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 December 31, 2005

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

        For the transition period from ______________ to ________________

                         Commission File Number: 0-24857

                                TELECONNECT INC.

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


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



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

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

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

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the last practicable date: 115,639,197 shares at February 7, 2006.

Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]

<PAGE>

                                TELECONNECT INC.


                                      INDEX

PART  I. FINANCIAL INFORMATION

Item  1. Financial Statements:

      Condensed Consolidated Balance Sheet as of December
      31, 2005 (Unaudited)                                                     3

      Condensed Consolidated Statements of Operations for
      the three months ended December 31, 2005 and
      2004(Unaudited)                                                          4

      Condensed Consolidated Statements of Cash Flows for
      the three months ended December 31, 2005 and 2004
      (Unaudited)                                                              5

      Notes to Condensed Consolidated Financial Statements                     7

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

Item  3. Controls and Procedures                                              13

PART  II. OTHER INFORMATION

Item  1. Legal Proceedings                                                    14

Item  2. Unregistered Sales of Equity Securities                              14

Item  3. Defaults upon Senior Securities                                      14

Item  4. Submission of Matters to a Vote of Security Holders                  14

Item  5. Other Information                                                    14

Item  6. Exhibits on Form 8-K                                                 14

Signatures                                                                    15



                                        2
<PAGE>


                          PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

                                     ASSETS
CURRENT ASSETS:
      Cash and cash equivalents                                        $ 52,000
      Accounts receivable - trade, net of allowance
       for doubtful accounts of $1,070,000                              113,000
      Accounts receivable - other                                       106,000
      Inventory                                                           4,000
                                                                       --------
        Total current assets                                            275,000
                                                                       --------

     PROPERTY AND EQUIPMENT, NET                                        430,000
                                                                       --------
     OTHER ASSETS:
      Vendor deposits                                                   208,000
                                                                       --------
                                                                       $913,000
                                                                       ========

                    LIABILITIES AND STOCKHOLDERS' (DEFICIT)

CURRENT LIABILITIES:

      Accounts payable - trade                                     $  2,827,000
      Accrued liabilities                                               983,000
      Notes payable to bank                                             142,000
      Current portion of payment obligation to
       taxing authority                                                 170,000
      Loans from related parties                                      1,286,000
      Deferred income                                                 1,485,000
                                                                   ------------
        Total current liabilities                                     6,893,000
                                                                   ------------
     LONG-TERM DEBT
      Payment obligation to tax authority, net
       of current portion shown above                                   122,000
                                                                   ------------

     STOCKHOLDERS' (DEFICIT):
      Preferred stock; par value of $0.001,
       5,000,000 shares authorized, no shares outstanding                    --
      Common stock; par value of $0.001,
       500,000,000 shares authorized, 114,537,884
       shares outstanding                                               115,000
      Additional paid-in capital                                     16,471,000
      Accumulated (deficit)                                         (20,714,000)
      Effect of cumulative translation adjustment                    (1,974,000)
                                                                   ------------
        Total stockholders' (deficit)                                (6,102,000)
                                                                   ------------
                                                                   $    913,000
                                                                   ============


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

                                        3
<PAGE>


                                TELECONNECT INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE THREE MONTHS ENDED DECEMBER 31, 2005 AND 2004
                                   (Unaudited)


                                                       Three  Months  Ended
                                                            December 31,
                                                            ------------
                                                        2005           2004
                                                        ----           ----
SALES                                            $   1,307,000    $   1,510,000

COST OF GOODS SOLD (exclusive of
 depreciation shown separately below)                  897,000          988,000
                                                 -------------    -------------

GROSS PROFIT                                           410,000          522,000
                                                 -------------    -------------
OPERATING EXPENSES:
 Selling, general and administrative expenses          396,000          821,000
 Depreciation                                           75,000           94,000
                                                 -------------    -------------
      Total operating expenses                         471,000          915,000
                                                 -------------    -------------

(LOSS) FROM OPERATIONS                                 (61,000)        (393,000)
                                                 -------------    -------------
OTHER INCOME (EXPENSES):
 Other Expenses                                        (35,000)              --
 Interest expense                                     (317,000)        (138,000)
                                                 -------------    -------------
(LOSS) FROM CONTINUING
 OPERATIONS BEFORE INCOME TAXES                       (413,000)        (531,000)

PROVISION FOR INCOME TAXES                                  --               --
                                                 -------------    -------------
NET (LOSS)                                       $    (413,000)   $    (531,000)
                                                 =============    =============

BASIC AND DILUTED EARNINGS (LOSS) PER SHARE      $       (0.00)   $       (0.01)
                                                 =============    =============
BASIC AND DIULTED AVERAGE COMMON AND COMMON
 EQUIVALENT SHARES OUTSTANDING                     109,505,819       71,039,464
                                                 =============    =============

THE COMPONENTS OF COMPREHENSIVE LOSS:
 Net (loss)                                      $    (413,000)   $    (531,000)
 Foreign currency translation adjustment                79,000         (641,000)
                                                 -------------    -------------

COMPREHENSIVE (LOSS)                             $    (334,000)   $  (1,172,000)
                                                 =============    =============
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
  Comprehensive (loss)                           $       (0.00)   $       (0.02)
                                                 =============    =============

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

                                        4
<PAGE>

                                TELECONNECT INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE THREE MONTHS ENDED DECEMBER 31, 2005 AND 2004
                                   (Unaudited)

                                                 Three months ended December 31,
                                                 -------------------------------
                                                       2005          2004
                                                       ----          ----
CASH  FLOWS  FROM  OPERATING  ACTIVITIES:

  Net  (loss)                                       $(413,000)     $(531,000)
  Adjustments to reconcile net (loss) to
    net cash used in operating activities:
    Depreciation                                       75,000         94,000
    Non cash expenditures paid with stock             324,000        276,000
  Decrease (increase) in operating assets:
    Accounts receivable - trade                       138,000        (76,000)
    Accounts receivable - other                       (31,000)        (3,000)
    Inventory                                          30,000         (4,000)

    Vendor  and  other  deposits                        5,000         (9,000)
Increase (decrease) in operating liabilities:
    Accounts payable and accrued liabilities          (49,000)       454,000
    Deferred income and deposits                     (418,000)       264,000
                                                    ---------      ---------
      Net  cash provided by (used  in)
        operating  activities                        (339,000)       465,000
                                                    ---------      ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment                  (57,000)       (51,000)
                                                    ---------      ---------
      Net cash (used in) investing
        activities                                    (57,000)       (51,000)
                                                    ---------      ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Loan proceeds from related parties                  292,000        492,000
  Loan proceeds from bank                             142,000             --
  Payment on tax agency obligation                    (15,000)      (104,000)
  Payment on loan from bank                          (120,000)            --
  Payment on loan from related parties                     --       (192,000)
                                                    ---------      ---------
      Net cash provided by financing
        activities                                    299,000        196,000
                                                    ---------      ---------
EFFECT OF EXCHANGE RATE                                79,000       (641,000)
                                                    ---------      ---------
NET INCREASE (DECREASE) IN CASH AND
  CASH  EQUIVALENTS                                   (18,000)       (31,000)

CASH AND CASH EQUIVALENTS,
  BEGINNING OF YEAR                                    70,000         93,000
                                                    ---------      ---------
CASH AND CASH EQUIVALENTS,
  END OF YEAR                                       $  52,000      $  62,000
                                                    =========      =========


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

                                        5
<PAGE>


                               ITS NETWORKS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE THREE MONTHS ENDED DECEMBER 31, 2004 AND 2003
                                   (Unaudited)

                                                 Three Months Ended December 31,
                                                 -------------------------------
                                                        2005          2004

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:

Cash paid during the year for:

    Interest                                          $    566     $     --
                                                      ========     ========
SUPPLEMENTAL DISCLOSURE OF NONCASH
  TRANSACTIONS:

  Long-term debt converted to common stock            $     --     $500,000
Common stock issued for loan fees charged to
      interest on notes payable                       $299,000     $176,000
Common stock issued for services received             $ 25,000     $100,000


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


                                        6
<PAGE>


                                TELECONNECT, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2005 AND 2004

1. THE COMPANY

Teleconnect Inc. (the "Company", "Teleconnect", we, us or our) was incorporated
under the laws of the State of Florida on November 23, 1998. The Company is
engaged in the telecommunication industry in Spain and offers telecommunications
services for home and business use. The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with
accounting standards generally accepted in the United States ("GAAP") and rules
and regulations of the Securities and Exchange Commission for interim financial
information. The financial statements do not include all information and notes
required by GAAP for complete financial statements. In our opinion, all
adjustments considered necessary for a fair presentation have been included.
Results of the interim periods presented are not necessarily indicative of
results which might be expected for the entire fiscal year.

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

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

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

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

2. GOING CONCERN

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

As shown in the accompanying financial statement, the Company incurred losses of
($413,000) and ($531,000) for the three months ended December 31, 2005 and 2004,
respectively. In addition, the Company has incurred substantial losses since its
inception. As of December 31, 2005, the Company had a working capital deficit of
$(6,618,000) and a stockholders' deficit of $(6,102,000). These factors raise
substantial doubt about the Company's ability to continue as a going concern.

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

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

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

3. CONCENTRATION OF CREDIT

The Company extends credit to retailers on the sale of prepaid calling cards.
Substantially all sales are made in Spain. The Company has incurred substantial
losses in the past from the extension of credit but believes that as of December
31, 2005 its allowance for credit related losses is adequate to cover any
uncollectible receivables.

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

As of December 31, 2005, three customers accounted for 28.2%, 12.4% and 9.4% of
net accounts receivables.

4. PROPERTY AND EQUIPMENT

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


                                        7
<PAGE>

The Company reviews the carrying value of property and equipment for impairment
on an annual basis. In cases where undiscounted expected future cash flows are
less than the carrying value, an impairment loss is recognized equal to an
amount by which the carrying value exceeds the fair market value of the assets.
The Company recognized no impairment losses related to the realization of
property and equipment during the three months ended December 2005 and 2004.

Property and equipment, substantially all of which are located in Spain, at
December 31, 2005 was comprised as follows:

          Computers and switching systems                 $ 2,107,000
          Furniture and fixtures                              173,000
          Transportation equipment                              5,000
                                                          -----------
          Total at cost                                     2,285,000
                                                          -----------

          Less: Accumulated depreciation
          and amortization                                 (1,855,000)
                                                          -----------
          Net Property and Equipment                      $   430,000
                                                          ===========


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

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


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

5. LOANS FROM RELATED PARTIES

As of December 31, 2005, the Company had short term loans totaling $1,337,000
from shareholders. These loans bear interest at 9% annually, are unsecured, and
are due upon demand. During Novemeber and December 2005, the Company received a
total of $292,000 in short-term financing from related parties. As additional
consideration for making one of these loans, the Company issued 5,000,000 shares
of its common stock valued at $350,000, of which $299,000 was charged to
interest expense during the quarter ended December 31, 2005.

6. NOTE PAYABLE

As of December 31, 2005, the Company had a short-term bridge loan of $142,000
from a potential investor. This note is interest bearing at 4% per 60 days and
due on demand.


7. LONG-TERM DEBT

During November 2002, the Company entered into an agreement with Spanish taxing
authorities to pay past due employment tax liabilities incurred during the
period commencing in January of 2001 through April of 2002 totaling
(euro)412,356. Payment terms call for a sixty month payout with interest paid
monthly at 4.24% per annum and principal payments ranging from (euro)3,436 per
month in year one to (euro)10,309 per month in year five. As of December 31,
2005, $122,000 ((euro)103,000) of this debt is long-term.

Maturities on long term debt by year are as follows:


          Due within one year                                 $170,000
          Due in year two                                      113,000
          Due in year three                                      9,000
          Due in year four                                          --
          Due in five years                                         --
          Thereafter                                                --
                                                              --------
          Total                                               $292,000
                                                              ========



                                       8
<PAGE>

8. LITIGATION AND CONTINGENT LIABILITIES

A shareholder filed suite against the Company claiming the right to an
additional 623,100 shares of the Company's common stock and 246,624 euros in
damage due to the failure to issue these shares on a timely basis. In August
2005, an agreement was reached whereby the Company will pay 29,000 euros and
issue 1,000,000 two-year restricted shares once the shareholder had collaborated
with some internal issues. As of December 31, 2005 the Company has paid $18,000
and accrued $167,000 for this settlement.

In the normal course of its operations, the Company may, from time to time, be
named in legal actions seeking monetary damages. While the outcome of these
matters cannot be estimated with certainty, management does not expect, based
upon consultation with legal counsel, that they will have a material effect on
the Company's business or financial condition or results of operations. As of
December 31, 2005, the Company has accrued $123,000 to cover the anticipated
cost of settling several litigation matters.

9. STOCK TRANSACTIONS

During the three months ended December 31, 2005, the Company issued 5,000,000
shares of restricted common stock for payment of interest from related party
notes payable totaling $350,000.

During the three months ended December 31, 2005, the Company issued 300,000
shares of common stock for consulting services totaling $25,000.


10. EARNINGS (LOSS) PER SHARE

Basic earnings per share amounts are computed based on the weighted average
number of shares outstanding on that date during the applicable periods. The
numbers of shares used in the computations were 109,505,819 and 71,039,464 in
2005 and 2004, respectively. The earnings per share amounts for the discontinued
operations have been computed using these numbers of shares.

Diluted earnings per share was not disclosed as of December 31, 2005 and 2004
since the options and warrants outstanding at those dates were antidilutive.
Warrants and options total 4,315,000 and 4,755,790 shares were outstanding at
December 31, 2005 and 2004, respectively.


                                        9
<PAGE>

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

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

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

Significant Accounting Estimates and Policies

CASH AND CASH EQUIVALENTS - The Company considers all highly liquid investments
with maturities of three months or less when purchased to be cash equivalents.
There are no cash equivalents at December 31, 2005.

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

REVENUE RECOGNITION - Revenues from the sale of prepaid calling cards are
recognized at the time the cards are used. Unused time is reflected in deferred
revenue until the time is utilized or the card reaches its expiration date. The
Company had deferred revenues of $1,485,000 as of December 31, 2005.

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

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

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

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

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

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

FOREIGN CURRENCY TRANSLATION/TRANSACTIONS - The assets and liabilities of ITS
Europe and Teleconnect whose functional currency is the Euro, are generally
translated into US dollars at the December 31, 2005 exchange rate for assets and
liabilities and at the historical exchange rate on stockholders' equity. The
revenues and expenses are translated at average exchange rates for the periods.
Resulting translation adjustments are accumulated and reflected as a separate
component of stockholders' equity.


                                       10
<PAGE>

NEW ACCOUNTING PRONOUNCEMENTS

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

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

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

The grant-date for fair value of employee share options and similar instruments
will be estimated using option-pricing models adjusted for the unique
characteristics of these instruments. The statement is effective for the
quarters beginning December 15, 2005.

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


                                       11
<PAGE>

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

We incurred a $(413,000) net loss for the three months ended December 31, 2005
as compared to a net loss of $(531,000) during the comparable period in 2004, a
decrease of $118,000 or 22.2%. A comparison of revenues and expenses for the two
periods is as follows:

REVENUES

Sales for the three months ended December 31, 2005, decreased 13.4% to
$1,307,000 from $1,510,000 for the quarter ended December 31, 2004. The decrease
in sales is attributed to the lack of marketing due to the shortage of working
capital.

COST OF GOODS SOLD

Cost of goods sold decreased 9.2 % to $ 897,000 during the three months ended
December 31, 2005 from $988,000 during the same period in 2004. This decrease
was due primarily to a 13.4% decrease in revenues.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses decreased 51.8 % to $ 396,000
during the three months ended December 31, 2005 as compared to $821,000 for the
comparable period in 2004. This decrease is due in part to the continued effort
to reduce costs.

DEPRECIATION

Depreciation expense decreased 20.2 % to $ 75,000 during the three months ended
December 31, 2005 as compared to $94,000 for the comparable period in 2004.

INTEREST EXPENSE

Interest expense increased 129% to $ 317,000 during the quarter ended December
31, 2005, as compared to $138,000 during the comparable period in 2004. This is
due primarily to the expensing of a $299,000 loan fee paid in connection with a
loan from a related party.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2005, the Company had negative working capital of approximately
$(6,618,000), compared to negative working capital of $(8,446,000) at December
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.

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.


                                       12
<PAGE>

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

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

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

                                                      Less Than     One to
                                           Total      One Year    Three Years
                                         --------     --------    -----------

     Long-term  Debt                     $292,000     $170,000     $122,000

     Operating  Leases                    147,000       92,000       55,000
                                         --------     --------     --------

     Total Contractual Cash
     Obligations                         $439,000     $262,000     $177,000
                                         ========     ========     ========


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.


                                       13
<PAGE>


                                     PART II

                                OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS


In the normal course of its operations, the Company has, from time to time, been
named in legal actions seeking monetary damages. While the outcome of these
matters cannot be estimated with certainty, management does not expect, based
upon consultation with legal counsel, that they will have a material effect on
the Company's business or financial condition or results of operations, except
that as of December 31, 2005, the Company has accrued $123,000 for the
settlement of pending litigation.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES

5,000,000 restricted shares were issued to Diepandael BV as compensation for
facilitating a bridge loan to the Company in reliance upon Regulation S under
the Securities Act of 1933.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS ON FORM 8-K

(A) Reports on Form 8-K:   None

(B) Exhibits

31.1 Certification of Gustavo Gomez

31.2 Certification of Herman de Haas

32.1 Certification of Gustavo Gomez and Herman de Haas


                                       14
<PAGE>


                                   SIGNATURES

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

February 13, 2006

                                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



                                       15
<PAGE>


                                INDEX TO EXHIBITS

Exhibit


        No.          Description

        31.1    Certification of Gustavo Gomez

        31.2    Certification of Herman de Haas

        32.1    Certification of Gustavo Gomez and Herman de Haas



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