United States
                       Securities and Exchange Commission
                             Washington, D.C. 20549

                                   FORM 10-QSB

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

                  For the quarterly period ended March 31, 2006

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

        For the transition period from ______________ to ________________

                         Commission File Number: 0-24857

                                TELECONNECT INC.
        (Exact name of small business issuer as specified in its charter)


            Florida                                     52-2137517
(State or other jurisdiction of           (I.R.S. Employer Identification No.)
 incorporation or organization)


Parque Tecnologico de Andalucia, Edif. Estepona Business Park 2 C/ Severo Ochoa,
                 No. 16-20, 1a, Campanillas, Malaga 28590, Spain
                    (Address of principal executive offices)

       Issuer's telephone number, including area code: 011-34-95-202-9400

                                       N/A
              (Former name, former address and former fiscal year,
                         if changed since last report)

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                   PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes |_| No |_|

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

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the last practicable date: 139,080,383 shares at May 12, 2006.

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


                                       1
<PAGE>

                                TELECONNECT INC.

                                      INDEX

PART  I. FINANCIAL INFORMATION

Item  1. Financial Statements:

      Condensed Consolidated Balance Sheet as of March
      31, 2006 (Unaudited)                                                     3

      Condensed Consolidated Statements of Operations for
      the Three  and Six Months ended March 31, 2006 and
      2005(Unaudited)                                                          4

      Condensed Consolidated Statements of Cash Flows for the Six months ended
      March 31, 2006 and 2005
      (Unaudited)                                                              5

      Notes to Condensed Consolidated Financial Statements                     7

Item  2. Management's Discussion and Analysis or Plan of
         Operations                                                           10

Item  3. Controls and Procedures                                              14

PART  II. OTHER INFORMATION

Item  1. Legal Proceedings                                                    15

Item  2. Unregistered Sales of Equity Securities and Use of Proceeds          15

Item  3. Defaults upon Senior Securities                                      15

Item  4. Submission of Matters to a Vote of Security Holders                  15

Item  5. Other Information                                                    15

Item  6. Exhibits and Reports on Form 8-K                                     15

Signatures                                                                    16


                                       2
<PAGE>

                          PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                                TELECONNECT INC.
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                 MARCH 31, 2006
                                   (Unaudited)

                                     ASSETS
CURRENT ASSETS:
 Cash and cash equivalents                                    $    200,000
 Accounts receivable - trade, net of allowance
  for doubtful accounts of $1,070,000                              292,000
 Accounts receivable - other                                       109,000
 Inventory                                                           2,000
                                                              ------------
   Total current assets                                            603,000
                                                              ------------

PROPERTY AND EQUIPMENT, NET                                        386,000
                                                              ------------
OTHER ASSETS:
 Vendor deposits                                                   213,000
                                                              ------------
                                                                $1,202,000
                                                              ============

                     LIABILITIES AND STOCKHOLDERS' (DEFICIT)

CURRENT LIABILITIES:

 Accounts payable - trade                                     $  2,576,000
 Accrued liabilities                                             1,139,000
 Notes payable to bank                                             145,000
 Current portion of payment obligation to
  taxing authority                                                 178,000
 Loans from related parties                                      1,981,000
 Deferred income                                                 1,477,000
                                                              ------------
   Total current liabilities                                     7,496,000
                                                              ------------
LONG-TERM DEBT
 Payment obligation to tax authority, net
  of current portion shown above                                    88,000
                                                              ------------

STOCKHOLDERS' (DEFICIT):
 Preferred stock; par value of $0.001,
  5,000,000 shares authorized, no shares outstanding                    --
 Common stock; par value of $0.001,
  500,000,000 shares authorized, 136,536,571
  shares outstanding                                               136,000
 Additional paid-in capital                                     19,239,000
 Accumulated (deficit)                                         (23,620,000)
 Effect of cumulative translation adjustment                    (2,137,000)
                                                              ------------
   Total stockholders' (deficit)                                (6,382,000)
                                                              ------------
                                                              $  1,202,000
                                                              ============

   See accompanying summary of accounting policies and notes to the financial
                                  statements.


                                       3
<PAGE>

                                TELECONNECT INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                   For three months ended               For six months ended
                                                                         March 31,                            March 31,
                                                             --------------------------------      --------------------------------
                                                                  2006               2005               2006              2005
                                                             -------------      -------------      -------------      -------------
<S>                                                          <C>                <C>                <C>                <C>
SALES                                                        $   1,039,000      $   1,371,000      $   2,346,000      $   2,881,000
COST OF GOODS SOLD (exclusive of
  depreciation shown separately below)                             629,000            917,000          1,526,000          1,905,000
                                                             -------------      -------------      -------------      -------------
GROSS  PROFIT                                                      410,000            454,000            820,000            976,000
                                                             -------------      -------------      -------------      -------------
OPERATING  EXPENSES:
  Selling, general and administrative expenses                   3,237,000          1,367,000          3,633,000          2,188,000
  Depreciation                                                      56,000             92,000            131,000            186,000
                                                             -------------      -------------      -------------      -------------

      Total  operating  expenses                                 3,293,000          1,459,000          3,764,000          2,374,000
                                                             -------------      -------------      -------------      -------------

(LOSS) FROM OPERATIONS                                          (2,883,000)        (1,005,000)        (2,944,000)        (1,398,000)
                                                             -------------      -------------      -------------      -------------
OTHER  INCOME  (EXPENSES):
  Other  expense                                                         0                 --            (35,000)                 --
  Interest  expense                                                (24,000)          (241,000)          (341,000)          (379,000)
                                                             -------------      -------------      -------------      -------------
(LOSS) FROM CONTINUING OPERATIONS
  BEFORE INCOME  TAXES                                          (2,907,000)        (1,246,000)        (3,320,000)        (1,777,000)

PROVISION  FOR  INCOME  TAXES                                           --                 --                 --                 --
                                                             -------------      -------------      -------------      -------------

NET (LOSS)                                                   $  (2,907,000)     $  (1,246,000)     $  (3,320,000)     $  (1,777,000)
                                                             =============      =============      =============      =============
BASIC AND DILUTIVE EARNINGS (LOSS)PER SHARE
  NET (LOSS)                                                 $       (0.02)     $       (0.01)     $       (0.03)     $       (0.02)
                                                             =============      =============      =============      =============
AVERAGE  COMMON  AND  COMMON
  EQUIVALENT  SHARES  OUTSTANDING                              115,281,015         79,266,517        112,360,747         72,868,387
                                                             =============      =============      =============      =============

THE  COMPONENTS  OF  COMPREHENSIVE INCOME (LOSS):
  Net  (loss)                                                $  (2,907,000)     $  (1,246,000)     $  (3,320,000)     $  (1,777,000)
  Foreign currency translation adjustment                         (164,000)           307,000            (85,000)          (306,000)
                                                             -------------      -------------      -------------      -------------

COMPREHENSIVE IINCOME(LOSS)                                  $  (3,071,000)     $    (939,000)     $  (3,405,000)     $  (2,083,000)
                                                             =============      =============      =============      =============
BASIC  EARNINGS  (LOSS)  PER  SHARE
  Comprehensive (loss)                                       $       (0.03)     $       (0.01)     $       (0.03)     $       (0.03)
                                                             =============      =============      =============      =============
</TABLE>

   See accompanying summary of accounting policies and notes to the financial
                                  statements.


                                       4
<PAGE>

                                TELECONNECT INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                    For six months ended March  31,
                                                    -------------------------------
                                                         2006           2005
                                                     -----------    -----------
<S>                                                  <C>            <C>
CASH  FLOWS  FROM  OPERATING  ACTIVITIES:
  Net  (loss)                                        $(3,320,000)   $(1,777,000)
  Adjustments  to  reconcile  net  (loss)  to
    net  cash  used  in  operating  activities:
      Depreciation                                       131,000        186,000
      Non cash expenditures paid with stock            3,113,000        886,000
    Decrease  (increase)  in  operating  assets:
      Accounts  receivable - trade                       (41,000)        59,000
      Accounts  receivable - other                       (34,000)            --
      Inventory                                           32,000             --
      Prepaid  expenses                                       --          7,000
      Vendor  and  other  deposits                            --          7,000
    Increase (decrease) in operating liabilities:
      Accounts payable and accrued  liabilities         (140,000)       691,000
      Deferred  income  and deposits received           (427,000)       110,000
                                                     -----------    -----------
        Net  cash  provided  by  (used  in)
          operating  activities                         (686,000)       169,000
                                                     -----------    -----------

CASH  FLOWS  FROM  INVESTING  ACTIVITIES:
  Purchase  of  property  and  equipment                 (69,000)       (83,000)
                                                     -----------    -----------
        Net  cash  (used  in)
          investing  activities                          (69,000)       (83,000)
                                                     -----------    -----------
CASH  FLOWS  FROM  FINANCING  ACTIVITIES:
  Loan  proceeds  from  related  parties               1,572,000        513,000
  Loan  proceeds  from  bank                             142,000        259,000
  Payment  on  tax  agency  obligation                   (41,000)      (151,000)
  Payment on loan from bank                             (120,000)      (248,000)
  Payment on loan from related parties                  (545,000)      (192,000)
                                                     -----------    -----------

        Net  cash  provided  by
          financing  activities                        1,008,000        181,000
                                                     -----------    -----------

EFFECT  OF EXCHANGE RATE                                (123,000)      (307,000)
                                                     -----------    -----------
NET  INCREASE  (DECREASE)  IN  CASH  AND
  CASH  EQUIVALENTS                                      130,000        (40,000)

CASH  AND  CASH  EQUIVALENTS,
  BEGINNING  OF  PERIOD                                   70,000         93,000
                                                     -----------    -----------
CASH  AND  CASH  EQUIVALENTS,
  END  OF  PERIOD                                    $   200,000    $    53,000
                                                     ===========    ===========
</TABLE>

   See accompanying summary of accounting policies and notes to the financial
                                  statements.



                                       5
<PAGE>

                               ITS NETWORKS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                 For six months ended
                                                                      March  31,
                                                            ----------------------------
                                                                  2006           2005
                                                            --------------   -----------
<S>                                                         <C>              <C>
         SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
         Cash  paid  during  the  year  for:
           Interest                                         $         566    $     3,000
                                                            =============    ===========

         SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
           Long-term  debt  converted  to  common stock     $           -    $   500,000
                                                            =============    ===========
           Common stock issued for interest on
           notes payable                                    $     350,000    $   176,000
                                                            =============    ===========
        Common stock issued for services received           $   3,113,000    $   710,000
                                                            =============    ===========
</TABLE>

     See accompanying summary of accounting policies and notes to financial
                                  statements.


                                       6
<PAGE>

                                TELECONNECT, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2006

1. THE COMPANY


Teleconnect Inc. (the "Company", "Teleconnect", we, us or our) was incorporated
under the laws of the State of Florida on November 23, 1998. The Company is
engaged in the telecommunication industry in Spain and offers telecommunications
services for home and business use. The financial statements included herein
have been prepared internally, without audit, pursuant to the rules and
regulations of the Securities and Exchange commission and The Public Accounting
Oversight Board. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been omitted. However, in our opinion, all
adjustments (which include only normal recurring accruals) necessary to fairly
present the financial position and results of operations have been made for the
periods presented.

These interim financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto included in the
Company's annual report on Form 10-KSB for the fiscal year ended September 30,
2005.

The Company has developed a new rechargeable prepaid telephone calling card.
Other marketing actions are being planned to bring up sales levels to help reach
a monthly breakeven as quickly as possible.

In February 2005, the Board of Directors and Shareholders approved changing the
name of ITS Networks Inc. to Teleconnect Inc. in order to emphasize the nature
or the strategic business plan which is to have the company be a holding company
with international subsidiaries and affiliates in different countries with
similar names, thus taking advantage of the brand recognition and customer
loyalty. The Company will establish Teleconnect Spain as a subsidiary and will
establish other Teleconnect subsidiaries in other European countries.

The consolidated financial statements include the accounts of ITS Europe,
Teleconnect, and the Company. The Company is a provider of various
telecommunication services and products within Spain. Significant inter-company
balances and transactions have been eliminated in consolidation.


2. GOING CONCERN

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern.

As shown in the accompanying financial statement, the Company incurred losses of
($3,320,000) and ($1,777,000) for the six months ended March 31, 2006 and 2005,
respectively. In addition, the Company has incurred substantial losses since its
inception. As of March 31, 2006, the Company had a working capital deficit of
$(6,893,000) and a stockholders' deficit of $(6,382,000). These factors raise
substantial doubt about the Company's ability to continue as a going concern.

The financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event that the
Company cannot continue as a going concern.

Management anticipates that it will be able to convert certain outstanding debt
into equity and that it will be able to raise additional working capital through
the issuance of stock and through additional loans from investors.

The ability of the Company to continue as a going concern is dependent upon the
Company's ability to attain a satisfactory level of profitability and obtain
suitable and adequate financing. There can be no assurance that management's
plan will be successful.

3. CONCENTRATION OF CREDIT

The Company extends credit to retailers on the sale of prepaid calling cards.
Substantially all sales are made in Spain. The Company has incurred substantial
losses in the past from the extension of credit but believes that as of March
31, 2006 its allowance for credit related losses is adequate to cover any
uncollectible receivables.

The Company does not require collateral or other security to support financial
instruments that are subject to credit risk.

As of March 31, 2006, three customers accounted for 26.8%, 12.2% and 10.1% of
net accounts receivables.


                                       7
<PAGE>

4. PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Expenditures for major additions
and improvements are capitalized, and minor replacements, maintenance, and
repairs are charged to expenses as incurred. When property and equipment are
retired or otherwise disposed of, the cost and accumulated depreciation are
removed from the accounts and any resulting gains or losses included in the
results of operation for the respective period.


The Company reviews the carrying value of property and Equipment for the
impairment on an annual basis. In cases where undiscounted expected future cash
flows are less than the carrying value, an impairment loss is recognized equal
to an amount by which the carrying value exceeds the fair market value of the
assets. The Company recognizes no impairment losses related to the realization
of property and equipment during the three months ended March 2006 and 2005.

Property and equipment, substantially all of which are located in Spain, at
March 31, 2006 was comprised as follows:

       Computers and switching systems                              $ 2,161,000
       Furniture and fixtures                                           178,000
       Transportation equipment                                           5,000
                                                                    -----------
       Total at cost                                                  2,344,000

       Less: Accumulated depreciation
       and amortization                                              (1,958,000)
                                                                    -----------
       Net Property and Equipment                                   $   386,000
                                                                    ===========


The useful lives of property and equipment for purposes of computing
depreciation are as follows:

       Computers and switching systems                              5-7 years
       Furniture and fixtures                                         7 years
       Transportation equipment                                       4 years


All depreciation is computed on a straight line basis over their useful lives.

5. LOANS FROM RELATED PARTIES

As of March 31, 2006, the Company had short term loans totaling $1,981,000 from
shareholders. Each of these loans bear interest at an agreed annual interest
rate, are unsecured, and are due upon demand. During January to March 2006, the
Company received two short-term loans totaling $271,400 (230,000 euro) in
short-term financing from related parties. Interest expense of $341,000 was
incurred on these notes during the six months ended March 31, 2006.

6. NOTE PAYABLE

As of March 31, 2006 the Company has a short-term bridge loan of $142,000 from a
potential investor. This potential investor is requesting repayment.


7. LONG-TERM DEBT

During November 2002, the Company entered into an agreement with Spanish taxing
authorities to pay past due employment tax liabilities incurred during the
period commencing in January of 2001 through April of 2002 totaling 412,356
euro. Payment terms call for a sixty month payout with interest paid monthly at
4.24% per annum and principal payments ranging from 3,436 euro per month in year
one to 10,309 euro per month in year five. As of March 31, 2006, $88,000 (75,000
euro) of this debt is long-term.

Maturities on long term debt by year are as follows:


           Due within one year                        $178,000
           Due in year two                              88,000
           Due in year three                                --
           Due in year four                                 --
           Due in five years                                --
           Thereafter                                       --
                                                      --------
           Total                                      $266,000
                                                      ========


                                       8
<PAGE>

8. LITIGATION AND CONTINGENT LIABILITIES

A shareholder filed suite against the Company claiming the right to an
additional 623,100 shares of the Company's common stock and 246,624 euros in
damage due to the failure to issue these shares on a timely basis. In August
2005, an agreement was reached whereby the Company will pay 29,000 euros and
issue 1,000,000 two-year restricted shares once the shareholder had collaborated
with some internal issues. As of March 31, 2006 the Company has paid 14,500
euros and accrued 14,500 euros for this settlement. The associated 1,000,000
shares have not yet been issued.

In the normal course of its operations, the Company may, from time to time, be
named in legal actions seeking monetary damages. While the outcome of these
matters cannot be estimated with certainty, management does not expect, based
upon consultation with legal counsel, that they will have a material effect on
the Company's business or financial condition or results of operations. As of
March 31, 2006, the Company has accrued $96,000 to cover the anticipated cost of
settling several litigation matters.

9. STOCK TRANSACTIONS

During the six months ended March 31, 2006, the Company issued 5,000,000 shares
of restricted common stock for payment of interest from related party notes
payable totaling $350,000.

During the six months ended March 31, 2006, the Company issued 3,300,000 shares
of common stock for consulting services totaling $614,000.

During the six months ended March 31, 2006 the Company issued 9,000,000 Shares
of Common Stock as a Purchase Price adjustment on previously acquired stock.

During the six months ended March 31, 2006 the Company issued 10,000,000 shares
of common stock pursuant to the Company's 2006 Stock Option, SAR and Stock Bonus
Plan for total compensation of $2,200,000.

10. EARNINGS (LOSS) PER SHARE

Basic earnings per share amounts are computed based on the weighted average
number of shares outstanding on that date during the applicable periods. The
numbers of shares used in the computations were 112,360,747 and 72,868,387 in
2006 and 2005, respectively.

Diluted earnings per share was not disclosed as of March 31, 2006 and 2005 since
the options and warrants outstanding at those dates were antidilutive. Warrants
and options total 4,315,000 and 4,755,790 shares were outstanding at March 31,
2006 and 2005, respectively.


                                       9
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR RESULTS OF OPERATIONS

IN ADDITION TO HISTORICAL INFORMATION, MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATIONS MAY INCLUDE CERTAIN FORWARD-LOOKING STATEMENTS, INCLUDING,
BUT NOT LIMITED TO, THOSE RELATED TO THE GROWTH AND STRATEGIES, FUTURE OPERATING
RESULTS AND FINANCIAL POSITION AS WELL AS ECONOMIC AND MARKET EVENTS AND TRENDS
OF THE COMPANY. ALL FORWARD-LOOKING STATEMENTS MADE BY THE COMPANY, INCLUDING
SUCH STATEMENTS HEREIN, INCLUDE MATERIAL RISKS AND UNCERTAINTIES AND ARE SUBJECT
TO CHANGE BASED ON FACTORS BEYOND THE CONTROL OF THE COMPANY. ACCORDINGLY, THE
COMPANY'S ACTUAL RESULTS AND FINANCIAL POSITION COULD DIFFER MATERIALLY FROM
THOSE EXPRESSED OR IMPLIED IN ANY FORWARD-LOOKING STATEMENT AS A RESULT OF
VARIOUS FACTORS, INCLUDING WITHOUT LIMITATION FACTORS DESCRIBED IN THE COMPANY'S
PREVIOUS FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION REGARDING RISKS
AFFECTING THE COMPANY'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion of the Company's consolidated financial condition and
results of operations should be read in connection with the Company's condensed
consolidated financial statements and notes thereto appearing elsewhere herein.
Factors that could cause or contribute to differences from the condensed
consolidated financial statements include, but are not limited to, risks and
uncertainties related to the need for additional funds, the growth of its
operations and the ability of the Company to operate profitably.

Significant Accounting Estimates and Policies

CASH AND CASH EQUIVALENTS - The Company considers all highly liquid investments
with maturities of three months or less when purchased to be cash equivalents.
There are no cash equivalents at March 31, 2006.

CONSOLIDATION POLICIES - The accompanying consolidated financial statements
include the accounts of the Company and all of its wholly owned and majority
owned subsidiaries. Intercompany transactions and balances have been eliminated
in consolidation.

REVENUE RECOGNITION - Revenues from the sale of prepaid calling cards are
recognized at the time the cards are used. Unused time is reflected in deferred
revenue until the time is utilized or the card reaches its expiration date. The
Company had deferred revenues of $1,477,000 as of March 31, 2006.

INVENTORY - Inventory consists primarily of unused calling cards. Inventories
are stated at the lower of cost determined on the first in first out method, or
market, whichever is less.

PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Depreciation
is provided primarily by the straight-line method over the estimated useful
lives of the assets. Maintenance and repairs are charged to operations when
incurred.

IMPAIRMENT OF LONG-LIVED ASSETS - The Company evaluates its long-lived assets to
determine whether later events and circumstances warrant revised estimates of
useful lives or a reduction in carrying value due to impairment.

INCOME TAXES - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes", which requires an asset and liability approach to determine deferred tax
assets and liabilities. Deferred tax assets and liabilities are determined based
upon the differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that are
expected to be in effect when the differences are assumed to reverse.

LOSS PER SHARE - Loss per common and common equivalent share is computed based
on the weighted average number of common shares outstanding.

USE OF ESTIMATES - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

FOREIGN CURRENCY TRANSLATION/TRANSACTIONS - The assets and liabilities of ITS
Europe and Teleconnect whose functional currency is the Euro, are generally
translated into US dollars at the March 31, 2006 exchange rate for assets and
liabilities and at the historical exchange rate on stockholders' equity. The
revenues and expenses are translated at average exchange rates for the periods.
Resulting translation adjustments are accumulated and reflected as a separate
component of stockholders' equity.


                                       10
<PAGE>

NEW ACCOUNTING PRONOUNCEMENTS In November 2004, the FASB issued SFAS No. 151
"Inventory Costs - an amendment of ARB No. 43, Chapter 4". Statement No. 151
requires that certain abnormal costs associated with the manufacturing, freight,
and handling costs associated with inventory be charged to current operations in
the period in which they are incurred. The adoption of SFAS 151 had no impact on
the Company's financial position, results of operations, or cash flows.

In December 2004, the FASB issued a revision of SFAS No. 123 "Share-Based
Payment". The statement establishes standards for the accounting for
transactions in which an entity exchanges its equity investments for goods and
services. It also addresses transactions in which an entity incurs liabilities
in exchange for goods or services that are based on the fair value of the
entity's equity instruments or that may be settled by the issuance of those
equity instruments. The statement does not change the accounting guidance for
share-based payments with parties other than employees.

The statement requires a public entity to measure the cost of employee service
received in exchange for an award of equity instruments based on the grant-date
fair value of the award (with limited exception). That cost will be recognized
over the period during which an employee is required to provide service in
exchange for the award (usually the vesting period). A public entity will
initially measure the cost of employee services received in exchange for an
award of liability instrument based on its current fair value; the fair value of
that award will be remeasured subsequently at each reporting date through the
settlement date. Changes in fair value during the requisite service period will
be recognized as compensation over that period.

The grant-date for fair value of employee share options and similar instruments
will be estimated using option-pricing models adjusted for the unique
characteristics of these instruments. The Company adopted the provisions of FASB
123R effective January 1, 2006. Implementation of this policy had no impact on
the Company's earnings.

In December 2004, the FASB issued SFAS No. 153 "Exchanges of Nonmonetary
Assets-amendment of APB Opinion No. 29". Statement 153 eliminates the exception
to fair value for exchanges of similar productive assets and replaces it with a
general exception for exchange transactions that do not have commercial
substance, defined as transactions that are not expected to result in
significant changes in the cash flows of the reporting entity. This statement is
effective for exchanges of nonmonetary assets occurring after June 15, 2005.
In December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 152, Accounting for Real Estate Time-Sharing
Transactions--An Amendment of FASB Statements No. 66 and 67. This Statement
amends FAS-66, Accounting for Sales of Real Estate, to reference the financial
accounting and reporting guidance for real estate time-sharing transactions that
is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real
Estate Time-Sharing Transactions. FAS-152 also amends FAS-67, Accounting for
Costs and Initial Rental Operations of Real Estate Projects, to state that the
guidance for (a) incidental operations and (b) costs incurred to sell real
estate projects does not apply to real estate time-sharing transactions. The
accounting for those operations and costs is subject to the guidance in SOP
04-2. This Statement is effective for financial statements for fiscal years
beginning after June 15, 2005. Implementation of this pronouncement has had no
impact on the Company's financial position or results of operations.

SFAS No. 152 "Accounting for Real Estate Time Sharing Transactions", SFAS No.
153 "Exchange of Nonmonetary Assets", SFAS No. 154 "Accounting for Changes and
Error Corrections", SFAS No. 155 " Accounting For Certain Hybrid Financing
Instruments", and SFAS No. 156 "Accounting for Servicing of Final Assets" were
recently issued but have no current applicability to the Company and have no
effect on the consolidated financial statements.


                                       11
<PAGE>

COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005

We incurred a $(2,907,000) net loss for the three months ended March 31, 2006 as
compared to a net loss of $(1,246,000) during the comparable period in 2005. A
comparison of revenues and expenses for the two periods is as follows:

REVENUES

Sales for the three months ended March 31, 2006, decreased 24.2% to $1,039,000
from $1,371,000 for the quarter ended March 31, 2005. The decrease in sales is
attributed to the lack of marketing due to the shortage of working capital as
well as the application of a credit invoice to our main consumer for the
exchange of old stock for new product.

COST OF GOODS SOLD

Cost of goods sold decreased 31.5 % to $ 629,000 during the three months ended
March 31, 2006 from $917,000 during the same period in 2005. This decrease was
due primarily to a 24.2% decrease in revenues. Our gross profit margin improved
to 39% for this quarter ended March 31, 2006 from 33% for the similar quarter in
2005. This is an 18% improvement due primarily to the successful negotiation of
more competitive rates from the carriers.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses increased 136.8% to $3,237,000
during the three months ended March 31, 2006 as compared to $1,367,000 for the
comparable period in 2005. Most of this increase is due to the stock issued
from the Stock Bonus Plan to employees and consultants for services.

DEPRECIATION

Depreciation expense decreased 37.5 % to $56,000 during the three months ended
March 31, 2006 as compared to $92,000 for the comparable period in 2005 due to
the fact that a substantial amount of equipment became fully depreciated during
2005.

INTEREST EXPENSE

Interest expense decreased 90.1 % to $24,000 during the quarter ended March 31,
2006, as compared to $241,000 during the comparable period in 2005. This
decrease is due to a substantial reduction in interest bearing loans.


COMPARISON OF THE SIX MONTHS ENDED MARCH 31, 2006 AND 2005

We incurred a $(3,320,000) net loss for the three months ended March 31, 2006 as
compared to a net loss of $(1,777,000) during the comparable period in 2005. A
comparison of revenues and expenses for the two periods is as follows:

REVENUES

Sales for the six months ended March 31, 2006, decreased 18.6% to $2,346,000
from $2,881,000 for the same period in 2005. The decrease in sales is attributed
to the lack of marketing due to the shortage of working capital as well as the
application of a credit invoice to our main consumer for the exchange of old
stock for new product.

COST OF GOODS SOLD

Cost of goods sold decreased 19.9 % to $1,526,000 during the six months ended
March 31, 2006 from $1,905,000 during the same period in 2005. Our gross profit
margin improved to 35% for the 6 month period ending March 31, 2006 from 33% for
the similar period in 2005. This a 6% year to date improvement due to more
competitive rates from carriers.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses increased 66.0 % to $3,633,000
during the six months ended March 31, 2006 as compared to $2,188,000 for the
comparable period in 2005. Most of this increase is due to the stock issued
from the Stock Bonus Plan to employees and consultants for services.


                                       12
<PAGE>

DEPRECIATION

Depreciation expense decreased 29.6 % to $131,000 during the six months ended
March 31, 2006 as compared to $186,000 for the comparable period in 2005 due to
the fact that a substantial amount of equipment became fully depreciated during
2005.

INTEREST EXPENSE

Interest expense decreased 10.0 % to $341,000 during the six months ended March
31, 2006, as compared to $379,000 during the comparable period in 2005. This
decrease is due to a substantial reduction in interest bearing loans.


LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2006, the Company had negative working capital of approximately
$(6,893,000), compared to negative working capital of $(8,446,000) at March 31,
2005.

The ability of the Company to satisfy its obligations will depend in part upon
its ability to raise funds through the sale of additional shares of its Common
Stock, increase borrowings, and in part upon its ability to reach a profitable
level of operations of which there can be no assurances.

The Company's capital resources have been provided primarily by capital
contributions from stockholders, stockholder loans, the exchange of outstanding
debt into Common Stock of the Company, and services rendered in exchange for
Common Stock.

The Company intends to sell its Common Stock and/or borrow additional funds from
investors to pay debts and for working capital. However, there is no assurance
that such capital will be raised, and the Company may seek bank financing and
other sources of financing to complete the payment of additional debts of
Teleconnect.


                                       13
<PAGE>

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The following table is a recap of the Company's contractual obligations as of
March 31, 2006.



Contractual Obligations                      Payments Due by Period
-----------------------                      ----------------------

                                             Less Than       One to
                                  Total       One Year     Three Years
                                --------      --------      --------
 Long-term  Debt                $266,000      $178,000      $ 88,000
 Note Payable                    145,000       145,000            --
 Operating  Leases               147,000        92,000        55,000
                                --------      --------      --------

 Total Contractual Cash
 Obligations                    $558,000      $415,000      $143,000
                                ========      ========      ========



ITEM 3. CONTROLS AND PROCEDURES

The Company's Chief Executive Officer and Chief Financial Officer/Principal
Accounting Officer (collectively, the Certifying Officers) are responsible for
establishing and maintaining disclosure controls and procedures for the Company.
Such officers have concluded (based upon their evaluation of these controls and
procedures as of a date within 90 days of the filing of this report) that the
Company's disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in this report is
accumulated and communicated to the Company's management, including its
principal executive officers as appropriate, to allow timely decisions regarding
required disclosure.

The Certifying Officers also have indicated that there were no significant
changes in the Company's internal controls or other factors that could
significantly affect such controls subsequent to the date of their evaluation,
and there were no corrective actions with regard to significant deficiencies and
material weaknesses.


                                       14
<PAGE>

                                     PART II

                                OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS


In the normal course of its operations, the Company has, from time to time, been
named in legal actions seeking monetary damages. While the outcome of these
matters cannot be estimated with certainty, management does not expect, based
upon consultation with legal counsel, that they will have a material effect on
the Company's business or financial condition or results of operations, except
that as of March 31, 2006, the Company has accrued 96,000 Euros for the
settlement of pending litigation.

ITEM 2. Unregistered Sales of Equity Securities

Subsequent to March 31, 2006, 23,600,000 restricted shares of common stock of
the Company were issued to Gerris Holding Nederland BV as partial compensation
for facilitating a funding to the Company in reliance upon Regulation 5 under
the Securities Act 0f 1933. Geeris Holding Nederland BV is owned by Leonardus
Geeris, a director of the company and its controlling stockholders.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Reports on Form 8-K:

The Company filed a Form 8-K current report (Item 1.02 and Item 9.01) on
February 27, 2006, to reflect the resignation of Mr. Herman de Haas as a
director and an officer of the Company, and to reflect the termination of his
Management Agreement.

(b) Exhibits

31.1 Certification of Gustavo Gomez

32.1 Certification of Gustavo Gomez


                                       15
<PAGE>

                                   SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

May 15, 2006

                                TELECONNECT INC.


By:  /s/ Gustavo Gomez
   -----------------------
     Gustavo Gomez, Director,
     Chief Executive Officer,
     President, Chief Financial and Accounting
     Officer and Treasurer



                                       16
<PAGE>

                                INDEX TO EXHIBITS

Exhibit


No.     Description

31.1    Certification of Gustavo Gomez

32.1    Certification of Gustavo Gomez


                                       17