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, 2001.


             [ ] 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.)


Highway 217 East, 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: $5,884,244

     State the aggregate market value of the voting and non-voting common equity
held by non-affiliates:  $8,897,646, as of March 1, 2002. 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  $258 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:  34,858 shares of common
stock, no par value, at March 1, 2002.

     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, 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 anticipated future trends in revenues and
net  income,  projections  concerning  operations  and  cash  flow,  growth  and
acquisition opportunities, management's plans and intentions for the future, and
other similar forecasts and statements of expectation.  Words such as "expects,"
"estimates,"  "plans,"  "anticipates,"  "contemplates,"  "predicts,"  "intends,"
"believes,"   "seeks,"  "should,"  "thinks,"   "objectives"  and  other  similar
expressions  or  variations  thereof are  intended to identify  forward  looking
statements. Forward looking statements are made based on estimates, projections,
views,  beliefs 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
risks, uncertainties and assumptions, nearly all of which are beyond the control
of Breda and its management.  The risks, uncertainties and assumptions affecting
forward looking statements include, but are not limited to, the following:

     o    the possible adverse effects to Breda and its  subsidiaries  which may
          arise  under the  Telecommunications  Act of 1996 and the  regulations
          promulgated under that Act, including increased competition;

     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;

     o    technological  advances in the telecommunications and cable industries
          which may replace or otherwise  adversely affect in a material way the
          existing technologies utilized by Breda and its subsidiaries;

     o    employee relations;

     o    management's business strategies;

     o    general  industry   conditions,   including   consolidations   in  the
          telecommunications and cable industries;

     o    general  economic  conditions  at the  national,  regional  and  local
          levels;

     o    acts or omissions of competitors and other third parties;

     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   and  cable  industries,   and  in
          particular  programs  which aid  providers of those  services to rural
          areas; and

     o    continued availability of financing, and on favorable terms.


                                       (i)
<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 now provided by two of Breda's wholly owned subsidiaries,
     Prairie Telephone Co., Inc. and Westside  Independent  Telephone Company. A
     total of seven  Iowa  towns and their  surrounding  rural  areas  currently
     receive  telephone  services  from  Breda,  Prairie  Telephone  or Westside
     Independent.

     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.  Breda's
     acquisition of Westside Independent is discussed below.

     Another of Breda's wholly owned subsidiaries, Tele-Services, Ltd., provides
     cable  television  services  to  eighteen  towns  in Iowa  and one  town in
     Nebraska.  Tele-Services  is an Iowa  corporation.  It was  incorporated in
     1983.

     Westside   Communications,   Inc.   was  a  wholly  owned   subsidiary   of
     Tele-Services  that provided cable  television  services to two Iowa towns.
     Westside  Communications 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. The dissolution of Westside  Communications
     and the transfer of its assets to  Tele-Services  and the assumption of its
     liabilities by  Tele-Services  did not have any material  adverse effect on
     the operations or financial condition of Tele-Services. The dissolution was
     effectuated  primarily for  administrative  convenience.  Tele-Services had
     acquired the stock of Westside Communications in June, 1998. Tele-Services'
     acquisition of Westside Communications is discussed below.

     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 briefly discussed below.


<PAGE>


     Local Exchange Carrier Services.

     Breda,   Prairie  Telephone  and  Westside  Independent  provide  telephone
     services  to the  following  seven 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

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

     All of the towns are in central and southern Iowa.

     The primary  services  provided by Breda,  Prairie  Telephone  and Westside
     Independent  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, 2001,  they were serving  approximately
     2,649 telephone numbers and related access lines. Breda,  Prairie Telephone
     and Westside  Independent  derive their  principal  revenues from providing
     these services.

     They 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  and  Westside  Independent  are all  subject to
     regulation  by  the  Iowa  Utilities  Board  ("IUB").  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  and  Westside   Independent's
     telephone businesses. The material areas of regulation are as follows:

     o    Breda,  Prairie  Telephone  and  Westside  Independent  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

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<PAGE>


          and  facilities  provided by Breda,  Prairie  Telephone  and  Westside
          Independent.   Their  existing  services  and  facilities  meet  those
          standards.  The  regulations  also require them to maintain and repair
          their existing facilities as necessary in order to continue to meet at
          least those minimum  standards.  The  regulations  also establish time
          frames within which Breda,  Prairie Telephone and Westside Independent
          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 in the  telephone  service areas
          currently served by Breda, Prairie Telephone and Westside Independent.
          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  or  Westside
          Independent,  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 or Westside  Independent will be approved
          by the IUB.  (FCC  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 rural  telephone  providers.  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, and the loss of the designation 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,  in the  aggregate,  approximately
          $79,680 in  universal  services  funding in 1999,  $85,223 in 2000 and
          $90,695  in  2001.  Breda  anticipates  receiving  universal  services
          funding in 2002 in an amount comparable to that received in 2001.

     o    Breda,  Prairie  Telephone  and  Westside  Independent  are  currently
          treated as rural telephone companies under the  Telecommunications Act
          of 1996,  which generally means that they may be exempted from some of
          the duties  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   or  Westside   Independent's   networks  is  not  unduly
          economically

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<PAGE>


          burdensome,  is not technically  unfeasible,  and would not affect the
          provision  of  universal  service.  It is not  possible to  accurately
          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 and Westside Independent would face competition in providing
          telephone services that they have not faced in the past.

     Breda,  Prairie  Telephone  and  Westside  Independent  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  and  Westside  Independent  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 and Westside  Independent,  and is discussed
          below and in the "Overview" section in Item 6 of this annual report.

     o    The FCC must approve of any expansion in the  telephone  service areas
          currently served by Breda, Prairie Telephone and Westside Independent.
          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  or  Westside
          Independent, 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 or Westside Independent 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  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  accurately  predict how the FCC will allocate the support
          payment funding in any year, but the amount of support payment funding
          received by Breda,  Prairie  Telephone and Westside  Independent  will
          vary from year to year. For example,  Breda,  Prairie  Telephone,  and
          Westside Independent received,  in the aggregate,  $404,136 in support
          payment funding in 1999, $410,279 in 2000, and $416,075 in 2001. 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,  Prairie  Telephone and Westside  Independent  because they derive a
     substantial amount of their

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<PAGE>


     overall  revenues from access charge  revenues.  They receive access charge
     revenues  from  long  distance  carriers  (sometimes  referred  to  in  the
     telephone  industry as  "inter-exchange  carriers" or "IXCs") for providing
     intrastate  and  interstate   exchange  services  to  those  long  distance
     carriers.  In more basic terms,  they receive  access  charge  revenues for
     originating and terminating long distance calls made by their  subscribers.
     The 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.  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,   Prairie   Telephone's   and  Westside
     Independent's  total revenues,  this is an area of material risk to them. A
     further discussion of this issue is found in the "Overview" section in Item
     6 of this annual report.

     Breda, Prairie Telephone and Westside Independent each have agreements with
     Iowa  Network  Services.  Under those  agreements,  Iowa  Network  Services
     provides Breda,  Prairie Telephone and Westside  Independent 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 and Westside Independent'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 and Westside
     Independent are subject to competition from other providers. As a result of
     the  Telecommunications  Act of 1996,  telephone  companies  are no  longer
     afforded exclusive franchise service areas. Under that Act, competitors can
     now offer telephone services to Breda's,  Prairie  Telephone's and Westside
     Independent'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  contemplates  that
     various  regulations  will be promulgated  by the FCC and state  regulatory
     agencies to implement various parts of the Act, such as regulations setting
     out  the  procedures  and  methodologies  for  implementing  and  promoting
     competition  in  the  telephone  industry.  The  regulations  could  have a
     material adverse effect, and the Act does open up Breda,  Prairie Telephone
     and Westside  Independent 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. If any of those companies choose
     to provide  service in any of  Breda's,  Prairie  Telephone's  or  Westside
     Independent's  service  areas,  there would be a reduction  in revenue.  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

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     know  the  plans  of  any  companies,  but  Breda  currently  believes  the
     possibility of any company  entering any of those service areas in the near
     future is small.

     Although  competition is permitted,  Breda,  Prairie Telephone and Westside
     Independent  currently do not, as indicated above, have direct  competition
     in providing basic local telephone service in their existing service areas.
     They do, however,  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  or  Westside
     Independent'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.

     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. As indicated in the preceding
     paragraph,  cellular  services are competitive with the telephone  services
     provided by Breda, Prairie Telephone and Westside  Independent.  Breda does
     not  believe,   however,   that   investments  in  cellular   ventures  are
     inconsistent or in conflict with Breda's,  Prairie  Telephone's or Westside
     Independent'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.

     Revenues  are also  generated  from sales of  cellular  phones and  related
     service  packages.  For example,  Breda has an agency  agreement  with U.S.
     Cellular which allows Breda to sell cellular phones and related packages to
     the public,  and Breda receives  commissions on those sales.  U.S. Cellular
     has,  however,  previously  notified  Breda  that  the  agreement  would be
     terminated  effective May 31, 2001. U.S. Cellular  subsequently  proposed a
     new  agreement,  but Breda  had  serious  concerns  about  that  agreement,
     including the fact that the new agreement  would pay lower  commissions  to
     Breda. Breda subsequently received a letter from U.S. Cellular stating that
     Breda's current  contract with U.S.  Cellular would be extended to December
     1,  2001,  to attempt to allow the  parties to reach an  agreement  on open
     issues.  U.S.  Cellular has sent Breda another  proposed  agreement.  Breda
     expects  negotiations to finalize this agreement to occur during the second
     quarter  of 2002.  Breda  anticipates  that the new  agreement  will have a
     neutral impact on Breda's cellular commissions revenue.

     Breda,   Prairie   Telephone  and  Westside   Independent  also  experience
     competition in providing  billing and collection  services to long distance
     carriers.  The  competition  is from  third  parties  who  provide  similar
     services. The long distance carriers are also starting to provide their own
     billing and collection services, rather than contracting for those services
     with  others  like  Breda,  Prairie  Telephone  and  Westside  Independent.
     Directory  advertising  is also now  subject  to  competition  because  the
     Telecommunications  Act of 1996  prohibits  Breda,  Prairie  Telephone  and
     Westside

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     Independent from requiring exclusive listings in their phone books.

     Breda,  Prairie Telephone and Westside Independent also face competition in
     the sale and lease of  telephone,  cellular and related  equipment  because
     there are numerous competitors who sell and lease that equipment.

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

     The competition in all of the areas  mentioned in the preceding  paragraphs
     is based primarily on cost, service and experience.

     Broadcast Services.

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

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

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

     As of December 31,  2001,  Tele-Services  was  providing  cable  television
     services to  approximately  3,314  subscribers.  Tele-Services  derives its
     principal  revenues  from  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:

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          o    Arcadia - June, 2009               o    Lohrville - March, 2008
          o    Auburn - January, 2004             o    Malvern - October, 2016
          o    Bayard - May, 2008                 o    Oakland - November, 2009
          o    Beaverlake - December, 2008        o    Riverton - February, 2013
          o    Breda - Year-to-Year Basis         o    Sidney - February, 2005
          o    Churdan - June, 2008               o    Tabor - September, 2016
          o    Farragut - January, 2009           o    Thurman - February, 2013
          o    Grand Junction - May, 2008         o    Treynor - October, 2022
          o    Hamburg-Year-to-Year Basis         o    Westside - June, 2009

     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  those  rates.  Although   Tele-Services  does  not
     anticipate  any  material   difficulties  with  any  future  proposed  rate
     increases,  there can be no guarantee that future proposed increases can be
     implemented in all of the towns.

     The  Telecommunications Act of 1996 also applies to cable services provided
     by local exchange carriers  ("LEC").  The Act eliminates the prohibition on
     LEC provision of video programming in its service area. LECs and others may
     offer video  programming  under regulations that vary according to the type
     of video service being provided  (radio-based,  common  carriage,  cable TV
     systems,  or open video systems).  Under the Act,  regulation is lifted for
     cable  programming,  for a basic  service  tier  that was the only  service
     subject to regulation on December 31, 1994, in any franchise  area in which
     the operator services 50,000 or fewer subscribers.

     The Act provides  several  exceptions for  acquisitions  and joint ventures
     (which  otherwise to a large extent are  prohibited)  for certain small and
     rural systems.  These  exceptions are based on annual  operating  revenues,
     number of cable  subscribers  served,  location  of the  cable  subscribers
     served,  and common  ownership or control issues with any of the 50 largest
     cable TV system  operators in  existence on June 1, 1995,  and if the cable
     system  operates  in a  television  market  not in the top  100  television
     markets as of June 1, 1995.

     A LEC may obtain,  upon agreement with a cable TV operator on rates, terms,
     and

                                        8
<PAGE>


     conditions,  the  use of the  transmission  facilities  of a  cable  system
     extending  from the last  multi-user  terminal  to the  premises of the end
     user,  if  such  use is  reasonably  limited  in  scope  and  duration,  as
     determined  by the FCC.  The Act also  permits  a LEC to  acquire  or joint
     venture  under  different  terms and  conditions in cases where the subject
     market meets the FCC's definition of  "competitive".  Finally,  the FCC may
     waive the acquisition  and joint venture  prohibitions if it determines the
     economic  viability of the market  merits the waiver or that a waiver would
     otherwise be in the public interest,  and the local  franchising  authority
     approves.

     Breda  currently  contemplates  that any  competition in the cable industry
     arising  as a result of the  Telecommunications  Act of 1996 may occur at a
     slower  pace than will be the case for  telephone  services  providers,  in
     particular in rural areas like those served by Tele-Services.

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

     As indicated,  although cable services  providers  like  Tele-Services  are
     subject to competition from other providers,  Tele-Services  currently does
     not have direct  competition  from other cable  services  providers  in the
     towns Tele-Services now services.  There is, however,  competition in other
     forms.  For example,  Tele-Services  experiences  strong  competition  from
     wireless  and  satellite  dish  providers.  As  discussed in Item 6 of this
     annual  report,  that  competition  has been  increasing  in recent  years.
     Various other competitors and forms of competition are also likely to arise
     in the future as technological advances occur in the telecommunications and
     cable industries.

     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.

     Breda,  Prairie  Telephone and Westside  Independent  also provide internet
     access through their telephone lines.  They were providing  internet access
     to approximately  526 subscribers as of December 31, 2001.  Internet access
     is also  provided  by BTC,  Inc.  in some  areas  which are  outside of the
     telephone  exchange areas currently served by Breda,  Prairie Telephone and
     Westside  Independent.  The area  served  by BTC is  currently  limited  to
     Carroll,  Iowa and  various  communities  surrounding  Carroll,  Iowa.  BTC
     provided internet access to approximately  1,984 subscribers as of December
     31, 2001.

                                        9
<PAGE>


     BTC is a wholly  owned  subsidiary  of  Prairie  Telephone.  BTC is an Iowa
     corporation that was incorporated in 1997.

     Breda, Prairie Telephone,  Westside Independent and BTC face competition in
     providing  internet access,  and Breda contemplates that the competition in
     that  area  will  continue  to  increase.   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.

     Breda has investigated and continues to explore  re-engineering options and
     other help-desk and underlying Internet service provider options that would
     reduce  Breda's  costs in order to allow  Breda to compete at a lower price
     point for  Internet  services.  One step that Breda has taken to attempt to
     lower Breda's  underlying  Internet  costs is through  Prairie  Telephone's
     acquisition of a 10% ownership  interest in Desktop Media,  L.L.C.  Desktop
     Media, L.L.C. provides both dial-up and high speed internet access in south
     central Minnesota,  and is a full-scale internet service provider.  Desktop
     Media,  L.L.C.  provides  internet  service  provider  support  services to
     Prairie  Telephone and the other  telephone  companies who have invested in
     Desktop Media, L.L.C. As indicated, one of the intended purposes of Prairie
     Telephone's  relationship  with Desktop  Media,  L.L.C.  is to try to lower
     Breda's and its subsidiaries' costs of providing Internet services in order
     to allow them to  compete at a lower  price  point for  Internet  services.
     Breda also 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, Prairie Telephone and Westside Independent are providing dial-up and
     high speed Internet access to their customers. Breda anticipates that there
     will continue to be competitive  pressure to lower the dial-up rates. Breda
     also  anticipates  that the number of potential  customers will continue to
     increase  and that  Internet  customers  will  continue  to  demand  higher
     Internet  speed.  BTC is currently  providing high speed Internet access by
     leasing lines from Qwest. BTC is in the process of installing  equipment in
     the Qwest  central  office  that will allow BTC to use a new  product  that
     Qwest offers  called line sharing.  It is estimated  that the capital costs
     that will be incurred  by BTC to switch to the line  sharing  product  will
     reach approximately  $50,000, and that this conversion will be completed in
     the second quarter of 2002. Upon the completion of the conversion, BTC will
     be able to offer a more competitively-priced,  high speed Internet service.
     Breda  expects  its  customer  base for high  speed  Internet  to  increase
     significantly during the remainder of 2002.

     BTC was  organized  primarily  to explore  the  possibility  of  becoming a
     competitive  local exchange carrier in some Iowa communities  which are not
     served by Breda, Prairie

                                       10
<PAGE>


     Telephone  or Westside  Independent.  No firm  decision has been made as to
     whether BTC will ever attempt to provide telephone services,  however,  and
     BTC cannot  provide any  telephone  services  in the state of Iowa  without
     first receiving a certificate of public  convenience and necessity from the
     IUB and filing the necessary tariffs and providing  required  notices.  BTC
     would also need to raise significant additional capital and/or obtain third
     party financing  before BTC would be able to finance the  construction  and
     start up of a new telephone business.  BTC does, however,  provide internet
     access as discussed above.

     Breda uses part of BTC's  business  location in  Carroll,  Iowa as a retail
     store for the sale and lease of telephone,  cellular and related  equipment
     and merchandise. The store opened for business in April, 2000.

     Other.

     Telemarketing  services revenue is reported as a component of other revenue
     and was  generated  by Prairie  Telephone's  subsidiary,  Pacific  Junction
     Telemarketing,   Inc.  On  July  26,  2001,  however,   Pacific  Junction's
     telemarketing call number supplier (Results  Telemarketing,  Inc.) notified
     Pacific Junction that it would no longer be able to provide calling numbers
     to Pacific Junction.  Breda and Pacific Junction have been unable to locate
     new  sources  of  telemarketing  calling  numbers,  so  Pacific  Junction's
     telemarketing  center has not been operating since July 26, 2001. Breda has
     determined that it is very unlikely that Pacific  Junction's  telemarketing
     center  will  ever  be   reopened.   The  closing  of  Pacific   Junction's
     telemarketing  center  resulted  in  the  loss  of  telemarketing  services
     revenue.  The  telemarketing  calls made by Pacific Junction were primarily
     intended to provide a source of access services  revenue for Breda, and the
     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.

     Breda and Prairie Telephone have purchased spectrum from Iowa Wireless Inc.
     for providing personal communications services in the Breda, Lidderdale and
     Yale telephone  exchange areas.  Iowa Wireless Inc. is a subsidiary of Iowa
     Network  Services,  Inc.  Spectrum  is  bandwidth  allocated  by the FCC to
     provide  data and  voice  communication.  The  bandwidth  of a  transmitted
     communications  signal is a measure of the range of frequencies  the signal
     occupies. In the communications  industry,  this measurement is referred to
     as  "megahertz".  Iowa Wireless Inc. held the 30 MHz license for the Breda,
     Lidderdale  and Yale  telephone  exchange  areas,  and  Breda  and  Prairie
     Telephone purchased 10 MHz licenses for those areas from Iowa Wireless Inc.
     on March 26, 1999. They purchased 10 MHz licenses because that was the only
     license being offered by Iowa Wireless Inc. at that time.

     Each  independent  telephone  company  in Iowa  had  first  opportunity  to
     purchase  the  spectrum  in its  local  exchange  areas  for  $3.50 per pop
     (population). Prairie Telephone

                                       11
<PAGE>


     purchased  its Yale  exchange  pops at $3.50  each,  for a total of $2,051.
     Breda also purchased the personal  communications  service licenses for its
     Breda and Lidderdale exchange areas for $3.50 per pop, totaling $5,383.

     A limited  liability company was formed on October 21, 1999, by some of the
     independent  telephone  companies  who were  eligible  and  desired  to own
     spectrum to provide personal communications services in the areas that were
     close to their own local exchange  areas.  The companies  included  Prairie
     Telephone and the telephone  companies  for the Casey,  Menlo,  and Panora,
     Iowa areas. The limited liability company was named Guthrie Group,  L.L.C.,
     and Prairie  Telephone  purchased 100 units in Guthrie  Group,  L.L.C.  for
     $10,000.  The personal  communications  services  licenses owned by Prairie
     Telephone  and the  other  independent  telephone  companies  which  became
     members of Guthrie Group, L.L.C. will not be included in the Guthrie Group,
     L.L.C.  Guthrie Group,  L.L.C.  has,  however,  acquired  spectrum for some
     telephone  exchange areas located in Guthrie County,  Iowa.  Guthrie Group,
     L.L.C. does not, however,  contemplate offering any personal communications
     services in any of the areas where it has acquired  spectrum for at least 1
     to 3 years.

     A limited  liability  company was formed by Breda and two other independent
     telephone  companies  in August  of 2000,  under  the name  Carroll  County
     Wireless,  L.L.C. Breda and the two other independent  telephone  companies
     who are  members  of  Carroll  County  Wireless,  L.L.C.  have  sold  their
     respective  personal  communications  services  licenses to Carroll  County
     Wireless, L.L.C. at their cost. The sale and transfer of those licenses was
     approved by the FCC on March 21,  2001.  Breda and the other two members of
     Carroll County Wireless,  L.L.C. have also each made capital  contributions
     of approximately $26,391 to Carroll County Wireless,  L.L.C. Carroll County
     Wireless,  L.L.C. utilized those capital contributions to purchase personal
     communications  services  licenses that were available for various areas in
     Carroll County, Iowa and to pay various  organizational and start-up costs.
     Some of those funds were also used to purchase the personal  communications
     services licenses from Breda and the other two members, as discussed above.
     Carroll  County  Wireless,  L.L.C.  owns personal  communications  services
     licenses for nearly all of Carroll  County,  Iowa. It is not  contemplated,
     however, that Carroll County Wireless,  L.L.C. will begin to offer personal
     communications services for at least 1 to 3 years.

     Personal  communications  service  ("PCS") is a relatively  new area in the
     telecommunications  industry.  It is a  wireless  voice  and  data  service
     somewhat similar to cellular  telephone service,  but emphasizing  personal
     service  and  extended  mobility.  It is  sometimes  referred to as digital
     cellular  (although  cellular systems can also be digital).  Like cellular,
     PCS is for mobile  users and  requires a number of  antennas  to blanket an
     area of coverage.  As a user moves through and between  service areas,  the
     user's phone signal is picked up by the nearest  antenna and then forwarded
     to a base station that connects to the wired  network.  The phone itself is
     slightly  smaller than a cellular phone.  PCS is being  introduced first in
     highly urban areas for large  numbers of users.  The  "personal"  in PCS is
     intended to evidence a  distinction  between  this  service and cellular by
     emphasizing that PCS is designed to provide greater user mobility. Cellular
     service,

                                       12
<PAGE>


     on  the  other  hand,  was  designed  primarily  for  car  phone  use  with
     transmitters emphasizing coverage of highways and roads.

     PCS generally  requires more cell  transmitters  for coverage,  but has the
     advantage of fewer blind spots. Technically, cellular systems in the United
     States operate in the 824-849  megahertz (MHz) frequency  bands;  while PCS
     operates in the 1850-1990 MHz bands.  Several technologies are used for PCS
     in the United  States,  including  Cellular  Digital Packet Data and Global
     System for Mobile communication.  Global System for Mobile is more commonly
     used in Europe and elsewhere,  and is the technology that is being employed
     by Iowa Wireless Inc.

     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  may
     therefore never directly offer any personal communications  services. Breda
     and  Prairie  Telephone  do not,  in any event,  contemplate  offering  any
     personal  communications  services  for at  least 1 to 3  years,  primarily
     because those services must first be available in surrounding  areas before
     Breda and Prairie Telephone can provide those services.

     Breda,  Prairie  Telephone  and Westside  Independent  do not currently own
     spectrum for all of the telephone exchange service areas currently 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  and
     Westside   Independent   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  ventures.  For  example,  Prairie  Telephone  has  made
     investments  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 also owns .67% of Iowa Network
     Services' outstanding stock. Westside Independent owns .45% of Iowa Network
     Services' outstanding stock.

     Breda has made an  investment  in RSA #9, Ltd.  and RSA #8,  Ltd.  Westside
     Independent  has also made an  investment  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 15.8% of the membership interests in Alpine Communications,
     L.C. Alpine Communications,  L.C. 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.

                                       13
<PAGE>


     Some of the above investments may be a source of revenue for Breda, Prairie
     Telephone and Westside Independent through  distributions which may be made
     by the entities.  None of Breda,  Prairie Telephone or Westside Independent
     controls any distribution decisions,  however, so no distributions are ever
     guaranteed, and the timing and amount of any distributions will likely vary
     greatly from year to year.

     Breda,  Prairie  Telephone and Westside  Independent have also from time to
     time received settlement payments from some of their cellular  investments.
     Settlement  payments are generally  received for not  exercising a right of
     first  refusal to purchase  additional  units or other  interests  during a
     merger or buyout by another company.  Breda, Prairie Telephone and Westside
     Independent do not control any settlement payments, and settlement payments
     are usually one-time events,  so no settlement  payments are guaranteed and
     the timing and amount of any  settlement  payments  will vary  greatly from
     year to year. For example,  no settlement payments were received in 2000 or
     in 2001.

     Breda received an annual fee of $6,000 from Alpine Communications,  L.C. in
     2001, 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
     underlying investments in the above ventures and in their other investments
     may  also  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 Breda's,  Prairie  Telephone's  or
     Westside Independent's right 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.

     In October of 2000, Breda,  Prairie Telephone and Westside Independent each
     purchased 10,000 shares of common stock in NECA Services, Inc. The purchase
     price was $10 per share,  resulting in a total  consolidated  investment of
     $300,000.

     NECA Services,  Inc. ("NSI") is a for-profit corporation that was organized
     to carry on and expand various business  opportunities  which may from time
     to time be presented to the National  Exchange  Carrier  Association,  Inc.
     ("NECA").  NSI's initial  officers are also the officers of NECA,  and they
     have  extensive  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 Rural  Telephone  Cooperative  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.

                                       14
<PAGE>


     Only NECA  members or  affiliates  were given the  opportunity  to purchase
     shares of stock in NECA.

     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. Also, there are substantial  restrictions imposed upon
     any transfer of 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  filed an  application  to register  the mark  "W.I.N.  Western  Iowa
     Networks" with the United States Patent and Trademark Office, and Breda was
     notified in late February of 2001 that the Patent and Trademark  Office had
     found no  conflicting  marks  in its  records  regarding  the  mark.  Breda
     accordingly  began  utilizing  the mark and some  related  logos during the
     second  quarter  of 2001 on its  trucks  and other  equipment.  Breda  also
     implemented an advertising  campaign to create awareness of the mark and to
     promote its general  business and  services.  Breda  subsequently  received
     notice from the Patent and  Trademark  Office that the  official  notice of
     publication of the mark took place on September 18, 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.  Breda does not  believe the mark and logos have been in use long
     enough to determine  whether  they are  fulfilling  any of those  purposes.
     Breda  has not made any  change in the scope or nature of its or any of its
     subsidiaries'  business in connection with the adoption and use of the mark
     and logos.

     Employees.

     As of December 31, 2001,  Breda had 31 full 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.  The  salaries  and other  costs and  expenses  of the  employees  are
     allocated among Breda and its subsidiaries based on time sheet allocations.
     There currently are not any collective bargaining or other labor agreements
     with any of  Breda's  employees,  and only two of  Breda's  employees  have
     written  employment  agreements.  Those employment  agreements are with the
     chief operations officer and the chief financial officer of Breda.

                                       15
<PAGE>


     Pacific  Junction  had 3  full-time  employees  prior to the closing of its
     telemarketing center on July 26, 2001. Given that closing, Pacific Junction
     did not have any  employees as of December 31, 2001.  Pacific  Junction did
     not  have  collective  bargaining  or  labor  agreements  with  any  of its
     employees.

     Breda also utilizes part-time employees on an as needed basis. Prior to the
     closing of its  telemarketing  center on July 26,  2001,  Pacific  Junction
     utilized  up to  approximately  seventeen  part time  employees  at a time,
     primarily for the purpose of making telemarketing calls.

     Acquisitions.

     As indicated above,  Breda acquired all of the issued and outstanding stock
     of Westside  Independent on June 1, 1998. Westside  Independent was serving
     approximately  342 telephone numbers and related access lines at that time.
     The total purchase price paid by Breda was $2,010,038. Westside Independent
     also  redeemed  some of its  shares  of  outstanding  stock  as part of the
     transaction.  The aggregate  redemption price paid by Westside  Independent
     for those  shares  was  $918,875.17.  The  purchase  price  (excluding  the
     redemption amount paid by Westside  Independent) exceeded the fair value of
     the net assets of Westside Independent,  as shown on Westside Independent's
     financial  statements,  by $1,178,472.  The excess was recorded as goodwill
     and was being amortized on a  straight-line  basis over a period of fifteen
     years. As discussed above, Westside Independent provides telephone services
     to subscribers in Westside, Iowa and its surrounding rural areas.

     In a related  transaction,  Tele-Services  acquired  all of the  issued and
     outstanding  stock  of  Westside  Communications,  Inc.  on June  1,  1998.
     Westside  Communications,  Inc.  owned and  operated  the cable  television
     systems in Westside, Iowa, and Arcadia, Iowa. The number of subscribers for
     cable  television  services in those  towns at that time was  approximately
     297. The total cost of the  acquisition  was $254,289,  which  exceeded the
     fair value of the net assets of Westside Communications,  Inc., as shown on
     its financial statements,  by $157,611. The excess was recorded as goodwill
     and was being amortized on a  straight-line  basis over a period of fifteen
     years.  As discussed  above,  Westside  Communications,  Inc. was held as a
     wholly owned subsidiary of  Tele-Services  until December 2, 1999, at which
     time Westside Communications,  Inc. was dissolved. Westside Communications,
     Inc.'s cable operations are now operated by and through Tele-Services.

     On  October  31,  1998,  Tele-Services  purchased  the  Auburn,  Iowa cable
     television  system from  NewPath  Communications,  L.C. The number of cable
     subscribers in Auburn, Iowa at that time was approximately 91. The purchase
     price  was  $64,610.   Tele-Services   also  assumed  the  obligations  and
     liabilities of NewPath  Communications,  L.C. which were to arise after the
     closing:

          o    under its  franchise  with the city of Auburn  and under  certain
               leases; and

                                       16
<PAGE>


          o    for the  performance  and delivery of services to  subscribers to
               the cable system.

     Each of the  above  transactions  was  treated  as a  business  combination
     accounted for as a purchase.

     As  indicated  under  the  accompanying  Notes  to  Consolidated  Financial
     Statements   (Note  1,   Summary  of   Significant   Accounting   Policies,
     Intangibles),  effective  January 1, 2002,  all  amortization  expenses  on
     goodwill and intangible assets with indefinite  lives,  associated with the
     above purchases,  will stop. The new Financial  Accounting  Standards Board
     Rule No. 142 requires  that goodwill and  intangible  assets deemed to have
     indefinite  lives  will no  longer  be  amortized  but will be  subject  to
     periodic  impairment  tests in accordance  with the  referenced  Statement.
     Breda will perform the first of the required  impairment  tests of goodwill
     and indefinite  lived intangible  assets as of January 1, 2002,  during the
     first quarter of 2002.

     Sale of Direct Broadcast Satellite Operation.

     On January 11, 1999, Breda sold  substantially all of its assets comprising
     its direct broadcast  satellite  operation.  The purchase price received by
     Breda was  $8,274,689.  The sale resulted in a pre-tax gain of  $7,436,415,
     which was included in Breda's  operations during the first quarter of 1999.
     The buyer also assumed:

          o    Breda's  obligations to its direct broadcast  satellite  services
               subscribers for refundable  deposits and advance payments made by
               those subscribers; and

          o    Breda's  obligations  otherwise arising after the closing date of
               the sale under Breda's various licenses and contracts  related to
               its direct broadcast satellite business and assets.

     Breda also executed a noncompetition agreement as part of the transaction.

     Breda's  direct  broadcast  satellite  operation  included  its licenses to
     provide direct broadcast  satellite services in five Iowa counties and four
     counties in Nebraska.  At the time of the sale,  Breda was providing direct
     broadcast satellite services to approximately 4,048 subscribers.

     One  factor  which  caused  Breda to sell the  direct  broadcast  satellite
     operation was Breda's  determination that the purchase price offered by the
     buyer  was  quite  favorable.  Breda  had  also  determined  that  the cash
     available   from  the  sale  would  provide  it  with  funds  for  possible
     acquisition of additional telephone lines in areas that Breda believed were
     going to become  available  from GTE and US West  after the  closing of the
     sale.  Breda  believed  that the  sale of the  direct  broadcast  satellite
     operation would also be beneficial to Breda because it would allow Breda to
     focus on its core business of providing telephone services.  Another factor
     contributing  to the sale was the  consolidation  occurring  in the  direct
     broadcast  satellite  industry,  which  Breda  believed  would make it more
     difficult for

                                       17
<PAGE>


     Breda to efficiently compete in the industry. Breda's original contract for
     its direct  broadcast  satellite  operation was also nearing  renewal,  and
     there was some  uncertainty  concerning its renewal.  This uncertainty also
     contributed to the decision to sell the operation.

     Sale of Shares of Stock in Central Iowa Cellular, Inc.

     On May 12, 2000,  Prairie  Telephone sold all of its 3,000 shares of common
     stock in Central Iowa Cellular,  Inc. to AirTouch Iowa,  LLC.  Central Iowa
     Cellular, Inc. is an Iowa corporation that was organized in 1983 by Prairie
     Telephone  and some other Iowa based  independent  telephone  companies for
     purposes of becoming a partner in Des Moines MSA General  Partnership.  Des
     Moines  MSA  General  Partnership  is an Iowa  partnership  which  provides
     cellular  telephone  services  to  customers  within the Des  Moines,  Iowa
     metropolitan  area.  Prairie  Telephone's 3,000 shares of stock constituted
     20% of the total  issued and  outstanding  shares of stock of Central  Iowa
     Cellular, Inc.

     The aggregate  purchase price  received by Prairie  Telephone for the 3,000
     shares of stock was  $5,226,034.  The sale  resulted  in a pre-tax  gain of
     $5,018,714,  with  $4,900,959 of that gain  included in Breda's  operations
     during the second quarter of 2000,  and the remaining  $117,755 of the gain
     included in Breda's operations during the third quarter of 2000.

     Some of the various  representations,  warranties  and covenants  given and
     made by Central Iowa Cellular,  Inc. and the  shareholders  of Central Iowa
     Cellular,  Inc. in the stock  purchase  agreement  that was entered into as
     part of the  transaction  were  made  jointly  and  severally,  so  Prairie
     Telephone would have liability for a breach of the stock purchase agreement
     by Central Iowa Cellular, Inc. or any one or more of the other shareholders
     of Central Iowa Cellular, Inc.

     Prairie  Telephone  also  entered  into  a  tower  proceeds   agreement  in
     connection  with the sale of its shares of stock in Central Iowa  Cellular,
     Inc.  The two primary  purposes  of the tower  proceeds  agreement  were to
     address  certain  sublease  payments  payable  to Des  Moines  MSA  General
     Partnership  and to  repurchase  certain  warrants  held by Des  Moines MSA
     General  Partnership.  The amounts received by Prairie  Telephone under the
     tower proceeds agreement, which was finalized in the third quarter of 2000,
     are included in the purchase price amount set forth above.

     The  negotiations  for the sale of the  shares  of stock  in  Central  Iowa
     Cellular, Inc. initially began and arose out of the proposed assignment and
     transfer by AirTouch  Iowa,  LLC of its  interest in Des Moines MSA General
     Partnership to another entity. Prairie Telephone and the other shareholders
     of  Central  Iowa  Cellular,  Inc.  took the  position  that  the  proposed
     assignment  granted them a right of first refusal and possibly other rights
     under their  agreement with AirTouch Iowa, LLC.  Prairie  Telephone and the
     other  shareholders  of Central Iowa Cellular,  Inc.  determined,  however,
     after negotiations, to sell their shares of stock in Central Iowa Cellular,
     Inc. to AirTouch Iowa,  LLC rather than  attempting to enforce their rights
     of first refusal. The primary factor which caused Prairie Telephone

                                       18
<PAGE>


     to  reach  this   determination   was  Prairie   Telephone's   and  Breda's
     determination  that the purchase  price offered by AirTouch  Iowa,  LLC was
     favorable. The purchase price was a negotiated price that Prairie Telephone
     believed was representative of the fair value of Prairie Telephone's shares
     of stock in Central  Iowa  Cellular,  Inc.  No  formula  or other  fixed or
     identifiable principles were utilized in establishing the purchase price.

     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  currently  located at 103 East Main,
          Breda,  Iowa.  The real  estate and  building  are leased by Breda and
          Prairie  Telephone from  Tele-Services.  The monthly rental payable by
          each of Breda and Prairie  Telephone  under the lease is $1,000.  They
          also pay utilities and  insurance.  The lease has a one-year term, and
          automatically  renews for additional  one-year terms. The building has
          approximately  4,560 square feet. Breda and Prairie  Telephone utilize
          the entire building.

          Tele-Services  entered into a real estate  contract on  September  12,
          2001 to sell this property. The total sales price was $200,000,  which
          will be paid in six  installments,  with the final  installment due on
          October  15,  2006.  The  property  is being  sold  because  Breda has
          determined to build a new corporate  office  building on land owned by
          Breda which is adjacent to Breda's  central office  building in Breda,
          Iowa. The central office building houses Breda's switch.  The new site
          is   approximately   two  blocks  away  from  the  present  site.  The
          construction  of  the  new  corporate  office  building  is  currently
          anticipated  to be  completed  in October of 2002,  with an  estimated
          total cost for the project not to exceed  $500,000.  The new corporate
          office building will have approximately 7,680 square feet, and will be
          utilized  by  Tele-Services,  Breda and Prairie  Telephone.  Breda and
          Prairie Telephone will continue to lease the existing corporate office
          building from Tele-Services until the construction of the new building
          has been completed.

     o    Breda owns  certain  real estate and a  warehouse  which is located at
          Highway 217 East, 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  certain  real estate and a building  located  just east of
          Breda,  Iowa.  The  building is Breda's  central  office  building and
          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 above, Breda is

                                       19
<PAGE>


          constructing a new corporate office building on a portion of this real
          estate.

     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 major  portion of the  building  owned by BTC at 526 N.
          Carroll  Street,  Carroll,  Iowa.  Breda  utilizes this portion of the
          building  as a  retail  store  for the sale  and  lease of  telephone,
          cellular and related equipment and merchandise.  Breda pays BTC $1,000
          per month for the lease.

     Prairie Telephone owns or leases the following real estate:

     o    Prairie  Telephone's  corporate  offices are currently  located at 103
          East Main,  Breda,  Iowa.  The real estate and  building are leased by
          Prairie Telephone and Breda from Tele-Services, as described above.

          As also described above, Prairie Telephone's corporate offices will be
          relocated  to  the  new  corporate  office  building  which  is  being
          constructed  by Breda  after that  construction  is  completed.  Breda
          estimates the construction will be completed in October of 2002. It is
          currently  contemplated that Prairie Telephone and Tele-Services  will
          each lease  administrative space from Breda, but no definitive monthly
          lease  amount  had been  determined  as of the  filing of this  annual
          report.

     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

                                       20
<PAGE>


          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.

     Pacific  Junction's  offices are located at 120 Main, Breda, Iowa. The real
     estate and building are leased by Pacific  Junction.  The aggregate monthly
     rental  payable  by  Pacific  Junction  under  the  lease is $500.  Pacific
     Junction also pays real estate taxes, utilities and all other expenses. The
     term of the lease runs until April 1, 2002. The building has  approximately
     1,679  square  feet.  Pacific  Junction  leases  all  of the  building.  As
     indicated above, Pacific Junction's telemarketing business was discontinued
     on July 26, 2001. The landlord has  accordingly  been notified that Pacific
     Junction will not continue the lease beyond April 1, 2002.

     BTC owns the real estate and  building  located at 526 N.  Carroll  Street,
     Carroll,  Iowa. The building houses some equipment used by BTC in providing
     internet  access. A major portion of the building is leased by Breda and is
     used as a retail  store for the sale and lease of  telephone,  cellular and
     related equipment and merchandise.  The store opened for business in April,
     2000.  BTC receives  $1,000 per month in rental from Breda.  BTC's building
     has approximately 1,804 square feet.

     BTC entered into a lease  agreement on November 1, 2001, for  approximately
     886 square feet of space in the building  adjoining  its Carroll  location.
     The original  term of this lease  expires on April 30, 2003.  The aggregate
     monthly  rental  payable by BTC under the lease is $450.  All utilities are
     also paid by BTC. The space is  accessible  from the inside of the building
     through a connecting, shared door.

     Westside Independent owns the real estate and building located at 131 South
     Main Street,  Westside, Iowa. The building is used for Westside's corporate
     offices,  and also houses  equipment  used to switch,  record and  transmit
     telephone calls. The equipment is used in providing  telephone  services to
     Westside and the  surrounding  rural area.  The  building  also houses some
     equipment used by  Tele-Services  in its cable  business.  The building has
     approximately 1,600 square feet.

                                       21
<PAGE>


     Tele-Services owns the following real estate:

     o    Tele-Services  owns certain real estate and a building  located at 103
          East  Main,  Breda,  Iowa.  This  property  currently  serves  as  the
          corporate  offices of Breda and  Prairie  Telephone,  and is leased to
          them by  Tele-Services.  The lease is briefly  described  above in the
          description  of Breda's  properties.  As also  described  above in the
          description of Breda's properties,  Tele-Services  entered into a real
          estate  contract on September  12, 2001,  to sell this  property.  The
          total  purchase  price for the real estate is $200,000,  which will be
          paid in six  installments,  with the final  installment due on October
          15, 2006.  Under the real estate contract,  Tele-Services  will retain
          possession of the property  until  completion of the  construction  of
          Breda's  new  corporate  office  building,  which is  estimated  to be
          completed in October of 2002.  Tele-Services  is not  obligated to pay
          any  rent or  other  amounts  to the  purchaser  of the  property  for
          Tele-Services'   continued   possession  of  the  property  until  the
          completion of Breda's new corporate office building.

     o    Tele-Services  also owns buildings located in eighteen different towns
          which house some  equipment  used to receive,  descramble and transmit
          television signals. This type of equipment is sometimes referred to in
          the  industry  as  "head-end   equipment."  The  buildings  each  have
          approximately  150 square  feet.  The  buildings  are  located on real
          estate  in  each  of the  eighteen  towns,  which  is  generally  made
          available to  Tele-Services  under its franchise  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 became necessary for some reason.

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

     Breda's   existing  loan  agreement  with  the  Rural   Telephone   Finance
     Cooperative  allowed  Breda to borrow funds for purposes of the purchase of
     Westside Independent by Breda and the purchase of Westside  Communications,
     Inc. by  Tele-Services.  The aggregate amount  outstanding  under that loan
     agreement as of December  31, 2001 was $ 2,038,990.  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

                                       22
<PAGE>


     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, 2001.

     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  Westside  Communications  by  Tele-Services.
     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,  Prairie  Telephone and Tele-Services had other loans from the Rural
     Telephone Finance  Cooperative which were also secured by the mortgages and
     security  interests  described  above,  but  those  loans  were paid off at
     various times during 2000.

     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  on the date of the filing of this annual  report
     with the SEC. 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 and Westside  Independent  also each own various
     equipment used to switch,  record and transmit telephone calls in the areas
     serviced by them.  BTC also owns certain  equipment.  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 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
     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.  The  equipment  is  located  in  various  towns as
     discussed above.  Tele-Services  also owns other  miscellaneous  cables and
     equipment used in its business.

     Breda, Prairie Telephone, Westside Independent, Tele-Services, and BTC 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.

                                       23
<PAGE>


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 routine litigation that was incidental to
     its  business.  As of the date of this annual  report,  Breda was not aware
     that any governmental  authority was contemplating  any proceeding  against
     Breda or any of its property.

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

     No matters were submitted to a vote of the  shareholders of Breda,  through
     the  solicitation  of proxies or  otherwise,  during the three months ended
     December 31, 2001.


                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

     Breda is authorized to issue  5,000,000  shares of common stock.  Breda had
     35,025 shares of its common stock issued and outstanding as of December 31,
     2001. Those shares were held by approximately 595 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 also not agreed to
     register  any  shares  of its  common  stock  under  any  federal  or state
     securities laws. An investment in Breda's common stock is also not a liquid
     investment   because  the  Restated  Articles  of  Incorporation  of  Breda
     establish various  conditions on the issuance of, and various  restrictions
     on the  transfer  of,  shares of its common  stock.  Those  conditions  and
     restrictions are summarized in the following paragraphs.

     The common stock can only be issued to:

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

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

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

     Since approximately January 1, 1996, no person has been allowed to purchase
     more than

                                       24
<PAGE>


     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 issuance of the
     shares by Breda.

     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;

          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

                                       25
<PAGE>


     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 above-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 at that time
     given the sale of Breda's direct broadcast satellite operation. 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, however, and was
     therefore not included in the 1998 year-end financial  statements  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 next annual shareholders meeting.

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

     Prairie  Telephone's  sale of its shares of stock in Central Iowa Cellular,
     Inc. is discussed  above in Item 1 of this annual  report.  At the time the
     board made its determination on

                                       26
<PAGE>


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

     The issuance and  redemption  price as determined by the board of directors
     has  increased  from $27 per  share  in 1995  (based  on the 1994  year-end
     audited  financial  statements of Breda) to $258 per share  pursuant to the
     May, 2001 action of the board of directors as 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. 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, but
     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.

                                       27
<PAGE>


     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,  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.  In this  case,  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.

     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

                                       28
<PAGE>


     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  redeemed
     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  redeemed  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  redeemed 892 shares of its
     common stock from nineteen different  shareholders,  at a purchase price of
     $258 per share.

     There may have been transfers  among the  shareholders  of Breda during 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 RFTC.  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 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

                                       29
<PAGE>


     vote for each  share of  former  Class A stock  previously  held by them on
     February 28, 1995, until one of the following occurs:

          o    the shareholder no longer receives service from Breda,

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

          o    the shareholder dies, or

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

     As of December 31, 2001,  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.

     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 has also  determined 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

                                       30
<PAGE>


     will be  added  together  for  determining  whether  the 1%  limitation  is
     exceeded.  The 1%  limitation  is set  forth in the  Amended  and  Restated
     Articles  of  Incorporation  of  Breda.  The  terms of any sale  between  a
     shareholder  and a qualified  buyer will be negotiated by them,  and no one
     will be  required  to sell or buy any shares  because  their name is on the
     list. Breda also retains its right to purchase any shares being 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 these sales.

     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 these sales.

     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 only declared and paid three dividends to its shareholders  since
     Breda was  incorporated  in 1964.  One of those  dividends  was declared on
     March 15, 1999.  It was in the amount of $3.00 per share,  for an aggregate
     dividend of $113,166.  The second  dividend was declared on March 13, 2000.
     It was also in the amount of $3.00 per share, for an aggregate  dividend of
     $113,046. The third dividend was declared on March 12, 2001. It was also in
     the amount of $3.00 per share, for an aggregate dividend of $111,087.

     Payment  of  dividends  is  within  the  discretion  of  Breda's  board  of
     directors,  and out of funds legally available therefore as provided in the
     Iowa Business Corporation Act. Breda's ability to declare and pay dividends
     is also restricted by some of the covenants in its loan agreements with the
     RFTC. Under those  agreements,  Breda may not pay any dividends without the
     prior written approval of the RFTC 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 RFTC 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 preclude  Breda from being able to
     repurchase its shares of stock as

                                       31
<PAGE>


     otherwise discussed in this Item.

     Breda does not currently  believe,  however,  that the  restrictions in the
     RFTC 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 all of 2001. 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's  primary  source of  consolidated  revenues  is from the  telephone
     services provided by Breda, Prairie Telephone and Westside Independent.


     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, 2002,  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 above in Item 1 of this annual
          report,  access  charge  rates are subject to  regulation  by the FCC.
          Access  charge  revenues  constitute  a  substantial  part of Breda's,
          Prairie  Telephone's  and  Westside  Independent's   revenues,  and  a
          material  risk to them arises  from the  regulation  of access  charge
          rates  by the  FCC.  Breda  anticipates  continuing  pressure  for the
          lowering of access charge rates, so future reductions in access charge
          rates are likely.

          The access  charge rate  payable to  telephone  companies  like Breda,
          Prairie  Telephone and Westside  Independent  who utilize the "average
          schedule"  basis for  receiving  access  charge  revenues is based on,
          among other things, the number of miles of their

                                       32
<PAGE>


          cable over  which  they  transfer  long  distance  calls made by their
          subscribers. Breda's total access charge revenues have been increasing
          in recent years,  but Breda believes those increases are  attributable
          to increased  numbers of subscribers,  increased  calling patterns and
          technological  advances.  There is no assurance that those trends will
          continue,  and it is in fact  unlikely  that there will be any further
          material   increases  in  the  number  of   subscribers   without  the
          acquisition of additional calling areas by Breda, Prairie Telephone or
          Westside Independent.

          As indicated above, Breda,  Prairie Telephone and Westside Independent
          utilize the  "average  schedule"  basis for  receiving  access  charge
          revenues.  This  is the  approach  taken  by  most  smaller  telephone
          companies.  Another approach currently  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
          ("LECs")  was  submitted  to the  FCC by the  Multi-Association  Group
          ("MAG").  LECs include most of the small and mid-sized  local exchange
          carriers  that  serve  rural and  insular  areas in the U.S.,  such as
          Breda, Prairie Telephone and Westside Independent.  MAG is 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  non-price  cap,
          incumbent LEC's.

          It was  originally  thought  that  the FCC  would  act on the MAG plan
          within a time frame such that whatever  orders,  rules or  regulations
          were issued or  promulgated  by the FCC based on or in response to the
          MAG plan  would have  taken  effect by July 1, 2001.  The FCC did not,
          however,  take any  formal  action on the MAG plan until  October  11,
          2001,  when the FCC issued an order  setting out rules  which  address
          some aspects of the MAG plan and also a notice of proposed rule making
          regarding  other aspects of the MAG plan, in particular  the incentive
          portions of the MAG plan.

          The full text of the FCC's order,  which runs approximately 160 pages,
          is extremely  complex,  and Breda is still in the process of reviewing
          various industry analysts'  interpretations of the order and otherwise
          considering  the  possible  effects  of the order on  Breda's  and its
          subsidiaries' business.

                                       33
<PAGE>


          The following  discussion  of the order is only a summary  discussion,
          and is based  substantially  on the written summary of the FCC's order
          that  was  included  in  the  November  9,  2001  No.  28  issue  of a
          publication  called "Industry  Watch".  The Industry Watch publication
          notes that its summary was adapted from the FCC's news release. In any
          event, the following paragraphs summarize some of the more significant
          portions of the FCC's order:

          o    The FCC order  increases the Subscriber  Line Charge ("SLC") caps
               to  the  levels  paid  by  most   subscribers   nationwide.   The
               residential and  single-line  business SLC cap increased to $5.00
               on January 1, 2002, and may increase up to $6.00 on July 1, 2002,
               and $6.50 on July 1, 2003, subject to a cost review study for the
               SLC caps of price-cap  carriers.  The multi-line business SLC cap
               increased to $9.20 on January 1, 2002.  Lifeline  support will be
               increased  in an  amount  equal  to any SLC  rate  increases  for
               low-income subscribers.

          o    The FCC order  allows  limited SLC  deaveraging,  which will give
               rate-of-return  Local Exchange Carriers (including Breda) pricing
               flexibility.  The SLC  deaveraging  method is consistent with the
               Rural  Task  Force's  universal  service  support  disaggregation
               scheme.

          o    The FCC order  reforms the local  switching  and  transport  rate
               structure,  and shifts the  non-traffic-sensitive  costs of local
               switch line ports to the  common-line  category;  and reallocates
               the remaining  costs  contained in the Transport  Interconnection
               Charge to other access rate elements. These measures are intended
               to align the rate  structure  more  closely with the way in which
               costs are incurred and reduce per-minute switched access charges.

          o    The FCC order creates a new universal  service support  mechanism
               to convert  implicit  support in the rate  structure  to explicit
               support  available  to all  Eligible  Telecommunication  Carriers
               ("ETC").  Specifically,   Interstate  Common  Line  Support  will
               replace the carrier  common line,  which will be phased out as of
               July 1, 2003, when SLC caps reach their maximum  levels.  The new
               support  mechanism is intended to ensure that changes in the rate
               structure do not affect the overall recovery of interstate access
               costs by rate of return carriers serving high-cost areas.

          o    The FCC  order  does not  prescribe  a  single,  target  rate for
               per-minute  access charges,  either on an optional or a mandatory
               basis.  The FCC order adopts reforms that will reduce  per-minute
               charges for all rate of return  carriers,  while  giving them the
               flexibility  to  establish  rates based on their own costs in the
               areas they serve.

          o    The FCC  order  streamlines  the rules  for  introduction  of new
               access services by rate of return carriers.

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<PAGE>


          o    The FCC order terminates the proceeding on the  represcription of
               the authorized rate of return, which was set at 11.25% in 1990.

          o    The FCC  order  does  not  adopt  MAG  proposals  to  impose  new
               requirements on  Interexchange  Carriers  ("IXC");  and concludes
               that the proposed requirements are unnecessary, inconsistent with
               the  FCC's   deregulatory   approach,   and  would  entail  undue
               administrative costs and burdens.

          o    In a Further  Notice of  Proposed  Rulemaking,  the FCC asked for
               additional comments on the MAG incentive plan and how it might be
               modified to provide  incentives  for cost  efficiency  gains that
               will benefit consumers.  The notice also requests further comment
               on the MAG's proposed  changes to the  "all-or-nothing  rule," on
               additional  pricing  flexibility  measures,  and on the continued
               need for the Long Term Support  mechanism in light of the reforms
               adopted in the Order.

          The FCC's release accompanying the order included the important policy
          statement  that  the  actions  taken by the FCC in the  order  largely
          completed the interstate  access charge and universal  service support
          reforms it initiated  following the passage of the  Telecommunications
          Act.

          As  indicated  above,  Breda  is  still  evaluating  the  FCC's  order
          regarding the MAG plan. Breda currently  believes,  however,  that the
          FCC's  order  on the MAG plan  will  not,  at least in 2002,  have any
          materially  adverse effects on Breda's or its subsidiaries'  revenues.
          This conclusion is subject to change, however, upon Breda's completion
          of its analysis of the FCC's order,  and Breda has not yet reached any
          determination  of the  possible  effects of the FCC's order on Breda's
          and its subsidiaries' revenues in future years.

     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 to offer
          many more custom calling features to their subscribers. Breda, Prairie
          Telephone and Westside Independent have marketed extended packages and
          custom calling features to their subscribers in the hope that they may
          increase  subscriber  usage of the  available  packages and  features.
          Revenues  from  custom  calling  services  are  not,   however,   ever
          anticipated to be a major or 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. As discussed in Item 1 of this
          annual report, their competitors include other third parties

                                       35
<PAGE>


          providing  these  services,  and  competition  from the long  distance
          providers themselves since some providers have decided to handle their
          own billing and collection.  Other telephone companies have terminated
          their billing and collection  agreements  with AT & T. Breda's billing
          and collection agreements will be evaluated in the future for possible
          termination  if Breda's own market  share of long  distance  customers
          grows to a point where doing the  billing  and  collection  for larger
          carriers is no longer economically feasible.

     Breda,  Prairie  Telephone,  Westside  Independent  and BTC  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.  During
     1999, there was an increase of approximately  65% in the combined  internet
     customer base of Breda,  Prairie Telephone,  Westside  Independent and BTC.
     BTC itself  experienced  an increase of  approximately  68% in its internet
     customer base in 1999.

     The increase in the combined  internet  customer  base of the  companies in
     2000 was only 39.7%,  however,  even though BTC itself  experienced a 55.7%
     increase in its  customer  base during  2000.  The increase in the combined
     internet  customer  base of the  companies in 2001 further  slowed to 7.0%,
     with BTC's increase being 6.4%.

     Future increases in BTC's internet customer base will likely continue to be
     lower because BTC's current  customer base is limited to Carroll,  Iowa and
     the  surrounding  communities.  Also,  as  discussed  in Item 1,  Breda  is
     experiencing  price-point  competition in three of the communities where it
     provides  Internet  services.  Breda  also  believes  that  Breda,  Prairie
     Telephone,  Westside  Independent  and  BTC  will  continue  to  face  ever
     increasing  competition  in  providing  internet  services  through,  among
     possibly  other  things,  the  increased  provision of internet  access and
     services through cable;  technological advances that may allow cable access
     and  services  to  be  provided  through  new  methods;   and  mergers  and
     consolidations within the telecommunications  industry which may create new
     competitors  with expanded  resources  and the ability to provide  expanded
     services. Similar percentage increases in the internet customer base of the
     companies in the future are therefore not anticipated.

     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 now allows  satellite  dish  providers to provide  local  channels,
     which will have an adverse effect on Tele-Services,  given that its ability
     to provide local  channels was, in the past, one reason  subscribers  might
     choose  Tele-Services'  cable services over a satellite dish. Other rulings
     and  decisions  by the FCC are  possible,  and may provide  satellite  dish
     providers,  or other  providers  as changes in the  telecommunications  and
     cable industry occur, with equal or greater  advantages than  Tele-Services
     can offer to its subscribers,  which could obviously have an adverse effect
     on Tele-Services' business. As indicated, changes in the telecommunications
     and cable

                                       36
<PAGE>


     industry are continually occurring,  and technological advances may provide
     Tele-Services  subscribers  with other options.  For example,  Iowa Network
     Services  is  beginning  to offer  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.

     Tele-Services has worked 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. It is
     hoped that this consolidation will reduce Tele-Services'  maintenance costs
     for that equipment.

     Another  difficulty  being  faced  by  Tele-Services  at  the  time  of the
     preparation  of this  annual  report was the trend of the  companies  which
     provide  programming  licensing to cable services  providers to require 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 can stay  competitive  and
     continue to be able to obtain programming licenses.

     The cost of  those  upgrades  in 2002,  and of any  continuing  or  further
     head-end equipment consolidation, are estimated to be less than $200,000.

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

     In the past, revenues were also generated from the telemarketing activities
     of Pacific  Junction.  Those  activities  also  provided a source of access
     charges revenue for Breda through the  telemarketing  calls made by Pacific
     Junction. As noted above in this annual report, however, Pacific Junction's
     telemarketing  center was closed on July 26, 2001, and Breda believes it is
     very unlikely  that Pacific  Junction's  telemarketing  center will ever be
     reopened.

     The following  table  reflects,  on a consolidated  basis for Breda and its
     subsidiaries,  the  approximate  percentage of revenue derived from Breda's
     and its subsidiaries' various businesses and investments as of the close of
     the past two fiscal years:

                                             2000      2001
                                             ----      ----

          Local Exchange Carrier(1)          67.4%     67.3%
          Broadcast(2)                       17.3%     17.0%
          Internet Service Provider(3)       10.7%     12.9%

                                       37
<PAGE>


          Other(4)                            4.6%      2.8%
                                              ----      ----

                   Total                      100%      100%

     (1)  Includes  (i) flat  monthly  fees  charged  to  subscribers  by Breda,
          Prairie  Telephone and Westside  Independent 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,  and (iv) monthly  cellular
          commissions, advertising fees, and miscellaneous revenues.

     (2)  Includes monthly fees charged for basic and premium cable services.

     (3)  Includes monthly fees charged for internet services.

     (4)  Includes  revenues from  telemarketing  services.  Pacific  Junction's
          telemarketing operations were, however, discontinued on July 26, 2001.

     Twelve-months  ended  December  31, 2001  Compared to  Twelve-months  ended
     December 31, 2000.

     There was a  decrease  in total  operating  revenues  for the  twelve-month
     period ended  December 31, 2001,  when  compared to the twelve months ended
     December  31,  2000,  of $167,910,  or 2.8%.  The segments  making up total
     operating revenue are: local exchange carrier services, broadcast services,
     Internet services and other services revenue.

     Local exchange carrier services revenue  decreased  $123,157,  or 3.0%, for
     the  twelve-month  period ended  December 31,  2001,  when  compared to the
     twelve-month period ended December 31, 2000. The components making up local
     exchange  carrier  services  revenue are local  network  services,  network
     access services,  billing and collection services and miscellaneous income.
     Those four components are discussed in the following four paragraphs.

     Local  network  services  revenue  increased  $10,603,  or  1.9%,  for  the
     twelve-month   period  ended  December  31,  2001,  when  compared  to  the
     twelve-month  period ended December 31, 2000. This increase resulted from a
     small increase in the overall custom calling feature revenues.

     Network  access  revenue  decreased  $78,751,  or 3.1%,  when comparing the
     twelve-month  period ended  December 31, 2001, to the  twelve-month  period
     ended  December 31, 2000.  This  decrease was due primarily to two factors.
     One was the  reduction  of access  revenue  for the months  August  through
     December  2001,  which  resulted  from the  closing of  Pacific  Junction's
     telemarketing  center on July 26,  2001.  The other factor was the one time
     write-off  of Qwest's  underpayment  of access  charges  to Breda,  Prairie
     Telephone and Westside Independent.  Pacific Junction's telemarketing calls
     had  generated  an  average  of  approximately  $4,400  per month in access
     revenues  for Breda in 2001 through  July 2001.  As discussed  elsewhere in
     this  annual  report,  Breda  does  not  believe  that  Pacific  Junction's
     telemarketing  center will ever be reopened,  so no future access  revenues
     will be generated from Pacific Junction's telemarketing calls. The amount

                                       38
<PAGE>


     written  off by Breda and its  subsidiaries  as of  December  31, 2001 with
     respect to Qwest's underpayment of access charges was $67,671.  Qwest filed
     a Petition for  Declaratory  Order on May 19, 2000, with the Iowa Utilities
     Board  with  respect to  adjustments  Qwest had made  related  to  wireless
     originated  minutes  on the  access  bills  of the  Iowa  Network  Services
     participating  companies  in Iowa.  The Iowa  Utilities  Board ruled in the
     favor of Qwest,  but appeals are now pending with the Iowa Utilities  Board
     from rural Iowa independent telephone associations. While the legal process
     is  not  yet  final,  Breda  believes  it is  likely  that  Breda  and  its
     subsidiaries will continue to experience lower access rate reimbursement on
     wireless originating minutes.

     Billing  and  collection  service  revenue is a  function  of the amount of
     billing and collection services provided by Breda to other carriers such as
     AT&T. The billing and collection  services revenues decreased  $28,092,  or
     30.9%, for the  twelve-month  period ended December 31, 2001, when compared
     to the  twelve-month  period  ended  December  31,  2000.  The  decrease is
     attributable  to the fact that carriers,  such as AT&T, are performing more
     of their own billing and collection services.

     Miscellaneous  revenue  decreased  $26,917,  or 3.0%, for the  twelve-month
     period ended December 31, 2001, when compared with the twelve-month  period
     ended December 31, 2000.  The decrease in  miscellaneous  revenue  resulted
     primarily  from  decreased   cellular  service   commissions  and  cellular
     accessories  revenue for the three months ended December 31, 2001. Cellular
     sales  decreased  significantly  compared  to  the  prior  year  due to the
     economic  slowdown that occurred  after the terrorist  attacks on September
     11,  2001.  Breda  opened a retail  outlet in Carroll,  Iowa in early April
     2000,  which has  significantly  expanded  its  market  penetration  in the
     cellular  services arena.  There was no comparable  revenue stream from the
     retail  store for the first three months of the  twelve-month  period ended
     December 31, 2000.

     Broadcast services revenue decreased  $48,093,  or 4.6%, when comparing the
     twelve-month  period ended  December 31, 2001, to the  twelve-month  period
     ended December 31, 2000. This decrease was directly  attributable to a 3.9%
     decrease in the customer base when comparing the two twelve-month  periods.
     Breda believes the decrease in the customer base resulted from  competition
     from  satellite dish  providers and the declining  population  bases in the
     small rural communities served by Tele-Services.

     There was an  increase in Internet  services  revenue for the  twelve-month
     period ended  December 31, 2001,  when  compared to the twelve month period
     ended December 31, 2000, of $113,804,  or 17.6%. This increase was due to a
     7.0%  increase in the customer  base when  comparing  the two  twelve-month
     periods.  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.  As is
     discussed  elsewhere in this annual report, in October 2001, Breda switched
     to a new  underlying  Internet  service  provider and help desk provider in
     order to attempt to allow Breda to further  reduce  costs.  While Breda has
     lost Internet  customers  because of competition,  Breda's overall Internet
     operations have continued to grow.

                                       39
<PAGE>


     Telemarketing  services  revenue  is  reported  as  other  revenue,  and it
     decreased $110,464,  or 39.9%, when comparing the twelve-month period ended
     December 31,  2001,  to the  twelve-month  period  December  31, 2000.  The
     decrease is  attributable  to the  decrease in the volume of  telemarketing
     calls made by Pacific Junction prior to July 26, 2001, and to the fact that
     Pacific Junction's  telemarketing center was closed on July 26, 2001. Breda
     believes it is very  unlikely  that the  telemarketing  center will ever be
     reopened.

     There was an increase in total operating expenses of $115,168, or 2.2%, for
     the  twelve-month  period ended  December 31,  2001,  when  compared to the
     twelve-month  period  ended  December 31, 2000.  The  components  making up
     operating expenses are cost of services, depreciation and amortization, and
     selling,  general and  administration  expenditures.  Those  components are
     discussed in the following paragraphs.

     Cost of services expenses increased $40,890,  or 1.8%, for the twelve-month
     period ended December 31, 2001,  when compared to the  twelve-month  period
     ended  December 31,  2000.  The  components  making up cost of services are
     plant specific operations, plant non-specific operations,  programming, and
     Internet  costs.  Those  components  are  discussed in the  following  four
     paragraphs.

     There was a decrease  of $80,001,  or 5.1%,  in plant  specific  operations
     expense when comparing the twelve-month  period ended December 31, 2001, to
     the  twelve-month  period  ended  December  31,  2000.  This  decrease  was
     primarily  attributable to decreased  cellular  operating  expense for such
     items as  inventory,  personnel  costs,  and other  expense  which had been
     generated  in the  twelve-month  period  ended  December  31,  2000 for the
     start-up of Breda's  retail outlet.  Repairs for central  office  equipment
     also decreased for the  twelve-month  period ended December 31, 2001,  when
     compared to the twelve-month period ended December 31, 2000.

     Plant nonspecific  operations expense increased $19,094,  or 20.4%, for the
     twelve-month   period  ended  December  31,  2001,  when  compared  to  the
     twelve-month  period  ended  December  31,  2000.  The  increase  is mainly
     accounted for by rate and volume increases in utilities and postage.

     There was an increase of $29,232, or 9.8%, in programming expense for cable
     TV services when comparing the twelve-month period ended December 31, 2001,
     with the twelve-month period ended December 31, 2000. The increase resulted
     from increases in programming fees.

     Internet costs increased by $72,565,  or 27.1%, for the twelve-month period
     ended  December 31, 2001,  when compared to the  twelve-month  period ended
     December 31, 2000. The increase is directly  attributable to the additional
     costs of providing  Internet  services to the increased  customer base. The
     additional  costs include rental of additional  fiber lines,  help desk and
     customer services fees from the underlying  Internet service provider,  and
     internal  costs to provide  customer  service  and  billing  service to the
     additional  customers.  As noted previously,  Breda has taken some steps to
     attempt to reduce its costs to provide Internet service.

                                       40
<PAGE>


     Depreciation and amortization  expense increased $27,763,  or 2.5%, for the
     twelve-month  period ended  December 31, 2001,  when compared to the twelve
     month period  ended  December 31,  2000.  The increase  reflects  increased
     depreciation rates on depreciable  equipment associated with new technology
     services,  and  the  proportionate  net  overall  depreciation  of  capital
     improvements  made during the year 2001. Boring  equipment,  vehicles,  and
     underground  plant/sonnet  ring were also  purchased and put into operation
     during the twelve-month period ended December 31, 2001, which increased the
     depreciation expense.

     Selling,  general and administration  expenses increased $46,515,  or 2.5%,
     for the  twelve-month  period ended December 31, 2001, when compared to the
     twelve-month  period  ended  December 31,  2000.  The  customer  operations
     component decreased $40,965, or 5.4%, when comparing these two twelve-month
     time periods, and mainly resulted from decreased labor and benefit costs. A
     vacant  supervisory  position was filled in this department in August 2001.
     Breda  received a 13.0%  increase in its health plan  premiums for the year
     2001.  The corporate  operations  component  increased  $95,694,  or 10.2%,
     during the twelve-month period ended December 31, 2001 when compared to the
     twelve-month   period  ended  December  31,  2000.  The  increase  was  not
     attributable  to  any  one  item  but  rather  included  wage  and  benefit
     increases, management bonuses, consulting services for special projects and
     acquisition opportunities,  continued SEC filing expenditures,  advertising
     and  promotions  for the new mark and logo adopted by Breda,  and increased
     expenditures  for national  meetings and educational  seminars  attended by
     board members and management. General taxes paid by Breda decreased $8,214,
     or 5.1%, for the twelve-month period ended December 31, 2001, when compared
     to the  twelve-month  period ended  December 31,  2000,  and resulted  from
     decreased  tax  rates  levied  by the  taxing  authorities  in the  various
     counties.

     The net result of the operating services revenue and operating expenses was
     a decrease of $283,078,  or 33.1%, in operating income for the twelve-month
     period ended December 31, 2001,  when compared to the  twelve-month  period
     ended December 31, 2000.

     Other  income  (expense)  decreased   $4,806,596,   or  84.7%,  during  the
     twelve-month   period  ended  December  31,  2001,  when  compared  to  the
     twelve-month  period ended December 31, 2000. The decrease is  attributable
     to the fact that there was no transaction  during 2001 to correspond to the
     $5,018,714 gain which arose from the sale of a cellular  investment  during
     the  twelve-month  period ended  December  31, 2000.  Interest and dividend
     income decreased  $116,524,  or 25.3%,  for the  twelve-month  period ended
     December 31, 2001 when compared to the  twelve-month  period ended December
     31, 2000.  Interest  expense also  decreased  by $266,830,  or 63.1%,  when
     comparing the same twelve-month periods. While the decrease in interest and
     dividend  income also  decreased  other  income,  the  decrease in interest
     expense  resulted  in an  increase in other  income.  Both the  decrease in
     interest and dividend income and the decrease in interest  expense resulted
     from Breda,  Prairie Telephone and Tele-Services  paying back $4,999,052 in
     long term debt to the Rural Telephone Finance Cooperative during the

                                       41
<PAGE>


     twelve-month  period ended December 31, 2000.  Investments were redeemed to
     pay  approximately  $2,100,000 of this $4,999,052  debt,  which resulted in
     less investment  revenue being generated for the twelve-month  period ended
     December 31, 2001, when compared to the twelve-month  period ended December
     31, 2000. The $4,999,052 reduction in variable rate long-term debt also had
     the effect of reducing Breda's  interest  expense by a significant  amount.
     Breda's interest income was also less in 2001 because of the  significantly
     lower interest rates received on its investments during that time period as
     compared to the year 2000.

     Income from cellular  investments  decreased  $60,736,  or 9.0%, during the
     twelve-month   period  ended  December  31,  2001,  when  compared  to  the
     twelve-month  period ended December 31, 2000. The decrease is  attributable
     to the fact that three cellular investment  distributions totaling $674,204
     were received during the twelve months ended December 31, 2000,  while only
     $613,468 of cellular  investment  distributions  were  received  during the
     twelve  months  ended   December  31,  2001.  A   non-cellular   investment
     distribution of $44,209 was received from the Alpine  investment during the
     twelve-month  period  ended  December  31,  2001,  as compared to a $23,508
     distribution for the twelve-month  period ended December 31, 2000. The loss
     on the sale of investments decreased by $65,352 for the twelve-month period
     ended  December  31,  2001.  As  noted   previously  in  this   discussion,
     investments were redeemed during the twelve-month period ended December 31,
     2000 to pay off  approximately  $2,100,000 of RTFC  long-term  debt.  Other
     items  increased  $36,495 for the  twelve-month  period ended  December 31,
     2001, when compared to the twelve month period ended December 31, 2000, and
     reflects income received from the sale of equipment and other miscellaneous
     income.

     Income  taxes  decreased  $2,038,941  for  the  twelve-month  period  ended
     December 31, 2001,  when compared to the twelve  months ended  December 31,
     2000.  The  decrease  resulted  primarily  from the fact that  there was no
     transaction  in the twelve months ended  December 31, 2001 to correspond to
     the  $5,018,714  taxable  gain on the sale of a  cellular  investment  that
     occurred during the twelve-month period ended December 31, 2000.

     Net income decreased  $3,050,733,  or 76.5%,  for the  twelve-month  period
     ended December 31, 2001,  when compared to the twelve months ended December
     31, 2000.  The decrease was  primarily  attributable  to Breda having a net
     after tax reportable  gain of  approximately  $3,066,434 from the sale of a
     cellular investment in the twelve-month period ended December 31, 2000, but
     no similar  transaction  during the twelve-month  period ended December 31,
     2000.

     Liquidity and Capital Resources at Twelve Months Ended December 31, 2001.

     Breda's net working  capital was a positive  $2,664,323  at December  2001.
     This  represents  an  increase of  $889,545  in net  working  capital  from
     year-end  2000.  Breda had an increase of $727,002 in current assets during
     the  twelve-month  period ended  December 31,  2001,  when  compared to the
     twelve  months  ended  December  31, 2000.  The  increase  resulted  from a
     $692,838 increase in cash and cash equivalents,  and a $366,329 increase in
     temporary investments. These funds are being held for the possible

                                       42
<PAGE>


     redemption of additional  shares of stock in Breda during the normal course
     of  business,  and for the  payment  of the  construction  of  Breda's  new
     corporate  headquarters,  which is scheduled  for  completion by late third
     quarter 2002.  While  inventories  increased $970, and other current assets
     increased  $94,882,  those  items  were  offset by a $167,090  decrease  in
     accounts  receivable and a $285,185  decrease in prepaid income taxes.  The
     increase in other  current  assets of $94,882  reflects the  prepayment  of
     quarterly  employee  benefit  premiums.   There  was  not  a  corresponding
     prepayment amount at year end 2000. The decrease in accounts  receivable is
     attributable  to the  receipt  of  National  Exchange  Carrier  Association
     reimbursements  and the  write-off  of the Qwest  access  underpayments  as
     described  earlier in this annual report.  The $285,185 decrease in prepaid
     income taxes is  attributable to the reduced  estimated  taxable income for
     the calendar year 2001. The taxable  income for 2001 was decreased  because
     there  was  no  gain  on the  sale  of a  cellular  investment  during  the
     twelve-month   period  ended  December  31,  2001,  to  correspond  to  the
     $5,018,714 gain on the sale of a cellular  investment which occurred during
     the twelve-month period ended December 31, 2000.

     Noncurrent  assets,  which  mainly  consist  of  longer-term   investments,
     decreased $187,275 during the twelve-month  period ended December 31, 2001,
     when compared to the twelve months ended December 31, 2000. On May 2, 2001,
     Prairie Telephone entered into a contractual  agreement to advance $500,000
     to Desktop Media, L.L.C. This transaction is shown as a Note Receivable for
     $451,502  at December  31,  2001,  and for which there is no  corresponding
     amount at December 31,  2000.  The  remaining  $48,498 is reported as a 10%
     equity  interest  in  Desktop  Media,  L.L.C.  and  is  included  in  other
     investments. A corresponding $394,427 decrease in long-term investments and
     a $260,280 decrease in other investments offset this Desktop Media,  L.L.C.
     transaction. The remainder of the overall decrease in noncurrent assets was
     caused by the  amortization  of  intangibles  and an  increase  in deferred
     income taxes.

     Breda's net working capital was a positive $2,664,323 at December 31, 2001,
     as compared to  $1,774,778 at December 31, 2000.  The $889,545  increase in
     working  capital  between  the two time  periods  resulted  mainly from the
     $164,557  decrease  in  accounts  payable  and the net  increase in current
     assets as  explained  above.  The  accounts  payable  decrease  between the
     twelve-month  period ended  December  31, 2001 and the twelve  months ended
     December  31, 2000  resulted  primarily  because of a $116,794  plant under
     construction  payable on December 31, 2000,  which was paid before December
     31,  2001,  and the  $31,070  reduction  in the amount due to the  National
     Exchange  Carrier  Association  because of payments  made during the twelve
     months ended December 31, 2001.

     Common stock had a net increase of $284,815 during the twelve-month  period
     ended December 31, 2001,  when compared to the twelve months ended December
     31, 2000. This increase resulted  primarily from two items. One was the $23
     per share  increase in  outstanding  shares value on May 16, 2001,  and the
     other was a  decrease  in the  number of  outstanding  shares  through  the
     redemption of 2,216 shares of common stock by Breda during the twelve-month
     period ended  December 31, 2001. The decrease in retained  earnings  during
     the twelve-month period ended December 31, 2001, when compared to

                                       43
<PAGE>


     the twelve months ended  December 31, 2000, is the net effect of the stated
     value stock adjustment of $851,483, the dividends paid in 2001 of $111,087,
     and the year-to-date net income as of December 31, 2001.

     Other.

     Breda's primary ongoing capital investment activity will currently continue
     to be additions to property, plant and equipment.  Capital expenditures for
     2000 and 2001 were, respectively,  $726,922 and $624,270, and are currently
     expected to be approximately $1,341,490 in 2002.

     Breda  anticipates that substantial  expenditures  will need to be made for
     software  upgrades  that  will be  necessary  in order for  Breda,  Prairie
     Telephone  and  Westside   Independent   to  become   compliant   with  the
     requirements  of the  Communications  Assistance  for Law  Enforcement  Act
     ("CALEA").  CALEA  was  passed in 1994 in  response  to rapid  advances  in
     telecommunications  technology,  such  as  the  implementation  of  digital
     technology and wireless  services,  that have threatened the ability of law
     enforcement officials to conduct authorized electronic surveillance.  CALEA
     requires telecommunications carriers to modify their equipment, facilities,
     and  services  to  ensure  that  they are able to  comply  with  authorized
     electronic  surveillance.  The modifications were originally required to be
     completed by October 25, 1998,  but in accord with an extension  granted by
     the  FCC,  were  generally  to be  completed  by June  30,  2001.  Industry
     associations  requested  that the FCC extend the June 30, 2001 deadline for
     wireline  carrier  compliance  with CALEA until September 30, 2001. For the
     wireline,   cellular,  and  broadband  personal   communications   services
     carriers,  implementation of a packet-mode capability and six Department of
     Justice/Federal  Bureau of  Investigation  "punch list"  capabilities  were
     originally  required  to be  completed  by  September  30,  2001.  Industry
     associations, on behalf of their members, had requested a blanket extension
     from the FCC of the CALEA  punchlist  compliance  deadline of September 30,
     2001.  The  industry  associations  argued  that  since the FBI has not yet
     completed  buy-out  agreements  with  all  manufacturers  to pay for  CALEA
     capability  software  and  because  the FCC had not begun  any  proceedings
     relating to the four-punchlist  capabilities  recently vacated and remanded
     by the D.C.  Court of Appeals,  most  carriers  would not be able to comply
     with the September 30, 2001 deadline.

     Breda also took action on its own behalf  regarding its CALEA compliance by
     filing a Petition for Extension  with the FCC on June 30, 2001 , asking for
     a two-year extension of the CALEA section 103 capability requirements.  The
     extension  was referred to as a section 107c  extension.  Breda's  petition
     included a Flexible  Deployment Guide, which provided the FBI with specific
     information about Breda's switch, the deployed generic, the date the switch
     will be CALEA  compliant  and the number of law  enforcement  interceptions
     Breda has had over the last four years.  The FBI made a  recommendation  to
     the FCC which supported Breda's petition,  and the FCC has granted Breda an
     extension for complying with the CALEA section 103 requirements  until June
     30, 2002. Breda anticipates seeking additional extensions.

                                       44
<PAGE>


     In August of 2001,  the FBI  released  additional  CALEA  requirements  for
     packet-mode communications, which include services such as DSL and ISDN. On
     September 28, 2001, the FCC released an order which sets out procedures for
     companies  to  supplement  their CALEA  section  107c  petitions to include
     packet-mode communications.  The supplemental section 107c petitions needed
     to be filed with the FCC by November 19, 2001. Breda was in compliance with
     the  packet-mode  requirements  as of November 19,  2001.  Given the recent
     conversion  to Desktop  Media,  L.L.C.  as its internet  service  provider,
     however, Breda is investigating any additional action that may be necessary
     on its  part  in  order  to  maintain  its  adherence  to  the  packet-mode
     requirements.

     Given the  terrorist  events of September  11,  2001,  and the new focus on
     national security, however, Breda also anticipates that the FBI and the FCC
     will push for nationwide CALEA compliance as early as possible.

     Breda anticipates that the cost to upgrade Breda's, Prairie Telephone's and
     Westside  Independent's  software to become  compliant with CALEA may be as
     much as $950,000.

     As of December 31, 2001, Breda had approximately  $2,038,990 outstanding on
     its one remaining loan from the Rural Telephone  Finance  Cooperative.  The
     loan is also discussed in Item 2 of this annual  report.  The interest rate
     on the loan was fixed on July 17, 1998,  at 7.35% per annum.  Prior to that
     date,  the loan had a variable  interest  rate. The loan has a fifteen year
     term that matures in September, 2013. Breda and Prairie Telephone also have
     lines of credit available from the Rural Telephone  Finance  Cooperative in
     the amounts  of,  respectively,  $1,500,000  and  $500,000.  Those lines of
     credit will expire on,  respectively,  December  1, 2005 and  November  30,
     2005. No amounts were outstanding  under either of those lines of credit on
     December 31, 2001.

     Breda also plans to  continue to consider  expanding  its core  business of
     providing  telephone  services  by looking at any  opportunities  which may
     arise to  acquire  additional  telephone  lines.  There are no  assurances,
     however,  that  any such  opportunities  will  ever  arise or that any such
     opportunities  which do arise will fit into  Breda's  strategic  plan.  For
     example,  Breda  submitted  a bid  to  acquire  two  independent  telephone
     exchanges in  September,  2001,  but Breda was notified on November 7, 2001
     that it was not the successful bidder for either of those exchanges.

     Breda,  Prairie  Telephone  and  Westside  Independent  currently  have  no
     definite plans to provide any material  additional or improved  services to
     their subscribers.  This determination may change quickly,  however,  given
     the  rapidly  changing  technology  in  the  telecommunications  and  cable
     industries.

     As discussed in Item 1 of this annual report,  Breda and Prairie  Telephone
     have purchased spectrum for providing personal  communications  services in
     the Breda,  Lidderdale and Yale telephone exchange areas. Prairie Telephone
     has also  become a member  in  Guthrie  Group,  L.L.C.,  which is a limited
     liability  company  which has  purchased  spectrum for  providing  personal
     communications services in some areas in Guthrie County, Iowa.

                                       45
<PAGE>


     Breda has also become a member in Carroll County Wireless, L.L.C., which is
     a limited  liability  company  which has  purchased  spectrum for providing
     personal  communications  services  in  Carroll  County,  Iowa.  Breda  has
     transferred its personal communications services licenses for its Breda and
     Lidderdale exchange areas to Carroll County Wireless, L.L.C.

     Personal   communications   services  is  a  relatively  new  area  in  the
     telecommunications   industry   and  includes   wireless   voice  and  data
     communication.  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 had acquired
     for its Breda and Lidderdale  exchange  areas to Carroll  County  Wireless,
     L.L.C.   Breda  itself  may  therefore   never   directly   offer  personal
     communications  services. Breda and Prairie Telephone do not, in any event,
     contemplate offering any personal communications services for at least 1 to
     3 years,  primarily  because  those  services  must first be  available  in
     surrounding  areas before  Breda and Prairie  Telephone  can provide  those
     services.  Guthrie Group, L.L.C. and Carroll County Wireless, L.L.C. do not
     contemplate offering personal  communications  services for at least 1 to 3
     years,  for the same reasons.  Breda estimates that it will take at least 1
     to  3  years  for  the  surrounding  areas  to  build  out  their  personal
     communications systems to the point where Breda, Prairie Telephone, Guthrie
     Group,  L.L.C. or Carroll County  Wireless,  L.L.C.  could connect to those
     systems.

     Breda,  Prairie  Telephone  and Westside  Independent  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.  The spectrum they do own is also limited to 10 MHz. As
     noted above,  Breda has  transferred the personal  communications  services
     licenses it had acquired  for its Breda and  Lidderdale  exchange  areas to
     Carroll  County  Wireless,  L.L.C.  There is also no assurance that Guthrie
     Group,  L.L.C.  or Carroll  County  Wireless,  L.L.C.  will ever be able to
     acquire any additional spectrum.  Also, Breda, Prairie Telephone,  Westside
     Independent, Guthrie Group, L.L.C. and Carroll County Wireless, L.L.C. will
     face competition in providing personal  communications  services because no
     exclusive  rights can be acquired  with respect to personal  communications
     services.

     The area of personal communications services is therefore an uncertain area
     for Breda, Prairie Telephone and Westside Independent.

     Personal   communications  services  are  competitive  with  telephone  and
     cellular  services.  Breda does not believe,  however,  that investments in
     personal  communications  services or in ventures  which may be involved in
     personal  communications  services  are  inconsistent  or in conflict  with
     Breda's,  Prairie Telephone's or Westside  Independent's  overall business.
     Breda  also  believes  positioning  itself  to be  able to  offer  personal
     communications  services or  investing  in other  ventures  which may offer
     personal  communications  services are methods of  attempting  to diversify
     across the various

                                       46
<PAGE>


     telecommunications   methods  which  are  available  today  or  may  become
     important in the future.

     There are no current  plans to expand the cable  services  areas of, or the
     cable services provided by, Tele-Services.

     During the month of July 2001, Breda and its subsidiaries offering Internet
     services  converted  feasible  service areas to a virtual  internet service
     product.  This conversion  allowed Breda to brand its Internet  services as
     its own even though the underlying service provider had not changed.  Breda
     reduced its pricing of Internet services and bundled Internet services with
     its long distance services in August of 2001 in order to attempt to compete
     at a lower price point for Internet  services.  On October 31, 2001,  Breda
     converted its Internet customers on the virtual Internet service product to
     a new underlying Internet service provider,  Desktop Media, L.L.C. As noted
     in the following  paragraphs,  Prairie Telephone is a part owner of Desktop
     Media,  L.L.C.  Breda hopes that these  changes will allow Breda to compete
     more effectively in the Internet  services market through the generation of
     cost savings in transport costs and help desk costs.

     On May 2, 2001, a new company called Desktop Media,  L.L.C. was formed by a
     corporation named Desktop Media,  Prairie Telephone and two other telephone
     companies.  Desktop Media, L.L.C. is a Minnesota limited liability company.
     Under agreements  signed in connection with the formation of Desktop Media,
     L.L.C., Prairie Telephone became a 10% owner of Desktop Media, L.L.C.

     Desktop Media, L.L.C.  provides both dial-up and high-speed Internet access
     in south central Minnesota.  Desktop Media, L.L.C. is a full-scale internet
     service provider,  which also sells computer hardware and related services.
     Desktop  Media,  L.L.C.  has  filed  applications  to  provide  traditional
     telephone  services as a competitive  local exchange  carrier.  The overall
     business  plan is based upon  Desktop  Media  L.L.C.  providing  data local
     exchange carrier services.  Desktop Media, L.L.C. has contracted to provide
     internet service  provider  support  services to Prairie  Telephone and the
     other two telephone companies who have invested in Desktop Media, L.L.C.

     Under the agreements,  Prairie Telephone has advanced Desktop Media, L.L.C.
     $500,000  under a  promissory  note  dated  May 2,  2001.  No  interest  or
     principal  payments  are required  during the first year of the  promissory
     note. In the second year of the promissory note, Desktop Media, L.L.C. will
     be required to pay interest only, which will include all interest  deferred
     during the first year and interest  accruing during the second year. On the
     first day of the 25th month  following May 2, 2001, a principal  payment of
     $12,000 plus interest will be due by Desktop Media,  L.L.C.  with a similar
     installment payment due on the first day of each month thereafter until the
     entire  principal and interest  accruing under the promissory note has been
     paid in full. Desktop Media,  L.L.C. has the option of prepaying all or any
     part of the principal  balance,  or accrued  interest,  at any time without
     penalty.

     The  promissory  note has been  guaranteed by the manager of Desktop Media,
     L.L.C. The

                                       47
<PAGE>


     manager of Desktop Media,  L.L.C. has also guaranteed the loans made by the
     other two telephone  companies who have invested in Desktop  Media,  L.L.C.
     There is also a management agreement between the manager and Desktop Media,
     L.L.C.

     There is no assurance that Desktop Media,  L.L.C. will perform according to
     its  business  plan,  and there is  therefore  no  assurance  that  Prairie
     Telephone  will ever receive any debt  repayments or returns or other value
     from its investment in Desktop Media,  L.L.C. One of the intended  purposes
     of Prairie Telephone's relationship with Desktop Media, L.L.C. is to try to
     lower Breda's and its subsidiaries' costs of providing Internet services in
     order to  allow  Breda to  compete  at a lower  price  point  for  Internet
     services.

     As noted in Item 2 of this  annual  report,  Breda  is  constructing  a new
     corporate  office  building  on land  owned by Breda.  The new site for the
     corporate office building is approximately two blocks away from the present
     site. The  construction  of the new corporate  office building is currently
     anticipated  to be  completed in October of 2002,  with an estimated  total
     cost for the project not to exceed $500,000.

     Breda  and its  subsidiaries  have  and  will  continue  to  incur  capital
     expenditures in connection with upgrading their telephone,  cable and other
     equipment and systems.

     As an example,  Breda upgraded its and its  subsidiaries'  financial system
     software in the third quarter of 2001. Breda needed to upgrade the software
     in order to be able to continue to receive  support for the  software  from
     the  provider  of the  software.  Breda also  contemplates  converting  the
     financial  software utilized by Westside  Independent to the same financial
     system software now utilized by Breda and its other  subsidiaries in either
     the  second  or third  quarter  of 2002.  The  costs  of the  upgrades  and
     conversions will not be material to Breda.

     Breda believes that its present cash position,  along with its  anticipated
     normal operating revenues in 2002, will generate sufficient working capital
     in 2002 for Breda and its  subsidiaries  to meet  their  current  operating
     needs and maintain historical fixed asset addition levels.

              [The rest of this page is intentionally left blank.]

                                       48
<PAGE>


Item 7. Financial Statements.




                           BREDA TELEPHONE CORPORATION
                                AND SUBSIDIARIES
                                   BREDA, IOWA

                        CONSOLIDATED FINANCIAL STATEMENTS
                        WITH INDEPENDENT AUDITORS' REPORT
                     Years Ended December 31, 2001 and 2000






                                       49
<PAGE>


                           BREDA TELEPHONE CORPORATION
                                AND SUBSIDIARIES
                                   BREDA, IOWA

                                    CONTENTS

                                                                            Page
                                                                       ----

Independent Auditors' Report                                             51

Consolidated Financial Statements:

     Consolidated Balance Sheets                                    52 - 53

     Consolidated Statements of Income                                   54

     Consolidated Statements of Stockholders' Equity                     55

     Consolidated Statements of Cash Flows                               56

     Notes to Consolidated Financial Statements                     57 - 69



                                       50
<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, 2001 and
2000, and the related  consolidated  statements of income,  stockholders' equity
and cash flows for the years then ended. These consolidated financial statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an  opinion  on these  consolidated  financial  statements  based on our
audits.

We conducted our audits in accordance with generally accepted auditing standards
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, 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, 2001 and 2000, and the results
of its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles in the United States of America.


Kiesling Associates, LLP
Emmetsburg, Iowa
February 1, 2002


                                       51
<PAGE>


                           BREDA TELEPHONE CORPORATION
                                AND SUBSIDIARIES
                                   BREDA, IOWA

                           CONSOLIDATED BALANCE SHEETS
                           December 31, 2001 and 2000

<TABLE>
<CAPTION>
                                                            2001             2000
                                                        -----------      -----------
<S>                                                     <C>              <C>
                                  ASSETS

CURRENT ASSETS
 Cash and cash equivalents                              $ 1,797,415      $ 1,104,577
 Temporary investments                                      636,169          269,840
 Accounts receivable                                        536,378          703,468
 Interest receivable                                         75,058           50,800
 Prepaid income taxes                                        51,280          336,465
 Inventories                                                 93,028           92,058
 Other                                                      100,265            5,383
                                                        -----------      -----------
                                                          3,289,593        2,562,591
                                                        -----------      -----------

OTHER NONCURRENT ASSETS
 Long-term investments                                    2,494,073        2,888,500
 Other investments                                        2,545,827        2,806,107
 Intangibles, net of accumulated amortization             1,018,313        1,107,625
 Note receivable                                            451,502               --
 Deferred income taxes                                      218,837          113,595
                                                        -----------      -----------
                                                          6,728,552        6,915,827
                                                        -----------      -----------

PROPERTY AND EQUIPMENT                                    5,609,292        6,176,434
                                                        -----------      -----------


     TOTAL ASSETS                                       $15,627,437      $15,654,852
                                                        ===========      ===========
</TABLE>

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


                                       52
<PAGE>


                           BREDA TELEPHONE CORPORATION
                                AND SUBSIDIARIES
                                   BREDA, IOWA

                           CONSOLIDATED BALANCE SHEETS
                           December 31, 2001 and 2000


<TABLE>
<CAPTION>
                                                                          2001            2000
                                                                      -----------     -----------
<S>                                                                   <C>             <C>
                   LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
 Current portion of long-term debt                                    $   126,365     $   118,300
 Accounts payable                                                         199,675         364,232
 Accrued taxes                                                            141,439         134,611
 Other                                                                    157,791         170,670
                                                                      -----------     -----------
                                                                          625,270         787,813
                                                                      -----------     -----------

LONG-TERM DEBT, less current portion                                    1,912,625       2,038,990
                                                                      -----------     -----------


STOCKHOLDERS' EQUITY
 Common stock - no par value,  5,000,000  shares  authorized,  35,025 and 37,241
   shares issued and outstanding at $258
   and $235 stated values, respectively                                 9,036,450       8,751,635
 Retained earnings                                                      4,053,092       4,076,414
                                                                      -----------     -----------
                                                                       13,089,542      12,828,049
                                                                      -----------     -----------

      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                      $15,627,437     $15,654,852
                                                                      ===========     ===========
</TABLE>

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


                                       53
<PAGE>


                           BREDA TELEPHONE CORPORATION
                                AND SUBSIDIARIES
                                   BREDA, IOWA

                        CONSOLIDATED STATEMENTS OF INCOME
                     Years Ended December 31, 2001 and 2000


<TABLE>
<CAPTION>
                                                               2001              2000
                                                           -----------       -----------
<S>                                                        <C>               <C>
OPERATING REVENUES                                         $ 5,884,244       $ 6,052,154
                                                           -----------       -----------

OPERATING EXPENSES
 Cost of services                                            2,275,848         2,234,958
 Depreciation and amortization                               1,128,785         1,101,022
 Selling, general, and administration                        1,908,031         1,861,516
                                                           -----------       -----------
                                                             5,312,664         5,197,496
                                                           -----------       -----------

OPERATING INCOME                                               571,580           854,658
                                                           -----------       -----------

OTHER INCOME (EXPENSES)
 Interest and dividend income                                  343,985           460,509
 Interest expense                                             (155,731)         (422,561)
 Loss on sale of investments                                    (1,909)          (67,261)
 Gains on sales of cellular and DBS investments                     --         5,018,714
 Income from cellular investments                              613,468           674,204
 Income from Alpine investment                                  44,209            23,508
 Other, net                                                     23,405           (13,090)
                                                           -----------       -----------
                                                               867,427         5,674,023
                                                           -----------       -----------

INCOME BEFORE INCOME TAXES                                   1,439,007         6,528,681
                                                           -----------       -----------

INCOME TAXES                                                   499,759         2,538,700
                                                           -----------       -----------

NET INCOME                                                 $   939,248       $ 3,989,981
                                                           ===========       ===========

NET INCOME PER COMMON SHARE                                $     26.03       $    106.39
                                                           ===========       ===========
</TABLE>

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


                                       54
<PAGE>


                           BREDA TELEPHONE CORPORATION
                                AND SUBSIDIARIES
                                   BREDA, IOWA

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                           December 31, 2001 and 2000

<TABLE>
<CAPTION>
                                                       Common Stock                 Retained
                                                  Shares           Amount           Earnings            Total
                                               ------------     ------------      ------------      ------------
<S>                                                  <C>        <C>               <C>               <C>
Balance at December 31, 1999                         37,682     $  5,614,618      $  3,440,131      $  9,054,749

     Comprehensive Income:
       Net income                                                                    3,989,981         3,989,981

     Dividends paid                                                                   (113,046)         (113,046)

     Common stock redeemed, net                        (441)        (103,635)                           (103,635)

     Stated value stock adjustment                                 3,240,652        (3,240,652)
                                               ------------     ------------      ------------      ------------

Balance at December 31, 2000                         37,241        8,751,635         4,076,414        12,828,049

     Comprehensive Income:
       Net income                                                                      939,248           939,248

     Dividends paid                                                                   (111,087)         (111,087)

     Common stock redeemed, net                      (2,216)        (566,668)                           (566,668)

     Stated value stock adjustment                                   851,483          (851,483)
                                               ------------     ------------      ------------      ------------

Balance at December 31, 2001                         35,025     $  9,036,450      $  4,053,092      $ 13,089,542
                                               ============     ============      ============      ============
</TABLE>

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


                                       55
<PAGE>


                           BREDA TELEPHONE CORPORATION
                                AND SUBSIDIARIES
                                   BREDA, IOWA

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     Years Ended December 31, 2001 and 2000


<TABLE>
<CAPTION>
                                                                        2001              2000
                                                                    -----------       -----------
<S>                                                                 <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                       $   939,248       $ 3,989,981
   Adjustments to reconcile net income to net
     cash provided by operating activities:
       Depreciation and amortization                                  1,128,785         1,101,022
       Amortization of investment tax credits                            (9,769)           (9,769)
       Deferred income taxes                                            (95,473)          (92,466)
       Gains on sales of cellular and DBS investments                        --        (5,018,714)
       Note receivable discount                                         (11,502)               --
       Equity losses in partnerships                                     13,395            12,868
       Changes in operating assets and liabilities:
           (Increase) decrease in assets                                332,166           269,417
           Increase (decrease) in liabilities                           (49,578)           78,795
                                                                    -----------       -----------
       Net cash provided by operating activities                      2,247,272           331,134
                                                                    -----------       -----------

CASH FLOWS FROM INVESTING ACTIVITIES
     Capital expenditures                                              (624,270)         (726,922)
     Cost of removing plant, net of salvage                              30,908                --
     Purchase of investments                                           (343,484)       (1,201,867)
     Proceeds from sale of investments                                  371,582         2,555,960
     Issuance of note receivable                                       (440,000)               --
     Purchase of other investments                                      (67,805)         (300,806)
     Sale in other investments                                          314,690                --
     Decrease in intangibles                                                 --            25,436
     Proceeds from sale of cellular investment                               --         5,226,034
                                                                    -----------       -----------
       Net cash provided by (used in) investing activities             (758,379)        5,577,835
                                                                    -----------       -----------

CASH FLOWS FROM FINANCING ACTIVITIES
     Common stock redeemed                                             (566,668)         (103,635)
     Repayment of long-term debt                                       (118,300)       (4,999,052)
     Dividends paid                                                    (111,087)         (113,046)
                                                                    -----------       -----------
       Net cash used in financing activities                           (796,055)       (5,215,733)
                                                                    -----------       -----------

NET INCREASE IN CASH AND CASH EQUIVALENTS                               692,838           693,236
                                                                    -----------       -----------

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                        1,104,577           411,341
                                                                    -----------       -----------

CASH AND CASH EQUIVALENTS AT END OF YEAR                            $ 1,797,415       $ 1,104,577
                                                                    ===========       ===========
</TABLE>

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


                                       56
<PAGE>


                           BREDA TELEPHONE CORPORATION
                                AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000


NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Basis of Presentation

         The Breda  Telephone  Corporation  is a provider of  telecommunications
         exchange and local access services, cable television services, internet
         services  and  telecommunications  equipment  in a service area located
         primarily in western Iowa.

         The accounting policies of the Company and its subsidiaries  conform to
         generally  accepted  accounting  principles  in the  United  States  of
         America and reflect  practices  appropriate  to the telephone and cable
         television  industries.  Management  uses estimates and  assumptions in
         preparing its consolidated  financial  statements.  Those estimates and
         assumptions  affect the  reported  amounts  of assets and  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 Company's telephone
         operations  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 of the Company's cable television operations are
         maintained in accordance  with the Uniform System of Accounts for Class
         A  CATV  Companies  as  prescribed  by  the  National   Association  of
         Regulatory Utility Commissioners.

         Principles of Consolidation

         The  consolidated  financial  statements  include  the  accounts of the
         Company and its wholly-owned  subsidiaries,  Prairie Telephone Company,
         Inc., Westside Independent  Telephone Company, and Tele-Services,  Ltd.
         (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.  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  used the FIFO  method  of  computing  realized  gains and
         losses.

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


                                       57
<PAGE>


                           BREDA TELEPHONE CORPORATION
                                AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000


NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)

         Inventories

         Inventories  include both merchandise held for resale and materials 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 are recorded at average cost.

         Property and Equipment

         Property and equipment 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
         plant in service.  When telephone 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.

         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.

         Intangibles

         In 2001, the Financial  Accounting  Standards Board Issued Statement of
         Financial  Accounting  Standard No. 142 "Goodwill and Other  Intangible
         Assets"  effective for fiscal years  beginning after December 15, 2001.
         Under the new rules,  goodwill  and  intangible  assets  deemed to have
         indefinite  lives  will no longer be  amortized  but will be subject to
         periodic  impairment  tests in  accordance  with the  Statement.  Other
         intangible  assets will  continue  to be  amortized  over their  useful
         lives.   The  Statement   also  broadens  the  criteria  for  recording
         intangible assets separate from goodwill.

         Effective  January 1, 2002,  all  amortization  expense on goodwill and
         intangible  assets with  indefinite  lives will stop.  Amortization  of
         goodwill and other intangibles was  approximately  $89,000 in both 2001
         and 2000.  The Company has not yet evaluated the impact this  statement
         will have on results of operations and financial position. During first
         quarter  2002,  the  Company  will  perform  the first of the  required
         impairment tests of goodwill and indefinite lived intangible  assets as
         of January 1, 2002.


                                       58
<PAGE>


                           BREDA TELEPHONE CORPORATION
                                AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000


NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)

         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
         tax assets and liabilities arise from differences  between the basis of
         property and equipment and partnership profits and losses. 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 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 service,  cable  television  service and internet 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, in part, on an average
         schedule  settlement  formula  administered  by the  National  Exchange
         Carrier  Association  (NECA) which is regulated by the FCC. The traffic
         sensitive  portion  of  interstate  access  revenues  is  billed  on an
         individual  company access charge structure as approved by the FCC. The
         intrastate  portion  of access  revenues  is  billed  on an  individual
         company  tariff  access  charge  structure  based on expense  and plant
         investment  of  the  Company  as  approved  by  the  state   regulatory
         authority. The tariffs developed from these formulas are used to charge
         the connecting carrier and recognize revenues 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.

         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.

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

         Reclassifications

         Certain   reclassifications  have  been  made  to  the  2000  financial
         statements to conform with the 2001 presentation.


                                       59
<PAGE>


                           BREDA TELEPHONE CORPORATION
                                AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000


NOTE 2.  TEMPORARY AND LONG-TERM INVESTMENTS

         The  amortized  cost and fair  value of  certificates  of  deposit  and
         investments  classified as held-to-maturity and  available-for-sale are
         as follows:

<TABLE>
<CAPTION>
                                                                        Gross            Gross
                                                      Amortized      Unrealized       Unrealized          Fair
                                                         Cost           Gains            Losses           Value
                                                     -----------     -----------      -----------      -----------
<S>                                                  <C>             <C>              <C>              <C>
                 December 31, 2001

            Certificates of deposit                  $   350,000     $                $                $   350,000

            Held-to-Maturity:
               Municipal bonds                         2,739,846          49,492          (11,693)       2,777,645
               Government securities                      40,396             479                            40,875
                                                     -----------     -----------      -----------      -----------
                                                     $ 3,130,242     $    49,971      $   (11,693)     $ 3,168,520
                                                     ===========     ===========      ===========      ===========

                 December 31, 2000

            Certificates of deposit                  $   350,000     $                $                $   350,000

            Held-to-Maturity:
               Municipal bonds                         2,497,186          22,772          (23,003)       2,496,955
               U.S. Treasury notes                         5,000                             (139)           4,861
               Government securities                     266,745           1,249           (1,543)         266,451

            Available-for-Sale:
               Marketable equity securities               39,409                                            39,409
                                                     -----------     -----------      -----------      -----------
                                                     $ 3,158,340     $    24,021      $   (24,685)     $ 3,157,676
                                                     ===========     ===========      ===========      ===========
</TABLE>

<TABLE>
<CAPTION>
                                                        2001             2000
                                                     -----------     -----------
<S>                                                  <C>             <C>
            Amounts classified as:
                 Current                             $   636,169     $   269,840
                 Noncurrent                            2,494,073       2,888,500
                                                     -----------     -----------
                                                     $ 3,130,242     $ 3,158,340
                                                     ===========     ===========
</TABLE>

         Proceeds  from sale of  available-for-sale  securities  were $37,500 in
         2001  and  the  gross  realized  loss  on  sale  of  available-for-sale
         securities  totaled $1,909.  There were no sales of  available-for-sale
         securities during 2000.

         Certificates of deposit and investments  classified as held-to-maturity
         at December 31, 2001,  are  summarized  below by  contractual  maturity
         date:

                 Due in one year or less                         $   636,169
                 Due after one year through five years             1,168,645
                 Due after five years                              1,325,428
                                                                 -----------
                                                                     $ 3,130,242
                                                                 ===========


                                       60
<PAGE>


                           BREDA TELEPHONE CORPORATION
                                AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000


NOTE 3.  OTHER INVESTMENTS

         Other   investments   include   nonmarketable   equity  securities  and
         certificates, along with investments in partnerships, limited liability
         companies and joint ventures as follows:

<TABLE>
<CAPTION>
                                                                          2001            2000
                                                                       ----------      ----------
<S>                                                                    <C>             <C>
            Alpine Communications, L.C                                 $  781,579      $  781,579
            Rural Telephone Finance Cooperative - certificates            196,003         502,889
            RSA #1, Ltd.                                                  348,542         348,542
            RSA #7, Ltd.                                                  144,049         144,049
            RSA #8, Ltd.                                                  310,491         310,491
            NECA Services, Inc. - stock                                   300,000         300,000
            Rural Telephone Bank - stock                                  165,789         165,789
            Quad County Communications                                    110,531         123,327
            Iowa Network Services - stock                                  78,705          78,705
            Carroll County Wireless, L.L.C                                 30,009          30,599
            Guthrie Group, L.L.C                                            9,129           9,137
            Desk Top Media, L.L.C                                          60,000              --
            Other                                                          11,000          11,000
                                                                       ----------      ----------
                                                                       $2,545,827      $2,806,107
                                                                       ==========      ==========
</TABLE>

         The   Company   continues   to  have  a  15.8%   interest   in   Alpine
         Communications,  L.C.  (Alpine).  The  Alpine  group  operates  several
         telephone exchanges in eastern Iowa.

         The Company's  percentage  interests in RSA #1, Ltd.,  RSA #7, Ltd. and
         RSA #8, Ltd. are 9.1%,  7.1% and 11.7%,  respectively,  at December 31,
         2001.  In addition,  the Company owns a 16.7%  interest in RSA #9, Ltd.
         partnership of which they have no original cash investment.

         Additionally,  Westside  Independent  Telephone Company, a wholly-owned
         subsidiary  of Breda  Telephone  Corporation,  has a  33.33%  ownership
         interest in Quad County Communications. This entity owns and operates a
         fiber  optic  network.   Condensed   financial  data  for  Quad  County
         Communications is as follows:

                                                       2001            2000
                                                    ---------       ---------

                Ordinary net loss                   $ (38,389)      $ (38,604)
                                                    =========       =========


                Current assets                      $  18,593       $  10,832
                Non-current assets                    322,667         368,988
                Current liabilities                     9,676           9,846
                Non-current liabilities                     0               0

         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 of
         these companies  provide  personal  communication  services (PCS).  The
         operations  of  these  entities  are  immaterial  to  the  consolidated
         financial statements.

         During  2001,  the Company  obtained a 10%  interest in Desk Top Media,
         L.L.C.  (Desk  Top).  Desk  Top  is a  company  primarily  involved  in
         providing internet services.


                                       61
<PAGE>


                           BREDA TELEPHONE CORPORATION
                                AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000


NOTE 3.  OTHER INVESTMENTS, (Continued)

         The investments in Quad County Communications, Carroll County Wireless,
         L.L.C. and Guthrie Group,  L.L.C. are being accounted for on the equity
         method. The remaining investments are accounted for on the cost method.

NOTE 4.  INTANGIBLES

         In 1998, the Company  acquired 100%  ownership of Westside  Independent
         Telephone Company.  The total cost of the acquisition exceeded the fair
         value of the net assets of Westside  Independent  Telephone  Company by
         $1,178,472. This excess was recorded as goodwill and is being amortized
         on the  straight-line  basis over fifteen years.  Amortization  expense
         recorded for both 2001 and 2000 was $78,604.  Accumulated  amortization
         as  of  December  31,  2001  and  2000  was   $281,660  and   $203,056,
         respectively.

         Additionally in 1998 Tele-Services,  Ltd., a wholly-owned subsidiary of
         Breda  Telephone  Corporation,  acquired  100%  ownership  of  Westside
         Communications,  Inc.  The total cost of the  acquisition  exceeded the
         fair  value of the net  assets  of  Westside  Communications,  Inc.  by
         $157,611.  This  excess  was also  recorded  as  goodwill  and is being
         amortized on the straight-line  basis over fifteen years.  Amortization
         expense  recorded  for both  2001 and  2000  was  $10,512.  Accumulated
         amortization  as of December 31, 2001 and 2000 was $37,666 and $27,154,
         respectively.

         During  2000,  the Company  transferred  the PCS  licenses,  originally
         purchased for $28,825 and recorded in  intangibles,  to Carroll  County
         Wireless,  L.L.C. The net value transferred amounted to $25,631 and was
         recorded as a equity  contribution  to the new entity.  No gain or loss
         was recorded on the transaction.

         During 1999, the Company  purchased PCS licenses for $2,051,  which are
         also included net of accumulated  amortization  within other noncurrent
         assets on the  balance  sheet.  The costs  are being  amortized  on the
         straight-line basis over ten years.  Amortization  expense recorded for
         both 2001 and 2000 was $195.  Accumulated  amortization  as of December
         31, 2001 and 2000 was $495 and $300, respectively.

NOTE 5.  NOTE RECEIVABLE

         The note  receivable at December 31, 2001  represents a promissory note
         received from Desk Top Media,  L.L.C. The note with an original balance
         of $451,502 matures in 2006 and reflects interest at 13%.


                                       62
<PAGE>


                           BREDA TELEPHONE CORPORATION
                                AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000


NOTE 6.  PROPERTY AND EQUIPMENT

         Property and equipment includes the following:

<TABLE>
<CAPTION>
                                                                    2001              2000
                                                                -----------       -----------
<S>                                                             <C>               <C>
            Telephone Plant in Service:
                 Land                                           $    39,008       $    39,008
                 Buildings                                          731,772           729,372
                 Other general support assets                     1,419,467         1,295,196
                 Central office assets                            2,212,489         2,167,819
                 Cable and wire facilities                        4,134,895         4,091,520
                 Other plant and equipment                          693,482           691,000
                                                                -----------       -----------
                                                                  9,231,113         9,013,915
                                                                -----------       -----------

            Cable Television Plant in Service:
                 Franchise                                           32,992            32,992
                 Land                                                 8,586             8,586
                 Buildings                                          248,855           248,855
                 Towers, antennas and head end equipment          1,509,394         1,500,538
                 Cable and wire facilities                        1,573,524         1,567,952
                 Other plant and equipment                          193,470           189,320
                                                                -----------       -----------
                                                                  3,566,821         3,548,243
                                                                -----------       -----------

            Telemarketing Plant in Service                               --           281,538
                                                                -----------       -----------

                          Total property and equipment           12,797,934        12,843,696
                          Less accumulated depreciation           7,471,139         6,825,834
                                                                -----------       -----------
                                                                  5,326,795         6,017,862
                          Plant under construction                  282,497           158,572
                                                                -----------       -----------
                                                                $ 5,609,292       $ 6,176,434
                                                                ===========       ===========
</TABLE>

         Depreciation  on depreciable  property  resulted in composite  rates of
         8.1%  and  8.0%  for the  years  ended  December  31,  2001  and  2000,
         respectively.

NOTE 7.  LONG-TERM DEBT

         Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                    2001              2000
                                                                -----------       -----------
<S>                                                             <C>               <C>
            Rural Telephone Finance Cooperative
                7.35% (Fixed Rate)                              $ 2,038,990       $ 2,157,290
                     Less current portion                          (126,365)         (118,300)
                                                                -----------       -----------
                                                                $ 1,912,625       $ 2,038,990
                                                                ===========       ===========
</TABLE>


                                       63
<PAGE>


                           BREDA TELEPHONE CORPORATION
                                AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000


NOTE 7.  LONG-TERM DEBT, (Continued)

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

                                                 Principal
                                                ----------

                       2002                     $  126,365
                       2003                        134,981
                       2004                        144,183
                       2005                        154,013
                       2006                        164,513

         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.

         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 5.95% at December 31, 2001. No funds were advanced under the line at
         December 31, 2001.

         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 5.95% at December  31, 2001.  No funds were  advanced
         under the line at December 31, 2001.

NOTE 8.  INCOME TAXES

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

<TABLE>
<CAPTION>
                                                                   2001            2000
                                                               -----------     -----------
<S>                                                            <C>             <C>
            Federal income taxes:
                 Current tax expense                           $   446,358     $ 1,971,403
                 Deferred tax benefit                              (70,650)        (69,350)
                 Amortization of investment tax credits             (9,769)         (9,769)
            State income taxes:
                 Current tax expense                               158,643         669,532
                 Deferred tax benefit                              (24,823)        (23,116)
                                                               -----------     -----------
            Total income tax expense                           $   499,759     $ 2,538,700
                                                               ===========     ===========
</TABLE>


                                       64
<PAGE>


                           BREDA TELEPHONE CORPORATION
                                AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000


NOTE 8.  INCOME TAXES, (Continued)

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

<TABLE>
<CAPTION>
                                                                   2001            2000
                                                                ----------      ----------
<S>                                                             <C>             <C>
            Deferred Tax Liabilities
                 Federal                                        $  187,259      $  242,951
                 State                                              65,794          80,983
                                                                ----------      ----------
                     Total Deferred Tax Liabilities                253,053         323,934
                                                                ----------      ----------

            Deferred Tax Assets
                 Federal                                           374,364         360,981
                 State                                             131,534         120,327
                                                                ----------      ----------
                     Total Deferred Tax Assets                     505,898         481,308
                                                                ----------      ----------

                 Net Deferred Tax Asset                         $  252,845      $  157,374
                                                                ==========      ==========

            Current portion                                     $       --      $       --
            Long-term portion                                      252,845         157,374
                                                                ----------      ----------
                 Net Deferred Tax Asset                         $  252,845      $  157,374
                                                                ==========      ==========
</TABLE>

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

         Prepaid  income  taxes  of  $51,280  and  $336,465   appearing  on  the
         consolidated   balance   sheets  at   December   31,   2001  and  2000,
         respectively, reflect overpayments of estimated taxes.

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

<TABLE>
<CAPTION>
                                                                   2001            2000
                                                                ----------      ----------
<S>                                                                   <C>             <C>
            Statutory federal income tax rate                         34.0%           34.0%
            State income taxes, net of federal benefit                 9.6             9.2
            Amortization of investment tax credits                     (.1)            (.1)
            Dividends received deduction                              (1.6)            (.3)
            Tax exempt interest                                       (4.0)           (2.1)
            Other                                                     (3.2)           (1.8)
                                                                ----------      ----------
                 Effective income tax rate                            34.7%           38.9%
                                                                ==========      ==========
</TABLE>

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


                                       65
<PAGE>


                           BREDA TELEPHONE CORPORATION
                                AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000


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 also had telemarketing services that
         do not meet the quantitative  threshold for a reportable segment. These
         services were discontinued during 2001.

         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.

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

<TABLE>
<CAPTION>
                                                 Local                          Internet
                                               Exchange                         Service
                  2001                          Carrier       Broadcast         Provider          Other            Total
                  ----                       -----------     -----------      -----------      -----------      -----------
<S>                                          <C>             <C>              <C>              <C>              <C>
         Revenues and sales                  $ 3,957,357     $   998,675      $   761,999      $   166,213      $ 5,884,244
         Intersegment income
             and sales                                --              --               --               --               --
         Interest income                         334,872           9,113               --               --          343,985
         Interest expense                        155,731              --               --               --          155,731
         Depreciation and
             amortization                        713,366         328,005           75,249           12,165        1,128,785
         Income tax expense
             (benefit)                           661,885         (64,107)         (72,983)         (25,036)         499,759
         Segment profit (loss)                 1,097,629         (92,250)         (30,103)         (36,028)         939,248
         Segment assets                       13,336,272       1,536,731          805,410           39,782       15,718,195
         Expenditures for
             segment assets                      507,202          51,077           65,991               --          624,270

                  2000
                  ----

         Revenues and sales                  $ 4,080,514     $ 1,046,768      $   648,195      $   276,677      $ 6,052,154
         Intersegment income
             and sales                                --              --               --               --               --
         Interest income                         439,389          21,120               --               --          460,509
         Interest expense                        386,345          36,216               --               --          422,561
         Depreciation and
             amortization                        683,574         344,643           60,333           12,472        1,101,022
         Income tax expense
             (benefit)                         2,691,227         (72,155)         (56,547)         (23,825)       2,538,700
         Segment profit (loss)                 4,156,729        (103,833)         (28,630)         (34,285)       3,989,981
         Segment assets                       14,328,128       1,808,935          754,682           80,699       16,972,444
         Expenditures for
             segment assets                      515,655          47,429          162,116            1,722          726,922
</TABLE>


                                       66
<PAGE>


                           BREDA TELEPHONE CORPORATION
                                AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000


NOTE 9.  OPERATING SEGMENTS INFORMATION, (Continued)

<TABLE>
<CAPTION>
            Reconciliation of Segment Information                   2001              2000
            -------------------------------------               ------------      ------------
<S>                                                             <C>               <C>
         REVENUES:
              Total revenues for reportable segments            $  5,718,031      $  5,775,477
              Other revenues                                         166,213           276,677
                                                                ------------      ------------
                  Consolidated Revenues                         $  5,884,244      $  6,052,154
                                                                ============      ============

         PROFIT:
              Total profit for reportable segments              $    975,276      $  4,024,266
              Other profit (loss)                                    (36,028)          (34,285)
                                                                ------------      ------------
                  Net Income                                    $    939,248      $  3,989,981
                                                                ============      ============


         ASSETS:
              Total assets for reportable segments              $ 15,678,413      $ 16,891,745
              Other assets                                            39,782            80,699
              Elimination of intercompany receivables                (90,758)       (1,317,592)
                                                                ------------      ------------
                  Consolidated Assets                           $ 15,627,437      $ 15,654,852
                                                                ============      ============
</TABLE>

NOTE 10. SUPPLEMENTAL CASH FLOW INFORMATION

         Noncash investing and financing activities included $121,030 during the
         year ended December 31, 2000, relating to plant and equipment additions
         placed in service during 2000,  which are reflected in accounts payable
         at year end.

         Cash paid for interest,  net of amounts  capitalized for 2001 and 2000,
         totaled $155,731 and $422,561, respectively.

         Cash paid for  income  taxes  for 2001 and 2000  totaled  $367,241  and
         $2,435,069, respectively.

NOTE 11. NET INCOME PER COMMON SHARE

         Net income per common  share for 2001 and 2000 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, 2001 and 2000 were 36,083
         and 37,503, respectively.

NOTE 12. STOCK VALUE ADJUSTMENT

         In May 2000,  the board of  directors  authorized a $31 increase in the
         stated  value of each share of common  stock  from $149 to $180.  There
         were 37,682  shares  outstanding  at the time of the value  adjustment,
         which reduced retained earnings by $1,168,142.

         During June 2000,  the board of directors  authorized an additional $55
         increase in the stated value of each share of common stock from $180 to
         $235.  There were 37,682  shares  outstanding  at the time of the value
         adjustment, which reduced retained earnings by $2,072,510.

         During May 2001,  the board of  directors  authorized a $23 increase in
         the stated value of each share of common stock from $235 to $258. There
         were 37,021  shares  outstanding  at the time of the value  adjustment,
         which reduced retained earnings by $851,483.


                                       67
<PAGE>


                           BREDA TELEPHONE CORPORATION
                                AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000


NOTE 13. STOCK RESTRICTIONS

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

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

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

         o    Stockholders  shall not sell any shares of stock owned  unless the
              Company has 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 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 the 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 14. EMPLOYEE BENEFIT PLAN

         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 $80,538
         and  $84,797  for  the  years  ended   December   31,  2001  and  2000,
         respectively.

NOTE 15. CONCENTRATIONS OF CREDIT RISK

         The  Company  grants  credit  to  local  telephone  service  and  cable
         television service customers, all of whom are located in the franchised
         service areas, internet customers and to telecommunications  intrastate
         and interstate long distance carriers.

         The Company  received  41% of its  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.


                                       68
<PAGE>


                           BREDA TELEPHONE CORPORATION
                                AND SUBSIDIARIES
                                   BREDA, IOWA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000


NOTE 15. CONCENTRATIONS OF CREDIT RISK, (Continued)

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

NOTE 16. RELATED PARTY

         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, 2001 and 2000 were
         approximately $575,500 and $607,000, respectively.

NOTE 17. DISPOSITION OF CORPORATE BUILDING

         On September 12, 2001, the Company  entered into a contract to sell its
         corporate building for $200,000. The Company received a cash deposit of
         $20,000  and  the  contract  established  payment  terms.  The  Company
         anticipates  receiving a promissory  note for $180,000 at a rate of 7%.
         The note will be payable in four equal  installments  of $20,000,  plus
         interest through 2005 and a final installment of $100,000 plus interest
         payable in 2006.  The  transaction  is expected to close during  fourth
         quarter  2002  and  will  result  in an  estimated  before  tax gain of
         $104,500.

NOTE 18. DISPOSITION OF CELLULAR AND DBS INVESTMENTS

         On May 12, 2000,  the Company sold all of their  outstanding  shares of
         Central  Iowa  Cellular,  Inc.  (CIC).  The  Company  received  cash of
         $5,108,279,  which included the majority of the Company's  share of the
         Tower Net Proceeds.  The transaction  resulted in a gain of $4,900,959,
         which was  included in  operations  during the second  quarter of 2000.
         During third quarter 2000,  certain  events  occurred  which made final
         certain terms of the sale  resulting in the receipt of $117,755,  which
         was  classified  as an  additional  gain on the  sale  of the  cellular
         investment.  In  total,  the  completed  transaction  amounted  to cash
         received of $5,226,034 and a recorded gain on the sale of $5,018,714.


                                       69
<PAGE>


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

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



                                    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      49        President and
                                    Director

     Clifford Neumayer   53        Vice-President and
                                    Director

     Larry Daniel        59        Secretary and
                                    Director

     Charles Thatcher    50        Director

     Roger Nieland       66        Director

     John Wenck          63        Director

     Dave Grabner        53        Director and
                                    Treasurer

     Dean  Schettler  has been a director of Breda since  April,  1997,  and the
     President of Breda since April,  1998.  His current term as a director will
     end at the annual  shareholders  meeting which is held in 2003. He has also
     been a director of each of Breda's  subsidiaries since April, 1997, and the
     president of the  subsidiaries  since April,  1998. 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 the Vice-President and a director of Breda since
     April, 1996. His current term as a director of Breda will end at the annual
     shareholders meeting which is

                                       70
<PAGE>


     held in 2002. He has also held each of those positions with each of Breda's
     subsidiaries  since April,  1996. Mr.  Neumayer has been self employed as a
     farmer since 1970.

     Larry  Daniel has been the  Secretary  and a director of Breda since April,
     1995. He was re-elected as a director at the May 16, 2001 annual meeting of
     the  shareholders,  and 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 is a self- employed farmer,  and has been for at least the
     last five years.

     Charles  (Chuck)  Thatcher was elected as a director of Breda at the annual
     shareholders  meeting which was held on May 16, 2001,  and 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 17
     years.  Midwest  Wholesale  Building Products is a  wholesaler/retailer  of
     lumber, building products and materials.

     Roger  Nieland has been a director of Breda  since May,  2000.  His current
     term as a director  of Breda will end at the  annual  shareholders  meeting
     which is held in 2003.  He has also served as a director of each of Breda's
     subsidiaries  since May, 2000. Mr. Nieland is currently  self-employed as a
     farmer, and has been for at least the last five years. Mr. Nieland has been
     a director of Iowa Ethanol Coop since  September,  1994.  Iowa Ethanol Coop
     organized the start-up of a corn milling plant in Glidden,  Iowa.  The corn
     milling plant operates under the name Iowa Corn Processors. Mr. Nieland has
     also served as a trustee for Wheatland Township, in Carroll County, Iowa.

     John Wenck has been a director of Breda since April, 1997. His current term
     as a director of Breda will end at the annual shareholders meeting which is
     held in  2003.  He has  also  served  as a  director  of  each  of  Breda's
     subsidiaries since April,  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 May, 2001. His current term as a director of Breda
     will end at the annual  shareholders  meeting which is held in 2002. 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 May, 2001. Mr. Grabner
     is currently self-employed as an electrician, and has been for at least the
     last five 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 of Breda 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

                                       71
<PAGE>


     least 18 years of age.

     The officers of Breda are elected annually by the board of directors at its
     annual meeting,  and hold office until the next annual meeting of the board
     of directors and until their respective  successors are chosen. 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 are and will continue to make a
     significant contribution to its business. Those employees are as follows:

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

          Robert J. Boeckman        41       Chief Operations Officer and
                                             Co-Chief Executive Officer

          Jane A. Morlok            48       Chief Financial Officer and
                                             Co-Chief Executive Officer

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

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

     Ms. Morlok became the chief  financial  officer of Breda on March 30, 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.

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 2001,
     2000 and 1999 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.

                                       72
<PAGE>


                           Summary Compensation Table

     Name and                                   Other Annual    All Other
     Position            Year Salary(1) Bonus   Compensation(2) Compensation(3)
     --------            ---- --------- -----   --------------- ---------------
     Robert J. Boeckman, 2001 $81,853   $11,200    $2,370           $18,157
     Chief Operations    2000 $80,000   $2,000     $1,890           $15,703
     Officer             1999 $74,159   $ -0-      $ 617            $14,568

     (1) This amount includes a contribution by Mr. Boeckman of 3% of his 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, Mr. Boeckman
     must  contribute a minimum of 3% of his annual gross  salary.  See also the
     "All Other Compensation" column above.

     (2) This  amount  includes  payments  to Mr.  Boeckman 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's and Westside  Independent's
     offices.  All employees  share in the fund even if they are not involved in
     the sale of cell phones.  Mr. Boeckman is not involved in those sales.  The
     amount also includes a yearly clothing  allowance and the estimated  yearly
     value of services  provided to Mr. Boeckman 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 on behalf of Mr. Boeckman
     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 Mr.  Boeckman's
     annual gross  salary.  See also footnote 1 above  regarding Mr.  Boeckman's
     contributions  to the  program.  This  amount  also  includes  a long  term
     disability  contribution of 1.12% of salary and  employer-paid  premiums on
     health, life and accidental death and dismemberment insurance.

     Dean  Schettler is the president of Breda.  No  information is provided for
     Mr. Schettler in the summary compensation table because he does not receive
     compensation in his capacity as the president of Breda.  Mr. Schettler does
     receive  compensation  for  his  services  as  a  director  of  Breda.  The
     compensation payable to directors is discussed below.

     Director Compensation.

     Since June,  2000,  all of Breda's  directors  have  received $125 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 $100 for
     each regular,  special and conference call meeting in 1999 and through May,
     2000.  The  vice  president,  secretary  and  treasurer  also  received  an
     additional  $25 per  meeting in 1999 and 2000.  The  president  received an
     additional $50 per meeting in 1999 and through May, 2000.

     Since June,  2000, all of Breda's  directors have received $150 per day for
     all day meetings of

                                       73
<PAGE>


     the board of  directors.  The  directors  received $125 per day for all day
     meetings of the board of directors in 1999 and through May, 2000.

     Since June,  2000,  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,
     2000. The directors receive one-half of their regular meeting rate for each
     outside meeting which lasts less than three hours. Outside meetings are not
     formal  meetings of the board of  directors.  Examples of outside  meetings
     include conventions and city council meetings.

     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 paid
     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  internet  access  from  Breda or its
     subsidiaries  at no cost.  The current  estimated  yearly value of internet
     access is $300. They were also entitled to receive  internet access in 1999
     and 2000.

     Employment Agreements.

     Breda entered into a new employment agreement with both Robert Boeckman and
     Jane  Morlok  on  September  11,  2001.  Breda  does not  believe  that the
     employment   agreements  were  materially   different  from  Breda's  prior
     employment  agreements  with Mr.  Boeckman and Ms. Morlok,  but each of the
     employment agreements did include compensation adjustments.

     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 will terminate on April 1, 2002. Breda
     may terminate the employment  agreement if Mr.  Boeckman is absent from his
     employment  under the  employment  agreement  by reason of illness or other
     incapacity for more than 26 consecutive  weeks. Breda will pay Mr. Boeckman
     compensation  during any such period of illness or incapacity in accordance
     with  Breda's sick pay policy as then in effect.  Breda may also  terminate
     the  employment  agreement  for cause upon five days written  notice to Mr.
     Boeckman.  The  employment  agreement  provides that "for cause"  includes,
     without limitation:

     o    Fraud or theft,

     o    Falsifying records,

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<PAGE>


     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 also 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 $82,560. Mr.
     Boeckman  may also  receive a bonus  under the  employment  agreement.  The
     employment   agreement   includes  an  attachment  which  sets  forth  some
     guidelines  which may be followed by the board of directors in  determining
     whether  a bonus  will  be  given  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 also provides that Mr. Boeckman shall be entitled
     to all employee benefits extended to all full time employees of Breda. Some
     of those benefits  currently  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

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<PAGE>


     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  annual  salary under her  employment  agreement is
               $75,000.

     As noted above, both Mr. Boeckman's and Ms. Morlok's  employment  agreement
     will terminate by its terms on April 1, 2002.  Breda will therefore need to
     negotiate  an  extension  of  the  current  employment  agreements  or  new
     employment  agreements with Mr. Boeckman and Ms. Morlok prior to that date.
     Breda does not anticipate  any break in service for either Mr.  Boeckman or
     Ms. Morlok.

     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.

     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, 2002 by:

          o    each of  Breda's  directors;

          o    each of Breda's officers;

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

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

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<PAGE>


                            Security Ownership Table

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

     Dean Schettler                            30                  .086%
     16326 120th St.
     Breda, Iowa 51436

     Clifford Neumayer                         181                 .517%
     11846 Ivy Avenue
     Breda, Iowa 51436

     Larry Daniel                              2                   .006%
     15731 Robin Avenue
     Glidden, Iowa 51433

     Roger Nieland                             110*                .314%
     13312 Eagle Avenue
     Breda, Iowa 51436

     John Wenck                                6                   .017%
     23909 140th St.
     Carroll, Iowa 51401

     Charles Thatcher                          2**                 .006%
     15053 Granite Avenue
     Breda, Iowa 51436

     Dave Grabner                              55***               .157%
     11098 130th Street
     Breda, Iowa 51436

     Robert Boeckman                           30                  .085%
     23678 150th Street
     Carroll, Iowa 51401

     All directors and officers                416                1.188%
     and the chief operations
     officer as a group (8 persons)

     * Forty-three of these shares are held by Mr. Nieland's spouse.

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

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

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<PAGE>


     To Breda's knowledge,  no person is the beneficial owner of more than 5% of
     Breda's common stock.

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  involving
     Breda 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 three  months
          ended December 31, 2001.

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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 29, 2002                    By: /s/ Dean Schettler
                                            ------------------------------------
                                        Dean Schettler, President


     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, Vice-President                 Larry Daniel, Secretary
    and Director                                      and Director
Date:  March 29, 2002                             Date:  March 29, 2002


By: /s/ Roger Nieland                             By: /s/ John Wenck
    ------------------------------------              --------------------------
    Roger Nieland, Director                           John Wenck, Director
Date:  March 29, 2002                             Date:  March 29, 2002


By: /s/ Dean Schettler                            By: /s/ Dave Grabner
    ------------------------------------              --------------------------
    Dean Schettler, President                         Dave Grabner, Treasurer
    and Director                                      and Director
Date:  March 29, 2002                             Date:  March 29, 2002


By: /s/ Charles Thatcher                          /s/ Robert J. Boeckman
    ------------------------------------              --------------------------
    Charles Thatcher, Director                        Robert J. Boeckman, Chief
                                                      Operations Officer
Date:  March 29, 2002                             Date:  March 29, 2002


                                                  /s/ Jane Morlok
                                                      --------------------------
                                                      Jane Morlok, Chief
                                                      Financial Officer
                                                  Date: March 29, 2002

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<PAGE>


                                  EXHIBIT INDEX Exhibits to Form 10-KSB of Breda
                Telephone Corp.
                  for the Fiscal Year Ended December 31, 2001

Description of Exhibit.

     2.   Plan  of   Acquisition,   Disposition,   Reorganization   Arrangement,
          Liquidation or Succession

          (a)  Stock  Purchase  Agreement  dated May 22,  1998,  by and  between
               Arthur  Zerwas and Mary Zerwas,  Westside  Independent  Telephone
               Company,  and  Breda  Telephone   Corporation,   along  with  the
               Amendment  to the Stock  Purchase  Agreement  dated May 22, 1998.
               (Filed as Exhibit 2.1 to Breda's  Registration  Statement on Form
               10-SB, and incorporated herein by this reference.)

          (b)  Stock  Purchase  Agreement  dated May 22,  1998,  by and  between
               Arthur  Zerwas and Mary Zerwas,  and Breda  Tele-Services,  Ltd.,
               along with the Amendment to the Stock  Purchase  Agreement  dated
               May 22,  1998.  (Filed as  Exhibit  2.2 to  Breda's  Registration
               Statement  on  Form  10-SB,  and  incorporated   herein  by  this
               reference.)

          (c)  Asset  Purchase  Agreement  dated October 6, 1998, by and between
               NewPath  Communications,  L.C. and Tele-Services,  Ltd. (Filed as
               Exhibit 2.3 to Breda's Registration  Statement on Form 10-SB, and
               incorporated herein by this reference.)

          (d)  Asset Purchase Agreement by and between Golden Sky Systems,  Inc.
               and Breda  Telephone  Corporation  dated as of November 30, 1998,
               along with the Amendment of Asset Purchase  Agreement dated as of
               January 11, 1999.  (Filed as Exhibit 2.4 to Breda's  Registration
               Statement  on  Form  10-SB,  and  incorporated   herein  by  this
               reference.)

          (e)  Stock  Purchase  Agreement  dated  March 29,  2000,  by and among
               AirTouch  Iowa,  LLC,  Central  Iowa  Cellular,   Inc.,   Prairie
               Telephone Company, Inc., Panora Telecommunications, Inc., Walnut
               Creek  Communications,   Inc.,  Minburn  Telephone  Company,  and
               Interstate Enterprises,

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<PAGE>


               Ltd.  (Filed as  Exhibit  2.1 to  Breda's  Form 8-K  dated  March
               29,2000 and filed April 12, 2000, and incorporated herein by this
               reference.)

          (f)  Des Moines Tower Proceeds  Agreement  dated as of March 29, 2000,
               by   and   among   AirTouch    Communications,    Inc.,    Panora
               Telecommunications,  Inc.,  Walnut  Creek  Communications,  Inc.,
               Minburn  Telephone  Company,  Interstate  Enterprises,  Ltd.  and
               Prairie  Telephone  Company,  Inc.,  along with  Exhibits A and B
               thereto.  (Filed as Exhibit  2.2 to Breda's  Form 8-K dated March
               29, 2000 and filed April 12,  2000,  and  incorporated  herein by
               this reference.)

     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 September 11, 2001 between Breda and
               Robert  Boeckman.  (Filed as Exhibit  10.1 to Breda's Form 10-QSB
               for  the  quarterly   period  ended   September  30,  2001,   and
               incorporated herein by this reference.)

          (b)  Employment  Agreement  dated September 11, 2001 between Breda and
               Jane  Morlok.  (Filed as Exhibit  10.2 to Breda's Form 10-QSB for
               the quarterly  period ended September 30, 2001, and  incorporated
               herein by this reference.)

                                       81
<PAGE>


     21.  Subsidiaries of the Registrant.

          (a)  List  of   Subsidiaries.   (Filed  as   Exhibit   21  to  Breda's
               Registration  Statement on Form 10-SB, and incorporated herein by
               this reference.)


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