BREDA TELEPHONE CORP - FORM 10-K/A

Attached files

file	filename
EX-31.2 - EXHIBIT 31.2 - BREDA TELEPHONE CORP	ex31_2.htm
EX-31.1 - EXHIBIT 31.1 - BREDA TELEPHONE CORP	ex31_1.htm
EX-32.1 - EXHIBIT 32.1 - BREDA TELEPHONE CORP	ex32_1.htm
EX-32.2 - EXHIBIT 32.2 - BREDA TELEPHONE CORP	ex32_2.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-KSB

Amendment No. 1

(Mark One)

T	ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2007

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

For the transition period from ______________ to ______________.

Commission file number: 0-26525

BREDA TELEPHONE CORP.

(Name of small business issuer in its charter)

Iowa	42-0895882
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

112 East Main, P.O. Box 190, Breda, Iowa	51436
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number: (712) 673-2311

Securities registered under Section 12(b) of the Exchange Act: NONE

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, no par value

(Title of class)

Check whether the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. o

Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes T No o

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. o

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

State registrant's revenues for its most recent fiscal year: $10,482,625.

State the aggregate market value of the voting and non-voting common equity held by non-affiliates: $13,913,822, as of March 1, 2008. 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 $457 per share redemption price of the registrant's stock as determined by its board of directors and that was in effect on March 1, 2008. In determining this figure, the registrant has assumed that all of its directors and officers and its chief executive officer, chief operations officer and chief financial officer are affiliates, but this assumption shall not apply to or be conclusive for any other purpose.

State the number of shares outstanding of each of the registrant's classes of common equity, as of the latest practicable date: 30,856 shares of common stock, no par value, at March 1, 2008.

Transitional Small Business Disclosure Format (check one): Yes o No T

Item 7.

Financial Statements.

EXPLANATORY NOTE

Breda Telephone Corp. (“Breda”) is filing this Amendment No. 1 to its Annual Report on Form 10-KSB for the fiscal year ended December 31, 2007 which was originally filed with the Securities and Exchange Commission on March 28, 2008 (the “Original 10-KSB”) to amend the Original 10-KSB by substituting the “Item 7 Financial Statements” for the financial statements contained in Item 7 in the Original 10-KSB.

More specifically, this Amendment No. 1:

a) adds and includes the now unqualified audit opinion of Kiesling Associates LLP in place of the qualified opinion filed with the Original 10-KSB; and

b) includes audited financial statements for Breda’s outside equity investment, Iowa 8 Monona Limited Partnership (“RSA #8”). Breda’s portion of RSA #8 is represented by its investment in West Iowa Cellular, Inc. as described in Note 4 to Breda’s financial statements. No financial statements nor audit opinion for RSA #8 were included in the Original 10-KSB. Note 4 to Breda’s financial statements reports Breda’s and its subsidiary, Westside Independent Telephone Company’s, combined 25% interest in West Iowa Cellular, Inc. West Iowa Cellular, Inc. is the 51% owner of West Iowa Cellular of Iowa Limited Partnership, which holds a 42.43% general partner interest in RSA #8.

The original Kiesling Associates LLP audit opinion was dated March 28, 2008. The attached Kiesling Associates LLP unqualified opinion is dated March 27, 2009 except for Note 4, as to which the date is May 28, 2010. In the report dated March 28, 2008, Kiesling expressed an opinion that it was unable to perform audit procedures for 2007 supporting Breda’s investments in Spiralight Network LLC, RSA #8, and RSA No. 9 Limited Partnership (“RSA #9”) stated at $2,889,873 at December 31, 2007, or its equity in earnings in such partnerships of $244,777, which is included in net income for the year ended as described in Note 4 to the financial statements. As of the date of this opinion for Note 4, Kiesling was able to obtain audited financial statements for 2008 supporting Breda’s investments in RSA #8, RSA #9, and Spiralight Network LLC as described in Note 4.

Except with respect to the scope of the opinion, and the addition of the audited financial statements for RSA #8, there were no changes to the financial statements for the years ending December 31, 2007 and December 31, 2006.

This Amendment No. 1 to Form 10-KSB does not modify or update other information in the Original 10-KSB and does not purport to provide an update of any developments regarding Breda subsequent to the filing of the Original 10-KSB.

Breda Telephone Corp.

And Subsidiaries

Breda, IA

Consolidated Financial Statements

For the Years

Ended December 31, 2007 and 2006

BREDA TELEPHONE CORP. AND SUBSIDIARIES

BREDA, IOWA

Contents

		Page


Consolidated Financial Statements:

	Independent Auditor’s Report	4

	Consolidated Balance Sheets	6

	Consolidated Statements of Income	7

	Consolidated Statements of Stockholders’ Equity	8

	Consolidated Statements of Cash Flow	9

	Notes to Consolidated Financial Statements	10-26

Audited Financial Statements for RSA #8		27

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Breda Telephone Corp. and Subsidiaries

Breda, Iowa

We have audited the accompanying consolidated balance sheets of Breda Telephone Corp. (the Company) and subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of income, stockholders' equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the 2007 financial statements of Iowa 8 Monona Limited Partnership (Iowa 8), RSA No. 9 Limited Partnership (Iowa 9), and Spiralight Network LLC (SN), the investments in which, as discussed in Note 4 to the financial statements, are accounted for by the equity method of accounting. The aggregate investment in Iowa 8, Iowa 9, and SN was $2,889,873 as of December 31, 2007, and the equity in their net income was $244,777 for the year then ended. The financial statements of Iowa 8, Iowa 9, and SN were audited by other auditors whose reports have been furnished to us, and our opinion insofar as it relates to the amounts included for Iowa 8, Iowa 9, and SN is based solely on the reports of other auditors.

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

In our report dated March 28, 2008 we expressed an opinion that we were unable to examine evidence regarding the investments in and earnings of Iowa 8, Iowa 9, and SN. As of the date of this opinion we were able to obtain audited financial statements for 2007 supporting the Company’s investments in Iowa 8, Iowa 9, and SN as described in Note 4.

Table of Contents

In our opinion the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Breda Telephone Corp. and subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

West Des Moines, Iowa

/s/ Kiesling Associates LLP

March 27, 2009

(except for Note 4, as to which the date is May 28, 2010)

Table of Contents

BREDA TELEPHONE CORP. AND SUBSIDIARIES

BREDA, IOWA

CONSOLIDATED BALANCE SHEETS

December 31, 2007 and December 31, 2006

	December 31,		December 31,
	2007		2006
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	1,104,327	$	777,708
Marketable securities		480,311		643,119
Accounts receivable, net of allowances of $676,422 and $46,750in 2007 and 2006, respectively		1,740,266		995,861
Interest receivable		98,013		82,241
Current portion of note receivable, less allowance of $219,691 in 2006		734,383		220,283
Inventory, at average cost		152,857		151,659
Other		17,973		47,440
Deferred income taxes		14,294		12,291
		4,342,424		2,930,602

OTHER NONCURRENT ASSETS
Marketable securities		7,374,754		6,775,348
Investments in unconsolidated affiliates at equity		7,950,825		7,562,375
Other investments at cost		611,707		622,554
Goodwill		896,812		896,812
		16,834,098		15,857,089

PROPERTY, PLANT AND EQUIPMENT		5,015,302		4,509,149

TOTAL ASSETS	$	26,191,824	$	23,296,840


LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Current portion of long-term debt	$	187,710	$	175,729
Accounts payable		850,432		178,331
Accrued taxes		390,659		123,301
Other		116,034		63,417
		1,544,835		540,778

LONG-TERM DEBT, less current portion		951,495		1,139,205

OTHER NONCURRENT LIABILITIES		1,213,607		1,359,628

STOCKHOLDERS' EQUITY
Common stock, Class A - no par value, 5,000,000 shares authorized, 28,923 and 31,016 shares issued and outstanding at $457 and $394stated values, respectively		13,217,811		12,220,304
Common stock, Class B - no par value, 5,000,000 shares authorized, 2,013shares issued and outstanding at $457 stated value, as of December 31, 2007		919,941		-
Retained earnings		8,344,135		8,036,925
		22,481,887		20,257,229

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	26,191,824	$	23,296,840

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

Table of Contents

BREDA TELEPHONE CORP. AND SUBSIDIARIES

BREDA, IOWA

CONSOLIDATED STATEMENTS OF INCOME

For the Years Ended 2007 and 2006

	For the Years Ended
	2007			2006

OPERATING REVENUES	$	10,482,625		$	8,667,053

OPERATING EXPENSES
Cost of services		5,274,092			4,109,781
Depreciation and amortization		1,016,247			960,685
Selling, general, and administrative		2,227,901			2,181,342
		8,518,240			7,251,808

OPERATING INCOME		1,964,385			1,415,245

OTHER INCOME (EXPENSES)
Interest and dividend income		486,217			391,562
Gain on sale of investments		68,058			1,165,392
Gain or (Loss) on disposal of assets		13,958			(21,714	)
Interest expense		(91,871	)		(108,774	)
Income from equity investments		1,447,477			1,872,028
Other, net		(43,964	)		5,770
		1,879,875			3,304,264

INCOME BEFORE INCOME TAXES		3,844,260			4,719,509

INCOME TAXES		1,365,930			1,900,632

NET INCOME	$	2,478,330		$	2,818,877

NET INCOME PER COMMON SHARE	$	79.94		$	90.87

DIVIDENDS PER COMMON SHARE	$	7.00		$	7.00

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

Table of Contents

BREDA TELEPHONE CORP. AND SUBSIDIARIES

BREDA, IOWA

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

	Common Stock, A and B Class						Retained
	Shares			Amount			Earnings			Total

Balance at December 31, 2005		31,023		$	11,075,211		$	6,583,060		$	17,658,271

Comprehensive income:
Net Income								2,818,877			2,818,877

Dividends paid								(217,161	)		(217,161	)

Common stock redeemed, net		(7	)		(2,758	)					(2,758	)

Stated value stock adjustment					1,147,851			(1,147,851	)

Balance at December 31, 2006		31,016			12,220,304			8,036,925			20,257,229

Comprehensive income:
Net Income								2,478,330			2,478,330

Dividends paid								(217,112	)		(217,112	)

Common stock redeemed, net		(80	)		(36,560	)					(36,560	)

Stated value stock adjustment					1,954,008			(1,954,008	)

Balance at December 31, 2007		30,936		$	14,137,752		$	8,344,135		$	22,481,887

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

Table of Contents

BREDA TELEPHONE CORP. AND SUBSIDIARIES

BREDA, IOWA

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2007 and 2006

	2007			2006

CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	2,478,330		$	2,818,877
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		1,016,247			960,685
Deferred income taxes		(148,024	)		367,274
Amortization of investment premium/discount - net		42,831			97,488
Equity income in unconsolidated affiliates, net of distributions received of $1,228,439 and $1,153,057 in 2007 and 2006, respectively		(219,038	)		(718,971	)
Realized (gain) or loss on sale of property		(13,958	)		21,714
Note receivable discount		-			(814	)
Gain on sale of marketable securities		(13,062	)		-
Gain on sale of equity investments		(97,100	)		-
Gain on sale of investments - at cost		-			(1,165,392	)
Changes in assets and liabilities:
(Increase) Decrease in assets		(731,908	)		(52,245	)
Increase (Decrease) in liabilities		784,745			(587,657	)

Net cash provided by operating activities		3,099,063			1,740,959

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(1,319,496	)		(390,462	)
Proceeds from the sale of assets		18,385			116,247
Purchase of marketable securities		(2,040,367	)		(3,177,070	)
Purchase of equity investments		(169,412	)		(960,000	)
Purchase of other investments - at cost		(5,055	)		(5,978	)
Proceeds from the sale of marketable securities		1,574,000			1,755,003
Proceeds from the sale of equity investments		63,000			-
Proceeds from the sale of other investments - at cost		15,902			1,343,701
Issuance of notes receivable		(480,000	)		-
Net cash used in investing activities		(2,343,043	)		(1,318,559	)

CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long term debt		(175,729	)		(164,514	)
Common stock redeemed, net		(36,560	)		(2,758	)
Dividends paid		(217,112	)		(217,161	)
Net cash used in financing activites	$	(429,401	)	$	(384,433	)

Net Increase in Cash and Cash Equivalents	$	326,619		$	37,967

Cash and Cash Equivalents at Beginning of Period		777,708			739,741

Cash and Cash Equivalents at End of Period	$	1,104,327		$	777,708

Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest	$	91,871		$	108,774
Income taxes	$	1,236,856		$	1,798,064

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

Table of Contents

BREDA TELEPHONE CORPORATION AND SUBSIDIARIES

BREDA, IOWA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

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

Basis of Presentation

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

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

Principles of Consolidation

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

Cash Equivalents

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

Investments

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

Table of Contents

BREDA TELEPHONE CORPORATION AND SUBSIDIARIES

BREDA, IOWA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Investments, (Continued)

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

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

Inventory

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

Goodwill

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

Property, Plant and Equipment

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

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

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

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

Table of Contents

BREDA TELEPHONE CORPORATION AND SUBSIDIARIES

BREDA, IOWA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Long-Lived Assets

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

Income Taxes

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

Revenue Recognition

The Company recognizes revenues when earned regardless of the period in which they are billed. The Company is required to provide telephone service to subscribers within its defined service territory.Local network, Internet and cable television service revenues are recognized over the period a subscriber is connected to the network.Network access and long distance service revenues are derived from charges for access to the Company’s local exchange network. The interstate portion of access revenues is based on an average schedule settlement formula administered by the National Exchange Carrier Association (NECA), which is regulated by the FCC. The intrastate portion of access revenues is billed based upon the Company’s tariff for access charges filed with the Iowa Utilities Board (IUB). The charges developed from these tariffs are used to bill the connecting long distance provider and revenues are recognized in the period the traffic is transported based on the minutes of traffic carried. Long distance revenues are recognized at the time a call is placed based on the minutes of traffic processed at contracted rates.

Cellular sales and commission revenues are recognized at the time of customer activation.

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

Reclassifications

Certain reclassifications have been made to the 2006 consolidated financial statements to conform with the 2007 presentation.

Table of Contents

BREDA TELEPHONE CORPORATION AND SUBSIDIARIES

BREDA, IOWA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

NOTE 2.

MARKETABLE SECURITIES

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

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value

December 31, 2007

Held-to-Maturity:
Municipal bonds	$	4,848,490	$	59,473	$	(23,457	)	$	4,884,506
Government securities		3,006,575		10,572		(39,972	)		2,977,175
	$	7,855,065	$	70,045	$	(63,429	)	$	7,861,681

December 31, 2006

Held-to-Maturity:
Municipal bonds	$	4,687,740	$	29,187	$	(54,495	)	$	4,662,432
Government securities		2,730,727		9,982		(45,299	)		2,695,410
	$	7,418,467	$	39,169	$	(99,794	)	$	7,357,842

		2007		2006
Amounts classified as:
Current	$	480,311	$	643,119
Noncurrent		7,374,754		6,775,348
Total	$	7,855,065	$	7,418,467

The amortized cost and fair value of marketable debt securities at December 31, 2007, by contractual maturity are shown below. Expected maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.

	Amortized Cost		Fair Value
Due in one year or less	$	480,311	$	478,047
Due after one year through three years		1,282,099		1,294,050
Due after three years through five years		1,538,553		1,550,087
Due after five years		4,554,102		4,539,497
	$	7,855,065	$	7,861,681

Table of Contents

BREDA TELEPHONE CORPORATION AND SUBSIDIARIES

BREDA, IOWA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

NOTE 3.

NOTE RECEIVABLE

Notes receivable consist of the following:

	2007		2006

Desktop Media, LLC - 8.75%		-		439,974
Allowance - Desktop		-		(219,691	)
Jaguar Communications, Inc. - 4.81%		254,383		-
Spiralight Network, LLC - 8.5%		480,000		-
		734,383		220,283
Less current portion		734,383		220,283
	$	-	$	-

The Company, Desktop Media, LLC, and each of Desktop Media, LLC’s members signed a purchase agreement with Jaguar Communications, Inc., on June 28, 2007. Upon the closing of this purchase agreement, the Company surrendered its $439,974 instrument of indebtedness in exchange for a 28% equity interest in Desktop Media, LLC. The company had held a 17% ownership interest. The sale of Desktop Media, LLC, to Jaguar Communications, Inc. was finalized on September 28, 2007. The Company received cash of $63,000 and a short-term promissory note of $254,383, for its 28% ownership interest in Desktop Media, LLC. The promissory note dated September 28, 2007, accrues interest from September 28, 2007, at a rate of 4.81 percent per annum until payment is made in full, which shall be the earlier of (i) the twelve month anniversary of the date of the note, or (ii) upon the payment to Jaguar of the initial Foundation for Rural Service disbursement with respect to Jaguar’s currently pending loan request with the Rural Utilities Service (RUS).

The Company originated a promissory note to its unconsolidated affiliate, Spiralight Network, LLC, on September 5, 2007. The amount of the note is $480,000 and accrues interest from September 5, 2007, at a rate of 8.5 percent per annum until payment is made in full on September 14, 2008. The note may not be prepaid. The Company has a 35.29% ownership interest in Spiralight Network, LLC.

Table of Contents

BREDA TELEPHONE CORPORATION AND SUBSIDIARIES

BREDA, IOWA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

NOTE 4.

OTHER INVESTMENTS

INVESTMENTS IN UNCONSOLIDATED AFFILIATES AT EQUITY

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

	2007		2006

Alpine Communications, L.C.	$	2,227,935	$	2,064,675
West Iowa Cellular, Inc.		1,492,056		1,321,626
RSA #1, Ltd.		1,395,594		1,204,368
RSA #7, Ltd.		554,043		451,619
RSA #9, Ltd.		1,024,903		769,064
Desktop Media, L.L.C.		-		-
Quad County Communications		102,928		56,068
Carroll County Wireless, L.L.C.		66,764		63,038
Guthrie Group, L.L.C.		40,222		54,619
Bug Tussel Wireless, L.L.C.		673,466		617,298
Spiralight Network, L.L.C.		372,914		960,000
	$	7,950,825	$	7,562,375

The Company has a 17.42% ownership interest in Alpine Communications, L.C. (Alpine) at December 31, 2007 and 2006. Alpine owns and operates several wireline telephone exchanges in northeastern Iowa, along with providing Internet and cable television services in and around its wireline service territory.

The following is a summary of condensed financial information pertaining to the company described above as of December 31, 2007 and 2006 and the twelve months then ended.

	Alpine Communications, L.C.

	2007		2006

Assets	$	24,059,444	$	19,092,728
Liabilities		12,223,043		8,193,306
Equity	$	11,836,401	$	10,899,422

Revenues	$	7,699,177	$	7,632,340
Expenses		5,721,682		5,340,054
Net Income	$	1,977,495	$	2,292,286

The Company’s percentage ownership interests in partnerships providing cellular telephone services within their respective service areas at December 31, 2007 and 2006 are as follows:

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

Table of Contents

BREDA TELEPHONE CORPORATION AND SUBSIDIARIES

BREDA, IOWA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

NOTE 4.

OTHER INVESTMENTS (Continued)

The following is a summary of condensed financial information pertaining to the companies described above as of December 31, 2007 and 2006 and the twelve months then ended.

2007
	West Iowa Cellular, Inc.		RSA #1		RSA #7		RSA #9

Assets	$	6,318,015	$	13,798,319	$	10,852,365	$	7,840,536
Liabilities		349,787		1,171,448		3,108,684		1,691,242
Equity	$	5,968,228	$	12,626,871	$	7,743,681	$	6,149,294

Revenues	$	3,172,534	$	9,546,084	$	19,339,038	$	12,046,486
Expenses		1,290,809		6,573,884		14,396,749		8,811,605
Net Income	$	1,881,725	$	2,972,200	$	4,942,289	$	3,234,881


2006
	West Iowa Cellular, Inc.		RSA #1		RSA #7		RSA #9

Assets	$	5,627,101	$	11,825,263	$	9,614,812	$	6,239,458
Liabilities		340,599		966,659		3,302,667		1,625,995
Equity	$	5,286,502	$	10,858,604	$	6,312,145	$	4,613,463

Revenues	$	2,328,612	$	8,193,772	$	16,900,499	$	10,828,447
Expenses		980,885		6,021,512		13,176,017		8,318,020
Net Income	$	1,347,727	$	2,172,260	$	3,724,482	$	2,510,427

As discussed previously in Note 3, the Company sold its ownership interest in Desktop Media, LLC (Desktop), on September 28, 2007. The Company had owned a 17% interest in Desktop at December 31, 2006 and had owned a 28% interest on September 28, 2007. Desktop operates in southeastern Minnesota and is a provider of Internet and telephone services.

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

The Company’s basis in the outstanding note receivable of $439,974 on the date of the sale was $220,283. The Company is reporting a $97,100 gain on the sale of its ownership interest in Desktop Media, LLC (Desktop), upon its receipt of $63,000 in cash on September 28, 2007. The Company also received a short-term promissory note of $254,383, as noted previously.

Table of Contents

BREDA TELEPHONE CORPORATION AND SUBSIDIARIES

BREDA, IOWA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

NOTE 4.

OTHER INVESTMENTS (Continued)

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

	Desktop Media, L.L.C.

	2006

Assets	$	516,434
Liabilities		1,926,356
Equity	$	(1,409,922	)

Revenues	$	2,230,723
Expenses		2,443,209
Net Income	$	(212,486	)

The Company has a 33.33% ownership interest in Quad County Communications (Quad County) at December 31, 2007 and 2006. This entity owns and operates a fiber optic network.

The following is a summary of condensed financial information pertaining to the company described above as of December 31, 2007 and 2006 and the twelve months then ended.

	Quad County Communications

	2007		2006

Assets	$	317,942	$	174,882
Liabilities		9,159		6,677
Equity	$	308,783	$	168,205

Revenues	$	190,867	$	24,088
Expenses		50,574		51,831
Net Income	$	140,293	$	(27,743	)

Table of Contents

BREDA TELEPHONE CORPORATION AND SUBSIDIARIES

BREDA, IOWA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

NOTE 4.

OTHER INVESTMENTS (Continued)

The Company’s percentage interests in Carroll County Wireless, L.L.C. and Guthrie Group, L.L.C. are each 33.33% at December 31, 2007 and 2006. Both companies have purchased the licenses to provide personal communication services (PCS); however, neither company has begun providing PCS services as of December 31, 2007.

The following is a summary of condensed financial information pertaining to the companies described above as of December 31, 2007 and 2006 and the twelve months then ended.

2007
	Carroll County Wireless, L.L.C.		Guthrie Group, L.L.C.

Assets	$	200,291	$	120,667
Liabilities		-		-
Equity	$	200,291	$	120,667

Revenues	$	41,984	$	4,403
Expenses		30,806		47,963
Net Income	$	11,178	$	(43,560	)

2006
	Carroll County Wireless, L.L.C.		Guthrie Group, L.L.C.

Assets	$	189,113	$	164,227
Liabilities		-		-
Equity	$	189,113	$	164,227

Revenues	$	29,685	$	3,459
Expenses		27,559		12,068
Net Income	$	2,126	$	(8,609	)

The Company has a 9.94% ownership interest in Bug Tussel Wireless L.L.C. (Bug Tussel) at December 31, 2007 and 2006. Bug Tussel has constructed a wireless network in rural Wisconsin, which provides roaming services to cellular carriers offering service in the state.

The following is a summary of condensed financial information pertaining to the company described above as of December 31, 2007 and 2006 and the twelve months then ended.

	Bug Tussel Wireless, L.L.C.

	2007		2006

Assets	$	14,954,261	$	9,671,295
Liabilities		9,398,031		4,740,197
Equity	$	5,556,230	$	4,931,098

Revenues	$	11,242,608	$	8,351,715
Expenses		9,838,227		5,966,644
Net Income	$	1,404,381	$	2,385,071

Table of Contents

BREDA TELEPHONE CORPORATION AND SUBSIDIARIES

BREDA, IOWA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

NOTE 4.

OTHER INVESTMENTS (Continued)

The Company has a 35.29% ownership interest in Spiralight Network L.L.C. (Spiralight) at December 31, 2007 and 2006. Spiralight provides fiber optic transport services in Wisconsin, Illinois and Minnesota.

The following is a summary of condensed financial information pertaining to the company described above as of December 31, 2007 and 2006 and the twelve months then ended.

	Spiralight Network, L.L.C.

	2007			2006

Assets	$	3,342,987		$	4,844,566
Liabilities		2,286,398			2,928,169
Equity	$	1,056,589		$	1,916,397

Revenues	$	2,632,734		$	438
Expenses		4,434,893			5,041
Net Income	$	(1,802,159	)	$	(4,603	)

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

LONG-TERM INVESTMENTS AT COST

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

	2007		2006

NECA Services, Inc. - stock	$	300,000	$	300,000
Rural Telephone Finance Cooperative - certificates		173,352		178,616
Iowa Network Services - stock		78,705		78,705
NRTC Patronage Capital - certificates		48,650		54,233
Other		11,000		11,000
	$	611,707	$	622,554

Table of Contents

BREDA TELEPHONE CORPORATION AND SUBSIDIARIES

BREDA, IOWA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

NOTE 5.

GOODWILL

Goodwill consists of the following:

	2007		2006

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

The Company annually assesses its recorded balances of goodwill and indefinite lived intangible assets. As a result, the Company determined no impairment needed to be recorded for the years ended December 31, 2007 and 2006.

NOTE 6.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment includes the following:

	2007		2006

Telephone plant in service:
Land	$	41,408	$	41,508
Buildings		1,406,982		1,412,256
Other general support assets		2,305,688		1,713,384
Central office assets		4,063,231		4,028,301
Cable and wire facilities		5,086,640		4,870,035
Other plant and equipment		1,075,939		991,668
		13,979,888		13,057,152

Cable television plant in service:
Land	$	8,846	$	8,846
Buildings		132,673		132,673
Other plant and equipment		207,753		222,146
Towers, antennas and head end equipment		1,613,382		1,603,930
Cable and wire facilities		1,573,544		1,573,544
Franchises		30,092		30,092
		3,566,290		3,571,231

Total property, plant and equipment		17,546,178		16,628,383
Less accumulated depreciation		13,008,767		12,119,234
		4,537,411		4,509,149
Plant under construction		477,891		-
	$	5,015,302	$	4,509,149

Telephone cable and wire facilities of approximately $752,000 and cable television head end equipment of approximately $506,000 were fully depreciated in 2007. Depreciation on depreciable property resulted in composite rates of 6.0% and 5.8% for 2007 and 2006, respectively.

Table of Contents

BREDA TELEPHONE CORPORATION AND SUBSIDIARIES

BREDA, IOWA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

NOTE 7.

INCOME TAXES

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

	2007			2006

Federal income taxes:
Current tax expense	$	1,147,635		$	1,208,959
Deferred tax expense		(112,633	)		275,838
State income taxes:
Current tax expense		366,319			324,399
Deferred tax expense		(35,391	)		91,436
Total income tax expense	$	1,365,930		$	1,900,632

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

	2007			2006

Deferred tax liabilities
Federal	$	1,097,484		$	1,156,574
State		341,792			356,426
Total deferred tax liabilities		1,439,276			1,513,000

Deferred tax assets
Federal		(178,802	)		(125,259	)
State		(61,161	)		(40,404	)
Total deferred tax assets		(239,963	)		(165,663	)

Net deferred tax liabilities	$	1,199,313		$	1,347,337

Current portion	$	(14,294	)	$	(12,291	)
Long-term portion		1,213,607			1,359,628
Net deferred tax liability	$	1,199,313		$	1,347,337

The tax provision differs from the expense that would result from applying the federal statutory rates to income before income taxes as the result of state income taxes and tax-exempt interest on municipal bonds.

Table of Contents

BREDA TELEPHONE CORPORATION AND SUBSIDIARIES

BREDA, IOWA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

NOTE 7.

INCOME TAXES (Continued)

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

	2007			2006

Statutory federal income tax rate		34.0	%		34.0	%
State income taxes, net of federal benefit		10.1	%		10.1	%
Amortization of bond premiums		0.4	%		0.4	%
Dividends received deduction		(0.5	) %		(0.6	) %
Tax exempt interest		(2.2	) %		(3.7	) %
Other		(6.3	) %		0.1	%
Effective income tax rate		35.5	%		40.3	%

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

NOTE 8.

LONG-TERM DEBT

Long-term debt consists of:

	2007		2006

Rural Telephone Finance Cooperative
7.35% (Fixed Rate)	$	1,139,205	$	1,314,934
Less current portion		187,710		175,729
	$	951,495	$	1,139,205

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

2008	$	187,710
2009		200,507
2010		214,177
2011		228,779
2012 and after		308,032

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.

Table of Contents

BREDA TELEPHONE CORPORATION AND SUBSIDIARIES

BREDA, IOWA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

NOTE 8.

LONG-TERM DEBT (Continued)

The security and loan agreements underlying the RTFC notes contain certain restrictions on distributions to stockholders, investment in, or loans to others, and payment of management fees or an increase in management fees. The Company is restricted from making any distributions, except as might be specifically authorized in writing in advance by the RTFC noteholders, unless minimum net worth exceeds 40% and distributions are limited to certain levels of prior year cash margins. In addition, the Company is required to achieve a debt service coverage ratio of not less than 1.25 and a times interest earned ratio of not less than 1.5. As of December 31, 2007 and December 31, 2006, all loan covenants were met.

The Company has a line of credit with the RTFC for $1,500,000. The approved line of credit is available until November 15, 2010. The interest rate at December 31, 2007 is 8.5%. No funds were advanced under the line at December 31, 2007. In addition, the Company has a line of credit with the RTFC for $500,000. This approved line of credit is available until November 30, 2010. The interest rate at December 31, 2007 is 8.5%. No funds were advanced under the line at December 31, 2007.

NOTE 9.

OPERATING SEGMENTS INFORMATION

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

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

Table of Contents

BREDA TELEPHONE CORPORATION AND SUBSIDIARIES

BREDA, IOWA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

NOTE 9.

OPERATING SEGMENTS INFORMATION (Continued)

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

2007	Local Exchange Carrier			Broadcast			Internet Service Provider			Total

Revenues and sales		9,112,511			711,461			658,653		$	10,482,625
Interest income		464,530			14,442			7,245			486,217
Interest expense		(91,871	)		-			-			(91,871	)
Depreciation and amortization		787,176			69,421			159,650			1,016,247
Income tax expense (benefit)		1,306,950			(145,410	)		204,390			1,365,930
Segment profit (loss)		3,319,045			(202,015	)		(638,700	)		2,478,330
Segment assets		23,798,048			651,181			1,742,595			26,191,824
Expenditures for segment assets		1,356,648			(78,056	)		40,904			1,319,496

2006

Revenues and sales	$	7,315,068		$	724,957		$	627,028		$	8,667,053
Interest income		372,967			16,385			2,210			391,562
Interest expense		108,774			-			-			108,774
Depreciation and amortization		668,691			144,894			147,100			960,685
Income tax expense (benefit)		2,035,978			(132,002	)		(3,344	)		1,900,632
Segment profit (loss)		3,514,489			(184,972	)		(510,640	)		2,818,877
Segment assets		21,416,179			748,796			1,131,865			23,296,840
Expenditures for segment assets		246,657			71,548			72,257			390,462

NOTE 10.

NET INCOME PER COMMON SHARE

Net income per common share for 2007 and 2006 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, 2007 and 2006 were 31,003 and 31,021, respectively.

NOTE 11.

STOCK VALUE ADJUSTMENT

During April 2007, the board of directors authorized a $63 increase in the stated value of each share of common stock from $394 to $457. There were 31,016 shares outstanding at the time of the value adjustment, which reduced retained earnings by $1,954,008.

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

Table of Contents

BREDA TELEPHONE CORPORATION AND SUBSIDIARIES

BREDA, IOWA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

NOTE 12.

STOCK RESTRICTIONS

The Company’s Articles of Restatement became effective on March 29, 2007. One of the changes originating with the Articles of Restatement was the addition of a second class of common stock. The Company is authorized to issue 10,000,000 shares, comprised of the following two classes: (i) 5,000,000 shares of Class A Common Stock, no par value; and (ii) 5,000,000 shares of Class B Common Stock, no par value.

The Class A Common Stock is comprised of the following three series:

(i)

Series 1 – these shares represent Class A shares issued after March 29, 2007. These shares have voting rights of one vote per shareholder, regardless of the number of Class A shares held.

(ii)

Series 2 – these shares were issued and outstanding immediately prior to the March 29, 2007 effective date and with respect to which the holders of such shares had one vote per shareholder, regardless of the number of Class A shares held. The shares had previously been shares of the former Class A stock of the Corporation that were issued and outstanding on February 28, 1995.

(iii)

Series 3 – these shares were issued and outstanding immediately prior to the March 29, 2007 effective date and with respect to which the holders of such shares had one vote for each such share. The shares had previously been shares of the former Class A stock of the Corporation that were issued and outstanding on February 28, 1995. These shares have voting rights of one vote per share.

The Class B Common Stock represent non-voting shares issued after March 29, 2007.

Restrictions on the stock include the following:

Individuals purchasing Class A, Series 1 stock must be living within the Breda and Lidderdale service areas of the Company and subscribe to its telephone services. Individuals or entities can purchase Class B, non-voting stock without service area or service participation restrictions.

Shareholders are individually limited to ownership of not more than one percent of the joint outstanding Class A and Class B stock unless ownership was prior to the Articles of Restatement. There may be two stockholders per household and their joint ownership may not exceed two percent of the joint outstanding Class A and Class B stock.

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

Stock transfers require consent of the board of directors.

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

NOTE 13.

EMPLOYEE BENEFITS

The Company has a defined benefit pension plan covering most employees. The multi employer retirement program is with the National Telephone Cooperative Association (NTCA) and has been approved by the Internal Revenue Service. Pension costs expensed and capitalized for 2007 and 2006 were $158,110 and $144,376, respectively. The Company makes annual contributions to the plan equal to amounts accrued for pension expense.

Table of Contents

BREDA TELEPHONE CORPORATION AND SUBSIDIARIES

BREDA, IOWA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

NOTE 14.

ASSET RETIREMENT OBLIGATION

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

The Company has determined it does not have a material legal obligation to remove long-term assets and accordingly, there have been no liabilities recorded for the years ended December 31, 2007 and 2006.

NOTE 15.

RELATED PARTY TRANSACTIONS

The Company receives commission revenue from RSA #9, Ltd. Partnership (RSA #9) based on cellular service activation and retention. The Company has a 16.7% ownership interest in RSA #9. Commissions received by the Company for the years ended December 31, 2007 and 2006 were approximately $1,143,000 and $1,111,000, respectively. At December 31, 2007 and 2006, $156,870 and $147,351 were due from RSA #9 for commissions.

NOTE 16.

CONCENTRATIONS OF CREDIT RISK

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

The Company received 71% of its 2007 revenues from access revenues and assistance provided by the Federal Universal Service Fund. As a result of the Telecommunications Act of 1996, the manner in which access revenues and Universal Service Funds are determined is currently being modified by regulatory bodies.

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

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

The Company routes conference bridging minutes of use through its switch in Carroll, Iowa. The Company generates revenues from this service based on tariffed rates per minutes of use, which is charged to interexchange carriers. In April 2007 certain interexchange carriers began disputing the charges and the volume of minutes on which the charges were billed, and stopped payment until the dispute could be settled. The Company is currently corresponding with the interexchange carriers regarding the payment of the unpaid access charges. The Company’s estimated unpaid access charges resulting from conference bridge services as of December 31, 2007 is $1,414,528. The Company has recorded an estimated allowance of $632,552 for non-payment of these charges as of December 31, 2007, and has accrued additional accounts payable for related costs associated with the conference bridge minutes of $284,355.

NOTE 17.

NONCASH INVESTING ACTIVITIES

Noncash investing activities included $207,331 during the year ended December 31, 2007 relating to plant and equipment additions placed in service during 2007, which are reflected in accounts payable at year-end.

Table of Contents

Iowa 8 Monona Limited Partnership

Financial Statements

As of December 31, 2007 and 2006, and for the years ended December 31, 2007 and 2006, and Report of Independent Registered Public Accounting Firm

The information contained herein is confidential and is not to be reproduced or published without the express authorization of Verizon Wireless. It is intended solely for the use by authorized Verizon Wireless and Iowa 8 Monona Limited Partnership personnel.

Table of Contents

Iowa 8 Monona Limited Partnership

TABLE OF CONTENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	29


Balance Sheets	30
As of December 31, 2007 and 2006

Statements of Operations	31
For the years ended December 31, 2007 and 2006


Statements of Changes in Partners’ Capital	32
For the years ended December 31, 2007 and 2006


Statements of Cash Flows	33
For the years ended December 31, 2007 and 2006


Notes to Financial Statements	34-43

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners of Iowa 8 Monona Limited Partnership:

We have audited the accompanying balance sheets of Iowa 8 Monona Limited Partnership (the “Partnership”) as of December 31, 2007 and 2006, and the related statements of operations, changes in partners’ capital, and cash flows for each of the two years in the period ended December 31, 2007. These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, such financial statements present fairly, in all material respects, the financial position of the Partnership as of December 31, 2007 and 2006, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

Atlanta, GA

May 28, 2010

Table of Contents

Iowa 8 Monona Limited Partnership

Balance Sheets - As of December 31, 2007 and 2006

(Dollars in Thousands)

ASSETS	2007		2006

CURRENT ASSETS:
Accounts receivable, net of allowance of $46 and $38	$	1,577	$	1,480
Unbilled revenue		179		208
Due from affiliate		3,143		2,250
Prepaid expenses and other current assets		3		5

Total current assets		4,902		3,943

PROPERTY, PLANT AND EQUIPMENT—Net		5,157		4,898

TOTAL	$	10,059	$	8,841

LIABILITIES AND PARTNERS’ CAPITAL

CURRENT LIABILITIES:
Accounts payable and accrued liabilities	$	459	$	509
Advance billings and customer deposits		455		404

Total current liabilities		914		913

LONG TERM LIABILITIES		17		15

Total liabilities		931		928

COMMITMENTS AND CONTINGENCIES (see Notes 6 and 7)

PARTNERS’ CAPITAL		9,128		7,913

TOTAL	$	10,059	$	8,841

See notes to financial statements.

Table of Contents

Iowa 8 Monona Limited Partnership

Statements of Operations - Years Ended December 31, 2007 and 2006

(Dollars in Thousands)

	2007		2006

OPERATING REVENUES (see Note 5 for transactions with affiliates and related parties):
Service revenues, net	$	15,940	$	14,418
Equipment, net and other revenues		4,624		3,231

Total operating revenues		20,564		17,649

OPERATING COSTS AND EXPENSES (see Note 5 for transactions with affiliates and related parties):
Cost of service (excluding depreciation and amortization related to network assets included below)		6,213		6,239
Cost of equipment		2,184		1,566
Selling, general and administrative		5,207		4,526
Depreciation and amortization		899		734

Total operating costs and expenses		14,503		13,065

OPERATING INCOME		6,061		4,584

INTEREST INCOME, NET		154		154

NET INCOME	$	6,215	$	4,738

ALLOCATION OF NET INCOME:
Limited partners	$	3,579	$	2,194
General Partner		2,636		2,544

See notes to financial statements.

Table of Contents

Iowa 8 Monona Limited Partnership

Statements of Changes in Partners’ Capital - Years Ended December 31, 2007 and 2006

(Dollars in Thousands)

	General Partner			Limited Partners
	West Iowa Cellular of Iowa Limited Partnership			West Iowa Cellular of Iowa Limited Partnership			Alltel Communicaitons of Nebraska, Inc.			West Iowa Cellualr, Inc.			Commnet Cellular, Inc.			Cellco Partnership			Total Partners’ Capital

BALANCE—January 1, 2006	$	4,783		$	1,794		$	598		$	-		$	-		$	-		$	7,175

Distributions		(1,697	)		(636	)		-			(851	)		(653	)		(163	)		(4,000	)

Net income		2,544			954			163			551			413			113			4,738

Sale of Partnership interest on June 14, 2006		-			-			(761	)		388			-			373			-

Distribution of Partnership interest on June 30, 2006		(2,273	)		(853	)		-			1,594			1,532			-			-

BALANCE—December 31, 2006		3,357			1,259			-			1,682			1,292			323			7,913

Distributions		(2,121	)		(795	)		-			(1,063	)		(817	)		(204	)		(5,000	)

Net income		2,636			742			-			1,446			1,137			254			6,215

Distribution of Partnership interest on September 30, 2007		-			(1,206	)		-			615			591			-			-

BALANCE—December 31, 2007	$	3,872		$	-		$	-		$	2,680		$	2,203		$	373		$	9,128

See notes to financial statements.

Table of Contents

Iowa 8 Monona Limited Partnership

Statements of Cash Flows - Years Ended December 31, 2007 and 2006

(Dollars in Thousands)

	2007			2006

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	6,215		$	4,738
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		899			734
Provision for losses on accounts receivable		109			69
Changes in certain assets and liabilities:
Accounts receivable		(206	)		(389	)
Unbilled revenue		29			39
Prepaid expenses and other current assets		2			-
Accounts payable and accrued liabilities		(6	)		51
Advance billings and customer deposits		51			(19	)
Long term liabilities		1			6

Net cash provided by operating activities		7,094			5,229

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net		(1,201	)		(554	)
Change in due from affiliate, net		(893	)		(675	)

Net cash used in investing activities		(2,094	)		(1,229	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners		(5,000	)		(4,000	)

Net cash used in financing activities		(5,000	)		(4,000	)

CHANGE IN CASH		-			-

CASH—Beginning of year		-			-

CASH—End of year	$	-		$	-

NONCASH TRANSACTIONS FROM INVESTING ACTIVITIES:

Accruals for Capital Expenditures	$	2		$	2

See notes to financial statements.

Table of Contents

Iowa 8 Monona Limited Partnership

Notes to Financial Statements - Years Ended December 31, 2007 and 2006

(Dollars in thousands)

1.	ORGANIZATION AND MANAGEMENT

Iowa 8 Monona Limited Partnership – Iowa 8 Monona Limited Partnership (the “Partnership”) was formed in 1989. The principal activity of the Partnership is providing cellular service in the Iowa 8 rural service area

The partners and their respective ownership percentages as of December 31, 2007 are as follows:

General Partner:
West Iowa Cellular of Iowa Limited Partnership	42.4242	%

Limited Partners:
West Iowa Cellular, Inc.	29.3637	%
CommNet Cellular, Inc. *	24.1288	%
Cellco Partnership	4.0833	%

*CommNet Cellular, Inc. (“Managing Partner”), is a wholly-owned subsidiary of Cellco Partnership (“Cellco”) doing business as Verizon Wireless and holds a 49% ownership interest in West Iowa Cellular of Iowa Limited Partnership.

On September 30, 2007, West Iowa Cellular of Iowa Limited Partnership distributed its 15.9092% limited partnership interest in the partnership to West Iowa Cellular, Inc. (8.1137%) and CommNet Cellular, Inc. (7.7955%).

The partners and their respective ownership percentages prior to September 30, 2007 and as of December 31, 2006 are as follows:

General Partner:
West Iowa Cellular of Iowa Limited Partnership	42.4242	%

Limited Partners:
West Iowa Cellular of Iowa Limited Partnership	15.9092	%
West Iowa Cellular, Inc.	21.2500	%
CommNet Cellular, Inc. *	16.3333	%
Cellco Partnership	4.0833	%

On June 30, 2006, West Iowa Cellular of Iowa Limited Partnership distributed 24.2425% of its general partnership interest and 9.0908% of its limited partnership interest as limited partnership interests to West Iowa Cellular, Inc (17.0000%) and CommNet Cellular, Inc. (16.3333%).

Table of Contents

The partners and their respective ownership percentages prior to June 30 2006 are as follows:

General Partner:
West Iowa Cellular of Iowa Limited Partnership	66.6667	%

Limited Partners:
West Iowa Cellular of Iowa Limited Partnership	25.0000	%
West Iowa Cellular, Inc.	4.2500	%
Cellco Partnership	4.0833	%

On June 14, 2006, Alltel Communications of Nebraska, Inc. sold its 8.3333% limited partnership interest to West Iowa Cellular, Inc. (4.2500%) and Cellco Partnership (4.0833%).

The partners and their respective ownership percentages prior to June 14, 2006 and as of December 31, 2005 are as follows:

General Partner:
West Iowa Cellular of Iowa Limited Partnership	66.6667	%

Limited Partners:
West Iowa Cellular of Iowa Limited Partnership	25.0000	%
Alltel Communications of Nebraska, Inc.	8.3333	%

2.	SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. Estimates are used for, but not limited to, the accounting for: allocations, allowance for uncollectible accounts receivable, unbilled revenue, depreciation and amortization, useful lives and impairment of assets, accrued expenses, and contingencies. Estimates and assumptions are periodically reviewed and the effects of any material revisions are reflected in the financial statements in the period that they are determined to be necessary.

Revenue Recognition— The Partnership earns revenue by providing access to our network (access revenue) and for usage of our network (usage revenue), which includes voice and data revenue. Customers are associated with the partnership based upon mobile identification number. In general, access revenue is billed one month in advance and is recognized when earned; the unearned portion is classified in advance billings in the balance sheet. Usage revenue is recognized when service is rendered and included in unbilled revenue until billed. Equipment sales revenue associated with the sale of wireless devices is recognized when the products are delivered to and accepted by the customer, as this is considered to be a separate earnings process from the sale of wireless services. Customer activation fees are considered additional consideration, and to the extent that we incur costs in excess of fees, these fees are recorded as equipment and other revenue at the time of customer acceptance. For agreements involving the resale of third-party services in which we are considered the primary obligor in the arrangements, we record revenue gross. The roaming rates charged by the Partnership to Cellco do not necessarily reflect current market rates. The Partnership will continue to re-evaluate the rates on a periodic basis (see Note 5).

Table of Contents

The Partnership reports taxes imposed by governmental authorities on revenue-producing transactions between us and our customers that are within the scope of the accounting standard related to how taxes collected from customers and remitted to governmental authorities should be presented in the statement of operations on a gross basis.

Cellular service revenues resulting from cell site agreements with affiliates of Cellco are recognized based upon a rate per minute of use. (see Note 5).

During 2007 and 2006, the Partnership recorded $2,635 and $1,795, respectively, within Equipment and other revenues associated with certain funds approved by the Universal Service Administrative Company (“USAC”), an independent, not-for-profit corporation designated as the administrator for the federal Universal Service Fund (“USF”) by the Federal Communications Commission (“FCC”).

Operating Costs and Expenses—Operating expenses include expenses incurred directly by the Partnership, as well as an allocation of certain selling, general and administrative, and operating costs incurred by Cellco or its affiliates on behalf of the Partnership. Employees of Cellco provide services performed on behalf of the Partnership. These employees are not employees of the Partnership and therefore, operating expenses include direct and allocated charges of salary and employee benefit costs for the services provided to the Partnership. Cellco believes such allocations, principally based on the Partnership’s percentage of total customers, customer gross additions or minutes of use, are reasonable. The roaming rates charged to the Partnership by Cellco do not necessarily reflect current market rates. The Partnership will continue to re-evaluate the rates on a periodic basis (see Note 5).

Income Taxes—The Partnership is not a taxable entity for federal and state income tax purposes. Any taxable income or loss is apportioned to the partners based on their respective partnership interests and is reported by them individually.

Inventory—Inventory is owned by Cellco and is not recorded on the Partnership’s financial statements. Upon sale, the related cost of the inventory is transferred to the Partnership at Cellco’s cost basis and included in the accompanying statements of operations.

Allowance for Doubtful Accounts—The Partnership maintains allowances for uncollectible accounts receivable for estimated losses resulting from the inability of customers to make required payments. Estimates are based on the aging of the accounts receivable balances and the historical write-off experience, net of recoveries.

Property, Plant and Equipment—Property, plant and equipment primarily represents costs incurred to construct and expand capacity and network coverage on mobile telephone switching offices and cell sites. The cost of property, plant and equipment is depreciated over its estimated useful life using the straight-line method of accounting. Leasehold improvements are amortized over the shorter of their estimated useful lives or the term of the related lease. Major improvements to existing plant and equipment are capitalized. Routine maintenance and repairs that do not extend the life of the plant and equipment are charged to expense as incurred.

Upon the sale or retirement of property, plant and equipment, the cost and related accumulated depreciation or amortization is eliminated from the accounts and any related gain or loss is reflected in the statements of operations. All property, plant and equipment purchases are made through an affiliate of Cellco. Transfers of property, plant and equipment between Cellco and affiliates are recorded at net book value.

Network engineering and interest costs incurred during the construction phase of the Partnership’s network and real estate properties under development are capitalized as part of property, plant and equipment and recorded as construction-in-progress until the projects are completed and placed into service.

Table of Contents

FCC Licenses - The FCC issues licenses that authorize cellular carriers to provide service in specific cellular geographic service areas. The FCC grants licenses for terms of up to ten years. In 1993 the FCC adopted specific standards to apply to cellular renewals, concluding it will reward a license renewal to a cellular licensee that meets certain standards of past performance. Historically, the FCC has granted license renewals routinely and at nominal costs, which are expensed as incurred. All wireless licenses issued by the FCC that authorize the Partnership to provide cellular services are recorded on the books of Cellco. The current term of the Partnership’s FCC license expires in October 2009. Cellco believes it will be able to meet all requirements necessary to secure renewal of the Partnership’s cellular license.

Valuation of Assets— Long-lived assets, including property, plant and equipment and intangible assets with finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. The impairment loss, if determined to be necessary, would be measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Cellco re-evaluates the useful life determination for wireless licenses at least annually to determine whether events and circumstances continue to support an indefinite useful life. Moreover, Cellco has determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful life of the Partnership’s wireless licenses.

Cellco tests its wireless licenses for potential impairment annually, and more frequently if indications of impairment exist. Cellco evaluates its licenses on an aggregate basis, using a direct income-based value approach. This approach estimates fair value using a discounted cash flow analysis to estimate what a marketplace participant would be willing to pay to purchase the aggregated wireless licenses as of the valuation date. If the fair value of the aggregated wireless licenses is less than the aggregated carrying amount of the wireless licenses, an impairment is recognized. In addition, Cellco believes that under the Partnership agreement it has the right to allocate, based on a reasonable methodology, any impairment loss recognized by Cellco for all licenses included in Cellco’s national footprint. Cellco does not charge the Partnership for the use of any FCC license recorded on its books. Cellco evaluated its wireless licenses for potential impairment as of December 15, 2007 and December 15, 2006. These evaluations resulted in no impairment of wireless licenses.

Fair Value Measurements – In accordance with the accounting standard regarding fair value measurements, fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. This accounting standard also establishes a three-tier hierarchy for inputs used in measuring fair value, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities

Level 2 - Observable inputs other than quoted prices in active markets for identical assets and liabilities

Level 3 - No observable pricing inputs in the market

Financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. Our assessment of the significance of a particular input to the fair value measurements requires judgment, and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy.

Table of Contents

Concentrations—To the extent the Partnership’s customer receivables become delinquent, collection activities commence. No single customer is large enough to present a significant financial risk to the Partnership. The Partnership maintains an allowance for losses based on the expected collectibility of accounts receivable.

Cellco and the Partnership rely on local and long distance telephone companies, some of whom are related parties, and other companies to provide certain communication services. Although management believes alternative telecommunications facilities could be found in a timely manner, any disruption of these services could potentially have an adverse impact on the Partnership’s operating results.

Although Cellco attempts to maintain multiple vendors for its network assets and inventory, which are important components of its operations, they are currently acquired from only a few sources. Certain of these products are in turn utilized by the Partnership and are important components of the Partnership’s operations. If the suppliers are unable to meet Cellco’s needs as it builds out its network infrastructure and sells service and equipment, delays and increased costs in the expansion of the Partnership’s network infrastructure or losses of potential customers could result, which would adversely affect operating results.

Financial Instruments—The Partnership’s trade receivables and payables are short-term in nature, and accordingly, their carrying value approximates fair value.

Due from affiliate—Due from affiliate principally represents the Partnership’s cash position. Cellco manages, on behalf of the Partnership, all cash, inventory, investing and financing activities of the Partnership. As such, the change in due from affiliate is reflected as an investing activity or a financing activity in the statements of cash flows depending on whether it represents a net asset or net liability for the Partnership.

Additionally, administrative and operating costs incurred by Cellco on behalf of the Partnership, as well as property, plant and equipment transactions with affiliates, are charged to the Partnership through this account. Interest income or interest expense is based on the average monthly outstanding balance in this account and is calculated by applying the Cellco’s average cost of borrowing from Verizon Communications, Inc., which was approximately 5.4% for the years ended December 31, 2007 and 2006. Included in net interest income is interest income of $154 and $155 for the years ended December 31, 2007 and 2006, respectively, related to the due from affiliate.

Distributions - Distributions are made to partners at the discretion of the General Partner based upon the Partnership’s operating results, cash availability and financing needs as determined by the General Partner at the date of distribution.

Recently Adopted Accounting Pronouncements - In June 2006, the Emerging Issues Task Force reached a consensus on the accounting standard on how taxes collected from customers and remitted to governmental authorities should be presented in the statement of operations. This standard permits that such taxes may be presented on either a gross basis or a net basis as long as that presentation is used consistently. The adoption of this standard on January 1, 2007 did not impact the financial statements. We present the taxes within the scope of this standard on a gross basis.

Table of Contents

In September 2006, the Financial Accounting Standards Board (“FASB”) issued the accounting standard for fair value measurements. This standard defines fair value, expands disclosures about fair value measurements, establishes a framework for measuring fair value in generally accepted accounting principles and establishes a hierarchy that categorizes and prioritizes the sources to be used to estimate fair value. The Partnership is required to adopt this standard effective January 1, 2008 on a prospective basis, except for those items where the Partnership has elected a partial deferral under the provisions set forth by the FASB Staff Position (“FSP”) issued during the first quarter of 2008. The FSP permitted deferral of the effective date of this standard for one year, for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The deferral applied to measurements of fair value used when testing wireless licenses, other intangible assets, and other long-lived assets for impairment. The adoption of this standard on January 1, 2008 did not have an impact on the financial statements.

In February 2007, the FASB issued the accounting standard for financial instruments. This standard permits entities to choose to measure eligible items at fair value, and to report unrealized gains and losses in earnings on items for which the fair value option has been elected. The adoption of this standard on January 1, 2008 did not have an impact on the financial statements.

Other Recent Accounting Standards In December 2007, the FASB issued the standard establishing accounting and reporting standards for the noncontrolling interest in a subsidiary and for the retained interest and gain or loss when a subsidiary is deconsolidated. This statement is effective for financial statements issued for fiscal years beginning on or after December 15, 2008 prospectively, except for the presentation and disclosure requirements which will be applied retrospectively for all periods presented. The Partnership does not expect this standard to have an impact on the financial statements.

In December 2007, the FASB issued the accounting standard that requires the use of the acquisition method of accounting, defines the acquirer, establishes the acquisition date and broadens the scope to all transactions and other events in which one entity obtains control over one or more other businesses. This statement is effective for business combinations or transactions entered into for fiscal years beginning on or after December 15, 2008. The Partnership does not expect this standard to have an impact on the financial statements.

In March 2008, the FASB issued the accounting standard that requires additional disclosures for derivative instruments and hedging activities that include how and why an entity uses derivatives, how these instruments and the related hedged items are accounted for under this standard and related interpretations, and how derivative instruments and related hedged items affect the entity’s financial position, results of operations and cash flows. This standard is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Partnership does not expect this standard to have an impact on the financial statements.

Table of Contents

3.	PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following as of December 31, 2007 and 2006:

	Useful Lives	2007		2006

Land		$	75	$	75
Buildings and improvements	10-40 years		1,675		1,408
Cellular plant equipment	3-15 years		8,221		7,401
Leasehold improvements	5 years		116		84

			10,087		8,968

Less accumulated depreciation and amortization			4,930		4,070

Property, plant and equipment, net		$	5,157	$	4,898

Capitalized network engineering costs of $87 and $23 were recorded during the years ended December 31, 2007 and 2006, respectively. Construction-in-progress included in certain classifications shown above, principally cellular plant equipment, amounted to $63 and $530 at December 31, 2007 and 2006, respectively.

4.	CURRENT LIABILITIES

Accounts payable and accrued liabilities consist of the following as of December 31, 2007 and 2006:

	2007		2006

Accounts payable	$	395	$	474
Accrued liabilities		64		35
Accounts payable and accrued liabilities	$	459	$	509

Advance billings and customer deposits consist of the following as of December 31, 2007 and 2006:

	2007		2006

Advance billings	$	404	$	350
Customer deposits		51		54
Advance billings and customer deposits	$	455	$	404

Table of Contents

5.	TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

In addition to fixed asset purchases and equipment cost of sales (see Note 2), affiliate transactions include, but are not limited to, allocations, intra-company roaming, the salaries and related expenses of employees of Cellco, and direct payments to a related party of the Partnership, such as rent or commissions. Revenues and expenses were allocated based on the Partnership’s percentage of customers or gross customer additions or minutes of use, where applicable. Cellco believes the allocations are reasonable. The affiliate transactions are not necessarily conducted at arm’s length.

Significant transactions with affiliates (Cellco and its related entities) and other related parties, including allocations and direct charges, are summarized as follows for the years ended December 31, 2007 and 2006:

	2007			2006

Service revenues (a)	$	3,895		$	4,141
Equipment and other revenues (b)		(7	)		(84	)
Cost of service (c)		5,043			5,281
Cost of equipment (d)		250			201
Selling, general and administrative (e)		3,227			2,749

(a)

Service revenues include roaming revenues relating to customers of other affiliated markets, long distance, data and allocated contra-revenues including revenue concessions.

(b)

Equipment and other revenues include cell sharing revenues, sales of handsets and accessories and allocated contra-revenues including equipment concessions and coupon rebates.

(c)

Cost of service includes roaming costs relating to customers roaming in other affiliated markets, switch costs and allocated cost of telecom, long distance, and handset applications.

(d)

Cost of equipment includes allocations of handsets, accessories and other costs incurred by Cellco on behalf of the Partnership and excludes the cost of inventory transferred to the Partnership of $1,934 and $1,365 during 2007 and 2006, respectively, as discussed in Note 2.

(e)

Selling, general and administrative expenses includes allocations and/or directly charged commissions, customer billing, office telecom, customer care, salaries, sales and marketing and advertising.

The Partnership is involved in a cell sharing agreement with a related affiliate in which the Partnership receives revenues from the affiliate for the use of the affiliate’s cell site.

Cell sharing revenues were $66 and $50 for the years ended December 31, 2007 and December 31, 2006, respectively.

Table of Contents

6.	COMMITMENTS

Cellco, on behalf of the Partnership, and the Partnership itself have entered into operating leases for facilities, equipment and spectrum used in its operations. Lease contracts include renewal options that include rent expense adjustments based on the Consumer Price Index as well as annual and end-of-lease term adjustments. Rent expense is recorded on a straight-line basis. The noncancelable lease term used to calculate the amount of the straight-line rent expense is generally determined to be the initial lease term, including any optional renewal terms that are reasonably assured. Leasehold improvements related to these operating leases are amortized over the shorter of their estimated useful lives or the noncancelable lease term. For the years ended December 31, 2007 and 2006, the Partnership recognized a total of $98 and $96, respectively, as rent expense related to payments under these operating leases, which was included in cost of service in the accompanying statements of operations.

Aggregate future minimum rental commitments under noncancelable operating leases, excluding renewal options that are not reasonably assured, for the years shown are as follows:

Years	Amount

2008	$	84
2009		81
2010		77
2011		75
2012		66
2013 and thereafter		281

Total minimum payments	$	664

From time to time Cellco enters into purchase commitments, primarily for network equipment, on behalf of the Partnership.

7.	CONTINGENCIES

Cellco is subject to various lawsuits and other claims including class actions, product liability, patent infringement, antitrust, partnership disputes, and claims involving relations with resellers and agents. Cellco is also defending lawsuits filed against itself and other participants in the wireless industry alleging various adverse effects as a result of wireless phone usage. Various consumer class action lawsuits allege that Cellco breached contracts with consumers, violated certain state consumer protection laws and other statutes and defrauded customers through concealed or misleading billing practices. Certain of these lawsuits and other claims may impact the Partnership. These litigation matters may involve indemnification obligations by third parties and/or affiliated parties covering all or part of any potential damage awards against Cellco and the Partnership and/or insurance coverage. All of the above matters are subject to many uncertainties, and outcomes are not predictable with assurance.

Table of Contents

The Partnership may be allocated a portion of the damages that may result upon adjudication of these matters if the claimants prevail in their actions. Consequently, the ultimate liability with respect to these matters at December 31, 2007 cannot be ascertained. The potential effect, if any, on the financial statements of the Partnership, in the period in which these matters are resolved, may be material.

In addition to the aforementioned matters, Cellco is subject to various other legal actions and claims in the normal course of business. While Cellco’s legal counsel cannot give assurance as to the outcome of each of these matters, in management’s opinion, based on the advice of such legal counsel, the ultimate liability with respect to any of these actions, or all of them combined, will not materially affect the financial statements of the Partnership.

8.	RECONCILIATION OF ALLOWANCE FOR DOUBTFUL ACCOUNTS

	Balance at Beginning of the Year		Additions Charged to Operations		Write-offs Net of Recoveries			Balance at End of the Year

Accounts Receivable Allowances:
2007	$	38	$	109	$	(101	)	$	46
2006		41		69		(72	)		38

Table of Contents

SIGNATURES

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

	BREDA TELEPHONE CORP.


Date: May 28, 2010	By:	/s/ Charles J. Deisbeck
	Charles J. Deisbeck, Chief Executive Officer

	By:	/s/ Jane Morlok
	Jane Morlok, Chief Financial Officer

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

By:	/s/ Daniel Nieland	By:	/s/ Neil Kanne
	Daniel Nieland, Vice-President/Director		Neil Kanne, Secretary and Director
	Date: May 28, 2010		Date: May 28, 2010

By:	/s/ Rick Anthofer	By:	/s/ Dean Schettler
	Rick Anthofer, Treasurer and Director		Dean Schettler, Director
	Date: May 28, 2010		Date: May 28, 2010

By:	/s/ Clifford Neumayer	By:	/s/ Dr. Daniel McDermott
	Clifford Neumayer, Director		Dr. Daniel McDermott, Director
	Date: May 28, 2010		Date: May 28, 2010

By:	/s/ Charles Thatcher	By:	/s/ Jane Morlok
	Charles Thatcher, President and Director		Jane Morlok, Chief Financial Officer
	Date: May 28, 2010		Date: May 28, 2010

By:	/s/ Charles J. Deisbeck	By:	/s/ Kevin Batcher
	Charles J. Deisbeck, Chief Exec.Officer		Kevin Batcher, Chief Operations Officer
	Date: May 28, 2010		Date: May 28, 2010

Table of Contents

EXHIBIT INDEX

Exhibits to Form 10-KSB of Breda Telephone Corp.

for the Fiscal Year Ended December 31, 2007

Description of Exhibit.

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

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

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


*32.	Section 1350 Certifications

	32.1	Section 1350 Certification of Chief Executive Officer	E-3

	32.2	Section 1350 Certification of Chief Financial Officer	E-4

*Included with this filing.

Attached files

BREDA TELEPHONE CORP Reports

Also read