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, 2004

             |_| 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

              Former Name: ITS Networks Inc. Address same as above.
              (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 |X| No |_|

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 90,614,197 shares as of May 16, 2005

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


                                        1
<PAGE>

                                ITS NETWORKS INC.


                                      INDEX

PART I. FINANCIAL INFORMATION                                                 3

Item 1. Financial Statements:

   Condensed Consolidated Balance Sheet as of
    March 31, 2005 (Unaudited)                                               F-1

   Condensed Consolidated Statements of Operations
    for the Three and Six Months Ended March 31, 2005
    and 2004 (Unaudited)                                                     F-2

   Condensed Consolidated Statements of Stockholders'
    Deficit for the Six Months Ended March 31, 2005 and
    and 2004 (Unaudited)                                                     F-3

   Condensed Consolidated Statements of Cash Flows
    for the Six Months Ended March 31, 2005 and
    2004 (Unaudited)                                                         F-4

   Notes to Condensed Consolidated Financial Statements                      F-6

Item 2. Management's Discussion and Analysis or Plan of Operations            4

Item 3. Controls and Procedures                                               8

PART II. OTHER INFORMATION

Item 1. Legal Proceedings                                                     9

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds           9

Item 3. Defaults upon Senior Securities                                       9

Item 4. Submission of Matters to a Vote of Security Holders                   9

Item 5. Other Information                                                     9

Item 6. Exhibits and Reports on Form 8-K                                     10

Signatures                                                                   10


                                        2
<PAGE>

                          PART I FINANCIAL INFORMATION
                          ITEM 1. FINANCIAL STATEMENTS



                                        3
<PAGE>

                                TELECONNECT INC.
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                 MARCH 31, 2005
                                   (Unaudited)

                                     ASSETS

CURRENT ASSETS:
 Cash and cash equivalents                                          $     53,000
 Accounts receivable - trade, net of allowance
  for doubtful accounts of $1,375,000                                    300,000

 Accounts receivable - other                                              74,000
 Inventory                                                                46,000
                                                                    ------------
   Total current assets                                                  473,000
                                                                    ------------

PROPERTY AND EQUIPMENT, NET                                              576,000
                                                                    ------------
OTHER ASSETS:
 Vendor deposits                                                         183,000
                                                                    ------------
                                                                    $  1,232,000
                                                                    ============

                     LIABILITIES AND STOCKHOLDERS' (DEFICIT)

CURRENT LIABILITIES:
 Accounts payable - trade                                          $  3,473,000
 Accrued liabilities                                                    982,000
 Notes payable to bank                                                  259,000
 Current portion of payment obligation to
  taxing authority                                                      220,000
 Loans from related parties                                           2,273,000
 Deferred income                                                      1,875,000
                                                                   ------------

   Total current liabilities                                          9,082,000
                                                                   ------------
LONG-TERM DEBT
 Payment obligation to tax authority, net
  of current portion shown above                                        239,000
                                                                   ------------
STOCKHOLDERS' DEFICIT:
 Preferred stock; par value of $0.001,
  5,000,000 shares authorized, no shares outstanding                         --
 Common stock; par value of $0.001,
  200,000,000 shares authorized, 82,289,197
  shares outstanding                                                     82,000
 Additional paid-in capital                                          13,223,000
 Accumulated (deficit)                                              (19,073,000)
 Effect of cumulative translation adjustment                         (2,321,000)
                                                                   ------------

   Total stockholders' (deficit)                                     (8,089,000)
                                                                   ------------
                                                                   $  1,232,000
                                                                   ============

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

                                       F-1


<PAGE>

                                TELECONNECT INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                 For three months ended           For six months ended
                                                                        March 31,                       March 31,
                                                              ----------------------------    ----------------------------
                                                                  2005            2004            2005            2004
                                                              ------------    ------------    ------------    ------------
<S>                                                           <C>             <C>             <C>             <C>
SALES                                                         $  1,371,000    $  1,643,000    $  2,881,000    $  3,190,000
COST OF GOODS SOLD (exclusive of
 depreciation shown separately below)                              917,000       1,267,000       1,905,000       2,738,000
                                                              ------------    ------------    ------------    ------------
GROSS PROFIT                                                       454,000         376,000         976,000         452,000
                                                              ------------    ------------    ------------    ------------

OPERATING EXPENSES:
 Selling, general and administrative expenses                    1,367,000         752,000       2,188,000       1,344,000
 Depreciation                                                       92,000         119,000         186,000         198,000
                                                              ------------    ------------    ------------    ------------

   Total operating expenses                                      1,459,000         871,000       2,374,000       1,542,000
                                                              ------------    ------------    ------------    ------------

(LOSS) FROM OPERATIONS                                          (1,005,000)       (495,000)     (1,398,000)     (1,090,000)
                                                              ------------    ------------    ------------    ------------

OTHER INCOME (EXPENSES):
 Interest expense                                                 (241,000)       (168,000)       (379,000)       (195,000)
                                                              ------------    ------------    ------------    ------------

(LOSS) FROM CONTINUING OPERATIONS
 BEFORE INCOME TAXES                                            (1,246,000)       (663,000)     (1,777,000)     (1,285,000)

PROVISION FOR INCOME TAXES                                              --              --              --              --
                                                              ------------    ------------    ------------    ------------
(LOSS) FROM CONTINUING OPERATIONS                               (1,246,000)       (663,000)     (1,777,000)     (1,285,000)
                                                              ------------    ------------    ------------    ------------
DISCONTINUED OPERATIONS:
  Income on disposal of fixed line division                             --              --              --          35,000
                                                              ------------    ------------    ------------    ------------

NET (LOSS)                                                    $ (1,246,000)   $   (663,000)   $ (1,777,000)   $ (1,250,000)
                                                              ============    ============    ============    ============

BASIC EARNINGS (LOSS) PER SHARE
 Loss from continuing operations                              $      (0.01)   $      (0.02)   $      (0.02)   $      (0.05)
 Discontinued operations                                                --              --              --              --
                                                              ------------    ------------    ------------    ------------
                                                              $      (0.01)   $      (0.02)   $      (0.02)   $      (0.05)
                                                              ============    ============    ============    ============

AVERAGE COMMON AND COMMON
 EQUIVALENT SHARES OUTSTANDING                                  79,266,517      28,945,104      72,868,387      25,690,871
                                                              ============    ============    ============    ============

THE COMPONENTS OF COMPREHENSIVE LOSS:
 Net (loss)                                                   $ (1,246,000)   $   (663,000)   $ (1,777,000)   $ (1,250,000)
 Foreign currency translation adjustment                           307,000         308,000        (307,000)       (402,000)
                                                              ------------    ------------    ------------    ------------

COMPREHENSIVE (LOSS)                                          $   (939,000)   $   (355,000)   $ (2,084,000)   $ (1,652,000)
                                                              ============    ============    ============    ============
</TABLE>

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

                                       F-2

<PAGE>

                                TELECONNECT, INC.
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
                                   (Unaudited)
<TABLE>
<CAPTION>

                                        Common Stock
                                  As adjusted for stock split
                                     --------------------                                               Accumulated
                                       Number     $0.001    Additional      Prepaid                         Other          Total
                                        of          par       Paid-In     Syndication     Accumulated   Comprehensive  Stockholders'
                                       Shares      Value      Capital         Fees          Deficit         Loss          Deficit
                                     ----------   -------   -----------   ------------   ------------    -----------    -----------
<S>                                  <C>          <C>       <C>           <C>            <C>             <C>            <C>
 Balance, September 30, 2003         22,420,278   $22,000   $ 8,565,000   $   (418,000)  $(14,094,000)   $(1,571,000)   $(7,496,000)

 Common stock issued for cash         1,150,000     2,000       113,000             --             --             --        115,000
 Common stock issued for
  conversion of debt to equity        8,921,500     9,000       884,000                                                     893,000
 Foreign currency translation
  adjustment                                 --        --            --             --             --       (402,000)      (402,000)
 Net (loss) for the six months
 ended March 31, 2004                        --        --            --             --     (1,250,000)            --     (1,250,000)
                                     ----------   -------   -----------   ------------   ------------    -----------    -----------
 Balance, December 31, 2003          32,491,778   $33,000   $ 9,562,000   $   (418,000)  $(15,344,000)   $(1,973,000)   $(8,140,000)
                                     ==========   =======   ===========   ============   ============    ===========    ===========



Balance, September 30, 2004          60,588,280   $61,000   $11,858,000   $         --   $(17,296,000)   $(2,014,000)   $(7,391,000)

 Common stock issued for
  conversion of debt to equity       14,600,917    14,000       662,000             --             --             --        676,000
 Common stock issued for loan fee
  consideration                       1,000,000     1,000        99,000             --             --             --        100,000
 Common stock issued for
  services                            6,100,000     6,000       604,000             --             --             --        610,000
 Foreign currency translation
  adjustment                                 --        --            --             --             --       (307,000)      (307,000)
 Net (loss) for the six months
 ended March 31, 2005                        --        --            --             --     (1,777,000)            --     (1,777,000)
                                     ----------   -------   -----------   ------------   ------------    -----------    -----------
Balance, March 31, 2005              82,289,197   $82,000   $13,223,000   $         --   $(19,073,000)   $(2,321,000)   $(8,089,000)
                                     ==========   =======   ===========   ============   ============    ===========    ===========
</TABLE>


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

                                       F-3

<PAGE>

                                ITS NETWORKS INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                   Page 1 of 2

                                                  For six months ended March 31,
                                                     --------------------------
                                                        2005           2004
                                                     -----------    -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net (loss)                                          $(1,777,000)   $(1,250,000)
 Adjustments to reconcile net (loss) to
  net cash used in operating activities:
   Depreciation                                          186,000        198,000
   Non cash expenditures paid with stock                 886,000             --
  Decrease (increase) in operating assets:
   Accounts receivable - trade                            59,000       (150,000)
   Accounts receivable - other                                --         (8,000)
   Inventory                                                  --        (10,000)
   Prepaid expenses                                        7,000          7,000
   Vendor and other deposits                               7,000        (31,000)
  Increase (decrease) in operating liabilities:
   Accounts payable and accrued liabilities              691,000       (876,000)
   Deferred income and deposits received                 110,000        730,000
                                                     -----------    -----------
    Net cash provided by (used in)
     operating activities                                169,000     (1,390,000)
                                                     -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Purchase of property and equipment                      (83,000)       (10,000)
                                                     -----------    -----------
    Net cash (used in)
     investing activities                                (83,000)       (10,000)
                                                     -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Loan proceeds from related parties                      513,000      1,731,000
 Loan proceeds from bank                                 259,000         11,000
 Payment on tax agency obligation                       (151,000)       (57,000)
 Payment on loan from bank                              (248,000)            --
 Payment on loan from related parties                   (192,000)            --
 Proceeds from sale of common stock                           --        115,000
                                                     -----------    -----------
    Net cash provided by
     financing activities                                181,000      1,800,000
                                                     -----------    -----------
EFFECT OF EXCHANGE RATE                                 (307,000)      (402,000)
                                                     -----------    -----------
NET INCREASE (DECREASE) IN CASH AND
 CASH EQUIVALENTS                                        (40,000)        (2,000)

CASH AND CASH EQUIVALENTS,
 BEGINNING OF YEAR                                        93,000        159,000
                                                     -----------    -----------
CASH AND CASH EQUIVALENTS,
 END OF YEAR                                         $    53,000    $   157,000
                                                     ===========    ===========

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


                                       F-4

<PAGE>

                               ITS NETWORKS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                   Page 2 of 2

                                                            For six months ended
                                                                 March 31,
                                                            --------------------
                                                              2005        2004
                                                            --------    --------
 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 Cash paid during the year for:
  Interest                                                  $  3,000    $ 12,000
                                                            ========    ========

 SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
  Long-term debt converted to common stock                  $500,000    $893,000
                                                            ========    ========
  Common stock issued for interest on
  notes payable                                             $176,000    $     --
                                                            ========    ========
Common stock issued for services received                   $710,000    $     --
                                                            ========    ========

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

                                       F-5

<PAGE>

                        TELECONNECT INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2005
                                   (Unaudited)

1. THE COMPANY

ITS Networks Inc. (the "Company") was incorporated under the laws of the State
of Florida on November 23, 1998. However, it did not conduct any significant
operations until December 2000 when there was a change in control of the
Company. The new controlling stockholders changed its corporate name from
Technology Systems International, Inc. to ITS Networks Inc. and increased the
authorized number of shares of common stock. In connection with the change of
control of the Company in December 2000, the Company acquired all of the issued
and outstanding capital stock of ITS Europe, S.L., a Spanish telecommunications
company that was organized in 1995. As a result, ITS Europe, S.L. ("ITS Europe")
became a wholly-owned subsidiary of the Company.

On December 15, 2002, the Company consummated a stock exchange agreement with
the majority stockholders of Teleconnect Comunicaciones, S.A. (hereafter
"Teleconnect"), a company formed under the laws of Spain which operates a
pre-paid telephone card business in Spain. The Company agreed to issue up to
3,000,000 shares of its restricted common stock to the stockholders of
Teleconnect in reliance upon Regulation S under the Securities Act of 1933 and
also agreed to assume and pay up to approximately 2,200,000 Euro of the
outstanding debts of Teleconnect; during September 2003, the Company agreed to
the issuance of a total of 5,000,000 shares of its Common Stock to the
stockholders of Teleconnect to resolve disputes regarding the Stock Exchange
Agreement. During the 2003 fiscal year, the operating activities of ITS Europe
S.L. were assumed by Teleconnect. As a result, substantially all of the
operations of the Company at the time were conducted by Teleconnect and were
comprised of pre-paid telephone services and some post-paid services in Spain.

The Company is engaged in the telecommunication industry in Spain and offers
telecommunications services for home and business use.

During October 2003, the Company had to secure the continuity of its connection
and business relations with UNI2 and sold its postpaid business to Affinalia, a
Spanish postpaid accounts reseller, also working together with UNI2. As a
result, the Company sold its post-paid telephone business to Affinalia so that
its net credit risk for UNI2 decreased drastically. The Company is now only
engaged in prepaid telephone voice services.

The Company has developed a new rechargeable pre-paid telephone 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.

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 $(1,777,000) and $(1,250,000) for the six months ended March 31, 2005
and 2004, respectively. In addition, the Company has incurred substantial losses
since its inception. As of March 31, 2005, current liabilities exceed current
assets by $8,609,000 and total liabilities exceed total assets by $8,089,000.
These factors raise substantial doubts about the Company's ability to continue
as a going concern.


                                       F-6
<PAGE>

      These 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 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. SIGNIFICANT ACCOUNTING 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, 2005.

      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.

      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 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 basis 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.

      Revenue recognition. Revenue from the sale of prepaid calling cards is
recognized as the cards are used. Deferred revenues are recorded to reflect the
unused portion of calling cards that have been issued to customers.

      Loss per share. Loss per common and common equivalent share is computed
based on the weighted average number of shares of Common Stock 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 current assets and current
liabilities of ITS Europe, S.L. and Teleconnect Comunicaciones S.A., whose
functional currencies are the Euro, are generally translated into U.S. dollars
at the March 31, 2005 exchange rate. Long-term assets are translated at the
exchange rate in effect on the date of acquisition. The revenues and expenses
are translated at average exchange rates for the period. Resulting translation
adjustments are accumulated and reflected as a separate component of
stockholders' equity.

      New Accounting Pronouncements - In April 2003, the FASB issued SFAS No.
149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities (SFAS 149)". SFAS 149 amends and clarifies certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
133. SFAS 149 is effective for certain contracts entered into or modified by the
Company after June 30, 2003. The adoption of SFAS 149 had no impact on the
Company's financial position, results of operations, or cash flows.


                                       F-7

<PAGE>

In May 2003, the FASB issued SFAS No. 150, "Accounting for Instruments with
Characteristics of Both Debt and Equity" (SFAS 150). Statement 150 requires
liability classification for three types of instruments: 1) Mandatory redeemable
shares that obligate the company to deliver cash or other assets to shareholders
on fixed or determinable dates; 2) Freestanding written put options and forward
purchase contracts on a company's own shares that obligate the company to
deliver cash or other assets, and 3) Contracts that obligate a company to issue
its own shares in amounts that are unrelated to, or inversely related to, the
value of the shares. The adoption of SFAS 150 had no impact on the Company's
financial position, results of operations, or cash flows.

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 statement is effective for the quarter beginning January 1, 2006.

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.

4. INCOME TAXES


The Company's subsidiaries, ITS Europe and Teleconnect, file their income taxes
on a calendar year basis. Statutory tax laws of Spain allow net losses from
operations to be carried forward for a period of 15 years. For the year ended
December 31, 2003, the available tax loss carryforwards for ITS Europe and
Teleconnect are (euro)4,292,000 and (euro)11,796,000 respectively. The
utilization of these losses expires as follows:


                                       F-8
<PAGE>

                                           ITS Europe           Teleconnect
Year
2010                                  (euro)      11,000    (euro)           --
2011                                  (euro)      25,000    (euro)           --
2012                                  (euro)      63,000    (euro)           --
2013                                  (euro)      79,000    (euro)           --
2014                                  (euro)     713,000    (euro)      129,000
2015                                  (euro)   1,319,000    (euro)      638,000
2016                                  (euro)     783,000    (euro)    2,770,000
2017                                  (euro)     778,000    (euro)    6,240,000
2018                                  (euro)     521,000    (euro)    2,019,000
                                      ------------------    -------------------
Total                                 (euro)   4,292,000    (euro)   11,796,000
                                      ==================    ===================

The Company accounts for income taxes under Financial Accounting Standards
Number 109 ("SFAS 109"), "Accounting for Income Taxes". Deferred income tax
assets and liabilities are determined based upon differences between financial
reporting and tax basis of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to be reversed.

At March 31, 2005, the Company had US net operating loss carryforwards of
approximately $2,880,000 for federal income tax purposes.

The US carryforward expiration years and amounts are as follows:

Year                                                                      Amount
                                                                      ----------
2022                                                                  $  195,000
2023                                                                     547,000
2024                                                                   2,138,000
                                                                      ----------
                                                                      $2,880,000
                                                                      ==========


Deferred tax assets and liabilities are comprised of the following as of March
31, 2005:


Deferred income tax assets:
    Tax effect of impairment of
        goodwill in excess of amounts
        amortized for income tax
        reporting purposes                                          $   378,000
    Tax effect of net operating
    loss carryforward                                                 1,094,000
                                                                    -----------
                                                                      1,472,000
Valuation allowance                                                  (1,472,000)
                                                                    -----------
Net deferred tax asset                                              $        --
                                                                    ===========


                                       F-9
<PAGE>

The Company has a deferred tax asset principally due to net operating loss
carryforwards. This deferred tax asset has been offset in full by a valuation
allowance, as the Company cannot be assured at this time that it will be able to
utilize these loss carryforwards.

A reconciliation of the difference between the expected tax benefit at the U.S.
federal statutory rate and the Company's effective tax benefit for the three
months ended March 31, 2005 and 2004 are as follows:

                                                                March 31,
                                                         ----------------------
                                                            2005         2004
                                                         ---------    ---------
Income tax benefit - Federal                             $ 536,000    $ 425,000
Less valuation allowance                                  (536,000)    (425,000)
                                                         ---------    ---------

Total                                                    $      --    $      --
                                                         =========    =========


5. LITIGATION

      A shareholder filed suit against the Company claiming the right to an
additional 623,100 shares of the Company's common stock and 246,624 euros in
damages due to the failure to issue these shares on a timely basis. Management
believes this suit to be without merit and has not accrued any liability for
this litigation as of March 31, 2005.

      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, 2005, the Company has accrued 136,000
Euros for the settlement of pending litigation.

6. LOANS PAYABLE

      At March 31, 2005, the Company has loans payable to related parties
totaling $2,273,123 and a note payable to a bank totaling $259,000, all of which
is due within the next twelve months. During November 2004, the Company issued
1,000,000 shares of its restricted common stock to a related party as additional
consideration for a loan advance of $197,000. This stock was valued at $100,000
and was treated as additional interest expense during the quarter ended December
31, 2004.

7. REVERSE STOCK SPLIT

      On December 29, 2003, the Company underwent a one for two reverse stock
split. The effects of this reverse split are shown retroactively in these
financial statements and the notes thereto.

8. SALE OF POST PAID BUSINESS

      During November 2003, the Company entered into an agreement with a third
party to sell its post-paid long distance business. The sales price was set at
550,000 euro subject to certain price adjustments related to sales volumes for
the month of April 2004. Although a final settlement agreement has not been
reached, the sale was recorded at 481,000 euros, based on management's best
estimate of the final settlement price. Dialers and other equipment with a net
book value of 89,000 euro were transferred to the purchasers resulting in a gain
of 392,000 euro ($477,000).


                                      F-10
<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
---------------------------------------------

The discussion and analysis of our financial condition and results of operations
is based upon our consolidated financial statements which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenue and
expenses, and related disclosure of contingent assets and liabilities. On an
on-going basis, we evaluate our estimates including the allowance for doubtful
accounts, the sale ability and recoverability of inventory, income taxes and
contingencies. We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the circumstances, the
results of which form our basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.

We must make estimates of the collectability of accounts receivable. We analyze
historical write-offs, changes in our internal credit policies and customer
concentrations when evaluating the adequacy of our allowance for doubtful
accounts. Differences may result in the amount and timing of expenses for any
period if we make different judgments or use difference estimates.

Property and equipment are evaluated for impairment whenever indicators of
impairment exist. Accounting standards require that if an impairment indicator
is present, the Company must assess whether the carrying amount of the asset is
unrecoverable by estimating the sum of the future cash flows expected to result
from the asset, undiscounted and without interest charges. If the carrying
amount is less than the recoverable amount, an impairment charge must be
recognized, based on the fair value of the asset. Management assumed the Company
was a going concern for purposes of evaluating the possible impairment of its
property and equipment. Should the Company not be able to continue as a going
concern, there may be significant impairment in the value of the Company's
property and equipment.

Goodwill is reviewed at least annually for impairment, or more frequently if
indicators of impairment exist, goodwill is tested by comparing net book value
of the reporting entity to fair value. Management's assumptions about fair
values require significant judgment because broad economic factors, industry
factors and technology considerations can result in variable and volatile fair
values.


                                        4
<PAGE>

As part of the process of preparing our consolidated financial statements, we
are required to estimate our income taxes. This process involves estimating our
current tax exposure together with assessing temporary differences resulting
from differing treatment of items for tax and accounting purposes. These
differences result in deferred tax assets and liabilities. We must then assess
the likelihood that our deferred tax assets will be recovered from future
taxable income, and, to the extent we believe that recovery is not likely, we
must establish a valuation allowance. To the extent that we establish a
valuation allowance or increase this allowance in a period, we must include a
tax provision or reduce our tax benefit in the statements of operations. We use
our judgment to determine our provision or benefit for income taxes, deferred
tax assets and liabilities and any valuation allowance recorded against our net
deferred tax assets. We believe, based on a number of factors including
historical operating losses, which we will not realize the future benefits of a
significant portion of our net deferred tax assets and we have accordingly
provided a full valuation allowance against our deferred tax assets. However,
various factors may cause those assumptions to change in the near term.

We cannot predict what future laws and regulations might be passed that could
have a material effect on our results of operations. We assess the impact of
significant changes in laws and regulations on a regular basis and update the
assumptions and estimates used to prepare our financial statements when we deem
it necessary.

We have determined the significant principles by considering accounting policies
that involve the most complex or subjective decisions or assessments. Our most
significant accounting policies are those related to revenue recognition and
accounting for stock-based compensation.

Revenue Recognition. Our revenue recognition policies are based on the
requirements of SEC Staff Accounting Bulletin No. 101, Revenue Recognition in
Financial Statements.

Revenue from sales of telecommunication services is generally recognized during
the period when the services are rendered. Prepaid services which have not yet
been rendered are reflected in deferred income until such time as the services
are rendered.

Accounting for Stock-Based Compensation. We have elected to apply the
disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based
Compensation. In accordance with the provisions of SFAS 123, we apply Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
will use related interpretations in accounting for stock option plans. We
account for stock issued to non-employees in accordance with the provisions of
SFAS 123 and the Emerging Issues Task Force consensus in Issue No. 96-18,
Accounting for Equity Instruments That are Issued to Other Than Employees for
Acquiring or in Conjunction with Selling, Goods or Services. Generally, under
APB 25, if the option exercise price for a fixed award to an employee is equal
to the fair value of the common stock at the date of the grant of the stock
option, no compensation expense is recorded. Under SFAS 123 and EITF 96-18, the
amount of compensation expense that is recorded is based on an option pricing
model which incorporates such factors as the expected volatility of future
movements in the price of the underlying stock, risk-free interest rates, the
term of the options and any dividends expected to be paid. As a result, under
SFAS 123 and EITF 96-18, we would generally expect to record a greater amount of
compensation expense than under APB 25.

Segment Reporting. We have adopted SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information. SFAS 131 requires companies to disclose
certain information about reportable segments. Based on the criteria within SFAS
131, we have determined that we currently have only one reportable segment,
telecommunications systems and related services.

Going Concern. These financial statements have been prepared assuming the
Company is a going concern. As of March 31, 2005, the Company has negative
working capital of $(8,609,000) and a deficit net worth of $8,089,000. This
gives rise to substantial doubts about the Company's ability to continue as a
going concern. The financial statements do not reflect any adjustments which
might be required should the Company discontinue as a going concern.

COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004

We incurred a $(1,246,000) net loss for the three months ended March 31, 2005 as
compared to a net loss of $(663,000) during the comparable period in 2004. A
comparison of revenues and expenses for the two periods is as follows:


                                       5
<PAGE>

REVENUES

Sales for the three months ended March 31, 2005 decreased 17% to $1,371,000 from
$1,643,000 for the quarter ended March 31, 2004. During August 2004, the primary
fixed line carrier in Spain implemented a surcharge for the use of its pay
telephones with prepaid calling cards. This put the Company and all other
prepaid calling card companies at a disadvantage to the primary fixed line
carrier who also sells prepaid calling cards. In April 2005, the governing
authorities in Spain deemed this practice to be unfair competition and ordered
the fixed line company to access the fee on its own calling cards. The second
quarter revenues were down due to this situation; however, management believes
that revenue should return to normal levels in the next quarter.

COST OF GOODS SOLD

Cost of goods sold decreased 28% to $917,000 during the three months ended March
31, 2005 from $1,267,000 during the same period in 2004. The decrease in cost of
goods sold is attributable primarily to the lower sales volume but also to a
higher profit margin on cards sold due to further negotiations with carriers.

GROSS PROFIT

Gross Profit for the three months ended March 31, 2005 went to 33% from 23%
during the same period in 2004. This is due to the switch from in its carrier
providing access, renegotiating with alternative carriers' minute prices in
termination and more pro-active in carrier-usage.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses increased 82% to $1,367,000 during
the three months ended March 31, 2005 as compared to $752,000 for the comparable
period in 2004. The increase is due primarily to the additional stock
compensation to employees and advisors.

DEPRECIATION

Depreciation expense decreased 23% to $92,000 during the three months ended
March 31, 2005 as compared to $119,000 for the comparable period in 2004. The
decrease is due to the Company had leasehold improvements on its office space in
Marbella, which has been written off due to the move of its offices to Malaga.


INTEREST EXPENSE

The Company incurred interest expenses of $241,000 during the three months ended
March 31, 2005 as compared to $168,000 during the comparable period in 2004. The
increase is due to increased interest on stockholder loans.


                                       6
<PAGE>

COMPARISON OF THE SIX MONTHS ENDED MARCH 31, 2005 AND 2004

We incurred a $(1,777,000) net loss for the six months ended March 31, 2005 as
compared to a net loss of $(1,250,000) during the comparable period in 2004. A
comparison of revenues and expenses for the two periods is as follows:

REVENUES

Sales for the six months ended March 31, 2005 decreased 13% to $2,881,000 from
$3,190,000 for the six months ended March 31, 2004. During August 2004, the
primary fixed line carrier in Spain implemented a surcharge for the use of its
pay telephones with prepaid calling cards. This put the Company and all other
prepaid calling card companies at a disadvantage to the primary fixed line
carrier who also sells prepaid calling cards. In April 2005, the governing
authorities in Spain deemed this practice to be unfair competition and ordered
the fixed line company to access the fee on its own calling cards. The revenues
for the six months were down due to this situation; however, management believes
that revenue should return to normal levels in the next quarter.

COST OF GOODS SOLD

Cost of goods sold decreased 33% to $1,905,000 during the six months ended March
31, 2005 from $2,738,000 during the same period in 2004. The decrease in cost of
goods sold is attributable primarily to the lower sales volume but also to a
higher profit margin on cards sold due to further negotiations with carriers.

GROSS PROFIT

Gross Profit for the six months ended March 31, 2005 went to 34% from 15% during
the same period in 2004. This is due to the switch in its carrier providing
access, renegotiating with alternative carriers' minute prices in termination
and more pro-active in carrier-usage.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses increased 63% to $2,188,000 during
the six months ended March 31, 2005 as compared to $1,344,000 for the comparable
period in 2004. The increase is due primarily to the additional stock
compensation to employees.

DEPRECIATION

Depreciation expense decreased 6% to $186,000 during the six months ended March
31, 2005 as compared to $198,000 for the comparable period in 2004.

INTEREST EXPENSE

The Company incurred interest expenses of $379,000 during the six months ended
March 31, 2005 as compared to $195,000 during the comparable period in 2004. The
increase is due to increased interest on stockholder loans.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2005, the Company had negative working capital of $(8,609,000),
compared to negative working capital of $(9,026,000) at March 31, 2004.

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.


                                       7
<PAGE>

During the 2004 fiscal year, ITS Networks management focused on improving
margins on its prepaid business by reducing operating costs and reducing
outstanding debt. As a result, it has decreased its debt and looked for
additional debt/equity funding. Its telephone services have been redefined as a
part of a new marketing mix and certain services relaunched with a raw image and
brand name associated with the prepaid telephone card business of Teleconnect.
The Company has constantly focused on reducing its operating costs to a minimum
and is still taking measures which will further reduce its monthly expenses. The
Company's objective was to have a monthly breakeven situation before year end
even if no additional funds from investors were to arrive.

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.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The following table is a recap of the Company's contractual obligations as of
March 31, 2005.



Contractual  Obligations                Payments  Due  by  Period
------------------------                -------------------------
                                               Less Than        One To
                                  Total         One Year      Three Years
                               ------------------------------------------
 Long-term  Debt               $    459,000   $    220,000    $   239,000
 Related Party Notes Payable      2,273,000      2,273,000             --
 Operating  Leases                  281,000        110,000        171,000

                               ------------   ------------    -----------
 Total  Contractual  Cash
 Obligations                   $  3,013,000   $  2,603,000    $   410,000
                               ============   ============    ===========


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.


                                       8
<PAGE>

                                     PART II

                                OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

A shareholder filed suit against the Company claiming the right to an additional
623,100 shares of the Company's common stock and 246,624 euros in damages due to
the failure to issue these shares on a timely basis. Management believes this
suit to be without merit and has not accrued any liability for this litigation
as of March 31, 2005.

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, 2005, the Company has accrued 136,000 Euros for the
settlement of pending litigation.

ITEM 2. Unregistered Sales of equity Securities and Use of Proceeds

During April 2005, the Company issued 8,000,000 shares of restricted common
stock to LGMR Geeris in exchange for facilitating necessary funding, in reliance
upon Section 4(2) of the Securities Act of 1933, as amended.

During April 2005, the Company issued 325,000 shares of restricted common stock
to Cobrasky S.L., Production Monjos S.L., and Fersamar S.L. in exchange for
services in reliance upon Section 4(2) of the Securities Act of 1933, as
amended.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS

During the three month period ended March 31, 2005, a vote of the security
holders of the Company was required and took place in order to approve the name
change of the Company from ITS Networks Inc. to Teleconnect Inc.

ITEM 5. OTHER INFORMATION

None


                                       9
<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A) Reports on Form 8-K:

    None

(B) Exhibits

10.1 Bridge Loan Agreement dated February 23, 2005 between Geeris Holding
     Nederland, B.V. and Teleconnect Inc.

31.1 Certification of Gustavo Gomez

31.2 Certification of Herman de Haas

32.1 Certification of Gustavo Gomez and Herman de Haas



                                   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  16,  2005

Teleconnect  Inc.

By:  /s/  Gustavo  Gomez                 By:  /s/  Herman  de  Haas
     -----------------------------            -------------------------------
     Gustavo Gomez, Director,                 Herman  de  Haas,
     Chief Executive Officer,                 Director, Executive Vice
     President, Chief Financial               President and Chief Operating
     Officer and Treasurer                    Officer


                                       10
<PAGE>

                                INDEX TO EXHIBITS

Exhibit  No.       Description

10.1               Bridge Loan Agreement dated February 23, 2005 between Geeris
                   Holding Nederland, B.V. and Teleconnect Inc.

31.1               Certification  of  Gustavo  Gomez

31.2               Certification  of  Herman  de  Haas

32.1               Certification  of  Gustavo  Gomez  and  Herman  de  Haas



                                       11