United
States


Securities
and Exchange Commission


Washington,
D.C. 20549





FORM
10-Q





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


SECURITIES
EXCHANGE ACT OF 1934





For the
quarterly period ended December 31, 2008





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


SECURITIES
EXCHANGE ACT OF 1934





For the
transition period from ______________ to ________________





Commission
File Number: 0-24857





Teleconnect
Inc.


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




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




Centro
Comercial Camoján Corner, 1a plta


Camino
de Camoján, Urb. Sierra Blanca


29603
Marbella – Spain





(Address
of principal executive offices)





Registrant’s
telephone number, including area
code:  011-34-95-202-9400





____________________________________________________________


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





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes o  No o





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




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





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





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





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





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





APPLICABLE
ONLY TO CORPORATE ISSUERS:





Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: 495,361,707 shares at September 21,
2009.







TELECONNECT
INC.








PART
              I.
              FINANCIAL
      INFORMATIONItem
              1.
              Financial
      Statements:Condensed
      Consolidated Balance Sheets as of December31, 2008 and
      2007(unaudited) and September 30, 2008 and 2007
              4Condensed
      Consolidated Statements of Operations forthe three months
      ended December 31, 2008, 2007 and2006
      (Unaudited)
              6Condensed
      Consolidated Statements of Cash Flows forthe three months
      ended December 31, 2008, 2007 and 2006(Unaudited)
              7Notes to Condensed Consolidated Financial Statements
      (Unaudited)
              9Item
              2.
              Management's
      Discussion and Analysis of Financial Condition andResults
      of Operations
              12Item
              3.
              Quantitative
      and Qualitative Disclosure About Market Risk
              15Item
              4.
              Controls
      and Procedures
              15PART
              II.
              OTHER
      INFORMATIONItem
              1.
              Legal
      Proceedings
              16Item
              1A.
              Risk
      Factors
              16Item
              2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              16Item
              3.
              Defaults
      Upon Senior Securities
              16Item
              4.
              Submission
      of Matters to a Vote of Security Holders
              16Item
              5.
              Other
      Information
              16Item
              6.
              Exhibits
              16Signatures
              17


2




PART I FINANCIAL INFORMATION





ITEM 1. FINANCIAL STATEMENTS




3




TELECONNECT,
INC.
 CONDENSED
CONSOLIDATED BALANCE SHEETS
  PAGE 1 of
2
 
 December
      31,
                
                
                December
      31,
                
                
                September
      30,
                
                
                September
      30,2008
                
                
                2007
                
                
                2008
                
                
                2007(Unaudited)
                
                
                (Unaudited)ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                
                $
                44,417
                
                
                $
                259,195
                
                
                $
                48,342
                
                
                $
                441,121Accounts
      receivable - trade
                
                
                41,335
                
                
                
                76,948
                
                
                
                70,189
                
                
                
                8,010Due
      from related parties
                
                
                504,665
                
                
                
                448,478
                
                
                
                468,146
                
                
                
                381,439Inventory
      (work in process)
                
                
                1,445,859
                
                
                
                751,637
                
                
                
                1,535,630
                
                
                
                373,186Prepaid
      taxes
                
                
                95,370
                
                
                
                117,151
                
                
                
                44,663
                
                
                
                94,201Prepaid
      expenses
                
                
                52,670
                
                
                
                124,134
                
                
                
                14,313
                
                
                
                118,622Asset
      of discontinued operations
                
                
                569,386
                
                
                
                761,860
                
                
                
                546,393
                
                
                
                822,029Total
      current assets
                
                
                2,753,702
                
                
                
                2,539,403
                
                
                
                2,727,676
                
                
                
                2,238,608PROPERTY
      AND EQUIPMENT, NET
                
                
                82,400
                
                
                
                115,324
                
                
                
                90,461
                
                
                
                159,860OTHER
      ASSETS:Investment
      in Giga Matrix Holdings B.V.
                
                
                44,626
                
                
                
                117,786
                
                
                
                44,626
                
                
                
                142,173Goodwill
                
                
                432,710
                
                
                
                457,708
                
                
                
                444,712
                
                
                
                440,856Long-term
      notes receivable (net of allowance for bad debtsof
      $543,073 and $549,074 at December 31, and September 30, 2008,
      respectively)
                
                
                55,668
                
                
                
                600,061
                
                
                
                57,212
                
                
                
                571,414Assets
      of discontinued operations
                
                
                778,194
                
                
                
                798,900
                
                
                
                841,171
                
                
                
                744,671Total
      assets
                
                $
                4,147,300
                
                
                $
                4,629,182
                
                
                $
                4,205,858
                
                
                $
                4,297,582
 See accompanying Notes to Condensed
Consolidated Financial Statements.
  4
  TELECONNECT,
INC.
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 
 PAGE 2 of
2
 
 December
      31,
                
                
                December
      31,
                
                
                September
      30,
                
                
                September
      30,2008
                
                
                2007
                
                
                2008
                
                
                2007(Unaudited)
                
                
                (Unaudited)LIABILITIES
      AND STOCKHOLDERS' DEFICITCURRENT
      LIABILITIES:Accounts
      payable - trade
                
                $
                93,257
                
                
                $
                549,172
                
                
                $
                207,397
                
                
                $
                134,740Accrued
      liabilities
                
                
                138,292
                
                
                
                68,014
                
                
                
                139,467
                
                
                
                37,887Taxes
      payable
                
                
                80,000
                
                
                
                -
                
                
                
                80,000
                
                
                
                -Notes
      payable
                
                
                167,004
                
                
                
                176,800
                
                
                
                171,636
                
                
                
                170,148Loans
      from related parties
                
                
                3,674,942
                
                
                
                1,644,335
                
                
                
                3,313,728
                
                
                
                998,202Current
      portion of capital lease obligations
                
                
                25,371
                
                
                
                51,358
                
                
                
                38,825
                
                
                
                48,742Liabilities
      of discontinued operations
                
                
                4,052,616
                
                
                
                3,527,417
                
                
                
                4,063,929
                
                
                
                3,336,921Total
      current liabilities
                
                
                8,231,482
                
                
                
                6,017,096
                
                
                
                8,014,982
                
                
                
                4,726,640Capital
      lease obligations, less current portion
                
                
                -
                
                
                
                26,836
                
                
                
                -
                
                
                
                38,491STOCKHOLDERS'
      DEFICIT:Preferred
      stock; par value of $0.001, 5,000,000 sharesauthorized,
      no shares outstanding
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Common
      stock; par value of $0.001, 500,000,000 shares authorized,332,243,707
      shares outstanding as ofDecember
      31, 2008 and 2007 and September 30, 2008 and 2007
                
                
                332,244
                
                
                
                332,244
                
                
                
                332,244
                
                
                
                332,244Additional
      paid-in capital
                
                
                28,999,901
                
                
                
                28,999,901
                
                
                
                28,999,901
                
                
                
                28,999,901Accumulated
      deficit
                
                
                (30,923,219
                )
                
                
                (27,936,775
                )
                
                
                (30,573,787
                )
                
                
                (27,063,048
                )Accumulated
      other comprehensive loss
                
                
                (2,493,108
                )
                
                
                (2,810,120
                )
                
                
                (2,567,482
                )
                
                
                (2,736,646
                )Total
      stockholders' deficit
                
                
                (4,084,182
                )
                
                
                (1,414,750
                )
                
                
                (3,809,124
                )
                
                
                (467,549
                )Total
      liabilities and stockholders' deficit
                
                $
                4,147,300
                
                
                $
                4,629,182
                
                
                $
                4,205,858
                
                
                $
                4,297,582
 See accompanying Notes to Condensed
Consolidated Financial Statements.
  5
  TELECONNECT,
INC.
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 FOR THE
THREE MONTHS ENDED DECEMBER 31,
 
 2008
                
                
                2007
                
                
                2006SALES
                
                $
                55,274
                
                
                $
                15,640
                
                
                $
                -COST
      OF GOODS SOLD
                
                
                56,266
                
                
                
                167,856
                
                
                
                -GROSS
      PROFIT LOSS
                
                
                (992
                )
                
                
                (152,216
                )
                
                
                -OPERATING
      EXPENSES:Selling,
      general and administrative expenses
                
                
                236,725
                
                
                
                328,795
                
                
                
                389,043Depreciation
                
                
                7,912
                
                
                
                9,952
                
                
                
                -Total
      operating expenses
                
                
                244,637
                
                
                
                338,747
                
                
                
                389,043LOSS
      FROM CONTINUING OPERATIONS
                
                
                (245,629
                )
                
                
                (490,963
                )
                
                
                (389,043
                )OTHER
      INCOME (EXPENSES):Other
      income
                
                
                7,509
                
                
                
                8,686
                
                
                
                -Interest
      expense - related parties
                
                
                (34,064
                )
                
                
                (33,654
                )
                
                
                (25,365
                )LOSS
      FROM CONTINUING OPERTIONS BEFORE INCOME TAXESAND
      DISCONTINUED OPERATONS
                
                
                (272,184
                )
                
                
                (515,931
                )
                
                
                (414,408
                )NET
      LOSS FROM DISCONTINUED OPERATIONS
                
                
                (77,248
                )
                
                
                (357,796
                )
                
                
                (271,221
                )NET
      LOSS
                
                $
                (349,432
                )
                
                $
                (873,727
                )
                
                $
                (685,629
                )BASIC
      AND DILUTED LOSS PER SHARE:From
      continuing operations
                
                
                0.00
                
                
                
                0.00
                
                
                
                0.00From
      discontiued operations
                
                
                0.00
                
                
                
                0.00
                
                
                
                0.00Total
                
                $
                0.00
                
                
                $
                0.00
                
                
                $
                0.00AVERAGE
      COMMON AND COMMONEQUIVALENT
      SHARES OUTSTANDING
                
                
                332,243,707
                
                
                
                332,243,707
                
                
                
                181,360,383THE
      COMPONENTS OF COMPREHENSIVE LOSS:Net
      loss
                
                $
                (349,432
                )
                
                $
                (873,727
                )
                
                $
                (685,629
                )Foreign
      currency translation adjustment
                
                
                112,688
                
                
                
                (111,324
                )
                
                
                (77,897
                )Tax
      effect on currency translation
                
                
                (38,314
                )
                
                
                37,850
                
                
                
                26,485COMPREHENSIVE
      INCOME LOSS
                
                $
                (275,058
                )
                
                $
                (947,201
                )
                
                $
                (737,041
                )
 
 See
accompanying Notes to Condensed Consolidated Financial Statements.
  6
  TELECONNECT,
INC.
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 FOR
THE THREE MONTHS ENDED DECEMBER 31,
 
 Page
      1 of 22008
                  
                  
                  2007
                  
                  
                  2006CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                  
                  $
                  (349,432
                  )
                  
                  $
                  (873,727
                  )
                  
                  $
                  (685,629
                  )Adjustments
      to reconcile net loss tonet
      cash used in operating activities:Depreciation
                  
                  
                  7,912
                  
                  
                  
                  9,952
                  
                  
                  
                  -Loss
      on equity investment in Ownersair, Ltd.
                  
                  
                  -
                  
                  
                  
                  24,387
                  
                  
                  
                  -Non-cash
      expenditures paid with stock
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  82,598Change
      in operating assets and liabilitiesAccounts
      receivable - trade
                  
                  
                  25,996
                  
                  
                  
                  (13,695
                  )
                  
                  
                  -Accounts
      receivable - other
                  
                  
                  963
                  
                  
                  
                  (54,937
                  )
                  
                  
                  (13,170
                  )Accrued
      interest income
                  
                  
                  -
                  
                  
                  
                  (6,819
                  )
                  
                  
                  -Inventory
                  
                  
                  48,324
                  
                  
                  
                  (364,195
                  )
                  
                  
                  -Prepaid
      expenses
                  
                  
                  (38,743
                  )
                  
                  
                  (981
                  )
                  
                  
                  15,453Prepaid
      taxes
                  
                  
                  (51,912
                  )
                  
                  
                  (19,352
                  )
                  
                  
                  -Accounts
      payable
                  
                  
                  (108,542
                  )
                  
                  
                  409,285
                  
                  
                  
                  30,762Accrued
      liabilities
                  
                  
                  2,589
                  
                  
                  
                  28,680
                  
                  
                  
                  25,983Operating
      cash flows from discontinued operations
                  
                  
                  60,632
                  
                  
                  
                  154,597
                  
                  
                  
                  (179,989
                  )Net
      cash used in operating activities
                  
                  
                  (402,213
                  )
                  
                  
                  (706,805
                  )
                  
                  
                  (723,992
                  )CASH
      FLOWS FROM INVESTING ACTIVITIES:Advances
      to equity investment
                  
                  
                  (49,154
                  )
                  
                  
                  (52,468
                  )
                  
                  
                  -Disposal
      of property and equipment
                  
                  
                  -
                  
                  
                  
                  40,691
                  
                  
                  
                  -Investing
      activities of discontinued operations
                  
                  
                  40,274
                  
                  
                  
                  (25,783
                  )
                  
                  
                  (156,666
                  )Net
      cash used in investing activities
                  
                  
                  (8,880
                  )
                  
                  
                  (37,560
                  )
                  
                  
                  (156,666
                  )CASH
      FLOWS FROM FINANCING ACTIVITIES:Loan
      proceeds from related parties
                  
                  
                  450,652
                  
                  
                  
                  608,002
                  
                  
                  
                  973,000Payments
      on capital leases
                  
                  
                  (12,406
                  )
                  
                  
                  (12,371
                  )
                  
                  
                  -Net
      cash provided by financing activities
                  
                  
                  438,246
                  
                  
                  
                  595,631
                  
                  
                  
                  973,000EFFECT
      OF EXCHANGE RATE
                  
                  
                  (31,078
                  )
                  
                  
                  (33,192
                  )
                  
                  
                  (45,292
                  )NET
      INCREASE (DECREASE) IN CASH ANDCASH
      EQUIVALENTS
                  
                  
                  (3,925
                  )
                  
                  
                  (181,926
                  )
                  
                  
                  47,050CASH
      AND CASH EQUIVALENTS,BEGINNING
      OF YEAR
                  
                  
                  48,342
                  
                  
                  
                  441,121
                  
                  
                  
                  3,460CASH
      AND CASH EQUIVALENTS,END
      OF YEAR
                  
                  $
                  44,417
                  
                  
                  $
                  259,195
                  
                  
                  $
                  50,510
 
 See
accompanying Notes to Condensed Consolidated Financial Statements.
  7
  TELECONNECT,
INC.
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 FOR
THE THREE MONTHS ENDED DECEMBER 31,
  Page
2 of 2
 
 2008
                    
                    
                    2007
                    
                    
                    2006SUPPLEMENTAL
      DISCLOSURE OF NONCASH TRANSACTIONS:Common
      stock issued for services received
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    82,597
 See accompanying Notes to
Condensed Consolidated Financial Statements.
 8





TELECONNECT,
INC.





NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





December
31, 2008





1.
BASIS OF PRESENTATION





The
accompanying unaudited condensed consolidated financial statements of
Teleconnect Inc. (the “Company”) have been prepared in accordance with
accounting principles generally accepted in the United States of America
(“GAAP”) for interim financial information and pursuant to the rules and
regulations of the Securities and Exchange Commission.  Accordingly,
they do not include all of the information and footnotes required by GAAP for
complete financial statements.  In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included.  Operating results for the
three month period ended December 31, 2008 and 2007 are not necessarily
indicative of the results that may be expected for the full year.





The
condensed consolidated financial statements include the accounts of Teleconnect,
Inc. and its subsidiaries ITS Europe, Teleconnect Comunicaciones, Teleconnect
Telecom, PhotoWizz BV (“MediaWizz”), and Recarganet.  All significant
inter-company balances and transactions have been eliminated.





The
balance sheets at September 30, 2008 and 2007 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by GAAP for complete financial statements.





For
further information, refer to the consolidated financial statements and notes
thereto included in the Company’s annual report on Form 10-K for the years ended
September 30, 2008 and 2007.




2.
RECENTLY ISSUED ACCOUNTING STANDARDS




In
June 2009, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 168, “The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles — a replacement of SFAS No. 162,” which identifies
sources of accounting principles and the framework for selecting the principles
used in preparation of financial statements. SFAS No. 168 is effective for
interim and annual periods ending after September 15, 2009. The Company
does not believe the adoption of SFAS 168 will have a material impact on its
consolidated financial statements.





In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R)”). SFAS 167 requires a qualitative approach to identifying a controlling
financial interest in a variable interest entity (VIE), and requires ongoing
assessment of whether an entity is a VIE and whether an interest in a VIE makes
the holder the primary beneficiary of the VIE. SFAS No. 167 is effective for
fiscal years beginning after November 15, 2009. The Company does not believe the
adoption of SFAS 167 will have a material impact on its consolidated financial
statements.





In
May 2009, the FASB issued SFAS No. 165, “Subsequent Events.” SFAS
No. 165 is intended to establish general standards of accounting for and
disclosures of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. SFAS No. 165
requires disclosure of the date through which an entity has evaluated subsequent
events and the basis for that date, and is effective for interim and annual
periods ending after June 15, 2009. The Company does not expect this
standard will have a material impact on its consolidated financial
statements.





3.
DISCONTINUED OPERATIONS





In March
2009, the Company entered into an agreement to sell ITS Europe, Teleconnect
Spain, Teleconnect Telecom and Recarganet to certain employees and officers of
Teleconnect Spain with the Company retaining 10% of Teleconnect SA. Going
forward the Company will account for its remaining 10% interest
in  Teleconnect SA by the cost method.





Summarized
financial information (which consists principally of Teleconnect SA) included in
discontinued operations is as follows for the three months ended December
31:





2008
            
            
            2007
            
            
            2006Sales
            
            $
            859,920
            
            
            $
            760,117
            
            
            $
            974,223Cost
      of sales
            
            
            647,394
            
            
            
            669,088
            
            
            
            665,918Gross
      profit
            
            
            212,526
            
            
            
            91,029
            
            
            
            308,305Selling,
      general and administrative expenses
            
            
            323,245
            
            
            
            492,973
            
            
            
            512,199Depreciation
            
            
            25,728
            
            
            
            32,686
            
            
            
            67,221Operating
      loss
            
            
            (136,447
            )
            
            
            (434,630
            )
            
            
            (271,115
            )Other
      income (expense)
            
            
            59,199
            
            
            
            76,834
            
            
            
            (106
            )Loss
      from discontinued operations
            
            $
            (77,248
            )
            
            $
            (357,796
            )
            
            $
            (271,221
            )





9





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




December
      31,
            
            
            December
      31,
            
            
            September
      30,
            
            
            September
      30,2008
            
            
            2007
            
            
            2008
            
            
            2007Cash
            
            $
            15,248
            
            
            $
            77,585
            
            
            $
            22,372
            
            
            $
            104,148Accounts
      receivable - trade, net of allowancefor
      doubtful accounts of $635,938, $623,316,$678,167
      and $605,718  at December 31, 2008and
      2007 and September 30, 2008 and 2007,respectively
            
            
            385,602
            
            
            
            551,789
            
            
            
            384,709
            
            
            
            641,295Accounts
      receivable - other
            
            
            111,011
            
            
            
            45,772
            
            
            
            122,860
            
            
            
            24,486Inventory
            
            
            14,543
            
            
            
            55,473
            
            
            
            13,332
            
            
            
            50,893Prepaid
      taxes
            
            
            40,327
            
            
            
            -
            
            
            
            -
            
            
            
            -Prepaid
      expenses
            
            
            2,655
            
            
            
            31,241
            
            
            
            3,120
            
            
            
            1,207Current
      assets of discontinued operations
            
            
            569,386
            
            
            
            761,860
            
            
            
            546,393
            
            
            
            822,029Property
      and equipement, net
            
            
            438,192
            
            
            
            207,762
            
            
            
            478,214
            
            
            
            237,884Vendor
      deposits
            
            
            340,002
            
            
            
            591,138
            
            
            
            362,957
            
            
            
            506,787Other
      assets of discontinued operations
            
            
            778,194
            
            
            
            798,900
            
            
            
            841,171
            
            
            
            744,671Accounts
      payable
            
            
            1,225,761
            
            
            
            869,363
            
            
            
            1,231,822
            
            
            
            943,736Accrued
      liabilities
            
            
            251,281
            
            
            
            185,078
            
            
            
            253,952
            
            
            
            178,729Taxes
      payable
            
            
            395,259
            
            
            
            265,590
            
            
            
            342,439
            
            
            
            258,557Deferred
      income
            
            
            2,180,315
            
            
            
            2,207,386
            
            
            
            2,235,716
            
            
            
            1,955,899Liabilities
      of discontinued operations
            
            
            4,052,616
            
            
            
            3,527,417
            
            
            
            4,063,929
            
            
            
            3,336,921Net
      liabilities of discontinued operations
            
            $
            2,705,036
            
            
            $
            1,966,657
            
            
            $
            2,676,365
            
            
            $
            1,770,221





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





4.
LOANS FROM RELATED PARTIES





During
the three months ended December 31, 2008 and 2007 the Company obtained
approximately $451,000 and $608,000, respectively, in additional short term
loans from shareholders, net of currency translation adjustments. These loans
bear interest between 4% to 8% annually, are unsecured and due upon
demand.





5.
INCOME TAXES





The
Company has not recorded any income tax benefit for the three months ended
December 31, 2008 and 2007. The Company has recorded an income tax valuation
allowance equal to the benefit of any income tax carryforward because of the
uncertain nature of realization.





6.
EARNINGS (LOSS) PER SHARE





Basic
earnings per share amounts are computed based on the weighted average number of
shares outstanding on that date during the applicable periods. Stock options for
1,000,000, 4,000,000 and 4,315,000 shares that were outstanding at December 31,
2008, 2007 and 2006, respectively, have not been included in diluted earnings
per share as their inclusion would have been anti-dilutive.




10





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





2008
            
            
            2007
            
            
            2006Basic
      and diluted loss per share computationNumerator:Net
      loss from continuing operations
            
            $
            (272,184
            )
            
            $
            (515,931
            )
            
            $
            (414,408
            )Net
      loss from discontinued operations
            
            $
            (77,248
            )
            
            $
            (357,796
            )
            
            $
            (271,221
            )Net
      loss
            
            $
            (349,432
            )
            
            $
            (873,727
            )
            
            $
            (685,629
            )Denominator:Weighted
      average common shares
            
            
            332,243,707
            
            
            
            332,243,707
            
            
            
            181,360,383outstandingBasic
      and diluted loss per share:From
      continuing operations
            
            $
            (0.00
            )
            
            $
            (0.00
            )
            
            $
            (0.00
            )From
      discontinued operations
            
            $
            (0.00
            )
            
            $
            (0.00
            )
            
            $
            (0.00
            )Total
            
            $
            (0.00
            )
            
            $
            (0.00
            )
            
            $
            (0.00
            )





7.
SUBSEQUENT EVENTS





Subsequent
to December 31, 2008, the Company’s then president and chief executive officer
entered into an arrangement permitting all of his then outstanding loans of
approximately $1,719,000 to be converted into 29,118,000 common
shares.  The Company also entered into an arrangement to convert part
of its debt with an investor of approximately $428,000 into 138,000,000 common
shares.





8.
GOING CONCERN





The
accompanying condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern, which contemplates
the realization of assets and the satisfaction of liabilities in the normal
course of business.  The Company’s recent losses and cash
requirements, among other things, may indicate the Company will be unable to
continue as a going concern for a reasonable period of
time.   Management anticipates that it will be able to convert
certain outstanding debt into equity and that it will be able to raise
additional working capital.   The ability of the Company to
continue as a going concern is dependent upon the Company’s ability to attain a
satisfactory level of profitability and obtain suitable and adequate financing.
There can be no assurance that management's plan will be
successful.




11





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





Caution
Regarding Forward-Looking Statements





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





INTRODUCTION





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





Our
revenues from discontinued operations are primarily from the sale of our
long-distance telecommunication services. Our revenues and operating results
have depended upon the continued adoption and use of our products and services
by consumers and small businesses. The rate of adoption is influenced
significantly over the longer term by government laws and mandates, performance
and pricing of our products/services, relationships with the public and other
factors.





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





Cost of
sales consists primarily of the costs associated with carriers which supply the
telecom services for the Company to resell. We rely on third parties to offer
the majority of the services we have in our portfolio. Accordingly, a
significant portion of our cost of sales consists of payments to these carriers.
Cost of sales also consists of customer support costs, training and professional
services expenses, and parts.





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





Selling,
general and administrative expenses consist primarily of salaries and related
expenses for executive, finance, accounting, legal and human resources
personnel, professional fees and corporate expenses. We expect general and
administrative expenses to decrease in absolute dollars as we employ fewer
personnel and incur fewer costs related to the growth of our business and our
operation as a public company. We include stock-based compensation, when
applicable, in general and administrative expenses.




12





BALANCE SHEET COMPARISON AT
DECEMBER 31, 2008 AND SEPTEMBER 30, 2008





Assets: Total assets
at December 31, 2008 decreased 1.4% to $4,147,300 compared to $4,205,858 at
September 30, 2008.  This decrease is due primarily to a reduction of
the assets from discontinued operations.





Liabilities: Current
liabilities at December 31, 2008 increased 2.7% to $8,231,482 compared to
$8,014,982 at September 30, 2008.  This increase is due primarily to
additional loans from related parties offset by payments of approximately
$114,000 on trade accounts payable at Mediawizz.





COMPARISON OF THE THREE
MONTHS ENDED DECEMBER 31, 2008 AND 2007
(CONTINUING  OPERATIONS)





We
incurred a $349,432 net loss for the three months ended December 31, 2008 as
compared to a net loss of $873,727 during the comparable period in 2007. A
comparison of revenues and expenses for the two periods is as
follows:





REVENUES





Sales for
the three months ended December 31, 2008, increased to $55,274 from $15,640 for
the quarter ended December 31, 2007. The increase in sales is attributed to the
fact that Mediawizz increased the number of kiosks sold from 6 in the quarter
ended December 31, 2007 to 22 in the quarter ended December 31,
2008.





COST OF
SALES





Cost of
sales decreased to $56,266 during the three months ended December 31, 2007 from
$167,856 during the same period in 2007. The decrease in cost of sales reflects
efficiencies gained in our assembly process and operations of
kiosks.





SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES





Selling,
general and administrative expenses decreased by 28 % to $ 236,725 during the
three months ended December 31, 2008 as compared to $328,795 for the comparable
period in 2007.   This decrease in selling, general and
administrative expenses is primarily due to the cancellation of outside
consulting services originally intended to produce new business from
acquisitions in 2007.





COMPARISON OF THE THREE
MONTHS ENDED DECEMBER 31, 2008 AND 2007 (DISCONTINUED
OPERATIONS)





We
incurred a $77,248 net loss from discontinued operations for the three months
ended December 31, 2008 as compared to a net loss of $357,796 during the
comparable period in 2007. It is expected that the discontinued operations will
be sold during 2009. A comparison of revenues and expenses for the two periods
is as follows:





REVENUES





Sales for
the three months ended December 31, 2008, increased 13.1% to $859,920 from
$760,117 for the quarter ended December 31, 2007. The increase in sales is due
to aggressive end user pricing due to our ability to temporarily lower prices of
our goods and services to the levels of our competitors.  The increase
is attributed to the Gotel, Wholesale and Speedline services, which are prepaid
services not requiring a card, more than the prepaid calling
cards.  These additional sales resulted from an increase in total
minutes of end-user usage which increased to nearly 21 million minutes for the
three months ended December 31, 2008 up from 18.5 million minutes for the
quarter ended December 31, 2007.





COST OF
SALES





Cost of
sales decreased by 3.3% to $647,394 during the three months ended December 31,
2008 from $669,088 during the same period in 2007. The main reason for this
slight decrease was the fact that the cost of sales of the afore mentioned
Gotel, Wholesale and Speedline services is less than that of the prepaid calling
cards.  The net effect on this reduced cost of sales combined with the
increase of sales lead to an improved Gross profit.





Gross
profit for the three months ended December 31, 2008 increased by 133.5% to
$212,526 as compared to gross profit for the same period in 2007 of
$91,029.  The principal reason for this increase in Gross Profit again
being the increase in sales in Gotel, Wholesale and Speedline services which
provide the company with higher margins due to lower costs.





SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES





Selling,
general and administrative expenses decreased by 34.4 % to $ 323,245 during the
three months ended December 31, 2008 as compared to $ 492,973 for the comparable
period in 2007.   This decrease in selling, general and
administrative expenses is primarily due to the lower general and administrative
expenses associated with a reduction of staff and a reduction of cost associated
to external consultants.




13





BALANCE SHEET COMPARISON AT
DECEMBER 31, 2007 and SEPTEMBER 30, 2007





Assets: Total assets
for the period ended December 31, 2007 increased 7.7% to $4,629,182 compared to
$4,297,582 for the period ended September 30, 2007.  This increase is
due primarily to the additional work-in progress inventory from
Mediwizz.





Liabilities: Current
liabilities at December 31, 2007 increased 27.3% to $6,017,096 compared to
$4,726,640 at September 30, 2007.  This increase is due primarily to
additional loans from related parties.





COMPARISON OF THE THREE
MONTHS ENDED DECEMBER 31, 2007 AND 2006 (CONTINUING
OPERATIONS)





We
incurred an $873,727 net loss for the three months ended December 31, 2007 as
compared to a net loss of $685,629 during the comparable period in 2006. A
comparison of revenues and expenses for the two periods is as
follows:





REVENUES





Sales for
the three months ended December 31, 2007 amounted to $15,640. This is attributed
to the fact that Mediawizz began operations in the third quarter of 2007 and
therefore had no sales for the three months ended December 31,
2006.





COST OF
SALES





Cost of
sales amounted to $167,856 during the three months ended December 31, 2007. The
cost of sales reflects the Company’s initial entry into the market and is
expected to decline as efficiencies are obtained.





SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES





Selling,
general and administrative expenses decrease by 15.5 % to $ 328,795 during the
three months ended December 31, 2007 as compared to $389,043 for the comparable
period in 2006.   This decrease in selling, general and
administrative expenses is primarily due to decrease in legal and accounting
services during 2007 as compared to 2006.





COMPARISON OF THE THREE
MONTHS ENDED DECEMBER 31, 2007 AND 2006 (DISCONTINUED
OPERATIONS)





We
incurred a $357,796 net loss from discontinued operations for the three months
ended December 31, 2007 as compared to a net loss of $271,221 during the
comparable period in 2006.  A comparison of revenues and expenses for
the two periods is as follows:





REVENUES





Sales for
the three months ended December 31, 2007, decreased nearly 22% to $760,117 from
$974,223 for the quarter ended December 31, 2006. The decrease in sales is due
to the increased competitiveness of the market and our inability to lower prices
of our goods and services due to less competitive end user pricing. As such, the
number of minutes sent over our network dropped to approximately 18.5 million
during for the three months ended December 31, 2007 as compared to nearly 23.4
million minutes for the quarter ended December 31, 2006.








COST OF
SALES





Cost of
sales increased less than 1% to $669,088 during the three months ended December
31, 2007 from $665,918 during the same period in 2006. The main reason for the
increase was the inability to renegotiate better carrier pricing during this
period.





Gross
profit for the three months ended December 31, 2007 fell by 70.5% to $91,029 as
compared to gross profit for the same period in 2006 of
$308,305.  Though affected by the reduction in sales of 22%, the
principal reason for this reduction in Gross Profit was the setting of a lower
sales price in order to be competitive while carrier pricing remained
practically unchanged.





SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES





Selling,
general and administrative expenses decreased by 3.8 % to $ 492,973 during the
three months ended December 31, 2007 as compared to $512,199 for the comparable
period in 2006.   This decrease in selling, general and
administrative expenses is primarily due to the lower selling expenses
associated to the 22% reduction in sales as well as to a small reduction of
staff.




14





LIQUIDITY AND CAPITAL
RESOURCES





At
December 31, 2008 and 2007, Teleconnect Inc. had negative working capital of
approximately $5,478,000 and $3,478,000, respectively, compared to negative
working capital of $5,287,000 and $2,488,000 at September 30, 2008 and 2007,
respectively.





The
ability of the Company to satisfy its obligations will depend in part upon its
ability to raise funds, increase borrowings, and 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 look for additional funding to pay debts and for working
capital. However, there is no assurance that such capital will be raised, and
the Company may seek bank financing and other sources of financing to complete
the payment of additional debt.





DISCONTINUED
OPERATIONS





In March
2009, the Company entered into an agreement to sell ITS Europe, Teleconnect
Spain, Teleconnect Telecom and Recarganet to certain employees and officers of
Teleconnect Spain with the Company retaining 10% of Teleconnect
Spain.  The Company has accounted for the transaction under SFAS 144,
Accounting for the Impairment
or Disposal of Long-Lived Assets, and the results of operations of these
subsidiaries were reported as “discontinued operations” and assets and
liabilities have been separated on the balance sheet.





ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Not
applicable.




ITEM 4. CONTROLS AND PROCEDURES





The
Company's Chief Executive Officer and Chief Financial Officer/Principal
Accounting Officer (collectively, the Certifying Officers) are responsible for
establishing and maintaining disclosure controls and procedures for the Company.
Such officers have concluded (based upon their evaluation of these controls and
procedures as of a date within 90 days of the filing of this report) that the
Company's disclosure controls and procedures are not effective to ensure that
information required to be disclosed by the Company in this report is
accumulated and communicated to the Company's management, including its
principal executive officers as appropriate, to allow timely decisions regarding
required disclosure.





The
Certifying Officers also have indicated that there were no significant changes
in the Company's internal controls or other factors that could significantly
affect such controls subsequent to the date of their evaluation.





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




15






PART II





OTHER
INFORMATION





ITEM 1. LEGAL PROCEEDINGS





In the
normal course of its operations, the Company has been named in legal actions
seeking monetary damages. While the outcome of these matters cannot be estimated
with certainty, management does not expect, based upon consultation with legal
counsel, that they will have a material effect on the Company's business or
financial condition or results of operations.





ITEM
1A. RISK FACTORS





Not applicable





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





None





ITEM 3. DEFAULTS UPON SENIOR
SECURITIES





None





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





None





ITEM
5. OTHER INFORMATION





None





ITEM 6.
EXHIBITS





31.1
Certification of Dirk Benschop, Chief Executive Officer and
President





31.2
Certification of Alfonso de Borbón, Executive Vice President and Chief
Accounting and Financial Officer





32.1
Certification of Dirk Benschop and Alfonso de Borbon




16




SIGNATURES





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








TELECONNECT
INC.




September
22, 2009




By:
              /s/
      Dirk Benschop
              
              By:
              /s/
      Alfonso de BorbonDirk
      Benschop, Director,
              
              
              Alfonso
      de Borbon,Chief
      Executive Officer,
              
              
              Director,
      Chief AccountingPresident
      and Treasurer
              
              
              and
      Financial Officer,Executive
      Vice President andChief
      Operating Officer


17




INDEX
TO EXHIBITS
 
 Exhibit
 
 No.
              Description31.1
              Certification
      of Dirk Benschop31.2
              Certification
      of Alfonso de Borbon32.1
              Certification
      of Dirk Benschop and Alfonso de
Borbon


18