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, 2003.

             |_| 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: $6,197,297

      State the aggregate market value of the voting and non-voting common
equity held by non-affiliates: $9,480,870, as of March 1, 2004. 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 $303
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: 31,599 shares of common
stock, no par value, at March 1, 2004.

      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 and 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 thereof 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 may result in competitors which are larger and
            better financed and with greater geographic reach, allowing them to
            compete over broader areas and more effectively;

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

      o     political conditions and occurrences at the international, national,
            regional and local levels, including 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 be totally unrelated to actual
            economic or market conditions or other more tangible factors;

      o     litigation;

      o     inaccurate assumptions or predictions by management;

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

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

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

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

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

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


                                      (ii)
<PAGE>

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

      o     the effects of ever increasing and changing competition and
            relationships with other carriers and other parties, including
            competition or relationships which require Breda or its subsidiaries
            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.


                                      (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, and long distance services since approximately July, 2000.
      BTC, Inc. began to also offer local telephone services in the Carroll,
      Iowa market area as a competitive local exchange carrier in October, 2003.
      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 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:

         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


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<PAGE>

      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. As noted above, BTC, Inc. began offering local exchange carrier
      services in the Carroll, Iowa market area in October of 2003. Prior to
      that time, BTC, Inc. only offered long distance services and Internet
      services in the Carroll, Iowa market area.

      The primary services provided by 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, 2003, they were serving
      approximately 2,882 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 2003 were from providing Internet
      and long distance services. 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.

      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


                                       2
<PAGE>

                  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. (Federal
                  Communications Commission approval for any proposed expansion
                  will also be necessary, 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 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
                  $418,335 in the aggregate in 2001, $657,290 in the aggregate
                  in 2002 and $806,146 in the aggregate in 2003. Breda
                  anticipates receiving universal services funding in 2004 in an
                  amount comparable to that received in 2003.

                  The IUB does not require a telecommunications carrier to be
                  designated as an "eligible telecommunications carrier" if the
                  carrier provides services in an area which is served by more
                  than one eligible telecommunications carrier. BTC, Inc.
                  provides services in the Carroll, Iowa market area, and Qwest


                                       3
<PAGE>

                  Communications is the incumbent local exchange carrier for
                  that area. BTC, Inc. is therefore not designated as an
                  "eligible telecommunications carrier", and does not receive
                  any universal services funding for this market.

            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 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. The FCC does so primarily by targeting how the
                  support payment funding received


                                       4
<PAGE>

                  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 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 $1,310,180 in 2001, $1,373,246 in 2002 and
                  $1,421,167 in 2003. Those amounts include the amount of the
                  universal services funding component which is listed in the
                  above discussion regarding the IUB.

      The regulation of access charge rates is an area of particular concern to
      Breda because a substantial amount of Breda's total consolidated revenues
      are derived from access charge revenues. Breda, Prairie Telephone,
      Westside Independent and BTC, Inc. receive access charge revenues from
      long distance carriers (sometimes referred to in the telephone industry as
      "inter-exchange carriers" or "IXCs") for providing intrastate and
      interstate exchange services to those long distance carriers. In more
      basic terms, they receive access charge revenues for originating and
      terminating long distance calls made and received by their subscribers.
      The access charge rate that can be charged for interstate long distance
      calls is determined by the FCC. The FCC can change those rates at any
      time, and the more recent changes have lowered access charge rates. There
      are also some studies being conducted in Iowa as to whether there should
      be changes regarding intra-state access rates. Breda anticipates that
      there may be further reductions in access charge rates over the next
      several years. 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. A further discussion of this
      issue is found in Item 6 of this annual report.

      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


                                       5
<PAGE>

      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.

      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 2004 is small. BTC, Inc. provides
      telephone services in the Carroll, Iowa market area. There are already
      other companies providing telephone services in that area, but Breda
      believes that the likelihood of additional local exchange carriers
      entering the Carroll, Iowa market area in 2004 is small. If any other
      telephone companies 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 could 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.

      Another industry issue that could have future, significant ramifications
      for Breda and its subsidiaries is number portability requirements. Number
      portability provides residential and business telephone customers with the
      ability to retain their existing telephone numbers when switching from one
      telephone service provider to another. Congress enacted the
      Telecommunications Act of 1996 to establish a national framework that
      promotes competition and reduces regulation in the telecommunications
      markets. The Act requires that local exchange carriers, such as Breda and
      it's telephone-related subsidiaries, open up their networks to local
      competition. The Act imposed new obligations and responsibilities on
      telecommunications carriers, particularly incumbent local exchange
      carriers. Number portability was one of the obligations that the Act
      imposed on all local exchange carriers, and the Act required the FCC to
      promulgate rules to implement the number portability requirements. The
      number portability requirements are viewed as consistent with the purposes
      of the Act because consumers might be reluctant to


                                       6
<PAGE>

      switch local exchange carriers if they have to change their telephone
      number, so number portability is viewed as facilitating competition.

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

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

      The Iowa Utilities Board filed comments with the FCC in the matter of
      "Telephone Number Portability, CTIA's Petitions for Declaratory Ruling" on
      February 4, 2004. In their comments, the IUB expressed concern regarding
      the recovery of nonrecurring


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<PAGE>

      and recurring costs associated with providing wireless porting, especially
      for Iowa's rural exchanges where the access line counts are small. Prior
      to that time, various industry organizations cooperated in the filing of
      an "Emergency Joint Petition for Partial Stay and Clarification" with the
      FCC. The Petition asked the FCC not to enforce its wireless-wireline
      number portability order for companies that serve less than 2% of the
      nation's subscriber lines. On March 4, 2004, two Iowa industry
      associations, the Iowa Telecom Association and the Rural Iowa Independent
      Telephone Association, filed a petition with the IUB that requested a
      waiver of modification of the intermodal local number portability rules on
      behalf of all 2% carriers in Iowa. Breda, Prairie Telephone and Westside
      Independent have requested these associations to include Breda, Prairie
      Telephone and Westside Independent in these joint filings.

      Breda is currently unable to determine the potential number of requests
      Breda might receive for wireless number portability, or otherwise what
      impact the FCC's mandate will have on Breda's customer base. Breda has,
      however, already received requests for number portability from wireless
      carriers in Breda's wireless service areas. The most recent requests from
      wireless carriers do appear to meet the FCC's rules for a bona fide
      request. Breda is continuing to work with consultants and others within
      the industry to determine the needed facility upgrades and to finalize the
      costs associated with implementing number portability so that it will be
      able to comply with the regulatory directives regarding number portability
      as they continue to be established and clarified.

      Breda received notification from the FBI on April 15, 2003, that the FBI
      would grant Breda, Prairie Telephone and Westside Independent an extension
      until June 30, 2004 for certain of their remaining deployment schedules
      under the Communications Assistance For Law Enforcement Act. The FCC
      decides whether or not to grant any such extension. At the time of this
      filing, no further correspondence had been received from the FCC, but
      Breda contemplates that the FCC will approve the FBI's determination or
      that additional time will otherwise be granted by the FCC, if necessary.
      BTC, Inc. receives its switching services from Breda, and is covered under
      the deployment schedule extension for Breda's switch. The Communications
      Assistance for Law Enforcement Act was passed by Congress in 1994 and sets
      forth the assistance capabilities that telecommunications carriers need to
      maintain so that they can support law enforcement in the conduct of
      lawfully authorized electronic surveillance. Breda, Prairie Telephone,
      Westside Independent and BTC, Inc. have been granted various extensions
      for compliance with the various requirements of that Act. Breda has
      licensed software that will allow it to become compliant with the Act
      within a short period of time should the FBI make a request for support.
      Breda also believes that it will be able to obtain an extension beyond the
      current June 30, 2004 compliance date, should that become necessary.

      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, but Breda does not
      believe that investments in cellular ventures are


                                       8
<PAGE>

      inconsistent or in conflict with Breda's, Prairie Telephone's, Westside
      Independent's or BTC, Inc.'s overall business. Breda also believes 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.

      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 in 2004, 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 in 2004. 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 expanded its cellular retail activities in Carroll, Iowa by taking
      over the management of a U.S. Cellular kiosk located in the Wal-Mart store
      in Carroll, Iowa on August 1, 2002. Breda believes this location has
      played a key part in the increase that occurred in Breda's cellular
      services revenues in 2003 because the location has added the "spontaneous"
      or "impulse" purchase market to its cellular sales activities.

      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:


                                       9
<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, 2003, Tele-Services was providing cable television
      services to approximately 2,858 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, 2004
            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.

      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


                                       10
<PAGE>

      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 has initiated plans to add channels and to enact rate
      increases in 2004 in eleven of the nineteen towns in which it provides
      cable services. Tele-Services anticipates that those rate increases will
      not be opposed or denied by any of those eleven towns.

      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 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.

      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. The
      cost of Tele-Services upgrades in 2003 was approximately $30,828, and is
      estimated to be approximately $142,200 for 2004.

      Tele-Services is continuing to work with an engineering firm to review its
      systems and to work on consolidating its head-end equipment with the goal
      being that the equipment will then be able to serve two or more
      communities, instead of just one community as is currently the case, and
      to lower maintenance costs for that equipment. There has not, however,
      been any economically feasible option identified from these reviews up to
      this point. Tele-Services is upgrading some of its cable TV systems and
      installing additional equipment and electronics in fourteen of the


                                       11
<PAGE>

      nineteen towns in which Tele-Services provides cable services in order to
      be able to provide more channel line-up options in those towns.

      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
      2,026 subscribers as of December 31, 2003. Of that amount, approximately
      1,434 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 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 an 18.9% decline
      in its dial-up customer base in this market during the calendar year 2003.
      BTC, Inc. had experienced a 15.5% decline in its dial-up customer base in
      the Carroll, Iowa market area in 2002.

      Breda is pursuing marketing approaches to attempt to retain and increase
      its internet customer base, but Breda believes 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 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


                                       12
<PAGE>

      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 reduced its pricing of Internet services and bundled Internet
      services with its long distance services in August, 2001 in order to
      attempt to compete at a lower price point for Internet services. Breda's
      reduction of its pricing has led to a decrease in Breda's overall revenue
      from Internet service fees. Breda has also prepared other bundled service
      packages which include Internet services. Those packages began to be
      offered by BTC, Inc. along with the start-up of BTC, Inc.'s local
      telephone services in October, 2003.

      Breda expects the overall potential customer base for Internet access to
      continue to increase, but it is becoming more difficult to predict what
      increases, if any, Breda or its subsidiaries might experience 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.

      BTC, Inc. was the successful bidder at an auction on December 23, 2002,
      for a commercial building located at 603 N. Adams, Carroll, Iowa. The
      closing date for the transaction was January 20, 2003, and Breda and BTC,
      Inc. moved their Carroll, Iowa operations to this new location 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.

      Pacific Junction Telemarketing, Inc. was dissolved on April 24, 2003.
      Pacific Junction was a wholly owned subsidiary of Prairie Telephone.
      Pacific Junction operated a telemarketing business until July 26, 2001.
      The business was discontinued because Pacific Junction's telemarketing
      call number supplier (Results Telemarketing, Inc.) had notified Pacific
      Junction that it would no longer be able to provide calling numbers to
      Pacific Junction and Breda and Pacific Junction were unable to locate new
      sources of telemarketing calling numbers. The closing of Pacific
      Junction's telemarketing center resulted in the loss of telemarketing
      services revenue and local network services revenue. The telemarketing
      calls made by Pacific Junction were primarily intended to provide a source
      of access services revenue for Breda, and the


                                       13
<PAGE>

      closing of the telemarketing center also accordingly led to a decline in
      Breda's access services revenue.

      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 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.

      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.

      Although difficult to predict, personal communications services may become
      very important in the future and may be highly competitive with current
      cellular services. Breda and Prairie Telephone have not made any firm
      decision on whether they will ever offer any personal communications
      services, and, as indicated above, Breda has transferred the personal
      communications services licenses it held for its Breda and Lidderdale
      exchange areas to Carroll County Wireless, L.L.C. Breda itself will
      therefore likely never directly offer any personal communications
      services. Breda and Prairie Telephone estimate that, in any event, it will
      take at least one to three years for the surrounding areas to build out
      their personal communications systems to the point where Prairie
      Telephone, Guthrie Group, L.L.C. or Carroll County Wireless, L.L.C. could
      connect to those systems and be able to begin to provide personal
      communications services.

      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.

      Revenues may also arise from investments in other entities which provide
      cellular phone services or which invest in other cellular phone or
      telecommunications


                                       14
<PAGE>

      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 RSA #8, Ltd. Westside Independent
      is also an investor in RSA #8, Ltd. RSA #8, Ltd. 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 a quarterly basis. Some of the
      investments may be a 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


                                       15
<PAGE>

      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 payable on April 1, 2003 to the shareholders of
      record on March 1, 2003. Breda also received notification in March, 2004,
      that the board of directors of NECA declared a $.75 per share dividend,
      payable on April 1, 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.

      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, 2003, Breda had 36 full time employees, and 2 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


                                       16
<PAGE>

      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. Prairie Telephone, Tele-Services and
                  BTC, Inc. each pay Breda $1,000 per month for their use of
                  space at the corporate offices. Westside Independent pays
                  Breda $500 per month for its use of space at the corporate
                  offices.

            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
                  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


                                       17
<PAGE>

                  the sale and lease of telephone, cellular and related
                  equipment and merchandise. Breda pays BTC, Inc. $1,000 per
                  month under the lease.

      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.
                  Prairie Telephone pays Breda $1,000 per month for Prairie
                  Telephone's use of space at the building.

            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.).

            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. became the owner of the real estate and building located at 603
      N. Adams, Carroll, Iowa, on January 20, 2003. 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


                                       18
<PAGE>

      telephone, cellular and related equipment and merchandise. Breda pays BTC,
      Inc. $1,000 per month under the lease.

      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.

      BTC, Inc. also leased approximately 886 square feet of space in the
      building adjoining its building at 526 N. Carroll Street in Carroll, Iowa.
      The equipment housed in this space and the services provided out of this
      space were also moved to 603 N. Adams in Carroll, Iowa in October of 2003.
      The lease was terminated on October 31, 2003.

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

      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 agreement with those towns. 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, and in some cases 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.

      Tele-Services previously owned the real estate and buildings comprising
      103 East Main, Breda, Iowa. The building was utilized by Tele-Services,
      Breda and Prairie Telephone as their corporate offices until Breda's new
      corporate office building was completed on September 13, 2002.
      Tele-Services sold the real estate and buildings on contract, and the
      remaining contract balance was pre-paid in full on February 14, 2003.

      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


                                       19
<PAGE>

      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, 2003 under Breda's
      existing loan agreement with the Rural Telephone Finance Cooperative was
      $1,777,644. 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, 2003.

      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 all of its assets were transferred to, and all of its liabilities were
      assumed by, 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 are 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 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 1999. 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 1998. The equipment
      is located in various towns as discussed above. Tele-Services also owns
      other miscellaneous cables and equipment used in its business.


                                       20
<PAGE>

      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 or other governmental authorities whose areas are
      being served, and 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 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 during
      the period of October 1, 2003 through December 31, 2003.

                                     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
      31,694 shares of its common stock issued and outstanding as of December
      31, 2003. Those shares were held by approximately 569 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.


                                       21
<PAGE>

      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:

            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;


                                       22
<PAGE>

            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 has historically established the issuance price and
      the redemption price at approximately 75% 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 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. The $180
      per share price 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


                                       23
<PAGE>

      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.

      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 returned to Breda's historical practices at its
      meeting on March 12, 2001, at which meeting the board of directors adopted
      a resolution fixing the issuance price and redemption price for Breda's
      shares of common stock to be $258 per share. The $258 per share amount was
      determined based upon Breda's 2000 audited financial statements. The $258
      per share price was announced and became effective at the May 16, 2001
      annual meeting of the shareholders.

      The board of directors continued to follow Breda's historical practices on
      this issue at its meeting on April 8, 2002, at which meeting the board of
      directors adopted a resolution fixing the issuance price and redemption
      price for Breda's share of common stock to be $280 per share. The $280 per
      share amount was determined based upon Breda's 2001 audited financial
      statements. The $280 per share price was announced and became effective at
      the May 21, 2002 annual meeting of the shareholders.

      The board again followed Breda's historical practices on this issue by
      announcing a new issuance price and redemption price of $303.00 per share
      at the May 20, 2003 annual meeting of the shareholders. The $303.00 per
      share amount was based upon Breda's 2002 audited financial statements,
      after net book value was adjusted for undistributed earnings of the equity
      investments.

      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


                                       24
<PAGE>

      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 $303 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

            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 to arrange any other auctions in the future.
      Breda also maintains 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 eligible to be a shareholder in Breda 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, 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,


                                       25
<PAGE>

      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 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, 2003
      through December 31, 2003.

              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,         27 Shares of
      2003-October        Common             $303.00 per
      31, 2003            Stock              Share                  -0-               -0-
      -----------------------------------------------------------------------------------------
      Month #2
      (November 1,        20 Shares of
      2003-November       Common             $303.00 per
      30, 2003)           Stock              Share                  -0-               -0-
      -----------------------------------------------------------------------------------------
      Month #3
      (December 1,
      2003-December
      31, 2003)                -0-               N/A                N/A               N/A
      -----------------------------------------------------------------------------------------
      Total                     47               --                 -0-               -0-
      -----------------------------------------------------------------------------------------
</TABLE>


                                       26
<PAGE>

      (1)   All of the shares of common stock were purchased by Breda pursuant
            to the redemption right or the right of first refusal granted to
            Breda in its Amended and Restated Articles of Incorporation, 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
            $303 redemption price that was established by the board of directors
            at the May 20, 2003 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 shareholders.

      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 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 during the period of December 31, 1998
      through December 31, 1999, except that in November, 1999, Breda did
      effectuate 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.

      Over the period of January 1, 2000 through December 31, 2000, Breda
      repurchased four hundred forty-one shares of its common stock from
      fourteen different shareholders, at a purchase price of $235 per share.

      Over the period of January 1, 2001 through June 30, 2001, Breda
      repurchased 220 shares of its common stock from two different
      shareholders, at a purchase price of $235 per share. During the quarter
      ended June 30, 2001, Breda repurchased 1,104 shares of its common stock
      from five different shareholders, at a purchase price of $258 per share.
      Over the period of July 1, 2001 through December 31, 2001, Breda
      repurchased 892 shares of its common stock from nineteen different
      shareholders, at a purchase price of $258 per share.


                                       27
<PAGE>

      During the period of January 1, 2002 through March 31, 2002, Breda
      repurchased 244 shares of its common stock from six different
      shareholders, at a purchase price of $258 per share. During the period of
      April 1, 2002 through June 30, 2002, Breda repurchased 43 shares of its
      common stock from one shareholder at a purchase price of $258 per share,
      and 720 shares of its common stock from ten different shareholders, at a
      purchase price of $280 per share. During the period of July 1, 2002
      through December 31, 2002, Breda repurchased 1,018 shares of its common
      stock from 15 different shareholders, at a purchase price of $280 per
      share.

      During the period of January 1, 2003 through March 31, 2003, Breda
      repurchased 188 shares of its common stock from six different
      shareholders, at a purchase price of $280 per share. During the period of
      April 1, 2003 through September 30, 2003, Breda repurchased 1,071 shares
      of its common stock from thirteen different shareholders at a purchase
      price of $303 per share. Breda's repurchases of its shares of common stock
      during the last quarter of 2003 are discussed above in this Item.

      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
      previously held by them on February 28, 1995, and continuing until one of
      the following occurs:

            o     the shareholder no longer receives service from Breda,


                                       28
<PAGE>

            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, 2003, there were 22 shareholders with multiple voting
      rights arising from their prior ownership of Class A stock, and they have
      one vote for each share of the former Class A stock previously held by
      them. Those 22 shareholders previously had a total of 61 shares of Class A
      stock.

      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 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


                                       29
<PAGE>

      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 $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 separate sale occurred between
      shareholders on the list. The sale involved two shares, which were sold
      for $280 per share. Breda elected not to exercise its right of first
      refusal on any of these shares.

      During the calendar year 2003, five separate transfers of shares of
      Breda's common stock occurred with respect to which Breda did not exercise
      its right of first refusal to purchase those shares. Two transfers each
      involved twenty shares and two shareholders. Two transfers each involved
      two shares and two shareholders. One transfer involved two hundred twelve
      shares and one shareholder.

      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 five dividends to its shareholders since Breda
      was incorporated in 1964. The dividends were declared on, respectively,
      March 15, 1999, March 13, 2000, March 12, 2001, April 8, 2002 and March
      10, 2003. 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 and $98,436.

      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


                                       30
<PAGE>

      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.

      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 2003. 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 6 should be read in conjunction 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. Breda also began to offer local exchange carrier services in the
      Carroll, Iowa market area in October, 2003, through BTC, Inc. Breda also
      provides long distance services to its customers in the local exchanges,
      and has provided long distance services in the Carroll, Iowa market area
      through BTC, Inc. since July, 2000. 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. BTC, Inc. is a wholly owned subsidiary of Prairie
      Telephone.


                                       31
<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.

      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, 2004, 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. Breda anticipates
            continuing pressure for the lowering of state and federal access
            charge rates, so future reductions in access charge rates are
            likely.

            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 access charge revenues,
            is 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 recent years, but Breda's access revenue decreased in
            2003. Breda believes the decrease is primarily attributable to
            increased wireless competitors offering calling plans with such
            features as unlimited nights and weekend calls. Those types of
            features lead customers having both wireless and wireline service


                                       32
<PAGE>

            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 are
            presently receiving no payment for the traffic that the wireless
            carriers route over the wireline networks. Various industry
            associations and their consultants are continuing their negotiations
            with wireless carriers to attempt to obtain some compensation for
            wireline carriers for the termination of the wireless traffic on the
            wireline networks. Breda is not able to quantify the dollars that
            Breda and its subsidiaries are not receiving for this wireless
            traffic at this time, but any access revenue that could be
            negotiated from the wireless carriers would have a positive effect
            on Breda's access revenue.

            As indicated above, Breda, Prairie Telephone, Westside Independent
            and BTC, Inc. utilize the "average schedule" basis for receiving
            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 of a sample of telephone companies and certain other factors
            intended to take into account the size of the particular telephone
            company in question.

            On October 20, 2000, a comprehensive access charge rate reform and
            deregulation plan for non-price cap, incumbent local exchange
            carriers (LEC's) was submitted to the FCC by the Multi-Association
            Group (MAG). LECs include most of the small and mid-sized local
            exchange carriers that service rural and insular areas in the U.S.,
            such as Breda, Prairie Telephone, Westside Independent and BTC, Inc.
            MAG was a coalition of the National Rural Telecom Association, the
            National Telephone Cooperative Association, the Organization for the
            Promotion and Advancement of Small Telecommunications Companies and
            the United States Telecom Association.

            One of the purposes of MAG was to formulate a comprehensive plan to
            settle major proceedings pending at the FCC and complete reforms
            required by the Telecommunications Act of 1996. In general terms,
            the MAG plan was designed to, among other things, modify interstate
            access charge rules and universal service support for LEC's.

            The FCC's October 11, 2001 order on the MAG plan became effective on
            July 1, 2002. Breda and its subsidiaries did not experience any
            materially adverse effects on their revenues from the FCC's order
            during the 2003 calendar year, and Breda currently believes that the
            FCC's order will also not have any materially adverse effects on
            Breda's or its subsidiaries' revenues in 2004.

            As noted above, Breda also anticipates pressure for the lowering of
            state access charge rates. For example, concerns have been raised by
            the Iowa Legislature as


                                       33
<PAGE>

            well as the Iowa Utility Board regarding intra-state access rates,
            and whether alternative intrastate inter-carrier compensation
            mechanisms should be investigated. A joint task force comprised of
            representatives from the Iowa Telecom Association and the Rural Iowa
            Independent Telephone Association has been formed to compile data
            from the local telephone companies, such as Breda, in order to
            document not only the justification of the present intra-state
            access rates received by local telephone companies, but also to look
            at other revenue alternatives. Two industry consulting firms also
            worked with this joint task force. The task force has completed its
            analysis, and is in the process of presenting its findings and
            report to the Iowa Telecom Association, the Rural Independent
            Telephone Association and various telephone companies. After
            receiving their responses, it is contemplated that a final report
            will be presented to the Iowa Utilities Board.

            Based on the preliminary report, 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 revenues. Breda does not believe 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
            revenues.

            Another issue relevant to intra-state access revenue is the fact
            that Qwest has begun minute-of-use studies with the twenty companies
            in Iowa which have the highest number of intrastate minutes being
            billed to Qwest. Breda is one of those twenty companies. Based on
            preliminary discussions and research with Qwest and Iowa Network
            Services (which submits minutes of use information to Breda for
            billing purposes), it has been preliminarily determined that Qwest
            had not routed some of its traffic according to the Local Exchange
            Routing Guide because Qwest had routed some of its traffic to
            Breda's switch that should, instead, have been routed to a cellular
            switch. Qwest has rerouted this cellular traffic so it no longer
            goes through Breda's switch, and Breda estimates that it will lose
            approximately $200,000 per year of intrastate access revenue from
            Qwest because of this traffic rerouting. Breda is not currently
            aware of any plans to make any retroactive adjustments to Breda's
            intrastate access revenues from Qwest based upon the results of the
            Qwest study. Breda's consultant is continuing to work with Qwest on
            this issue and on the discounting of Breda's carrier access invoices
            for wireless service provider minutes. Qwest is, however, now
            routing its traffic in accordance with the Local Exchange Routing
            Guide.

      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.


                                       34
<PAGE>

            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 47.5%
            increase in its long distance customer base from December of 2001 to
            December of 2002, and a 44.5% increase from December of 2002 to
            December of 2003.

      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 arise
      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. Breda
      currently believes, however, that the cable services provided by
      Tele-Services will continue to be desirable in the areas served by
      Tele-Services for at least those subscribers who desire a lower priced
      product that allows local channel options.


                                       35
<PAGE>

      Tele-Services is continuing to work with an engineering firm to review its
      systems and to work on consolidating its head-end equipment with the goal
      being that the equipment will then be able to serve two or more
      communities, instead of just one community as is currently the case, and
      to lower maintenance costs for that equipment. There has not, however,
      been any economically feasible option identified from these reviews up to
      this point. Tele-Services is installing additional equipment and
      electronics in order to be able to provide more channel line-up options to
      subscribers in fourteen of the nineteen towns served by Tele-Services.
      Tele-Services hopes to complete those installations by May, 2004.

      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.

      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 as of the close of each of the past two fiscal years
      which was derived from the three reportable segments of Breda which are
      noted above:

                                                        2002        2003
                                                       ------      ------

            Local Exchange Carrier (1)                   71.6%       75.2%
            Broadcast (2)                                16.3%       14.7%
            Internet Service Provider (3)                12.1%       10.1%
                                                       ------      ------

                          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.

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

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


                                       36
<PAGE>

      Twelve-months ended December 31, 2003 Compared to Twelve-months ended
      December 31, 2002

      NET INCOME

      Consolidated net income for the twelve-month period ended December 31,
      2003 was $1,189,506, which was a $28,915, or 2.4%, decrease when compared
      to the $1,218,421 of consolidated net income for the twelve-month period
      ended December 31, 2002.

      The $28,915 decrease in net income resulted from the following four
      factors:

            1)    Consolidated operating income, which is Operating Revenues
                  less Operating Expenses, generated from the local exchange
                  carrier segment, the broadcast services segment, and the
                  Internet service provider segment decreased $105,797, or
                  12.9%, for the twelve-month period ended December 31, 2003,
                  when compared to the twelve-month period ended December 31,
                  2002.

            2)    Other income (expense), which includes such items as interest
                  and dividend income, income from equity investments, interest
                  expense, and gains (losses) on the sale of investments and
                  property, increased $24,042, or 2.1%, for the twelve-month
                  period ended December 31, 2003, when compared to the
                  twelve-month period ended December 31, 2002.

            3)    Income taxes increased $17,928, or 2.6%, for the twelve-month
                  period ended December 31, 2003, when compared to the
                  twelve-month period ended December 31, 2002.

            4)    The cumulative effect of an accounting change, net of tax, of
                  $70,768 during the twelve-month period ended December 31,
                  2002, reflects an impairment of goodwill from the
                  implementation of Statement of Financial Accounting Standard
                  142 on January 1, 2002. There were no material accounting
                  changes during 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, 2003, when compared to the twelve-month period
      ended December 31, 2002, of $208,892, or 3.5%. The segments making up
      total operating revenues and their contributions to the $208,892 increase
      between the two periods are as follows: local exchange carrier services -
      $374,143; broadcast services - ($66,044); and Internet services -
      ($99,207).


                                       37
<PAGE>

      Local Exchange Carrier Services - $374,143

      Local exchange carrier services revenue accounted for 75.2% of the
      operating revenue in the twelve-month period ended December 31, 2003. The
      components of, and their contributions to, the $374,143 increase in local
      exchange carrier services revenue for the twelve-months ended December 31,
      2003, when compared to the twelve-months ended December 31, 2002, are as
      follows: local network services - $17,167; network access services -
      ($146,469); long distance services - ($6,581); cellular services -
      $384,667; and miscellaneous - $125,359.

      Local network services revenue was similar for the twelve-month periods
      ended, respectively, December 31, 2003 and December 31, 2002, with a 3.0%
      increase during the twelve-month period ended December 31, 2003. The
      increase is mainly attributable to the start-up of BTC, Inc.'s competitive
      local exchange carrier operation in Carroll, Iowa, in October 2003, which
      resulted in the addition of new local exchange customers. Network access
      services revenue, however, decreased $146,469, or 5.8%, during the
      twelve-month period ended December 31, 2003, when compared to the same
      twelve-month period in 2002. The decrease in network access revenue is
      mainly volume related, as discussed previously in this annual report.
      Breda, Prairie Telephone and Westside Independent wrote off $46,166 in
      access revenue in 2003 that became uncollectible when Touch America and
      One Star filed for bankruptcy protection, which resulted in lower access
      revenues for the twelve-month period ended December 31, 2003. Breda had
      also written off uncollectible access revenue during 2002 from the
      bankruptcy filings of WorldCom and Global Crossing. Breda has also had
      lower access revenue in both 2002 and 2003 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. Accordingly, during the years ended December 31,
      2003 and 2002, Breda has reduced its network access revenue by
      approximately $169,000 and $72,000 respectively related to estimated
      wireless terminating access, which was billed but not collectible. Access
      charges constitute a substantial part of Breda's, Prairie Telephone's and
      Westside Independent's revenues, and a material risk to them also arises
      from the regulation of access charge rates by the FCC. Breda anticipates
      continuing pressure for the lowering of state and federal access charge
      rates, and future reductions in access charge rates are likely.

      Breda's long distance services customer base continues to grow, and Breda
      believes that long distance services should be a growth area for Breda in
      2004 as Breda continues to market this service as both a stand-alone
      service and as part of a package with other services, such as Internet.
      Breda anticipates growth particularly in the local exchange area of
      Carroll, Iowa, which is served through BTC, Inc. As noted above, BTC, Inc.
      began offering local exchange carrier services in the Carroll, Iowa market
      area in October 2003. The twelve-month period ended December 31, 2003,
      however, reflected a 6.0% decrease in long distance services revenues,
      when compared to the twelve-month period ended December 31, 2002. While
      Breda's


                                       38
<PAGE>

      overall long distance customer base increased 44.5% for the twelve-month
      period ended December 31, 2003, Breda is experiencing an industry-wide
      phenomenon of an overall decrease in minutes of use by its long distance
      customers. As discussed previously in this annual report, Breda believes
      the wide area calling rate plans offered by its wireless competitors is a
      big reason for the decrease in Breda's total long distance minutes.

      Breda expanded its cellular retail operations in Carroll, Iowa by taking
      over the management of a U.S. Cellular kiosk located in the Wal-Mart store
      in Carroll, Iowa, on August 1, 2002. The $384,667, or 42.2%, increase in
      cellular services revenue for the twelve-month period ended December 31,
      2003, when compared to the twelve-month period December 31, 2002, reflects
      the increased sales generated through Breda's two Carroll, Iowa locations
      and the increased sales generated through the efforts of outside sales
      staff, who travel and make direct contact with potential customers.

      Miscellaneous revenue increased $125,359, or 84.5%, for the twelve-month
      period ended December 31, 2003, when compared to the twelve-month period
      ended December 31, 2002. Four items made up most of this increase for the
      twelve-month period ended December 31, 2003. The first item was the
      performance of fiber installation contractual work for an outside
      corporation, which generated $50,000 in miscellaneous revenue, before
      materials, equipment and labor costs. The second item was the receipt of a
      Qwest refund on co-location expenditures of approximately $28,229. Breda
      also performed boring and related services for neighboring telephone
      companies, which generated almost $15,000 in miscellaneous revenue. Breda
      received $21,250 through an Iowa Jobs Training Program for its
      partnership with the Des Moines Area Community College in a multi-year
      educational training program for its employees. The project was approved
      by the Iowa Department of Economic Development.

      Broadcast Services ($66,044)

      Broadcast services revenue decreased $66,044, or 6.8%, for the
      twelve-month period ended December 31, 2003, when compared to the
      twelve-month period ended December 31, 2002. Tele-Services continues to
      face competition from satellite providers that can now include local
      channels in their package offerings. Tele-Services experienced an 11.7%
      decrease in its customer base when comparing the twelve-month period ended
      December 31, 2003, to the twelve-month period ended December 31, 2002.
      Another factor faced by Tele-Services is the declining population base in
      the small rural communities served by Tele-Services, which adversely
      affects Tele-Services' current and prospective customer base.

      Internet Services ($99,207)

      Internet services revenue decreased $99,207, or 13.7%, for the
      twelve-month period ended December 31, 2003, when compared to the
      twelve-month period ended December 31, 2002. The decrease is directly
      attributable to the 14.6% decrease in BTC, Inc.'s Internet service
      customer base when comparing the two twelve-month


                                       39
<PAGE>

      periods. The decrease in BTC, Inc.'s customer base is the result of the
      intense competition by multiple Internet service 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 2002 and 2003. The programs have, however, resulted in reduced Internet
      services revenue in both 2002 and 2003 given the lower pricing by Breda
      for Internet services under those programs. Breda is gaining high-speed
      Internet customers due to the October, 2003 start-up of BTC, Inc.'s local
      exchange carrier services in the Carroll, Iowa area because BTC, Inc. is
      offering bundled services packages that include Internet, as well as local
      telephone and other communication services.

      OPERATING EXPENSES

      There was an increase in total operating expenses of $314,689, or 6.1%,
      for the twelve-month period ended December 31, 2003, when compared to the
      twelve-month period ended December 31, 2002. The components making up
      operating expenses are as follows: cost of services, depreciation and
      amortization, and selling, general and administration expenditures.

      Cost of services increased $278,551, or 12.0%, for the twelve-month period
      ended December 31, 2003, when compared to the twelve-month period ended
      December 31, 2002. Most of the increase in cost of services was caused by
      increased cellular services costs of $313,943. Breda's cellular revenue
      increased $384,667, or 42.2%, for the twelve-month period ended December
      31, 2003, when compared to the twelve-month period ended December 31,
      2002. Cellular service costs increased 56.4%, however, as part of
      providing those increased services during the twelve-month period ended
      December 31, 2003. The cost of cable TV services and the cost of Internet
      services decreased 1% and 13.2%, respectively, for the twelve-month period
      ended December 31, 2003, when compared to the twelve-month period ended
      December 31, 2002. The decrease in those costs was a function of a
      decreased customer base for the year ended December 31, 2003.

      Most of the remaining increase in cost of services for the twelve-month
      period ended December 31, 2003, when compared to the twelve-month period
      ended December 31, 2002, was the result of costs incurred in preparing and
      moving Breda's and BTC, Inc.'s Carroll, Iowa operations to a new building
      in Carroll, Iowa and operating costs for BTC, Inc. during the final
      testing processes for the start-up of BTC, Inc.'s local exchange carrier
      services. There are no corresponding expenses for the twelve-month period
      ended December 31, 2002.

      Depreciation and amortization expense decreased $13,279, or 1.2%, for the
      twelve-month period ended December 31, 2003, when compared to the
      twelve-month period ended December 31, 2002. The decrease is attributable
      to the fact that some of Breda's assets have reached their maximum
      depreciable life, so even though the assets are still in use, there is no
      further depreciation expense that can be taken on the assets. Breda
      expended funds for facilities and equipment for BTC, Inc.'s operations,
      but those assets were not operational until October, 2003. The
      twelve-month period


                                       40
<PAGE>

      ended December 31, 2003 includes depreciation for only the period of time
      that those assets were in use during 2003.

      Selling, general and administration expenses increased $49,417, or 2.8%,
      for the twelve-month period ended December 31, 2003, when compared to the
      same twelve-month period in 2002. The increase was mainly the result of
      consulting fees generated in connection with the start-up of BTC, Inc.'s
      local exchange carrier services, and overall increased labor and benefit
      costs.

      OPERATING INCOME

      The net result of the operating revenue and operating expenses was a
      decrease of $105,797, or 12.9%, in operating income for the twelve-month
      period ended December 31, 2003, when compared to the same twelve-month
      period in 2002.

      OTHER INCOME (EXPENSE)

      Other income (expense) increased $24,042, or 2.1%, during the twelve-month
      period ended December 31, 2003, when compared to the same twelve-month
      period in 2002. The increase was mainly attributable to three items. The
      first item is interest and dividend income, which decreased $21,586, or
      7.2%, when comparing the twelve-month period ended December 31, 2003, to
      the twelve-month period ended December 31, 2002. The decrease in interest
      and dividend income was mainly due to lower interest income rates
      available on investments during the twelve-month period ended December 31,
      2003, as compared to the rates available during the twelve-month period
      ended December 31, 2002. The second item is income from equity
      investments, which increased $120,891, or 13.2%, during the twelve-month
      period ended December 31, 2003, when compared to the same twelve-month
      period in 2002. 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,
      2003, is a reflection of the net increases and decreases in the net
      operating income of Breda's equity investments. Most of Breda's equity
      investments are in cellular partnerships, which have been under market
      pressure from carriers such as AT&T, Sprint and Verizon, to renegotiate
      their roaming contract. The new roaming contracts have been negotiated at
      lower rates. As a result, the cellular investments making up Breda's
      equity investments are receiving less roaming revenue, even though the
      number of customers and the minutes of use have increased. Breda
      anticipates that these downward marketing pressures on roaming rates will
      continue for the foreseeable future. The third item was a $84,925, or
      94.1%, decrease in other net miscellaneous income during the twelve-month
      period ended December 31, 2003, when compared to the same twelve-month
      period in 2002. Tele-Services recognized a $102,986 gain on the sale of
      its former corporate office building at 103 East Main in Breda, Iowa on
      October 1, 2002. The gain was included in the twelve-month period ended
      December 31, 2002, and there is no corresponding entry during the
      twelve-month period ended December 31, 2003.


                                       41
<PAGE>

      INCOME BEFORE INCOME TAXES

      Income before income taxes decreased $81,755, or 4.1%, for the
      twelve-month period ended December 31, 2003, when compared to the
      twelve-month period ended December 31, 2002. The $81,755 decrease was the
      result of the $105,797 decrease in operating income and the $24,042
      increase in other income (expense).

      NET INCOME

      Income before income taxes decreased $81,755, or 4.1%, for the
      twelve-month period ended December 31, 2003, when compared to the
      twelve-month period ended 2002. Income taxes, however, increased $17,928,
      or 2.6%, when comparing the two twelve-month time periods. The effective
      tax rate in 2003 was 37.4%, versus 34.9% in 2002. 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.

      The cumulative effect of an accounting change, net of tax, of $70,768
      during the twelve-month period ended December 31, 2002, reflects an
      impairment of goodwill, for which there was no corresponding entry during
      the twelve-month period ended December 31, 2003. The Financial Accounting
      Standards Board issued Financial Accounting Statement No. 142 in August,
      2001 relating to the treatment of goodwill, and those new accounting
      principles were incorporated into Breda's financial statement beginning
      January 1, 2002. Under those accounting principles, Breda is no longer
      able to expense over a fifteen-year period the portion of the Westside
      purchase price which had been allocated to goodwill. The goodwill is now
      reviewed annually for impairment, that is, written down and expensed
      against earnings, only in the periods in which the recorded value of
      goodwill is more than its fair value. Financial Accounting Statement No.
      142 requires that Breda recognize an impairment loss when the carrying
      amount of goodwill is greater than its implied fair value. These tests
      have been applied to the goodwill and intangible assets of Breda and its
      subsidiaries, and the net-of-tax impairment expense incurred at January 1,
      2002 was Breda's estimate of the expense to offset earnings for the
      carrying amount of the Westside purchase goodwill attributable to
      broadcast services which was in excess of the fair value of that asset
      based on discounted cash flow valuation upon implementation of SFAS 142.

      Net income decreased $28,915, or 2.4%, for the twelve-month period ended
      December 31, 2003, when compared to the same period in 2002.

      Liquidity and Capital Resources at Twelve Months ended December 31, 2003.

      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, 2003 and December 31, 2002, was, respectively, $2,414,760 and
      $1,650,381. 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-


                                       42
<PAGE>

      cash expenses of $1,382,873 from depreciation, amortization, deferred
      income taxes, note receivable discount, and amortization of investment tax
      credits, which were then offset by $362,616 (net of cash distributions
      received of $676,786) of non-cash, equity income in unconsolidated
      affiliates. The net decrease in assets and liabilities of $204,997 was
      also added to net income to generate the net cash provided by operating
      activities of $2,414,760.

      The cash flows from operations for the twelve-month period ended December
      31, 2002 were primarily attributable to a positive net income of
      $1,218,421, plus the addition of non-cash expenses of $1,044,249 from
      depreciation, amortization, note receivable discount, and deferred income
      taxes, the addition of the $102,611 gain on Tele-Services' sale of its
      former corporate office, the addition of $119,945 from the cumulative
      effect of an accounting change, plus the net effect of a $223,850 increase
      in operating assets and a $110,252 increase in operating liabilities, less
      the $721,247 of non-cash equity income in unconsolidated affiliates.

      Cash used in investing activities was $1,617,133 for the twelve-month
      period ended December 31, 2003, and $1,623,797 for the twelve-month period
      ended December 31, 2002. Capital expenditures relating to ongoing business
      were $1,008,124 for the twelve-month period ended December 31, 2003, and
      $754,895 for the twelve-month period ended December 31, 2002. A new
      corporate office building was constructed in Breda, Iowa in 2002 at a
      cost, including furnishings and fixtures, of $480,000. 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, which is reflected
      in the increased capital expenditures for the twelve-month period ended
      December 31, 2003, when compared to the twelve-month period ended December
      31, 2002. Breda received $160,000 in February, 2003 as an early payoff of
      a building contract note receivable. Breda's capital expenditures in 2003
      were at a similar level to those made in 2002, after exclusion of the
      building purchase for $246,000. Capital used in investing activities in
      2002 included an additional $248,273 investment in Alpine Communications
      L.C. and capital used in investing activities in 2003 included an
      additional $125,500 investment in RSA #1, Ltd. by Prairie Telephone in
      November, 2003.

      Cash used in financing activities was $624,811 in 2003, and $791,265 in
      2002. Breda used cash in 2003 to repay $134,981 of borrowings from the
      RTFC, to redeem common stock for $391,394, and to pay dividends of
      $98,436. Breda used cash in 2002 to repay $126,365 of long-term debt, to
      redeem common stock for $560,686, and to pay dividends of $104,214. Breda
      funds the redemption of its stock from cash flows from operations. Breda
      redeemed 1,306 shares and 2,025 shares in, respectively, 2003 and 2002.

      Working Capital

      Working capital was $1,839,171 as of December 31, 2003, compared to
      working capital of $1,950,070 as of December 31, 2002. The ratio of
      current assets to current liabilities was 4.0 to 1.0 as of December 31,
      2003, and 3.6 to 1.0 as of December 31, 2002.


                                       43
<PAGE>

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

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

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

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

      Common stock had a net increase of $363,282 during the twelve-month period
      ended December 31, 2003, when compared to the twelve months ended December
      31, 2002. The increase resulted primarily from two items. One was the $23
      per share increase in outstanding shares value on May 20, 2003, and the
      other was a decrease in the number of outstanding shares through the
      redemption of 1,306 shares of common


                                       44
<PAGE>

      stock by Breda during the twelve month period ended December 31, 2003. The
      increase in retained earnings of $336,394 during the twelve month period
      ended December 31, 2003, when compared to the twelve months ended December
      31, 2002, is the net effect of the stated value stock adjustment of
      $754,676, the dividends paid in 2003 of $98,436, and the year-to-date net
      income as of December 31, 2003 of $1,189,506.

      Breda anticipates that its 2004 operational, investing and financing
      activities will be similar to 2003, and will be funded internally through
      operations and temporary investments.

Item 7. Financial Statements.


                           BREDA TELEPHONE CORPORATION
                                AND SUBSIDIARIES
                                   BREDA, IOWA

                        CONSOLIDATED FINANCIAL STATEMENTS
                     Years Ended December 31, 2003 and 2002


                                       45
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                                    Contents

                                                                            Page
                                                                            ----

Independent Auditors' Report                                                  47

Consolidated Financial Statements:

       Consolidated Balance Sheets                                       48 - 49

       Consolidated Statements of Income                                      50

       Consolidated Statements of Stockholders' Equity                        51

       Consolidated Statements of Cash Flows                             52 - 53

       Notes to Consolidated Financial Statements                        54 - 70


                                       46
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

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, 2003 and
2002, 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 did not audit the financial statements of Iowa RSA No. 7 L.P., Iowa 8
- Monona Limited Partnership and RSA No. 9 L.P., limited partnerships, the
investments in which, as discussed in Note Four to the consolidated financial
statements, are accounted for by the equity method of accounting. The
investments in these limited partnerships was $1,684,771 and $1,639,850 as of
December 31, 2003 and 2002, respectively, and the equity in its net income was
$496,702 and $709,614 for the years ended December 31, 2003 and 2002,
respectively. The financial statements of Iowa RSA No. 7 L.P., Iowa 8 - Monona
Limited Partnership and RSA No. 9 L.P. were audited by other auditors whose
reports have been furnished to us, and our opinion, insofar as it relates to the
amounts included for Iowa RSA No. 7 L.P., Iowa 8 - Monona Limited Partnership
and RSA No. 9.L.P., is based solely on the report of the other auditors.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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. 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, based on our audits and the reports of other auditors, 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, 2003 and 2002, 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
West Des Moines, Iowa
January 30, 2004


                                       47
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                           CONSOLIDATED BALANCE SHEETS
                           December 31, 2003 and 2002

<TABLE>
<CAPTION>
                                                                2003           2002
                                                            -----------    -----------
<S>                                                         <C>            <C>
                                   ASSETS

CURRENT ASSETS
      Cash and cash equivalents                             $ 1,205,550    $ 1,032,734
      Temporary investments                                     361,543        459,059
      Accounts receivable                                       563,542        835,667
      Interest receivable                                        52,742         68,053
      Current portion of notes receivable                       144,000        116,000
      Inventory, at average cost                                108,007         91,114
      Other                                                      25,407         86,581
                                                            -----------    -----------
                                                              2,460,791      2,689,208
                                                            -----------    -----------

OTHER NONCURRENT ASSETS
      Marketable securities                                   3,928,354      3,136,576
      Investments in unconsolidated affiliates at equity      3,942,275      3,454,159
      Other investments at cost                                 857,147        807,564
      Goodwill                                                  896,812        896,812
      Notes receivable, less current portion                    291,134        512,792
                                                            -----------    -----------
                                                              9,915,722      8,807,903
                                                            -----------    -----------

PROPERTY, PLANT AND EQUIPMENT                                 5,141,009      5,190,176
                                                            -----------    -----------

 TOTAL ASSETS                                               $17,517,522    $16,687,287
                                                            ===========    ===========
</TABLE>

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


                                       48
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                           CONSOLIDATED BALANCE SHEETS
                           December 31, 2003 and 2002

<TABLE>
<CAPTION>
                                                                                  2003           2002
                                                                              -----------    -----------
<S>                                                                           <C>            <C>
                            LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
      Current portion of long-term debt                                       $   144,183    $   134,981
      Accounts payable                                                            233,802        262,879
      Accrued taxes                                                               106,592        166,744
      Other                                                                       137,042        174,534
                                                                              -----------    -----------
                                                                                  621,619        739,138
                                                                              -----------    -----------

LONG-TERM DEBT, less current portion                                            1,633,461      1,777,644
                                                                              -----------    -----------

DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES                                 497,795        105,534
                                                                              -----------    -----------

STOCKHOLDERS' EQUITY
      Common stock - no par value, 5,000,000 shares authorized, 31,694 and
          33,000 shares issued and outstanding at $303 and $280
          stated values, respectively                                           9,603,282      9,240,000
      Retained earnings                                                         5,161,365      4,824,971
                                                                              -----------    -----------
                                                                               14,764,647     14,064,971
                                                                              -----------    -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                    $17,517,522    $16,687,287
                                                                              ===========    ===========
</TABLE>

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


                                       49
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                        CONSOLIDATED STATEMENTS OF INCOME
                     Years Ended December 31, 2003 and 2002

                                                        2003            2002
                                                    -----------     -----------

OPERATING REVENUES                                  $ 6,197,297     $ 5,988,405
                                                    -----------     -----------

OPERATING EXPENSES
      Cost of services                                2,604,184       2,325,632
      Depreciation and amortization                   1,057,290       1,070,569
      Selling, general, and administrative            1,821,600       1,772,184
                                                    -----------     -----------
                                                      5,483,074       5,168,385
                                                    -----------     -----------

OPERATING INCOME                                        714,223         820,020
                                                    -----------     -----------

OTHER INCOME (EXPENSES)
      Interest and dividend income                      277,690         299,276
      Interest expense                                 (136,909)       (146,571)
      Income from equity investments                  1,039,402         918,511
      Other, net                                          5,288          90,213
                                                    -----------     -----------
                                                      1,185,471       1,161,429
                                                    -----------     -----------

INCOME BEFORE INCOME TAXES                            1,899,694       1,981,449
                                                    -----------     -----------

INCOME TAXES                                            710,188         692,260
                                                    -----------     -----------

INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING
    CHANGE                                            1,189,506       1,289,189
                                                    -----------     -----------

CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF
    TAX                                                      --         (70,768)
                                                    -----------     -----------

NET INCOME                                          $ 1,189,506     $ 1,218,421
                                                    ===========     ===========

NET INCOME PER COMMON SHARE BEFORE CUMULATIVE
    EFFECT OF ACCOUNTING CHANGE                     $     36.89     $     37.95

CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF
      TAX                                                    --           (2.08)
                                                    -----------     -----------

NET INCOME PER COMMON SHARE                         $     36.89     $     35.87
                                                    ===========     ===========

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


                                       50
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                           December 31, 2003 and 2002

<TABLE>
<CAPTION>
                                           Common Stock
                                      -----------------------         Retained
                                      Shares         Amount           Earnings            Total
                                      ------      -----------       -----------       ------------
<S>                                   <C>         <C>               <C>               <C>
Balance at December 31, 2001          35,025      $ 9,036,450       $ 4,475,000       $ 13,511,450

   Comprehensive income:

      Net income                                                      1,218,421          1,218,421

   Dividends paid                                                      (104,214)          (104,214)

   Common stock redeemed, net         (2,025)        (560,686)                            (560,686)

   Stated value stock adjustment                      764,236          (764,236)
                                      ------      -----------       -----------       ------------

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
                                      ======      ===========       ===========       ============
</TABLE>

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


                                       51
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     Years Ended December 31, 2003 and 2002

<TABLE>
<CAPTION>
                                                                                  2003            2002
                                                                              -----------     -----------
<S>                                                                           <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
      Net income                                                              $ 1,189,506     $ 1,218,421
        Adjustments to reconcile net income to net cash provided by
        operating activities:
          Depreciation and amortization                                         1,057,290       1,070,569
          Deferred income taxes                                                   349,694             739
          Amortization of investment tax credits                                   (9,769)         (9,769)
          Equity income in unconsolidated affiliates, net of distributions
            received of $676,786 and $197,264 in 2003 and 2002,
            respectively                                                         (362,616)       (721,247)
          Note receivable discount                                                (14,342)        (17,290)
          Gain on sale of building                                                     --         102,611
          Cumulative effect of accounting change                                       --         119,945
      Changes in assets and liabilities:
          (Increase) Decrease in:
              Receivables                                                         287,437        (292,284)
              Prepayments                                                          61,174          66,520
              Inventory                                                           (16,893)          1,914
          Increase (Decrease) in:
              Accounts payable                                                    (29,077)         67,869
              Accrued taxes                                                       (60,152)         25,640
              Other                                                               (37,492)         16,743
                                                                              -----------     -----------
          Net cash provided by operating activities                             2,414,760       1,650,381
                                                                              -----------     -----------

CASH FLOWS FROM INVESTING ACTIVITIES
      Capital expenditures                                                     (1,008,124)       (754,895)
      Purchase of investments                                                  (1,747,160)     (1,464,892)
      Purchase of other investments - at equity                                  (125,500)       (248,273)
      Purchase of other investments - at cost                                      (3,566)         (3,400)
      Issuance of notes receivable                                                     --        (160,000)
      Proceeds from the sale of investments                                     1,052,898         999,499
      Proceeds from the sale of other investments - at cost                         6,319           7,333
      Repayment of notes receivable                                               208,000              --
      Cost of removing plant, net of salvage                                           --             831
                                                                              -----------     -----------
          Net cash used in investing activities                                (1,617,133)     (1,623,797)
                                                                              -----------     -----------

CASH FLOWS FROM FINANCING ACTIVITIES
      Repayment of long term debt                                                (134,981)       (126,365)
      Common stock redeemed, net                                                 (391,394)       (560,686)
      Dividends paid                                                              (98,436)       (104,214)
                                                                              -----------     -----------
          Net cash used in financing activities                               $  (624,811)    $  (791,265)
                                                                              -----------     -----------
</TABLE>

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


                                       52
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     Years Ended December 31, 2003 and 2002

                                                          2003          2002
                                                       ----------    ----------

Net Increase (Decrease) in Cash and Cash Equivalents   $  172,816    $ (764,681)

Cash and Cash Equivalents at Beginning of Year          1,032,734     1,797,415
                                                       ----------    ----------

Cash and Cash Equivalents at End of Year               $1,205,550    $1,032,734
                                                       ==========    ==========

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


                                       53
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

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 company 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, Tele-Services,
      Ltd., and Westside Independent Telephone Company, (herein referred to as
      "the Company"). All material intercompany transactions have been
      eliminated in consolidation.

      Cash and Cash Equivalents

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

      Investments

      Certificates of deposit bought and held by the Company until maturity are
      carried at cost, which approximates market.

      Debt and marketable 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. Debt and marketable 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.


                                       54
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

NOTE 1. SUMMARY OF SIGNIFICANT 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 and employee benefits.

      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 together with removal cost 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.


                                       55
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

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 property and equipment,
      partnership interests 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 tariffed and
      contracted rates.


                                       56
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      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.

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

      Reclassifications

      Certain reclassifications have been made to the 2002 consolidated
      financial statements to conform with the 2003 presentation.

NOTE 2. TEMPORARY INVESTMENTS AND MARKETABLE SECURITIES

      The amortized cost and fair value of certificates of deposits and
      investments classified as held-to-maturity are as follows:

<TABLE>
<CAPTION>
                                                                 Gross               Gross
                                           Amortized          Unrealized           Unrealized            Fair
                                              Cost               Gains               Losses              Value
                                           ----------         -----------          ----------         ----------
<S>                                        <C>                <C>                  <C>                <C>
             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
                                           ==========         ===========          ==========         ==========

             December 31, 2002

      Certificates of deposit              $  275,000         $                    $                  $  275,000

      Held-to-Maturity:
             Municipal bonds                2,971,671             134,022              (4,449)         3,101,244
             Government securities            348,964                 858              (2,436)           347,386
                                           ----------         -----------          ----------         ----------
                                           $3,595,635         $   134,880          $   (6,885)        $3,723,630
                                           ==========         ===========          ==========         ==========

<CAPTION>
                                              2003                2002
                                           ----------         -----------
<S>                                        <C>                <C>
      Amounts classified as:
             Current                       $  361,543         $   459,059
             Noncurrent                     3,928,354           3,136,576
                                           ----------         -----------
                 Total                     $4,289,897         $ 3,595,635
                                           ==========         ===========
</TABLE>


                                       57
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

NOTE 2. TEMPORARY INVESTMENTS AND MARKETABLE SECURITIES (Continued)

      Certificates of deposit and investments classified as held-to-maturity at
      December 31, 2003 are summarized below by contractual maturity date:

<TABLE>
<CAPTION>
                                                           Amortized Cost       Fair Value
                                                           --------------       ----------
<S>                                                          <C>                <C>
            Due in one year or less                          $  361,543         $  364,441
            Due after one year through three years              815,953            858,441
            Due after three years through five years            954,994            990,420
            Due after five years                              2,157,407          2,165,868
                                                             ----------         ----------
                                                             $4,289,897         $4,379,170
                                                             ==========         ==========
</TABLE>

NOTE 3. NOTES RECEIVABLE

      Notes receivable consist of the following:

                                                      2003          2002
                                                    --------      --------

      Desktop Media, L.L.C. - 13%                   $435,134      $468,792
      Toyne, Inc.           -  7%                         --       160,000
                                                    --------      --------
                                                     435,134       628,792
                 Less current portion                144,000       116,000
                                                    --------      --------
                                                    $291,134      $512,792
                                                    ========      ========

      The note with Desktop Media, L.L.C., has an original balance of $500,000,
      matures in 2006 and reflects interest at 13%. The note is shown net of
      unamortized discounts of $16,866 and $31,208 at December 31, 2003 and
      2002, 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 Media, L.L.C. to defer principal
      payments due in the months of September through December 2003.

      During September 2001, the Company entered into a contract with Toyne,
      Inc. to sell its corporate building for $200,000. The Company received a
      cash deposit of $20,000 and the contract established payment terms. On
      October 15, 2002, the Company received a promissory note for the $180,000
      at a rate of 7%. The transaction resulted in a before tax gain of $102,611
      in 2002. The note was paid in full during 2003.


                                       58
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

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:

                                                   2003            2002
                                                ----------      ----------

      Alpine Communications, L.C                $1,300,446      $  988,228
      RSA #1, Ltd.                                 836,306         693,328
      RSA #7, Ltd.                                 275,062         244,490
      RSA #8, Ltd.                                 704,972         534,867
      RSA #9, Ltd                                  704,737         860,493
      Quad County Communications                    86,350          98,738
      Carroll County Wireless, L.L.C                25,273          24,886
      Guthrie Group, L.L.C                           9,129           9,129
                                                ----------      ----------
                                                $3,942,275      $3,454,159
                                                ==========      ==========

      The Company continues to have a 17.42% ownership interest in Alpine
      Communications, L.C. (Alpine). The Alpine group operates several telephone
      exchanges in eastern Iowa.

      The Company's percentage ownership interests in RSA #1, Ltd., RSA #7,
      Ltd., RSA #8, Ltd. and RSA #9, Ltd. are 9.1%, 7.1%, 11.7% and 16.7%,
      respectively, at December 31, 2003.

      Additionally, Westside Independent Telephone Company, a wholly-owned
      subsidiary of Breda Telephone Corporation, has a 33.33% ownership interest
      in Quad County Communications (Quad County). This entity owns and operates
      a fiber optic network.

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

      Investments with less than a 20% ownership are carried at equity due to
      the level of influence the Company has with respect to each investment.


                                       59
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

NOTE 4. OTHER INVESTMENTS (Continued)

      Condensed consolidated financial data for the twelve months ended
      September 30, 2003 and 2002 for Alpine, RSA #1, RSA #7, RSA #8, RSA #9,
      and Quad County is as follows:

                                                 2003              2002
                                             -----------       -----------

      Revenues                               $42,408,080       $41,987,013
      Expenses                                30,407,082        30,542,190
                                             -----------       -----------
      Net Income                             $12,000,998       $11,444,823
                                             ===========       ===========

      Current assets                         $13,948,541       $13,208,958
      Non-current assets                      35,863,771        35,823,617
      Current liabilities                      4,417,295         4,753,174
      Non-current liabilities                 14,693,369        16,845,194

      LONG-TERM INVESTMENTS AT COST

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

                                                              2003        2002
                                                            --------    --------

      NECA Services, Inc. - stock                           $300,000    $300,000
      Rural Telephone Finance Cooperative - certificates     189,317     192,070
      Rural Telephone Bank - stock                           165,789     165,789
      Iowa Network Services - stock                           78,705      78,705
      Desktop Media, L.L.C                                    60,000      60,000
      NRTC Patronage Capital - certificates                   52,336          --
      Other                                                   11,000      11,000
                                                            --------    --------
                                                            $857,147    $807,564
                                                            ========    ========

      The NRTC declares and Breda Telephone Corporation receives a yearly
      patronage dividend based on the NRTC's profitability. Of the total
      dividend, 30% is received in cash and 70% is distributed in the form of
      NRTC patronage capital certificates, which will be redeemed in cash at a
      future date at the discretion of the NRTC. The Company has recorded an
      asset and an offsetting deferred income liability for the noncash portion
      of the patronage dividend. The deferred income is recognized as revenue
      when cash distributions are declared by the NRTC. Deferred revenue
      included in other liabilities was $52,336 at December 31, 2003.


                                       60
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

NOTE 5. GOODWILL

      Goodwill consists of the following:

                                                  2003            2002
                                                --------      -----------

      Balance, Beginning of Year                $896,812      $ 1,016,757
           Goodwill acquired                          --               --
           Goodwill impairment                        --         (119,945)
                                                --------      -----------
      Balance, End of Year                      $896,812      $   896,812
                                                ========      ===========

      In accordance with SFAS 142, the Company annually assesses its recorded
      balances of goodwill. The Company determined an impairment of $119,945,
      related to goodwill, existed on January 1, 2002. It was determined that
      the goodwill related to the purchase price of Westside Communications,
      Inc., which is a component of the broadcast segment, was impaired. Fair
      value was determined using a discounted cash flow method. The impairment
      loss of $70,768, net of tax, is presented in the income statement as a
      cumulative effect of an accounting change.


                                       61
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

NOTE 6. PROPERTY, PLANT AND EQUIPMENT

      Property, plant and equipment includes the following:

                                                          2003           2002
                                                      -----------    -----------
      Telephone plant in service:
            Land                                      $    41,508    $    41,508
            Buildings                                   1,580,697      1,210,087
            Other general support assets                1,571,269      1,465,661
            Central office assets                       2,618,151      2,256,252
            Cable and wire facilities                   4,452,624      4,448,036
            Other plant and equipment                     838,091        788,148
                                                      -----------    -----------
                                                       11,102,340     10,209,692
                                                      -----------    -----------

      Cable television plant in service:
            Land                                            6,086          6,086
            Buildings                                     127,937        127,938
            Other plant and equipment                     180,098        177,445
            Towers, antennas and head end equipment     1,516,105      1,509,394
            Cable and wire facilities                   1,573,524      1,573,524
            Franchises                                     32,992         32,992
                                                      -----------    -----------
                                                        3,436,742      3,427,379
                                                      -----------    -----------

            Total property, plant and equipment        14,539,082     13,637,071
            Less accumulated depreciation               9,468,930      8,468,035
                                                      -----------    -----------
                                                        5,070,152      5,169,036
            Plant under construction                       70,857         21,140
                                                      -----------    -----------
                                                      $ 5,141,009    $ 5,190,176
                                                      ===========    ===========

      Telephone cable and wire facilities of approximately $675,000 and cable
      television head end equipment of approximately $525,000 was fully
      depreciated in 2003. Depreciation on depreciable property resulted in
      composite rates of 7.5% and 8.1% for 2003 and 2002, respectively.


                                       62
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

NOTE 7. INCOME TAXES

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

                                                         2003          2002
                                                      ---------     ---------
      Federal income taxes:
            Current tax expense                       $ 238,562     $ 503,880
            Deferred tax expense (benefit)              264,048          (531)
            Amortization of investment tax credits       (9,769)       (9,769)
      State income taxes:
            Current tax expense                         131,701       198,888
            Deferred tax expense (benefit)               85,646          (208)
                                                      ---------     ---------
      Total income tax expense                        $ 710,188     $ 692,260
                                                      =========     =========

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

                                                        2003        2002
                                                      --------    --------
      Deferred Tax Liabilities
           Federal                                    $426,338    $269,312
           State                                       139,907      79,530
                                                      --------    --------
               Total Deferred Tax Liabilities          566,245     348,842
                                                      --------    --------

      Deferred Tax Assets
           Federal                                      90,324     197,347
           State                                        44,934      70,202
                                                      --------    --------
               Total Deferred Tax Assets               135,258     267,549
                                                      --------    --------

           Net Deferred Tax Liability                 $430,987    $ 81,293
                                                      ========    ========

      Current Portion                                 $     --    $     --
      Long-term Portion                                430,987      81,293
                                                      --------    --------
           Net Deferred Tax Liability                 $430,987    $ 81,293
                                                      ========    ========

      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 2003 and 2002
      totaled $425,260 and $566,317, respectively.


                                       63
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

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:

                                                       2003        2002
                                                      ------      ------

      Statutory federal income tax rate                 34.0%       34.0%
      State income taxes, net of federal benefit        10.1%        9.6%
      Amortization of investment tax credits            (0.1)%      (0.1)%
      Dividends received deduction                      (1.4)%      (1.5)%
      Tax exempt interest                               (3.7)%      (3.9)%
      Other                                             (1.5)%      (3.2)%
                                                      ------      ------
            Effective income tax rate                   37.4%       34.9%
                                                      ======      ======

      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:

                                                     2003          2002
                                                  ----------    ----------
      Rural Telephone Finance Cooperative
         7.35% (Fixed Rate)                       $1,777,644    $1,912,625
            Less current portion                     144,183       134,981
                                                  ----------    ----------
                                                  $1,633,461    $1,777,644
                                                  ==========    ==========

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

                     2004                                $144,183
                     2005                                 154,013
                     2006                                 164,513
                     2007                                 175,729
                     2008                                 187,710

      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.


                                       64
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

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
      4.65% at December 31, 2003. No funds were advanced under the line at
      December 31, 2003.

      In addition, Prairie Telephone Company, Inc. a wholly-owned subsidiary of
      Breda Telephone Corporation, 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 4.65% at December 31, 2003. No funds were advanced under
      the line at December 31, 2003.

      Cash paid for interest net of amounts capitalized for 2003 and 2002
      totaled $136,909 and $146,571, 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.


                                       65
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

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
                   2003                      Carrier         Broadcast          Provider          Other           Total
      -------------------------------      -----------      -----------       -----------       --------       -----------
<S>                                        <C>              <C>               <C>               <C>            <C>
      Revenues and sales                   $ 4,661,184      $   909,292       $   626,821       $     --       $ 6,197,297
      Intersegment income and sales                 --               --                --             --                --
      Interest income                          273,486            4,052               152             --           277,690
      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

                   2002
      -------------------------------

      Revenues and sales                   $ 4,287,041      $   975,336       $   726,028       $     --       $ 5,988,405
      Intersegment income and sales                 --               --                --             --                --
      Interest income                          291,951            7,321                 4             --           299,276
      Interest expense                         146,571               --                --             --           146,571
      Depreciation and amortization            667,403          310,214            92,952             --         1,070,569
      Income tax expense (benefit)             810,014          (29,439)          (86,273)        (2,042)          692,260
      Segment profit (loss)                  1,384,318         (114,925)          (47,807)        (3,165)        1,218,421
      Segment assets                        14,345,956        1,463,418           828,015         49,898        16,687,287
      Expenditures for segment assets          596,549           14,136           144,210             --           754,895
</TABLE>


                                       66
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

NOTE 9. OPERATING SEGMENTS INFORMATION (Continued)

      Reconciliation of Segment Information             2003           2002
      -------------------------------------          -----------   ------------

      REVENUES:
            Total revenues for reportable segments   $ 6,197,297   $  5,988,405
            Other revenues                                    --             --
                                                     -----------   ------------
                 Consolidated Revenues               $ 6,197,297   $  5,988,405
                                                     ===========   ============

      PROFIT:
            Total Profit for reportable segments     $ 1,189,506   $  1,221,586
            Other profit (loss)                               --         (3,165)
                                                     -----------   ------------
                 Net Income                          $ 1,189,506   $  1,218,421
                                                     ===========   ============
      ASSETS:
            Total assets for reportable segments     $17,517,522   $ 16,637,389
            Other assets                                      --         49,898
            Elimination of intercompany receivables           --             --
                                                     -----------   ------------
                 Consolidated Assets                 $17,517,522   $ 16,687,287
                                                     ===========   ============

NOTE 10. NET INCOME PER COMMON SHARE

      Net income per common share for 2003 and 2002 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, 2003 and 2002 were 32,241 and 33,968,
      respectively.

NOTE 11. STOCK VALUE ADJUSTMENT

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

      During May 2002, the board of directors authorized a $22 increase in the
      stated value of each share of common stock from $258 to $280. There were
      34,738 shares outstanding at the time of the value adjustment, which
      reduced earnings by $764,236.


                                       67
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

NOTE 12. STOCK RESTRICTIONS

      The Company as 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 adopted for its employees who have met certain eligibility
      requirements, a defined benefit retirement and security program sponsored
      by the National Telephone Cooperative Association (NTCA). The plan calls
      for the Company to contribute 8.6 % of each enrolled employees' annual
      gross salary. As a condition of participation, each participating employee
      must also contribute a minimum 3% of their annual gross salary.
      Contributions made by the Company totaled $92,016 and $88,860 for the
      years ended December 31, 2003 and 2002, respectively.


                                       68
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

NOTE 14. ASSET RETIREMENT OBLIGATION

      SFAS No. 143, "Accounting for Asset Retirement Obligations," was issued in
      June 2001, and became effective for the Company beginning January 1, 2003.
      SFAS No. 143 requires entities to record the fair value of a liability for
      legal obligations associated with as 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 adopted SFAS No. 143 effective January 1, 2003. The Company
      has determined it does not have a material legal obligation to remove
      long-lived assets as described by SFAS No. 143, and accordingly, adoption
      of SFAS No. 143 did not have a material impact on the Company's financial
      statements for the year ended December 31, 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, 2003 and 2002 were approximately
      $1,018,000 and $778,500, respectively. At December 31, 2003 and 2002,
      $102,754 and $111,755 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 franchised service area, broadcast customers, internet
      customers and telecommunications intrastate and interstate long distance
      carriers.

      The Company received 39% of its 2003 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.


                                       69
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002

NOTE 17. WIRELESS TERMINATING ACCESS REVENUE

      The Iowa Utilities Board issued an order on November 26, 2001, which
      stated that Qwest Corporation would not be required to pay access charges
      for calls placed by a wireless customer to a wireline customer carried by
      Qwest. Sufficient information related to the calling party is not being
      provided to the Company by Qwest on the toll records. Accordingly, the
      Company is not able to ascertain whether the caller is a wireline or
      wireless customer and whether access charges are or are not due to the
      Company. As a result, the Company continues to bill Qwest access for all
      terminating minutes and has had to rely on Qwest to provide adjustments
      for their estimate of the wireless minutes. Qwest issued a bill to the
      Company asking for refunds of amounts paid to the Company during the
      period April 1999 through February 2002 that Qwest contends were
      mistakenly overpaid to the Company for access charges during that period.
      The Company has accrued this bill for $22,600 which is in accounts payable
      at December 31, 2003. During the years ended December 31, 2003 and 2002,
      the Company has reduced its revenues approximately $169,000 and $72,000,
      respectively, related to Qwest estimated wireless terminating access that
      the Company has billed but to which Qwest has not paid.

NOTE 18. CONTINGENCY

      Qwest Communications initiated an inquiry of twenty Iowa local exchange
      carriers. As a result of the inquiry, the Company found in October 2003
      that Qwest had been inappropriately routing cellular phone traffic through
      the Company's toll facilities. Upon discovery of this, Qwest rerouted this
      cellular traffic so that it no longer goes through the Company's
      facilities. The Company has taken the position that this traffic was
      routed over its network and the access that Qwest has paid to them was
      appropriately billed. Accordingly, the Company believes that this issue
      will not effect prior periods. The Company has estimated that network
      access revenues will decrease by approximately $200,000 in 2004.


                                       70
<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 that has materially affected, or is
      reasonably likely to materially affect, Breda's internal control over
      financial reporting.

                                    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)
            ----               ---              -----------

      Dean Schettler            51          Vice-President and
                                            Director

      Clifford Neumayer         55          President and
                                            Director

      Larry Daniel              61          Secretary and
                                            Director

      Charles Thatcher          52          Director

      Rick Anthofer             47          Director

      John Wenck                64          Director

      Dave Grabner              55          Director and
                                            Treasurer


                                       71
<PAGE>

      Dean Schettler has been a director of Breda since April, 1997. He was
      re-elected as a director at the May 20, 2003 annual meeting of the
      shareholders of Breda, and 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.

      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 is 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.

      Larry Daniel has been a director of Breda since April, 1995, and the
      Secretary since May, 1996. His current term as a director of Breda will
      end at the annual shareholders meeting which is held in 2004. He has also
      held each of those positions with each of Breda's subsidiaries since
      April, 1995. Mr. Daniel has been self-employed as a farmer for
      approximately 39 years.

      Charles (Chuck) Thatcher has been a director of Breda since May, 2001. His
      current term as a director of Breda will end at the annual shareholders
      meeting which is held in 2004. 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 19 years. Midwest Wholesale Building Products is a
      wholesaler/retailer of lumber, building products and materials.

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


                                       72
<PAGE>

      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. He was
      re-elected as a director at the May 20, 2003 annual meeting of the
      shareholders of Breda, 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 is currently self-employed as a farmer. He was also previously
      employed by the United Parcel Service as a delivery driver.

      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 is 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 33
      years. He was also previously self-employed as a farmer.

      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:

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

         Robert J. Boeckman          42         Chief Operations Officer and
                                                Co-Chief Executive Officer

         Jane A. Morlok              50         Chief Financial Officer and
                                                Co-Chief Executive Officer


                                       73
<PAGE>

      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 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


                                       74
<PAGE>

      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 2003 to the procedures by which the
      shareholders of Breda designate the nominees for election as a director of
      Breda.

      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 is, however, in the process of developing 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 2004.

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, in the
      2003, 2002 and 2001 fiscal years and Jane Morlok, Breda's chief financial
      officer in the 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.

<TABLE>
<CAPTION>
                              Summary Compensation Table
                              --------------------------

      Name and                                         Other Annual      All Other
      Position             Year   Salary(1)   Bonus   Compensation(2) Compensation(3)
      --------             ----   ---------   -----   --------------- ---------------
<S>                        <C>     <C>       <C>          <C>             <C>
      Robert J. Boeckman,  2003    $87,490   $11,900      $ 1,508         $21,061
      Chief Operations     2002    $84,341   $ 9,082      $ 1,795         $18,067
         Officer           2001    $81,853   $11,200      $ 2,370         $18,157

      Jane Morlok,         2003    $81,425   $ 9,600      $ 1,521         $20,246
      Chief Financial      2002    $78,602   $ 8,250      $ 1,808         $17,282
         Officer
</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
            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.


                                       75
<PAGE>

            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. See also footnote 1 above regarding
            participants' contributions to the program. This amount also
            includes a long term disability contribution of 1.53% 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.

      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


                                       76
<PAGE>

      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. 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 $222.

      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. Breda does not believe
      that the employment agreements were materially different from Breda's
      prior employment agreements with Mr. Boeckman and Ms. Morlok, with the
      exceptions that the employment agreements did include compensation
      adjustments and longer terms.

      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.

      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,


                                       77
<PAGE>

            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.

      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 is $87,500 for
      the calendar year 2003, and is increased to $90,000 and $92,500 for,
      respectively, the 2004 and 2005 calendar years. 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 the 2003 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


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<PAGE>

      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 is
                  $81,500 for the calendar year 2003, and is increased to
                  $83,000 and $84,500 for, respectively, the 2004 and 2005
                  calendar years.

      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, 2004 by:

            o     each of Breda's directors;

            o     each of Breda's officers;


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<PAGE>

            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                .0947%
      16326 120th St
      Breda, Iowa 51436

      Clifford Neumayer                         181                .5711%
      11846 Ivy Avenue
      Breda, Iowa 51436

      Larry Daniel                                4                .0126%
      15731 Robin Avenue
      Glidden, Iowa 51433

      Rick Anthofer                               3                .0095%
      301 N. 4th
      Breda, Iowa 51436

      John Wenck                                  6                .0189%
      23909 140th St
      Carroll, Iowa 51401

      Charles Thatcher                            2*               .0063%
      15053 Granite Avenue
      Breda, Iowa 51436

      Dave Grabner                               55**              .1735%
      11098 130th Street
      Breda, Iowa 51436

      Robert Boeckman                            30                .0947%
      23678 150th Street
      Carroll, Iowa 51401

      All directors and officers                311                .9813%
      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.


                                       80
<PAGE>

      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

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

Item 13. Exhibits and Reports on Form 8-K.

      (a)   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.

      (b)   Breda did not file any reports on Form 8-K during the period of
            October 1, 2003 through December 31, 2003.

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,
      2002 and December 31, 2003.

      Audit Fees.

      Breda was billed $60,460 and $32,520 for, respectively, the fiscal years
      ended December 31, 2002 and December 31, 2003 for the audit of Breda's
      annual financial statements and review of the financial statements
      included in Breda's quarterly reports


                                       81
<PAGE>

      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 $29,920 and $45,875 for, respectively, the fiscal years
      ended December 31, 2002 and December 31, 2003 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 $2,750 and $3,225 for, respectively, the fiscal years
      ended December 31, 2002 and December 31, 2003 for tax compliance, tax
      advice and tax planning services. The nature of those services was tax
      return and estimated tax preparation work.

      All Other Fees.

      Breda was billed $14,375 and $10,180 for, respectively, the fiscal years
      ended December 31, 2002 and December 31, 2003 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, 2002 or December 31, 2003.

      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).


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<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: March 26, 2004                    By: /s/ Robert Boeckman
                                            ------------------------------------
                                            Robert Boeckman, Chief Operations
                                            Officer and Co-Chief Executive
                                            Officer


Date: March 26, 2004                    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/ Larry Daniel
    --------------------------------        ------------------------------------
    Clifford Neumayer, President            Larry Daniel, Secretary
    and Director                            and Director
Date: March 26, 2004                    Date: March 26, 2004


By: /s/ Rick Anthofer                   By: /s/ John Wenck
    --------------------------------        ------------------------------------
    Rick Anthofer, Director                 John Wenck, Director
Date: March 26, 2004                    Date: March 26, 2004


By: /s/ Dean Schettler                  By: /s/ Dave Grabner
    --------------------------------        ------------------------------------
    Dean Schettler, Vice-President          Dave Grabner, Treasurer
    and Director                            and Director
Date: March 26, 2004                    Date: March 26, 2004


By: /s/ Charles Thatcher                /s/ Robert J. Boeckman
    --------------------------------    ----------------------------------------
    Charles Thatcher, Director          Robert J. Boeckman, Chief Operations
Date: March 26, 2004                    Officer and Co-Chief Executive Officer
                                        Date: March 26, 2004


                                        /s/ Jane Morlok
                                        ----------------------------------------
                                        Jane Morlok, Chief Financial Officer and
                                        Co-Chief Executive Officer
                                        Date: March 26, 2004


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<PAGE>

                                  EXHIBIT INDEX
                Exhibits to Form 10-KSB of Breda Telephone Corp.
                   for the Fiscal Year Ended December 31, 2003

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 Amendment No. 1 to
                  Breda's Registration Statement on Form 10-SB, 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.                                  E-1

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

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

<PAGE>

            31.2  Rule 13a-14(a) Certification of Chief Financial            E-3
                  Officer and Co-Chief Executive Officer

      *32.  Section 1350 Certifications

            32.1  Section 1350 Certification of Chief Operations             E-4
                  Officer and Co-Chief Executive Officer

            32.2  Section 1350 Certification of Chief Financial              E-5
                  Officer and Co-Chief Executive Officer

*     Included with this filing.