carrier Services - $591,689

      Local  exchange  carrier  services  revenue  accounted  for  78.5%  of the
      operating revenue in the twelve-month  period ended December 31, 2004. The
      components of, and their  contributions to, the $591,689 increase in local
      exchange carrier services revenue for the twelve-months ended December 31,
      2004, when compared to the  twelve-months  ended December 31, 2003, are as
      follows:  local network  services - $134,720;  network  access  services -
      $480,170;  long  distance  services -  $130,405;  billing  and  collection
      services - ($3,771);  cellular services - ($108,196);  and miscellaneous -
      ($41,639).

      Local  network  services  increased  22.6%  and  network  access  services
      revenues  increased  20.1% in the  twelve-month  period ended December 31,
      2004,  when compared to the  twelve-month  period ended December 31, 2003.
      The  increase  in local  network  services  revenues  and a portion of the
      increase  in  network  access  services  revenues  were the  result of new
      customers in the Carroll, Iowa market area which were generated after BTC,
      Inc.,  began  offering local  exchange  carrier  services in October 2003.
      There was no corresponding  customer base for nine of the twelve months in
      the twelve-month period ended December 31, 2003. Also, the remaining three
      months of the  twelve-month  period ended December 31, 2003, would reflect
      customer   counts  not   comparable  to  the  last  three  months  of  the
      twelve-month  period  December 31, 2004,  because  customers were added as
      they were converted to Breda's service during this period.


                                       44
<PAGE>

      Breda  also  received  a  24-month  true-up  adjustment  in the  amount of
      $148,362  from the NECA pool for the time period April 2002 through  April
      2004,  which is reflected in the network  access  services  revenues.  The
      adjustment  was received in May 2004 after Breda  incorporated a line haul
      lease agreement that Breda had in place with another independent telephone
      provider during that time period.  Breda  continues to receive  additional
      monthly line haul compensation from the NECA pool of approximately  $6,000
      per  month  because  of  this  line  haul  lease  arrangement,  and  Breda
      anticipates continuing to receive these revenues on a going forward basis.

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

      Access  charges   constitute  a  substantial  part  of  Breda's,   Prairie
      Telephone's and Westside  Independent's  revenues,  and a material risk to
      them arises  from the  regulation  of access  charge  rates and  universal
      service funding by the FCC. As previously noted, Breda anticipates changes
      in state and federal  access charge rates,  and that  reductions in access
      charge rates may be likely. The universal service funds are also now being
      paid out to more telecommunication  providers,  and Breda anticipates that
      there may also be changes in the future on how universal service funds are
      disbursed.

      Breda's long distance  services  revenue  continues to grow because of the
      increase in its customer base for those services. Breda believes that long
      distance services should continue to be a growth area for Breda in 2005 as
      Breda  continues to market this service as both a stand-alone  service and
      as part of a package with other services, such as Internet services. There
      was  a  125.4%  increase  in  long  distance  services  revenues  for  the
      twelve-month  period  ended  December  31,  2004,  when  compared  to  the
      twelve-month  period ended  December  31,  2003.  The increase is a direct
      reflection of the 50.7%  increase in Breda's long distance  customer base,
      which has mainly  resulted  from new  customers in the Carroll,  Iowa area
      taking this service as part of a bundled  service  package which  includes
      local exchange service and Internet service provider services.

      The  $108,196,  or  8.4%,  decrease  in  cellular  sales  revenue  for the
      twelve-month  period  ended  December  31,  2004,  when  compared  to  the
      twelve-month  period ended December 31, 2003, reflects the decreased sales
      from all of Breda's  service  locations  for the twelve months ended 2004.
      Breda began offering two-year contracts, instead of one-year contracts, in
      August  2002,  when U.S.  Cellular  revamped its  commission  structure to
      encourage two-year contracts. Breda generates retention commissions when a
      customer  extends the term of the customer's  existing  cellular  services
      contract or enters into a new contract to continue the customer's cellular
      services. The


                                       45
<PAGE>

      customers with one-year  contracts  expiring in 2003 continued to generate
      retention  contracts,  but those contracts and other new contracts are now
      on a two-year term.  Breda has accordingly  experienced a time gap between
      when  customers  would  normally be  entering  new  contracts  if they had
      one-year contracts versus when they would enter into new contracts if they
      had two-year contracts. The change in contract length has therefore caused
      a delay in new contract sign-up for retentionable contracts. Customers may
      migrate to new contracts  without penalty once they have fulfilled  eighty
      percent of the original  contract term, so the first  customers  obtaining
      two-year  contracts in 2002 were eligible for new  contracts  beginning in
      May and June of 2004. Breda has seen some increase in retention  contracts
      during the months since May 2004, and expects its retention commissions to
      go back to more customary levels in the coming months. Breda has, however,
      also  experienced  some  saturation in its cellular  market and has seen a
      small decrease in first-time customer contracts.

      Other  factors  contributing  to the  decrease in cellular  sales  revenue
      during the  twelve-month  period ended December 31, 2004, when compared to
      the twelve-month period ended December 31, 2003, were the down time caused
      by the hiring and training of a new outside cellular sales person, and the
      change in focus to the new services  offered by BTC, Inc.'s entry into the
      local  exchange  services  market in Carroll,  Iowa by two  outside  sales
      people, who had originally spent their sales efforts on cellular services.

      Miscellaneous  revenue decreased  $41,639,  or 13.4%, for the twelve-month
      period ended December 31, 2004, when compared to the  twelve-month  period
      ended December 31, 2003.  Breda performed fiber  installation  contractual
      work for an  outside  corporation  in the  first  quarter  of 2003,  which
      generated   approximately   $50,000  in  miscellaneous   revenue,   before
      materials,  equipment and labor costs.  There was no corresponding work or
      revenue in the  twelve-month  period ended  December 31, 2004.  Breda also
      received  a Qwest  refund on  co-location  expenditures  of  approximately
      $28,229  during the second  quarter  of 2003.  There was no  corresponding
      entry in the  twelve-month  period ended  December  31,  2004.  Breda did,
      however,  generate  almost $15,000 of additional  revenue from the sale of
      key systems during the  twelve-month  period ended December 31, 2004, when
      compared to the  twelve-month  period ended December 31, 2003.  Breda also
      generated  more revenue from  miscellaneous  fiber lease rental during the
      twelve-month period ended December 31, 2004.

      Broadcast Services ($59,601)

      Broadcast   services  revenue   decreased   $59,601,   or  6.6%,  for  the
      twelve-month  period  ended  December  31,  2004,  when  compared  to  the
      twelve-month   period  ended  December  31,  2003.   Breda's   subsidiary,
      Tele-Services,   Ltd.,   continues  to  face  competition  from  satellite
      providers that can now include local channels in their package  offerings.
      Tele-Services  experienced  a 7.4%  decrease  in its  customer  base  when
      comparing  the  twelve-month  period  ended  December  31,  2004,  to  the
      twelve-month  period  ended  December 31,  2003.  Another  factor faced by
      Tele-Services  is


                                       46
<PAGE>

      the declining  population  base in the small rural  communities  served by
      Tele-Services,   which  adversely  affects   Tele-Services'   current  and
      prospective customer base.  Tele-Services has combined head-ends in Breda,
      Arcadia,  and  Westside  in order to reduce its  operating  costs  through
      consolidation of equipment and maintenance  costs.  Breda is continuing to
      explore other consolidation opportunities in the other 16 communities that
      are served by Tele-Services.

      Tele-Services  added  channels in the latter part of the first  quarter of
      2004  in 14 of  the 19  communities  that  are  served  by  Tele-Services.
      Tele-Services  finalized and implemented most of those channel  additions,
      and the corresponding rate increases, by July 1, 2004. Local channels have
      been  added in 6  additional  communities,  and  Breda  hopes to  generate
      customer  loyalty  through this avenue of information  on local  community
      events, as well as the weather, and local news. Breda is also implementing
      paid advertising opportunities for businesses and individuals on the local
      channels in the communities that have the local channels.

      Internet Services ($22,339)

      Internet services revenue decreased $22,339, or 3.6%, for the twelve-month
      period ended December 31, 2004, when compared to the  twelve-month  period
      ended  December 31, 2003.  The  decrease is directly  attributable  to the
      decrease in BTC,  Inc.'s Internet  dial-up  customer  service base,  which
      decrease is the result of the intense competition by multiple suppliers in
      the Carroll, Iowa market area. Breda began bundling Internet services with
      long  distance  services and lowered its pricing for Internet  services in
      2001 in response to competitive pressures.  Breda has continued with these
      programs in 2003 and 2004. The programs have, however, resulted in reduced
      Internet  revenues in both 2003 and 2004 given the lower  pricing by Breda
      for Internet  services under those programs.  Breda is gaining  high-speed
      Internet customers in the Carroll, Iowa area because BTC, Inc. is offering
      bundled services packages that include Internet services, as well as local
      telephone   and  other   communication   services.   While  new  customers
      subscribing  for those  bundled  services have helped stem the decrease in
      Internet   services  revenue  occurring  in  2004,  Breda  was  forced  by
      competitive  pressures  to reduce its  pricing on its high speed  Internet
      services  as of October  1, 2004.  This price  decrease  is  reflected  in
      Internet services revenue during the last quarter of 2004.

      OPERATING EXPENSES

      There was an increase in total  operating  expenses of $376,015,  or 6.8%,
      for the twelve-month  period ended December 31, 2004, when compared to the
      twelve-month  period ended  December 31, 2003.  The  components  making up
      operating  expenses  are as follows:  cost of services,  depreciation  and
      amortization, and selling, general and administration expenditures.


                                       47
<PAGE>

      Cost of services increased $340,762, or 12.8%, for the twelve-month period
      ended December 31, 2004,  when compared to the  twelve-month  period ended
      December  31,  2003.  The  major  components  of the  increase  in cost of
      services  resulted from increased  cable TV programming  costs of $22,782,
      decreased  Internet  provision  costs  of  $168,298,   increased  cellular
      services costs of $81,984,  increased long distance  provisioning costs of
      $104,704 and increased plant related costs of $299,590. Internet provision
      costs  decreased  because  Breda  is no  longer  dependent  on  purchasing
      specialized  circuits from Qwest in order to provide  Internet  service in
      the Carroll, Iowa market. As noted previously,  Breda began offering local
      exchange  carrier   services  in  the  Carroll,   Iowa  area  through  its
      subsidiary, BTC, Inc., in October 2003. In order to provide local exchange
      carrier  services  in the  Carroll,  Iowa  market,  Breda  had to  install
      circuits and trunks between the present independent local exchange carrier
      (Qwest) and Breda's switch.  Breda is able to provide  Internet service to
      the Carroll,  Iowa market over those same trunks,  which has significantly
      reduced Breda's underlying  circuit cost to provide Internet services.  As
      noted previously, Breda experienced a 125.4% increase in its long distance
      services  revenue  during the twelve month period ended December 31, 2004,
      when  compared to the twelve month period ended  December 31, 2003.  Since
      Breda is a reseller of long distance  services,  its corresponding cost of
      purchasing those services for resale directly  correlates to the increased
      customer  base and  usage  for  those  services.  Breda's  cellular  costs
      increased  because  of the  added  labor  and  benefit  costs  which  were
      associated   with  managing  and  selling  those   services.   Breda  also
      experienced  an increase in the average  cost of the phones  purchased  to
      provide  access to the new  features  rolled out by U.S.  Cellular  in the
      twelve-month  period ended  December 31, 2004.  Also included in increased
      plant  specific costs are one-time  installation  costs that Breda pays to
      Qwest for the  provisioning  of the underlying  loop so that BTC, Inc. can
      offer  competitive  local  telephone  service in the Carroll,  Iowa market
      area. These charges are paid to Qwest for each new customer that BTC, Inc.
      obtains. The cost of utilities, repairs and maintenance, payroll expenses,
      long  distance  costs,  cable TV  programming,  and key  system  costs all
      increased  to net  against  the  decrease  in  Internet  provision  costs,
      resulting  in an overall  $340,762  increase in cost of  services  for the
      twelve-month period ended December 31, 2004.

      Depreciation and amortization  expense decreased $33,491, or 3.2%, for the
      twelve-month  period  ended  December  31,  2004,  when  compared  to  the
      twelve-month period ended December 31, 2003. While depreciation  increased
      by  approximately  $37,180  because  of  capital  investments  in plant to
      provide the new service  offerings  in the Carroll,  Iowa market,  Breda's
      telephone  service plant in its older  exchanges are beginning to be fully
      depreciated  which resulted in an offsetting  decrease in depreciation and
      amortization expense of almost $75,000.  Investments in plant assets begun
      in  2004  will be  completed  in  2005,  and  will  result  in  additional
      depreciation expense during the 2005 year.


                                       48
<PAGE>

      Selling,  general and administration  expenses increased $68,744, or 3.8%,
      for the twelve-month  period ended December 31, 2004, when compared to the
      same twelve-month period in 2003.  Customer operations  increased $73,811,
      or 9.7%,  for the  twelve-month  period  ended  December  31,  2004,  when
      compared to the same  twelve-month  period in 2003.  These increased costs
      were mainly attributable to the increased labor, benefits, and advertising
      costs to service  customers  in BTC,  Inc.'s  roll-out of its  competitive
      local exchange services in the Carroll,  Iowa market.  Property taxes also
      increased $36,440, or 27.7%, in the twelve-month period ended December 31,
      2004,  when compared to the  twelve-month  period ended December 31, 2003.
      Corporate  operation costs decreased $41,507, or 4.5%, in the twelve-month
      period ended December 31, 2004, when compared to the  twelve-month  period
      ended  December 31,  2003,  and was  attributable  to a decrease in legal,
      accounting,  and  computer  leasing  fees,  and the  decrease in labor and
      benefit costs when the corporate department was short-staffed for a period
      of three months during 2004.

      OPERATING INCOME

      The net result of the  operating  revenue  and  operating  expenses  was a
      increase of $133,734,  or 18.7%, in operating  income for the twelve-month
      period ended  December 31, 2004,  when  compared to the same  twelve-month
      period in 2003.

      OTHER INCOME (EXPENSE)

      Other  income  (expense)   increased   $193,323,   or  16.3%,  during  the
      twelve-month  period ended  December 31, 2004,  when  compared to the same
      twelve-month period in 2003. The increase was mainly attributable to three
      items.  The first item is interest and dividend  income,  which  increased
      $111,420,  or 40.1%, when comparing the twelve-month period ended December
      31, 2004, to the twelve-month period ended December 31, 2003. The increase
      in interest and dividend  income was due to the increased  investments  in
      both  temporary  investments  and  marketable  securities  on which  Breda
      generates  interest income.  Breda also reported $52,336 of National Rural
      Telecommunications  Cooperative patronage capital as interest and dividend
      income during the  twelve-month  period ended December 31, 2004. There was
      no corresponding  entry during the twelve-month  period ended December 31,
      2003.

      The  second  item is  income  from  equity  investments,  which  increased
      $276,172,  or 26.6%,  during the  twelve-month  period ended  December 31,
      2004,  when compared to the same  twelve-month  period in 2003. The income
      from  equity  investments  reported  on Breda's  financial  statements  is
      Breda's  pro-rata  share  of the net  income  or net  loss of each  equity
      investment,  based on  Breda's  percentage  of  ownership  in each  equity
      investment.  The increase in equity investments reported on Breda's income
      statement  for  the  twelve-month  period  ended  December  31,  2004 is a
      reflection of the net increases and decreases in the net operating  income
      of Breda's equity  investments.  Most of Breda's equity investments are in
      cellular  partnerships.  The cellular


                                       49
<PAGE>

      partnerships  have been under market  pressure from carriers such as AT&T,
      Sprint and Verizon, to renegotiate their roaming contracts at lower rates.
      As  a  result,  the  cellular   partnerships   making  up  Breda's  equity
      investments are receiving less roaming revenue,  even though the number of
      customers and the minutes of use have increased.  Breda  anticipates  that
      these downward marketing  pressures on roaming rates will continue for the
      foreseeable future.

      The third item is a $172,974 loss on a note receivable, which was recorded
      during the  twelve-month  period ended  December  31, 2004,  and for which
      there was no  corresponding  loss  during the  twelve-month  period  ended
      December 31, 2003.  Breda determined that its investment in Desktop Media,
      LLC,  which is evidenced by a note  receivable on Breda's  balance  sheet,
      should be reviewed,  and Breda subsequently  recorded an allowance on this
      note receivable.  Breda determined that for financial  statement purposes,
      this allowance  would allow for a  conservative  estimate of the remaining
      collectible amount in default  proceedings.  Breda will attempt to recover
      all monies invested in Desktop Media, LLC through both the note receivable
      of $444,974 and the capital investment of $60,000.

      INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
      PRINCIPLE

      Income  before  income  taxes  increased  $327,057,   or  17.2%,  for  the
      twelve-month  period  ended  December  31,  2004,  when  compared  to  the
      twelve-month period ended December 31, 2003. The $327,057 increase was the
      result of a $133,734  increase in operating income and a $193,323 increase
      in other income (expense).

      INCOME TAXES

      Income taxes increased  $84,295,  or 11.9%,  for the  twelve-month  period
      ended  December 31, 2004,  when  compared to the same period in 2003.  The
      increase is a direct  reflection of the increased  income generated in the
      twelve-month  period ended  December 31, 2004.  The  effective tax rate in
      2004 was 35.7%,  versus 37.4% in 2003. The effective tax rate differs from
      the U.S.  statutory rate due to state income taxes,  and the proportion of
      investments with state tax exemptions.

      INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE

      The net income before cumulative effect of change in accounting principle,
      net of tax,  increased  $242,762,  or 20.4%, for the  twelve-month  period
      ended December 31, 2004,  when compared to the  twelve-month  period ended
      December 31, 2003.

      CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAX

      In March 2004, the Emerging Issues Task Force modified guidance related to
      accounting  for  investments  in  limited  liability   companies  with  an
      effective  date for


                                       50
<PAGE>

      periods beginning after June 15, 2004. Accordingly, January 1, 2004, Breda
      changed the method of  accounting  for its  investment  in Desktop  Media,
      L.L.C. from the cost method to the equity method.

      In  connection  with the change to the  equity  method,  Breda  recorded a
      cumulative  adjustment of ($60,000),  net of $21,407 tax,  reflecting  the
      prior years' proportionate share of income and losses.

      NET INCOME

      Net income increased $204,169, or 17.2%, for the twelve-month period ended
      December 31, 2004, when compared to the same period in 2003.

      Liquidity and Capital Resources at Twelve-months ended December 31, 2004

      Cash Flows

      Cash flows from  operations  continue  to be a steady  source of funds for
      Breda.  Cash provided from operations for the  twelve-month  periods ended
      December 31, 2004 and December 31, 2003, was, respectively, $2,223,960 and
      $2,414,760.  The cash flows from  operations for the  twelve-month  period
      ended  December  31, 2004 were  primarily  attributable  to a positive net
      income of $1,393,675, plus the addition of non-cash expenses of $1,628,397
      from depreciation,  amortization,  deferred income taxes,  amortization of
      investment tax credits,  note receivable  discount,  loss on impairment of
      note receivable,  and cumulative effect of accounting  change,  which were
      then offset by  $737,497  of  non-cash,  equity  income in  unconsolidated
      affiliates. The net increase in assets and liabilities of $60,615 was also
      subtracted  from net income to generate the net cash provided by operating
      activities of $2,223,960.

      The cash flows from operations for the twelve-month  period ended December
      31,  2003  were  primarily  attributable  to  a  positive  net  income  of
      $1,189,506,  plus the  addition of non-cash  expenses of  $1,382,873  from
      depreciation,   amortization,   deferred  income  taxes,  amortization  of
      investment tax credits,  and notes  receivable  discount,  which were then
      offset  by  $362,616  of  non-cash,   equity   income  in   unconsolidated
      affiliates.  The net  decrease in assets and  liabilities  of $204,997 was
      also added to generate the net cash  provided by operating  activities  of
      $2,414,760.

      Cash used in investing  activities  was  $1,987,889  for the  twelve-month
      period ended December 31, 2004, and $1,617,133 for the twelve-month period
      ended December 31, 2003. Capital expenditures relating to ongoing business
      were $585,873 for the  twelve-month  period ended  December 31, 2004,  and
      $1,008,124 for the twelve-month period ended December 31, 2003. A building
      was purchased for the relocation of Breda's and BTC, Inc.'s Carroll,  Iowa
      services and  operations  for  $246,000 in January  2003.  Breda  received
      $160,000 in February 2003, as an early payoff of a building  contract note
      receivable.  Capital  used in  investing  activities  in 2003  included an


                                       51
<PAGE>

      additional  $125,500  investment  in RSA #1, Ltd. by Prairie  Telephone in
      November  2003.  Breda  expects  capital   expenditures  for  non-building
      expenditures  in 2005 to be higher than those made in 2004  because  Breda
      has  determined  to  add  switching  capabilities  to  its  Carroll,  Iowa
      marketing area.

      Breda  advanced an additional  $45,307 on its notes  receivable to Desktop
      Media,  L.L.C.  during the  twelve-month  period ended  December 31, 2004.
      Breda also received payment on the outstanding  Desktop Media, L.L.C. note
      receivable of $52,333  during the  twelve-month  period ended December 31,
      2004.  Principal  payments on the Desktop Media L.L.C.  note receivable of
      $48,000 had also been made during the  twelve-month  period ended December
      31,  2003,  in  addition  to  the  $160,000  early  payoff  of a  contract
      receivable by the purchaser of Breda's former office building.

      Cash used in financing activities was $404,817 for the twelve-month period
      ended  December 31, 2004, and $624,811 for the  twelve-month  period ended
      December 31, 2003. During the twelve-month period ended December 31, 2004,
      cash was used to repay  $144,183 of  borrowings  from the RTFC,  to redeem
      common stock for  $166,155,  and to pay dividends to the  shareholders  of
      $94,479. Breda used cash in 2003 to repay $134,981 of RTFC long-term debt,
      to  redeem  common  stock  for  $391,394,  and  to  pay  dividends  to the
      shareholders of $98,436.  Breda funds the redemption of its stock from its
      cash flows from operations. Breda redeemed 524 shares and 1,306 shares in,
      respectively, 2004 and 2003.

      Working Capital

      Working  capital was  $1,641,455  as of  December  31,  2004,  compared to
      working  capital of  $1,839,172  as of  December  31,  2003.  The ratio of
      current  assets to current  liabilities  was 3.3 to 1.0 as of December 31,
      2004, and 4.0 to 1.0 as of December 31, 2003.

      Breda had a $115,828  decrease in current  assets during the  twelve-month
      period ended  December 31, 2004,  when compared to the year ended December
      31, 2003.  The  decrease in current  assets was mainly  attributable  to a
      $297,644 decrease in cash and temporary investments and a $92,494 increase
      in accounts receivable.  Cash was used to purchase $1,488,816 in long-term
      investments.  Customer  accounts  receivable  as of December 31, 2004 were
      comparable to customer  accounts  receivable as of December 31, 2003.  The
      $92,494  increase in accounts  receivable was mainly  attributable  to the
      increased  amounts owed to Breda and its subsidiaries  from  interexchange
      carriers  for the use of  Breda's  networks  to  carry  the  interexchange
      carrier  traffic to Breda's end users.  Almost half of the increase in the
      interexchange  carrier  receivable was attributable to one carrier,  AT&T,
      with whom Breda  continues to work with in an attempt to receive  payment.
      AT&T  initiated a billing  dispute and  requested  verification  of billed
      rates for Breda's  telephone  services which were provided in the Carroll,
      Iowa,  area since  October  2003.  Breda has proved that Breda


                                       52
<PAGE>

      billed AT&T  according to the tariffed  rates,  and Breda is continuing to
      dialogue  with AT&T to receive  payment on these  charges.  Other  current
      assets increased $32,101 during the twelve-month period ended December 31,
      2004,  when compared to the  twelve-month  period ended December 31, 2003.
      Other  current  assets are made up of prepaid  expenses  such as  computer
      maintenance  fees, and employee benefit premiums which are paid in advance
      for 2005,  in the latter part of 2004.  While the cash outlay  occurred in
      2004, the expense will be recorded in 2005.  Breda has determined to enter
      the satellite  Internet  business by offering the National Rural Telephone
      Coop product  called  Wildblue.  Breda has  recorded  the $18,000  service
      participation  fee, which was required for  participation  and paid on May
      20,  2004,  as an Other  Current  Asset  until such time as the program is
      launched in 2005.

      Noncurrent  assets,  which  mainly  consist  of  longer-term  investments,
      increased  $1,993,544  during the  twelve-month  period ended December 31,
      2004,  when compared to the  twelve-month  period ended December 31, 2003.
      Prairie Telephone loaned $500,000 to Desktop Media, L.L.C. on May 2, 2001,
      and  advanced an  additional  $45,307 on June 9, 2004 to fund  operational
      expenses until revenues were collected for services provided. This note is
      shown net of  unamortized  discounts of $6,423 and $16,866,  respectively,
      December 31, 2004 and December 31, 2003,  net of principal  repayments  of
      $52,333 and $48,000 respectively, December 31, 2004 and December 31, 2003,
      and net of an allowance  of $172,974 as of December 31, 2004.  $121,577 is
      included  in  long-term  note  receivables,  and  $144,000  is included in
      short-term  note  receivables  as of  December  31,  2004.  Breda's  other
      investments at cost decreased  $63,212 for the  twelve-month  period ended
      December 31, 2004, when compared to the twelve-month period ended December
      31, 2003, because Prairie Telephone's  investment in Desktop Media, L.L.C.
      is now reported  with the  investments  in  unconsolidated  affiliates  at
      equity instead of with the investments  reported at cost. On September 17,
      2003 Prairie  Telephone  had signed a principal  deferral  agreement  with
      Desktop Media,  L.L.C.  which  deferred the principal  payments due in the
      months of September  through  December  2003, and which also provided that
      Prairie Telephone's  ownership in Desktop Media, L.L.C. would be increased
      from 10% to 17% if at any time in the year 2004 Desktop Media,  L.L.C. was
      not able to generate a minimum  sustainable  monthly  profit of $36,000 or
      was unable to make a regularly scheduled principal payment.  Both of those
      stipulations  were  not met in the  first  quarter  of 2004,  and  Prairie
      Telephone  accordingly  acquired an  additional  7%  ownership  of Desktop
      Media, L.L.C.

      Investments in unconsolidated  affiliates at equity increased $737,497 for
      the  twelve-month  period ended  December 31, 2004,  when  compared to the
      twelve-month  period ended  December 31, 2003.  This  increase  represents
      Breda's  pro rata  share  of the net  income  or net  loss of each  equity
      investment,  based on  Breda's  percentage  of  ownership  in each  equity
      investment during the twelve-month period ended December 31, 2004.


                                       53
<PAGE>

      Current  liabilities  increased $81,889 for the twelve-month  period ended
      December 31, 2004, when compared to the twelve-month period ended December
      31, 2003.  Accounts payable  increased  $38,705,  and represented a timing
      difference from when invoices were received to when they were paid. Almost
      $22,000 of the accounts payable increase was for programming fees invoices
      which had not been  received in time to be paid before  December 31, 2004.
      Accrued taxes increased $92,377 for the twelve-month period ended December
      31, 2004,  when compared to the year ended December 31, 2003. The increase
      was caused by the  increase in accruals for federal and state income taxes
      as of December 31, 2004.

      Common stock had a net increase of $558,138 during the twelve-month period
      ended December 31, 2004,  when compared to the  twelve-month  period ended
      December 31, 2003. The net overall increase  resulted from the decrease in
      the number of  outstanding  shares through the redemption of 524 shares of
      common  stock  at an  aggregate  redemption  price  of  $166,155,  and the
      restatement  of the  outstanding  shares of stock on May 18, 2004 to a per
      share  price  of  $326,  or a total  adjustment  of  $724,293.  The  prior
      redemption  value had been $303 per share.  The  increase  of  $574,903 in
      retained earnings during the twelve-month  period ended December 31, 2004,
      when compared to the  twelve-month  period ended December 31, 2003, is the
      net  effect  of the  $94,479  in  dividends  paid on  April 1,  2004,  the
      year-to-date  net income as of December  31, 2004 of  $1,393,675,  and the
      $724,293 stated value stock  adjustment for the outstanding  shares on May
      18, 2004.

      Breda  anticipates  that  Breda's  operational,  investing  and  financing
      activities  will  continue  to mirror  the  activities  of 2004,  and that
      Breda's needs will be funded internally  through  operations and temporary
      investments.


                                       54
<PAGE>

Item 7. Financial Statements.

                           BREDA TELEPHONE CORPORATION
                                AND SUBSIDIARIES
                                   BREDA, IOWA

                        CONSOLIDATED FINANCIAL STATEMENTS
                     Years Ended December 31, 2004 and 2003


                                       55
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                                    Contents

                                                                            Page
                                                                            ----

Independent Auditors' Report                                                  57

Consolidated Financial Statements:

      Consolidated Balance Sheets                                        58 - 59

      Consolidated Statements of Income                                       60

      Consolidated Statements of Stockholders' Equity                         61

      Consolidated Statements of Cash Flows                              62 - 63

      Notes to Consolidated Financial Statements                         64 - 81


                                       56
<PAGE>

             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, 2004 and
2003, 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 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, 2004 and 2003, 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.


/s/ Kiesling Associates LLP
West Des Moines, Iowa
January 27, 2005


                                       57
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                           CONSOLIDATED BALANCE SHEETS
                           December 31, 2004 and 2003

<TABLE>
<CAPTION>
                                                              2004          2003
                                                           -----------   -----------
<S>                                                        <C>           <C>
                                     ASSETS

CURRENT ASSETS
     Cash and cash equivalents                             $ 1,036,804   $ 1,205,550
     Marketable securities                                     232,645       361,543
     Accounts receivable                                       656,036       563,542
     Interest receivable                                        65,210        52,742
     Current portion of note receivable                        144,000       144,000
     Inventory, at average cost                                103,617       108,007
     Other                                                      57,508        25,407
     Deferred income taxes                                      49,143            --
                                                           -----------   -----------
                                                             2,344,963     2,460,791
                                                           -----------   -----------

OTHER NONCURRENT ASSETS
     Marketable securities                                   5,417,170     3,928,354
     Investments in unconsolidated affiliates at equity      4,679,772     3,942,275
     Other investments at cost                                 793,935       857,147
     Goodwill                                                  896,812       896,812
     Note receivable, less allowance of $172,974 in 2004       121,577       291,134
                                                           -----------   -----------
                                                            11,909,266     9,915,722
                                                           -----------   -----------

PROPERTY, PLANT AND EQUIPMENT                                4,703,083     5,141,009
                                                           -----------   -----------

TOTAL ASSETS                                               $18,957,312   $17,517,522
                                                           ===========   ===========
</TABLE>

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


                                       58
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                           CONSOLIDATED BALANCE SHEETS
                           December 31, 2004 and 2003

<TABLE>
<CAPTION>
                                                                              2004          2003
                                                                           -----------   -----------
<S>                                                                        <C>           <C>
                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
     Current portion of long-term debt                                     $   154,013   $   144,183
     Accounts payable                                                          272,507       233,802
     Accrued taxes                                                             198,969       106,592
     Other                                                                      78,019       137,042
                                                                           -----------   -----------
                                                                               703,508       621,619
                                                                           -----------   -----------

LONG-TERM DEBT, less current portion                                         1,479,448     1,633,461
                                                                           -----------   -----------

DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES                              876,668       497,795
                                                                           -----------   -----------

STOCKHOLDERS' EQUITY
     Common stock - no par value, 5,000,000 shares authorized, 31,170
        and 31,694 shares issued and outstanding at $326 and $303 stated
        values, respectively                                                10,161,420     9,603,282
     Retained earnings                                                       5,736,268     5,161,365
                                                                           -----------   -----------
                                                                            15,897,688    14,764,647
                                                                           -----------   -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                 $18,957,312   $17,517,522
                                                                           ===========   ===========
</TABLE>

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


                                       59
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                        CONSOLIDATED STATEMENTS OF INCOME
                     Years Ended December 31, 2004 and 2003

                                                         2004           2003
                                                     -----------    -----------

OPERATING REVENUES                                   $ 6,774,357    $ 6,264,608
                                                     -----------    -----------

OPERATING EXPENSES
     Cost of services                                  3,012,257      2,671,495
     Depreciation and amortization                     1,023,799      1,057,290
     Selling, general, and administrative              1,890,344      1,821,600
                                                     -----------    -----------
                                                       5,926,400      5,550,385
                                                     -----------    -----------

OPERATING INCOME                                         847,957        714,223
                                                     -----------    -----------

OTHER INCOME (EXPENSES)
     Interest and dividend income                        389,110        277,690
     Interest expense                                   (126,737)      (136,909)
     Income from equity investments                    1,315,574      1,039,402
     Loss on note receivable                            (172,974)            --
     Other, net                                          (26,179)         5,288
                                                     -----------    -----------
                                                       1,378,794      1,185,471
                                                     -----------    -----------

INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT
   OF CHANGE IN ACCOUNTING PRINCIPLE                   2,226,751      1,899,694
                                                     -----------    -----------

INCOME TAXES                                             794,483        710,188
                                                     -----------    -----------

INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
   ACCOUNTING PRINCIPLE                                1,432,268      1,189,506
                                                     -----------    -----------

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
   PRINCIPLE, NET OF TAX                                 (38,593)            --
                                                     -----------    -----------

NET INCOME                                           $ 1,393,675    $ 1,189,506
                                                     ===========    ===========

INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
   ACCOUNTING PRINCIPLE PER COMMON SHARE             $     45.70    $     36.89

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
   PRINCIPLE, NET OF TAX                                   (1.23)            --
                                                     -----------    -----------

NET INCOME PER COMMON SHARE                          $     44.47    $     36.89
                                                     ===========    ===========

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


                                       60
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                           December 31, 2004 and 2003

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

  Comprehensive income:

     Net income                                                  1,189,506      1,189,506

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

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

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

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

  Comprehensive income:

     Net income                                                  1,393,675      1,393,675

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

  Common stock redeemed, net             (524)     (166,155)                     (166,155)

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

Balance at December 31, 2004           31,170   $10,161,420    $ 5,736,268    $15,897,688
                                  ===========   ===========    ===========    ===========
</TABLE>

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


                                       61
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     Years Ended December 31, 2004 and 2003

<TABLE>
<CAPTION>
                                                                               2004           2003
                                                                           -----------    -----------
<S>                                                                        <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net income                                                            $ 1,393,675    $ 1,189,506
     Adjustments to reconcile net income
       to net cash provided by operating activities:
        Cumulative effect of change in accounting principle                     60,000             --
        Depreciation and amortization                                        1,023,799      1,057,290
        Deferred income taxes                                                  391,836        349,694
        Amortization of investment tax credits                                  (9,769)        (9,769)
        Equity income in unconsolidated affiliates, net of distributions
          received of $578,077 and $676,786 in 2004 and 2003,
          respectively                                                        (737,497)      (362,616)
        Note receivable discount                                               (10,443)       (14,342)
        Loss on impairment of note receivable                                  172,974             --
     Changes in assets and liabilities:
        (Increase) Decrease in:
            Receivables                                                       (104,962)       287,437
            Prepayments                                                        (32,102)        61,174
            Inventory                                                            4,390        (16,893)
        Increase (Decrease) in:
            Accounts payable                                                    38,705        (29,077)
            Accrued taxes                                                       92,377        (60,152)
            Other                                                              (59,023)       (37,492)
                                                                           -----------    -----------
        Net cash provided by operating activities                            2,223,960      2,414,760
                                                                           -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES
     Capital expenditures                                                     (585,873)    (1,008,124)
     Purchase of investments                                                (2,161,504)    (1,747,160)
     Purchase of equity investments                                                 --       (125,500)
     Purchase of other investments - at cost                                    (3,537)        (3,566)
     Issuance of notes receivable                                              (45,307)            --
     Proceeds from the sale of investments                                     749,250      1,052,898
     Proceeds from the sale of other investments - at cost                       6,749          6,319
     Collections of note receivable                                             52,333        208,000
                                                                           -----------    -----------
        Net cash used in investing activities                               (1,987,889)    (1,617,133)
                                                                           -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
     Repayment of long term debt                                              (144,183)      (134,981)
     Common stock redeemed, net                                               (166,155)      (391,394)
     Dividends paid                                                            (94,479)       (98,436)
                                                                           -----------    -----------
        Net cash used in financing activities                              $  (404,817)   $  (624,811)
                                                                           -----------    -----------
</TABLE>

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


                                       62
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     Years Ended December 31, 2004 and 2003

                                                          2004          2003
                                                       ----------    ----------

Net Increase (Decrease) in Cash and Cash Equivalents   $ (168,746)   $  172,816

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

Cash and Cash Equivalents at End of Year               $1,036,804    $1,205,550
                                                       ==========    ==========

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


                                       63
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

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,  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  Company,  Inc.,
      Tele-Services,  Ltd.,  and Westside  Independent  Telephone  Company.  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.


                                       64
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

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 FIFO 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.


                                       65
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

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  undiscounted  cash flows
      estimated  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,  partnership
      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.

      Investment tax credits (ITC),  which were deferred prior to the Tax Reform
      Act of 1986, are being  amortized  over the  regulatory  life of the plant
      which produced the ITC.

      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 the customer signs up for service.


                                       66
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

      Reclassifications

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

NOTE 2. MARKETABLE SECURITIES

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

<TABLE>
<CAPTION>
                                                                       Gross           Gross
                                      Amortized     Unrealized       Unrealized        Fair
                                         Cost          Gains           Losses          Value
                                     -----------    -----------     -----------     -----------
<S>                                  <C>            <C>             <C>             <C>
               December 31, 2004

      Held-to-Maturity:
            Municipal bonds          $ 5,451,900    $    84,889     $   (33,005)    $ 5,503,784
            Government securities        197,915            394          (3,110)        195,199
                                     -----------    -----------     -----------     -----------
                                     $ 5,649,815    $    85,283     $   (36,115)    $ 5,698,983
                                     ===========    ===========     ===========     ===========

               December 31, 2003

      Held-to-Maturity:
            Municipal bonds          $ 4,070,876    $   127,532     $   (34,429)    $ 4,163,979
            Government securities        219,021             --          (3,830)        215,191
                                     -----------    -----------     -----------     -----------
                                     $ 4,289,897    $   127,532     $   (38,259)    $ 4,379,170
                                     ===========    ===========     ===========     ===========

<CAPTION>
                                         2004           2003
                                     -----------    -----------
<S>                                  <C>            <C>
      Amounts classified as:
            Current                  $   232,645    $   361,543
            Noncurrent                 5,417,170      3,928,354
                                     -----------    -----------
               Total                 $ 5,649,815    $ 4,289,897
                                     ===========    ===========
</TABLE>


                                       67
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

NOTE 2. MARKETABLE SECURITIES (Continued)

      The  amortized  cost  and fair  value of  marketable  debt  securities  at
      December  31, 2004,  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.

                                                Amortized Cost  Fair Value
                                                --------------  ----------

      Due in one year or less                     $  232,645    $  234,743
      Due after one year through three years       1,541,591     1,565,335
      Due after three years through five years       909,062       930,168
      Due after five years                         2,966,517     2,968,737
                                                  ----------    ----------
                                                  $5,649,815    $5,698,983
                                                  ==========    ==========

NOTE 3. NOTE RECEIVABLE

      Note receivable consists of the following:

                                                    2004            2003
                                                 ---------       ---------

      Desktop Media, L.L.C. - 5.25%              $ 438,551       $ 435,134
      Allowance                                   (172,974)             --
                                                 ---------       ---------
                                                   265,577         435,134
            Less current portion                   144,000         144,000
                                                 ---------       ---------
                                                 $ 121,577       $ 291,134
                                                 =========       =========

      The note with Desktop Media, L.L.C.,  (Desktop) had an original balance of
      $500,000 and matures 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
      unamortized discounts of $6,423 and $16,866 at December 31, 2004 and 2003,
      respectively.  Principal  payments of $12,000  plus  interest  are due the
      first of each  month  beginning  May of 2003 and  shall be 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 an allowance  on the note  receivable  due to the
      fact that it has not received the  scheduled  monthly  principal  payments
      required by the note agreement.  Desktop has not generated sufficient cash
      flows to be able to make the required principal payments.  The Company has
      recorded  this  allowance  based on its  estimate  of amounts  that it may
      possibly be unable to collect on this note receivable.

      During 2004,  the Company  advanced an  additional  $45,307 to Desktop and
      received collections of $52,333.


                                       68
<PAGE>


                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

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:

                                                   2004            2003
                                                ----------      ----------

      Alpine Communications, L.C                $1,596,610      $1,300,446
      West Iowa Cellular, Inc.                     903,684         704,972
      RSA #1, Ltd.                                 990,394         836,306
      RSA #7, Ltd.                                 295,099         275,062
      RSA #9, Ltd                                  786,056         704,737
      Quad County Communications                    73,607          86,350
      Carroll County Wireless, L.L.C                25,193          25,273
      Guthrie Group, L.L.C                           9,129           9,129
                                                ----------      ----------
                                                $4,679,772      $3,942,275
                                                ==========      ==========

      The Company has a 17.42% ownership interest in Alpine Communications, L.C.
      (Alpine) at December 31, 2004 and 2003.  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 September 30, 2004 and 2003 and the
      twelve months then ended.

                                           2004              2003
                                       -----------       -----------

            Assets                     $18,866,021       $18,293,619
            Liabilities                 10,652,925        11,771,548
                                       -----------       -----------
            Equity                     $ 8,213,096       $ 6,522,071
                                       ===========       ===========

            Revenues                   $ 7,439,098       $ 7,206,047
            Expenses                     5,148,073         6,133,493
                                       -----------       -----------
            Net Income                 $ 2,291,025       $ 1,072,554
                                       ===========       ===========

      The Company's percentage ownership interests in West Iowa Cellular,  Inc.,
      RSA #1, Ltd.,  RSA #7, Ltd.,  and RSA #9, Ltd.  are 25%,  10.3%,  7.1% and
      16.7%,  respectively,  at  December  31,  2004  and  2003.  All  of  these
      partnerships  provide cellular  telephone services within their respective
      rural service areas.


                                       69
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

NOTE 4. OTHER INVESTMENTS (Continued)

      The following is a summary of condensed financial  information  pertaining
      to the companies described above as of September 30, 2004 and 2003 and the
      twelve months then ended.

            2004
                            West Iowa
                         Cellular, Inc.     RSA #1        RSA #7        RSA #9
                         --------------  -----------   -----------   -----------
            Assets         $ 3,876,815   $11,142,981   $ 7,994,111   $ 5,966,686
            Liabilities        262,082     2,423,724     3,251,422     1,250,446
                           -----------   -----------   -----------   -----------
            Equity         $ 3,614,733   $ 8,719,257   $ 4,742,689   $ 4,716,240
                           ===========   ===========   ===========   ===========

            Revenues       $ 1,407,450   $ 6,652,260   $11,920,318   $ 9,727,747
            Expenses           612,604     5,415,231     9,213,821     7,873,008
                           -----------   -----------   -----------   -----------
            Net Income     $   794,846   $ 1,237,029   $ 2,706,497   $ 1,854,739
                           ===========   ===========   ===========   ===========

            2003
                            West Iowa
                         Cellular, Inc.     RSA #1        RSA #7        RSA #9
                         --------------  -----------   -----------   -----------
            Assets         $ 2,526,844   $12,455,479   $ 7,877,097   $ 5,641,403
            Liabilities        201,742     2,478,047     3,333,830       913,065
                           -----------   -----------   -----------   -----------
            Equity         $ 2,325,102   $ 9,977,432   $ 4,543,267   $ 4,728,338
                           ===========   ===========   ===========   ===========

            Revenues       $ 1,943,467   $ 8,134,324   $10,501,008   $ 8,638,319
            Expenses         1,771,848     3,057,513     8,210,286     7,522,836
                           -----------   -----------   -----------   -----------
            Net Income     $   171,619   $ 5,076,811   $ 2,290,722   $ 1,115,483
                           ===========   ===========   ===========   ===========

      Additionally,  the Company has a 17%  ownership in Desktop at December 31,
      2004 and a 10% ownership at December 31, 2003.  The  ownership  percentage
      increased  due to Desktop  being unable to meet the covenant  requirements
      outlined  in  the  principal  deferral  agreement.   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 has been eliminated at December 31, 2004.


                                       70
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

NOTE 4. OTHER INVESTMENTS (Continued)

      The following is a summary of condensed financial  information  pertaining
      to the  company  described  above as of  December  31, 2004 and the twelve
      months then ended.

                                                            2004
                                                        -----------

            Assets                                      $   821,038
            Liabilities                                   1,881,144
                                                        -----------
            Equity                                      $(1,060,106)
                                                        ===========

            Revenues                                    $ 2,244,734
            Expenses                                      2,254,831
                                                        -----------
            Net Loss                                    $   (10,097)
                                                        ===========

      Additionally,  the Company has a 33.33% ownership  interest in Quad County
      Communications  (Quad  County) at December 31, 2004 and 2003.  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, 2004 and 2003 and the
      twelve months then ended.

                                            2004             2003
                                         ---------        ---------

            Assets                       $ 228,123        $ 266,352
            Liabilities                      7,302            7,302
                                         ---------        ---------
            Equity                       $ 220,821        $ 259,050
                                         =========        =========

            Revenues                     $  20,762        $  21,547
            Expenses                        58,991           58,710
                                         ---------        ---------
            Net Loss                     $ (38,229)       $ (37,163)
                                         =========        =========

      The Company's percentage interests in Carroll County Wireless,  L.L.C. and
      Guthrie Group,  L.L.C. are 33.33% and 25%,  respectively,  at December 31,
      2004 and 2003.  Both  companies  have  purchased  the  licenses to provide
      personal communication services (PCS); however,  neither company has begun
      providing  PCS services as of December 31, 2004.  The  operations of these
      entities are immaterial to the consolidated financial statements.

      Investments 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.


                                       71
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

NOTE 4. OTHER INVESTMENTS (Continued)

      LONG-TERM INVESTMENTS AT COST

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

                                                             2004       2003
                                                           --------   --------

      NECA Services, Inc. - stock                          $300,000   $300,000
      Rural Telephone Finance Cooperative - certificates    186,062    189,317
      Rural Telephone Bank - stock                          165,789    165,789
      Iowa Network Services - stock                          78,705     78,705
      Desktop Media, L.L.C                                       --     60,000
      NRTC Patronage Capital - certificates                  52,379     52,336
      Other                                                  11,000     11,000
                                                           --------   --------
                                                           $793,935   $857,147
                                                           ========   ========

NOTE 5. GOODWILL

      Goodwill consists of the following:

                                                     2004           2003
                                                   --------       --------

      Balance, Beginning of Year                   $896,812       $896,812
          Goodwill acquired                              --             --
          Goodwill impairment                            --             --
                                                   --------       --------
      Balance, End of Year                         $896,812       $896,812
                                                   ========       ========

      The Company  annually  accesses  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, 2004 and
      2003.


                                       72
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

NOTE 6. PROPERTY, PLANT AND EQUIPMENT

      Property, plant and equipment includes the following:

                                                         2004          2003
                                                     -----------   -----------
      Telephone plant in service:
           Land                                      $    41,508   $    41,508
           Buildings                                   1,585,126     1,580,697
           Other general support assets                1,623,841     1,571,269
           Central office assets                       2,842,957     2,618,151
           Cable and wire facilities                   4,666,076     4,452,624
           Other plant and equipment                     872,009       838,091
                                                     -----------   -----------
                                                      11,631,517    11,102,340
                                                     -----------   -----------

      Cable television plant in service:
           Land                                            6,086         6,086
           Buildings                                     127,937       127,937
           Other plant and equipment                     156,799       180,098
           Towers, antennas and head end equipment     1,583,090     1,516,105
           Cable and wire facilities                   1,597,823     1,573,524
           Franchises                                     32,992        32,992
                                                     -----------   -----------
                                                       3,504,727     3,436,742
                                                     -----------   -----------

           Total property, plant and equipment        15,136,244    14,539,082
           Less accumulated depreciation              10,433,161     9,468,930
                                                     -----------   -----------
                                                       4,703,083     5,070,152
           Plant under construction                           --        70,857
                                                     -----------   -----------
                                                     $ 4,703,083   $ 5,141,009
                                                     ===========   ===========

      Telephone  cable and wire facilities of  approximately  $675,000 and cable
      television  head  end  equipment  of  approximately   $500,000  was  fully
      depreciated  in 2004.  Depreciation  on depreciable  property  resulted in
      composite rates of 7.2% and 7.5% for 2004 and 2003, respectively.


                                       73
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

NOTE 7. INCOME TAXES

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

                                                      2004         2003
                                                   ----------------------
      Federal income taxes:
          Current tax expense                      $ 323,950    $ 238,562
          Deferred tax expense                       299,445      264,048
          Amortization of investment tax credits      (9,769)      (9,769)
      State income taxes:
          Current tax expense                         88,466      131,701
          Deferred tax expense                        92,391       85,646
                                                   ---------    ---------
      Total income tax expense                     $ 794,483    $ 710,188
                                                   =========    =========

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

                                                      2004         2003
                                                   ----------------------
      Deferred Tax Liabilities
          Federal                                  $ 758,905    $ 426,338
          State                                      227,196      139,907
                                                   ---------    ---------
              Total Deferred Tax Liabilities         986,101      566,245
                                                   ---------    ---------

      Deferred Tax Assets
          Federal                                   (123,446)     (90,324)
          State                                      (39,831)     (44,934)
                                                   ---------    ---------
              Total Deferred Tax Assets             (163,277)    (135,258)
                                                   ---------    ---------

          Net Deferred Tax Liabilities             $ 822,824    $ 430,987
                                                   =========    =========

      Current Portion                              $ (49,143)   $      --
      Long-term Portion                              871,967      430,987
                                                   ---------    ---------
          Net Deferred Tax Liabilities             $ 822,824    $ 430,987
                                                   =========    =========

      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 and the amortization of investment tax credits.

      Cash paid for income  taxes and  estimated  income taxes for 2004 and 2003
      totaled $310,000 and $425,260, respectively.


                                       74
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

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:

                                                          2004      2003
                                                         -----     -----

      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)%    (0.1)%
      Dividends received deduction                        (1.5)%    (1.4)%
      Tax exempt interest                                 (5.0)%    (3.7)%
      Other                                               (1.7)%    (1.5)%
                                                         -----     -----
           Effective income tax rate                      35.8%     37.4%
                                                         =====     =====

      The Company files  consolidated tax returns including their  subsidiaries,
      Prairie Telephone Company,  Inc., Westside  Independent  Telephone Company
      and Tele-Services, Ltd.

NOTE 8. LONG-TERM DEBT

      Long-term debt consists of:

                                                     2004          2003
                                                  ----------    ----------
      Rural Telephone Finance Cooperative
         7.35% (Fixed Rate)                       $1,633,461    $1,777,644
           Less current portion                      154,013       144,183
                                                  ----------    ----------
                                                  $1,479,448    $1,633,461
                                                  ==========    ==========

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

                            2005                         $154,013
                            2006                          164,513
                            2007                          175,729
                            2008                          187,710
                            2009                          200,507

      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.


                                       75
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

NOTE 8. LONG-TERM DEBT (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  December 1, 2005 at a rate of
      6.4% at  December  31,  2004.  No funds  were  advanced  under the line at
      December 31, 2004.

      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, 2005 at a
      rate of 6.4% at December 31, 2004. No funds were  advanced  under the line
      at December 31, 2004.

      Cash  paid  for  interest  net of  amounts  capitalized  for 2004 and 2003
      totaled $126,737 and $136,909, 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.


                                       76
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

NOTE 9. OPERATING SEGMENTS INFORMATION (Continued)

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

<TABLE>
<CAPTION>
                                              Local                            Internet
                                             Exchange                           Service
                    2004                     Carrier         Broadcast          Provider           Other            Total
      -------------------------------      -----------      -----------       -----------       -----------      -----------
<S>                                        <C>              <C>               <C>               <C>              <C>
      Revenues and sales                   $ 5,320,184      $   849,691       $   604,482       $        --      $ 6,774,357
      Intersegment income and sales                 --               --                --                --               --
      Interest income                          381,895            7,057               158                --          389,110
      Interest expense                         126,737               --                --                --          126,737
      Depreciation and amortization            690,546          254,777            78,476                --        1,023,799
      Income tax expense (benefit)             943,381         (139,049)           (9,849)               --          794,483
      Segment profit (loss)                  1,610,939         (208,573)           (8,691)               --        1,393,675
      Segment assets                        16,391,555        1,063,416         1,502,341                --       18,957,312
      Expenditures for segment assets          360,566           97,231           128,076                --          585,873

                    2003
      -------------------------------

      Revenues and sales                   $ 4,728,495      $   909,292       $   626,821       $        --      $ 6,264,608
      Intersegment income and sales                 --               --                --                --               --
      Interest income                          273,485            4,052               152                --          277,689
      Interest expense                         136,909               --                --                --          136,909
      Depreciation and amortization            680,483          257,039           119,768                --        1,057,290
      Income tax expense (benefit)             919,171         (100,238)         (108,745)               --          710,188
      Segment profit (loss)                  1,490,238         (144,246)         (156,486)               --        1,189,506
      Segment assets                        14,882,852        1,267,811         1,366,859                --       17,517,522
      Expenditures for segment assets          325,645           30,828           651,651                --        1,008,124
</TABLE>


                                       77
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

NOTE 9. OPERATING SEGMENTS INFORMATION (Continued)

      Reconciliation of Segment Information

                                                          2004           2003
      -------------------------------------------     -----------    -----------

      REVENUES:
           Total revenues for reportable segments     $ 6,774,357    $ 6,264,608
           Other revenues                                      --             --
                                                      -----------    -----------
               Consolidated Revenues                  $ 6,774,357    $ 6,264,608
                                                      ===========    ===========

      PROFIT:
           Total profit for reportable segments       $ 1,393,675    $ 1,189,506
           Other profit (loss)                                 --             --
                                                      -----------    -----------
               Net Income                             $ 1,393,675    $ 1,189,506
                                                      ===========    ===========
      ASSETS:
           Total assets for reportable segments       $18,957,312    $17,517,522
           Other assets                                        --             --
           Elimination of intercompany receivables             --             --
                                                      -----------    -----------
               Consolidated Assets                    $18,957,312    $17,517,522
                                                      ===========    ===========

NOTE 10. NET INCOME PER COMMON SHARE

      Net income per common share for 2004 and 2003 was computed by dividing the
      weighted average number of shares of common stock outstanding into the net
      income.  The weighted average number of shares of common stock outstanding
      for the years  ended  December  31,  2004 and 2003 were 31,337 and 32,241,
      respectively.

NOTE 11. STOCK VALUE ADJUSTMENT

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

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


                                       78
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

NOTE 12. STOCK RESTRICTIONS

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

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

      o     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.

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

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

      o     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 Breda Telephone Corporation's telephone services.

      o     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  programs are with the National  Telephone
      Cooperative  Association  (NTCA) and have been  approved  by the  Internal
      Revenue Service.  Pension costs expensed and capitalized for 2004 and 2003
      were  $136,127  and  $92,016,   respectively.  The  Company  makes  annual
      contributions to the plan equal to amounts accrued for pension expense.


                                       79
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

NOTE 14. ASSET RETIREMENT OBLIGATION

      Statement of Financial  Accounting  Standards (SFAS) No. 143,  "Accounting
      for Asset Retirement  Obligations,"  requires  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-lived  assets and accordingly,  there have been no liabilities
      recorded for the years ended December 31, 2004 and 2003.

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, 2004 and 2003 were approximately $936,000
      and $1,018,000,  respectively. At December 31, 2004 and 2003, $120,301 and
      $102,754 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 42% of its 2004  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.


                                       80
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

NOTE 17. CHANGE IN ACCOUNTING PRINCIPLE

      In March 2004,  the Emerging  Issues Task Force (EITF)  modified  guidance
      related to accounting for investments in limited liability  companies with
      an effective date for periods beginning after June 15, 2004.  Accordingly,
      July 1,  2004,  the  Company  changed  the  method of  accounting  for its
      investment in Desktop from the cost method to the equity method.

      In connection with the change to the equity method, the Company recorded a
      cumulative  adjustment  that  reduced  net  income  by  $38,593,  which is
      presented net of income taxes of $21,407.  This  represents  the Company's
      proportionate share of losses in Desktop through June 30, 2004.

               [THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK]


                                       81
<PAGE>

Item  8. Changes  In and  Disagreements  With  Accountants  on  Accounting   and
         Financial Disclosure.

      Breda has not had any change in its  accountants  during  Breda's two most
      recent fiscal years, or any disagreements with its accountants during that
      period which are of the type required to be disclosed under this Item.

Item 8A. Controls and Procedures.

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

      No change in Breda's  internal control over financial  reporting  occurred
      during Breda's fourth fiscal quarter of 2004 that has materially affected,
      or is reasonably  likely to materially  affect,  Breda's  internal control
      over financial reporting.

Item 8B. Other Information.

      Breda did not have any information which was required to be disclosed in a
      report on Form 8-K during Breda's fourth fiscal quarter of 2004.

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons.

      Directors and Officers.

      The directors and executive officers of Breda are as follows:

            Name                       Age                    Position(s)
            ----                       ---                    -----------

      Clifford Neumayer                56                     President and
                                                              Director

      Dean Schettler                   52                     Vice-President and
                                                              Director

      Dave Grabner                     56                     Director and
                                                              Treasurer

      Charles Thatcher                 53                     Director

      Rick Anthofer                    48                     Director

      John Wenck                       66                     Director and
                                                              Secretary

      Neil Kanne                       58                     Director


                                       82
<PAGE>

      Clifford  Neumayer  has been a director of Breda since  April,  1996.  His
      current  term as a director  will end at the annual  shareholders  meeting
      which will be held in 2005. He has also been a director of each of Breda's
      subsidiaries  since April,  1996. Mr. Neumayer was the  Vice-President  of
      Breda and each of Breda's  subsidiaries  from May 7, 1996  through June 9,
      2003,  and he has  been  the  President  of  Breda  and  each  of  Breda's
      subsidiaries  since June 9, 2003. Mr. Neumayer has been self employed as a
      farmer since 1970.

      Dean Schettler has been a director of Breda since April, 1997. His current
      term as a director  will end at the annual  shareholders  meeting which is
      held in 2006. He has also been a director of each of Breda's  subsidiaries
      since April,  1997.  Mr.  Schettler was the President of Breda and each of
      Breda's  subsidiaries  from May 11, 1998 through June 9, 2003,  and he has
      been the  Vice-President of Breda and each of Breda's  subsidiaries  since
      June 9, 2003. Mr. Schettler has been employed by Pella Corporation, Pella,
      Iowa, since August,  1986. He was a moulder technician until August, 1997.
      Since that time he has been a production coordinator. Pella Corporation is
      a window and door manufacturer.

      Dave  Grabner  has been a director  of Breda since  April,  1999,  and the
      Treasurer  of Breda since June,  2001.  His current  term as a director of
      Breda will end at the annual  shareholders  meeting  which will be held in
      2005.  He has also been a director of each of Breda's  subsidiaries  since
      April, 1999, and the Treasurer of each of Breda's subsidiaries since June,
      2001.  Mr.  Grabner  has  been   self-employed   as  an  electrician   for
      approximately 34 years. He was also previously self-employed as a farmer.

      Charles (Chuck)  Thatcher has been a director of Breda since May, 2001. He
      was  re-elected  as a director at the May 18,  2004 annual  meeting of the
      shareholders,  and his current term as a director of Breda will end at the
      annual shareholders meeting which will be held in 2007. He has also served
      as a  director  of each of  Breda's  subsidiaries  since  May,  2001.  Mr.
      Thatcher  has been an owner of  Midwest  Wholesale  Building  Products  in
      Carroll,  Iowa for  approximately  the last 20  years.  Midwest  Wholesale
      Building Products is a  wholesaler/retailer  of lumber,  building products
      and materials.

      Rick Anthofer was elected as a director of Breda by the board of directors
      at its August 12, 2003  meeting to fill the vacancy  that had been created
      by the death of Roger Nieland, with Mr. Anthofer to serve until the annual
      shareholders  meeting which would be held in 2004.  Mr.  Anthofer was also
      elected as a director of each of Breda's subsidiaries in August, 2003.


                                       83
<PAGE>

      Mr.  Anthofer  was elected to serve the  remaining  two years of the three
      year term of Mr. Nieland at the annual meeting of the  shareholders  which
      was  held on May 18,  2004,  and his  term as a  director  will end at the
      annual meeting of the shareholders which is held in 2006. Mr. Anthofer has
      been  the vice  president  of  Breda  Savings  Bank,  Breda,  Iowa,  since
      approximately  September 15, 1999. He was an  agricultural  and commercial
      loan officer and an assistant  vice president at Carroll County State Bank
      in Carroll, Iowa, for approximately thirteen years prior to that time. Mr.
      Anthofer  has also been a member of the  Breda,  Iowa City  Council  since
      1988. Mr.  Anthofer had been a nominee for election as a director of Breda
      in 2001.

      John Wenck has been a director of Breda since April, 1997, and his current
      term as a director  of Breda will end at the annual  shareholders  meeting
      which is held in 2006. He has also served as a director of each of Breda's
      subsidiaries  since May,  1997.  Mr. Wenck has been the Secretary of Breda
      and each of Breda's  subsidiaries  since June 2004. Mr. Wenck is currently
      self-employed as a farmer.  He was also previously  employed by the United
      Parcel Service as a delivery driver.

      Neil Kanne was  elected as a  director  of Breda at the annual  meeting of
      Breda's  shareholders  which was held on May 18,  2004,  and his term as a
      director will end at the annual shareholders meeting which will be held in
      2007. Mr. Kanne also became a director of each of Breda's  subsidiaries in
      May, 2004. Mr. Kanne has been  self-employed as a farmer for approximately
      the last 34 years.

      The number of  directors  for Breda is currently  fixed at seven.  Each of
      Breda's  directors  is  elected  to a three year term and until his or her
      successor is elected.  The terms of the directors are  staggered,  so that
      three of the  directors'  terms  expire in one year,  two  expire the next
      year, and two expire the following  year. If a person has served for three
      consecutive terms as a director,  that person must be off the board for at
      least one year before the person can again be elected as a director.  Each
      director of Breda must also be a shareholder of Breda, and a director will
      automatically  cease to be a director if he or she sells or transfers  all
      of his or her shares of common stock in Breda.  Each director must also be
      at least 18 years of age.

      The  officers of Breda are elected  annually by the board of  directors at
      its annual  organization  meeting,  and hold office  until the next annual
      organization  meeting of the board of directors and until their respective
      successors  are  chosen.  The  annual  organization  meeting  is the first
      regularly  scheduled  meeting of the board of directors  which follows the
      annual  shareholders  meeting.  Any officer may be removed by the board of
      directors at any time, with or without cause.  Each officer must also be a
      director and a shareholder of Breda.

      Breda  believes  that  two of its  employees  have  been  making  and will
      continue  to  make  a  significant  contribution  to its  business.  Those
      employees are as follows:


                                       84
<PAGE>

                 Name                  Age        Position
                 ----                  ---        --------

          Robert J. Boeckman           43         Chief Operations Officer and
                                                  Co-Chief Executive Officer

          Jane A. Morlok               51         Chief Financial Officer and
                                                  Co-Chief Executive Officer

      Both Mr.  Boeckman  and Ms.  Morlok are  employed  pursuant to  employment
      agreements with Breda.  Those employment  agreements are discussed in Item
      10 of this annual report.

      Mr. Boeckman has been employed by Breda in various  capacities  since May,
      1982. Prior to January, 1995, he was Breda's assistant manager. He was the
      manager of Breda from January,  1995 to March,  1998, at which time he was
      given the title chief  operating  officer.  His  current  titles are chief
      operations officer and co-chief executive officer.

      Ms. Morlok became the chief financial  officer of Breda on March 20, 1998.
      Her current  titles are chief  financial  officer and  co-chief  executive
      officer.  Ms.  Morlok  was  the  assistant  administrator/CFO  of  Manning
      Regional Healthcare Center in Manning,  Iowa from July of 1987 until March
      20,  1998.  Her  responsibilities  in that  position  included  budgeting,
      reimbursement  and rate  setting for the  hospital and nursing home run by
      the Manning Regional  Healthcare  Center,  as well as daily general ledger
      operations and IRS filings.  She also provided similar services to several
      other affiliated corporations.

      Breda does not have a separately-designated  standing audit committee, and
      Breda's  entire  board of  directors  performs  any  functions  that would
      otherwise  be  performed  by  a   separately-designated   standing   audit
      committee.

      Breda's  board of  directors  has  determined  that Breda does not have an
      audit  committee  financial  expert,  as  that  term  is  defined  in Item
      401(e)(2) of Regulation S-B, serving on its board of directors.  There are
      various  factors which may contribute to the fact that Breda does not have
      an audit committee financial expert serving on its board of directors. For
      example,  although Breda is subject to the reporting  requirements  of the
      Securities Exchange Act of 1934, it is a relatively small company, and its
      corporate offices are located in a small, rural community in Iowa, both of
      which  facts  limit  its  ability  to  identify  and to  attract  an audit
      committee financial expert.  Also, under Breda's governing  documents,  an
      individual  can  only  be a  director  of  Breda  if the  individual  is a
      shareholder of Breda, and an individual can only be a shareholder of Breda
      if the  individual  is a  resident  of the Breda or  Lidderdale  telephone
      exchange  areas  served  by Breda  and  subscribes  to  Breda's  telephone
      services.  There is therefore a very limited pool of  individuals  who are
      even eligible to be considered for a director  position with Breda.  Also,
      no  shareholder  may


                                       85
<PAGE>

      own more than 1% of the  total  issued  and  outstanding  common  stock of
      Breda,   with  certain  very   limited   exceptions,   there  are  various
      restrictions on a shareholder's  right to sell and assign shares of common
      stock in Breda,  and each  shareholder  is generally  entitled to only one
      vote on each  matter  submitted  to the  shareholders,  regardless  of the
      number of shares held by the shareholder. Those restrictions may limit the
      number of individuals  who desire to be a shareholder  in Breda.  Further,
      all  nominees  for  election as a director of Breda are  nominated  by the
      shareholders, and the shareholders may not take into consideration some of
      the particular  issues that are raised or attempted to be addressed by the
      Securities Exchange Act of 1934 and its implementing regulations.  Breda's
      board of  directors  believes  that all of these  factors make it unlikely
      that Breda will have an audit  committee  financial  expert serving on its
      board of directors in future years.

      There  were no  material  changes in 2004 to the  procedures  by which the
      shareholders  of  Breda  may  recommend   nominees  to  Breda's  board  of
      directors.

      Breda  had not,  at the time of the  preparation  of this  annual  report,
      adopted a code of ethics  that  applies  to  Breda's  principal  executive
      officer,   principal  financial  officer  or  persons  performing  similar
      functions.  Breda  does  intend to  develop a code of ethics  that will be
      applicable to those persons,  and Breda hopes to prepare and finalize that
      code of ethics by the end of 2005.

Item 10. Executive Compensation.

      Summary Compensation Table.

      The following  summary  compensation  table shows the compensation paid by
      Breda to Robert J. Boeckman, Breda's chief operations officer, and to Jane
      Morlok, Breda's chief financial officer, in the 2004, 2003 and 2002 fiscal
      years. Mr.  Boeckman's  services as the chief operations  officer of Breda
      are similar to those normally  provided by the chief executive  officer of
      an Iowa corporation.

                           Summary Compensation Table

<TABLE>
<CAPTION>
      Name and                                                  Other Annual       All Other
      Position                Year    Salary (1)    Bonus     Compensation (2)  Compensation (3)
      --------                ----    ----------    -----     ----------------  ----------------
<S>                           <C>      <C>         <C>            <C>               <C>
      Robert J. Boeckman,     2004     $89,906     $12,600        $ 1,344           $26,226
      Chief Operations        2003     $87,490     $11,900        $ 1,508           $21,061
          Officer             2002     $84,341     $ 9,082        $ 1,795           $18,067

      Jane Morlok,            2004     $82,934     $11,620        $ 1,380           $22,004
      Chief Financial         2003     $81,425     $ 9,600        $ 1,521           $20,246
         Officer              2002     $78,602     $ 8,250        $ 1,808           $17,282
</TABLE>

      (1) This  amount  includes  contributions  of 3% of  annual  gross  salary
      pursuant to Breda's defined benefit retirement and security program, which
      is sponsored  by the  National  Telephone  Cooperative


                                       86
<PAGE>

      Association. As a condition of participation in that program, participants
      must contribute a minimum of 3% of annual gross salary.  See also the "All
      Other Compensation" column above.

      (2) This  amount  includes  payments by Breda from a fund  established  by
      Breda based upon sales of cell phones. The fund is allocated equally among
      the employees  employed at Breda.  All employees share in the fund even if
      they are not involved in the sale of cell phones. Neither Mr. Boeckman nor
      Ms. Morlok are involved in those sales.  The amounts also include a yearly
      clothing  allowance and the estimated yearly value of services provided to
      Mr. Boeckman or Ms. Morlok by Breda or its  subsidiaries at no cost. Those
      services  are local  telephone  service,  basic  cable  service,  internet
      access, and cellular phone service.

      (3) This  amount  represents  contributions  by Breda to  Breda's  defined
      benefit  retirement  and  security  program,  which  is  sponsored  by the
      National Telephone Cooperative Association.  The program requires Breda to
      contribute an amount equal to 8.6% of a participant's annual gross salary.
      Breda is also required to contribute a 2.32% surcharge on all employee and
      employer  contributions  for plan years 2004 through 2007 in order to meet
      current and  projected  funding  requirements.  See also  footnote 1 above
      regarding  participants'  contributions  to the program.  This amount also
      includes  a long  term  disability  contribution  of 1.76% of  salary  and
      employer-paid   premiums  on  health,   life  and  accidental   death  and
      dismemberment insurance.

      Clifford  Neumayer is the president of Breda.  No  information is provided
      for Mr.  Neumayer in the summary  compensation  table  because he does not
      receive  compensation  in his  capacity  as the  president  of Breda.  Mr.
      Neumayer  does  receive  compensation  for his  services  as a director of
      Breda.  The  compensation  payable to directors is discussed  below.  Dean
      Schettler also served as the president of Breda for a portion of 2003, but
      no information is provided for Mr.  Schettler in the summary  compensation
      table for the same reason as set forth for Mr. Neumayer.

      Director Compensation.

      Since June 1, 2003,  all of Breda's  directors have received $150 for each
      regular,  special and  conference  call meeting of the board of directors.
      The  vice-president,  secretary  and  treasurer  of Breda  also  currently
      receive an additional $25 for each regular,  special and  conference  call
      meeting of the board of directors,  and the president of Breda receives an
      additional $100 per meeting.  Those payments are made to those individuals
      in their  capacities  as  directors,  and are based upon their  additional
      duties  at the  meetings  of the  board of  directors.  Breda's  directors
      received $125 for each regular,  special and conference  call meeting from
      June,  2001 through May, 2003.  Breda's  directors  received $100 for each
      regular,  special and  conference  call  meeting in 1999 and through  May,
      2001.  The vice  president,  secretary  and  treasurer  also  received  an
      additional $25 per meeting from May, 1999 through May, 2001. The president
      received an additional $50 per meeting from May, 1999 through May, 2001.


                                       87
<PAGE>

      Since June, 2001, all of Breda's  directors have received $150 per day for
      attending   all  day   industry   meetings   related  to  Breda's  or  its
      subsidiaries'  businesses.  The meetings are not generally formal meetings
      of the board of directors,  but the meetings are attended by the directors
      in their capacity as a director of Breda. The directors  received $125 per
      day for such all day meetings from May, 1999 through May, 2001.

      Since June,  2001,  all of Breda's  directors  have received $150 for each
      outside  meeting  attended by a director and which lasts over three hours.
      The directors received $125 for each such meeting in 1999 and through May,
      2001.  The directors  receive  one-half of their regular  meeting rate for
      each outside meeting which lasts less than three hours.  Outside  meetings
      are not formal  meetings  of the board of  directors.  Examples of outside
      meetings  include  conventions and city council  meetings and meetings for
      purposes of ballot counting.

      Since October, 2001, directors who serve on a committee have received $150
      for each committee meeting which does not coincide with another meeting of
      the board of directors.

      Breda's  directors  are also  reimbursed  for mileage and for any expenses
      incurred by them on account of  attendance  at any meeting of the board of
      directors  or  other  meetings  attended  by them in their  capacity  as a
      director of Breda.

      Breda's  directors may also receive  dial-up or high speed internet access
      from Breda or its  subsidiaries at no cost. The current  estimated  yearly
      value of internet access is $300 for dial-up and $720 for high speed. They
      have been entitled to receive internet access since 1999.

      The directors also became entitled to receive local telephone service from
      Breda or its  subsidiaries  at no cost,  effective as of June 1, 2003. The
      current estimated yearly value of local telephone service is $228.

      Employment Agreements.

      Breda entered into a new employment  agreement  with both Robert  Boeckman
      and Jane  Morlok  on July 1,  2003,  but the  employment  agreements  were
      effective   as  of  January  1,  2003  for  purposes  of  salary  and  for
      establishing the term of the employment agreements.

      Mr. Boeckman.  Under the terms of Mr. Boeckman's employment agreement,  he
      is  employed  in the  capacity of chief  operations  officer and  co-chief
      executive officer of Breda. Mr. Boeckman is responsible for the day-to-day
      operations of Breda under his employment agreement.


                                       88
<PAGE>

      Mr. Boeckman's employment agreement is for a three year term (running from
      January 1, 2003) and  accordingly  will  terminate  on  December  31, 2005
      unless the employment  agreement is earlier  terminated in accordance with
      the employment agreement.  Breda may terminate the employment agreement if
      Mr.  Boeckman is absent from his  employment by reason of illness or other
      incapacity for more than 26 consecutive weeks. Breda will pay Mr. Boeckman
      compensation during any such period of illness or incapacity in accordance
      with Breda's sick pay policy as then in effect.  Breda may also  terminate
      the  employment  agreement for cause upon five days written  notice to Mr.
      Boeckman.  The employment  agreement  provides that "for cause"  includes,
      without limitation:

            o     Fraud or theft,

            o     Falsifying records,

            o     Refusal  to  carry  out a  specific  order  of  the  board  of
                  directors,

            o     Abuse, discrimination, or harassment of another employee,

            o     Unauthorized dissemination of records or information,

            o     Divulging confidential information,

            o     Possession   of  illegal  drugs  or  weapons  while  on  Breda
                  property,

            o     Conviction of a crime, the nature of which would be calculated
                  to  render  an  employee   undesirable  as  a  co-manager  and
                  detrimental to the best interests of Breda, and

            o     Using or possessing intoxicants or narcotics of any kind while
                  on Breda premises or being at work under the influence of such
                  substances.

      Breda may also  terminate the  employment  agreement at any time,  without
      cause, by giving 30 days written notice to Mr. Boeckman. In this event, if
      requested by Breda, Mr. Boeckman shall continue to render his services and
      shall be paid his regular  compensation up to the date of termination.  In
      addition,  Mr.  Boeckman  shall  be paid  on the  date  of  termination  a
      severance  allowance  equal to the amount  remaining  to be paid under the
      employment agreement.

      Mr.  Boeckman may  terminate  the  employment  agreement,  at any time, by
      giving  60 days  notice  to  Breda.  In this  event,  Breda  shall pay Mr.
      Boeckman his compensation up to the date of termination,  but Mr. Boeckman
      shall not be entitled to any severance  payment and will not be considered
      for any performance bonus.


                                       89
<PAGE>

      If Mr. Boeckman's  employment  terminates by reason of his death, Breda is
      only obligated to make whatever payments may be required under its pension
      plan.

      Mr.  Boeckman's  yearly salary under the employment  agreement was $87,500
      for the 2003 calendar  year,  and $90,000 for the 2004 calendar  year. Mr.
      Boeckman's  salary under the  employment  agreement  for the 2005 calendar
      year  is  $92,500.  Mr.  Boeckman  may  also  receive  a bonus  under  the
      employment  agreement.  The  employment  agreement  includes an attachment
      which sets forth some  methodologies  and procedures which may be followed
      by the board of directors in  determining  whether a bonus will be paid to
      Mr.  Boeckman with respect to a calendar year and the amount of the bonus,
      but the employment  agreement provides that the final  determination as to
      the amount of the bonus  rests  solely in the  discretion  of the board of
      directors.  The employment  agreement provides that any bonus with respect
      to the 2004 and 2005 calendar  years will be determined by measuring  cash
      flow generated from operations and value added calculations,  and that the
      amount of bonus that may be received by Mr.  Boeckman  with respect to the
      2004 and 2005  calendar  years  will  increase  by 5% to 25% of his annual
      salary.

      The employment agreement also provides that Mr. Boeckman shall be entitled
      to all  employee  benefits  extended to all full time  employees of Breda.
      Some of the benefits  currently  provided to Mr.  Boeckman  include health
      insurance, life insurance, disability insurance, cellular phone service, a
      clothing allowance, free local telephone service, free internet access and
      free basic cable  service.  Breda will also  contribute an amount equal to
      8.6%  of  Mr.  Boeckman's  annual  gross  salary  to the  defined  benefit
      retirement  and  security  program  which  is  sponsored  by the  National
      Telephone  Cooperative  Association.  Breda will also provide Mr. Boeckman
      with the  pre-retirement  death  benefit  that is  available  through  the
      National  Telephone   Cooperative   Association.   Mr.  Boeckman  is  also
      reimbursed  for  all  reasonable  and  appropriate  expenses  incurred  in
      carrying out his duties under the employment agreement.

      Mr. Boeckman's employment agreement includes a limited noncompete covenant
      and confidential information covenant.

      Ms. Morlok. Ms. Morlok's employment agreement is similar to Mr. Boeckman's
      employment  agreement.   The  primary  differences  between  Ms.  Morlok's
      employment  agreement  and  Mr.  Boeckman's  employment  agreement  are as
      follows:

            o     Ms.  Morlok's  capacities  under her employment  agreement are
                  chief financial officer and co-chief executive officer.

            o     Ms. Morlok's yearly salary under her employment  agreement was
                  $81,500 for the 2003 calendar  year,  and $83,000 for the 2004
                  calendar year. Ms.  Morlok's salary for the 2005 calendar year
                  is $84,500.


                                       90
<PAGE>

      Breda does not have any written employment agreements with any officers or
      any other employees.

Item 11. Security  Ownership of Certain  Beneficial  Owners and  Management  and
         Related Stockholder Matters.

      Breda is only authorized to issue common stock.

      The  following  table  sets  forth  some  information  on  the  percentage
      ownership of Breda's common stock as of March 1, 2005 by:

            o     each of Breda's directors;

            o     each of Breda's officers;

            o     the person employed by Breda as its chief operations  officer;
                  and

            o     all directors  and officers of Breda and the chief  operations
                  officer of Breda as a group.

                            Security Ownership Table

      Name and Address of
        Beneficial Owner                 Number of Shares   Percentage Ownership
      -------------------                ----------------   --------------------

      Dean Schettler                             30                .0962%
      16326 120(th) St
      Breda, Iowa 51436

      Clifford Neumayer                         181                .5807%
      11846 Ivy Avenue
      Breda, Iowa 51436

      Neal Kanne                                  2                .0064%
      12828 Phoenix Avenue
      Carroll, Iowa 51401

      Rick Anthofer                               3                .0096%
      301 N. 4th
      Breda, Iowa 51436


                                       91
<PAGE>

      John Wenck                                  6                .0193%
      23909 140(th) St
      Carroll, Iowa 51401

      Charles Thatcher                            2*               .0064%
      15053 Granite Avenue
      Breda, Iowa 51436

      Dave Grabner                               55**              .1765%
      11098 130(th) Street
      Breda, Iowa 51436

      Robert Boeckman                            30                .0962%
      23678 150(th) Street
      Carroll, Iowa 51401

      All directors and officers                309                .9913%
      and the chief operations
      officer as a group (8 persons)

      *     One of these shares is held by Mr. Thatcher's spouse.

      **    One of these shares is held by Mr. Grabner's spouse.

      All of the above shares of common  stock are directly  owned by the listed
      individuals,  except only as noted with  respect to Mr.  Thatcher  and Mr.
      Grabner.

      Jane Morlok,  Breda's chief financial officer,  does not own any shares of
      common stock of Breda.

      To Breda's  knowledge,  no person or group is the beneficial owner of more
      than 5% of Breda's  common stock and no person or group holds more than 5%
      of Breda's common stock under a voting trust or similar arrangement.

Item 12. Certain Relationships and Related Transactions.

      Breda has not been a party to any  transaction  during the last two years,
      or proposed  transaction,  of the type required to be disclosed under this
      Item.  The  transactions  to which this Item applies are  transactions  to
      which  Breda  was or is to be a party  and in which  any of the  following
      types of persons had or is to have a direct or indirect material interest:

            o     any director or officer of Breda,

            o     any nominee for election as a director of Breda,

            o     any beneficial  owner of more than 5% of Breda's common stock,
                  or


                                       92
<PAGE>

            o     any member of the immediate  family of any person  referred to
                  above.

Item 13. Exhibits.

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

Item 14. Principal Accountant Fees and Services.

      The following  paragraphs  describe the aggregate fees that were billed to
      Breda by Kiesling Associates,  LLP for the fiscal years ended December 31,
      2003 and December 31, 2004.

      Audit Fees.

      Breda was billed $32,520 and $51,450 for,  respectively,  the fiscal years
      ended  December  31, 2003 and  December  31, 2004 for the audit of Breda's
      annual  financial  statements  and  review  of  the  financial  statements
      included in Breda's quarterly reports on Form 10-QSB or services that were
      normally  provided in connection with statutory and regulatory  filings or
      engagements for those two fiscal years.

      Audit Related Fees.

      Breda was billed $45,875 and $22,775 for,  respectively,  the fiscal years
      ended  December 31, 2003 and December 31, 2004 for  assurance  and related
      services  that were related to the  performance  of the audit or review of
      Breda's financial statements and which are not reported under "Audit Fees"
      above.  The nature of those services was compliance,  assurance and review
      work in connection with SEC filings.

      Tax Fees.

      Breda was billed  $3,225 and $4,100 for,  respectively,  the fiscal  years
      ended  December  31, 2003 and December  31, 2004 for tax  compliance,  tax
      advice and tax  planning  services.  The nature of those  services was tax
      return and estimated tax preparation work.


                                       93
<PAGE>

      All Other Fees.

      Breda was billed $10,180 and $10,624 for,  respectively,  the fiscal years
      ended  December  31, 2003 and  December 31, 2004 for products and services
      which are not described under "Audit Fees",  "Audit Related Fees" and "Tax
      Fees" above.  The nature of those  products and services was consulting on
      industry related issues. Breda's board of directors has considered whether
      the provision of those services is compatible  with  maintaining  Kiesling
      Associates, LLP's independence.

      Kiesling Associates, LLP did not render any professional services relating
      to financial  information systems design and implementation  during either
      of the fiscal years ended December 31, 2003 or December 31, 2004.

      Each specific  engagement of Kiesling  Associates,  LLP is approved by the
      board of directors of Breda,  and the board of directors does not have any
      pre-approval  policies or procedures  with respect to the provision of any
      services by Kiesling  Associates,  LLP. None of the services  described in
      "Audit  Related  Fees," "Tax Fees" or "All Other Fees" above were approved
      by Breda's board of directors pursuant to 17 CFR 210.2-01(c)(7)(i)(C).

               [THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK]


                                       94
<PAGE>

                                   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: April 12, 2005                    By: /s/ Robert Boeckman
                                            ------------------------------------
                                            Robert Boeckman, Chief Operations
                                            Officer and Co-Chief Executive
                                            Officer


Date: April 12, 2005                    By: /s/ Jane Morlok
                                            ------------------------------------
                                            Jane Morlok, Chief Financial Officer
                                            and Co-Chief Executive 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/ Clifford Neumayer               By: /s/ Neal Kanne
    --------------------------------        ------------------------------------
    Clifford Neumayer, President            Neal Kanne, Director
    and Director                        Date: April 12, 2005
Date: April 12, 2005


By: /s/ Rick Anthofer                   By: /s/ John Wenck
    --------------------------------        ------------------------------------
    Rick Anthofer, Director                 John Wenck, Secretary and Director
Date: April 12, 2005                    Date: April 12, 2005


By: /s/ Dean Schettler                  By: /s/ Dave Grabner
    --------------------------------        ------------------------------------
    Dean Schettler, Vice-President          Dave Grabner, Treasurer
    and Director                            and Director
Date: April 12, 2005                    Date: April 12, 2005


By: /s/ Charles Thatcher                /s/ Robert J. Boeckman
    --------------------------------        ------------------------------------
    Charles Thatcher, Director          Robert J. Boeckman, Chief Operations
Date: April 12, 2005                    Officer and Co-Chief Executive Officer
                                        Date: April 12, 2005


                                        /s/ Jane Morlok
                                            ------------------------------------
                                        Jane Morlok, Chief Financial Officer and
                                        Co-Chief Executive Officer
                                        Date: April 12, 2005


                                       95
<PAGE>

                                  EXHIBIT INDEX
                Exhibits to Form 10-KSB of Breda Telephone Corp.
                   for the Fiscal Year Ended December 31, 2004

Description of Exhibit.

            3.    Articles of Incorporation and Bylaws

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

                  (b)   Amended and  Restated  Bylaws of Breda  Telephone  Corp.
                        (Filed as  Exhibit  3.2 to Breda's  Form  10-QSB for the
                        quarterly  period  ended June 30, 2004 and filed  August
                        13, 2004, and incorporated herein by this reference.)

            10.   Material Contracts.

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

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

            21.   Subsidiaries  of  the  Registrant.  (Filed  as  Exhibit  21 to
                  Breda's  Form  10-KSB for the fiscal year ended  December  31,
                  2003 and filed March 26, 2004, and incorporated herein by this
                  reference.)

<PAGE>

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

                  31.1  Rule 13a-14(a) Certification of                      E-1
                        Chief Operations Officer
                        and Co-Chief Executive Officer

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

            *32.  Section 1350 Certifications

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

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

*Included with this filing.