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 1934For the
  quarterly period ended March 31, 2007.o
TRANSITION
  REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACTFor 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.
  Employerof
  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
o Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o   No x State
the number of shares outstanding of each of the issuers classes of common
equity, as of the latest practicable date: 31,016 shares of common stock, no
par value, at May 1, 2007. Transitional
Small Business Disclosure Format (Check one): Yes
o   No x    PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

Breda Telephone Corp.
And Subsidiaries
Breda, IA

Condensed Consolidated Financial Statements
For the Periods
Ended March 31, 2007 and 2006
And the Year Ended December 31, 2006

1

BREDA TELEPHONE CORP. AND SUBSIDIARIES
BREDA, IOWA

CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, 2007 and December 31, 2006

March 31,
  2007

December 31,
  2006ASSETSCURRENT ASSETSCash and cash
equivalents

$
1,624,061

$
777,708Marketable
securities


759,648


643,119Accounts
receivable, net of allowances of $46,750 and $13,700 in 2007
  and 2006, respectively


1,108,410


995,861Interest
receivable


93,085


82,241Current
portion of note receivable, less allowance of $219,691 in each
  2007 and 2006


220,283


220,283Inventory, at
average cost


183,763


151,659Prepaid income
taxes





Other


41,882


47,440Deferred
income taxes


12,302


12,2914,043,434


2,930,602OTHER NONCURRENT
ASSETSMarketable
securities


6,704,643


6,775,348Investments in
unconsolidated affiliates at equity


7,495,300


7,562,375Other
investments at cost


614,328


622,554Goodwill


896,812


896,81215,711,083


15,857,089PROPERTY, PLANT AND
EQUIPMENT


4,453,219


4,509,149TOTAL ASSETS

$
24,207,736

$
23,296,840LIABILITIES AND
  STOCKHOLDERS EQUITYCURRENT LIABILITIESCurrent
portion of long-term debt

$
178,651

$
175,729Accounts
payable


245,566


178,331Accrued
taxes


486,885


123,301Other


357,005


63,4171,268,107


540,778LONG-TERM DEBT, less current
portion


1,093,432


1,139,205OTHER NONCURRENT
LIABILITIES


1,246,785


1,389,178STOCKHOLDERS
EQUITYCommon stock -
no par value, 5,000,000 shares authorized, 31,016 shares
  issued and outstanding at $394 and $394 stated values, respectively


12,220,304


12,220,304Retained
earnings


8,379,108


8,007,37520,599,412


20,227,679TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY

$
24,207,736

$
23,296,840The accompanying notes are an integral part of these consolidated
financial statements.

2

BREDA TELEPHONE CORP. AND SUBSIDIARIES
BREDA, IOWA

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months Ended March 31, 2007 and 2006

For the Three Months Ended20062007

(Restated)OPERATING REVENUES

$
2,396,055

$
2,014,801OPERATING
  EXPENSESCost of
services


1,150,791


885,873Depreciation
and amortization


234,426


242,749Selling,
general, and administrative


624,806


512,7672,010,023


1,641,389OPERATING INCOME


386,032


373,412OTHER INCOME
(EXPENSES)Interest and
dividend income


144,172


93,829Loss on sale
of investments


(4,795
)

Gain on
disposal of assets


1,800


Interest
expense


(24,162
)

(27,185
)Income from
equity investments


416,515


340,611Other,
net


(11,939
)

(378
)521,591


406,877INCOME BEFORE
INCOME TAXES


907,623


780,289INCOME
TAXES


318,778


249,700NET
INCOME

$
588,845

$
530,589NET INCOME PER
COMMON SHARE

$
18.99

$
17.10DIVIDENDS PER
COMMON SHARE

$
7.00

$
7.00The accompanying notes are an integral part of these consolidated
financial statements.

3

BREDA TELEPHONE CORP. AND SUBSIDIARIES
BREDA, IOWA

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(UNAUDITED)

Common StockRetained
  EarningsShares

Amount


TotalBalance at December 31,
2005

31,023

$
11,075,211

$
6,583,060

$
17,658,271Comprehensive
income:Net
Income







2,789,327


2,789,327Dividends
declared







(217,161
)

(217,161
)Common stock
redeemed, net

(7
)

(2,758
)




(2,758
)Stated value
stock adjustment




1,147,851


(1,147,851
)Balance at December 31,
2006

31,016


12,220,304


8,007,375


20,227,679Comprehensive
income:Net
Income







588,845


588,845Dividends
declared







(217,112
)

(217,112
)Balance at March 31,
2007

31,016

$
12,220,304

$
8,379,108

$
20,599,412The accompanying notes are an integral part of these consolidated
financial statements.

4

BREDA TELEPHONE CORP. AND SUBSIDIARIES
BREDA, IOWA

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months Ended March 31, 2007 and 2006

20062007

(Restated)CASH FLOWS FROM OPERATING
ACTIVITIESNet
income

$
588,845

$
530,589Adjustments to
reconcile net income to cash provided by operating
  activities:Depreciation
and amortization


234,426


242,749Deferred
income taxes


(142,404
)

14,582Amortization
of investment premium/discount - net


12,787


14,879Equity income
in unconsolidated affiliates, net of distributions
  received of $483,591 and $476,141 in 2007 and 2006, respectively


67,075


135,529Realized
  (gain) or loss on sale of property


(1,800
)

Note
receivable discount





(522
)Loss on sale
of marketable securities


4,795


Changes in
assets and liabilities:(Increase)
Decrease in assets:


(149,939
)

(72,525
)Increase
(Decrease) in liabilities:


501,895


(117,625
)Net cash
provided by operating activities


1,115,680


747,656CASH FLOWS FROM INVESTING
ACTIVITIESCapital
expenditures


(171,296
)

(23,311
)Purchase of
marketable securities


(183,992
)

(401,564
)Proceeds from
the sale of marketable securities


120,586


226,029Proceeds from
the sale of other investments - at cost


8,226


7,701Net cash used
in investing activities


(226,476
)

(191,145
)CASH FLOWS FROM FINANCING
ACTIVITIESRepayment of
long term debt


(42,851
)

(40,117
)Net cash used
in financing activites

$
(42,851
)
$
(40,117
)Net Increase in Cash and Cash
Equivalents

$
846,353

$
516,394Cash and Cash Equivalents at
Beginning of Period


777,708


739,741Cash and Cash Equivalents at
End of Period

$
1,624,061

$
1,256,135Supplemental Disclosures of
Cash Flow InformationCash paid
during the period for:Interest

$
24,162

$
27,185Income
taxes

$
57,000

$
180,000The accompanying notes are an integral part of these consolidated
financial statements.

5

BREDA TELEPHONE CORP. AND SUBSIDIARIES
BREDA, IOWA

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

NOTE 1.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTSIn 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,
  2007 and December 31, 2006 and the results of operation and changes in cash
  flows for the three months ended March 31, 2007 and 2006.Certain
  information and footnote disclosures normally included in annual financial
  statements prepared in accordance with accounting principles generally
  accepted in the United 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,
  2006 financial statements. The results of operations for the three-month
  period ended March 31, 2007 are not necessarily indicative of the operating
  results of the entire year.Certain
  reclassifications have been made to the 2006 financial statements to conform
  with the 2007 presentations.NOTE 2.

NONCASH INVESTING ACTIVITIESNoncash investing
  activities included $5,400 and $12,706 during the three months ended March
  31, 2007 and March 31, 2006, respectively, relating to plant and equipment
  additions under construction during the period, which are reflected in
  accounts payable at March 31, 2007 and March 31, 2006.NOTE 3.

OPERATING SEGMENTSThe 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.6

BREDA TELEPHONE CORP. AND SUBSIDIARIES
BREDA, IOWA

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

NOTE 3.

OPERATING SEGMENTS (Continued)Local
  Exchange
  Carrier

Broadcast

Internet
  Service
  Provider

TotalThree
  Months EndedMarch 31,
  2007Revenues

$
2,061,947

$
178,273

$
155,835

$
2,396,055Segment profit (loss)


814,701


(53,121
)

(172,735
)

588,845Local
  Exchange
  Carrier

Broadcast

Internet
  Service
  Provider

TotalThree
  Months EndedMarch 31,
  2006Revenues

$
1,668,802

$
186,001

$
159,998

$
2,014,801Segment profit (loss)


700,689


(41,824
)

(128,276
)

530,589NOTE 4.

NET INCOME PER COMMON SHARENet income
  per common share for March 31, 2007 and 2006 was computed by dividing the
  weighted average number of shares of common stock outstanding into the net
  income. The weighted average number of shares of common stock outstanding for
  the three months ended March 31, 2007 and 2006 were 31,016 and 31,023,
  respectively.NOTE 5.

STOCK VALUE ADJUSTMENTDuring July
  2006, the board of directors authorized a $37 increase in the stated value of
  each share of common stock from $357 to $394. There were 31,023 shares
  outstanding at the time of the value adjustment, which reduced retained
  earnings by $1,147,851.NOTE 6.

PRIOR PERIOD RESTATEMENTSThe Company
  restated its income from equity investments for the quarter ended March 31,
  2006. The Company determined to restate its income from equity investments
  from the accepted method of a twelve-month period ending September 30th
  to a better method of a twelve-month period ending December 31st,
  when calendar year or quarterly financial statements became available for
  each of the periods ending 2005 and 2006 for these investments. The Company
  determined to make the change in accounting method to have uniformity in its
  reporting period for all of the financial information presented in its
  financial statements.The change
  in accounting method at March 31, 2006 resulted in a $57,760 increase in
  income from equity investments. Net of the income tax expense increase of
  $23,682, the 2006 net income increased $34,078, or $1.10 per share.Bredas Form
  10-QSB for the period ended March 31, 2006 was amended to restate Bredas
  income from equity investments derived from an investment in a cellular7

partnership,
  RSA #8. Two of Bredas subsidiaries each own an approximate 5.84% interest in
  RSA #8. Twelve-months income figures for RSA #8, instead of three-month
  income figures, were used to compute Bredas pro- rata share of the income
  generated by RSA #8 for the three-month period ended March 31, 2006,
  resulting in a $378,228 overstatement of income from equity investments in
  Bredas Form 10-QSB for the period ended March 31, 2006. After adjustment for
  that overstatement, net of income taxes, Bredas amended net income as of
  March 31, 2006 decreased $223,154, or $7.19/share.Bredas year
  to date income from equity investments for the six-months ended June 30, 2006
  consequently decreased by the same $378,228. After adjustment for that
  overstatement, net of income taxes, Bredas amended year to date net income
  as of June 30, 2006 decreased $223,154 from $1,889,447 to $1,666,293, and net
  income per common share decreased $7.19 from $60.90/share to $53.71/share.8

Item 2.
Managements Discussion and Analysis of Financial Condition and
  Results of Operations.Various
  discussions and statements in this quarterly report contain forward-looking
  statements, which can be identified by the use of forward-looking terminology
  such as expects, estimates, plans, anticipates, forecasts,
  predicts, projects, believes, should, could, or other similar
  expressions or variations of those words, or by discussions of strategy. No
  assurance can be given that the future results covered by the forward-looking
  statements will be achieved. Some of the matters set forth in the Cautionary
  Statement on Forward Looking Statements section of Bredas Annual Report on
  Form 10-KSB for the year ended December 31, 2006 constitute cautionary
  statements identifying factors with respect to such forward-looking
  statements, including certain risks and uncertainties, that could cause
  actual results to vary materially from the future results indicated in such
  forward-looking statements. Other factors could also cause actual results to
  vary materially from the future results indicated in such forward-looking
  statements.OverviewGeneralBreda is a
  small provider of telecommunication services to residential and business
  customers in the west central region and the southwest region of rural Iowa.
  Breda and its subsidiaries, Prairie Telephone Co., Inc., Westside Independent
  Telephone Company, Tele-Services, Ltd. and BTC, Inc., all conduct business
  under the names W.I.N. or Western Iowa Networks.Breda and
  its subsidiaries operate seven telephone exchanges as the incumbent or
  historical local exchange carrier (ILEC). In October 2003, BTC, Inc. began
  to offer competitive local exchange carrier services (CLEC) to residential
  and business customers in Carroll, Iowa, where Qwest is the incumbent local
  exchange carrier. Other telecommunications services provided include long
  distance services, dial-up and high-speed Internet services, cable TV
  services, and satellite Internet services.Operating SegmentsBreda
  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.Local
Exchange Carrier Services. This 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 all of its ILEC and CLEC exchanges
and surrounding areas.Broadcast Services.
This segment provides cable television services to customers in a total of
seventeen towns in Iowa and one town in Nebraska.Internet
Services. This segment provides Internet access to
customers in the local exchanges and the surrounding areas and in the
Carroll, Iowa market area through BTC, Inc.9

The segments
  in which Breda and its subsidiaries operate are as follows:Local Exchange CarrierBredaPrairie
  Telephone Co., Inc.Westside
  Independent Telephone CompanyBTC, Inc.
  (competitive local exchange carrier)Broadcast ServicesTele-Services,
  Ltd.Internet Service ProviderBTC, Inc.Factors Affecting Bredas Operating
Performance

Breda
  believes that a number of industry and company-specific factors are affecting
  and will continue to affect Bredas results of operations. These factors
  include the following:
The effect
  on Bredas revenues of declining numbers of access lines caused by younger
  customer migration to cell phone usage only; technology advances allowing the
  provisioning of Internet (data) services on the same access line as voice
  service; technology advances provisioning residential and business voice
  services over data circuits (VOIP); and the declining population base in the
  rural areas served by Breda.Bredas
  strategic response to this trend includes efforts to introduce and provide
  enhanced local services and additional services like voice mail, dial-up and
  DSL Internet access, long distance services, and to provide cellular services
  through its agency agreement with U.S. Cellular. During third quarter 2006,
  Breda successfully deployed new long-reach, high-speed Internet technology in
  each of its ILEC towns that did not have high-speed Internet services from
  Breda. Breda also seeks to maximize its telecom industry offerings by
  partnering with surrounding telephone companies in wireless service ventures
  and through investment in cellular partnerships within the state of Iowa and
  surrounding states. Breda has also undertaken to compete with Qwest for
  voice, long distance, and Internet service customers in the county seat of
  Carroll, Iowa.
The effect
  on Bredas revenues from current and potential future changes in access rate
  regulation at the state and federal levels.
The effect
  on Bredas revenues from rate and pricing structure caused by the competition
  of multiple providers in the Carroll, Iowa market. The incumbent local
  exchange carrier (Qwest), the local cable TV provider (Mediacom) and
  additional outside competitors have all partnered with telecommunication
  providers that can bring additional service components to complete a bundled
  service offering to the customer in what is known in the industry as the
  triple play. Customers receive local phone service, blocks of long distance
  service minutes, Internet services, and video services (cable TV or satellite
  TV) for a10

competitive
  price. Breda now competes with the triple play bundled services offerings
  from both Qwest and Mediacom.Breda has
  implemented new switching capabilities for the Carroll, Iowa market that
  allows Breda to offer another flavor of high-speed Internet services, in
  addition to its voice, long distance and present Internet services. The new
  switching capabilities will also allow Breda to look at bringing fiber to the
  home, which would be an overbuild of the Carroll market, and would allow
  Breda to be self-reliant in providing communication services to that
  community by no longer needing to lease access lines from Qwest to provide
  services.Breda
  continues to modify its package offerings, and to evaluate and adjust its
  pricing structures in order to attempt to remain competitive.
The effect
  on Bredas revenues from decreased customer counts for dial-up Internet as
  well as cable TV services. Competition and bundled services, declining
  population bases in some of Bredas rural service areas, and cost of
  technology upgrades play a role in the competition for and retention of
  customers. Breda continues to consolidate cable TV programming transmission
  equipment in its communities where it is geographically feasible, in order to
  reduce system and service costs which are incurred to provide the cable TV
  services.
The effect
  on Bredas revenues from decreased access revenue caused by a decrease in the
  number of long distance calls originating from, or terminating to, an access
  line in one of Bredas telephone exchanges. The proliferation of wireless
  (cell) phone usage, and the designation of new technology by the FCC as data
  services, instead of voice services, has both decreased the minutes of use
  on Bredas networks, which results in less access revenue, and caused the
  industry access payment structure to be renegotiated by the new technology
  providers and wireless providers.Breda has
  negotiated an interconnection agreement with six wireless carriers and
  continues to work with industry associations in order to receive some form of
  payment for the use of its networks. Breda also implemented tandem switching
  capabilities on September 1, 2005, with the installation of its new switch in
  Carroll, Iowa, and since January 2006 has been able to receive payments for
  consolidating and switching its own traffic. Breda also finalized agreements
  in July 2006 to consolidate and switch the traffic of two surrounding telcos.
  During third quarter 2006, Breda partnered with vendors that allowed Breda to
  offer conference-bridging services over its networks. Breda bills and receives
  access revenue for the conference bridge traffic actually utilizing its
  networks. Breda continues to investigate new opportunities in the industry
  that the installation of the soft switch in Carroll now allows because of its
  capacity to handle significant amounts of traffic that were not possible with
  Bredas older technology switches.11

Revenues

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 for the three-month periods ended, respectively, March 31, 2007,
  and March 31, 2006:Three Months Ended
  March 31,

% of Total Revenues
  for the Three Months
  Ended March 31,2007

2006

Amount

PercentOPERATING
  REVENUESLocal
  exchange carrier services

$
2,061,947

$
1,668,802


86.1
%

82.8
%Broadcast
  services


178,273


186,001


7.4
%

9.2
%Internet
  services


155,835


159,998


6.5
%

7.9
%$
2,396,055

$
2,014,801


100.0
%

100.0
%Local Exchange Carrier Services.Bredas
  revenue in this segment comes from the following sources:1.
Local
  Network Services. These revenues include monthly
  subscription charges for basic service and enhanced calling features, such as
  voice mail and caller ID, which are billed to individual residential and
  business customers.2.
Network
  Access Services. These revenues are generated from
  charges established to compensate Breda for the origination, transport and
  termination of calls generated by the customers of long distance carriers and
  for calls transported and terminated to the customers of wireless carriers.
  These revenues are received from carriers such as AT&T, Verizon, MCI, and
  Sprint. Breda also receives federally administered universal service support
  as a result of the interstate switched access support provisions put into
  place by the Federal Communications Commission. The Universal Service Fund
  was started as a mechanism to promote phone service accessibility for
  everyone at affordable rates and comparable service. The access charges for
  long distance services within Iowa are based on rates approved by the Iowa
  Utilities Board. Switched and special access charges for interstate and
  international services are based on rates approved by the Federal
  Communications Commission. The transport and termination charges paid by
  wireless carriers are specified in interconnection agreements negotiated with
  each individual wireless carrier.3.
Long
  Distance Services. Breda generates revenues for
  providing long distance services to its customers. This revenue category also
  includes fees related to the provision of directory assistance and operator
  assistance services.4.
Cellular
  Services. Breda is an agent for the U.S. Cellular
  service area in Iowa. As an agent for U.S. Cellular, Breda generates
  commission revenue from the sale of the wireless calling plans offered by
  U.S. Cellular to Bredas customers. Breda also generates revenue from the
  sale of phones and accessories needed to receive wireless phone service.5.
Billing and
  Collection Services. Breda receives revenue for
  performing billing and collection services for long distance carriers. Breda
  receives a minimal12

percentage
  of the long distance call dollars that Breda receives and processes through
  its customer billing system. The customer receives one bill, which includes
  both local and long distance charges, instead of receiving a separate bill
  from their long distance carrier.6.
Miscellaneous.
  Phone-related services generated by Breda include revenues from directory
  publishing, directory advertising, inside line care, the sale and maintenance
  of customer premise equipment, the sale and maintenance of phone systems, and
  the sale of pager services. A significant revenue source is the rental of
  Bredas fiber optic toll trunks to other telecommunication providers.Broadcast Services.Revenues are generated
  in this segment from the monthly fees charged to customers for basic and
  premium cable TV services.Internet Services.Monthly dial-up and
  high-speed Internet access services fees billed to residential and business
  customers generate the bulk of this segments revenue. Revenues are also
  generated from the sale of Internet equipment modems and routers, and from
  customer trouble-shooting and maintenance support fees. Revenue generated
  through the offering of a satellite-based Internet service is also included
  in Internet Services revenues.Operating ExpensesOperating Expense Categories.Bredas
  operating expenses are categorized as cost of services; depreciation and
  amortization; and selling, general and administration.Cost of Services.This category includes
  expense for salaries and wages relating to plant operation and maintenance;
  network access costs; long distance provisioning costs; conference bridge
  provisioning costs; salary, wage, equipment, training, and advertising costs
  for cellular and retail services; postage; utilities; and Internet service
  provisioning costs.Depreciation and amortization.This category
  of costs includes depreciation of the telecommunication equipment and
  network; Internet services equipment; cable TV programming equipment and
  transmission equipment; buildings; and amortization of intangible assets.Selling, General and Administration.This
  category includes expenses for legal and accounting services; wages and
  benefits; contract service payments; travel, meals and lodging; investment
  fees; board of director fees and expense reimbursements; insurance premiums;
  supplies; advertising and promotion costs; dues and subscriptions; property
  taxes; and all customer service operations, marketing and sales operations,
  and administrative operations costs.13

Results of OperationsThe
  following table sets forth certain items reflected in Bredas consolidated
  statements of operations for the periods indicated, expressed as a percentage
  of total revenues:Three Months Ended
  March 31,2007

2006
  (Restated)Operating revenues


100
%

100
%Cost of services


48
%

44
%Depreciation and
  amortization


10
%

12
%Selling, general and
  administrative


26
%

25
%Operating income


16
%

19
%Other income (expenses)


22
%

20
%Income taxes


13
%

12
%Net income


25
%

27
%Three Months Ended March 31, 2007 and 2006The table
  below sets forth the components of Bredas revenues for the three months
  ended March 31, 2007, compared to the same period in 2006.Three Months Ended
  March 31,

Change2007

2006

Amount

PercentOPERATING REVENUESLocal Exchange
CarrierLocal network
services

$
229,039

$
218,831

$
10,208


4.7
%Network access
services


1,332,717


992,045


340,672


34.3
%Long distance
services


68,166


108,438


(40,272
)

-37.1
%Cellular
services


372,457


332,779


39,678


11.9
%Billing and
collection services


3,246


3,144


102


3.2
%Miscellaneous


56,322


13,565


42,757


315.2
%$
2,061,947

$
1,668,802

$
393,145


23.6
%Broadcast Services

$
178,273

$
186,001

$
(7,728
)

-4.2
%Internet services

$
155,835

$
159,998

$
(4,163
)

-2.6
%$
2,396,055

$
2,014,801

$
381,254


18.9
%There was an
  increase in total operating revenues for the three-month period ended March
  31, 2007, when compared to the three-month period ended March 31, 2006, of
  $381,256, or 18.9%.Local Exchange Carrier Services - $393,145Local
  exchange carrier services revenues accounted for 86.1% of all operating
  revenues in the three-month period ended March 31, 2007. There was a
  $393,145, or 23.6%, increase in local exchange carrier services revenues for
  the three-month period ended March 31, 2007, when compared to the three-month
  period ended March 31, 2006.14

Local
  network services revenues increased $10,208, or 4.7%, for the three months
  ended March 31, 2007, as compared to the same period in 2006, primarily because
  of the increased number of customers taking phone service from BTC, Inc. in
  Carroll, Iowa. Bredas long distance services revenue decreased $40,272, or
  37.1%, for the three months ended March 31, 2007, as compared to the
  three-month period ended March 31, 2006. Although Breda has seen an increase
  in its long distance customer base when comparing the two periods, the
  increase is offset by a decrease in the average minutes used by each customer
  on a monthly basis, as well as a decrease in the price that Breda is charging
  its customers for Bredas long distance service offerings. The rate decreases
  for bundled service offerings began on July 1, 2006. Breda has received a
  good response to its package offerings that include local and long distance
  service from both residential and business customers.Network
  access services increased $340,672, or 34.3%, for the three-month period
  ended March 31, 2007, when compared to the three-month period ended March 31,
  2006. This increase mainly resulted from increased terminating access
  revenues received from traffic delivered to Bredas conference bridge in
  Carroll, Iowa. Breda has contracted with conference bridge vendors for the
  transport of long distance calls over Bredas networks. Breda began billing
  for these services in September 2006, and there is no corresponding
  conference bridge access revenue for the three-month period ended March 31,
  2006. Bredas access revenue has also increased because, as noted previously,
  BTC, Inc. installed a new switch in its Carroll, Iowa location, and is now
  able to receive tandem switching payments for consolidating and switching its
  traffic from six of Bredas own seven telephone exchanges. There is no
  corresponding tandem switching revenue for the three-month period ended March
  31, 2006. There was also some increase in Bredas access revenue because of
  an increased customer base taking Bredas long distance services. These
  customers generate access revenue when they use Bredas networks to make long
  distance calls.Cellular
  services increased $39,678, or 11.9%, for the three-month period ended March
  31, 2007, when compared to the three-month period ended March 31, 2006. While
  Bredas new cellular customer count was nearly identical during the
  three-month periods ended March 31, 2007, and March 31, 2006, its
  retentionable, returning customer base did increase during the three-month
  period ended March 31, 2007, when compared to the three-month period ended
  March 31, 2006. This increase was the cause of the increased cellular revenue
  during the three-month period ended March 31, 2007.Miscellaneous
  revenues increased $42,757, or 315.2%, for the three-month period ended March
  31, 2007, when compared to the three-month period ended March 31, 2006. The
  main components of miscellaneous revenue were the receipt of rent from other
  telephone companies or industry carriers for the lease of capacity over fiber
  optic rings owned by Breda, or owned jointly with neighboring telephone
  companies, and the receipt of switching services revenue, for which there was
  no corresponding revenue during the three month period ended March 31, 2006.
  This increase mainly represents changes in fiber optic rental contracts
  between the two three-month periods and the revenue generated from the provision
  of tandem switching services to neighboring telephone companies.15

Broadcast Services  ($7,728)Broadcast
  services decreased $7,728, or 4.2%, for the three-month period ended March
  31, 2007, when compared to the three-month period ended March 31, 2006.
  Tele-Services continues to lose customers and to face stiff competition from
  satellite providers, who are able to provide extensive channel line-up
  packages, and who are now also able to include local channels in their
  package offerings. Tele-Services completed a fiber construction project
  during the quarter ended September 30, 2005, and another project during
  quarter ended June 30, 2006, which allowed it to combine cable TV head ends.
  Breda continues to explore other consolidation opportunities in
  Tele-Services cable TV communities in order to reduce operating costs
  through consolidation of equipment and maintenance costs. Rate increases were
  implemented in November 2005, and August 2006, respectively, for the two
  communities that received additional channels from the consolidation of head
  ends. Tele-Services added the HBO premium channel in Farragut, Riverton and
  Sidney on February 1, 2007. Rate increases were implemented for the basic
  service package in ten of its cable communities on March 1, 2007. Premium
  channel increases were also implemented in eight of its cable communities on
  March 1, 2007. Another factor faced by Tele-Services is the declining
  population base in the small rural communities served by Tele-Services.Internet Services  $(4,163)Internet
  services revenue decreased $4,163, or 2.6%, for the three-month period ended
  March 31, 2007, when compared to the three-month period ended March 31, 2006.
  Breda has seen an increase in its high-speed Internet customer base when comparing
  the two periods, which has offset the decrease in Bredas dialup Internet
  customer base. The decrease in dialup Internet customers is the result of the
  intense competition by multiple suppliers in the Carroll, Iowa market area.
  Breda is gaining high-speed Internet customers in the Carroll, Iowa area
  because BTC, Inc. is offering bundled services packages that include Internet
  services, as well as local telephone and other communication services. Also,
  with the advent of newer technologies that expand the range for high-speed
  Internet services from Bredas central office, Breda began offering new
  longer-reach, high-speed Internet services in its remaining five outlying
  ILEC communities that previously were not able to receive those services from
  Breda. Breda also expanded its high-speed Internet offerings in two of its
  ILEC towns to include the long reach technology options. These service
  offerings were begun during the fourth quarter 2006, and Breda has had a very
  favorable response to these new technology Internet offerings. This increase
  in customer base is, however, offset by a decrease in the price that
  customers are charged for Bredas high-speed Internet offerings. The rate
  decreases for bundled service offerings began on July 1, 2006.OPERATING
  EXPENSESThe table
  below sets forth the components of Bredas operating costs for the three
  months ended March 31, 2007, compared to the same period in 2006.16

Three Months Ended
  March 31,

Change2007

2006

Amount

PercentOPERATING EXPENSESCost of services

$
1,150,791

$
885,873

$
264,918


29.9
%Depreciation and amortization


234,426


242,749


(8,323
)

-3.4
%Selling, general and administration


624,806


512,767


112,039


21.8
%$
2,010,023

$
1,641,389

$
368,634


22.5
%

Cost of
  Services - $264,918Cost of services increased
  $264,918, or 29.9%, for the three-month period ended March 31, 2007, when
  compared to the three-month period ended March 31, 2006. $174,061 of the
  increased costs were incurred for the provisioning of the conference bridge
  services which began in July 2006, and for which there is no corresponding
  cost during the three-month period ended March 31, 2006. Additional increased
  costs arose from labor rate increases implemented in 2007, and increased
  provisioning costs for the purchase of phones and accessories to supply the
  increased cellular sales during the three-month period ended March 31, 2007.
  Overall Internet costs decreased $7,069, or 3.8%, during the three-month
  period ending March 31, 2007, even with the provisioning costs for the new
  long reach, high-speed Internet product rolled out in third quarter 2006, and
  for which there were no corresponding costs for the three-month period ended
  March 31, 2006. Breda also incurred additional costs for repair and
  maintenance expenditures for its central offices, equipment and buildings and
  grounds during the three-month period ended March 31, 2007, when compared to
  the three-month period ended March 31, 2006.Although a greater number
  of customers continued to use Bredas long distance services, their average
  minutes of use per month are decreasing. The decreased minutes of use, along
  with Bredas switch to a new underlying carrier on August 20, 2006, have
  contributed to a decrease in Bredas overall cost to provide long distance service.
  Breda had a 11.9% increase in customers subscribing to Bredas long distance
  services for the three-month period ended March 31, 2007, when compared to
  the three-month period ended March 31, 2006, which resulted in a $1,603, or
  3.0%, increase in long distance provisioning costs when comparing these two
  three-month periods.While Tele-Services
  overall customer growth for cable TV services continued to decline, its
  programming costs increased $14,343, or 15.6%, for the three-month period
  ended March 31, 2007, when compared to the three-month period ended March 31,
  2006. Even though Tele-Services is a member of an industry programming
  purchasing group, it continues to see significant increases in the
  programming rates paid by Tele-Services in order to offer its cable TV
  offerings.Depreciation
  and Amortization  $(8,323)Depreciation and
  amortization expense decreased $8,323, or 3.4%, for the three-month period
  ended March 31, 2007, when compared to the three-month period ended March 31,
  2006.17

Selling,
  General and Administration  $112,039Selling, general and
  administration expenses increased $112,039, or 21.8%, for the three-month
  period ended March 31, 2007, when compared to the three-month period ended
  March 31, 2006. This increase is mainly attributable to an increase in
  administrative labor expense with the hiring of a CEO and a COO on July 1,
  2006, for which there was no corresponding additional expense for the
  three-month period ended March 31, 2006. There were also increased outside
  consulting services to analyze and pursue new business opportunities in the
  industry during the three-month period ended March 31, 2007, when compared to
  the three-month period ended March 31, 2006.OTHER INCOME (EXPENSE)The table below sets forth
  the components of other income (expense) for the three-month period ended
  March 31, 2007, compared to the same period in 2006.Three Months Ended
  March 31,

Change2007

2006
  (Restated)

Amount

PercentOTHER INCOME (EXPENSE)Interest and dividend
  income

$
144,172

$
93,829

$
50,343


53.7
%Loss on sale of investments


(4,795
)




(4,795
)

-100.0
%Gain on disposal of assets


1,800





1,800


100.0
%Interest expense


(24,162
)

(27,185
)

3,023


-11.1
%Income from equity
  investments


416,515


340,611


75,904


22.3
%Other, net


(11,939
)

(378
)

(11,561
)

-3,058.5
%$
521,591

$
406,877

$
114,714


28.2
%Interest
  and Dividend Income.Interest
  and dividend income increased $50,343, or 53.7%, for the three-month period
  ended March 31, 2007, when compared to the three-month period ended March 31,
  2006. This increase is attributable to increased investments and rates earned
  on investments in both temporary investments and marketable securities on
  which Breda generates interest income for the three-month period ended March
  31, 2007, when compared to the three-month period ended March 31, 2006. Breda
  also received increased dividends of $21,953 from its investment in Iowa
  Network Services in the first quarter of 2007, for which there are no
  corresponding receipts in the first quarter of 2006.Loss on
  sale of investments.
  The $4,795 loss on sale of investments for the three-month period ended March
  31, 2007, represents the loss on the redemption of temporary investments, for
  which there is no corresponding entry in the same three-month period in 2006.Gain on
  disposal of assets.
  The $1,800 gain on disposal of assets for the three-month period ended March
  31, 2007, represents the gain from the trade-in of a service vehicle, for
  which there is no corresponding entry in the same three-month period in 2006.Interest
  Expense.The
  $3,023, or 11.1%, decrease in interest expense for the three-month period
  ended March 31, 2007, when compared to the three-month period ended March 31,
  2006, is the result of the reduction of the Rural Telephone Finance
  Cooperative loan balance on which interest is calculated because of the
  payment of the scheduled principal payments on the loan. There has been no
  change in interest rate and no additional loan amounts have been borrowed.18

Income
  from Equity Investments.Income from equity investments increased $75,904, or 22.3%, for the
  three-month period ended March 31, 2007, when compared to the three-month
  period ended March 31, 2006. The equity investments income shown on Bredas
  financial statements is Bredas pro-rata share of the net income or net loss
  of each equity investment, based on Bredas percentage of ownership in each
  equity investment. The increase in equity investments income reported on
  Bredas income statement for the three-month period ended March 31, 2007 is a
  reflection of the net increases and decreases in the net income of Bredas
  equity investments. Most of Bredas equity investments are in cellular
  partnerships. Some of these cellular investments now receive universal
  service funding which has increased their overall operating revenue. An
  additional source of income from equity investments arises from Bredas
  ownership interest in Alpine Communications, L.C., an operating telephone
  company in northeastern Iowa.Other,
  Net.The $11,561
  decrease in other net income for the three-month period ended March 31, 2007,
  when compared to the three-month period ended March 31, 2006, is mainly
  attributable to increased partnership-related expenses.Income
  Tax Expense.Income
  taxes increased $69,078, or 27.7%, for the three-month period ended March 31,
  2007, when compared to the same period in 2006. The increase is a direct
  reflection of the increased income generated from operations and other income
  sources. The effective tax rate for the three-month period ended March 31,
  2007 is 35.1%, compared to a 32.0% tax rate for the same three-month period
  in 2006. The effective tax rate differs from the U.S. statutory rate due to
  state income taxes and the proportion of income from investments which are
  exempt from income tax.Net
  Income.Net income
  increased $58,256, or 11.0%, for the three-month period ended March 31, 2007,
  when compared to the same period in 2006.Liquidity
  and Capital ResourcesBredas short-term and
  long-term liquidity requirements arise primarily from the following:
  operations and working capital requirements; capital expenditures; interest
  payments on the long term financing from the Rural Telephone Finance
  Cooperative; dividend payments on Bredas common stock; redemption of Bredas
  common stock; and potential industry-related acquisitions or investments.Breda intends to fund the
  operations, working capital requirements, capital expenditures, interest
  payments, dividend payments, and stock redemptions from cash from operations.
  Breda also intends to fund smaller industry-related acquisitions or
  investments from cash from operations. For the three months ended March 31,
  2007 and March 31, 2006, cash provided by operating activities was $1,115,680
  and $747,656, respectively.To fund any significant
  future acquisitions or investments, Breda would consider the redemption of
  its short-term and long-term marketable securities investments; the use of
  its revolving lines of credit with the Rural Telephone Finance Cooperative;
  or the addition of long-term debt from industry lenders. Breda presently has
  an unused line of credit with the Rural Telephone Finance Cooperative of
  $1,500,000, and Prairie Telephone has an unused line of credit with the Rural
  Telephone Finance Cooperative of $500,000. Bredas present revenues would be
  able to sustain the costs of additional debt if the need arose. However, all
  potential acquisitions or investments will be evaluated on their own merits
  for potential cash and revenue19

production, and if the
  potential return on investment will be sufficient to incur the additional
  debt.Breda has historically
  funded its operations and capital expenditure requirements primarily from
  cash from operations. The following table summarizes Bredas short-term
  liquidity, as of March 31, 2007, and December 31, 2006.As ofMarch 31,2007

December 31,
  2006Short-Term
  LiquidityCurrent
Assets

$
4,043,434

$
2,930,602Current
Liabilities


1,268,107


540,778Net Working
Capital

$
2,775,327

$
2,389,824Cash and Cash
Equivalents

$
1,624,061

$
777,708Short Term
Marketable Securities

$
759,648

$
643,119Available on
Line of Credit

$
2,000,000

$
2,000,000Current assets increased
  $1,112,832, or 38%, for the three-month period ended March 31, 2007, when
  compared to the year ended December 31, 2006, and was due mainly to the
  buildup of a liquid cash position for the payment of budgeted capital
  expenditures before year-end 2007.Current liabilities
  increased $727,329, or 134.5%, for the three-month period ended March 31,
  2007, when compared to the year ended December 31, 2006. Accounts payable
  increased $67,235, or 37.7%, when comparing the two periods, which is mainly
  attributable to an increase in the amount incurred as of March 31, 2007 for
  the purchase of materials and supplies inventory, the provisioning of
  conference bridge services, and for the purchase of cellular inventory, when
  compared to the amounts incurred for those purchases as of December 31, 2006.
  Accrued taxes increased $363,584, or 294.9%, for the three-month period ended
  March 31, 2007, when compared to the year ended December 31, 2006. The
  increase is attributable to an increase in the provision for income taxes for
  the first quarter of 2007. There was also an increase in other accrued
  liabilities of $293,588. Bredas Board of Directors declared a $7.00 per
  share dividend on March 13, 2007 to shareholders of record on March 13, 2007.
  The dividend declaration is recorded in Other Payables as a $217,112 dividend
  payable as of March 31, 2007, and there was no corresponding dividend payable
  amount as of December 31, 2006. The remaining increase in other accrued
  liabilities is mainly attributable to an increase in accrued payroll of
  $68,469 for the three-month period ended March 31, 2007, when compared with
  the year ended December 31, 2006.The following table
  summarizes Bredas sources and uses of cash for the three months ended March
  31, 2007 and 2006.For the Three Months Ended
  March 31,2007

2006
  (Restated)Net Cash
  Provided (Used)Operating
Activities

$
1,115,680

$
747,656Investing
Activities


(226,476
)

(191,145
)Financing
Activities


(42,851
)

(40,117
)20

For the three months ended March 31, 2007 and March 31, 2006, cash
  provided by operating activities was $1,115,680 and $747,656, respectively.Cash used in investing
  activities increased $35,331, or 18.5%, for the three-month period ended
  March 31, 2007, when compared to the three-month period ended March 31, 2006.
  There was a decrease in cash used to purchase marketable securities of
  $217,512, or 54.2%, for the three-month period ended March 31, 2007, when
  compared to the same period in 2006. This decrease was offset by an increase
  in cash used for capital expenditures of $147,985, as well as a decrease in
  proceeds from the redemption of marketable securities of $105,443, for the
  three-month period ended March 31, 2007, when compared to the same period in
  2006.Cash used in financing
  activities was $42,851 for the three-month period ended March 31, 2007, and
  $40,117 for the three-month period ended March 31, 2006. These amounts
  represent the cash used to repay Rural Telephone Finance Cooperative
  long-term debt.Long Term
  DebtAs of March 31, 2007,
  Breda had $1,272,083 of long-term debt with the Rural Telephone Finance
  Cooperative. This debt carries a fixed rate of interest of 7.35%.
  Substantially all of the assets of Breda are pledged as security for the
  long-term debt. The Rural Telephone Finance Cooperative notes are to be paid
  in equal quarterly installments covering principal and interest until paid in
  full by the year 2013.The security and loan
  agreements underlying the Rural Telephone Finance Cooperative notes contain
  certain restrictions on distributions to stockholders, investment in or loans
  to others, and payment of management fees or an increase in management fees.
  Breda is restricted from making any distributions, except as might be
  specifically authorized in writing in advance by the Rural Telephone Finance
  Cooperative note holders, unless Bredas net worth meets the minimum
  requirements set forth in the loan agreement, and distributions are limited
  to certain levels of prior year cash margins. Breda is also required to
  achieve a debt service coverage ratio of not less than 1.25 to 1 and a times
  interest earned ratio of not less than 1.5 to 1.Obligations
  and CommitmentsBredas ongoing capital
  commitments include capital expenditures and debt service requirements. For
  the three months ended March 31, 2007, capital expenditures were $171,296.Bredas contractual
  obligations as of March 31, 2007 are:2007

$
132,8772008


187,7102009


200,5072010


214,1772011


228,7792012 and After


308,033Breda believes that cash
  provided by operations and current cash balances will be adequate to meet
  Bredas foreseeable operational, capital expenditure, and debt service
  requirements. However, Bredas actual cash needs and the availability of
  required funding may differ from21

Bredas expectations and
  estimates, and those differences could be material. Future capital
  requirements will depend on many factors, including, among others, the demand
  for Bredas services in Bredas existing markets and regulatory,
  technological and competitive developments.Off-Balance
  Sheet Risk and Concentration of Credit RiskBreda has no off-balance sheet
  exposure or risk.Breda has certain
  financial instruments which could potentially subject Breda to concentrations
  of credit risk. These financial instruments consist primarily of trade
  receivables and cash and temporary cash investments.Breda adheres to its
  investment policy with respect to marketable securities, which allows
  investments in:a.
Securities issued or
  guaranteed by the U.S. Government or its agencies.b.
Corporate or municipal
  bonds rated A or better by a major rating service.c.
Money market funds
  investing in U.S. Government, U.S. Agency or highly rated municipal
  securities.Recent
  Accounting PronouncementIn July 2006, the
  Financial Accounting Standards Board (FASB) issued FASB Interpretation No.
  48, Accounting for Uncertainty in Income Taxesan interpretation of FASB
  Statement No. 109. FIN 48 clarifies the accounting for uncertainty in income
  taxes recognized in accordance with Statement of Financial Accounting
  Standards No. 109, Accounting for Income Taxes. Guidance is provided on
  derecognition, classification, interest and penalties accounting in interim
  periods, disclosure and transition. FIN 48 requires that we recognize in our
  financial statements the impact of a tax position, if that position is more
  likely than not of being sustained on audit, based on the technical merits of
  the position. The provisions of FIN 48 are effective as of the beginning of
  our 2007 fiscal year, with the cumulative effect of the change in accounting
  principle recorded as an adjustment to opening retained earnings. Adoption of
  FIN 48 on January 1, 2007, had no effect on our financial position, results
  of operations or cash flows.Other
  Activities and IssuesAccess charge revenues
  constitute a substantial part of Bredas consolidated revenues, and the
  regulation of access charge rates by the Federal Communications Commission
  (FCC) and the Iowa Utilities Board (IUB) creates a material risk to Breda and
  its subsidiaries.The FCC currently has an
  open docket on inter-carrier compensation, which was initiated to identify a
  unified approach to intercarrier compensation. 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 has indicated that the FCC plans to replace the current system with a
  unified intercarrier compensation system. The FCC initiated a rule making
  proceeding to consider this matter and the questions that the FCC are
  examining include the effect that any change in the compensation system will
  have on consumers and the universal service fund.22

Breda continues to work
  with two Iowa industry associations in reviewing and submitting comments on
  the Missoula Plan, which is now before the FCC. The Missoula Plan is a set of
  proposals put together by a coalition of telecom companies, including the
  Rural Alliance. The Rural Alliance is a combination of the Expanded Portland
  Group and the Alliance for Rational Intercarrier Compensation. The Missoula
  Plan grew out of a set of proposals to counter the big carriers and the
  original FCC plan to use bill and keep for intercarrier compensation. Bill
  and keep would have meant that a company such as Breda would bill its own
  customers and get no payments from any other carrier, such as AT&T or
  MCI, for the use of its networks to carry toll traffic.The FCC had sought initial
  comments on the Missoula Plan by October 25, 2006. In January 2007, the
  supporters of the Missoula Plan filed an amendment intended to target new
  federal support to states that have already reduced intrastate access rates
  and the highest end-user rates. The Federal Benchmark mechanism would
  provide supplemental funding to ensure end-user rates remain within a
  national benchmark range when the Missoula Plan is implemented. The FCC has
  put the Missoula Plan for ICC reform and the Federal Benchmark mechanism
  amendment out for public comment.Breda believes that
  changes in access charges will likely occur, and that if any of the plans
  known today are adopted, as currently proposed, there will be substantial
  reductions in access revenues. Since access charge revenues constitute a
  substantial portion of Bredas total consolidated revenues, this is an area
  of material risk to Breda and its subsidiaries.Breda 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. 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 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.In August 2005, the FCC
  opened an extremely broad comment proceeding on Universal Service Funding
  (USF), in which it sought input on a variety of specific USF proposals
  offered by members of the Federal-State Joint Board on Universal Service. State
  industry associations have been meeting with FCC staff members and with
  various Washington legislative staff members to discuss proposed legislation
  preserving and improving USF, including how funds are expended and assessing
  levels of broadband deployment in Iowa. The issues at stake are both on how
  the revenue is assessed and generated for the universal service fund, and the
  criteria for the disbursement of funds from the universal service pool. Some
  of the suggested changes on the revenue side of the debate would be to have
  all current entities paying into the USF continue to pay into the fund; have
  any service provider that uses telephone numbers, IP (Internet Protocol)
  addresses or their functional equivalents to provide real-time voice
  communications pay into the fund; and any provider that offers a network
  connection for a fee23

to the
  public, including DSL, cable modem connections, WiMax and broadband over
  power lines, pay into the fund. This would increase the revenue base to more
  than just carriers providing telephone line services.On the
  disbursement side, some proposals would limit the number of eligible
  telecommunication carriers by specifying the criteria that must be met by
  recipients, including that the provider must provide service throughout their
  service area; remain functional in emergency situations; and satisfy both
  consumer protection and service quality standards. Unlike present USF
  payments, the proposals include that USF payments would allow recovery based
  on actual costs, rather than the incumbent carriers costs.Breda
  believes that federal universal service fund changes will occur but is unable
  to determine an estimated time frame or estimated financial ramifications as
  of the date of this filingThe National
  Exchange Carrier Association (NECA) has been delegated some authority by the
  FCC regarding the regulation of interstate access charge rates. In a letter
  dated January 15, 2007, NECA notified Breda that beginning July 1, 2007 most
  carriers could expect an overall average cost settlement decrease of 7.27% as
  a result of the new settlement formulas filed by NECA with the FCC in
  December 2006. Overall, NECA projected that the majority of companies
  settlements will decrease between 5% and 15%. The decrease generally reflects
  new overall reduced cost levels and decreases due to Line Haul Distance
  Sensitive formula structure changes. NECAs 2007 Modification of Average
  Schedules filing included a proposed transition plan to help companies adjust
  to reduced settlements. The FCC is currently reviewing both the proposed
  formulas and the proposed transition plan. Breda is continuing to study the
  information provided by NECA, but preliminary figures provided by NECA
  indicate that Breda could expect to receive $322,860 (17.8%) less per year in
  average schedule payments after the 24-month transition period is completed.The
  Communications Assistance For Law Enforcement Act (CALEA) was passed in 1994
  and sets forth the assistance capabilities that telecommunications carriers
  need to maintain so that they can support law enforcement in the conduct of
  lawfully authorized electronic surveillance. Breda, Prairie Telephone and
  Westside Independent had been granted various extensions from time to time
  for compliance with the various requirements of the Act, with the most recent
  extension ending on June 30, 2006. Breda installed a soft switch in its CLEC
  exchange in the last quarter of 2005, and the technology in this switch
  allows for CALEA compliance in both its CLEC exchange of Carroll, Iowa, and
  its ILEC exchange in Breda, Iowa. Breda currently is working through an
  upgrade plan for its remaining, stand-alone switches in five small exchange
  locations throughout its service territory. Breda estimates that its final
  cost to upgrade the remaining switches could be close to $2,000,000.On May 12,
  2006, the Federal Communications Commission adopted an order whereby all
  broadband Internet and interconnected voice over Internet protocol (VoIP)
  providers must comply with CALEA surveillance regulations by May 14, 2007.
  The FCC declined to exclude any facilities-based broadband Internet access
  providers from CALEA, noting that Trusted Third Parties and service bureaus
  can assist small entities in processing surveillance orders in accordance
  with the system security requirements, thereby ameliorating burdens for these
  providers.The Federal
  Communications Commissions May 12, 2006 order also restricted the
  availability of compliance extensions to equipment, facilities and services
  deployed prior to October 25, 1998; required any provider with a pending compliance
  extension petition currently on file to24

file another
  letter by February 12, 2007 attesting that the petition exclusively concerns
  equipment, facilities or services installed or deployed prior to October 25,
  1998; concluded that providers are responsible for the costs of complying
  with CALEA in most situations; permitted telecommunications carriers and
  broadband Internet access and interconnected VoIP providers the option of
  using Trusted Third Parties to assist in meeting the CALEA obligations to
  provide law enforcement agencies the electronic surveillance information they
  require in an acceptable format; required providers to file their security
  and integrity plans with the FCC by March 12, 2007; and required all
  providers to submit interim reports to the FCC on CALEA compliance by
  February 12, 2007.For
  telephone companies with separate broadband and VoIP entities, these
  requirements are in addition to those for their carrier operations, and
  require separate reports to be filed for each operation. Breda has enlisted
  Iowa Network Services to be its Trusted Third Party resource in meeting the
  CALEA requirements. Breda has also timely filed all required CALEA reports in
  the first quarter of 2007.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.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 2007 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 2007. 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, is now providing a phone
  service offering through Mediacoms partnership with Sprint. The IUB also
  granted Mediacom a certificate of public convenience to offer service in
  numerous areas throughout Iowa.Breda also
  anticipates that it will face new competition from other providers of newer
  VoIP (voice over Internet protocol) technologies, such as Vonage 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 likely occur 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.25

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 now
  offers a dial-up accelerator product, 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. In May
  2005, Breda began to offer its dial-up and high-speed Internet customers a
  value-added product which is intended to eliminate customer problems due to
  Internet security threats. This product is fully automated and integrated,
  and protects against viruses, spyware, and popups. The product also automatically
  installs tested Microsoft Security patches and performs diskeeper functions.
  Breda has had good response from its Internet customers for this product.During the
  third quarter of 2006, Breda completed the launch of high-speed Internet service
  offerings in all of its telephone exchanges that did not have the capability
  to offer that type of service. These offerings utilize the Internet product
  technologies currently used by Breda, as well as new technologies that allow
  customers outside the normal high-speed service area to still receive a high
  bandwidth connection. These customers in the past were not able to receive
  high-speed Internet services using standard provisioning equipment because of
  distance restrictions in most high-speed Internet technologies. Breda has had
  an excellent response to these longer-range, high-speed Internet service
  offerings.Breda
  entered into a marketing and distribution agreement with the National Rural
  Telecommunications Cooperative (NRTC) on May 13, 2004, for the distribution
  of high-speed Internet service via satellite. 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s marketing campaign
  originated on September 1, 2005, and Breda received good response to this
  service. Breda and the other satellite Internet providers in WildBlues
  satellite Beam 26 were notified in January 2006 that because of the huge
  success of this product, the capacity in Beam 26 was filling up, and no
  additional customers could be added once capacity reached a designated limit
  in order to not degrade the service for the customers already using the
  service. Breda stopped taking applications for this service on March 13,
  2006. NRTC and WildBlue were able to implement additional satellite capacity
  in the first quarter of 2007, but Breda does not plan to again offer this
  service to its customers because Breda is now able to provide high speed
  Internet services to almost all of its customers given Bredas rollout of its
  longer range, high-speed Internet technologies in all of Bredas ILEC
  exchanges.Breda
  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 and high-speed Internet rates and to provide higher speed Internet
  access.Prairie
  Telephone became a 10% owner of Desktop Media, L.L.C. on May 2, 2001. 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. 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 September26

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 and the other owners of
  Desktop Media, L.L.C. are negotiating a purchase agreement to sell their
  interests in Desktop Media, L.L.C. Breda anticipates that a sale may be
  finalized by year-end 2007.Prairie
  Telephone purchased 5,000 units of Bug Tussel Wireless, L.L.C. for $200,000
  in March 2005, which gave Prairie Telephone a 7.87% ownership interest.
  Prairie Telephone purchased an additional 2,462.264 units of Bug Tussel
  Wireless, L.L.C. in July 2005 for $113,264.15, which gave Prairie Telephone a
  9.75% interest in 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.At its
  quarterly meeting on August 4, 2005, the Board of Directors of the Rural
  Telephone Bank approved the liquidation and dissolution of the Bank. On
  November 10, 2005, the liquidation and dissolution process was initiated with
  the signing of the 2006 Agriculture Appropriations bill by President Bush,
  which paved the way for all Bank stock to be redeemed. Breda received
  liquidation funds on April 13, 2006, of $1,336,000, which was the par value
  of Bredas investment in the Bank stock. Bredas net of tax gain on the
  liquidation of this investment was approximately $698,946.Prairie
  Telephone purchased a 35.29% interest in Spiralight Network, L.L.C. on
  December 28, 2006 for $960,000. Spiralight Network, L.L.C. provides fiber
  transport services in Wisconsin, Illinois and Minnesota. The investment is
  accounted for on the equity method of accounting.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 INFORMATIONItem 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 Bredas 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 Bredas property.27

Item 2.
Unregistered Sales of Equity Securities and
  Use of Proceeds.Breda did
  not issue any shares of its common stock during the period of January 1, 2007
  through March 31, 2007.Breda did
  not purchase any shares of its common stock from shareholders during the
  period of January 1, 2007 through March 31, 2007.There were 5 transfers of shares of Bredas common stock during the
  period of January 1, 2007 through March 31, 2007 with respect to which Breda
  did not exercise Bredas right of first refusal to purchase the shares. One
  transaction involved 2 shares which were sold for $394 per share. Another
  transaction involved 45 shares which were sold for $394 per share. There were
  three transfers that did not involve the payment of any consideration. One of
  those transactions involved 482 shares which were transferred out of an
  estate to 6 individuals, another involved the transfer of 2 shares to one
  individual, and the other involved 122 shares which were transferred to 4
  individuals.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,
  2007 through March 31, 2007.Item 4.
Submission of Matters to a Vote of Security
  Holders.A special
  meeting of the shareholders of Breda was held on March 28, 2007. The only
  matter voted upon by the shareholders at the special meeting was the adoption
  of Articles of Restatement for Breda. The vote on the Articles of Restatement
  was separated, pursuant to the requirements of the Securities and Exchange
  Commission, into two separate voting matters. One of the matters was a vote
  upon Articles IV and V of the Articles of Restatement, which address the
  establishment and the terms of the Class A Common Stock and the Class B
  Common Stock of Breda. The other matter was the vote on all of the remaining
  articles of the Articles of Restatement, consisting of Articles I, II, III,
  VI, VII, VIII, IX and X. Those articles address, respectively, the name of
  Breda; the duration of Bredas corporate existence; the purpose of Breda; the
  number and classes of, and the qualification requirements for, the directors
  of Breda; the quorum requirements for meetings of the shareholders of Breda;
  the shareholder voting requirements for certain matters; the limitation of
  the liability of Bredas directors; and the indemnification of Bredas
  directors and officers.Both of
  those matters received the required number of votes, so the Articles of
  Restatement were approved and adopted by Bredas shareholders.28

The number
  of votes cast for, against or withheld, and the number of abstentions and
  broker non-votes with respect to the approval and adoption of Article IV and
  Article V of the Articles of Restatement was as follows:For

Against
  or Withheld

Abstentions

Broker
  Non-Votes335

17

11

The number
  of votes cast for, against or withheld, and the number of abstentions and
  broker non-votes with respect to the approval and adoption of Articles I, II,
  III, VI, VII, VIII, IX and X of the Articles of Restatement was as follows:For

Against
  or Withheld

Abstentions

Broker
  Non-Votes333

19

11

Item 5.
Other Information.There was no
  information required to be disclosed in a report on Form 8-K during the
  period of January 1, 2007 through March 31, 2007 which was not reported on a
  Form 8-K.Bredas
  board of directors declared a dividend of $7.00 per share on March 13, 2007,
  payable to shareholders of record on March 13, 2007. The aggregate amount of
  the dividend was $217,112. The dividend was paid to the shareholders on April
  2, 2007.Bredas
  board of directors adopted a resolution at a meeting on March 13, 2007 fixing
  the redemption price for Bredas shares of common stock to be $457 per share.
  The $457 amount was determined based upon Bredas 2006 unaudited financial
  statements, and was announced at the special shareholder meeting on March 28,
  2007, and became effective on April 1, 2007.There were
  no material changes during the period of January 1, 2007 through March 31,
  2007 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]29

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
  14, 2007.

By:
/s/ Steve
  FrickensteinSteve
  Frickenstein, Chief Executive OfficerDate: May
  14, 2007.

By:
/s/ Jane
  MorlokJane Morlok,
  Chief Financial Officer30

EXHIBIT INDEX
Exhibits to Form 10-QSB
Three Months Ended March 31, 2007
BREDA TELEPHONE CORP.

Description
  of Exhibit

Page3.
Articles of Incorporation and Bylaws*3.1

Articles of Restatement of Breda Telephone
Corp.

E-13.2

Second
  Amended and Restated Bylaws of Breda Telephone Corp. (Filed as Exhibit 3.2 to
  Bredas Form 8-K filed April 4, 2007.)10.
Material Contracts10.1

Employment
  Agreement dated November 13, 2006 between Breda and Jane Morlok. (Filed as
  Exhibit 10.1 to Bredas Form 10-QSB for the quarterly period ended September
  30, 2006 and filed November 14, 2006, and incorporated herein by this
  reference.)10.2

Employment
  Agreement dated June 14, 2006 between Breda and Steve Frickenstein. (Filed as
  Exhibit 10.2 to Bredas Form 10-QSB for the quarterly period ended June 30,
  2006 and filed August 11, 2006, and incorporated herein by this reference.)10.3

Employment
  Agreement dated June 14, 2006 between Breda and Charles Deisbeck. (Filed as
  Exhibit 10.3 to Bredas Form 10-QSB for the quarterly period ended June 30,
  2006 and filed August 11, 2006, and incorporated herein by this reference.)31.
Rule 13a-14(a)/15d-14(a) Certifications*31.1

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

E-11*31.2

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

E-1232.
Section 1350 Certifications*32.1

Section 1350 Certification of Chief
  Executive Officer

E-1331

*32.2

Section 1350 Certification of Chief
  Financial Officer

E-14*         Included with this filing.

32