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 June 30, 2010
 
 or
 
 o  TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
 SECURITIES
EXCHANGE ACT OF 1934
 
 For the
transition period from ______________ to ________________
 
 Commission
File Number: 0-24857
 
 Teleconnect
Inc.
 (Exact
name of registrant issuer as specified in its charter)
  Florida
                  
                  90-0294361(State
      or other jurisdiction of
                  
                  (I.R.S.
      Employer Identification No.)incorporation
      or organization)
  Oude Vest
4
 4811 HT
Breda
 The
Netherlands
 
 (Address
of principal executive offices)
 
 Registrant’s
telephone number, including area code:   011-31-
06-30048023
 
 ___________________________N/A_________________________________
 (Former
name, former address and former fiscal year, if changed since last
report)
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes  x   No o
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  Yes 
o   No
o
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company in
Rule 12b-2 of the Exchange Act.
 
 Large
      accelerated filer o
              Accelerated
      filer   oNon-accelerated
      filer   o
              Smaller
      reporting company x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes  o   No x
 
 APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
 PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
  Indicate
by check mark whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court.
Yes  o No
o
 
 APPLICABLE
ONLY TO CORPORATE ISSUERS:
 
 Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: 4,953,700 shares of common stock at
August 12, 2010.
 
 
  TELECONNECT
INC.
  INDEX
  PART
                            I
                            FINANCIAL
      INFORMATIONItem
                            1.
                            Financial
      Statements:Condensed
      Consolidated Balance Sheets as of June30,
      2010 (unaudited) and September 30, 2009
                            5Condensed
      Consolidated Statements of Operations forthe
      three and nine months ended June 30, 2010 and 2009(Unaudited)
                            7Condensed
      Consolidated Statements of Cash Flows forthe
      nine months ended June 30, 2010 and 2009(Unaudited)
                            8Notes
      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 (not applicable)
                            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 (not applicable)
                            16Item
                            5.
                            Other
      Information
                            16Item
                            6.
                            Exhibits
                            16Signatures
                            17
 
 
  PART I FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
  4
 
 TELECONNECT, INC.
 CONDENSED
CONSOLIDATED BALANCE SHEETS
  PAGE 1 of
2
  June
      30,
                                  
                                  
                                  September
      30,2010
                                  
                                  
                                  2009(Unaudited)ASSETSCURRENT
      ASSETS:Cash
                                  
                                  $
                                  31,756
                                  
                                  
                                  $
                                  15,652Accounts
      receivable - trade
                                  
                                  
                                  1,789
                                  
                                  
                                  
                                  2,911Due
      from Giga Matrix Holdings, B.V.
                                  
                                  
                                  325,829
                                  
                                  
                                  
                                  530,992Inventory,
      work in process (net of reserve for slow moving inventoryof
      $116,575 and $139,109 at June 30, 2010 and September 30,
      2009,respectively)
                                  1,049,400
                                  
                                  
                                  
                                  1,419,522Prepaid
      taxes
                                  
                                  
                                  12,218
                                  
                                  
                                  
                                  -Prepaid
      expenses
                                  
                                  
                                  3,513
                                  
                                  
                                  
                                  6,994Asset
      of discontinued operations
                                  
                                  
                                  -
                                  
                                  
                                  
                                  632,804Total
      current assets
                                  
                                  
                                  1,424,505
                                  
                                  
                                  
                                  2,608,875PROPERTY
      AND EQUIPMENT, NET
                                  
                                  
                                  7,593
                                  
                                  
                                  
                                  14,574OTHER
      ASSETS:Investment
      in Giga Matrix Holdings B.V.
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Goodwill
                                  
                                  
                                  381,532
                                  
                                  
                                  
                                  455,283Long-term
      notes receivable (net of allowance for bad debtsof
      $553,461 and $591,010 at June 30, 2010 and September 30, 2009,
      respectively)
                                  49,084
                                  
                                  
                                  
                                  58,572Assets
      of discontinued operations
                                  
                                  
                                  -
                                  
                                  
                                  
                                  628,028$
                                  1,862,714
                                  
                                  
                                  $
                                  3,765,332
 See
accompanying Notes to Condensed Consolidated Financial Statements.
  5
 
 TELECONNECT,
INC.
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 
 PAGE 2 of
2
 
 June
      30,
                            
                            
                            September
      30,2010
                            
                            
                            2009(Unaudited)LIABILITIES
      AND STOCKHOLDERS' DEFICITCURRENT
      LIABILITIES:Accounts
      payable - trade
                            
                            $
                            93,033
                            
                            
                            $
                            106,155Accrued
      liabilities
                            
                            
                            89,213
                            
                            
                            
                            101,406Notes
      payable
                            
                            
                            147,252
                            
                            
                            
                            175,716Income
      Taxes payable
                            
                            
                            80,000
                            
                            
                            
                            130,000Loans
      from related parties
                            
                            
                            2,491,717
                            
                            
                            
                            2,274,440Liabilities
      of discontinued operations
                            
                            
                            -
                            
                            
                            
                            4,377,269Total
      current liabilities
                            
                            
                            2,901,215
                            
                            
                            
                            7,164,986STOCKHOLDERS'
      DEFICIT:Preferred
      stock; par value of $0.001, 5,000,000 sharesauthorized,
      no shares outstanding
                            
                            
                            -
                            
                            
                            
                            -Common
      stock; par value of $0.001, 500,000,000 shares authorized,4,953,700
      shares outstanding
                            
                            
                            4,954
                            
                            
                            
                            4,954Additional
      paid-in capital
                            
                            
                            31,511,257
                            
                            
                            
                            31,511,257Accumulated
      deficit
                            
                            
                            (29,645,960
                            )
                            
                            
                            (31,992,430
                            )Accumulated
      other comprehensive loss
                            
                            
                            (2,908,752
                            )
                            
                            
                            (2,923,435
                            )Total
      stockholders' deficit
                            
                            
                            (1,038,501
                            )
                            
                            
                            (3,399,654
                            )$
                            1,862,714
                            
                            
                            $
                            3,765,332
 See
accompanying Notes to Condensed Consolidated Financial Statements.
  6
   TELECONNECT,
      INC.CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)


For
      the three months ended
                            
                            
                            For
      the nine months endedJune
      30,
                            
                            
                            June
      30,2010
                            
                            
                            2009
                            
                            
                            2010
                            
                            
                            2009SALES
                            
                            $
                            258
                            
                            
                            $
                            92,354
                            
                            
                            $
                            234,768
                            
                            
                            $
                            242,689COST
      OF SALES
                            
                            
                            6,624
                            
                            
                            
                            93,539
                            
                            
                            
                            190,530
                            
                            
                            
                            257,222GROSS
      (LOSS) INCOME
                            
                            
                            (6,366
                            )
                            
                            
                            (1,185
                            )
                            
                            
                            44,238
                            
                            
                            
                            (14,533
                            )OPERATING
      EXPENSES:Selling,
      general and administrative expenses
                            
                            
                            219,408
                            
                            
                            
                            309,850
                            
                            
                            
                            819,057
                            
                            
                            
                            897,690Depreciation
                            
                            
                            800
                            
                            
                            
                            8,065
                            
                            
                            
                            2,254
                            
                            
                            
                            23,694Total
      operating expenses
                            
                            
                            220,208
                            
                            
                            
                            317,915
                            
                            
                            
                            821,311
                            
                            
                            
                            921,384LOSS
      FROM CONTINUING OPERATIONS
                            
                            
                            (226,574
                            )
                            
                            
                            (319,100
                            )
                            
                            
                            (777,073
                            )
                            
                            
                            (935,917
                            )OTHER
      INCOME (EXPENSES):Interest
      income
                            
                            
                            9,578
                            
                            
                            
                            7,509
                            
                            
                            
                            27,529
                            
                            
                            
                            22,527Loss on investment
                            
                            
                            (12,578
                            )
                            
                            
                            -
                            
                            
                            
                            (116,081
                            )
                            
                            
                            (44,626
                            )Interest
      expense - related parties
                            
                            
                            (3,814
                            )
                            
                            
                            (11,545
                            )
                            
                            
                            (12,398
                            )
                            
                            
                            (64,902
                            )LOSS
      FROM CONTINUING OPERTIONS BEFORE INCOME TAXES
                            
                            
                            (233,388
                            )
                            
                            
                            (323,136
                            )
                            
                            
                            (878,023
                            )
                            
                            
                            (1,022,918
                            )INCOME
      TAX BENEFIT
                            
                            
                            50,000
                            
                            
                            
                            -
                            
                            
                            
                            50,000
                            
                            
                            
                            -NET
      LOSS BEFORE DISCONTINUED OPERATIONS
                            
                            
                            (183,388
                            )
                            
                            
                            (323,136
                            )
                            
                            
                            (828,023
                            )
                            
                            
                            (1,022,918
                            )NET
      (LOSS) INCOME FROM DISCONTINUED OPERATIONS
                            
                            
                            -
                            
                            
                            
                            (181,282
                            )
                            
                            
                            3,174,493
                            
                            
                            
                            (143,793
                            )NET
      (LOSS) INCOME
                            
                            $
                            (183,388
                            )
                            
                            $
                            (504,418
                            )
                            
                            $
                            2,346,470
                            
                            
                            $
                            (1,166,711
                            )BASIC
      AND DILUTED (LOSS) INCOME PER SHARE:From
      continuing operations
                            
                            $
                            (0.04
                            )
                            
                            $
                            (0.07
                            )
                            
                            $
                            (0.17
                            )
                            
                            $
                            (0.25
                            )From
      discontiued operations
                            
                            
                            -
                            
                            
                            
                            (0.04
                            )
                            
                            
                            0.64
                            
                            
                            
                            (0.04
                            )Total
                            
                            $
                            (0.04
                            )
                            
                            $
                            (0.10
                            )
                            
                            $
                            0.47
                            
                            
                            $
                            (0.29
                            )AVERAGE
      COMMON AND COMMONEQUIVALENT
      SHARES OUTSTANDING
                            
                            
                            4,953,700
                            
                            
                            
                            4,954,491
                            
                            
                            
                            4,953,700
                            
                            
                            
                            4,019,349THE
      COMPONENTS OF COMPREHENSIVE (LOSS) INCOME:Net
      (loss) income
                            
                            $
                            (183,388
                            )
                            
                            $
                            (504,418
                            )
                            
                            $
                            2,346,470
                            
                            
                            $
                            (1,166,711
                            )Foreign
      currency translation adjustment
                            
                            
                            95,950
                            
                            
                            
                            (147,668
                            )
                            
                            
                            22,247
                            
                            
                            
                            466,512Tax
      effect on currency translation
                            
                            
                            (32,623
                            )
                            
                            
                            50,207
                            
                            
                            
                            (7,564
                            )
                            
                            
                            (158,614
                            )COMPREHENSIVE
      (LOSS) INCOME
                            
                            $
                            (120,061
                            )
                            
                            $
                            (601,879
                            )
                            
                            $
                            2,361,153
                            
                            
                            $
                            (858,813
                            )
 See
      accompanying Notes to Condensed Consolidated Financial
      Statements.
  7
  TELECONNECT,
      INC.CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWSFOR
      THE NINE MONTHS ENDED JUNE 30,(Unaudited)
  2010
                        
                        
                        2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
                        
                        $
                        2,346,470
                        
                        
                        $
                        (1,166,711
                        )Adjustments
      to reconcile net income (loss) tonet
      cash used in operating activities:Depreciation
                        
                        
                        2,254
                        
                        
                        
                        23,694Loss
      on equity investments
                        
                        
                        116,081
                        
                        
                        
                        44,626Gain
      on sale of subsidiaries
                        
                        
                        (3,200,137
                        )
                        
                        
                        -Change
      in operating assets and liabilitiesAccounts
      receivable - trade
                        
                        
                        650
                        
                        
                        
                        50,600Inventory
                        
                        
                        140,176
                        
                        
                        
                        (42,649
                        )Prepaid
      expenses
                        
                        
                        2,348
                        
                        
                        
                        6,550Prepaid
      taxes
                        
                        
                        (12,218
                        )
                        
                        
                        26,641Accounts
      payable
                        
                        
                        4,074
                        
                        
                        
                        (17,967
                        )Accrued
      liabilities and income taxes payable
                        
                        
                        (45,766
                        )
                        
                        
                        34,944Operating
      cash flows from discontinued operations
                        
                        
                        -
                        
                        
                        
                        (239,961
                        )Net
      cash used in operating activities
                        
                        
                        (646,068
                        )
                        
                        
                        (1,280,233
                        )CASH
      FLOWS FROM INVESTING ACTIVITIES:Advances
      to equity investment
                        
                        
                        -
                        
                        
                        
                        (49,920
                        )Proceeds
      from disposal of equipment
                        
                        
                        2,366
                        
                        
                        
                        -Purchase
      of property and equipment
                        
                        
                        -
                        
                        
                        
                        (3,487
                        )Investing
      activities of discontinued operations
                        
                        
                        -
                        
                        
                        
                        171,168Net
      cash provided by investing activities
                        
                        
                        2,366
                        
                        
                        
                        117,761CASH
      FLOWS FROM FINANCING ACTIVITIES:Loan
      proceeds from related parties
                        
                        
                        588,777
                        
                        
                        
                        788,260Payments
      on capital leases
                        
                        
                        -
                        
                        
                        
                        (38,366
                        )Financing
      activities of discontinued operations
                        
                        
                        -
                        
                        
                        
                        141,340Net
      cash provided by financing activities
                        
                        
                        588,777
                        
                        
                        
                        891,234EFFECT
      OF EXCHANGE RATE
                        
                        
                        71,029
                        
                        
                        
                        262,737NET
      INCREASE (DECREASE) IN CASH
                        
                        
                        16,104
                        
                        
                        
                        (8,501
                        )CASH,
      BEGINNING OF YEAR
                        
                        
                        15,652
                        
                        
                        
                        48,342CASH,
      END OF YEAR
                        
                        $
                        31,756
                        
                        
                        $
                        39,841SUPPLEMENTAL
      DISCLOSURE OF NONCASH TRANSACTIONS:Common
      stock issued for conversion of debt and accrued interest
                        
                        $
                        -
                        
                        
                        $
                        2,111,271
  See
accompanying Notes to Condensed Consolidated Financial
Statements.
 
 8
  TELECONNECT,
INC.
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 
 June
30, 2010
 
 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 and nine month periods
ended June 30, 2010 are
not necessarily indicative of the results that may be expected for the full
year.
 
 The
unaudited condensed consolidated financial statements include the accounts of
Teleconnect, Inc. and its subsidiary PhotoWizz BV (“MediaWizz”), for the three
and nine months ended June 30, 2010 and Teleconnect Spain, Teleconnect Telecom
and Recarganet for the period beginning October 1, 2009 and ending November 25,
2009; date at which these subsidiaries were sold.  For the three and
nine months ended June 30, 2009 the consolidated financial statements include
the accounts of the Company and its subsidiaries ITS Europe, Teleconnect Spain,
Teleconnect Telecom, PhotoWizz BV (“MediaWizz”), and Recarganet.  All
significant inter-company balances and transactions have been
eliminated.
 
 The balance sheet at September 30,
2009 has been derived from
the audited financial statements at that date but does not include all of the
information and footnotes required by GAAP for complete financial
statements.  For
further information, refer to the consolidated financial statements and notes
thereto included in the Company’s annual report on Form 10-K for the year ended
September 30, 2009.
 
 The
carrying amounts of cash, accounts (and related party) receivables, accounts
payable and notes payable, are considered by management to be their estimated
fair values due to their short term or contractual maturities.
  2.
RECENTLY ISSUED ACCOUNTING STANDARDS
  In
December 2009, the FASB issued amendments toexisting accounting
guidance to address the elimination of the concept of a qualifying special
purpose entity. The amendment also replaces the quantitative-based risks and
rewards calculation for determining which enterprise has a controlling financial
interest in a variable interest entity with an approach focused on identifying
which enterprise has the power to direct the activities of a variable interest
entity and the obligation to absorb losses of the entity or the right to receive
benefits from the entity. Additionally, the amendment provides more timely and
useful information about an enterprise’s involvement with a variable interest
entity. The Company adopted this guidance in the first quarter of 2010, and it
did not have a material impact on our financial condition, results of operations
or cash flows.
 
 3.
DISCONTINUED OPERATIONS
 
 In March
2009, the Company entered into an agreement to sell ITS Europe, Teleconnect
Spain, Teleconnect Telecom and Recarganet to certain employees and officers of
Teleconnect Spain with the Company retaining 10% of Teleconnect Spain. The sale
of ITS Europe was completed on May 14, 2009.  Teleconnect Spain,
Teleconnect Telecom and Recarganet were officially sold on November 25, 2009,
resulting in a gain on the sale of subsidiaries of $3,200,137.
 
 Due to
continuing losses at Teleconnect Spain, the Company considered the 10% interest
retained to be impaired and assigned no value to it.
 
 Summarized
financial information (which consists principally of Teleconnect Spain) included
in discontinued operations is as follows for the period October 1, 2009 to
November 25, 2009, and the three and nine month period ended June 30, 2009,
respectively:
 
 9
 
 October
      1, 2009to
                        
                        
                        Three
      months ended
                        
                        
                        Nine
      months endedNovember 25, 2009
                        
                        
                        June 30, 2009
                        
                        
                        June 30, 2009Sales
                        
                        $
                        586,479
                        
                        
                        $
                        932,976
                        
                        
                        $
                        2,772,084Cost
      of sales
                        
                        
                        364,021
                        
                        
                        
                        791,768
                        
                        
                        
                        2,181,466Gross
      profit
                        
                        
                        222,458
                        
                        
                        
                        141,208
                        
                        
                        
                        590,618Selling,
      general and administrative expenses
                        
                        
                        218,695
                        
                        
                        
                        332,772
                        
                        
                        
                        1,085,732Depreciation
                        
                        
                        7,466
                        
                        
                        
                        13,198
                        
                        
                        
                        48,052Operating
      loss
                        
                        
                        (3,703
                        )
                        
                        
                        (204,762
                        )
                        
                        
                        (543,166
                        )Gain
      on sale
                        
                        
                        3,200,137
                        
                        
                        
                        -
                        
                        
                        
                        -Other
      (expense) income
                        
                        
                        (21,941
                        )
                        
                        
                        23,480
                        
                        
                        
                        399,373Gain
      from discontinued operations
                        
                        $
                        3,174,493
                        
                        
                        $
                        (181,282
                        )
                        
                        $
                        (143,793
                        )
 
 The net
liabilities of discontinued operations (which consists principally of
Teleconnect Spain), which are included in the consolidated balance sheets as
assets and liabilities of discontinued operations, consist of the following at
June 30, 2010 compared to September 30, 2009:
 
 2010
                        
                        
                        2009Cash
                        
                        $
                        -
                        
                        
                        $
                        23,938Accounts
      receivable - trade, net of allowancefor
      doubtful accounts of $714,782 at September 30, 2009
                        
                        
                        -
                        
                        
                        
                        385,914Accounts
      receivable - other
                        
                        
                        -
                        
                        
                        
                        207,953Inventory
                        
                        
                        -
                        
                        
                        
                        12,631Prepaid
      expenses
                        
                        
                        -
                        
                        
                        
                        2,368Current
      assets of discontinued operations
                        
                        
                        -
                        
                        
                        
                        632,804Property
      and equipement, net
                        
                        
                        -
                        
                        
                        
                        385,820Vendor
      deposits
                        
                        
                        -
                        
                        
                        
                        242,208Other
      assets of discontinued operations
                        
                        
                        -
                        
                        
                        
                        628,028Accounts
      payable
                        
                        
                        -
                        
                        
                        
                        1,372,068Accrued
      liabilities
                        
                        
                        -
                        
                        
                        
                        189,246Taxes
      payable
                        
                        
                        -
                        
                        
                        
                        342,231Notes
      payable
                        
                        
                        -
                        
                        
                        
                        146,430Due
      to related parties
                        
                        
                        -
                        
                        
                        
                        259,181Deferred
      income
                        
                        
                        -
                        
                        
                        
                        2,068,113Liabilities
      of discontinued operations
                        
                        
                        -
                        
                        
                        
                        4,377,269Long-term
      liabilities of discontinued operations
                        
                        
                        -
                        
                        
                        
                        -Net
      liabilities of discontinued operations
                        
                        $
                        -
                        
                        
                        $
                        3,116,437
  
 Substantially
all interest expense is allocated to the ongoing operations of the parent
company.
 
 4.
LOANS FROM RELATED PARTIES
 
 During
the nine months ended June 30, 2010 and 2009 the Company obtained $588,777 and
$788,260 respectively, in additional short term loans from shareholders, net of
currency translation adjustments. These loans bear interest between 4% and 8%
annually, are unsecured and due upon demand.
 
 10
  5.
INCOME TAXES
 
 During
the three months ended June 30, 2010 the Company recorded income tax benefit due
to the abatement of $50,000 in U.S. tax penalties which were previously included
in accrued taxes. No deferred income tax expense or benefit was recorded for the
three and nine months ended June 30, 2009. For the nine months ended June 30,
2010 taxable income was offset by the use of net operating losses from prior
periods. For the three and nine months ended June 30, 2009 the Company recorded
an income tax valuation allowance equal to the benefit of any income tax
carryforward because of the uncertain nature of realization.
 
 6.
LOSS ON INVESTMENT
 
 The
Company accounts for its investment in Giga Matrix Holding, BV (“Giga”),
including amounts due from Giga, under the equity method and recognized losses
of $116,081 and $44,626 for the nine months ended June 30, 2010 and 2009,
respectively.
 
 7.
EARNINGS (LOSS) PER SHARE
 
 Basic
earnings per share amounts are computed based on the weighted average number of
shares outstanding on that date during the applicable periods. Stock options for
1,000,000 shares that were outstanding at June 30, 2009 have not been included
in diluted earnings per share as their inclusion would have been
anti-dilutive.  There were no stock options outstanding as of June 30,
2010.
 
 In November 2009, the Company’s shareholders
approved a 1-for-100 reverse stock split of the Company’s common
stock.   This reverse stock split has been reflected
retroactively for all periods presented in these condensed consolidated
financial statements.
 
 8.
SUBSEQUENT EVENTS
 
 On May 3,
2010 the Company signed a letter of intent to acquire 100% of HEM in The
Netherlands for 12% of the outstanding common stock of the Company, post
emission, or the equivalent in cash.   It is expected that this
will occur in October 2010 with subsequent ratification by the annual
shareholders’ meeting early in 2011.
 
 9.
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 is currently controlling expenses and conserving
cash while exploring possible sales of equity and/or debt financing to help fund
the Company’s operations and provide resources necessary for expansion. 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 OF FINANCIAL POSITION AND RESULTS OF
OPERATIONS
 
 Caution
Regarding Forward-Looking Statements
 
 The
following information may contain certain forward-looking statements that are
not historical facts. These statements represent our expectations or beliefs,
including but not limited to, statements concerning future acquisitions, future
operating results, statements concerning industry performance, capital
expenditures, financings, as well as assumptions related to the foregoing.
Forward-looking statements may be identified by the use of forward-looking
terminology such as “may,” “shall,” “will,” “could,” “expect,” “estimate,”
“anticipate,” “predict,” “should,” “continue” or similar terms, variations of
those terms or the negative of those terms. Forward-looking statements are based
on current expectations and involve various risks and uncertainties that could
cause actual results and outcomes for future periods to differ materially from
any forward-looking statement or view expressed herein. Our financial
performance and the forward-looking statements contained in this report are
further qualified by other risks including those set forth from time to time in
documents filed by us with the SEC.
 
 INTRODUCTION
 
 Teleconnect,
Inc., is targeting to provide age validation systems including all related
hardware, software and services for retail stores.  The Company will also
be able to provide other services, such as in-store marketing, at the time the
age-validation equipment is not used for age verification on a transaction.
Presently, Teleconnect, Inc. is comprised of Mediawizz and GigaMatrix which
contribute with equipment and marketing to this age validation system.  As
discussed in more detail below, the Company has entered into a letter of intent
earlier this year, providing for the acquisition of HEM which will complete the
age verification solution by providing the infrastructure (technology and
personnel) necessary for the sales, implementation and operation of the age
validation services.
 
 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 partially depend 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 were primarily from the sale of our
long-distance telecommunication services. On November 25, 2009 we completed the
sale of the discontinued operations.
 
 Today,
our existing revenues generated by Mediawizz may be impacted by other factors
including the length of our sales cycle, the timing of sales orders, budget
cycles of our customers, competition, the timing and introduction of new
versions of our products, the loss of, or difficulties affecting, key personnel
and distributors, changes in market dynamics or the timing of product
development or market introductions. These factors have impacted our historical
results to a greater extent than has seasonality. Combinations of these factors
have historically influenced our growth rate and profitability significantly in
one period compared to another, and is expected to continue to influence future
periods, which may compromise our ability to make accurate
forecasts.
 
 Cost of
sales included in discontinued operations consists primarily of the costs
associated with carriers which supply the telecom services for the Company to
resell. We relied on third parties to offer the majority of the services we had
in our portfolio. Accordingly, a significant portion of our cost of sales
consists of payments to these carriers. Cost of sales included in continuing
operations consists of customer support costs, training and professional
services expenses, and parts for the terminals; which consist of small display
screens, metallic housings, PC’s, switches, small cameras similar to webcams,
electronic components, cables, power supplies and software licenses amongst
other items.
 
 Our gross
profit has been and will continue to be affected by a variety of factors,
including competition, the mix and average selling prices of products,
maintenance and services, new versions of products, the cost of equipment,
component shortages, and the mix of distribution channels through which our
products are sold. Our gross profit will be adversely affected by price declines
if we are unable to reduce costs on existing products or to introduce new
versions of products with higher margins.
 
 Selling,
general and administrative expenses consist primarily of salaries and related
expenses for executive, finance, accounting, legal and human resources
personnel, professional fees and corporate expenses. We expect general and
administrative expenses to further stabilize in the short term in absolute
dollars as we will employ fewer hours to maintain the Company’s current status
with its SEC filings than those required to bring the Company current in
2009.
 
 On May 3,
2010 the Company signed a letter of intent to acquire 100% of HEM in The
Netherlands. The purchase price contemplated by the letter of intent is 12% of
the outstanding common stock of the Company, post emission, or the equivalent in
cash.   Once the fair value has been established for HEM, and
also all other aspects of the purchase are concluded to be in line with
expectations, the Board of Directors intends to complete the
purchase.  It is expected that this will occur in October 2010 and
that the purchase will be subsequently ratified by the annual shareholders’
meeting early in 2011.  HEM, established in 2007, developed an age
validation system, “Ageviewers”, which utilizes the Company’s products in its
processes.
 
 12
  BALANCE SHEET COMPARISON AT
JUNE 30, 2010 AND SEPTEMBER 30, 2009
 
  Assets: Total assets
at June 30, 2010 decreased $1,902,618 or 50.5% to $1,862,714 compared to
$3,765,332 at September 30, 2009.  This decrease is due primarily to
the sale of discontinued operations which accounts for approximately $1,200,000
of this difference as well as a reduction of inventory at Mediawizz due to
recording a provision for slow moving products and recognition of loss from
equity investment of $116,081.
 
 Liabilities: Current
liabilities at June 30, 2010 decreased by $4,263,771 or 59.5% to $2,901,215
compared to $7,164,986 at September 30, 2009.  This decrease is due
primarily to the elimination of approximately $4,300,000 of liabilities
associated with the discontinued operations.
 
 COMPARISON OF THE THREE
MONTHS ENDED June 30, 2010 AND 2009
(CONTINUING  OPERATIONS)
 
 We
incurred a net loss of $183,388 ­­­­­­for the three
months ended June 30, 2010 as compared to a net loss of $504,418 ($323,136 from
continuing operations) during the comparable period in 2009. A comparison of
revenues and expenses for the two periods is as follows:
 
 REVENUES
 
 Sales for
the three months ended June 30, 2010, decreased by 99.7% or $92,096, to $258
from $92,354 for the quarter ended June 30, 2009.  Age verification is
at the core of our new strategy. Calling credit generated sales early this
fiscal year but with insufficient margin for Mediawizz.  In addition,
these calling credit sales involve credit risk and were therefore terminated.
Mediawizz’ activities are being transformed to be fully complimentary to
Teleconnect’s future core business. The decrease in sales is attributed to this
transformation and the re-scheduling of installations, which is now planned to
take off in the first fiscal quarter of 2011.
 
 COST OF
SALES
 
 Cost of
sales decreased 92.9% or $86,915 to $6,624 during the three months ended June
30, 2010 from $93,539 during the same period in 2009. The decrease in cost of
sales is directly related to the decrease in sales, or lack thereof, however
incurred excess capacity costs associated with the discontinued sales of calling
credit and with the rescheduled delivery of kiosks.
 
 SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES
 
 Selling,
general and administrative expenses decreased by 29.2 % or $90,442 to $219,408
during the three months ended June 30, 2010 as compared to $309,850 for the
comparable period in 2009.  This decrease in selling, general and
administrative expenses is primarily due to the reduction of additional outside
professional services related to the Company’s delinquent regulatory filings in
2009.
 
 COMPARISON OF THE THREE
MONTHS ENDED JUNE 30, 2010 AND 2009 (DISCONTINUED
OPERATIONS)
 
 The
discontinued operations were sold on November 25, 2009 and had no activity
during the three month period ended June 30, 2010.
 
 COMPARISON OF THE NINE
MONTHS ENDED JUNE 30, 2010 AND 2009
(CONTINUING  OPERATIONS)
 
 We had
net income of $2,346,470 ($828,023 loss from continuing operations offset by
income of $3,174,493 from discontinued operations) for the nine months ended
June 30, 2010 as compared to a net loss of $1,166,711 ($1,022,918 from
continuing operations) during the comparable period in 2009. A comparison of
revenues and expenses for the two periods is as follows:
 
 REVENUES
 
 Sales for
the nine months ended June 30, 2010, decreased by 3.3%, or $7,921, to $234,768
from $242,689 for the comparable period in 2009. The decrease in sales is
primarily attributed to the fact that Mediawizz delivered a new lot from a
previously agreed 150 terminal-order, during the first quarter, but due to
customer request, further deliveries were deferred until later in the year;
resulting in virtually no sales during quarter two and three of this fiscal
year.   Also, 2009 revenues were derived primarily from the sales
of kiosks and calling credit through kiosks that Mediawizz custom built and
installed in supermarkets for a Netherlands customer.  Where the sales
of calling credit in these supermarkets formerly was organized through both
service desks and kiosks, in 2009, the sales at these service desks were
discontinued thus generating more traffic and increasing sales through the
kiosks. While sales of the calling credit had been increasing during the first
quarter it was determined early in the second quarter that the margins from
those sales were unacceptable and sales of calling credit was
discontinued.  Mediawizz’ activities were further transformed to be
fully complimentary to Teleconnect’s future core business. The decrease in sales
is attributed to this transformation and the re-scheduling of installations,
which is now planned for in the first fiscal quarter of 2011.
 
 13
 
 COST OF
SALES
 
 Cost of
sales decreased 25.9% or $66,692 to $190,530 during the nine months ended June
30, 2010 from $257,222 for the comparable period in 2009. The decrease in cost
of sales is associated with the decrease in sales, however, the fact that the
cost of sales decreased more than the sales is partly due to efficiencies gained
in our assembly process and operations of kiosks offset somewhat by excess
capacity costs in the second and third quarters.
 
 SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES
 
 Selling,
general and administrative expenses decreased by $78,633 or 8.8 % to $819,057
during the nine months ended June 30, 2010 as compared to $897,690 for the
comparable period in 2009.  This decrease in selling, general and
administrative expenses is primarily due to the reduction of additional outside
professional services related to the Company’s filing of delinquent regulatory
filings in 2009.
 
 COMPARISON OF THE NINE
MONTHS ENDED JUNE 30, 2010 AND 2009 (DISCONTINUED
OPERATIONS)
 
 We had
$3,174,493 of net income from discontinued operations for the nine months ended
June 30, 2010 as compared to a net loss of $143,793 during the comparable period
in 2009. The discontinued operations were sold on November 25, 2009 resulting in
a gain of approximately $3,200,000.  Revenues, Cost of Sales and
Selling, General and Administrative expenses decreased from the prior comparable
period due to the fact the entities were sold during the first two months of the
current fiscal year.
 
 LIQUIDITY AND CAPITAL
RESOURCES
 
 At June
30, 2010 and September 30, 2009, Teleconnect Inc. had negative working capital
of approximately $1,479,000 and $3,400,000, respectively.  The
improvement is primarily due to the effect of the sale of the discontinued
operations which provided a gain on the sale of approximately
$3,200,000.
 
 The
ability of the Company to satisfy its obligations and to continue as a going
concern will depend in part upon its ability to raise funds through the sale of
additional shares of its Common Stock, increasing borrowing, and in part upon
its ability to reach a profitable level of operations. The Company’s financial
statements do not reflect adjustments that might result from its inability to
continue as a going concern and these adjustments could be material
 
 The
Company’s capital resources have been provided primarily by capital
contributions from stockholders, stockholders’ loans, the conversion of
outstanding debt into Common Stock of the Company, and services rendered in
exchange for Common Stock.
 
 The
Company intends to look for additional funding to pay debts and for working
capital. However, there is no assurance that such capital will be raised, and
the Company may seek bank financing and other sources of financing to complete
the payment of additional debt.
 
 DISCONTINUED
OPERATIONS
 
 In March
2009, the Company entered into an agreement to sell ITS Europe, Teleconnect
Spain, Teleconnect Telecom and Recarganet to certain employees and officers of
Teleconnect Spain with the Company retaining 10% of Teleconnect
Spain.  The results of operations of these subsidiaries were reported
as “discontinued operations” and assets and liabilities have been separated on
the balance sheet. Going forward the Company will account for the 10% of
Teleconnect Spain by the cost method. The sale of ITS Europe was completed on
May 14, 2009.  Teleconnect Spain, Teleconnect Telecom and Recarganet
were officially sold on November 25, 2009.
 
 14
  ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 On
November 12, 2009, at a meeting of the shareholders of Teleconnect Inc, the
shareholders present, representing 94.69% of the outstanding shares of common
stock of the Company, agreed to sell the Spanish subsidiaries of the Company.
 The stock purchase agreements were formalized on November 25, 2009 before
a public Spanish notary upon approval by the Company’s
shareholders.  By disposing of the Spanish subsidiaries and
maintaining a 10% stake in Teleconnect Comunicaciones Spain, Teleconnect Inc is
relieved of its obligation to fund these companies while Teleconnect Inc. could
possibly benefit from future dividends, if so declared by Teleconnect
Comunicaciones Spain.
 
 The
shareholders also approved a reverse split of the Company’s Common Stock in the
ratio of 1-for-100 at the November 12, 2009 shareholders’ meeting.
  On May 3,
2010 the Company signed a letter of intent to acquire 100% of HEM in The
Netherlands. The purchase price is expected to be 12% of the outstanding common
stock of the Company, post emission, or the equivalent in
cash.   The approval of the Board of Directors is expected in
October 2010 with subsequent ratification at the annual shareholders’ meeting
early in 2011.
 
 ITEM 4. CONTROLS AND PROCEDURES
 
 The
Company's Chief Executive Officer and Chief Financial Officer/Principal
Accounting Officer (collectively, the Certifying Officers) are responsible for
establishing and maintaining disclosure controls and procedures for the Company.
Such officers have concluded (based upon their evaluation of these controls and
procedures as of a date within 90 days of the filing of this report) that the
Company's disclosure controls and procedures are not effective to ensure that
information required to be disclosed by the Company in this report is
accumulated and communicated to the Company's management, including its
principal executive officers as appropriate, to allow timely decisions regarding
required disclosure.
 
 The
Certifying Officers also have indicated that there were no significant changes
in the Company's internal controls or other factors that could significantly
affect such controls subsequent to the date of their evaluation.
 
 Management
is currently designing new internal controls and procedures to address our
material weaknesses which will be implemented in this fiscal year.
 
 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
 
 N/A
 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
AND USE OF PROCEEDS
 
 None
 
 ITEM 3. DEFAULTS UPON SENIOR
SECURITIES
 
 None
 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
 
 At the
shareholders meeting held on November 12, 2009 in Breda, The Netherlands, the
stockholders present approved the sale of 100 % of the Company’s interest in
Recarganet, and Teleconnect Telecom in addition to approximately 90% of its
interest in Teleconnect Comunicaciones SA.  The stock purchase
agreements for the sale of Recarganet, Teleconnect Telecom and Teleconnect
Comunicaciones were formalized before a public Spanish notary on November 25,
2009.
 
 At this
same shareholders meeting of November 12, 2009, the stockholders of the Company
voted in favor of a 1-for-100 reverse stock split of its common
stock.
 
 ITEM
5. OTHER INFORMATION
 
 On May 3, 2010 the Company signed a letter of intent to acquire 100%
of Hollandsche Exploitatie Maatschappij BV (HEM) in The Netherlands for 12% of
the outstanding common stock of the Company, post emission, or equivalent in
cash. Both parties have now agreed to make this purchase effective in the new
2011 fiscal year.  HEM, established in 2007, developed an age
validation system, “Ageviewers”, which utilizes the Company’s products in its
processes.
 
 The
Company is studying the possibility of reinstating its domicile in the
Netherlands since all its operating activities today are based in
Europe.
 
 ITEM 6.
EXHIBITS
 
 Exhibit
3.1  Amendment to Articles of Incorporation is incorporated herein by
reference to Exhibit 3.1 to the Company’s Form 8-K dated November 12,
2009.
 
 Exhibit
10  Agreement(s) to sell subsidiaries are hereby incorporated by
reference to the Exhibits to the definitive proxy statement of the Company dated
October 29, 2010.
 
 31.1
Certification of Dirk L. Benschop, sole Director, Chief  Executive
Office, President, Treasurer, Chief Financial Officer and principal accounting
officer
 
 32.1
Certification of Dirk L. Benschop, sole Director, Chief  Executive
Office, President, Treasurer, Chief Financial Officer and principal accounting
officer
 
 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.
  August
12, 2010
  By:
                /s/ Dirk
      L. BenschopDirk
      L. BenschopSole
      Director, Chief  Executive Office, President, Treasurer, Chief
      Financial Officer and principal accounting
  officer


17
  INDEX TO EXHIBITS
 
 Exhibit
 
 No.
                  Description31.1
                  Certification
      of Dirk Benschop32.1
                  Certification
      of Dirk Benschop
  18