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, 2006.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: 31,023 shares of common stock, no
par value, at May 1, 2006. Transitional
Small Business Disclosure Format (Check one): Yes  o  No x    PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

Breda
Telephone Corporation
And Subsidiaries
Breda, IA

Condensed
Consolidated Financial Statements
For the Periods
Ended March 31, 2006 and 2005
And the Year Ended December 31, 2005

1

BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
BREDA, IOWA

CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, 2006 and December 31, 2005

March 31,

December
  31,2006

2005(Unaudited)

(Unaudited)ASSETSCURRENT
  ASSETSCash and cash
equivalents

$
1,256,135

$
739,741Marketable
securities


671,086


635,409Accounts
receivable


1,013,671


952,579Interest
receivable


116,628


107,229Current
portion of note receivable


144,000


144,000Inventory, at
average cost


131,948


122,953Other


35,235


42,196Deferred
income taxes


16,127


22,7943,384,830


2,766,901OTHER
  NONCURRENT ASSETSMarketable
securities


5,588,277


5,463,298Investments in
unconsolidated affiliates at
  equity


5,704,510


5,519,572Other
investments at cost


782,365


790,066Goodwill


896,812


896,812Note
receivable, less allowance of $219,691
  in each 2006 and 2005


75,991


75,46913,047,955


12,745,217PROPERTY,
  PLANT AND EQUIPMENT


5,008,559


5,215,291TOTAL ASSETS

$
21,441,344

$
20,727,409LIABILITIES AND STOCKHOLDERS EQUITYCURRENT
  LIABILITIESCurrent
portion of long-term debt

$
167,248

$
164,513Accounts
payable


360,112


428,211Accrued
taxes


388,118


378,871Other


314,675


143,5821,230,153


1,115,177LONG-TERM
  DEBT, less current portion


1,272,083


1,314,935OTHER
  NONCURRENT LIABILITIES


965,299


855,542STOCKHOLDERS
  EQUITYCommon stock -
no par value, 5,000,000
  shares authorized, 31,023 shares issued and outstanding at $357
 stated values


11,075,211


11,075,211Retained
earnings


6,898,598


6,366,54417,973,809


17,441,755TOTAL
  LIABILITIES AND STOCKHOLDERS EQUITY

$
21,441,344

$
20,727,409The accompanying notes are an integral part of these condensed
consolidated financial statements.

2

BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
BREDA, IOWA

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For the Three Months Ended March 31, 2006 and 2005

2006

2005OPERATING
  REVENUES

$
2,022,881

$
1,928,227OPERATING
  EXPENSESCost of
services


893,953


843,577Depreciation
and amortization


242,749


245,026Selling,
general, and administrative


512,767


489,6821,649,469


1,578,285OPERATING
  INCOME


373,412


349,942OTHER INCOME
  (EXPENSES)Interest and
  dividend income


93,829


97,311Interest
  expense


(27,185
)

(30,015
)Income from
  equity investments


661,079


246,388Other, net


(378
)

(162
)727,345


313,522INCOME
  BEFORE INCOME TAXES


1,100,757


663,464INCOME TAXES


351,542


238,412NET INCOME

$
749,215

$
425,052NET INCOME
  PER COMMON SHARE

$
24.15

$
13.64The accompanying notes are an integral part
of these condensed consolidated financial statements.

3

BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
BREDA, IOWA

CONDENSED CONSOLIDATED STATEMENTS OF
STOCKHOLDERS EQUITY

Common StockRetainedShares

Amount

Earnings

TotalBalance at
  December 31, 2004 (Audited)


31,170

$
10,161,420

$
5,736,268

$
15,897,688Comprehensive
income:Net
  Income








1,814,736


1,814,736Dividends
paid








(218,190
)

(218,190
)Common stock
redeemed, net


(147
)

(52,479
)




(52,479
)Stated value
stock adjustment





966,270


(966,270
)Balance at December 31, 2005
(Unaudited)


31,023


11,075,211


6,366,544


17,441,755Comprehensive
income:Net
Income








749,215


749,215Dividends
declared








(217,161
)

(217,161
)Balance at March 31, 2006
(Unaudited)


31,023

$
11,075,211

$
6,898,598

$
17,973,809The accompanying notes are an integral part
of these condensed consolidated financial statements.

4

BREDA TELEPHONE CORPORATION AND SUBSIDIARIES
BREDA, IOWA

CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS (UNAUDITED)
For the Three Months Ended March 31, 2006 and 2005

2006

2005CASH FLOWS
  FROM OPERATING ACTIVITIESNet
income

$
749,215

$
425,052Adjustments to
reconcile net income to cash
  provided by operating activities:Depreciation
and amortization


242,749


245,026Deferred
income taxes


116,424


(50,382
)Amortization
of investment tax credits





(1,403
)Amortization
of investment premium/discount
  - net


14,088


15,167Equity income
in unconsolidated affiliates,
  net of distributions received of $476,141 and $142,429 in 2006 and 2005,
  respectively


(184,938
)

(103,959
)Note
receivable discount


(522
)

(1,895
)Changes in
assets and liabilities:(Increase)
Decrease in assets:


(72,525
)

(112,914
)Increase
(Decrease) in liabilities:


(117,626
)

255,345Net cash
provided by operating activities


746,865


670,037CASH FLOWS
  FROM INVESTING ACTIVITIESCapital
expenditures


(23,311
)

(138,938
)Purchase of
investments


(400,773
)

(313,839
)Purchase of
equity investments





(280,000
)Proceeds from
the sale of investments


226,029


2,529Proceeds from
the sale of other investments
  - at cost


7,701


7,209Net cash used
in investing activities


(190,354
)

(723,039
)CASH FLOWS
  FROM FINANCING ACTIVITIESRepayment of
long term debt


(40,117
)

(37,556
)Net cash used
in financing activites

$
(40,117
)
$
(37,556
)Net Increase
  (Decrease) in Cash and Cash Equivalents

$
516,394

$
(90,558
)Cash and
  Cash Equivalents at Beginning of Period


739,741


1,036,804Cash and
  Cash Equivalents at End of Period

$
1,256,135

$
946,246Supplemental Disclosures of
Cash Flow
  InformationCash paid during the period for:Interest

$
27,185

$
30,015Income
taxes

$
180,000

$
75,000The accompanying notes are an integral part
of these condensed consolidated financial statements.

5

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, 2006 and December
  31, 2005 and the results of operation and changes in cash flows for the three
  months ended March 31, 2006 and 2005.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,
  2005 10-KSB as filed on April 13, 2006. The results of operations for the
  three-month period ended March 31, 2006 are not necessarily indicative of the
  operating results of the entire year.Certain
  reclassifications have been made to the 2005 financial statements to conform
  with the 2006 presentations.NOTE
2.          NONCASH INVESTING
ACTIVITIES

Noncash
  investing activities included $12,706 and $28,871 during the three months
  ended March 31, 2006 and December 31, 2005, respectively, relating to plant
  and equipment additions under construction during the period, which are
  reflected in accounts payable at March 31, 2006 and December 31, 2005.NOTE
3.          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.6

BREDA TELEPHONE CORPORATION AND
SUBSIDIARIES
BREDA, IOWA

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

NOTE
3.          OPERATING
SEGMENTS (Continued)

Three
  Months Ended
  March 31, 2006

Local
  Exchange
  Carrier

Broadcast

Internet
  Service
  Provider

TotalRevenuesExternal customers

$
1,676,882

$
186,001

$
159,998

$
2,022,881Segment profit (loss)

$
919,315

$
(41,824
)
$
(128,276
)

749,215Three
  Months Ended
  March 31, 2005

Local
  Exchange
  Carrier

Broadcast

Internet
  Service
  Provider

TotalRevenuesExternal customers

$
1,579,621

$
206,572

$
142,034

$
1,928,227Segment profit (loss)


524,677


(50,897
)

(48,728
)

425,052NOTE
4.          NET
INCOME PER COMMON SHARE

Net income
  per common share for March 31, 2006 and 2005 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, 2006 and 2005 were 31,023 and 31,170,
  respectively.NOTE
5.          STOCK VALUE
ADJUSTMENT

During May
  2005, the board of directors authorized a $31 increase in the stated value of
  each share of common stock from $326 to $357. There were 31,170 shares
  outstanding at the time of the value adjustment, which reduced retained
  earnings by $966,270.[THE REST OF THIS PAGE IS INTENTIONALLY LEFT
BLANK]

7

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, 2005 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). BTC, Inc. began in October 2003
  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. Tele-Services, Ltd. sold its Neola, Iowa
  cable TV system to Walnut Telephone Co. in September 2005, so Tele-Services,
  Ltd. now provides cable TV service to seventeen, instead of eighteen, towns
  in Iowa.8

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.The segments
  in which Breda and its subsidiaries operate are as follows:Local Exchange CarrierBredaPrairie
  Telephone Co., Inc.
  Westside Independent Telephone Company
  BTC, 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. Breda additionally seeks to
  maximize its telecom industry offerings by partnering with surrounding telcos
  in wireless service ventures and through investment in cellular partnerships
  within the state of Iowa and surrounding states. Breda has additionally
  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 a9

competitive
  price. Breda anticipates that the triple play bundled services offerings
  will be available from both Qwest and Mediacom, and will be a competitive
  factor for Breda in 2006.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. It 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 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
  again 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 to provide the service.
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 not only decreased the minutes of
  use on Bredas networks, which results in less access revenue, but it has
  caused the industry access payment structure to be renegotiated by the new
  technology providers and wireless providers.Breda has
  negotiated an interconnection agreement with five 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 is presently finalizing
  agreements to also consolidate and switch the traffic of two surrounding
  telcos. 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.10

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 during, respectively, the first
  quarter of 2006 and the first quarter of 2005:Three Months Ended
  March 31,

%of
Total Revenuesfor the Three Months
  Ended March 31,2006

2005

2006

2005OPERATING
  REVENUESLocal
  exchange carrier services

$
1,676,882

$
1,579,621


82.9
%

81.9
%Broadcast
  services


186,001


206,572


9.2
%

10.7
%Internet
  services


159,998


142,034


7.9
%

7.4
%$
2,022,881

$
1,928,227


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, Level 3, 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 Services 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 includes fees related to the provision of directory
  assistance and operator assistance services.4.

Cellular Services. Breda is a
  partner in, and 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 its customers. Breda
  also generates revenue from the sale of phones and accessories needed to
  receive wireless phone service.11

5.

Billing and Collection Services.
  Breda receives revenue for performing billing and collection services for
  long distance carriers. Breda receives a minimal 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 new satellite Internet service in
  September 2005 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;
  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.12

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 31,2006

2005Operating
  revenues


100
%

100
%Cost
  of services


44
%

44
%Depreciation
  and amortization


12
%

13
%Selling,
  general and administrative


25
%

25
%Operating
  income


18
%

18
%Other
  income (expenses)


36
%

16
%Income
  taxes


17
%

12
%Net
  income


38
%

22
%Three
  Months Ended March 31, 2006 and 2005The table below sets forth the components of Bredas
  revenues for the three months ended March 31, 2006, compared to the same
  period in 2005.Three Months Ended
  March 31,

Change2006

2005

Amount

PercentageOPERATING REVENUESLocal Exchange
CarrierLocal network
services

$
218,831

$
203,389

$
15,442


7.6
%Network access
services


992,045


786,910


205,135


26.1
%Long distance
services


108,438


89,563


18,875


21.1
%Cellular
services


332,779


406,778


(73,999
)

-18.2
%Billing and
collection services


3,144


5,307


(2,163
)

-40.8
%Miscellaneous


21,645


87,674


(66,029
)

-75.3
%$
1,676,882

$
1,579,621

$
97,261


6.2
%Broadcast Services

$
186,001

$
206,572

$
(20,571
)

-10.0
%Internet services

$
159,998

$
142,034

$
17,964


12.6
%$
2,022,881

$
1,928,227

$
94,654


4.9
%There was an increase in total operating revenues
  for the three-month period ended March 31, 2006, when compared to the
  three-month period ended March 31, 2005, of $94,654, or 4.9%.Local Exchange Carrier Services -
  $97,261Local exchange carrier services revenues accounted
  for 82.9% of all operating revenue in the three-month period ended March 31,
  2006. There was a $97,261, or 6.2%, increase in local exchange carrier
  services revenues for the three-month period ended March 31, 2006, when
  compared to the three-month period ended March 31, 2005.13

Local network services revenues increased $15,442,
  or 7.6%, for the three months ended March 31, 2006, as compared to the same
  period in 2005, primarily because of the increased number of customers taking
  phone service from BTC, Inc. in Carroll, Iowa. Bredas long distance services
  revenue also increased $18,875, or 21.1%, for the three months ended March
  31, 2006, as compared to the three-month period ended March 31, 2005, for the
  same reason. 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 $205,135, or
  26.1%, for the three-month period ended March 31, 2006, when compared to the
  three-month period ended March 31, 2005. This increase mainly resulted from
  increased originating and terminating access revenues received on toll
  traffic generated by Bredas Internet service subscribers in Bredas southern
  Iowa exchanges to reach Bredas Internet service equipment in Breda, Iowa.
  This method of provisioning allows Breda to offer its own Internet services
  to these customers instead of reselling the Iowa Network Services Internet
  product. Breda also negotiated wireless agreements with five wireless
  carriers in the first quarter of 2005, and is now billing and receiving
  payments from those carriers; although the overall wireless payment rate is
  significantly less than what Breda originally received in access revenues
  from interexchange carriers for this traffic. 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 its own
  seven telephone exchanges. There is no corresponding tandem switching revenue
  for the three-month period ended March 31, 2005. There was also some increase
  in Bredas access revenue because of its increased customer base taking its
  long distance services. These customers generate access revenue when they use
  Bredas networks to make long distance calls.Cellular services decreased $73,999, or 18.2%, for
  the three-month period ended March 31, 2006, when compared to the three-month
  period ended March 31, 2005. This decrease was a direct reflection of the
  13.8% decrease in customers served by Bredas retail locations during this
  time period. 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. This change in contract length
  causes a delay every other year in new contract sign-ups for retentionable
  customers. Customers may migrate to new contracts without penalty, once they
  have fulfilled eighty percent of the original contract term, so Breda
  anticipates that the first customers obtaining 24-month contracts in 2004
  will be eligible for new contracts beginning in May and June of 2006. Breda
  expects its retention commissions to gradually increase to their customary
  level at that time.Broadcast Services  ($20,571)Broadcast services decreased $20,571, or 10.0%, for
  the three-month period ended March 31, 2006, when compared to the three-month
  period ended March 31, 2005. As noted previously in this quarterly report,
  Breda sold its Neola, Iowa cable system in September 2005, so there is no
  revenue for the Neola customers for the three-month period ending March 31,
  2006, when compared to the same three-month period ended March 31, 2005.
  Bredas subsidiary, Tele-Services, Ltd., 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 able to also include
  local channels in their package offerings. Tele-Services completed a fiber
  construction project during the quarter ended September 30, 2005, which
  allowed it to combine its Sidney and Riverton cable TV head ends. Breda
  continues to explore other consolidation opportunities in Tele-Services
  cable TV communities in order to reduce operating costs through14

consolidation of equipment and maintenance costs.
  Rate increases were implemented in November 2005 for the one community that
  received additional channels from the consolidation of head ends. Breda
  upgraded its software and operating systems on its local channel equipment
  during the third quarter of 2005 and therefore was able to implement a paid
  advertising program for businesses and individuals on the local channels in
  the communities that have the local channels. Breda hopes to generate some
  customer loyalty through this avenue of information on local community
  events, as well as the weather and local news. Another factor faced by
  Tele-Services is the declining population base in the small rural communities
  served by Tele-Services.Internet Services  $17,964Internet services revenue increased $17,964, or
  12.6%, for the three-month period ended March 31, 2006, when compared to the
  three-month period ended March 31, 2005. The increase is directly
  attributable to the increase in high-speed Internet customers, which offset
  the decrease in BTC, Inc.s dialup Internet service 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. Breda also began
  offering high speed satellite Internet service in the fourth quarter of 2005
  to its rural and other customers who were not able to access Bredas other
  high speed Internet products because of distance constraints. Some of the
  Internet services increase for the three-month period ended March 31, 2006 is
  the result of this new high speed satellite Internet offering, and for which
  there was no corresponding revenue for the three-month period ended March 31,
  2005.OPERATING EXPENSESThe table below sets forth the components of Bredas
  operating costs for the three months ended March 31, 2006, compared to the
  same period in 2005.Three Months Ended
  March 31,

Change2006

2005

Amount

PercentageOPERATING EXPENSESCost of services

$
893,953

$
843,577

$
50,376


6.0
%Depreciation and
amortization


242,749


245,026


(2,277
)

-0.9
%Selling, general and
administration


512,767


489,682


23,085


4.7
%$
1,649,469

$
1,578,285

$
71,184


4.5
%Cost of Services - $50,376Cost of services increased $50,376, or 6.0%, for the
  three-month period ended March 31, 2006, when compared to the three-month
  period ended March 31, 2005. The increased costs primarily reflected
  increased labor costs from rate increases implemented in 2006, and increased
  provisioning costs for the new satellite, high-speed Internet product rolled
  out in fourth quarter 2005, and for which there were no corresponding costs
  for the three-month period ended March 31, 2005. Bredas costs also increased
  for the provisioning of Bredas own Internet service now offered in its
  southern Iowa exchanges as more customers bundled their Internet with other
  services that they were already receiving from Breda. 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 30, 2006, when compared to15

the
  three-month period ended March 31, 2005. While overall customer growth
  declined for Tele-Services cable TV services, Tele-Services costs continued
  to increase because of increases in the programming fees paid by
  Tele-Services in order to be able to offer its cable TV offerings. Breda is
  allocating a portion of shared provisioning costs between BTC, Inc.s CLEC
  operation and its Internet services operation.Depreciation and Amortization  ($2,277)Depreciation
  and amortization expense decreased $2,277, or 0.9%, for the three-month
  period ended March 31, 2006, when compared to the three-month period ended
  March 31, 2005. Some of Bredas plant assets are fully depreciated, which is
  reflected in the depreciation expense decrease for the three-month period
  ended March 31, 2006. Breda added over $1,000,000 in new switch plant assets
  in its Carroll, Iowa operations and Emergency Alert Equipment in its cable TV
  operations, both of which became operational in the fourth quarter of 2005,
  and is generating additional depreciation expense now that the equipment has
  been placed into service.Selling, General and Administration  $23,085Selling,
  general and administration expenses increased $23,085, or 4.7%, for the
  three-month period ended March 31, 2006, when compared to the three-month
  period ended March 31, 2005. While labor and benefits decreased during the
  three-month period ended March 31, 2006, when compared to the same period in
  2005, because of reduced full time equivalents in the Customer Service
  Department and the Marketing Department, this decrease was offset by an
  increase in administrative expense and legal expense to oversee the process
  of hiring a new CEO, as well as an increase in outside legal, consulting, and
  accounting services to facilitate the preparation of SEC filings and to
  pursue new business opportunities in the industry.OTHER INCOME
  (EXPENSE)The table
  below sets forth the components of other income (expense) for the three-month
  period ended March 31, 2006, compared to the same period in 2005.Three Months Ended
  March 31,

Change2006

2005

Amount

PercentageOTHER INCOME (EXPENSE)Interest and dividend
  income

$
93,829

$
97,311

$
(3,482
)

-3.6
%Interest expense


(27,185
)

(30,015
)

2,830


-9.4
%Income from equity
  investments


661,079


246,388


414,691


168.3
%Other, net


(378
)

(162
)

(216
)

133.3
%$
727,345

$
313,522

$
413,823


132.0
%Interest and Dividend Income.Interest and
  dividend income decreased $3,482, or 3.6%, for the three-month period ended
  March 31, 2006, when compared to the three-month period ended March 31, 2005.
  Although there was an increase in interest income due to the increased
  investments and rates earned on investments in both temporary investments and
  marketable securities on which Breda generates interest income, this was
  offset by a decrease in dividend income received from Iowa Network Services
  for the three-month period ended March 31, 2006, when compared to the same
  period in 2005.16

Interest Expense.The $2,830, or 9.4%,
  decrease in interest expense for the three-month period ended March 31, 2006,
  when compared to the three-month period ended March 31, 2005, is the result
  of a reduced Rural Telephone Finance Cooperative loan balance on which
  interest is calculated because all scheduled principal payments have been
  made. There has been no change in interest rate and no additional loan
  proceeds have been obtained.Income from Equity Investments.Income from
  equity investments increased $414,691, or 168.3%, for the three-month period
  ended March 31, 2006, when compared to the three-month period ended March 31,
  2005. 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, 2006 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. Some of these cellular investments now receive
  universal service funding which has increased their overall operating
  revenue. Breda also had additional equity investment income in the
  three-month period ended March 31, 2006 resulting from Prairie Telephones
  purchase of ownership interests in Bug Tussel Wireless, LLC in late March
  2005 and July 2005, and for which there is no equity investment income for
  the three-month period ended March 31, 2005. 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.There was no substantial change
  in other net income for the three months ended March 31, 2006, when compared
  with the three months ended March 31, 2005.Income Tax Expense.Income taxes increased
  $113,130, or 47.5%, for the three-month period ended March 31, 2006, when
  compared to the same period in 2005. The increase is a direct reflection of
  the increased income generated from operations and other income sources. The
  effective tax rate in 2006 is 31.9%, compared to a 35.9% tax rate in 2005.
  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 $352,819,
  or 83.0%, for the three-month period ended March 31, 2006, when compared to
  the same period in 2005.Liquidity and Capital ResourcesBredas
  short-term and long-term liquidity requirements arise primarily from: 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, 2006 and 2005, cash provided by operating
  activities was $746,865 and $670,037, 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 line of credits with the Rural Telephone Finance
  Cooperative; or the addition of long-17

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 would be evaluated on their own merits for cash and revenue
  production, and if the return on investment was 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, 2006, and December 31, 2005.As ofMarch 31,2006

December 31,2005Short-Term
  LiquidityCurrent
Assets

$
3,384,830

$
2,766,901Current
Liabilities


(1,230,153
)

(1,115,177
)Net Working
Capital

$
2,154,677

$
1,651,724Cash and Cash
Equivalents

$
1,256,135

$
739,741Short Term
Marketable Securities

$
671,086

$
635,409Available on
Line of Credit

$
2,000,000

$
2,000,000Current
  liabilities increased $114,976 for the three-month period ended March 31,
  2006, when compared to the year ended December 31, 2005. Accounts payable
  decreased $68,098 when comparing the two periods. A $7.00 per share dividend
  was declared by Bredas Board of Directors on March 14, 2006 to shareholders
  of record on March 14, 2006. The dividend declaration is recorded in Other
  Payables as a $217,161 dividend payable for the three-month period ended
  March 31, 2006. The increase in dividend payable was offset by a decrease in
  accrued payroll of $30,271 for the three-month period ended March 31, 2006,
  when compared to the year ended December 31, 2005.The
  following table summarizes Bredas sources and uses of cash for the three
  months ended March 31, 2006 and 2005.For the Three Months Ended
  March 31,2006

2005Net Cash
  Provided (Used)Operating
Activities

$
746,865

$
670,037Investing
Activities

$
(190,354
)
$
(723,039
)Financing
Activities

$
(40,117
)
$
(37,556
)For the
  three months ended March 31, 2006 and 2005, cash provided by operating
  activities was $746,865 and $670,037, respectively.Cash used in
  investing activities decreased $532,685 for the three-month period ended
  March 31, 2006, when compared to the three-month period ended March 31, 2005.
  During the first quarter of 2005, Prairie Telephone purchased 5,000 units of
  Bug Tussel Wireless, L.L.C. for $200,000, and made additional capital
  contributions to Carroll County Wireless, L.L.C. and Guthrie County Wireless,
  L.L.C., of $30,000 and $50,000, respectively. There were no corresponding
  expenditures in the first quarter of 2006. There was also an increase in
  proceeds18

from the
  redemption of marketable securities of $223,500 for the three-month period
  ended March 31, 2006, when compared to the same period in 2005.Cash used in
  financing activities was $40,117 for the three-month period ended March 31,
  2006, and $37,556 for the three-month period ended March 31, 2005. These
  amounts represent the cash used to repay Rural Telephone Finance Cooperative
  long-term debt.Long Term DebtAs of March
  31, 2006, Breda had outstanding $1,439,331 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 minimum net worth exceeds 40% and
  distributions are limited to certain levels of prior year cash margins. In
  addition, Breda is 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, 2006, capital expenditures
  were $23,311.Bredas
  contractual obligations as of March 31, 2006 are:March - December 2006

$
124,3972007

$
175,7292008

$
187,7102009

$
200,5072010

$
214,1772011 and After

$
536,811Breda
  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 from 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.19

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, 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 May 2005,
  the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, a
  replacement of APB Opinion No. 20 and SFAS No. 3. SFAS No. 154 requires
  retrospective application to prior periods financial statements of a
  voluntary change in accounting principle unless it is impracticable. SFAS No.
  154s retrospective application requirement replaces APB No. 20s requirement
  to recognize most voluntary changes in accounting principle by including the
  cumulative effect of changing to the new accounting principle in net income
  of the period of the change. SFAS No. 154 is effective for accounting changes
  and corrections of errors made in fiscal years beginning after December 15,
  2005 (as of January 1, 2006, for Breda). Breda does not expect adoption of
  SFAS No. 154 to have a material effect on its results of operations or
  financial position.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.
  Breda continues to work with two Iowa industry associations in reviewing and
  submitting comments on the various proposals before the FCC.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 issue20

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 not only with FCC
  staff members, but also 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 fee 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, suggestions 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 suggestions 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 filingTelephone
  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 the21

plans of any
  companies, but Breda currently believes the possibility of any company
  entering any of those service areas in 2006 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 2006. 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 MCC
  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 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.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 eliminates customer problems due to Internet
  security threats. This product is fully-automated and integrated, and
  protects against viruses, spyware, popups, and automatically installs tested
  Microsoft Security patches, and performs diskeeper functions. Breda has had
  good response from its Internet customers for this product.Breda
  entered into a marketing and distribution agreement with the National Rural
  Telecommunications Cooperative (NRTC) 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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 subsequently stopped taking applications for this service on
  March 13, 2006. NRTC and WildBlue anticipate that additional satellite
  capacity will be available in early 2007, at which time Breda will again be
  able to offer this service to its customers.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 be22

continuing
  competitive pressures to lower dial-up 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 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, along
  with the other owners of Desktop Media, L.L.C., are negotiating a purchase
  agreement to sell their interests in this entity. Breda anticipates that a
  sale may be finalized by early third quarter 2006.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. Prairie Telephone now has 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 estimates that its net of tax
  gain on the liquidation of this investment is approximately $760,640.Item 3.
Controls and Procedures.The
  individual serving as both the interim chief executive officer and the chief
  financial officer of Breda has evaluated the effectiveness of Bredas
  disclosure controls and procedures as of the end of the period covered by
  this quarterly report, and the individual has 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 any23

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.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, 2006
  through March 31, 2006.Breda did
  not purchase any shares of its common stock from shareholders during the
  period of January 1, 2006 through March 31, 2006.There was 1 transfer of shares of Bredas common stock during the
  period of January 1, 2006 through March 31, 2006 with respect to which Breda
  did not exercise Bredas right of first refusal to purchase the shares. The
  transaction involved 112 shares, which were transferred to twelve surviving
  heirs of a deceased shareholder.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,
  2006 through March 31, 2006.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, 2006
  through March 31, 2006.Item 5.
Other Information.Bredas
  board of directors amended Section 3.1 of the Amended and Restated Bylaws of
  Breda to provide that the annual meeting of the shareholders of Breda shall
  be held sometime during the months of March through September of each year.
  Section 3.1 of the Amended and Restated Bylaws previously provided that the
  annual meeting of the shareholders was to be held during the months of March,
  April or May of each year. The amendment was effective April 26, 2006.The text of
  Section 3.1 of the Amended and Restated Bylaws of Breda, as amended, is as
  follows:Section 3.1 Annual
  Meeting. The annual meeting of the shareholders shall be held during the
  months of March through September of each year at such time, place, and date
  as the board of directors may select and which shall be designated in the
  notice of the meeting to the shareholders, for the purpose of electing board
  members, passing upon reports for the previous fiscal year and transacting
  such other business as may come before the meeting.24

Bredas
  board of directors declared a dividend of $7.00 per share on March 14, 2006,
  payable to shareholders of record on March 14, 2006. The aggregate amount of
  the dividend was $217,161. The dividend was paid to the shareholders on April
  3, 2006.There were
  no material changes during the period of January 1, 2006 through March 31,
  2006 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]

25

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
  12, 2006.
By:
/s/ Jane
  MorlokJane Morlok,
  Interim Chief Executive Officer 
  and Chief Financial Officer26

EXHIBIT INDEX
Exhibits to Form 10-QSB
Three Months Ended March 31, 2006
BREDA TELEPHONE CORP.

Description
  of Exhibit

Page3.
Articles of Incorporation and Bylaws3.1
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.

E-110.
Material Contracts10.1
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) Certifications31.1
Rule 13a-14(a) Certification of Interim Chief
  Executive Officer and Chief Financial Officer

E-14*32.
Section 1350 Certifications32.1
Section 1350 Certification of Interim Chief
Executive
  Officer and Chief Financial Officer

E-15*Included with this filing.