UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM l0-QSB
(Mark One)

|X|   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934 for the quarterly period ended June 30, 2006

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

      For the transition period from __________to _________

      Commission file number         0-24857

                                TELECONNECT INC.
--------------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

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

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

                               011-34-95-202-9400
--------------------------------------------------------------------------------
                           (Issuer's telephone number)

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

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 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 |_|

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

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

                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity as of August 14, 2006: 169,680,383 shares

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

<PAGE>

                                TELECONNECT INC.

                                      INDEX

PART  I.  FINANCIAL INFORMATION

Item  1.  Financial Statements:

     Condensed Consolidated Balance Sheet as of                              3
        June 30, 2006 (Unaudited)

     Condensed Consolidated Statements of Operations                         4
        for the Three and Nine Months Ended June 30, 2006
        and 2005 (Unaudited)

     Condensed Consolidated Statements of Cash Flows                         5
        for the Nine Months Ended June 30, 2006 and
        2005 (Unaudited)

     Notes to Condensed Consolidated Financial Statements                    6

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

Item  3.  Controls and Procedures                                           14

PART  II. OTHER INFORMATION

Item  1.  Legal Proceedings                                                 15

Item  2.  Unregistered Sales of Equity Securities and Use of Proceeds       15

Item  3.  Defaults upon Senior Securities                                   15

Item  4.  Submission of Matters to a Vote of Security  Holders              15

Item  5.  Other Information                                                 15

Item  6.  Exhibits                                                          16

Signatures                                                                  16


                                       2
<PAGE>

                          PART I FINANCIAL INFORMATION
                          ITEM 1. FINANCIAL STATEMENTS


                                TELECONNECT INC.
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                  June 30, 2006
                                   (Unaudited)

                                     ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                                        $     99,000
  Accounts receivable - trade, net of allowance
    for doubtful accounts of $1,070,000                                 420,000
  Accounts receivable - other                                             6,000
  Inventory                                                               9,000
  Prepaid Expenses                                                       22,000
                                                                   ------------
      Total current assets                                              556,000
                                                                   ------------

PROPERTY AND EQUIPMENT, NET                                             332,000
                                                                   ------------
OTHER ASSETS:
  Vendor deposits                                                       224,000
                                                                   ------------
                                                                   $  1,112,000
                                                                   ============

                    LIABILITIES AND STOCKHOLDERS' (DEFICIT)

CURRENT LIABILITIES:
  Accounts payable - trade                                         $  2,597,000
  Accrued liabilities                                                 1,190,000
  Notes payable                                                         153,000
  Obligation to taxing authority                                        196,000
  Loans from related parties                                          1,085,000
  Deferred income                                                     1,635,000
                                                                   ------------

      Total current liabilities                                       6,856,000
                                                                   ------------
STOCKHOLDERS' DEFICIT:
  Preferred stock; par value of $0.001,
    5,000,000 shares authorized, no shares outstanding                       --
  Common stock; par value of $0.001,
    200,000,000 shares authorized, 179,680,383
    shares outstanding                                                  180,000
  Additional paid-in capital                                         20,437,000
  Accumulated (deficit)                                             (23,847,000)
  Effect of cumulative translation adjustment                        (2,514,000)
                                                                   ------------

      Total  stockholders'  (deficit)                                (5,744,000)
                                                                   ------------
                                                                   $  1,112,000
                                                                   ============

              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.


                                       3
<PAGE>

                                TELECONNECT INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                      For three months ended             For nine months ended
                                                             June 30,                          June 30,
                                                  ------------------------------    ------------------------------
                                                      2006             2005              2006            2005
                                                  -------------    -------------    -------------    -------------
<S>                                               <C>              <C>              <C>              <C>
SALES                                             $   1,236,000    $   1,178,000    $   3,582,000    $   4,059,000
COST OF GOODS SOLD (exclusive of
  depreciation shown separately below)                  790,000          768,000        2,316,000        2,673,000
                                                  -------------    -------------    -------------    -------------
GROSS  PROFIT                                           446,000          410,000        1,266,000        1,386,000
                                                  -------------    -------------    -------------    -------------

OPERATING EXPENSES:
  Selling, general and administrative expenses          593,000          675,000        4,568,000        2,863,000
  Depreciation                                           58,000           88,000          189,000          274,000
                                                  -------------    -------------    -------------    -------------

      Total operating expenses                          651,000          763,000        4,757,000        3,137,000
                                                  -------------    -------------    -------------    -------------

(LOSS) FROM OPERATIONS                                 (205,000)        (353,000)      (3,491,000)      (1,751,000)
                                                  -------------    -------------    -------------    -------------

OTHER INCOME (EXPENSES):
  Other Expenses                                        (20,000)              --          287.000               --
  Interest  expense                                      (2,000)         (26,000)        (343,000)        (405,000)
                                                  -------------    -------------    -------------    -------------

(LOSS) FROM CONTINUING OPERATIONS
  BEFORE INCOME TAXES                                  (227,000)        (379,000)      (3,547,000)      (2,156,000)

PROVISION FOR INCOME TAXES                                   --               --               --               --
                                                  -------------    -------------    -------------    -------------
DISCONTINUED OPERATIONS:
   Income on disposal of fixed line division                 --               --               --            4,000
                                                  -------------    -------------    -------------    -------------

NET (LOSS)                                        $    (227,000)   $    (379,000)   $  (3,547,000)   $  (2,152,000)
                                                  =============    =============    =============    =============

BASIC AND DILUTED EARNINGS  (LOSS)  PER  SHARE:
  Net (Loss)                                      $       (0.01)   $       (0.01)   $       (0.03)   $       (0.03)
                                                  =============    =============    =============    =============

AVERAGE COMMON AND COMMON
  EQUIVALENT SHARES OUTSTANDING                     179,486,022       82,285,406      137,091,553       77,551,975
                                                  =============    =============    =============    =============

THE COMPONENTS OF COMPREHENSIVE LOSS:
  Net (loss)                                      $    (227,000)   $    (379,000)   $  (3,547,000)   $  (2,152,000)
  Foreign currency translation adjustment              (376,000)         412,000         (461,000)         106,000
                                                  -------------    -------------    -------------    -------------

COMPREHENSIVE INCOME (LOSS)                       $    (603,000)   $      33,000    $  (4,008,000)   $  (2,046,000)
                                                  =============    =============    =============    =============

BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
  Comprehensive (Loss)                            $       (0.01)   $       (0.00)   $       (0.03)   $       (0.03)
                                                  =============    =============    =============    =============
</TABLE>

              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.


                                       4
<PAGE>

                                TELECONNECT INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                                                  For nine months ended June 30,
                                                    --------------------------
                                                       2006          2005
                                                    -----------   -----------
CASH  FLOWS  FROM  OPERATING  ACTIVITIES:
  Net (loss)                                        $(3,547,000)  $(2,152,000)
  Adjustments to reconcile net (loss) to
    net cash used in operating  activities:
      Depreciation                                      189,000       274,000
            Non cash expenditures paid with stock     3,113,000     1,027,000
    Decrease (increase) in operating assets:
      Accounts receivable - trade                      (169,000)       92,000
      Accounts receivable - other                        69,000       (43,000)
      Inventory                                          25,000         4,000
      Prepaid expenses                                  (22,000)        9,000
      Vendor and other deposits                         (11,000)        7,000
    Increase (decrease) in operating liabilities:
      Accounts payable and accrued liabilities          (71,000)     (150,000)
      Deferred income and deposits received            (268,000)      (78,000)
                                                    -----------   -----------
        Net cash provided by (used in)
          operating activities                         (692,000)   (1,010,000)
                                                    -----------   -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment                    (72,000)      (85,000)
                                                    -----------   -----------
        Net cash (used in)
          investing activities                          (72,000)      (85,000)
                                                    -----------   -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Loan proceeds from related parties                    707,000       826,000
  Loan proceeds from bank                               153,000       259,000
  Payment on tax agency obligation                     (111,000)      (56,000)
  Payment on loan from bank                            (120,000)     (265,000)
  Payment on loan from related parties                 (617,000)     (504,000)
  Proceeds from sale of common stock                  1,242,000     1,160,000
                                                    -----------   -----------
        Net cash provided by
          financing activities                        1,254,000     1,420,000
                                                    -----------   -----------
EFFECT OF EXCHANGE RATE                                (461,000)      106,000
                                                    -----------   -----------
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS                                       29,000       431,000

CASH AND CASH EQUIVALENTS,
  BEGINNING OF PERIOD                                    70,000        93,000
                                                    -----------   -----------
CASH AND CASH EQUIVALENTS,
  END OF PERIOD                                     $    99,000   $   524,000
                                                    ===========   ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
   Interest                                         $       566   $     3,000
                                                    ===========   ===========
   Income taxes                                     $        --   $        --
                                                    ===========   ===========

SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
   Long-term debt converted to common stock         $        --   $   637,000
                                                    ===========   ===========
   Common stock issued for interest on
   notes payable                                    $ 1,796,000   $    40,000
                                                    ===========   ===========
   Common stock issued for services received        $ 2,814,000   $   851,000
                                                    ===========   ===========

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       5
<PAGE>

                        TELECONNECT INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2006
                                   (Unaudited)

1. THE COMPANY

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

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

The Company's revenues are subject to seasonal variations due to fluctuations in
tourist use of calling  cards.  The  results for the nine months  ended June 30,
2006 may not be indicative  of results for the fiscal year ending  September 30,
2006.

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

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

On March  29,  2006,  the  Company  established  a new  subsidiary,  Teleconnect
Telecom,  SL  Unipersonal(Telecom)  to market its prepaid calling cards in Latin
America. The Company invested 3,000 EURO to establish Telecom.

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

2. GOING CONCERN

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

As shown in the accompanying  financial statements,  the Company incurred losses
of  ($3,547,000)  and  ($2,152,000)  for the nine months ended June 30, 2006 and
2005,  respectively.  In addition,  the Company has incurred  substantial losses
since its  inception.  As of June 30,  2006,  the Company had a working  capital
deficit of  $(6,300,000)  and a  stockholders'  deficit of  $(5,744,000).  These
factors raise  substantial  doubt about the  Company's  ability to continue as a
going concern.

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


                                       6
<PAGE>

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

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

3. CONCENTRATION OF CREDIT

The Company  extends  credit to retailers on the sale of prepaid  calling cards.
Substantially all sales are made in Spain. The Company has incurred  substantial
losses in the past from the extension of credit but believes that as of June 30,
2006  its  allowance  for  credit  related  losses  is  adequate  to  cover  any
uncollectible receivables.

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

For the nine months ended June 30, 2006,  three  customers  accounted for 27.1%,
11.8% and 8.4% of sales.

4. PROPERTY AND EQUIPMENT

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

The  Company  reviews  the  carrying  value of property  and  equipment  for the
impairment on an annual basis. In cases where undiscounted  expected future cash
flows are less than the carrying value,  an impairment loss is recognized  equal
to an amount by which the  carrying  value  exceeds the fair market value of the
assets.  The Company  recognized no impairment losses related to the realization
of property and equipment during the nine months ended June 30, 2006 and 2005.

Property and equipment, substantially all of which are located in Spain, at June
30, 2006, were comprised as follows:

        Computers and switching systems                             $ 2,257,000
        Furniture and fixtures                                          172,000
        Transportation equipment                                          5,000
                                                                    -----------
        Total at cost                                                 2,434,000

        Less: Accumulated depreciation
        and amortization                                             (2,102,000)
                                                                    -----------
        Net Property and Equipment                                  $   332,000
                                                                    ===========

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

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

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

5. LOANS FROM RELATED PARTIES

As of June 30, 2006, the Company had short-term  loans totaling  $1,085,000 from
shareholders.  These loans bear interest at 9% annually, are unsecured,  and are
due upon demand.  During April to June 2006, the Company received one short-term
loan totaling  $190,700  ((euro)150,000)  in short-term  financing  from related
parties.


                                       7
<PAGE>

During March 2006,  the Company  agreed to pay loans to an  individual  totaling
$845,923  (665,400 EUROS) in 12 monthly  installments of 55,450.06 EUROS through
February  2007.  As stated  in the  agreement,  the loans are no longer  bearing
interest at 9%.

6. NOTE PAYABLE

As of June 30, 2006 the Company has a short-term  bridge loan of $152,000 from a
potential  investor.  This note is interest bearing at 4% per 60 days and is due
on demand.

7. LONG-TERM DEBT

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

As of June 30, 2006, the Company was  substantially  delinquent in reporting and
payment  of  various  employment  and  VAT  taxes  due  to  the  Spanish  Taxing
Authorities.  The failure to make timely  payments on current taxes payable is a
breach of the agreement regarding payment of prior taxes.  Therefore,  the total
balance has been  classified as current.  As of June 30, 2006,  the Company owed
$580,562 ((euro)456,668)in various taxes of which $335,918 was past due.

8. LITIGATION AND CONTINGENT LIABILITIES

A shareholder filed suit against the Company claiming the right to an additional
623,100 shares of the Company's common stock and  (euro)246,624 in damage due to
the  failure  to issue  these  shares  on a timely  basis.  In August  2005,  an
agreement  was  reached  whereby  the Company  will pay  (euro)29,000  and issue
1,000,000 two-year  restricted shares once the shareholder had collaborated with
some internal issues.  As of June 30, 2006 the Company has paid (euro)14,500 and
accrued  (euro)96,000  for this settlement The associated  1,000,000 shares have
not yet been issued.

In the normal course of its  operations,  the Company may, from time to time, be
named in legal  actions  seeking  monetary  damages.  While the outcome of these
matters cannot be estimated with certainty,  management  does not expect,  based
upon consultation  with legal counsel,  that they will have a material effect on
the Company's  business or financial  condition or results of operations.  As of
June 30, 2006, the Company has accrued $99,000 to cover the anticipated  cost of
settling several litigation matters.

9. STOCK TRANSACTIONS

During the nine months ended June 30, 2006, the Company issued  5,000,000 shares
of  restricted  common stock for payment of interest  from  related  party notes
payable totaling $350,000.

During the nine months ended June 30, 2006, the Company issued  3,300,000 shares
of common stock for consulting services totaling $614,000.

During the nine months ended June 30, 2006 the Company issued  52,200,000 shares
of common stock for a capital contribution of $1,446,000.

During the nine months  ended June 30, 2006 the  Company  authorized  10,000,000
shares of common stock  pursuant to the  Company's  2006 Stock  Option,  SAR and
Stock Bonus Plan for total compensation of $2,200,000.

During the year ended September 30, 2005, accrued interest totaling $194,966 was
credited  to  additional   paid-in  capital  $194,966  in  connection  with  the
conversion of certain debt to equity.  Subsequently,  the Company  agreed to pay
this  interest  and was  reclassified  out of  additional  paid-in  capital into
accrued interest as of June 30, 2006.


                                        8
<PAGE>

10. EARNINGS (LOSS) PER SHARE

Basic  earnings  per share  amounts are computed  based on the weighted  average
number of shares  outstanding  on that date during the applicable  periods.  The
number of shares used in the  computations  were  137,091,553  and 77,551,975 in
2006 and 2005, respectively.

Diluted earnings per share were not disclosed as of June 30, 2006 and 2005 since
the options and warrants outstanding at those dates were antidilutive.  Warrants
and options total  4,315,000 and 4,755,790  shares were  outstanding at June 30,
2006 and 2005, respectively.

11. DEBT CANCELLATION

During the nine  months  ended June 30,  2006,  the Company  wrote off  accounts
payable  totaling  $328,300,  which had exceeded the statute of  limitations  in
Spain for collection enforcement.  This balance is reflected in other income. No
accounts payable were charged during the comparable period in 2005.


                                        9
<PAGE>

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

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

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

Significant Accounting Estimates and Policies

Going  Concern.  These  financial  statements  have been  prepared  assuming the
Company is a going  concern.  As of June 30,  2006,  the  Company  has  negative
working  capital of  $(6,300,000)  and a deficit net worth of  $5,744,000.  This
gives rise to  substantial  doubts about the Company's  ability to continue as a
going concern.  The financial  statements do not reflect any  adjustments  which
might be required should the Company discontinue as a going concern.

CASH AND CASH EQUIVALENTS - The Company considers all highly liquid  investments
with  maturities of three months or less when purchased to be cash  equivalents.
There are no cash equivalents at June 30, 2006.

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

REVENUE  RECOGNITION  -  Revenues  from the sale of  prepaid  calling  cards are
recognized at the time the cards are used.  Unused time is reflected in deferred
revenue until the time is utilized or the card reaches its expiration  date. The
Company had deferred revenues of $1,635,000 as of June 30, 2006.

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

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

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

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

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


                                       10
<PAGE>

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

FOREIGN  CURRENCY  TRANSLATION/TRANSACTIONS  - The assets and liabilities of ITS
Europe and  Teleconnect  whose  functional  currency is the Euro,  are generally
translated  into US dollars at the June 30,  2006  exchange  rate for assets and
liabilities and at the historical  exchange rate on  stockholders'  equity.  The
revenues and expenses are translated at average  exchange rates for the periods.
Resulting  translation  adjustments  are accumulated and reflected as a separate
component of stockholders' equity.

NEW ACCOUNTING  PRONOUNCEMENTS  - SFAS 151, SFAS 152, SFAS 153 and SFAS 154 SFAS
No.  151,  Inventory  Costs  - an  amendment  of ARB No.  4 and  SFAS  No.  152,
Accounting  for Real Estate  Time-Sharing  Transactions  - an  amendment of FASB
Statements  No. 66 and 67, SFAS No. 153,  Exchange of  Non-monetary  Assets - an
amendment of APB Opinion No. 29 and SFAS No. 154,  Accounting  Changes and Error
Corrections - a replacement of APB No. 20 and SFAS 3 were recently issued.  SFAS
No. 123(R),  151, 152, and 153 have no current  applicability to the Company and
have no effect on the consolidated financial statements.

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

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

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


                                       11
<PAGE>

COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2006 AND 2005

We incurred a  $(227,000)  net loss for the three  months ended June 30, 2006 as
compared to a net loss of  $(379,000)  during the  comparable  period in 2005. A
comparison of revenues and expenses for the two periods is as follows:

REVENUES

Sales for the three months ended June 30, 2006 increased 4.9% to $1,236,000 from
$1,178,000 for the quarter ended June 30, 2005.

COST OF GOODS SOLD

Cost of goods sold increased 2.9% to $790,000 during the three months ended June
30, 2006 from $768,000  during the same period in 2005.  The increase in cost of
goods sold is  attributable  primarily  to the higher sales volume but also to a
higher profit margin on cards sold due to further  negotiations  with  carriers.
Cost of good sold as a percentage of sales for the three month period ended June
30, 2006 decreased 1.3% from 63.9% to 65.2%.

GROSS PROFIT

Gross Profit for the three months ended June 30, 2006 increased 8.8% to $446,000
from $410,000 during the same period in 2005. This is due to renegotiation  with
alternative  carriers'  minute  prices in  termination  and more  pro-active  in
carrier-usage.  Gross profit as a percentage of sales for the three month period
ended June 30, 2006 increased 1.3% from 34.8% (2005) to 36.1% (2006).

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling,  general and administrative expenses decreased 12.1% to $593,000 during
the three months ended June 30, 2006 as compared to $675,000 for the  comparable
period in 2005.  The  decrease  is due  primarily  to  additional  cost  cutting
measures including the reduction of employees.

DEPRECIATION

Depreciation  expense  decreased  34.1% to $58,000 during the three months ended
June 30, 2006 as compared to $88,000 for the comparable period in 2005.

INTEREST EXPENSE

The Company  incurred  interest  expense of $2,000 during the three months ended
June 30,  2006 as  compared  to $26,000  during the  comparable  period in 2005.
Interest  expense  decreased  due to notes  payable  to  related  parties  being
non-interest bearing notes.


                                       12
<PAGE>

COMPARISON OF THE NINE MONTHS ENDED JUNE 30, 2006 AND 2005

We incurred a  $(3,547,000)  net loss for the nine months ended June 30, 2006 as
compared to a net loss of $(2,152,000)  during the comparable  period in 2005. A
comparison of revenues and expenses for the two periods is as follows:

REVENUES

Sales for the nine months ended June 30, 2006 decreased 11.8% to $3,582,000 from
$4,059,000  for the nine months ended June 30, 2005.  This decrease is primarily
due to a revenue adjustment made in the quarter ended March 31, 2006 as a result
of applying a credit against old pre-paid stock for new product given to a major
customer.

COST OF GOODS SOLD

Cost of goods sold  decreased  13.4% to $2,316,000  during the nine months ended
June, 2006 from $2,673,000  during the same period in 2005. The decrease in cost
of goods sold is attributable  primarily to the lower sales volume but also to a
higher profit margin on cards sold due to further  negotiations  with  carriers.
Cost of good sold as a percentage  of sales for the nine month period ended June
30, 2006 decreased 1.2% from 65.9% to 64.7%.

GROSS PROFIT

Gross  Profit  for the  nine  months  ended  June  30,  2006  decreased  8.7% to
$1,266,000  from  $1,386,000  during the same period in 2005.  Gross profit as a
percentage of sales for the nine month period ended June 30, 2006 increased 1.2%
from 34.1% in 2005 to 35.3% in 2006.  This is due to the  switch in its  carrier
providing  access,  renegotiating  with  alternative  carriers' minute prices in
termination and more pro-active in carrier-usage.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling,  general and  administrative  expenses  increased  59.5% to  $4,568,000
during the nine months  ended June 30, 2006 as  compared to  $2,863,000  for the
comparable  period in 2005.  Of this  increase,  $2,200,000 is due to the Common
Stock issued from the 2006 Stock Bonus Plan to employees for past  services.  If
the stock  bonuses to employees  are not  considered,  the selling,  general and
administrative expense would be $2,368,000 during the nine months ended June 30,
2006 thus realizing a reduction of 17.3%  ($495,000) on the figure of $2,863,000
for the comparable  period in 2005.  This reduction is a result of  management's
continued focus on cost reductions.

DEPRECIATION

Depreciation  expense  decreased  31.0% to $189,000 during the nine months ended
June 30, 2006 as compared to $274,000 for the comparable period in 2005.

INTEREST EXPENSE

The Company  incurred  interest expense of $343,000 during the nine months ended
June 30, 2006 as compared to $405,000 during the comparable  period in 2005. The
decrease is due to the repayment of some stockholder loans.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2006, the Company has negative  working  capital of  $(6,300,000)
and a deficit net worth of  $5,744,000.  This gives rise to  substantial  doubts
about the  Company's  ability to  continue  as a going  concern.  The  financial
statements  do not reflect any  adjustments  which might be required  should the
Company discontinue as a going concern.

The ability of the Company to satisfy its  obligations  will depend in part upon
its ability to raise funds through the sale of  additional  shares of its Common
Stock,  increase borrowings,  and in part upon its ability to reach a profitable
level of operations of which there can be no assurances.


                                       13
<PAGE>

During the 2005 fiscal year and into 2006, the Company's  management  focused on
improving  margins on its  prepaid  business  by  reducing  operating  costs and
reducing outstanding debt. As a result, it has decreased its debt and looked for
additional  debt/equity funding. Its telephone services have been redefined as a
part of a new marketing mix and certain services relaunched with a raw image and
brand name associated  with the prepaid  telephone card business of Teleconnect.
The Company has constantly  focused on reducing its operating costs to a minimum
and is still taking measures which will further reduce its monthly expenses. The
Company's objective is to have a monthly breakeven situation before year-end.

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

The Company intends to sell its Common Stock and/or borrow additional funds from
investors  to invest in the launch of new  services,  pay debts and for  general
working  capital.  However,  there is no  assurance  that such  capital  will be
raised,  and the Company may seek bank  financing and other sources of financing
to complete the payment of additional debts of Teleconnect.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The following  table is a recap of the Company's  contractual  obligations as of
June 30, 2006.

Contractual  Obligations                   Payments Due by Period
------------------------                   -----------------------
                                           Less Than     One To
                                 Total      One Year   Three Years   Thereafter
                              -------------------------------------------------
Payment obligation
  To tax authority            $  196,000   $  196,000   $       --   $       --
Related Party Notes Payable    1,085,000    1,085,000           --           --
Notes payable                    153,000      153,000           --           --
Operating  Leases                658,000      107,000      407,000      144,000
                              ----------   ----------   ----------   ----------
Total  Contractual  Cash
Obligations                   $2,092,000   $1,541,000   $  407,000   $  144,000
                              ==========   ==========   ==========   ==========

ITEM 3. CONTROLS AND PROCEDURES

The Company's  Chief  Executive  Officer and Chief  Financial  Officer/Principal
Accounting Officer  (collectively,  the Certifying Officers) are responsible for
establishing and maintaining disclosure controls and procedures for the Company.
Such officers have concluded  (based upon their evaluation of these controls and
procedures  as of a date within 90 days of the filing of this  report)  that the
Company's  disclosure  controls  and  procedures  are  effective  to ensure that
information  required  to  be  disclosed  by  the  Company  in  this  report  is
accumulated  and  communicated  to  the  Company's  management,   including  its
principal executive officers as appropriate, to allow timely decisions regarding
required disclosure.

The  Certifying  Officers  also have  indicated  that there were no  significant
changes  in  the  Company's  internal  controls  or  other  factors  that  could
significantly  affect such controls  subsequent to the date of their evaluation,
and there were no corrective actions with regard to significant deficiencies and
material weaknesses.


                                       14
<PAGE>

                                     PART II

                                OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

A shareholder filed suit against the Company claiming the right to an additional
623,100 shares of the Company's common stock and  (euro)246,624 in damage due to
the  failure  to issue  these  shares  on a timely  basis.  In August  2005,  an
agreement  was  reached  whereby  the Company  will pay  (euro)29,000  and issue
1,000,000 two-year  restricted shares once the shareholder had collaborated with
some internal issues. As of June 30, 2006, the Company has paid (euro)14,500 and
accrued  (euro)96,000 for this settlement.  The associated  1,000,000 shares has
not yet been issued.

In the normal course of its  operations,  the Company may, from time to time, be
named in legal  actions  seeking  monetary  damages.  While the outcome of these
matters cannot be estimated with certainty,  management  does not expect,  based
upon consultation  with legal counsel,  that they will have a material effect on
the Company's  business or financial  condition or results of operations.  As of
June 30, 2006, the Company has accrued $99,000 to cover the anticipated  cost of
settling several litigation matters.

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

During the nine months ended June 30, 2006, the Company issued  5,000,000 shares
of  restricted  common  stock to Geeris  Holding  Nederland  BV for  payment  of
$350,000 in interest on notes.

During  the nine  months  ended June 30,  2006,  the  Company  issued a total of
3,300,000 shares of restricted common stock for consulting services.  (2,000,000
shares to E. Lanting Beheer BV;  1,000,000  shares to Kirk Hayes; and 300,000 to
Jeffrey Goddard.)

During the nine months ended June 30, 2006, the Company issued 52,200,000 shares
of restricted  common stock for a capital  contribution of $1,446,000  (U.S.) to
Geeris Holding Nederland BV.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS

NONE

ITEM 5. OTHER INFORMATION

None


                                       15
<PAGE>

ITEM 6. EXHIBITS

31.1 Certification of Gustavo Gomez

31.2 Certification of Alfonso de Borbon

32   Certification of Gustavo Gomez and Alfonso de Borbon

                                   Signatures

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

August 11,  2006

Teleconnect  Inc.

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


                                       16
<PAGE>

                                INDEX TO EXHIBITS

Exhibit No.            Description

31.1          Certification of Gustavo Gomez

31.2          Certification of Alfonso de Borbon

32            Certification of Gustavo Gomez and Alfonso de Borbon


                                       17