United
States


Securities
and Exchange Commission


Washington,
D.C. 20549





FORM
10-Q





x  QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934





For the
quarterly period ended December 31, 2009





or





o  TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934





For the
transition period from ______________ to ________________





Commission
File Number: 0-24857





Teleconnect
Inc.


(Exact
name of registrant issuer as specified in its charter)




Florida
                  
                  90-0294361(State
      or other jurisdiction of
                  
                  (I.R.S.
      Employer Identification No.)incorporation
      or organization)




Oude Vest
4


4811 HT
Breda


The
Netherlands





(Address
of principal executive offices)





Registrant’s
telephone number, including area code:   011-31- (0)6
30048023





N/A


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





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  Yes o  No x




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.





Large
      accelerated filer o
              Accelerated
      filer   oNon-accelerated
      filer   o
              Smaller
      reporting company x





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





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





Indicate
by check mark whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court.
Yes  o
No o





APPLICABLE
ONLY TO CORPORATE ISSUERS:





Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: 4,953,698 shares of common stock at
February 12, 2010.





TELECONNECT
INC.




INDEX




PART
                          I.
                          FINANCIAL
      INFORMATIONItem
                          1.
                          Financial
      Statements:Condensed Consolidated Balance Sheets as of December31, 2009 (unaudited) and September 30, 2009
                          4Condensed Consolidated Statements of Operations forthe three months ended December 31, 2009 and 2008(Unaudited)
                          6Condensed Consolidated Statements of Cash Flows forthe three months ended December 31, 2009 and 2008(Unaudited)
                          7Notes to Condensed Consolidated Financial Statements
      (Unaudited)
                          8Item
                          2.
                          Management's
      Discussion and Analysis of Financial Condition andResults
      of Operations
                          11Item
                          3.
                          Quantitative
      and Qualitative Disclosure About Market Risk
                          13Item
                          4.
                          Controls
      and Procedures
                          14PART
                          II.
                          OTHER
      INFORMATIONItem
                          1.
                          Legal
      Proceedings
                          15Item
                          1A.
                          Risk
      Factors
                          15Item
                          2.
                          Unregistered
      Sales of Equity Securities and Use of Proceeds
                          15Item
                          3.
                          Defaults
      Upon Senior Securities
                          15Item
                          4.
                          Submission
      of Matters to a Vote of Security Holders
                          15Item
                          5.
                          Other
      Information
                          15Item
                          6.
                          Exhibits
                          15Signatures
                          16


2




PART
I FINANCIAL INFORMATION





ITEM
1. FINANCIAL STATEMENTS


3


TELECONNECT,
INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS









December 31,
                    
                    
                    September 30,2009
                    
                    
                    2009(Unaudited)ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                    
                    $
                    149,109
                    
                    
                    $
                    15,652Accounts
      receivable - trade
                    
                    
                    3,292
                    
                    
                    
                    2,911Due
      from related parties
                    
                    
                    518,796
                    
                    
                    
                    530,992Inventory
      (net of reserve for slow moving inventory of $136,857 and $139,109 at
      December 31, and September 30, 2009 respectively)  (work in
      process)
                    
                    
                    1,242,064
                    
                    
                    
                    1,419,522Prepaid
      taxes
                    
                    
                    1,900
                    
                    
                    
                    -Prepaid
      expenses
                    
                    
                    1,751
                    
                    
                    
                    6,994Asset
      of discontinued operations
                    
                    
                    -
                    
                    
                    
                    632,804Total
      current assets
                    
                    
                    1,916,912
                    
                    
                    
                    2,608,875PROPERTY
      AND EQUIPMENT, NET
                    
                    
                    10,594
                    
                    
                    
                    14,574OTHER
      ASSETS:Goodwill
                    
                    
                    447,914
                    
                    
                    
                    455,283Long-term
      notes receivable (net of allowance for bad debtsof
      $590,224 and $591,010 at December 31, and September 30, 2009,
      respectively)
                    
                    
                    57,624
                    
                    
                    
                    58,572Assets
      of discontinued operations
                    
                    
                    -
                    
                    
                    
                    628,028Total
      assets
                    
                    $
                    2,433,044
                    
                    
                    $
                    3,765,332




See
accompanying Notes to Condensed Consolidated Financial
Statements.


4




TELECONNECT,
INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS








December 31,
                        
                        
                        September 30,2009
                        
                        
                        2009(Unaudited)LIABILITIES
      AND STOCKHOLDERS' DEFICITCURRENT
      LIABILITIES:Accounts
      payable - trade
                        
                        $
                        165,641
                        
                        
                        $
                        106,155Accrued
      liabilities
                        
                        
                        123,252
                        
                        
                        
                        101,406Notes
      payable
                        
                        
                        172,872
                        
                        
                        
                        175,716Income
      taxes payable
                        
                        
                        130,000
                        
                        
                        
                        130,000Loans
      from related parties
                        
                        
                        2,451,495
                        
                        
                        
                        2,274,440Liabilities
      of discontinued operations
                        
                        
                        -
                        
                        
                        
                        4,377,269Total
      current liabilities
                        
                        
                        3,043,260
                        
                        
                        
                        7,164,986STOCKHOLDERS'
      DEFICIT:Preferred
      stock; par value of $0.001, 5,000,000 sharesauthorized,
      no shares outstanding
                        
                        
                        -
                        
                        
                        
                        -Common
      stock; par value of $0.001, 500,000,000 shares authorized,4,953,617
      shares outstanding as ofDecember
      31, 2009 and September 30, 2009
                        
                        
                        4,954
                        
                        
                        
                        4,954Additional
      paid-in capital
                        
                        
                        31,511,257
                        
                        
                        
                        31,511,257Accumulated
      deficit
                        
                        
                        (29,126,860
                        )
                        
                        
                        (31,992,430
                        )Accumulated
      other comprehensive loss
                        
                        
                        (2,999,567
                        )
                        
                        
                        (2,923,435
                        )Total
      stockholders' deficit
                        
                        
                        (610,216
                        )
                        
                        
                        (3,399,654
                        )Total
      liabilities and stockholders' deficit
                        
                        $
                        2,433,044
                        
                        
                        $
                        3,765,332




See
accompanying Notes to Condensed Consolidated Financial
Statements.


5





TELECONNECT,
INC.


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


FOR THE
THREE MONTHS ENDED DECEMBER 31,


(Unaudited)





2009
                    
                    
                    2008SALES
                    
                    $
                    234,399
                    
                    
                    $
                    55,274COST
      OF GOODS SOLD
                    
                    
                    170,133
                    
                    
                    
                    56,266GROSS
      EARNING (LOSS)
                    
                    
                    64,266
                    
                    
                    
                    (992
                    )OPERATING
      EXPENSES:Selling,
      general and administrative expenses
                    
                    
                    368,091
                    
                    
                    
                    236,725Bad
      debt expense
                    
                    
                    7,509
                    
                    
                    
                    -Depreciation
                    
                    
                    693
                    
                    
                    
                    7,912Total
      operating expenses
                    
                    
                    376,293
                    
                    
                    
                    244,637LOSS
      FROM CONTINUING OPERATIONS
                    
                    
                    (312,027
                    )
                    
                    
                    (245,629
                    )OTHER
      INCOME (EXPENSES):Other
      income (expense)
                    
                    
                    7,534
                    
                    
                    
                    7,509Interest
      expense - related parties
                    
                    
                    (4,430
                    )
                    
                    
                    (34,064
                    )LOSS
      FROM CONTINUING OPERTIONS BEFORE INCOME TAXES
                    
                    
                    (308,923
                    )
                    
                    
                    (272,184
                    )PROVISION
      FOR INCOME TAXES
                    
                    
                    -
                    
                    
                    
                    -NET
      LOSS BEFORE DISCONTINUED OPERATIONS
                    
                    
                    (308,923
                    )
                    
                    
                    (272,184
                    )NET
      INCOME (LOSS) FROM DISCONTINUED OPERATIONS
                    
                    
                    3,174,493
                    
                    
                    
                    (77,248
                    )NET
      INCOME (LOSS)
                    
                    $
                    2,865,570
                    
                    
                    $
                    (349,432
                    )BASIC
      AND DILUTED INCOME (LOSS) PER SHARE:From
      continuing operations
                    
                    $
                    (0.06
                    )
                    
                    $
                    (0.08
                    )From
      discontiued operations
                    
                    
                    0.64
                    
                    
                    
                    (0.02
                    )Total
                    
                    $
                    0.58
                    
                    
                    $
                    (0.11
                    )AVERAGE
      COMMON AND COMMONEQUIVALENT
      SHARES OUTSTANDING
                    
                    
                    4,953,617
                    
                    
                    
                    3,322,437THE
      COMPONENTS OF COMPREHENSIVE INCOME (LOSS):Net
      Income (loss)
                    
                    $
                    2,865,570
                    
                    
                    $
                    (349,432
                    )Foreign
      currency translation adjustment
                    
                    
                    (115,352
                    )
                    
                    
                    112,688Tax
      effect on currency translation
                    
                    
                    39,220
                    
                    
                    
                    (38,314
                    )COMPREHENSIVE
      INCOME (LOSS)
                    
                    $
                    2,789,438
                    
                    
                    $
                    (275,058
                    )





See
accompanying Notes to Condensed Consolidated Financial
Statements.


6





TELECONNECT,
INC.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


FOR THE
THREE MONTHS ENDED DECEMBER 31,


(Unaudited)





2009
                
                
                2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      Income (loss)
                
                $
                2,865,570
                
                
                $
                (349,432
                )Adjustments
      to reconcile net income (loss) to net cash used in operating
      activities:Depreciation
                
                
                693
                
                
                
                7,912Bad
      debt expense
                
                
                7,509
                
                
                
                -Gain
      on sale of subsidiaries
                
                
                (3,200,137
                )
                
                
                -Change
      in operating assets and liabilitiesAccounts
      receivable - trade
                
                
                (428
                )
                
                
                25,996Accounts
      receivable – other
                
                
                -
                
                
                
                963Accrued
      interest receivable
                
                
                (7,509
                )
                
                
                -Inventory
                
                
                154,476
                
                
                
                48,324Prepaid
      expenses
                
                
                5,130
                
                
                
                (38,743
                )Prepaid
      taxes
                
                
                (1,900
                )
                
                
                (51,912
                )Accounts
      payable
                
                
                61,205
                
                
                
                (108,542
                )Accrued
      liabilities and income taxes payable
                
                
                23,488
                
                
                
                2,589Operating
      cash flows from discontinued operations
                
                
                -
                
                
                
                60,632Net
      cash used in operating activities
                
                
                (91,903
                )
                
                
                (402,213
                )CASH
      FLOWS FROM INVESTING ACTIVITIES:Repayments
      from (Advances to) equity investment
                
                
                3,599
                
                
                
                (49,154
                )Proceeds
      from disposal of equipment
                
                
                3,051
                
                
                
                -Investing
      activities of discontinued operations
                
                
                -
                
                
                
                40,274Net
      cash provided by (used in) investing activities
                
                
                6,650
                
                
                
                (8,880
                )CASH
      FLOWS FROM FINANCING ACTIVITIES:Loan
      proceeds from related parties
                
                
                213,878
                
                
                
                450,652Payments
      on capital leases
                
                
                -
                
                
                
                (12,406
                )Net
      cash provided by financing activities
                
                
                213,878
                
                
                
                438,246EFFECT
      OF EXCHANGE RATE
                
                
                4,832
                
                
                
                (31,078
                )NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                
                
                133,457
                
                
                
                (3,925
                )CASH
      AND CASH EQUIVALENTS, BEGINNING OF PERIOD
                
                
                15,652
                
                
                
                48,342CASH
      AND CASH EQUIVALENTS, END OF PERIOD
                
                $
                149,109
                
                
                $
                44,417





See
accompanying Notes to Condensed Consolidated Financial
Statements.


7





TELECONNECT,
INC.





NOTES
TO  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





December
31, 2009





1.
BASIS OF PRESENTATION





The
accompanying unaudited condensed consolidated financial statements of
Teleconnect, Inc. (the “Company”) have been prepared in accordance with
accounting principles generally accepted in the United States of America
(“GAAP”) for interim financial information and pursuant to the rules and
regulations of the Securities and Exchange Commission.  Accordingly,
they do not include all of the information and footnotes required by GAAP for
complete financial statements.  In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included.  Operating results for the
three month period ended December 31, 2009 are not necessarily indicative of the
results that may be expected for the full year.





The
condensed consolidated financial statements include the accounts of Teleconnect,
Inc. and its subsidiary PhotoWizz BV (“MediaWizz”) for the three months ended
December 31, 2009 and Teleconnect Spain, Teleconnect Telecom and Recarganet for
the two months ended November 25, 2009. For the three months ended December 31,
2008 the consolidated financial statements include the accounts of the Company
and its subsidiaries ITS Europe, Teleconnect Spain, Teleconnect Telecom,
PhotoWizz BV (“MediaWizz”), and Recarganet.  All significant
inter-company balances and transactions have been eliminated.





The
balance sheet at September 30, 2009 has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by GAAP for complete financial statements.





For
further information, refer to the consolidated financial statements and notes
thereto included in the Company’s annual report on Form 10-K for the year ended
September 30, 2009.





The
carrying amounts of cash, accounts (and related party) receivables, accounts
payable and notes payable, are considered by management to be their estimated
fair values due to their short term or contractual maturities.




We have
evaluated subsequent events that have occurred since December 31, 2009 through
February 12, 2010.




2.
RECENTLY ISSUED ACCOUNTING STANDARDS




In
December 2009, the FASB issued amendments toexisting accounting
guidance to address the elimination of the concept of a qualifying special
purpose entity. The amendment also replaces the quantitative-based risks and
rewards calculation for determining which enterprise has a controlling financial
interest in a variable interest entity with an approach focused on identifying
which enterprise has the power to direct the activities of a variable interest
entity and the obligation to absorb losses of the entity or the right to receive
benefits from the entity. Additionally, the amendment provides more timely and
useful information about an enterprise’s involvement with a variable interest
entity. The Company adopted this guidance in the first quarter of 2010, and it
did not have a material impact on our financial condition, results of operations
or cash flows.





3.
DISCONTINUED OPERATIONS





In March
2009, the Company entered into an agreement to sell ITS Europe, Teleconnect
Spain, Teleconnect Telecom and Recarganet to certain employees and officers of
Teleconnect Spain with the Company retaining 10% of Teleconnect SA. The sale of
ITS Europe to certain employees and officers of Teleconnect Spain for €1 and the
assumption of ITS Europe debts was completed on May 14,
2009.  Teleconnect Spain, Teleconnect Telecom and Recarganet were
officially sold on November 25, 2009, resulting in a gain on the sale of
subsidiaries of $3,200,137.





Due to
continuing losses at Teleconnect Spain, the Company considered the 10% interest
retained to be impaired and assigned no value to it.





Summarized
financial information (which consists principally of Teleconnect Spain) included
in discontinued operations is as follows for the period October 1, 2009 to
November 25, 2009,  and the three months ended December 31.
2008:


8





Oct-Nov 25
                      
                      
                      December 312009
                      
                      
                      2008Sales
                      
                      $
                      586,479
                      
                      
                      $
                      859,920Cost
      of sales
                      
                      
                      364,021
                      
                      
                      
                      647,394Gross
      profit
                      
                      
                      222,458
                      
                      
                      
                      212,526Selling,
      general and administrative expenses
                      
                      
                      218,695
                      
                      
                      
                      323,245Depreciation
                      
                      
                      7,466
                      
                      
                      
                      25,728Operating
      loss
                      
                      
                      (3,703
                      )
                      
                      
                      (136,447
                      )Gain
      on sale of subsidiaries
                      
                      
                      3,200,137
                      
                      
                      
                      -Other
      income (expense)
                      
                      
                      (21,941
                      )
                      
                      
                      59,199Income
      (Loss) from discontinued operations
                      
                      $
                      3,174,493
                      
                      
                      $
                      (77,248
                      )




The net
liabilities of discontinued operations (which consists principally of
Teleconnect SA), which are included in the consolidated balance sheets as assets
and liabilities of discontinued operations, consist of the following at December
31, 2009 compared to September 30, 2009:





December 31
                  
                  
                  September 302009
                  
                  
                  2009Cash
                  
                  $
                  -
                  
                  
                  $
                  23,938Accounts
      receivable - trade, net of allowance for doubtful accounts of $714,782 at
      September 30, 2009
                  
                  
                  -
                  
                  
                  
                  385,914Accounts
      receivable - other
                  
                  
                  -
                  
                  
                  
                  207,953Inventory
                  
                  
                  -
                  
                  
                  
                  12,631Prepaid
      expenses
                  
                  
                  -
                  
                  
                  
                  2,368Current
      assets of discontinued operations
                  
                  
                  -
                  
                  
                  
                  632,804Property
      and equipement, net
                  
                  
                  -
                  
                  
                  
                  385,820Vendor
      deposits
                  
                  
                  -
                  
                  
                  
                  242,208Other
      assets of discontinued operations
                  
                  
                  -
                  
                  
                  
                  628,028Accounts
      payable
                  
                  
                  -
                  
                  
                  
                  1,372,068Accrued
      liabilities
                  
                  
                  -
                  
                  
                  
                  189,246Taxes
      payable
                  
                  
                  -
                  
                  
                  
                  342,231Notes
      payable
                  
                  
                  -
                  
                  
                  
                  146,430Due
      from related parties
                  
                  
                  -
                  
                  
                  
                  259,181Deferred
      income
                  
                  
                  -
                  
                  
                  
                  2,068,113Liabilities
      of discontinued operations
                  
                  
                  -
                  
                  
                  
                  4,377,269Long-term
      liabilities of discontinued operations
                  
                  
                  -
                  
                  
                  
                  -Net
      liabilities of discontinued operations
                  
                  $
                  -
                  
                  
                  $
                  3,116,437




Substantially
all interest expense is allocated to the ongoing operations of the parent
company.





4.
LOANS FROM RELATED PARTIES





During
the three months ended December 31, 2009 and 2008 the Company obtained
approximately $214,000 and $451,000, respectively, in additional short term
loans from related parties, net of currency translation adjustments. These loans
bear interest between 4% to 8% annually, are unsecured and due upon
demand.





5.
INCOME TAXES





The
Company has not recorded any income tax expense or benefit for the three months
ended December 31, 2009 and 2008. For the three months ended December 31, 2009
income tax expense was offset by the use of net operating losses from prior
periods. For the three months ended December 31, 2008 the Company recorded an
income tax valuation allowance equal to the benefit of any income tax
carryforward because of the uncertain nature of realization.


9





6.
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. Stock options for
1,000,000 shares that were outstanding at December 31, 2008 have not been
included in diluted earnings per share as their inclusion would have been
anti-dilutive.  There were no stock options outstanding as of December
31, 2009.





The
following reconciles the components of the earnings (loss) per share computation
for the three months ended December 31:





2009
                      
                      
                      2008Basic
      and diluted loss per share computationNumerator:Net
      loss from continuing operations
                      
                      $
                      (308,923
                      )
                      
                      $
                      (272,184
                      )Net
      income (loss) from discontinued operations
                      
                      $
                      3,174,493
                      
                      
                      $
                      (77,248
                      )Net
      income (loss)
                      
                      $
                      2,865,570
                      
                      
                      $
                      (349,432
                      )Denominator:Weighted
      average common shares outstanding
                      
                      
                      4,953,617
                      
                      
                      
                      3,322,437Basic
      and diluted income (loss) per share:From
      continuing operations
                      
                      $
                      (0.06
                      )
                      
                      $
                      (0.08
                      )From
      discontinued operations
                      
                      $
                      0.64
                      
                      
                      $
                      (0.02
                      )Total
                      
                      $
                      0.58
                      
                      
                      $
                      (0.11
                      )





In
November 2009, the Company’s shareholders approved a 1-for-100 reverse stock
split of the Company’s common stock.   This reverse stock split
has been reflected retroactively for all periods presented in these condensed
consolidated financial statements.





7 .
GOING CONCERN





The
accompanying condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern, which contemplates
the realization of assets and the satisfaction of liabilities in the normal
course of business.  The Company’s recent losses and cash
requirements, among other things, may indicate the Company will be unable to
continue as a going concern for a reasonable period of
time.   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.   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.


10





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





Caution
Regarding Forward-Looking Statements





The
following information may contain certain forward-looking statements that are
not historical facts. These statements represent our expectations or beliefs,
including but not limited to, statements concerning future acquisitions, future
operating results, statements concerning industry performance, capital
expenditures, financings, as well as assumptions related to the foregoing.
Forward-looking statements may be identified by the use of forward-looking
terminology such as “may,” “shall,” “will,” “could,” “expect,” “estimate,”
“anticipate,” “predict,” “should,” “continue” or similar terms, variations of
those terms or the negative of those terms. Forward-looking statements are based
on current expectations and involve various risks and uncertainties that could
cause actual results and outcomes for future periods to differ materially from
any forward-looking statement or view expressed herein. Our financial
performance and the forward-looking statements contained in this report are
further qualified by other risks including those set forth from time to time in
documents filed by us with the SEC.





INTRODUCTION





At the
time of this filing, we derive our revenues from continuing operations primarily
from the sale of multimedia kiosks and hardware components to retail chains.
These kiosks and components can be applied to different functions such as
recharging prepaid telephone cards. Our revenues and operating results in the
near future will depend in the future upon the continued adoption and use of the
services provided by the multimedia kiosks and components supplied by Mediawizz.
The rate of adoption is influenced significantly over the longer term by
government laws and mandates, performance and pricing of our products/services,
relationships with the public and other factors.





Our
revenues from discontinued operations are primarily from the sale of our
long-distance telecommunication services. On November 25, 2009 we completed the
sale of the discontinued operations.





Today,
our existing revenues generated by Mediawizz may be impacted by other factors
including the length of our sales cycle, the timing of sales orders, budget
cycles of our customers, competition, the timing and introduction of new
versions of our products, the loss of, or difficulties affecting, key personnel
and distributors, changes in market dynamics or the timing of product
development or market introductions. These factors have impacted our historical
results to a greater extent than has seasonality. Combinations of these factors
have historically influenced our growth rate and profitability significantly in
one period compared to another, and is expected to continue to influence future
periods, which may compromise our ability to make accurate
forecasts.





Cost of
sales included in discontinued operations consists primarily of the costs
associated with carriers which supply the telecom services for the Company to
resell. We rely on third parties to offer the majority of the services we have
in our portfolio. Accordingly, a significant portion of our cost of sales
consists of payments to these carriers. Cost of sales included in continuing
operations consists of customer support costs, training and professional
services expenses, and parts for the terminals; which consist of small display
screens, metallic housings, PC’s, switches, small cameras similar to webcams,
electronic components, cables, power supplies and software licenses amongst
other items.





Our gross
profit has been and will continue to be affected by a variety of factors,
including competition, the mix and average selling prices of products,
maintenance and services, new versions of products, the cost of equipment,
component shortages, and the mix of distribution channels through which our
products are sold. Our gross profit will be adversely affected by price declines
if we are unable to reduce costs on existing products or to introduce new
versions of products with higher margins.





Selling,
general and administrative expenses consist primarily of salaries and related
expenses for executive, finance, accounting, legal and human resources
personnel, professional fees and corporate expenses. We expect general and
administrative expenses to decrease in the short term in absolute dollars as we
will employ fewer hours to maintain the Company’s current status with its SEC
filings than to bring the Company current in 2009.


11





BALANCE SHEET COMPARISON AT
DECEMBER 31, 2009 AND SEPTEMBER 30, 2009




Assets: Total assets
at December 31, 2009 decreased 35.4% to $2,433,044 compared to $3,765,332 at
September 30, 2009.  This decrease is due primarily to a reduction of
the assets from discontinued operations which accounts for approximately
$632,000 of this difference.  This is also due to collection of
accounts receivable during the period; a reduction of inventory at Mediawizz due
to recording a provision for slow moving products and reduction in property and
equipment.





Liabilities: Current
liabilities at December 31, 2009 decreased 57.5% to $3,043,260 compared to
$7,164,986 at September 30, 2009.  This decrease is due primarily to
the elimination of approximately $4,377,000 of liabilities associated to the
discontinued operations.





COMPARISON OF THE THREE
MONTHS ENDED DECEMBER 31, 2009 AND 2008
(CONTINUING  OPERATIONS)





We
incurred net income of $2,865,570 for the three months ended December 31, 2009
as compared to a net loss of $349,432 during the comparable period in 2008. A
comparison of revenues and expenses for the two periods is as
follows:





REVENUES





Sales for
the three months ended December 31, 2009, increased by 324.1%, or $179,125, to
$234,399 from $55,274 for the quarter ended December 31, 2008. The increase in
sales is attributed to the fact that 2009 revenues primarily were derived from
the sales of calling credit through kiosks that Mediawizz custom built and
installed in supermarkets for a Netherlands customer.  Where the sales
of calling credit in these supermarkets formerly was organized through both
service desks and kiosks, in 2009, the sales at these service desks were
discontinued thus generating more traffic and increasing sales through the
kiosks. Also, Mediawizz delivered a first lot from a previously agreed 150
terminal-order.





COST OF
SALES





Cost of
sales increased 202.4% or $113,867 to $170,133 during the three months ended
December 31, 2009 from $56,266 during the same period in 2008. The increase in
cost of sales (202.4%) is associated to the increase in sales (324.1%), however,
the fact that the cost of sales increased less than the sales is partly due to
efficiencies gained in our assembly process and operations of kiosks. In
addition, the main factor influencing this comparison is the increase in sales
of calling credit which has a much lower associated cost of sales than the
assembly of the kiosk hardware.





SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES





Selling,
general and administrative expenses increased by 55.5 % to $368,091 during the
three months ended December 31, 2009 as compared to $ 236,725 for the comparable
period in 2008.  This increase in selling, general and administrative
expenses is primarily due to the additional cost of outside professional
services related to the Company’s accounting and taxes for 2009.





COMPARISON OF THE THREE
MONTHS ENDED DECEMBER 31, 2009 AND 2008 (DISCONTINUED
OPERATIONS)





We
incurred $3,174,493 of net income from discontinued operations for the three
months ended December 31, 2009 as compared to a net loss of $77,248 during the
comparable period in 2008. The discontinued operations were sold on November 25,
2009.  The main difference lies in the gain of approximately
$3,200,000 on the sale of the discontinued operations.  A comparison
of revenues and expenses for the two periods is as follows:





REVENUES





Sales for
the three months ended December 31, 2009, decreased 31.8% to $586,479 from
$859,920 for the quarter ended December 31, 2008. The decrease in sales is due
primarily to the fact that for the three month period ended December 31, 2009,
only two of the three months are considered since the discontinued operations
were sold on November 25, 2009.   Hence, only two months of the
sales are included in these condensed consolidated financial statements as
compared to a full three months in first fiscal quarter of
2009.  Extrapolating to a full three months the sales for the first
fiscal quarter of 2010 are very similar to the sales for the same period the
year before.  The sales for this period  are primarily
attributed to the Gotel, Wholesale and Speedline brands, which are prepaid
services not requiring a physical card and thus providing greater flexibility to
end users.  The sales for the October and November 2009 period
resulted in approximately 12.3 million minutes of end-user usage. when
extrapolated to a full three months, this usage is a slight increase to the
nearly 18.4 million minutes for the quarter ended December 31,
2008.  The increase in sales is due to our ability to lower prices of
our goods and services to at least the levels of our
competitors.


12





COST OF
SALES





Cost of
sales decreased by 43.8% to $364,021 during the three months ended December 31,
2009 from $647,394 during the same period in 2008. The main reason for this
decrease is the fact that only two of three months are used for the calculation
since the discontinued operations were sold on November 25, 2009.  In
addition, since the cost of sales of the aforementioned Gotel, Wholesale
and Speedline brands is less than that of the prepaid calling cards, and these
services represented a higher percentage of the overall business during the
three month period ended December 31, 2009 compared to the same period for the
prior year. The percentage decrease in cost of goods sold of 43.8% was superior
to the decrease of 31.8% of sales; thus providing for a slightly better gross
profit.





Gross
profit for the three months ended December 31, 2009 increased in absolute
numbers by 4.7% to $222,458 as compared to gross profit for the same period in
2008 of $212,526. It is important to note however, that the gross profit
for the three months ended December 31, 2009 was 37.9% compared to 24.7% for the
same period of the prior year.   The principal reason for this
increase in Gross Profit was the increase in sales in Gotel, Wholesale and
Speedline brands which provide the Company with higher margins due to lower
costs.





SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES




Selling,
general and administrative expenses decreased by 32.3 % to $ 218,695 during the
three months ended December 31, 2009 as compared to $ 323,245 for the comparable
period in 2008.   This decrease in selling, general and
administrative expenses is primarily due to only two months of expenses being
included in 2009 as compared to three months for the comparable period in
2008.





LIQUIDITY AND CAPITAL
RESOURCES





At
December 31, 2009 and September 30, 2009, Teleconnect Inc. had negative working
capital of approximately $1,126,000 and $4,556,000, respectively.  The
improvement is a reflection of the effect of the sale of the discontinued
operations which provided a gain on sale of approximately
$3,200,000.





The
ability of the Company to satisfy its obligations and to continue as a going
concern will depend in part upon its ability to raise funds through the sale of
additional shares of its Common Stock, increasing borrowing, and in part upon
its ability to reach a profitable level of operations. The Company’s financial
statements do not reflect adjustments that might result from its inability to
continue as a going concern and these adjustments could be material





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





The
Company intends to look for additional funding 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 debt.





DISCONTINUED
OPERATIONS





In March
2009, the Company entered into an agreement to sell ITS Europe, Teleconnect
Spain, Teleconnect Telecom and Recarganet to certain employees and officers of
Teleconnect Spain with the Company retaining 10% of Teleconnect
Spain.  The results of operations of these subsidiaries were reported
as “discontinued operations” and assets and liabilities have been separated on
the balance sheet. Going forward the Company will account for the 10% of
Teleconnect SA by the cost method. The sale of ITS Europe to certain employees
and officers of Teleconnect Spain was completed on May 14,
2009.  Teleconnect Spain, Teleconnect Telecom and Recarganet were
officially sold on November 25, 2009.





ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





On
November 12, 2009, at a meeting of the shareholders of Teleconnect Inc, the
shareholders present, representing 94.69% of the outstanding shares of common
stock of the Company, agreed to sell the Spanish subsidiaries of the Company.
 The stock purchase agreements were formalized on November 25, 2009 before
a public Spanish notary upon approval by the Company’s
shareholders.  By disposing of the Spanish subsidiaries and
maintaining a 10% stake in Teleconnect Comunicaciones SA, Teleconnect Inc is
relieved of its obligation to fund these companies while Teleconnect Inc. could
possibly benefit from future dividends, if so declared by Teleconnect
Comunicaciones SA.





The
shareholders also approved a reverse split of the Company’s Common Stock in the
ratio of 1-for-100 at the November 12, 2009 shareholders’ meeting.




13





ITEM
4. 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 not 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.





Management
is currently designing new internal controls and procedures to address our
material weaknesses which will be implemented in this fiscal
year.


14





PART
II





OTHER
INFORMATION





ITEM
1. LEGAL PROCEEDINGS





In the
normal course of its operations, the Company has 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.





ITEM
1A. RISK FACTORS





None





ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





None





ITEM
3. DEFAULTS UPON SENIOR SECURITIES





None





ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





At the
shareholders meeting held on November 12, 2009 in Breda, The Netherlands, the
stockholders present approved the sale of 100 % of the Company’s interest in
Recarganet, and Teleconnect Telecom in addition to approximately 90% of its
interest in Teleconnect Comunicaciones SA.  The stock purchase
agreements for the sale of Recarganet, Teleconnect Telecom and Teleconnect
Comunicaciones were formalized before a public Spanish notary on November 25,
2009.  The gain from the sale of these subsidiaries is
$3,200,137.





At this
same shareholders meeting of November 12, 2009, the stockholders of the Company
voted in favor of a 1-for-100 reverse stock split of its common
stock.  This reverse stock split has been reflected retroactively for
all periods presented in these financial statements.





ITEM
5. OTHER INFORMATION





None





ITEM
6. EXHIBITS




31.1
Certification of Dirk L. Benschop, sole Director, Chief  Executive
Office, President, Treasurer, Chief Financial Officer and principal accounting
officer





32.1
Certification of Dirk L. Benschop, sole Director, Chief  Executive
Office, President, Treasurer, Chief Financial Officer and principal accounting
officer


15





SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.





TELECONNECT
      INC.February
      12, 2010By:
              /s/
      Dirk L. BenschopDirk
      L. BenschopSole
      Director, Chief  Executive Office, President,Treasurer,
      Chief Financial Officer and principalaccounting
      officer




16




INDEX
TO EXHIBITS





Exhibit





No.
                  
                  Description31.1
                  
                  
                  Certification
      of Dirk Benschop32.1
                  
                  
                  Certification
      of Dirk Benschop




17