UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

(Mark One)

|X|   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
      OF 1934

      For the quarterly period ended March 31, 2005.

|_|   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

      For the transition period from __________________ to ____________________

                         Commission file number: 0-26525

                              BREDA TELEPHONE CORP.
        (Exact name of small business issuer as specified in its charter)

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

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

                                 (712) 673-2311
                          (Issuer's telephone number)

      Check  whether  the issuer (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 |_|

      State the number of shares  outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 31,170 shares of common stock,
no par value, at March 31, 2005.

      Transitional Small Business Disclosure Format (Check one): Yes |_| No |X|

<PAGE>

                         PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

                           BREDA TELEPHONE CORPORATION
                                AND SUBSIDIARIES
                                   BREDA, IOWA

                   CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 For the Periods
                          Ended March 31, 2005 and 2004
                      and the Year Ended December 31, 2004

<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                     March 31,     December 31,
                                                                        2005           2004
                                                                    (Unaudited)     (Audited)
                                                                    ------------   ------------
                                     ASSETS
<S>                                                                 <C>            <C>
CURRENT ASSETS
     Cash and cash equivalents                                      $    946,246   $  1,036,804
     Marketable securities                                               280,633        232,645
     Accounts receivable                                                 772,690        656,036
     Interest receivable                                                  65,693         65,210
     Current portion of note receivable                                  144,000        144,000
     Inventory, at average cost                                          106,535        103,617
     Other                                                                50,367         57,508
     Deferred income taxes                                                49,143         49,143
                                                                    ------------   ------------
                                                                       2,415,307      2,344,963
                                                                    ------------   ------------

OTHER NONCURRENT ASSETS
     Marketable securities                                             5,665,325      5,417,170
     Investments in unconsolidated affiliates at equity                5,110,448      4,679,772
     Other investments at cost                                           786,726        793,935
     Goodwill                                                            896,812        896,812
     Note receivable, less allowance of $172,974 in 2005 and 2004         76,755        121,577
                                                                    ------------   ------------
                                                                      12,536,066     11,909,266
                                                                    ------------   ------------
PROPERTY, PLANT AND EQUIPMENT                                          4,596,995      4,703,083
                                                                    ------------   ------------

 TOTAL ASSETS                                                       $ 19,548,368   $ 18,957,312
                                                                    ============   ============
</TABLE>

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


                                        2

<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                March 31,     December 31,
                                                                                  2005           2004
                                                                               (Unaudited)     (Audited)
                                                                               ------------   ------------
                      LIABILITIES AND STOCKHOLDERS' EQUITY
<S>                                                                            <C>            <C>
CURRENT LIABILITIES
     Current portion of long-term debt                                         $    156,574   $    154,013
     Accounts payable                                                               335,728        272,507
     Dividends payable                                                              218,190             --
     Accrued taxes                                                                  375,723        198,969
     Other                                                                           93,389         78,019
                                                                               ------------   ------------
                                                                                  1,179,604        703,508
                                                                               ------------   ------------

LONG-TERM DEBT, less current portion                                              1,439,331      1,479,448
                                                                               ------------   ------------

DEFERRED CREDITS                                                                    824,883        876,668
                                                                               ------------   ------------

STOCKHOLDERS' EQUITY
     Common stock - no par value, 5,000,000 shares authorized, 31,170 shares
        issued and outstanding at $326 stated value                              10,161,420     10,161,420
     Retained earnings                                                            5,943,130      5,736,268
                                                                               ------------   ------------
                                                                                 16,104,550     15,897,688
                                                                               ------------   ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                     $ 19,548,368   $ 18,957,312
                                                                               ============   ============
</TABLE>

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


                                       3
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
               For the Three Months Ended March 31, 2005 and 2004

                                                       2005             2004
                                                   -----------      -----------

OPERATING REVENUES                                 $ 1,956,766      $ 1,536,308
                                                   -----------      -----------

OPERATING EXPENSES
     Cost of services                                  868,661          650,547
     Depreciation and amortization                     245,026          241,772
     Selling, general, and administrative              490,135          490,151
                                                   -----------      -----------
                                                     1,603,822        1,382,470
                                                   -----------      -----------
OPERATING INCOME                                       352,944          153,838
                                                   -----------      -----------

OTHER INCOME (EXPENSES)
     Interest and dividend income                       97,311           57,634
     Interest expense                                  (30,015)         (32,664)
     Income from equity investments                    246,388          315,248
     Other, net                                         (3,162)          (3,133)
                                                   -----------      -----------
                                                       310,522          337,085
                                                   -----------      -----------

INCOME BEFORE INCOME TAXES                             663,466          490,923
                                                   -----------      -----------

INCOME TAXES                                           238,414          162,334
                                                   -----------      -----------

NET INCOME                                         $   425,052      $   328,589
                                                   ===========      ===========

NET INCOME PER COMMON SHARE                        $     13.64      $     10.41
                                                   ===========      ===========


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


                                       4
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

            CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                Common Stock
                                         ---------------------------      Retained
                                            Shares         Amount         Earnings         Total
                                         ------------   ------------    ------------    ------------
<S>                                            <C>      <C>             <C>             <C>
Balance at December 31, 2003 (Audited)         31,694   $  9,603,282    $  5,161,365    $ 14,764,647

  Comprehensive Income:
    Net income                                                             1,393,675       1,393,675

  Dividends declared                                                         (94,479)        (94,479)

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

  Stated value stock adjustment                              724,293        (724,293)
                                         ------------   ------------    ------------    ------------
Balance at December 31, 2004 (Audited)         31,170     10,161,420       5,736,268      15,897,688

  Comprehensive Income:
    Net income                                                               425,052         425,052

  Dividends declared                                                        (218,190)       (218,190)
                                         ------------   ------------    ------------    ------------

Balance at March 31, 2005 (Unaudited)          31,170   $ 10,161,420    $  5,943,130    $ 16,104,550
                                         ============   ============    ============    ============
</TABLE>

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


                                       5
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
               For the Three Months Ended March 31, 2005 and 2004

<TABLE>
<CAPTION>
                                                                                 2005           2004
                                                                             -----------    -----------
<S>                                                                          <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net income                                                              $   425,052    $   328,589
     Adjustments to reconcile net income
       to net cash provided by operating activities:
        Depreciation and amortization                                            245,026        241,772
        Deferred income taxes                                                    (50,382)        44,129
        Amortization of investment tax credits                                    (1,403)        (2,443)
        Amortization of investment premium/discount - net                         15,167         13,911
        Equity income in unconsolidated affiliates, net of distribution
          received of $142,429 and $146,967 in 2005 and 2004, respectively      (103,959)      (168,281)
        Note receivable discount                                                  (1,895)        (3,010)
     Changes in assets and liabilities:
        (Increase) Decrease in assets:                                          (112,914)          (906)
        Increase (Decrease) in liabilities:                                      255,345        126,059
                                                                             -----------    -----------
        Net cash provided by operating activities                                670,037        579,820
                                                                             -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES
     Capital expenditures                                                       (138,938)       (90,091)
     Purchase of investments                                                    (313,839)      (485,884)
     Purchase of equity investments                                             (280,000)            --
     Proceeds from the sale of investments                                         2,529         45,731
     Proceeds for sale of other investments - at cost                              7,209          6,749
     Collections of note receivable                                                   --         24,000
                                                                             -----------    -----------
        Net cash used in investing activities                                   (723,039)      (499,495)
                                                                             -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
     Repayment of long term debt                                                 (37,556)       (35,159)
     Common stock redeemed, net                                                       --        (60,903)
                                                                             -----------    -----------
        Net cash used in financing activities                                    (37,556)       (96,062)
                                                                             -----------    -----------

Net Decrease in Cash and Cash Equivalents                                        (90,558)       (15,737)

Cash and Cash Equivalents at Beginning of Period                               1,036,804      1,205,550
                                                                             -----------    -----------

Cash and Cash Equivalents at End of Period                                   $   946,246    $ 1,189,813
                                                                             ===========    ===========

Supplemental Disclosures of Cash Flow Information
     Cash paid during the period for:
         Interest                                                            $    30,015    $    32,664
         Income taxes                                                        $    75,000    $        --
</TABLE>

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


                                       6
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

      In the opinion of  management,  the  accompanying  condensed  consolidated
      financial  statements  contain all adjustments  (consisting of only normal
      recurring items) necessary to present fairly the financial  position as of
      March 31, 2005 and  December  31, 2004 and the  results of  operation  and
      changes in cash flows for the three months ended March 31, 2005 and 2004.

      Certain information and footnote  disclosures  normally included in annual
      financial  statements  prepared in accordance with  accounting  principles
      generally  accepted in the Unites States of America have been condensed or
      omitted.  It is  suggested  that  these  financial  statements  be read in
      conjunction  with the financial  statements and notes thereto  included in
      the Company's December 31, 2004 audited financial statements.  The results
      of  operations  for the period  ended March 31,  2005 are not  necessarily
      indicative of the operating results of the entire year.

      Certain  reclassifications have been made to the 2004 financial statements
      to conform with the 2005 presentations.

NOTE 2. OPERATING SEGMENTS

      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.

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

<TABLE>
<CAPTION>
                                      Local                      Internet
            Three months ended      Exchange                      Service
              March 31, 2005         Carrier      Broadcast      Provider        Total
              --------------       -----------   -----------    -----------   -----------
<S>                                <C>           <C>            <C>           <C>
      Revenues
           External customers      $ 1,608,160   $   206,572    $   142,034   $ 1,956,766
           Intersegment                     --            --             --            --
           Segment profit (loss)       473,009       (50,897)         2,940       425,052
</TABLE>


                                       7
<PAGE>

                  BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
                                   BREDA, IOWA

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2. OPERATING SEGMENTS (Continued)

<TABLE>
<CAPTION>
                                      Local                         Internet
            Three months ended       Exchange                       Service
              March 31, 2004         Carrier       Broadcast        Provider         Total
              --------------       ------------   ------------    ------------    ------------
<S>                                <C>            <C>             <C>             <C>
      Revenues
           External customers      $  1,175,094   $    207,493    $    153,721    $  1,536,308
           Intersegment                      --             --              --              --
           Segment profit (loss)        408,947        (62,171)        (18,187)        328,589
</TABLE>

      Reconciliation of Segment Information          Three months ended
                                                    March 31,    March 31,
                                                      2005         2004
                                                    ----------   ----------

      REVENUES:
           Total revenues for reportable segments   $1,956,766   $1,536,308
           Other revenues                                   --           --
                                                    ----------   ----------
               Consolidated Revenues                $1,956,766   $1,536,308
                                                    ==========   ==========

      PROFIT:
           Total profit for reportable segments     $  425,052   $  328,589
           Other profit (loss)                              --           --
                                                    ----------   ----------
               Net Income                           $  425,052   $  328,589
                                                    ==========   ==========

NOTE 3. NET INCOME PER COMMON SHARE

      Net income per common  share for March 31,  2005 and 2004 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 three months ended March 31, 2005 and 2004 were 31,170
      and 31,564, respectively.

NOTE 4. STOCK VALUE ADJUSTMENT

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


                                       8
<PAGE>

Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations.

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

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

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

                  Local Exchange Carrier
                           Breda
                           Prairie Telephone Co., Inc.
                           Westside Independent Telephone Company
                           BTC, Inc.

                  Broadcast Services
                           Tele-Services, Ltd.

                  Internet Service Provider
                           BTC, Inc.

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

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

      The following  table reflects,  on a consolidated  basis for Breda and its
      subsidiaries,  the approximate percentage of Breda's and its subsidiaries'
      aggregate  revenue  which was derived  from the three  segments  described
      above and from  investments  as of the close of,  respectively,  the first
      quarter of 2004 and the first quarter of 2005:


                                       9
<PAGE>

                                             January to        January to
                                             March             March
                                             2004              2005

            Local Exchange Carrier(1)        76.5%             82.2%
            Broadcast(2)                     13.5%             10.5%
            Internet Service Provider(3)     10.0%              7.3%
                                             ----              ----
                      Total                   100%               100%

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

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

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

Three-months ended March 31, 2005 Compared to Three-months ended March 31, 2004

NET INCOME

Consolidated  net income for the  three-month  period  ended  March 31, 2005 was
$425,052,  which was a $96,463, or 29.4%, increase when compared to the $328,589
of consolidated net income for the three-month period ended March 31, 2004.

The $96,463 increase in net income resulted from the following three factors:

      1)    Consolidated  operating  income,  which is Operating  Revenues  less
            Operating  Expenses,  generated  from  the  local  exchange  carrier
            segment,  the broadcast  services segment,  and the Internet service
            provider segment increased $199,106,  or 129.4%, for the three-month
            period ended March 31, 2005, when compared to the three-month period
            ended March 31, 2004.

      2)    Other income  (expense),  which  includes items such as interest and
            dividend income,  income from equity investments,  interest expense,
            and


                                       10
<PAGE>

            gains  (losses) on the sale of investments  and property,  decreased
            $26,563,  or 7.9%, for the three-month  period ended March 31, 2005,
            when compared to the three-month period ended March 31, 2004.

      3)    Income taxes increased $76,080, or 46.9%, for the three-month period
            ended March 31, 2005, when compared to the three-month  period ended
            March 31, 2004.

OPERATING REVENUES

There was an increase in total  operating  revenues for the  three-month  period
ended March 31, 2005,  when compared to the  three-month  period ended March 31,
2004, of $420,458, or 27.4%. The segments making up total operating revenues and
their  contributions  to the  $420,458  increase  between the two periods are as
follows:  local  exchange  carrier  services -  $433,066;  broadcast  services -
($921); and Internet service provider services - ($11,687).

Local Exchange Carrier Services - $433,066

Local exchange  carrier  services  revenue  accounted for 82.2% of the operating
revenue in the  three-month  period ended March 31, 2005.  The components of and
their  contributions to the $433,066 increase in local exchange carrier services
revenue  for the  three-months  ended  March  31,  2005,  when  compared  to the
three-months  ended March 31, 2004,  are as follows:  local  network  services -
$33,368;  network access services - $142,428;  long distance services - $78,839;
cellular services - $155,652; and miscellaneous - $22,779.

Local network  services  increased  19.6% and network access  services  revenues
increased 22.1% in the three-month period ended March 31, 2005, when compared to
the  three-month  period  ended March 31, 2004.  The  increase in local  network
services  revenues and most of the increase in network access services  revenues
were the result of new  customers  in the  Carroll,  Iowa market area which were
generated  after BTC, Inc. began offering  local  exchange  carrier  services in
October 2003.  BTC, Inc. has almost doubled its customer base when comparing the
customer count as of March 31, 2005, to the customer count as of March 31, 2004.

Breda  received  a  24-month  true-up  adjustment  in May 2004 in the  amount of
$148,362  from the NECA pool for the time  period of April  2002  through  April
2004, which was reflected in the network access services  revenues in the second
quarter  of  2004.  This  adjustment  was  received  in  May  2004  after  Breda
incorporated  a line haul lease  agreement  that Breda had in place with another
independent  telephone  provider  during that time  period.  Breda  continues to
receive  additional  monthly  line  haul  compensation  from  the  NECA  pool of
approximately  $6,000 per month because of this line haul lease  arrangement.  A
portion of the network access  services  revenues  increase for the  three-month
period ended March 31, 2005 is a reflection of this increased line haul revenue.


                                       11
<PAGE>

There is no corresponding  revenue during the three-month period ended March 31,
2004.

Breda believes that long distance  services  should continue to be a growth area
for  Breda  in  2005  as  Breda  continues  to  market  this  service  as both a
stand-alone  service  and as part of a  package  with  other  services,  such as
Internet  services.  There  was a  217.4%  increase  in long  distance  services
revenues for the  three-month  period ended March 31, 2005, when compared to the
three-month  period ended March 31, 2004. The increase is a direct reflection of
the 42.3%  increase in Breda's long  distance  customer  base,  which has mainly
resulted  from new  customers  in the  Carroll,  Iowa  market  area  taking long
distance  service as part of a bundled service package which also includes local
exchange service and Internet service provider services.

The $155,652,  or 62.0%,  increase in cellular sales revenue for the three-month
period ended March 31, 2005, when compared to the three-month period ended March
31, 2004,  reflects the increased  sales from all of Breda's  service  locations
during the three  months  ended March 31, 2005.  Breda began  offering  two-year
contracts,  instead of one-year  contracts,  in August 2002, when U.S.  Cellular
revamped  its  commission  structure  to  encourage  two-year  contracts.  Breda
generates  retention  commissions  when  a  customer  extends  the  term  of the
customer's  existing cellular services contract or enters into a new contract to
continue the customer's cellular services. The customers with one-year contracts
expiring in 2003 continued to generate retention contracts,  but those contracts
and  other  new  contracts  are  now  on  a  two-year  term.  Breda  accordingly
experienced  a time gap between when  customers  would  normally be entering new
contracts if they had one-year  contracts  versus when they would enter into new
contracts  if they  had  two-year  contracts.  The  change  in  contract  length
therefore  caused a delay in new contract  sign-up for  retentionable  contracts
during 2004.  Customers may migrate to new contracts  without  penalty once they
have  fulfilled  eighty  percent of the  original  contract  term,  so the first
customers  obtaining  two-year contracts in 2002 were eligible for new contracts
beginning in May and June of 2004.  Breda almost doubled the number of retention
contracts  during the three-month  period ended March 31, 2005, when compared to
the  three-month  period  ended  March 31,  2004.  Breda also  experienced  some
increase in new contracts  during the  three-month  period ended March 31, 2005,
which Breda  attributes  to some new cellular  plan options  expanding  coverage
areas and expanding the time frame for free night and weekend minutes.

Miscellaneous  revenue increased  $22,779,  or 31.1%, for the three-month period
ended March 31, 2005,  when compared to the  three-month  period ended March 31,
2004.  The increase was the result of  additional  fiber lease rental  contracts
that Breda had in place during the three-month period ended March 31, 2005.


                                       12
<PAGE>

Broadcast Services ($921)

Broadcast  services  revenue  from  Breda's  subsidiary,   Tele-Services,  Ltd.,
decreased  $921, or .4%, for the  three-month  period ended March 31, 2005, when
compared  to  the  three-month  period  ended  March  31,  2004.   Tele-Services
experienced a 7.3% decrease in its customer base when comparing the  three-month
period ended March 31, 2005, to the three-month period ended March 31, 2004. The
decrease in broadcast  services revenue caused by the decrease in Tele-Services'
customer base was, however,  mitigated by the rate increases that  Tele-Services
implemented  during the latter part of the second  quarter and the  beginning of
the third quarter of 2004 in eleven of the nineteen  communities that are served
by Tele-Services.

Tele-Services has combined head-ends in Breda, Arcadia, and Westside in order to
reduce its operating  costs through  consolidation  of equipment and maintenance
costs. Breda is continuing to explore other  consolidation  opportunities in the
other sixteen communities that are served by Tele-Services.

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

Tele-Services  continues to face  competition  from  satellite  dish  providers.
Another factor faced by  Tele-Services  is the declining  population base in the
small  rural  communities  which are served by  Tele-Services,  which  adversely
affects Tele-Services' current and prospective customer base.

Internet Services ($11,687)

Internet services revenue decreased $11,687, or 7.6%, for the three-month period
ended March 31, 2005,  when compared to the  three-month  period ended March 31,
2004.  The  decrease is directly  attributable  to the  decrease in BTC,  Inc.'s
Internet service customer base. The decrease primarily resulted from the intense
competition among the multiple suppliers in the Carroll, Iowa market area. Breda
began  bundling  Internet  services with long distance  services and lowered its
pricing for  Internet  services in 2001 in  response to  competitive  pressures.
Breda has continued  those  programs in 2003,  2004 and 2005. The programs have,
however,  resulted in reduced Internet services revenues given the lower pricing
by Breda for Internet services under those programs. Breda is gaining high-speed
Internet  customers  in the  Carroll,  Iowa area  through the  bundled  services
packages  that are  being  offered  by BTC,  Inc.  and  which  include  Internet
services, as


                                       13
<PAGE>

well as local telephone and other  communication  services.  While new customers
subscribing for those bundled services packages have helped stem the decrease in
Internet services revenue,  Breda was forced by competitive  pressures to reduce
its  pricing on its high speed  Internet  services  as of October 1, 2004.  This
price decrease is reflected in Internet  services revenue during the three-month
period ending March 31, 2005.

OPERATING EXPENSES

There was an increase in total operating expenses of $221,352, or 16.0%, for the
three-month period ended March 31, 2005, when compared to the three-month period
ended  March 31,  2004.  The  components  making up  operating  expenses  are as
follows: cost of services,  depreciation and amortization,  and selling, general
and administration expenditures.

Cost of services increased $218,114,  or 33.5%, for the three-month period ended
March 31, 2005,  when compared to the  three-month  period ended March 31, 2004.
The major components of the increase in cost of services were increased cellular
services  costs of  $101,363,  increased  long  distance  provisioning  costs of
$62,224 and increased plant related costs of $52,970.  Internet  provision costs
and programming  costs for broadcast  services for the three-month  period ended
March 31, 2005 were nearly  identical to the three-month  period ended March 31,
2004. Breda has not had to purchase  specialized circuits from Qwest in order to
provide  Internet service in the Carroll,  Iowa market area since  approximately
October, 2003, which has significantly reduced and stabilized Breda's underlying
circuit  cost  to  provide  Internet  services.   As  noted  previously,   Breda
experienced a 217.4% increase in its long distance  services  revenue during the
three month period ended March 31, 2005, when compared to the three month period
ended March 31, 2004. Since Breda is a reseller of long distance  services,  its
corresponding  cost of purchasing those services for resale directly  correlates
to the increased  customer base and usage for those services.  Breda's  cellular
services  revenues  increased 62% during the three-month  period ended March 31,
2005,  which also resulted in an increase in cellular costs because of the added
labor,  benefit,  and inventory  costs which were  associated  with managing and
selling those services.  Breda also  experienced an increase in the average cost
of the phones purchased to provide access to the new features rolled out by U.S.
Cellular in the  three-month  period ended March 31, 2005. The increase in plant
specific costs includes the one-time installation costs that Breda pays to Qwest
for the  provisioning  of the  underlying  loop  so that  BTC,  Inc.  can  offer
competitive  local  telephone  service in the Carroll,  Iowa market area.  These
charges are paid to Qwest for each new  customer  that is obtained by BTC,  Inc.
The cost of utilities, repairs and maintenance,  payroll expenses, long distance
costs,  cable TV  programming,  and key  system  costs  all  contributed  to the
increased cost of services for the three-month period ended March 31, 2005.

Depreciation  and  amortization  expense  increased  $3,254,  or  1.3%,  for the
three-month period ended March 31, 2005, when compared to the three-month period
ended March


                                       14
<PAGE>

31, 2004. Breda's telephone service plant in its older exchanges is beginning to
be fully  depreciated,  which results in an offsetting  decrease in depreciation
and  amortization  expense against the  depreciation  expense for investments in
plant assets begun in 2004 and completed in 2005.

Selling,  general and administration  expenses decreased $16 for the three-month
period ended March 31, 2005,  when  compared to the same  three-month  period in
2004.  Customer  operations  decreased  $25,726,  or 11.2%,  for the three-month
period ended March 31, 2005,  when  compared to the same  three-month  period in
2004.  Corporate  operations  increased  $20,427,  or 9.0%, for the  three-month
period ended March 31, 2005, when compared to the three-month period ended March
31, 2004.  General taxes increased  $5,283,  or 15.7%, when comparing these same
time periods.  The decrease in customer operations costs was mainly attributable
to decreased labor,  benefits, and advertising costs to service customers during
the  three-month  period  ended  March  31,  2005.  The  increase  in  corporate
operations  expense  for the  three-month  period  ended  March 31,  2005,  when
compared to the three-month  period ended March 31, 2004, was due to an increase
in accounting and professional  fees.  Property taxes also increased  $5,283, or
15.7%,  in the  three-month  period ended March 31, 2005,  when  compared to the
three-month period ended March 31, 2004.

OPERATING INCOME

The net result of the operating  revenue and operating  expenses was an increase
of $199,106,  or 129.4%,  in operating  income for the three-month  period ended
March 31, 2005, when compared to the same three-month period in 2004.

OTHER INCOME (EXPENSE)

Other income (expense) decreased $26,563, or 7.9%, during the three-month period
ended March 31, 2005, when compared to the same three-month  period in 2004. The
decrease was mainly  attributable  to two items.  The first item is interest and
dividend  income,   which  increased  $39,677,  or  68.8%,  when  comparing  the
three-month  period ended March 31, 2005, to the three-month  period ended March
31, 2004. The increase in interest and dividend  income was due to the increased
investments in both  temporary  investments  and marketable  securities on which
Breda generates interest income. Prairie Telephone and Westside Independent also
received  dividends from an investment  totaling  $35,392 during the three-month
period ended March 31, 2005, compared to $4,374 for the three month period ended
March 31, 2004.

The second item is income from equity  investments,  which decreased $68,860, or
21.8%,  during the three-month period ended March 31, 2005, when compared to the
same three-month period in 2004. The income from equity investments  reported on
Breda's financial  statements is Breda's pro-rata share of the net income or net
loss of each equity investment, based on Breda's percentage of ownership in each
equity  investment.  The  decrease  in equity  investments  revenue  reported on
Breda's income


                                       15
<PAGE>

statement for the three-month period ended March 31, 2005 is a reflection of the
net  increases  and  decreases  in the net  operating  income of Breda's  equity
investments.  Most of Breda's equity  investments are in cellular  partnerships.
The cellular  partnerships have been under market pressure from carriers such as
AT&T, Sprint and Verizon, to renegotiate their roaming contracts at lower rates.
As a result, the cellular  partnerships making up Breda's equity investments are
receiving  less roaming  revenue,  even though the number of  customers  and the
minutes of use have increased.  Breda anticipates that these downward  marketing
pressures on roaming rates will continue for the foreseeable future.

INCOME BEFORE INCOME TAXES

Income before income taxes  increased  $172,543,  or 35.1%,  for the three-month
period ended March 31, 2005, when compared to the three-month period ended March
31,  2004.  The  $172,543  increase  was the  result of a $199,106  increase  in
operating income and a $26,563 decrease in other income (expense).

INCOME TAXES

Income taxes increased $76,080, or 46.9%, for the three-month period ended March
31,  2005,  when  compared to the same period in 2004.  The increase is a direct
reflection of the increased  income  generated in the  three-month  period ended
March 31, 2005.  The effective  tax rate in 2005 will be 35.9%,  versus 33.1% in
2004.  The effective tax rate differs from the U.S.  statutory rate due to state
income taxes, and the proportion of investments with state tax exemptions.

NET INCOME

Net income increased  $96,463,  or 29.4%, for the three-month period ended March
31, 2005, when compared to the same period in 2004.

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

Cash Flows

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


                                       16
<PAGE>

cash provided by operating activities of $2,223,960.

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

Cash used in investing  activities was $1,987,889  for the  twelve-month  period
ended  December 31,  2004,  and  $1,617,133  for the  twelve-month  period ended
December  31,  2003.  Capital  expenditures  relating to ongoing  business  were
$585,873 for the twelve-month period ended December 31, 2004, and $1,008,124 for
the  twelve-month  period ended  December 31, 2003. A building was purchased for
the relocation of Breda's and BTC, Inc.'s Carroll,  Iowa services and operations
for $246,000 in January 2003.  Breda  received  $160,000 in February 2003, as an
early payoff of a building  contract note receivable.  Capital used in investing
activities in 2003 included an additional $125,500 investment in RSA #1, Ltd. by
Prairie  Telephone in November  2003.  Breda expects  capital  expenditures  for
non-building  expenditures  in 2005 to be higher than those made in 2004 because
Breda  has  determined  to  add  switching  capabilities  to its  Carroll,  Iowa
marketing area.

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

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


                                       17
<PAGE>

Working Capital

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

Breda had a $115,828  decrease in current assets during the twelve-month  period
ended December 31, 2004,  when compared to the year ended December 31, 2003. The
decrease in current  assets was mainly  attributable  to a $297,644  decrease in
cash and temporary  investments and a $92,494  increase in accounts  receivable.
Cash was used to purchase $1,488,816 in long-term investments. Customer accounts
receivable  as of  December  31,  2004  were  comparable  to  customer  accounts
receivable as of December 31, 2003. The $92,494 increase in accounts  receivable
was  mainly  attributable  to the  increased  amounts  owed  to  Breda  and  its
subsidiaries  from  interexchange  carriers  for the use of Breda's  networks to
carry the interexchange carrier traffic to Breda's end users. Almost half of the
increase in the interexchange  carrier receivable was attributable to AT&T. AT&T
initiated  a billing  dispute and  requested  verification  of billed  rates for
Breda's telephone  services which were provided in the Carroll,  Iowa area since
October 2003.  Breda has proved that Breda billed AT&T according to the tariffed
rates,  and AT&T has  notified  Breda that AT&T will pay the  disputed  charges.
Other current  assets  increased  $32,101 during the  twelve-month  period ended
December 31, 2004, when compared to the  twelve-month  period ended December 31,
2003.  Other  current  assets are made up of prepaid  expenses  such as computer
maintenance  fees, and employee  benefit  premiums which are paid in advance for
2005, in the latter part of 2004.  While the cash outlay  occurred in 2004,  the
expense will be recorded in 2005.  Breda has  determined  to enter the satellite
Internet  business by offering the National Rural  Telephone Coop product called
Wildblue.  Breda has recorded the $18,000 service  participation  fee, which was
required for  participation  and paid on May 20, 2004, as an Other Current Asset
until such time as the program is launched in 2005.

Noncurrent assets,  which mainly consist of longer-term  investments,  increased
$1,993,544 during the twelve-month period ended December 31, 2004, when compared
to the  twelve-month  period ended December 31, 2003.  Prairie  Telephone loaned
$500,000 to Desktop  Media,  L.L.C.  on May 2, 2001,  and advanced an additional
$45,307  on  June 9,  2004 to fund  operational  expenses  until  revenues  were
collected for services provided. This note is shown net of unamortized discounts
of $6,423 and  $16,866,  respectively,  December 31, 2004 and December 31, 2003,
net of principal  repayments of $52,333 and $48,000  respectively,  December 31,
2004 and December  31, 2003,  and net of an allowance of $172,974 as of December
31, 2004.  $121,577 is included in long-term note  receivables,  and $144,000 is
included in short-term note  receivables as of December 31, 2004.  Breda's other
investments at cost decreased $63,212 for the twelve-month period ended December
31, 2004, when compared to the


                                       18
<PAGE>

twelve-month  period  ended  December  31,  2003,  because  Prairie  Telephone's
investment in Desktop  Media,  L.L.C.  is now reported with the  investments  in
unconsolidated  affiliates at equity instead of with the investments reported at
cost.  On September 17, 2003 Prairie  Telephone had signed a principal  deferral
agreement with Desktop Media,  L.L.C.  which deferred the principal payments due
in the months of September  through  December 2003, and which also provided that
Prairie  Telephone's  ownership in Desktop Media, L.L.C. would be increased from
10% to 17% if at any time in the year 2004 Desktop Media, L.L.C. was not able to
generate a minimum sustainable monthly profit of $36,000 or was unable to make a
regularly scheduled  principal payment.  Both of those stipulations were not met
in the first  quarter of 2004,  and Prairie  Telephone  accordingly  acquired an
additional 7% ownership of Desktop Media, L.L.C.

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

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

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

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


                                       19
<PAGE>

Liquidity and Capital Resources at Three-months ended March 31, 2005

Cash Flows

Cash flows from  operations  continue to be a steady  source of funds for Breda.
Cash provided from operations for the  three-month  periods ended March 31, 2005
and March 31, 2004,  was,  respectively,  $670,037 and $579,820.  The cash flows
from operations for the  three-month  period ended March 31, 2005 were primarily
attributable to a positive net income of $425,052, plus the addition of non-cash
expenses of $206,513 from  depreciation,  amortization,  deferred  income taxes,
amortization of investment tax credits, and note receivable discount, which were
then offset by $103,959 of non-cash, equity income in unconsolidated affiliates.
The net  decrease in assets and  liabilities  of $142,431  was also added to net
income to generate the net cash provided by operating activities of $670,037.

The cash flows from operations for the  three-month  period ended March 31, 2004
were  primarily  attributable  to a positive  net income of  $328,589,  plus the
addition of  non-cash  expenses of  $294,359  from  depreciation,  amortization,
deferred  income  taxes,  amortization  of  investment  tax  credits,  and notes
receivable  discount,  which were then offset by $168,281  of  non-cash,  equity
income in unconsolidated  affiliates. The net decrease in assets and liabilities
of $125,153  was also added to net income to generate  the net cash  provided by
operating activities of $579,820.

Cash used in investing  activities was $723,039 for the three-month period ended
March 31, 2005,  and $499,495 for the  three-month  period ended March 31, 2004.
Capital  expenditures  relating  to  ongoing  business  were  $138,938  for  the
three-month  period ended March 31, 2005, and $90,091 for the three-month period
ended March 31, 2004. In March 2005, Prairie Telephone  purchased 5,000 units of
Bug Tussel Wireless,  L.L.C. for $200,000, which is included in the $280,000 for
purchase of equity  investments.  The  remaining  $80,000 of  additional  equity
investments were additional investments in two personal  communications services
entities  for the  buildout of towers to provide  service in the  service  areas
covered by those entities.  Breda received  repayment on its notes receivable to
Desktop Media,  L.L.C. of $24,000 during the three-month  period ended March 31,
2004.  No payments on those notes were  received  during the three month  period
ended March 31,  2005.  Breda  expects  capital  expenditures  for  non-building
expenditures  in 2005 to be higher  than  those made in 2004  because  Breda has
determined to add switching  capabilities  to its Carroll,  Iowa marketing area.
Breda  estimates  that the  switching  capability  expenditures  in 2005 will be
approximately $800,000.

Cash used in financing  activities was $37,556 for the three-month  period ended
March 31,  2005,  and $96,062 for the  three-month  period ended March 31, 2004.
During the  three-month  period  ended  March 31,  2005,  cash was used to repay
$37,556 of  borrowings  from the RTFC.  Breda used cash  during the  three-month
period ended


                                       20
<PAGE>

March 31, 2004 to repay $35,159 of RTFC long-term debt, and to redeem 201 shares
of common stock for $60,903.  No shares were purchased by Breda during the three
month period ended March 31, 2005.  Breda funds the redemption of its stock from
its cash flows from operations.

Working Capital

Working capital was $1,235,703 as of March 31, 2005, compared to working capital
of  $1,641,455 as of December 31, 2004.  The ratio of current  assets to current
liabilities  was 2.0 to 1.0 as of March 31, 2005,  and 3.3 to 1.0 as of December
31, 2004.

Breda had a $70,344  increase in current  assets during the  three-month  period
ended March 31, 2005,  when  compared to the year ended  December 31, 2004.  The
increase in current assets was mainly attributable to a $42,570 decrease in cash
and temporary  investments and a $116,654 increase in accounts receivable.  Cash
was used during the three-month period ended March 31, 2005 to purchase $248,155
in long-term investments.  Customer accounts receivable as of March 31, 2005 has
increased because of the increased number of customers generated through Breda's
entry  into the  Carroll,  Iowa,  market.  The  $116,654  increase  in  accounts
receivable was mainly attributable to $70,203 of increased amounts owed to Breda
for cellular  commissions  generated by its increased  sales during the month of
March  2005,  compared  to March 2004,  and from  amounts  owed to Breda and its
subsidiaries  from  interexchange  carriers  for the use of Breda's  networks to
carry the interexchange carrier traffic to Breda's end users. Almost half of the
increase in the interexchange  carrier receivable was attributable to AT&T. AT&T
initiated  a billing  dispute and  requested  verification  of billed  rates for
Breda's telephone  services which were provided in the Carroll,  Iowa area since
October 2003.  Breda has proved that Breda billed AT&T according to the tariffed
rates, and AT&T has advised Breda that AT&T will pay the disputed charges. Breda
has another dispute with AT&T regarding payment of approximately $23,000 by AT&T
for a special  access  circuit,  and  dialogue  is  continuing  with AT&T on the
resolution of that dispute.  Other current  assets  increased  $7,141 during the
three-month  period  ended  March 31,  2005,  when  compared  to the year  ended
December 31, 2004.  Other current assets are made up of prepaid expenses such as
computer  maintenance  fees and  employee  benefit  premiums  which  are paid in
advance  for a future  time  period,  and will  normally  be  expensed  within a
twelve-month time period.  Breda has determined to enter the satellite  Internet
business by offering the National Rural Telephone Coop product called  Wildblue.
Breda has recorded the $18,000 service participation fee, which was required for
participation  and paid on May 20, 2004,  as an Other  Current  Asset until such
time as the program is launched in 2005,  which is  anticipated to occur in June
2005.

Noncurrent assets,  which mainly consist of longer-term  investments,  increased
$626,800  during the  three-month  period ended March 31, 2005, when compared to
the year ended December 31, 2004.  Prairie  Telephone loaned $500,000 to Desktop
Media, L.L.C. on May 2, 2001, and advanced an additional $45,307 on June 9, 2004
to fund


                                       21
<PAGE>

operational  expenses until revenues were collected for services provided.  This
note is shown net of unamortized discounts of $6,423 and $16,866,  respectively,
March 31, 2005 and December 31, 2004, net of principal repayments of $52,333 and
$48,000,  respectively,  March 31, 2005 and  December  31,  2004,  and net of an
allowance of $172,974 as of December 31, 2004.  $76,755 is included in long-term
note receivables,  and $144,000 is included in short-term note receivables as of
March 31, 2005.  Breda's other  investments  at cost  decreased  $63,212 for the
twelve-month  period ended December 31, 2004,  when compared to the  three-month
period ended March 31, 2005, because Prairie  Telephone's  investment in Desktop
Media, L.L.C. is now reported with the investments in unconsolidated  affiliates
at equity instead of with the investments  reported at cost.  Prairie  Telephone
signed a principal  deferral  agreement with Desktop Media,  L.L.C. on September
17, 2003 which  deferred the  principal  payments due in the months of September
through  December  2003,  and  which  also  provided  that  Prairie  Telephone's
ownership in Desktop Media,  L.L.C. would be increased from 10% to 17% if at any
time in the year 2004 Desktop Media,  L.L.C.  was not able to generate a minimum
sustainable  monthly  profit  of  $36,000  or was  unable  to  make a  regularly
scheduled  principal  payment.  Both of those  stipulations  were not met in the
first quarter of 2004, and Prairie Telephone  accordingly acquired an additional
7% ownership of Desktop Media, L.L.C.

Investments in  unconsolidated  affiliates at equity increased  $430,676 for the
three-month  period  ended  March 31,  2005,  when  compared  to the year  ended
December 31, 2004.  The  increase  represents  Breda's pro rata share of the net
income or net loss of each  equity  investment  based on Breda's  percentage  of
ownership in each equity  investment  during the three-month  period ended March
31, 2005.

Current  liabilities  increased  $476,096 for the three-month period ended March
31, 2005,  when compared to the year ended December 31, 2004.  Accounts  payable
increased  $63,221,  and represented a timing difference from when invoices were
received to when they were paid. Almost $53,000 of the accounts payable increase
was for switch upgrades,  and the remainder were for cellular equipment invoices
which had not been  received in time to be paid before March 31,  2005.  Accrued
taxes increased  $176,754 for the three-month  period ended March 31, 2005, when
compared to the year ended  December  31,  2004.  The increase was caused by the
increase in accruals  for federal and state  income  taxes as of March 31, 2005,
which  were  necessary  because  of  Breda's  increased  taxable  income for the
three-month period ended March 31, 2005.

Common stock was unchanged  during the three-month  period ended March 31, 2005,
when  compared  to the  year  ended  December  31,  2004.  There  were no  share
redemptions  by Breda during the  three-month  period ended March 31, 2005.  The
increase of $206,862 in retained  earnings during the  three-month  period ended
March 31, 2005,  when  compared to the year ended  December 31, 2004, is the net
effect of the $218,190 in dividends declared on March 1, 2005, and which will be
paid on April 1, 2005, and the  year-to-date  net income as of March 31, 2005 of
$425,052.


                                       22
<PAGE>

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

Other Activities and Issues

Access charge  revenues  constitute a substantial  part of Breda's  consolidated
revenues,   and  the   regulation   of  access   charge  rates  by  the  Federal
Communications  Commission and the Iowa Utilities  Board creates a material risk
to Breda and its subsidiaries.

The FCC issued a press  release on February 10, 2005, in which the FCC announced
its plan to replace the current  intercarrier  compensation  system. The current
intercarrier  compensation  system  distinguishes  between  different  types  of
carriers and services, such as local and long-distance or wireless and wireline,
and the FCC's press release  indicated that the FCC plans to replace the current
system  with  a  unified   intercarrier   compensation  system.  It  is  Breda's
understanding  that the FCC  plans  to  initiate  a rule  making  proceeding  to
consider  this  matter  and that the  questions  that the FCC will  examine  may
include  the effect  that any  change in the  compensation  system  will have on
consumers and the universal  service fund. The FCC has indicated that it will be
particularly  receptive to any plans that offer expanded choices and lower rates
to rural consumers.

It is  also  Breda's  understanding  that  the FCC  will  use  the  rule  making
proceeding  to seek comment on the  following six plans which have been proposed
or supported by various participants in the industry:

      o     Intercarrier  Compensation  Forum,  which  represents nine carriers.
            This plan would  reduce  most per minute  termination  rates to zero
            over a six year period of time.

      o     Alliance  for  Rational   Intercarrier   Compensation  and  Expanded
            Portland Group,  which  represents  certain small and mid-size rural
            providers which are serving  high-cost areas.  This plan would unify
            per-minute rates at a level based on a carrier's  embedded costs and
            includes  two  phases  which  would  eventually  convert  per-minute
            intercarrier charges to capacity-based charges.

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

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

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


                                       23
<PAGE>

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

It is contemplated that the FCC may also consider and request comments on a plan
that  is  being  drafted  by the  National  Association  of  Regulatory  Utility
Commissioners.  Breda  understands  that the plan being  drafted by the National
Association of Regulatory  Utility  Commissioners will attempt to blend together
the  various  proposed  plans for  intercarrier  compensation  reform  that have
already been  presented to the FCC. It is also  Breda's  understanding  that the
Iowa  Telecommunications  Association and the Rural Iowa  Independent  Telephone
Association  are working with the National  Association  of  Regulatory  Utility
Commissioners to attempt to avoid any drastic reduction in access charges.

Breda cannot predict at this time which proposal may be viewed more favorably by
the FCC, when the FCC may commence formal rule making proceedings  regarding the
proposals or how long the rule making  process  might take.  Breda does believe,
however,  that changes in interstate  access charge rates may occur, and that if
any of the plans known today are adopted, as currently  proposed,  there will be
substantial reductions in Breda's access revenues.  Since access charge revenues
constitute a substantial portion of Breda's total consolidated revenues, this is
an area of material risk to Breda and its subsidiaries.

Breda  and its  subsidiaries  are also  subject  to risk  regarding  changes  in
intrastate  access  charge rates  because  concerns have been raised by the Iowa
legislature  and the IUB regarding  intrastate  rates,  and whether  alternative
intrastate intercarrier compensation mechanisms should be investigated.  A joint
task  force  comprised  of  representatives  from  the  Iowa  Telecommunications
Association and the Rural Iowa Independent  Telephone  Association was formed in
the spring of 2003 to compile data from local  telephone  companies,  which data
was  to be  used  to  document  and  study  the  cost  of  access  and  to  make
recommendations  regarding Iowa access rates. Two industry consulting firms were
involved  with  this  task  force,  and the  committee  looked  not  only at the
justification of the present intrastate access rates received by local telephone
companies, but also at other revenue recovery alternatives. The joint task force
completed  its initial  study in May,  2004 and found that the  overall  results
showed costs both higher and lower than the current intrastate access rates, and
that the cost per minute for  intrastate  access  fell within a range of $.02 to
$.16.  The task  force is  continuing  to study the impact of the facts that the
results did not include data from 38 Iowa companies,  and that declining minutes
of use will  increase  the average  cost.  The joint task force has been holding
regional  meetings and conferences to educate and present its information to the
members  of  the  Iowa   Telecommunications   Association  and  the  Rural  Iowa
Independent  Telephone  Association  members on the issues and elements of their
recommendation.


                                       24
<PAGE>

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

Universal  service  funding is also an  important  part of Breda's  consolidated
revenues,  and the regulation of universal service funding by the FCC is another
area of material risk to Breda and its subsidiaries. The universal service funds
are also now being  paid out to more  telecommunications  providers  than in the
past. Breda anticipates that there may be changes in the future on how universal
service  funds are  disbursed  among the  numerous  eligible  telecommunications
providers.

Another revenue recovery issue present in the industry since April 1999 has been
the nonpayment of access revenue by wireless carriers on traffic originating and
terminating within the same major trading area (intraMTA). Breda and other local
exchange carriers have not received payment for the termination of this wireless
traffic  over their  networks  to the end user.  A joint task force of  industry
representatives  and the Iowa  Telecommunications  Association  had been working
since the spring of 2003 to negotiate with wireless  carriers on this issue.  In
late  April  2004,  the  ITA  Wireless  Termination  negotiating  committee  was
successful in reaching an agreement with four wireless carriers - U.S. Cellular,
Verizon Wireless,  Sprint PCS and Midwest Wireless. The intent of the joint task
force had been that any independent  telephone company who wished to participate
in the negotiated  wireless  termination  agreements  with one of these carriers
could "opt in" to one of the wireless termination  agreements already on file at
the IUB. In July 2004,  the  negotiating  committee  learned  that the  wireless
carriers had rejected the idea of allowing  independent  phone companies to "opt
in" to one of the wireless  termination  agreements  already on file at the IUB.
The latter  fact meant that any  independent  telephone  company  that wished to
participate  in the  wireless  termination  agreements  with  Midwest  Wireless,
Verizon,  US Cellular and Sprint needed to execute their own separate  agreement
with each wireless carrier. The ITA Wireless Termination  negotiating  committee
continued its efforts to pursue past compensation from the wireless carriers for
minutes from April 1999 to March 31, 2004,  and also  continued  its attempts to
convince the remaining wireless carriers, including AT&T and Nextel, to sign the
"model"  agreement.  I  Wireless  agreed to be bound by the model  agreement  in
January 2005.

On August  6,  2004,  the  board of  directors  of the  Rural  Iowa  Independent
Telephone  Association  approved  the  filing  of a model  wireless  termination
tariff,  and the tariff was filed with the IUB on August 10, 2004. If the tariff
would have been approved by the


                                       25
<PAGE>

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

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

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

In late  February  2005,  the FCC  issued a  Declaratory  Ruling and Order in an
attempt to clarify some of the intercarrier  compensation  disputes  surrounding
wireless  terminating  traffic.  Under the Order,  existing tariffs would not be
illegal  and  collections  under  those  tariffs  could  be  retained  by  rural
independent  telephone  companies,  but new tariffs would no longer be valid and
companies would need to reach negotiated agreements to exchange the traffic.

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


                                       26
<PAGE>

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

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

One recent example of the increased  competition in Iowa occurred on October 18,
2004,  when the IUB  issued an Order  Approving  an  Amendment  to the  Approved
Application  for Public  Convenience to MCC Telephony of Iowa to provide service
in any area of Iowa  where MCC  affiliates  own and  operate a cable  system and
offer high-speed  cable modems.  MCC is a subsidiary of Mediacom that intends to
provide VoIP (voice over  internet  protocol)  service.  The IUB had approved an
earlier  application of MCC to serve only those areas currently served by Qwest.
Mediacom is the cable service provider in BTC, Inc.'s Carroll, Iowa market area.

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


                                       27
<PAGE>

effective competition.

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

There are numerous  telephone  companies  which have filed to provide  telephone
services  throughout all of Iowa, and Breda anticipates that more of those types
of filings  will be made by other  telephone  companies.  To date,  however,  no
company has chosen to compete in any of Breda's, Prairie Telephone's or Westside
Independent's service areas. Breda does not know the plans of any companies, but
Breda currently  believes the  possibility of any company  entering any of those
service areas in 2005 is small.

BTC, Inc.,  however,  provides  telephone  services in the Carroll,  Iowa market
area, and there are already other companies providing telephone services in that
area. Breda also believes that there will be additional local exchange  carriers
entering the Carroll, Iowa market area in 2005. For example,  Mediacom, which is
the 9th largest  cable  television  operator in the United  States and the local
cable  provider in the  Carroll,  Iowa  market,  has  expressed  an intention to
provide a phone service offering through Mediacom's partnership with Sprint. MCC
(a Mediacom subsidiary) filed a voice exchange tariff and service territory maps
with the IUB on December 27,  2004,  and the IUB approved the tariff and maps on
March 14, 2005.  The providing of voice exchange  tariffs and service  territory
maps are usually the last steps  required by the IUB before a provider  actually
begins  providing  service.  The IUB also  granted MCC a  certificate  of public
convenience to offer service in numerous areas  throughout  Iowa. Breda believes
that Mediacom and MCC will roll out their voice offering along with a high-speed
internet  offering in the Carroll,  Iowa market,  and Mediacom has recently been
quoted as indicating  that it will begin deploying those services in Iowa in the
near future.

Breda also anticipates that it will face new competition from other providers of
newer VoIP  (voice over  internet  protocol)  technologies,  such as Vonnage and
Skype, in all of its exchanges.  Breda  anticipates that Mediacom's and any such
other  offerings  will result in a reduction of revenue.  A reduction in revenue
will also result if any other  telephone  companies  at some point  determine to
provide services in any of Breda's, Prairie Telephone's,  Westside Independent's
or BTC, Inc.'s service areas.


                                       28
<PAGE>

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

The FCC's rules  obligate  incumbent  local  exchange  carriers,  such as Breda,
Prairie  Telephone  and Westside  Independent,  to port numbers when the carrier
receives a specific request from another telecommunications carrier (wireline or
wireless) for number  portability  capability.  The rules give  incumbent  local
exchange  carriers a maximum period of 180 days to implement number  portability
capability  following  receipt of a request,  with the actual  permissible  time
period dependent on the extent of the upgrades required to their switch in order
to be able to  provide  number  portability.  Because  of the  small  number  of
customers in the rural  exchanges  who would want to port their  numbers,  small
rural carriers had hoped to delay the costs of the upgrades until they needed to
change out their switches.

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

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


                                       29
<PAGE>

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

As noted above, Breda and Prairie Telephone received six-month  extensions,  and
Westside  Independent received a twelve-month  extension.  Software upgrades and
service agreements to implement number portability for Breda,  Prairie Telephone
and Westside Independent had all been completed in preparation for the six-month
extension date of April 6, 2005.  Final routing and  translation  work was being
scheduled as the last outstanding process for number portability  implementation
when word was received on March 11, 2005, that the U.S. Court of Appeals for the
DC Circuit  had  suspended  the FCC's  November  10, 2003  Intermodal  LNP Order
implementing wireline to wireless local number portability. The court ruled that
the FCC failed to follow regulatory guidelines designed to examine the impact of
its orders on small businesses such as rural carriers.  The court sent the FCC's
Order back to the FCC with directions to prepare a final regulatory  flexibility
analysis  showing the impact of its Order on small carriers and their customers,
and until that  analysis is  complete,  the court stayed the effect of the Order
solely as it applied to those  carriers that  qualified as small  entities under
the  regulatory   flexibility   analysis.   Under  that  analysis,   a  wireline
telecommunications  carrier with 1,500 or fewer  employees is defined as a small
entity.  The IUB  subsequently  reported that the court ruling would suspend LNP
implementation in Iowa until further notice from the FCC.

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

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

Breda,  Prairie Telephone,  Westside  Independent and BTC, Inc. continue to face
ever increasing competition in providing dial-up and high speed internet access.
For example,  Breda has been experiencing  price-point  competition for Internet
services from Iowa Telecom in three  communities  since the late fourth  quarter
2000,  and Breda has lost Internet  customers in those three  communities.  BTC,
Inc. is experiencing


                                       30
<PAGE>

intense  pricing and free services  competition in providing  internet access in
its Carroll, Iowa market. There are at least five competitors in this relatively
small market area,  and BTC, Inc.  experienced  a 19.2%  decrease in its dial-up
customer  base in this market  during the  calendar  year 2004.  BTC,  Inc.  had
experienced a 18.9% decrease in its dial-up  customer base in the Carroll,  Iowa
market area in 2003, and a 15.5% decrease in 2002.

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

Breda also entered into a marketing and distribution agreement with the National
Rural  Telecommunications  Cooperative on May 13, 2004, for the  distribution of
satellite and high speed  Internet  service.  One reason Breda entered into this
agreement  was so that Breda would have a means to provide  high speed  Internet
service to its rural customers, who may otherwise lack the opportunity to obtain
high speed Internet service through existing  broadband  options,  such as cable
modem, DSL, and wireless,  because of distance and location factors.  NRTC has a
master distribution agreement with WildBlue Communications,  Inc., through which
NRTC has obtained rights to market, promote, sell and distribute satellite-based
Internet  access  services and related  products to end users in the continental
United States,  including through NRTC's eligible members,  such as Breda. Breda
also entered  into an agreement  with  DIRECTV,  Inc. to offer direct  broadcast
satellite  service (video) in conjunction with its satellite  Internet  service.
The Anik F2 satellite  was launched by August 30, 2004,  and WildBlue is testing
its gateways.  After some delays, Breda now anticipates that all testing will be
completed in its gateway by May 31, 2005, and that Breda will be able to provide
this service to its customers on or about June 15, 2005.

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

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


                                       31
<PAGE>

declines,  in  Internet  service  revenues,  even  if  Breda  is  successful  in
increasing its Internet customer base.

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

Prairie Telephone authorized the initiation of a default process against Desktop
Media, L.L.C. in February 2005, and Prairie Telephone,  along with the other two
lenders, are proceeding with this legal action.  Prairie Telephone does not know
at this time if it will be able to recover all of the monies due on the loans.

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

Cautionary Statement on Forward Looking Statements

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


                                       32
<PAGE>

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

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

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

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

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

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

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

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


                                       33
<PAGE>

            o     litigation;

            o     inaccurate assumptions or predictions by management;

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

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

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

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

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

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

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

            o     the continued  availability  of financing,  and on terms which
                  are  favorable  to  Breda,  and  the  cost  of  financing  and
                  consequences of leverage; and

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

This section  should also be read in conjunction  with the financial  statements
and related notes included in Item 1 of Part I of this quarterly report.


                                       34
<PAGE>

Item 3. Controls and Procedures.

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

            No change in  Breda's  internal  control  over  financial  reporting
            occurred during the period covered by this quarterly report that has
            materially  affected,  or is reasonably likely to materially affect,
            Breda's internal control over financial reporting.

                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

            Breda did not issue any shares of its shares of common  stock during
            the period of January 1, 2005 through March 31, 2005.

            Breda did not  purchase  any of its common  stock from  shareholders
            during the period of January 1, 2005 through March 31, 2005.

            There were two  transfers  of shares of Breda's  common stock during
            the period of January 1, 2005 through March 31, 2005 with respect to
            which  Breda did not  exercise  Breda's  right of first  refusal  to
            purchase the shares.  One of those transfers involved thirty shares,
            and the other transfer involved twelve shares.

Item 3. Defaults Upon Senior Securities.

            There  was  no  material  default  or  any  material   arrearage  or
            delinquency  by Breda of the type required to be reported under this
            Item during the period of January 1, 2005 through March 31, 2005.


                                       35
<PAGE>

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

            No matters were  submitted to a vote of the  shareholders  of Breda,
            through the solicitation of proxies or otherwise,  during the period
            of January 1, 2005 through March 31, 2005.

Item 5. Other Information.

            Breda's board of directors declared a dividend of $7.00 per share on
            March 1, 2005,  payable to shareholders of record on March 15, 2005.
            The aggregate amount of the dividend was $218,190.  The dividend was
            paid to the shareholders on April 1, 2005.

            There were no material  changes during the period of January 1, 2005
            through March 31, 2005 to the  procedures by which the  shareholders
            of Breda may recommend nominees to Breda's board of directors.

Item 6. Exhibits.

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

               [THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK]


                                       36
<PAGE>

                                   SIGNATURES

      In accordance  with the  requirements  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 13, 2005.              By: /s/ Robert Boeckman
                                      -----------------------------------------
                                        Robert Boeckman, Chief Operations
                                        Officer and Co-Chief Executive Officer


Date:  May 13, 2005.              By: /s/ Jane Morlok
                                      -----------------------------------------
                                        Jane Morlok, Chief Financial Officer
                                        and Co-Chief Executive officer


                                       37
<PAGE>

                                  EXHIBIT INDEX
                             Exhibits to Form 10-QSB
                        Three Months Ended March 31, 2005
                              BREDA TELEPHONE CORP.

<TABLE>
<CAPTION>
Description of Exhibit                                                              Page
----------------------                                                              ----
<S>                                                                                  <C>
3.    Articles of Incorporation and Bylaws

      3.1   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.)

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

10.   Material Contracts

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

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

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

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

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

<PAGE>

*32.  Section 1350 Certifications

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

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

*Included with this filing.