U.S. SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB


|X|   ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT
      OF 1934

      FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2005

|_|   TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
      OF 1934

      FOR THE TRANSITION PERIOD FROM ______________ TO ________________

                         COMMISSION FILE NUMBER: 0-30611


                                TELECONNECT INC.
                                ----------------
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)


            FLORIDA                                      52-2137517
            -------                                      ----------
(STATE OR OTHER JURISDICTION OF             (I.R.S. EMPLOYER IDENTIFICATION NO.)
 INCORPORATION OR ORGANIZATION)


         PARQUE TECNOLOGICO DE ANDALUCIA, EDIF. ESTEPONA BUSINESS PARK 2
         C/ SEVERO OCHOA, NO. 16-201A, CAMPANILLAS, MALAGA 28590, SPAIN
         --------------------------------------------------------------
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)


       ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: 011-34-95-202-9400


         SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:

     TITLE OF EACH CLASS               NAME OF EACH EXCHANGE ON WHICH REGISTERED
     -------------------               -----------------------------------------
           N/A                                           N/A


         SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:

                          COMMON STOCK, PAR VALUE $.001

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 |_|

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |X|

State issuer's revenues for its most recent fiscal year: $4,930,000

The aggregate market value of voting and non-voting equity held by
non-affiliates of the registrant as of September 30, 2005: Common stock, $.001
par value: $920,378


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ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS

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

The number of shares of the registrant's common stock outstanding as of the most
recent practicable date, December 28, 2005: 109,639,197.

Documents incorporated by reference: None

Transitional Small Business Disclosure Format:

                                 Yes |_| No |X|


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<PAGE>

                                TABLE OF CONTENTS

PART I

Item 1.  Description of Business                                               4
Item 2.  Description of Property                                              17
Item 3.  Legal Proceedings                                                    17
Item 4.  Submission of Matters to a Vote of Security Holders

PART II
Item 5.  Market for Common Equity and Related Stockholder Matters             18
Item 6.  Management's Discussion and Analysis or Plan of Operation            19
Item 7.  Financial Statements                                                 23
Item 8.  Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosure                                             23
Item 8a. Controls and Procedures
Item 8b. Other Information

PART III
Item 9.  Directors, Executive Officers, Promoters and Control Persons;        24
         Compliance with Section 16(a) of the Exchange Act
Item 10. Executive Compensation                                               24
Item 11. Security Ownership of Certain Beneficial Owners and Management       27
Item 12. Certain Relationships and Related Transactions                       28
Item 13. Exhibits                                                             29
Item 14. Principal Accountant Fees and Services                               29
Financial Statements                                                          30
Signatures                                                                    31
Exhibit Index                                                                 32


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<PAGE>

                                     PART I

ITEM 1.   DESCRIPTION OF BUSINESS.

General

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

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

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

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

During the 2004 fiscal year, Teleconnect management focused on improving margins
on its prepaid business by reducing operating costs and reducing outstanding
debt. As a result, it decreased its debt and looked for additional debt/equity
funding. Its telephone services were 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 constantly
focused on reducing its operating costs to a minimum.

During the 2005 fiscal year the Company continued to take measures which will
further reduce its monthly expenses. The Company's objective is to have a
monthly breakeven situation before June 2006.

In parallel to the cost reductions, the Company has developed a new pre-paid
telephone card with a magnetic strip. Other marketing actions are being planned
to bring up sales levels to help reach a monthly breakeven as quickly as
possible.

Telecommunication Industry in Spain

Full deregulation was instituted in Spain on December 1, 1998, almost a year
behind most other countries in western Europe, but since that time many
companies have entered the market providing end users with a variety of services
and competitive offers. A limited number of operators have traditionally
dominated the European telecommunications market. In Spain, the principal
operator has been, and still is, Telefonica S.A.


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<PAGE>

In order to offer telecommunications services in Spain, a company must apply for
the appropriate license or authorization to conduct business. In Spain, there
are several companies with carrier licenses which allow these companies to build
their own telecommunications infrastructures and also interconnect with
Telefonica. ITS Europe S.L. (wholly owned by Teleconnect Inc.) possesses an "A"
type authorization to resell telecommunications services and as such cannot
build its own infrastructure. Hence, ITS Europe is a reseller of
telecommunications products and services. ITS Europe can also act as a VISP
(virtual ISP) reselling Internet Access from actual Internet service providers.
Teleconnect does have a Carrier A license and as such can build out its own
infrastructure.

Long distance services in Spain have become very competitive since 1999 and as
such prices have been reduced considerably. Teleconnect focuses primarily on
offering inexpensive international calling to foreign residents in Spain that
make a higher than average number of calls internationally. In order to offer
this service during fiscal 2005, Teleconnect reached agreements mainly with BT
Spain, Jazztel, Primus, Worldcom and other major carriers.

Products and Services

The Company is presently providing prepaid only voice telephone services to its
customers through prepaid calling cards as well as prepaid residential and small
business accounts. It also has a prepaid long distance service which can be
accessed from any mobile phone. The Company intends to enter other European
markets with its pre-paid telephone services.

The Company offers various types of calling cards to its customers. Prepaid
calling cards are used primarily by tourists, students, and immigrants. They are
purchased from a variety of local merchants, kiosks, etc. These are cost
effective and can be used from hotels, pay phones, public and/or any private
telephone.

The calling cards require the user to dial a toll free prefix number, listen to
the instructions, which can be given in either Spanish, English, German or
French, and dial in their "code" or "PIN". The code is then confirmed and the
user dials the number. The calling cards typically have sixty days after first
activation expiration date. Teleconnect sold approximately 645,000 calling cards
during its fiscal year ended September 30, 2005.

For those clients who have a fixed line and/or a mobile provided by a telecom
operator in Spain, the Company offers a pre-paid residential account with which
they can save money on their international calls. These customers are typically
foreigners living in Spain or having a second home in Spain, as well as small
and medium enterprises with international contacts. During the 2004 fiscal year,
the Company offered prepaid and postpaid accounts. The prepaid accounts are
based on credit card payments. During fiscal 2004, Teleconnect eliminated all
postpaid accounts, which were based on a monthly billing cycle and automatic
collection system, and thereby, reducing bad debt expense considerably. These
actions helped improve the results for the fiscal 2005 year end.


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<PAGE>

The prepaid accounts work the same as prepaid calling cards except for the fact
that our network recognizes the caller's line identification, so a PIN is not
needed, which is more convenient for our customers than using a calling card.
Customers can recharge their balance manually or automatically. Traffic from the
prepaid accounts goes directly through our network, the same as with prepaid
calling cards.

Marketing

The marketing strategy of the residential services of the Company (Teleconnect)
was focused during fiscal 2005 on foreigners in Spain. These foreigners are
primarily located on the costal areas of Spain, including the islands.

In the case of our pre-paid calling cards, the cards are distributed throughout
Spain via distribution channels with thousands of vending points as well as via
large accounts (retail chains).

Teleconnect is not in a position, due to its size and limited financial
resources, to compete against the major carriers for corporate clients in the
big cities. Teleconnect requires additional external financing in order to carry
out its marketing plans, to increase its capacity with carriers, and to expand
to other countries in Europe. During the fiscal year 2005, Teleconnect did
virtually no marketing due to a limitation of financial resources,

Industry Participants and Competition

The growth of the telecommunications industry from 1997 to 2003 attracted many
new entrants as well as existing businesses from different industries to enter
the telecommunications business. Current and prospective industry participants
include multinational alliances, long distance and local telecommunications
providers, systems integrators, cable television and satellite communications
companies, software and hardware vendors, wireless telecommunications providers
and national, local and regional ISPs. Our present primary competitor is
Telefonica S.A. Other significant competitors include France Telecom (UNI2),
Jazztel, Citycall and Communitel.

Some participants specialize in specific segments of the market, such as access
and/or backbone provision; managed access, e.g., intranets and extranets;
application services, e.g., Web hosting; security services; and communication
services, e.g., IP-based voice, fax and video services.

In order to become more competitive in the market, Teleconnect will have to
invest in setting up additional switching infrastructure in order to reduce its
traffic carrying cost (telephone transmission costs). The Company will require
additional funding in order to be able to do so. During fiscal 2005, Teleconnect
reduced its transmission costs with other carriers by over 25%.

Regulation

General. The Spanish government undertook a process of revising the legislative
and regulatory scheme applicable to participants in the telecommunications
industry in preparation for the liberalization of the telecommunications market
in December 1998. As the main step in this process, on April 24, 1998, the
Spanish Parliament passed the new General Law on Telecommunications (Law
11/1998). This law was published in the Official Gazette on April 25, 1998 and
took effect on April 26, 1998.

The General Law on Telecommunications repealed and replaced nearly all the
existing laws and regulations on telecommunications (including laws regulating
satellite and cable telecommunications). In general terms, the General Law on
Telecommunications adopted all European Union directives mandating the
liberalization of telecommunications services. Among other things, the General
Law on Telecommunications addresses the following matters relating to our
business:


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<PAGE>

*     conditions for granting licenses to provide telecommunications services;
      and
*     the obligation of telecommunications providers to extend service to rural
      areas and the financing of associated capital expenditures.

European Union Regulations. Since 1995, the European Union has adopted a number
of directives that regulate the provision of telecommunications services in
European Union member states, including:

*     regulations designed to ensure the full liberalization of the
      telecommunications sector;
*     regulations which impose standard conditions throughout member states for
      granting individual licenses and general authorizations;
*     regulations regarding access and interconnection between competing
      operators;
*     regulations dealing with the universal service obligation;
*     regulations requiring member states to allocate wireless radio based
      services according to the DCS-1800 standard and the UMTS standard;
*     regulations relating to telecommunications data protection and privacy
      regulations; and
*     regulations for unbundled access to the local loop.

The General Law on Telecommunications and other applicable Spanish law were
designed to implement all applicable European Union directives with respect to
the provision of telecommunications services. In 1999, the European Union began
to revise the directives in force with respect to the provision of
telecommunications services. Today, Spain has revised its regulatory framework
to comply with the revised directives.

Regulatory Framework. The provision of telecommunications services in Spain is
regulated and overseen by the Spanish government through the Secretary of State
for Telecommunications and Information Society, a unit of the Ministry of
Science and Technology. The Ministry of Science and Technology has various
powers, including in certain cases the authority to grant licenses or
authorizations, if applicable, for telecommunications services and to impose
sanctions for certain infringements of the General Law on Telecommunications. An
additional independent oversight body, the Telecommunications Market Commission,
was created in 1996. The Telecommunications Market Commission supervises the
activities of telecommunications operators and has the authority to grant
licenses for telecommunications services and to arbitrate any conflicts that may
arise between operators, subject to the consent of the interested parties. The
Telecommunications Market Commission is also responsible for safeguarding free
competition in the telecommunications market, particularly with regard to a
plurality of service offerings, access to networks and network interconnection.
With regard to interconnection, the Telecommunications Market Commission may
make a binding decision in respect of any conflict between operators and may fix
tariffs (other than for regulated services), such as interconnection charges, in
the event of disputes.

The Telecommunications Market Commission has advisory and arbitration
responsibilities with respect to tariffs for end user services. It issues
reports on all proposed tariffs and the regulation of prices for
telecommunications services. It also issues reports on proposed tariffs for
exclusive services or services for which a dominant operator exists.

The General Law on Telecommunications. The General Law on Telecommunications
culminates the liberalization process initiated in 1987 in Spain with the
enactment of the Telecommunications Regulation Law and establishes a regulatory
framework for telecommunications services in accordance with applicable European
Union directives. The General Law on Telecommunications provides for free
competition with respect to all telecommunications services and with respect to
the construction and operation of telecommunications networks, subject to
governmental licensing or general authorization requirements. Individual
licenses are required:


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<PAGE>

*     to construct or operate public telecommunications networks;
*     to provide fixed-line telephone services to the general public; and
*     to provide telecommunications services or construct or operate
      telecommunications networks using radio spectrum

The Spanish government may determine pursuant to Royal Decree that other
activities and services require individual licenses. In all other cases where
the type of service or network does not fall within the scope of the individual
license regime, only a general authorization is required. A general
authorization is automatically granted to any party who fulfills basic licensing
requirements.

The Ministry of Science and Technology may, in order to guarantee the most
efficient use of radio electric spectrum, limit the number of individual
licenses it will grant, in which case individual licenses will be granted to the
winner of a bidding contest administered by the Ministry of Science and
Technology.

Tariffs. Under the general principles of the General Law on Telecommunications,
operators are free to fix tariffs. Nevertheless, the Spanish government's
Delegate Commission for Economic Affairs has the authority, subject to the
issuance of a report by the Telecommunications Market Commission, to establish
fixed, maximum or minimum tariffs, or to determine the criteria by which to
establish tariffs and the mechanism for their control. In doing so, the
government's Delegate Commission for Economic Affairs must take into account:

*     the effective cost of the applicable service; and
*     the degree of competition in the market for the applicable service

The General Law on Telecommunications recognized the existence of an imbalance
in the tariffs charged for fixed-line telephone services as of the date of its
enactment and the need to rebalance such tariffs. The General Law on
Telecommunications further recognized the possibility of compensating the
dominant operator (Telefonica de Espana, a subsidiary of Telefonica) for the
access deficit which may result from the existing rate imbalance.

Interconnection. The General Law on Telecommunications requires owners of public
telecommunications networks to allow competitors to interconnect with their
networks and services at non-discriminatory rates and under non-discriminatory
conditions. The General Law on Telecommunications provides that the conditions
for interconnection are to be freely agreed among the parties while the
government has the authority to establish the minimum conditions for
interconnection agreements, which must be included in all interconnection
agreements. On July 24, 1998, the government issued a Royal Decree elaborating
the regulations relating to interconnection. Where the parties are unable to
reach an agreement, the Telecommunications Market Commission may impose the
obligations to interconnect upon the conditions it dictates. Similarly, the
Telecommunications Market Commission may release certain network owners,
temporarily and on a case-by-case basis, from the obligation to interconnect
where there are technical or commercial alternatives to such interconnection.

Although under the General Law on Telecommunications interconnection prices may
be freely negotiated, prices charged by Telefonica de Espana, as the dominant
operator in Spain, are determined by an Interconnection Offer Framework approved
by the government.


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<PAGE>

In August 2001, the Telecommunications Market Commission approved modifications
to the Interconnection Offer Framework, which include among other things, new
interconnection prices that are between 20% and 30% below previously existing
interconnection prices. Consequently, on September 11, 2001, Telefonica S.A.
filed a petition with the Telecommunications Market Commission against the new
interconnection prices, claiming that they are below Telefonica de Espana's
actual costs, as measured in accordance with accounting criteria approved by the
Telecommunications Market Commission. On November 2, 2001, the
Telecommunications Market Commission dismissed Telefonica de Espana's petition,
except with respect to interconnection rates in connection with Internet access.
As a result, Telefonica de Espana is seeking relief through administrative
litigation.

The modifications to the Interconnection Offer Framework approved in August 2001
provide for interconnection based on capacity as well as time. In early 2002,
the Telecommunications Market Commission introduced further modifications to the
Interconnection Offer Framework with respect to intelligent network services and
establishment of prices for the interconnection of circuits, which were reduced
by approximately 25%.

Public Service Obligation. The General Law on Telecommunications provides that
the owners of public telecommunications networks, as well as operators rendering
telecommunications services on the basis of an individual license, are subject
to certain public service obligations. In addition, some of these obligations
may be imposed on operators whose services require a general authorization.

The public service obligations include:

*     the universal service obligation, which is elaborated in the Royal Decree
      of July 31, 1998;
*     the compulsory services obligation; and
*     other public service obligations.

The universal service obligation consists of the obligation to provide basic
telephone to all end users within Spain, free telephone directory services,
sufficient public pay phones throughout Spain and access to telephone services
for disabled people. These services must be provided by the dominant operator in
each territory, and in certain cases, by another operator, pursuant to
regulations. Telefonica is the dominant operator in each territory and,
according to the General Law on Telecommunications, Telefonica will be
considered to be the dominant operator until at least 2005. If meeting the
universal service obligation in a particular territory is loss-producing, all
operators in that territory could be obligated to contribute to meeting this
obligation through the National Fund for Universal Service.

The compulsory services obligation enables the government to appoint a
telecommunications operator to provide certain essential telecommunications
services, such as emergency call services and telex, telegraphic and maritime
communications. Telefonica was designated as the provider of maritime
communications services. Telefonica may in the future be designated as the
provider of other telecommunications services. The Spanish government may
establish further public service obligations to the extent that the government
determines that such services are not adequately provided, are in the public
interest or are necessary for national defense.

In December 2001, the Spanish government adopted a ministerial order that
governs certain aspects of the universal service obligation, including among
others:

*     maximum time periods for the provision of initial interconnection to
      telecommunications networks;
*     requirements with respect to the guarantee of continuing fixed-line
      telephone service to the public;
*     criteria with respect to the information included in public telephone
      directories; and
*     standards for the quality of service and systems for measuring the quality
      of services.


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Terminal Equipment. The General Law on Telecommunications provides that
consumers may freely purchase or lease any terminal equipment, including
telephone sets, and connect that equipment to the telecommunications network.
All terminal equipment is required by the General Law on Telecommunications to
meet certain technical specifications and safety requirements and is subject to
the prior approval of the Secretary of State for Telecommunications and
Information Society.

Ownership Limitations. Pursuant to the General Law on Telecommunications, direct
or indirect investments in us and by foreign persons may not exceed 25% of our
share capital unless otherwise provided for by the applicable international
treaties or agreements, including the Fourth Protocol of the General Agreement
on Trade in Services (GATS), or authorized by the Spanish government. Pursuant
to European Union directives, citizens of other European Union member states,
including entities domiciled in such countries, are not considered foreign
persons for the purposes of this provision. However, under Spanish law any
foreign investment by non-European Union governments and state-owned and
state-controlled entities (regardless of the amount of such investment) requires
the Council of Minister's prior approval unless otherwise provided for in the
applicable treaties. For purposes of computing the 25% threshold, only holdings
of capital stock in excess of 5% and holdings that would entitle the foreign
investor to designate a member of our Board of Directors are taken into account.
The 25% threshold does not apply to our subsidiaries generally. However, certain
of our subsidiaries may be subject independently to similar constraints.

Telefonica S.A. is currently the only significant provider of comprehensive
local service. This is expected to change gradually as other cable operators
develop their networks. In addition, in March 2000, the government issued six
new licenses (in addition to those previously awarded to Retevision and Lince)
for the provision of local multipoint distribution services (LMDS), and the new
licensees have begun to deploy their networks. These new licensees compete with
Telefonica S.A. in the local access market.

Pursuant to a Royal Decree adopted in December 2000, Telefonica S.A. is required
to implement local loop unbundling, line sharing and sub loop unbundling. Local
loop unbundling enables other telecommunications operators to provide
telecommunications services, including DSL-type services, to end customers using
Telefonica S.A.'s existing local loop (i.e., the connections between the
customer's premises and the exchange) to connect with their customers. Other
operators may install their own equipment either in Telefonica S.A.'s exchanges
or in nearby buildings to provide this service. Telefonica S.A. has offered
local loop unbundling since January 2001. Line sharing similarly enables other
telecommunications operators to provide telecommunications services using a high
frequency portion of Telefonica S.A.'s copper loop on an unbundled basis.
Therefore, shared access to the local loop enables a consumer to retain
Telefonica S.A. for voice service and use a competing operator for high speed
data services. Telefonica S.A. introduced line sharing in January 2001.

In January 2001, Telefonica S.A. published its local loop unbundling offer. The
tariffs were initially approved by the Delegate Commission for Economic Affairs
of the Spanish government and later revised by the Telecommunications Market
Commission in certain respects. The monthly tariff for direct access to the
local loop is 12.6 Euro, the monthly tariff for shared access is 4.8 Euro and
the monthly tariff for indirect access is between 22 and 90 Euro depending on
the speed of the connection.

Competition in domestic and international long-distance services, particularly
in the residential segment, is based on access through interconnection with
Telefonica S.A. Since 2001, Telefonica S.A.'s customers have been able to select
alternative providers of domestic and international long-distance services
without having to dial a designated code prior to making each call. Preselection
allows customers to choose their preferred local, long distance, international
long-distance and fixed-to-mobile carrier.

Telefonica S.A. faces indirect competition in international long-distance
services from a number of sources, including calling cards, call-back services
and call rerouting by other international operators. In addition, Telefonica
S.A. competes with a number of international operators for the provision of
closed user group communications services to multinational and large corporate
customers and with a number of providers of data transmission services.


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Type A License. The Company holds a Type A license for telecommunication and
fixed-line networks. This license authorizes the provision of fixed-line public
voice telephone service through the use of third-party switching and
transmission equipment without the corresponding obligation or right to
establish and operate a network as in the case of a Type B license.

Regulation in the United States. Our operations are in Spain and as such are not
currently subject to regulation in the U.S., either at the federal or state
level.

Employees

As of September 30, 2005, the Company and its subsidiaries had 24 full-time
employees, of which 2 were engaged in general management, 12 in operations, 5 in
marketing and sales, 3 in accounting and finance, 1 in human resources and
office management, and 1 in business development including marketing. None of
the Company's employees are represented by a labor union with respect to his or
her employment by the Company.

The Company has experienced no organized work stoppages and believes that its
relationship with its employees is good. None of our employees are represented
by a union. The Company believes that an important factor in its future success
will be its ability to attract and retain highly qualified personnel.
Competition for such personnel in the industry in Spain is intense. There can be
no assurance that the Company will be successful in attracting or retaining such
personnel, and the failure to attract or retain such personnel could have a
material adverse effect on the Company's business and results of operations. In
such competitive environment, Teleconnect must differentiate itself based
primarily on good customer care, ease for the customer to work with us, clarity
of its invoices and quick response to service problems. Since we cannot pay high
material incentives to the employees, we attempt to provide a healthy, enjoyable
working environment where personal achievements and contributions are
recognized.

Banking Arrangements

The Company has a $120,000 (100,000 euro) bank loan from the BBVA bank in
Madrid, Spain, as of September 30, 2005. This loan was subsequently paid on
November 14, 2005.

Risk Factors

We May Not Achieve or Sustain Profitability in the Future. We have incurred
substantial net losses and negative cash flow from operations since our
inception. As of September 30, 2005, we had an accumulated deficit of
$(20,301,000) and had a stockholders' deficit of $(6,141,000) at September 30,
2005. For the years ended September 30, 2005, and 2004, we had net losses of
$(3,005,000), and $(3,202,000), respectively. We may also in the future incur
operating and net losses and negative cash flow from operations, due in part to
anticipated increases in expenses for expansion of our sales and marketing
capabilities. We may not be able to achieve or maintain profitability.

If our telecommunications services do not become widely used in our market, it
is unlikely that we will be profitable.

In order to be successful, and to achieve our strategic objectives, we must
successfully, timely and cost-effectively expand our network capacity with
carriers and expand our hardware switching platform. We must also continue to
have at all times the right product/price mix for each target market.


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<PAGE>

Going Concern Qualification by Auditors. The accountants' reports of the
independent registered public accounting firm of the Company for fiscal years
2005 and 2004 express a going concern qualification. The Company has had
recurring operating losses for the past several years which raise substantial
doubts about its ability to continue as a going concern. See Report of
Independent Registered Public Accounting Firm, Note 2 to the Consolidated
Financial Statements of the Company, and Management's Discussion and Analysis or
Plan of Operations - Plan of Operations.

Information Structure. We must continue to develop and expand our information
systems infrastructure as the number of our clients and the amount of
information they wish to access, as well as the number of services which we
offer, increase. The development of our Information Systems network
infrastructure will require substantial financial, operational and management
resources. We may not be able to expand our network adequately to meet the
demand for increased usage. If we do not adapt our systems rapidly enough,
additional stress may be placed on our network hardware, the traffic management
and other systems and operating facilities. Our network may be unable to service
a substantial number of additional clients while maintaining high performance ,
timely and accurate billing and high level customer care. Expanding is a
function of having the necessary funds available.

Transmission Availability. A variety of factors, uncertainties and contingencies
that are beyond our control, such as the availability of transmission capacity,
the price of transmission capacity, availability of wireless transmission
capacity and technologies, local regulations and availability of sales
representatives or other third party sales and support channels will affect the
expansion of our network. A failure of adequate transmission facilities in
certain new locations as we expand our service coverage as planned may have a
material adverse effect on our ability to service our clients and grow our
business. Expanding is a function of having the necessary funds available.

Growth. Our limited growth has been a function of not having the necessary funds
available to invest in capacity and equipment. This has placed a significant
strain on our management, financial controls, operating and accounting systems,
personnel and other resources. We currently rely on a relatively small core
management team. If we grow, we must not only manage demands on this team but
also increase management resources, among other things, to continue to expand,
train and manage our employee base and maintain close coordination among our
technical, accounting, financing, marketing and sales staff. In addition, our
network infrastructure, technical support, applications, and other resources may
not be sufficient to facilitate our growth. If we do not successfully manage our
growth, we may be unable to adequately support our clients' communications needs
in the future.

Our challenge is to expand our services and increase our customer base
simultaneously so that both are increased in a proportional relationship which
allows them to mutually support each other. Rapid expansion of our service area
or technical facilities and capacity, without the customer base to support it,
would be inefficient and result in a substantial decrease in financial return.
Likewise, a substantial increase in our customer base which cannot be supported
by our technical facilities and service area would impact the Company's ability
to service its customers in a detrimental way and might result in an unfavorable
sales environment and inability to maintain the Company's customer base.

Customer Retention. Our ability to retain our clients and provide them with new
and innovative service offerings may suffer if we are not able to keep up with
the rapid technological developments in our industry and continue to ensure
competitive prices of our services. In addition, even though the current
telecoms market conditions are weeding out many players, other new competitors
are arising from large, solid companies traditionally dedicated to telecoms and
other non-telecoms business.

Technological Changes. The global communications industry is subject to rapid
and significant technological changes, such as continuing developments of
alternative technologies for providing high-speed data communications. We cannot
predict the effect of technological changes on our business. We will rely in
part on third parties, including some of our competitors and potential
competitors, for the development of and access to communications and networking
technologies. We expect that new services and technologies applicable to our
market will emerge. New products and technologies may be superior and/or render
obsolete the products and technologies that we currently use to deliver our
services. Our future success will depend in part, on our ability to anticipate
and adapt to technological changes and evolving industry standards. We may be
unable to obtain access to new technologies on acceptable terms or at all, and
we may be unable to obtain access to new technologies and offer services in a
competitive manner.


                                       12
<PAGE>

Management Changes. If members of our senior management team leave the Company,
then our ability to operate our business may be negatively affected.

Our future success depends to a significant extent on the continued services of
our senior management, particularly Gustavo Gomez and Herman de Haas, and other
employees of the new executive team. The loss of their services or any other
present or future key employee, could have a material adverse effect on the
management of our business. We do not maintain "key person" life insurance for
any of our personnel.

Competition for Employees. Competition for highly-skilled personnel is intense
and the success of our business depends on our continuing ability to attract and
retain highly-skilled employees. As we grow, we will need to hire additional
personnel in all areas. Competition for personnel throughout the data and voice
communications industries is intense. We may be unable to attract or retain key
employees or other highly qualified employees in the future. We have from time
to time in the past experienced, and we expect to continue to experience in the
future, difficulty in hiring and retaining highly-skilled employees with
appropriate qualifications. If we do not succeed in attracting sufficient new
personnel or retaining and motivating our current personnel, our ability to
provide our services could diminish.

Sales Relationships. If we are unable to maintain our sales representative and
third-party sales channel relationships, then our ability to sell and support
our services may be negatively impacted.

We are and will continue to be significantly dependent on a number of
third-party relationships, our sales representatives and partners, to market and
support our services. Many of our arrangements with third-party providers are
not exclusive and may be terminated at the convenience of either party. We
cannot provide any assurances that these third parties regard our relationship
with them as important to their own respective businesses and operations, that
they will not reassess their commitment to us at any time in the future, that
they will meet their sales targets or that they will not develop their own
competitive services.

We may not be able to maintain our current relationships or form new
relationships with third parties that supply us with clients, software or
related products that are important to our success. Accordingly, we cannot
provide any assurances that our existing or prospective relationships will
result in sustained business partnerships, successful offerings or the
generation of significant revenues.

We rely on our sales representatives or distribution channels for some of the
support and local implementation necessary to deliver our services on a broad
basis. We also rely on these sales representatives or distribution channels for
insights into local operating and market conditions. The failure of these sales
representatives to perform their tasks or perform their responsibilities
effectively could, in turn, adversely affect our business.

Regulatory Approvals. The Company directly assumes the responsibility for
obtaining the regulatory approvals and licenses that it may need to offer our
communications services in other jurisdictions and provinces.

Suppliers. Delays in receiving transmission capacity or delays in equipment
delivery or loss of our equipment suppliers could impair the quality of our
services and our growth.


                                       13
<PAGE>

We acquire, by lease or by purchase, transmission capacity from various
suppliers to connect client premises to our network and for other network
connections. We have from time to time experienced short-term delays in
receiving the requisite transmission capacity from suppliers. There are no
assurances that we will be able to obtain these services in the future within
the time frames required by us at a reasonable cost. Any failure to obtain
transmission capacity on a timely basis and at a reasonable cost in a particular
jurisdiction, or any interruption of local access services, could have an
adverse effect on our service levels and our growth.

Service Disruptions. If our network infrastructure is disrupted or security
breaches occur, we may lose clients or incur additional liabilities.

We and other service providers may in the future experience interruptions in
service as a result of fire, natural disasters, power loss, or the accidental or
intentional actions of service users, current and former employees and others.
Although we continue to implement industry-standard disaster recovery, security
and service continuity protection measures, including the physical protection of
our offices and equipment, similar measures taken by us or by others have been
insufficient or circumvented in the past. We cannot assure you that these
measures will be sufficient or that they will not be circumvented in the future.
Unauthorized use of our network could potentially jeopardize the security of
confidential information stored in the computer systems or transmitted by our
clients. Furthermore, addressing security problems may result in interruptions,
delays or cessation of services to our clients. These factors may result in
liability to us or our clients.

Competition. The markets we serve are highly competitive and our competitors may
have much greater resources to commit to growth, new technology and marketing.

Our current and potential competitors include other companies that provide voice
and data communications services to multinational businesses, systems
integrators, national and regional Internet Service Providers, or ISPs,
wireless, cable television and satellite communications companies, software and
hardware vendors, and global, regional and local telecommunications companies.
In addition, we expect that the predicted growth of the voice and data
communications market will attract other established and start-up companies
building global networks and beginning to offer voice and data communications as
part of a comprehensive communications services portfolio. Our competitors,
which may operate in one or more of these areas, include companies such as
Telefonica S.A., British Telecommunications, or BT, and France Telecom. Our
sales representatives and suppliers could also become competitors either
directly or through strategic relationships with our competitors.

Many of our competitors have substantially greater financial, technical and
marketing resources, larger customer bases, greater name recognition and more
established relationships in the telecommunications industry than we do. We
cannot be sure that we will have the resources or expertise to compete
successfully in the future. Our competitors may be able to:

*     develop and expand their network infrastructures and service offerings
      more quickly;
*     adapt better to new or emerging technologies and changing client needs;
*     take advantage of acquisitions and other opportunities more readily;
*     devote greater resources to the marketing and sale of their services and
      products; and
*     adopt more aggressive pricing policies

Some of our competitors may also be able to provide clients with additional
benefits at lower overall costs. We cannot be sure that we will be able to match
cost reductions of our competitors. In addition, we believe it is likely that
there will be additional consolidation in our market, which could increase
competition in ways that may adversely affect our business, results of
operations and financial condition.


                                       14
<PAGE>

Variable Revenues and Operating Results. Our revenues and operating results may
vary significantly from quarter to quarter due to a number of factors, not all
of which are in our control. These factors include:

*     the size and timing of significant equipment and software purchases;
*     the timing of new service offerings;
*     changes in our pricing policies or those of our competitors;
*     the timing and completion of the expansion of our service offering;
*     market acceptance of voice and data communications generally, and of new
      and enhanced versions of our services in particular;
*     the length of our contract cycles; and
*     our success in expanding our sales force and expanding our distribution
      channels.

In addition, a relatively large portion of our expenses are fixed in the
short-term, particularly with respect to global communications capacity,
depreciation, office lease costs and interest expenses and personnel, and
therefore our results of operations are particularly sensitive to fluctuations
in revenues. Due to the factors noted above and other risks discussed in this
section, you should not rely on period-to-period comparisons of our results of
operations. Quarterly results are not necessarily meaningful and you should not
unduly rely on them as an indication of future performance. It is possible that
in some future periods our operating results may be below the expectations of
public market analysts and investors. In this event, the price of our Common
Stock may not increase or may fall. Please see Management's Discussion and
Analysis of Financial Condition or Results of Operations.

Governmental Regulation. We face uncertain and changing regulatory restrictions
which could limit our operating flexibility and increase our costs.

We currently hold authorizations for international telecommunications services
between Spain and other countries based on a third party's networks. Future
regulatory, judicial and legislative changes in Spain may impose additional
costs on us or restrict our activities. In addition, regulators or third parties
may raise material issues with regard to our compliance with applicable
regulations. Failure to comply with applicable laws or regulations in Spain
could prevent us from carrying on our operations cost effectively.

The law relating to the liability of online services companies and Internet
access providers for data and content carried on or disseminated through their
networks is currently unsettled and could expose us to unforeseen liabilities.
It is possible that claims could be made against online services companies and
Internet access providers under the laws of Spain and/or EU law for defamation,
negligence, copyright or trademark infringement, or other theories based on data
or content disseminated through their networks, even if a user independently
originated this data or content. Several private lawsuits seeking to impose
liability upon online services companies and Internet access providers have been
filed in U.S. and foreign courts. While the United States has passed laws
protecting Internet access providers from liability for actions by independent
users in limited circumstances, this protection may not apply in any particular
case at issue. In addition, some countries, such as China, regulate or restrict
the transport of voice and data traffic in their jurisdiction. The risk to us,
as an Internet access provider, of potential liability for data and content
carried on or disseminated through our system could require us to implement
measures to reduce our exposure to this liability. This may require us to expend
substantial resources or to discontinue some of our services. Our ability to
monitor, censor or otherwise restrict the types of data or content distributed
through our network is limited. Failure to comply with any applicable laws or
regulations in particular jurisdictions could result in fines, penalties or the
suspension or termination of our services in these jurisdictions. The negative
attention focused upon liability issues as a result of these lawsuits and
legislative proposals could adversely impact the growth of public Internet use.
We do not presently have any professional liability insurance. Our professional
liability insurance in the future may not be adequate to compensate or may not
cover us at all in the event we incur liability for damages due to data and
content carried on or disseminated through our network. Any costs not covered by
insurance that are incurred as a result of this liability or alleged liability,
including any damages awarded and costs of litigation, could harm our business
and prospects.


                                       15
<PAGE>

It is possible that claims could be made against online services companies and
Internet access providers under the laws of Spain and/or EU law for defamation,
negligence, copyright or trademark infringement, or other theories based on data
or content disseminated through their networks, even if a user independently
originated this data or content. Several private lawsuits seeking to impose
liability upon online services companies and Internet access providers have been
filed in U.S. and foreign courts. While the United States has passed laws
protecting Internet access providers from liability for actions by independent
users in limited circumstances, this protection may not apply in any particular
case at issue. In addition, some countries, such as China, regulate or restrict
the transport of voice and data traffic in their jurisdiction. The risk to us,
as an Internet access provider, of potential liability for data and content
carried on or disseminated through our system could require us to implement
measures to reduce our exposure to this liability. This may require us to expend
substantial resources or to discontinue some of our services. Our ability to
monitor, censor or otherwise restrict the types of data or content distributed
through our network is limited. Failure to comply with any applicable laws or
regulations in particular jurisdictions could result in fines, penalties or the
suspension or termination of our services in these jurisdictions. The negative
attention focused upon liability issues as a result of these lawsuits and
legislative proposals could adversely impact the growth of public Internet use.
We do not presently have any professional liability insurance. Our professional
liability insurance in the future may not be adequate to compensate or may not
cover us at all in the event we incur liability for damages due to data and
content carried on or disseminated through our network. Any costs not covered by
insurance that are incurred as a result of this liability or alleged liability,
including any damages awarded and costs of litigation, could harm our business
and prospects.

Penny Stock Trading Rules. When the trading price of the Company's Common Stock
is below $5.00 per share, the Common Stock is considered to be "penny stocks"
that are subject to rules promulgated by the Securities and Exchange Commission
(Rule 15-1 through 15g-9) under the Securities Exchange Act of 1934. These rules
impose significant requirements on brokers under these circumstances, including:
(a) delivering to customers the Commission's standardized risk disclosure
document; (b) providing to customers current bid and offers; (c) disclosing to
customers the brokers-dealer and sales representatives compensation; and (d)
providing to customers monthly account statements.

Future Sales of Our Common Stock May Depress Our Stock Price. The market price
of our Common Stock could decline as a result of sales of substantial amounts of
our Common Stock in the public market in the future. In addition, it is more
difficult for us to raise funds through future offerings of Common Stock. There
were approximately 101,563,003 shares of our Common Stock outstanding as
"restricted securities" as defined in Rule 144 as of September 30, 2005, which
will be available for sale in the future. These shares may be sold in the future
without registration under the Securities Act to the extent permitted by Rule
144 or other exemptions under the Securities Act.

The Company has registered 1,000,000 shares of Common Stock which will be
reserved for issuance upon exercise of options or stock bonuses to be granted or
reserved for grant under our 2002 Stock Option, SAR and Stock Bonus Consultant
Plan. Upon issuance of these shares, they can be sold in the public market,
subject to restrictions under the securities laws applicable to resales by
affiliates. In addition, the Company has registered another 1,250,000 shares of
Common Stock which is reserved for our 2002 Employee Stock Option, SAR and Stock
Bonus Plan. As of September 30, 2005, 6,825,000 shares have been issued as stock
compensation to consultants for services rendered to the Company as part of the
2004 Stock Option, SAR and Stock Bonus Plan approved by the Board of Directors
on July 29, 2004.


                                       16
<PAGE>

Technological Changes. The global communications industry is subject to rapid
and significant technological changes, such as continuing developments of
alternative technologies for providing high-speed data communications. We cannot
predict the effect of technological changes on our business. We will rely in
part on third parties, including some of our competitors and potential
competitors, for the development of and access to communications and networking
technologies. We expect that new services and technologies applicable to our
market will emerge. New products and technologies may be superior and/or render
obsolete the products and technologies that we currently use to deliver our
services. Our future success will depend in part, on our ability to anticipate
and adapt to technological changes and evolving industry standards. We may be
unable to obtain access to new technologies on acceptable terms or at all, and
we may be unable to obtain access to new technologies and offer services in a
competitive manner. Any new products and technologies may not be compatible with
our technologies and business plan. We believe that the global communications
industry should set standards to allow for the compatibility of various products
and technologies. The industry however, may not set standards on a timely basis
or at all. As such, the Company is investing in launching new services in Spain
based on technologies which exist in the United States but that are still
relatively new to Europe.

Voting Control. The largest single shareholder of the Company, Mr. Leo Geeris,
owns directly and indirectly, approximately 57.5% of the Company's outstanding
Common Stock as of September 30, 2005. This stockholder has exercised
considerable influence over all matters requiring approval by our stockholders,
including approval of significant corporate transactions. Geeris Holding
Nederland, B.V. and Diependael BV are companies owned by Leonardus Geeris, a
director of the Company.

ITEM 2.   DESCRIPTION OF PROPERTY

During the fiscal year 2005, the Company recently moved its principal executive
offices to Parque Tecnologico de Andalucia (PTA), Edif. Estepona, Malaga
Business Park, C/Severo Ochoa No. 16-20 1a, Campanillas, Malaga 28590, Spain,
which is comprised of approximately 800 square feet, and is leased for 3,800
Euros per month. The lease expires in November 2007.

These facilities are leased at commercial rates under standard commercial leases
in the geographic area. We believe that suitable space for these operations is
generally available on commercially reasonable terms as needed.

ITEM 3.   LEGAL PROCEEDINGS

There is a provision of $136,000 to cover minor cases threatened or pending
against the Company:

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

The shareholders of the Company held a special meeting on February 2, 2005 where
the majority of the shareholders of the Company approved and ratified the change
of the Company name from ITS Networks Inc to Teleconnect Inc.

The shareholders of the Company held a special meeting on July 29, 2004 where
the majority of the shareholders of the Company approved and ratified an
amendment to the Articles of Incorporation of the Company which increased the
authorized number of shares of our Common Stock from 100,000,000 shares to
200,000,000.

The shareholders of the Company held a special meeting on September 14, 2005
where the majority of the shareholders of the Company approved and ratified the
amendment to the Articles of Incorporation increasing the authorized number of
shares from 200,000,000 shares to 500,000,000.


                                       17
<PAGE>

                                     PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND OTHER SHAREHOLDER MATTERS

General

The Common Stock of the Company is currently traded on the NASD Electronic
Bulletin Board over-the-counter market, and is quoted under the symbol TLCO.

Market Price

The following table sets forth the range of high and low closing bid prices per
share of the Common Stock of the Company (reflecting inter-dealer prices without
retail mark-up, mark-down or commission and may not represent actual
transactions) as reported by Pink Sheets (formerly known as National Quotation
Bureau, L.L.C.) for the periods indicated.

                                                       High Closing  Low Closing
                                                        Bid Price     Bid Price

Year Ended December 31, 2003 (note 1)
-------------------------------------
1 st Quarter                                           $       0.92  $      0.41
2 nd Quarter                                           $       1.07  $      0.63
3 rd Quarter                                           $       1.01  $      0.28
4 th Quarter through 12/28/2003                        $       0.54  $      0.27
4 th Quarter 12/29/2003 through 12/31/2003             $       0.36  $      0.22

Year Ended December 31, 2004
----------------------------
1 st Quarter                                           $       1.08  $      0.20
2 nd Quarter                                           $       0.30  $      0.16
3 rd Quarter                                           $       0.48  $      0.23
4 th Quarter                                           $       0.46  $      0.15

Year Ended December 31, 2005
----------------------------
1 st Quarter                                           $       0.48  $      0.20
2 nd Quarter                                           $       0.40  $      0.15
3 rd Quarter                                           $       0.23  $      0.11
4 th Quarter                                           $       0.15  $      0.08

------------
(1)   The above prices in 2003 reflect trading prior to a 1-for-2 reverse stock
      split of the common stock of the Company which was effective on December
      29, 2003.

The closing bid price of the Common Stock (pre-split) of the Company on
September 30, 2005 was $0.12 per share.

Stock Option, SAR and Stock Bonus Consultant Plan

Effective March 27, 2002, the Company adopted and approved its 2002 Stock
Option, SAR and Stock Bonus Consultant Plan (the "Plan") which reserved
1,000,000 post-split shares of Common Stock for issuance under the Plan. The
Plan allows us to issue awards of incentive non-qualified stock options, stock
appreciation rights, and stock bonuses to consultants to the Company which may
be subject to restrictions.


                                       18
<PAGE>

Sale of Unregistered Securities

During the three months ended September 30, 2005, the Company issued 5,400,000
restricted shares of its Common Stock to Quick Holdings B.V. in exchange for
facilitating a cash injection of $637,000 usd (EUR 540,000) into the Company, in
reliance upon Regulation S under the Securities Act of 1933.

Similarly, during the three months ended September 30, 2005, the Company issued
1,800,000 restricted shares of its Common Stock to each of Quack Holdings B.V.
and Queck Holdings B.V. in exchange for facilitating a cash injection of
$324,000 (EUR 180,000) into the Company, in reliance upon Regulation S under the
Securities Act of 1933.

During the three months ended September 30, 2005, the Company issued 5,000,000
restricted shares of its Common Stock Diepandael BV in exchange for the
forgiveness of $590,000 (EUR 500,000) in debt payable by the Company, in
reliance upon Regulation S under the Securities Act of 1933.

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

You should read the following discussion and analysis in conjunction with our
consolidated financial statements and related notes included elsewhere herein.

Forward Looking Statements

When used in this annual report on Form 10-KSB and in our other filings with the
SEC, in our press releases and in oral statements made with the approval of one
of our authorized executive officers, the words or phrases "will likely result",
"plans", "will continue", "is anticipated", "estimated", "expect", "project" or
"outlook" or similar expressions (including confirmations by one of our
authorized executive officers of any such expressions made by a third party with
respect to us) are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. We caution
readers not to place undue reliance on any such statements, each of which speaks
only as of the date made. Such statements are subject to certain risks and
uncertainties, including but not limited to our history of losses, our limited
operating history, our need for additional financing, rapid technological
change, and an uncertain market, that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. Factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements include, among others, the
factors described below and in the Description of Business section of this
annual report. We undertake no obligation to release publicly revisions we made
to any forward-looking statements to reflect events or circumstances occurring
after the date of such statements. All written and oral forward-looking
statements made after the date of this annual report and/or attributable to us
or persons acting on our behalf are expressly qualified in their entirety by
this discussion.

Significant Accounting Estimates and Policies

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

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

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


                                       19
<PAGE>

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

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

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

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

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

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

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

Overview

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

Our revenues also 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.

Our three most significant customers each accounted for more than 10% of our
revenues during the year ended September 30, 2005. These are: Telecor 26%, VIPS
15%, Carrefour 13%. Domestic sales in Spain accounted for 100% of our revenues
in each of the last two years.

Telecommunication revenues decreased by $1,237,000 in 2005, or 20% from 2004
revenues though gross profit increased in 2005 by $301,000 or 24,6%.

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


                                       20
<PAGE>

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 increase in absolute dollars as we employ additional
personnel and incur additional costs related to the growth of our business and
our operation as a public company. We include stock-based compensation as a part
of general and administrative expenses.

Stock-based compensation charges are recorded when the exercise price of an
option or the sales price of stock is less than the fair value of the underlying
Common Stock for awards to employees. We also record stock-based compensation
charges when options are granted to non-employees. Compensation charges for
non-employees are based on estimates of the underlying stock fair values. In
addition the Company has issued Common Stock to consultants and professionals in
exchange for services to the Company.

Year Ended September 30, 2005, Compared to September 30, 2004

The following table sets forth certain operating information regarding the
Company, including its subsidiary Teleconnect Comunicaciones, S.A.

                                           Year Ended            Year Ended
                                       September 30, 2005    September 30, 2004

Revenues                               $        4,930,000    $        6,167,000
Cost of goods sold                     $        3,406,000    $        4,944,000
Selling, general and administrative    $        3,574,000    $        4,127,000
Depreciation                           $          444,000    $          480,000
Bad Debt Expense (Recoveries)          $               --    $         (227,000)
Other Income (Expenses)                $          511,000    $         (558,000)
Net Loss                               $       (3,005,000)   $       (3,202,000)
Comprehensive (Loss)                   $       (3,044,000)   $       (3,645,000)
Net Loss Per Share                     $            (0.04)   $            (0.10)


Revenues. Revenues for the year ended September 30, 2005 decreased to
$4,930,000, compared to $6,167,000 or 20% from the prior year revenues.

Our revenues during the year ended September 30, 2005, were derived primarily
from providing a range of integrated telephone service solutions to our clients:

*     Prepaid Calling Cards
*     Prepaid fixed line long distance calling
*     Other

Pricing Policies The pricing for our services differs depending on the services
provided, the speed of service, geographic location and capacity utilization. In
the case of services directed at foreign residents in Spain for them to call
long distance, pricing is oriented to provide a significant discount compared to
the incumbent operator. It is not the intention of the Company to enter A price
wars @ with other similar companies. The Company strives to differentiate itself
with the quality of our customer care, with the quality of the service, and the
accuracy of the billing. For services directed at small and medium companies, we
try to position ourselves to provide a turnkey solution to their
telecommunications needs, providing voice local and long distance calling,
access to the internet, email, web hosting, PBX supply and maintenance, etc.
With our prepaid calling card services, we have sought tourists that needed to
call home but at cheaper prices than the hotel phone or local public phone.

Client Contracts. Our contracts with customers generally include an agreed-upon
price schedule that details both fixed and variable prices for contracted
services. The client contracts generally have a term of one to three years,
however, when clients implement a number of our services, they may choose to
extend the contracts for a longer period of time. Our sales representatives can
easily add additional services to existing contracts, enabling clients to
increase the number of locations through which they access our network, increase
the speed of that access, increase the sophistication of the services they use,
or extend the term for existing services.

Cost of Goods Sold: Cost of goods sold for the year ended September 30, 2005
were $3,406,000, a decrease of $1,538,000 or 31.1% from the prior year cost of
sales of $4,944,000. Cost of Goods sold as a percentage of sales was 69.1% in
2005 while it was 80.2% for the same period in 2004.

Gross profits increased during fiscal 2005 to $1,524,000 or 20% from $1,223,000
in fiscal 2004. The principal reasons for the increase were management's
conscious effort to renegotiate its carrier pricing. The gross profit margins
were improved 10.9% from 19.8 to 30.9% even though the Company did not have the
liquidity to do any promotion or marketing of its products.


                                       21
<PAGE>

Selling, General and Administrative. Selling, general and administrative
expenses for the year ended September 30, 2005 were $3,574,000, a decrease of
$553,000 or 19,5% from the prior year's operating expenses of $4,127,000. The
principal reasons for the decrease were management's effort to reduce its fixed
costs which included the move of the office to a much more economical and newer
industrial park. Some reduction in staff had also taken place during the year.
Though the actual reduction in selling, general and administrative expenses was
significant, it was partially offset by the valuation of stock issued as
compensation for services to external consultants and shareholders that provided
financing.

SG&A for the period ending September 30, 2005 was 70.5% of revenue compared to
66.9% for the same period in 2004. If consideration is given to the fact that
stock compensation for services in included in the SG&A, then reducing SG&A in
2005 by this amount of $744,000 associated with services, SG&A in 2005 becomes
57.4% of sales, a reduction of 9.5% from 2004 ratio of 66.9%

Depreciation Expense. Depreciation expense for the year ended September 30, 2005
was $444,000, an decrease of $36,000 or 1,25% from the prior year's depreciation
expense of $480,000. This small decrease is due primarily to the fact that some
equipment became fully depreciated in 2004.

Bad Debt Expense (Recoveries). Bad debt expense (recoveries) for the year ended
September 30, 2005 was $0 a decrease of $227,000 from the prior year's bad debt
expense of $(227,000).

Interest Expense. Interest expense for the year ended September 30, 2005 was
$474,000- as compared to $558,000 for the prior year. This decrease was due
primarily to less interest incurred on loans made from affiliated parties during
fiscal 2005 to finance the operations since some conversion into stock had taken
place.

Income from Discontinued Operations. During the year ended September 30, 2004,
the Company entered into an agreement with a third party to sell its post paid
long distance business. Dialers and other equipment with a net book value of
89,000 euro were transferred to the purchasers resulting in a gain of $513,000.

Net Loss. The net loss of the Company decreased to ($3,005,000) during the
fiscal year ended September 30, 2005 compared to $(3,202,000) during the fiscal
year ended September 30, 2004, a decrease of approximately 14%.

Liquidity and Capital Resources. At September 30, 2005, the Company had negative
working capital of approximately $(6,643,000), compared to negative working
capital of $(7,970,000), at September 30, 2004. Therefore the Company
experienced an improvement of $1,327,000 or 16.6%.

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
statement so 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.

Contractual Obligations and Commercial Commitments. The following table is a
recap of the Company s contractual obligations as of September 30, 2005.

<TABLE>
<CAPTION>
                                                                    Payments Due by Period

                                                                         Less than
                                                           Total         One Year       1-3 Years
<S>                                                     <C>            <C>            <C>
            Tax Agency Debt                             $    307,000   $    147,000   $    160,000
            Note payable to bank                             120,000        120,000             --
            Operating Leases                                 158,000         92,000         66,000
                                                        ------------   ------------   ------------
            Total Contractual Cash Obligations          $    585,000   $    359,000   $    226,000
                                                        ============   ============   ============
</TABLE>

Plan of Operations.

The Company expects that new funds will be injected into the Company during the
three months ending March 31, 2006.

The Company will be offering to sell its Common Stock and other securities to
further capitalize the Company, and will also borrow from banks and others to
the extent necessary to provide liquidity for its operations.

The Company has maintained its telecommunications activities and the associated
costs consistent with its plan of operations in order to develop its telephone
and other communications services and products for proposed residential and
commercial use. The Company expects to continue the development of its telephone
and other communications products and services to incorporate technical changes
and improvements. In addition, as the Company increases its marketing
activities, the Company will incur additional operating and equipments costs.

Recent Accounting Pronouncements.

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


                                       22
<PAGE>

In December 2004, the FASB issued a revision of No. 123 "Share-based Payment".
This statement establishes standards for the accounting of 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 and services which are based on 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
that award will be re-measured 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 option pricing models adjusted for the unique characteristics
of those instruments.

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

In December 2004, the FASB issued SFAS No. 153 "Exchanges of Non-monetary
Asset-amendment of APB Opinion No29", Statement 153 eliminates the exception to
fair value for exchanges of similar productive assets and replaces it with a
general exception for exchange transactions that do not have commercial
substance., defined as transactions that are not expected to result in
significant changes in cash flows of the reporting entity. This statement is
effective for exchanges of non-monetary assets occurring after June 15th, 2005.

In May 2005, the FASB issued SAFS No 154, Accounting Changes and Error
Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3.
Statement 154 requires retrospective application to prior period's financial
statements of changes in accounting principle, unless it is impractical to
determine either the period-specific effects of the cumulative effect of the
change. The statement is effective for accounting changes and corrections of
errors made in fiscal years beginning after December 15, 2005. The Company does
not expect this statement to have a material effect on its reporting.

ITEM 7.   FINANCIAL STATEMENTS

The consolidated financial statements of the Company for its fiscal year ended
September 30, 2005, are provided with this Form 10-KSB.

ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

There have been no disagreements regarding accounting and financial disclosure
matters with the independent certified public accountants of the Company.

ITEM 8A.  CONTROLS AND PROCEDURES

A. Evaluation of Disclosure Controls and Procedures. The Company's Chief
Executive Officer and the Company's Principal financial officer, after
evaluating the effectiveness of the Company's disclosure controls and procedures
(as defined in the Securities Exchange Act of 1943, Rule 13a-14(c)and 15d-14(c)
as of a date within 90 days of the filing date of this report on Form 10-KSB for
September 30, 2005, have concluded that as of the Evaluation Date that the
Company's disclosure controls and procedures were adequate and effective to
ensure that material information relating to the Company and the Company's
consolidated subsidiaries would be made known to them by others within those
entities, particularly during the period in which this report on 10-KSB was
being prepared.

B. Changes in Internal Controls. There were no significant changes in the
Company's Internal controls or in other factors that could significantly affect
the Company's disclosure controls and procedures subsequent to the Evaluation
Date, nor any significant deficiencies or material weaknesses in such disclosure
controls and procedures requiring corrective actions. As a result, no corrective
actions were taken.

ITEM 8B. OTHER INFORMATION

None


                                       23
<PAGE>

                                    PART III

ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
          COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

The directors and officers of the Company as of September 30, 2005 are as
follows:

Name                Age   Position
----                ---   --------
Gustavo A. Gomez    42    Director, President and Treasurer
Herman C. de Haas   43    Director, Executive Vice President and Chief Operating
                          Officer, and Managing Director of Teleconnect
                          Comunicaciones, S.A
Alfonso de Borbon   30    Executive Vice President Corporate Development
Leonardus Geeris    60    Director

The background and principal occupations of each director and officer of the
Company are as follows:

Mr. Gomez became a director, the President, Secretary and Treasurer of the
Company on March 6, 2002. From May 2001 to the present, he has been the founder
and operator of OpenVia S.L., a European telecommunication consulting company.
From January 2000 to April 2001, he was the co-founder and Managing Director of
Broadband Optical Access S.A., a carrier engaged in the European broadband
access market. From January 1998 to January 2000, Mr. Gomez was its Account
Director in Spain with Nortel Networks Corp. and previously was Nortel's Manager
GSM products in Spain until September 1998. From April 1997 to January 1998, he
was the Director of Marketing of Retevision. From February 1996 to April 1997,
Mr. Gomez was the Deputy Commercial Director of Telefonica S.A.'s international
business unit. Mr. Gomez received a Bachelor of Electrical Engineering degree
from McGill University in 1986, and received a MBA degree from the Instituto de
Empresa (Madrid Business School) in 1997. On March 16, 2002, the Company entered
into a contract for professional services with Mr. Gomez which provides for
annual compensation of 121,000 Euros, and bonuses based upon the performance of
his services to the Company; and was issued 250,000 shares of restricted Common
Stock.

Mr. de Haas became a director of the Company in May 2003, and became the
President and Chief Operating Officer of the Company on May 27, 2003; and has
been the Managing Director of Teleconnect Comunicaciones, S.A., the principal
subsidiary of the Company, since March 2003. From September 2000 to the present,
he has been the Chief Executive Officer and owner of ShareWorks Capital
Management, a management and investment consulting firm. From September 1999 to
August 2000, Mr. de Haas was the Managing Director and 50% owner of Vermeulen
Adviesgroep B.V. From February 1996 to August 1999, he was the Director of
Operations of McDonald's Nederland B.V. Mr. de Haas graduated with a degree in
Industrial Engineering & Business Administration in 1986 from Technical
University of Rotterdam.

Mr. de Borbon became an officer of the Company in May 27, 2005 and occupies the
position of Executive Vice President Teleconnect Inc and Director of Sales in
Teleconnect Comunicaciones. Mr. Borbon was one of the owners of SPACOM which was
acquired by Teleconnect Communicaciones SA in 2000/2001. He assumed the position
of Major Account Sales Manager until being promoted in September 2004 to
Director of Sales.

Mr. Geeris became a director of the Company in May 2003. He is the President,
managing director and owner of Geeris Holding Nederland B.V. which owns and
invests in real estate and other industries.

ITEM 10.  EXECUTIVE COMPENSATION

All executive officers, for services in all capacities to the Company, received
the following compensation during the fiscal year ended September 30, 2005

<TABLE>
<CAPTION>
                                                   Annual compensation(1)                             Long-Term Compensation(2)
                                                                                    Awards                     Payouts
                                                                                                  Securities
Name and                                                               Other      Restricted      Underlying
Principal                           Fiscal     Salary                  Annual        Stock         Options/     LTIP      All Other
Position                             Year      (1)(2)      Bonus    Compensation   Awards(3)         SARs      Payouts  Compensation
<S>                                  <C>     <C>           <C>         <C>           <C>            <C>         <C>        <C>
Gustavo Gomez                        2005    $ 143,000     $   0       $   0         $   0          $   0       $   0      $   0
 President and Treasurer
Herman de Haas                       2005    $ 143,000     $   0       $   0         $   0          $   0       $   0      $   0
 Executive Vice
 President and Chief
 Operating Officer, and Managing
 Director of Teleconnect
 Comunicaciones, S.A.
Alfonso de Borbon                    2005    $  77,880     $   0       $   0         $   0          $   0       $   0      $   0
All executive officers as a
 group (3 persons)                           $ 361,880
</TABLE>


                                     24
<PAGE>

(1)   The salaries of Mr. Gomez and Mr. de Haas has been fixed at 120,000 Euro
      since 2002. However, differences in reported amounts due to the varying
      currency exchange rates between the Euro and U.S. dollars.

(2)   Personal benefits received by the Company's executive officers are valued
      below the levels which would otherwise require disclosure under the rules
      of the U.S. Securities and Exchange Commission.

(3)   The Company does not currently provide any contingent or deferred forms of
      compensation arrangements, annuities, pension or retirement benefits.

Committees of the Board of Directors

The Company does not have an audit committee, compensation committee, nominating
committee, or an executive committee of the Board of Directors. The Company does
have a Stock Option Plan Committee which has been established to administer the
stock option, SAR and stock bonus plans of the Company. The Board of Directors
plans to establish various committees in the future.

Compliance with Section 16(a) of the Securities Exchange Act

Section 16(a) of the Exchange Act requires the Company's executive officers and
directors, and persons who beneficially own more than ten percent of the
Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Officers, directors and
greater than 10% percent shareholders are required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms they file.

Based on its review of the copies of such forms received by it, the Company
believes that during the year ended September 30, 2005, all such filing
requirements applicable to its officers and directors were complied with.

2002 Employee Stock Option, SAR and Stock Bonus Plan

Effective June 10, 2002, the Company adopted and approved its 2002 Employee
Stock Option, SAR and Stock Bonus Plan which reserves 1,250,000 (after effect of
split) shares of Common Stock for issuance. This 2002 Plan allows us to issue
awards of incentive or non-qualified stock options, stock appreciation rights,
and stock bonuses which may be subject to restrictions. As of September 30, 2005
the following employees each received stock bonuses of 100,000 shares against
this 2002 Plan: Jaime Colomer, Fernando Rodriguez, Alvaro Lopez, and Alfonso de
Borbon 100,000 shares. During September 2005, the Company purchased Jaime
Colomer's 102,626 shares as part of the package provided when he left the
Company. These shares are to be retired.

2004 Stock Option, SAR and Stock Bonus Plan

Effective July 29, 2004, the Company adopted and approved its 2004 Stock Option,
SAR and Stock Bonus Plan which reserved 15,000,000 shares of Common Stock for
issuance under the Plan. The Plan allows us to issue awards of incentive
non-qualified stock options, stock appreciations rights, and stock bonuses to
consultants to the Company which may be subject to restrictions. As of September
30, 2005 the following consultants to the company received the following awards
against this 2004 Plan: FersaMar 130,000 shares, Produciones Monjos 130,000
shares, Cobrasky S.L. 65,000 shares, Jeffrey Goddard 600,000 shares, Frederick
P. Lutz 50,000 shares, Kirk Haynes 2,000,000 shares. S.B.T Entretenimiento
3,500,000 (restricted).

Benefit Plans

The Company does not have any pension plan, profit sharing plan, or similar
plans for the benefit of its officers, directors or employees. However, the
Company may establish such plans in the future.

Board Compensation

Directors of the Company have not received any compensation in their capacity as
directors during the fiscal year ended September 30, 2005.


                                       25
<PAGE>

Director and Officer Indemnification and Limitations on Liability

Article X of our Articles of Incorporation and Article VI of our Bylaws limit
the liability of directors, officers and employees to the fullest extent
permitted by Florida law. Consequently, our directors will not be personally
liable for monetary damages for breach of their fiduciary duties as directors,
except in the following circumstances:

*     A violation of the criminal law, unless the director, officer, employee or
      agent had reasonable cause to believe his conduct was lawful or had no
      reasonable cause to believe his conduct was unlawful;

*     A transaction from which the director, officer, employee, or agent derived
      an improper personal benefit;

*     In the case of a director, a circumstance under which the liability
      provisions of Section 607.0834 under the Florida Business Corporation Act
      are applicable; or

*     Willful misconduct or a conscious disregard for the best interests of the
      corporation in a proceeding by or in the right of the corporation to
      procure a judgment in its favor on in a proceeding by or in the right of a
      shareholder.

This limitation of liability does not apply arising under federal securities
laws and does not affect the availability of equitable remedies such as
injunctive relief or rescission.

Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers, and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and, is therefore,
unenforceable.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS

The total number of shares of Common Stock of the Company, as adjusted to record
effects of stock split, beneficially owned by each of the officers and
directors, and all of such directors and officers as a group, and their
percentage ownership of the outstanding shares of Common Stock of the Company as
of September 30, 2005 are as follows:

                                                     Shares         Percent of
Management                                        Beneficially        Common
Shareholders (1)                                    Owned (1)         Stock
----------------                                  ------------      ----------
Leonardus Geeris                                   62,878,730          57.5%
Gustavo A. Gomez                                            0             0%
Herman C. de Haas                                           0             0%
Alfonso de Borbon                                     230,000         0.002%
Directors and officers as a group (3 persons,      63,108,730          57.5%
 including the above persons)

(1)   Except as otherwise noted, it is believed by the Company that all persons
      have full voting and investment power with respect to the shares
      indicated. Under the rules of the Securities and Exchange Commission, a
      person (or group of persons) is deemed to be a "beneficial owner" of a
      security if he or she, directly or indirectly, has or shares the power to
      vote or to direct the voting of such security, or the power to dispose of
      or to direct the disposition of such security. Accordingly, more than one
      person may be deemed to be a beneficial owner of the same security. A
      person is also deemed to be a beneficial owner of any security which that
      person has the right to acquire within 60 days, such as options or
      warrants to purchase the Common Stock of the Company.

(2)   Mr. Geeris beneficially owns these shares of Common Stock through his
      ownership of Geeris Holding Nederland B.V. and Diependael BV.


                                       26
<PAGE>

The following table sets forth information with respect to the beneficial
ownership of the Company's Common Stock, as adjusted for the stock split, by
each shareholder who beneficially owns more than five percent (5%) of the
Company's Common Stock, the number of shares beneficially owned by each and the
percent of outstanding Common Stock so owned of record as of September 30, 2005.
It is believed by the Company that all persons listed have sole voting and
investment power with respect to their shares, except as otherwise indicated.

                                        Title of         Shares of
                                      Beneficially      Outstanding     Percent
Names and Addresses                      Class          Common Stock     Owned
-------------------                   ------------      ------------    -------
Carnival Enterprises Ltd.                Common           6,184,240       5.66%
Suite 4, 4 Giros Passage
Gibralter, Spain

Geeris Holding Nederland B.V.            Common          62,878,730       57.5%
and Diependael BV(1)
Helvoirtseweg 146, 5263, EH Vught
Postbus 317, 5260, AH Vught
The Netherlands

Volim Holding B.V.                       Common           5,976,864       5.47%
Zandpad 55
3621 NE Breukelen
The Netherlands

(1)   Geeris Holding Nederland B.V. and Diependael BV are owned by Leonardus
      Geeris, a director of the Company.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During the year ended September 30, 2005, Mr. Leonardus Geeris converted
personal loans to the Company and committed to assume other debt obligations of
the Company totaling EUR 1,240,000 in exchange for 24,800,000 shares of common
stock of the Company.


                                       27
<PAGE>

ITEM 13.  EXHIBITS

(A)   Reports on Form 8-K

No current reports on Form 8-K were filed by the Company during the three month
period ended September 30, 2005.

(B)   Exhibits

<TABLE>
<S>                       <C>
1(i) Articles of          The Articles of Incorporation of the Company are incorporated
Incorporation             herein by reference to Exhibit 3.1 to the Form SB-2
of the Company            registration statement of the Company (File No. 333-93583)

1(ii) Amendment to        An Amendment to the Articles of Incorporation of the Company
Articles of               is incorporated herein by reference to Exhibit  99.1 to the Form 8-K
Incorporation             current report of the Company dated January 29, 2001.

1(iii) Amendment to       An Amendment to the Articles of Incorporation of the Company filed
Articles of               on February 26, 2003, is incorporated hereby  by reference to Exhibit
Incorporation             1 (iii) to the Form 10-KSB annual report of the Company for its fiscal year
                          ended September 30, 2003.

1(iv) By-Laws             The By-Laws of the Company are incorporated herein by reference to
of the Company            Exhibit 3.2 to the Form SB-2 registration  statement of the Company
                          (File No. 333-93583)

10.                       Material Contracts

10.1                      Management Agreement dated October 29, 2004, between the Company and Openvia S. L.

10.2                      Management Agreement dated October 29, 2004, between the Company and Shareworks Espana S. L.

10.3                      Management Agreement dated October 29, 2004, between the Company and Cobrasky S. L.

11. Statement re:         Reference is made to the Consolidated Statements of Operations of the Consolidated
computation of per        Financial Statements which are incorporated by reference herein.
share earnings

21. A description of      A description of the subsidiaries of the Company is incorporated herein by
the subsidiaries of       reference to Exhibit No. 21 to the Form 10-KSB annual report of the Company
the Company               for its fiscal year ended September 30, 2004.
</TABLE>


                                       28
<PAGE>

ITEM 14.  CONTROLS AND PROCEDURES

A. Evaluation of Disclosure Controls and Procedures. The Company's Chief
Executive Officer and the Company's principal financial officer, after
evaluating the effectiveness of the Company's disclosure controls and procedures
(as defined in the Securities Exchange Act of 1934, Rule 13a-14(c)and 15d-14(c)
as of a date within 90 days of the filing date of this report on Form 10-KSB for
September 30, 2005, have concluded that as of the Evaluation Date, the Company's
disclosure controls and procedures were adequate and effective to ensure that
material information relating to the Company and the Company's consolidated
subsidiaries would be made known to them by others within those entities,
particularly during the period in which this annual report on Form 10-KSB was
being prepared.

B. Changes in Internal Controls. There were no significant changes in the
Company's Internal controls or in other factors that could significantly affect
the Company's disclosure controls and procedures subsequent to the Evaluation
Date, nor any significant deficiencies or material weaknesses in such disclosure
controls and procedures requiring corrective actions. As a result, no corrective
actions were taken.

      The aggregate fees billed by our principal accounting firm, for fees
billed for fiscal years ended September 30, 2005 and 2004 are as follows:

<TABLE>
<CAPTION>
Name                                       Audit Fees      Audit Related Fees      Tax Fees      All Other Fees
----                                       ----------      ------------------      --------      --------------
<S>                                         <C>                   <C>               <C>               <C>
Murell, Hall, McIntosh & Co., PLLP
for fiscal year ended
September 30, 2005                          $ 47,500              $ 0               $ 3,400           $ 0
September 30, 2004                          $ 61,996              $ 0               $     0           $ 0
</TABLE>

      The Company does not currently have an audit committee. As a result, our
Board of Directors performs the duties and functions of an audit committee. The
Company's Board of Directors will evaluate and approve in advance, the scope and
cost of the engagement of an auditor before the auditor renders audit and
non-audit services. We do not rely on pre-approval policies and procedures.


                                       29
<PAGE>

                                TELECONNECT INC.

                        CONSOLIDATED FINANCIAL STATEMENTS

                           SEPTEMBER 30, 2004 AND 2003

                                                                            Page

Report of Independent Registered Public Accounting Firm                      F-1
Consolidated Balance Sheet                                                   F-2
Consolidated Statements of Operations                                        F-3
Consolidated Statements of Stockholders' Deficit                             F-4
Consolidated Statements of Cash Flows                                        F-5
Notes to Consolidated Financial Statements                                   F-7


                                       30
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
Teleconnect Inc.

We have audited the accompanying consolidated balance sheet of Teleconnect Inc.
and its subsidiaries as of September 30, 2005, and the related consolidated
statements of operations, changes in stockholders' deficit, and cash flows for
the two years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Teleconnect Inc.
and its subsidiaries as of September 30, 2005 and 2004, and the consolidated
results of its operations and its consolidated cash flows for the two years then
ended in conformity with accounting principles generally accepted in the United
States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency, which raise substantial doubt about its
ability to continue as a going concern. Management's plans regarding those
matters also are described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.


/s/ Murrell, Hall, McIntosh & Co., PLLP

December 1, 2005
Oklahoma City, Oklahoma


                                       F-1
<PAGE>

                                TELECONNECT INC.

                           CONSOLIDATED BALANCE SHEET
                               SEPTEMBER 30, 2005

<TABLE>
<S>                                                                        <C>
                                     ASSETS
CURRENT ASSETS:
Cash and cash equivalents                                                  $       70,000
Accounts receivable - trade, net of allowance
  for doubtful accounts of $1,382,000                                             251,000
Accounts receivable - other                                                        75,000
Inventory                                                                          34,000
                                                                           --------------
Total current assets                                                              430,000

PROPERTY AND EQUIPMENT, NET                                                       449,000

OTHER ASSETS:
Vendor deposits                                                                   213,000
                                                                           --------------
                                                                           $    1,092,000
                                                                           ==============
                     LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES:
Accounts payable - trade                                                   $    2,894,000
Accrued liabilities                                                               964,000
Notes payable to bank                                                             120,000
Current portion of payment obligation to taxing authority                         147,000
Loans from related parties                                                      1,045,000
Deferred income                                                                 1,903,000
                                                                           --------------
Total current liabilities                                                       7,073,000
                                                                           --------------

LONG TERM DEBT
Payment obligation to tax agency, net of current portion shown above              160,000

STOCKHOLDERS' DEFICIT:
Preferred stock; par value of $0.001, 5,000,000 shares
  authorized, no shares outstanding                                                    --
Common stock; par value of $0.001, 500,000,000 shares
  authorized, 109,236,571 shares outstanding                                      109,000
Additional paid-in capital after effect of reverse stock split,                16,104,000
Less: Prepaid syndication fees                                                         --
Accumulated (deficit)                                                         (20,301,000)
Effect of cumulative translation adjustment                                    (2,053,000)
                                                                           --------------
Total stockholders' (deficit)                                                  (6,141,000)
                                                                           --------------
                                                                           $    1,092,000
                                                                           ==============
</TABLE>

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


                                      F-2
<PAGE>

                                TELECONNECT INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED SEPTEMBER 30, 2005 AND 2004

<TABLE>
<CAPTION>
                                                                         2005              2004
                                                                    --------------    --------------
<S>                                                                 <C>               <C>
SALES                                                               $    4,930,000    $    6,167,000
COST OF GOODS SOLD (exclusive of Depreciation
  shown separately below)                                                3,406,000         4,944,000
                                                                    --------------    --------------
GROSS PROFIT                                                             1,524,000         1,223,000
                                                                    --------------    --------------
OPERATING EXPENSES:
Selling, general and administrative expenses                             3,574,000         4,127,000
Depreciation                                                               444,000           480,000
Bad debt expense (recoveries)                                                   --          (227,000)
                                                                    --------------    --------------
Total operating expenses                                                 4,018,000         4,380,000
                                                                    --------------    --------------

(LOSS) FROM OPERATIONS                                                  (2,494,000)       (3,157,000)
                                                                    --------------    --------------

OTHER INCOME (EXPENSES):
Other income (expense)                                                     (37,000)               --
Interest expense                                                          (474,000)         (558,000)
                                                                    --------------    --------------
                                                                          (511,000)         (558,000)
                                                                    --------------    --------------

(LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES                   (3,005,000)       (3,715,000)
PROVISION FOR INCOME TAXES                                                      --                --
(LOSS) FROM CONTINUING OPERATIONS                                       (3,005,000)       (3,715,000)
DISCONTINUED OPERATIONS:
Income on disposal of fixed line division                                       --           513,000
                                                                    --------------    --------------

NET (LOSS)                                                          $   (3,005,000)   $   (3,202,000)
                                                                    ==============    ==============
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
Loss from continuing operations                                     $        (0.04)   $        (0.10)
Discontinued operations                                                         --              0.01
                                                                    --------------    --------------
Net (Loss)                                                                 $(0,04)    $        (0.09)
                                                                    ==============    ==============
AVERAGE COMMON AND COMMON
  EQUIVALENT SHARES OUTSTANDING                                         78,748,850        37,271,857
                                                                    ==============    ==============
THE COMPONENTS OF COMPREHENSIVE LOSS:
Net (loss)                                                          $   (3,005,000)   $   (3,202,000)
Foreign currency translation adjustment                                    (39,000)         (443,000)
                                                                    --------------    --------------
COMPREHENSIVE (LOSS)                                                $   (3,044,000)   $   (3,645,000)
                                                                    ==============    ==============
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
  Comprehensive (loss)                                              $        (0.04)   $        (0.10)
                                                                    ==============    ==============
</TABLE>

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


                                      F-3
<PAGE>

                                TELECONNECT INC.

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
                 FOR THE YEARS ENDED SEPTEMBER 30, 2005 AND 2004

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

Common Stock
issued for Cash         1,150,000           2,000        113,000              --              --              --         115,000

Common stock
issued for
conversion of debt
to equity              28,038,002          28,000      1,942,000              --              --              --       1,970,000

Common Stock
issued for
interest on Notes
payable                 6,800,000           7,000        575,000              --              --              --         582,000

Common stock for
professional fees
in lieu of cash
payment                 2,180,000           2,000        663,000              --              --              --         665,000

Expired
Syndication fees               --              --             --         418,000              --              --         418,000

Foreign currency
translation
adjustment                     --              --             --              --              --        (443,000)       (443,000)

Net (loss) for the
year ended
September 30, 2004             --              --             --              --      (3,202,000)             --      (3,202,000)
                     ------------    ------------   ------------    ------------    ------------    ------------    ------------

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

Common stock
issued for
conversion of debt
to equity              31,600,917          31,000      2,267,000              --              --              --       2,298,000

Common stock
issued for loan
fee consideration       1,000,000           1,000         99,000              --              --              --         100,000

Common stock
issued for
services                6,825,000           7,000        744,000              --              --              --         751,000

Sale of
common stock            9,325,000           9,000      1,151,000              --              --              --       1,160,000

Common shares
repurchased and
cancelled                (102,626)             --        (15,000)             --              --              --         (15,000)

Foreign currency
translation
adjustment                     --              --             --              --              --         (39,000)        (39,000)

Net (loss) for the
year ended
September 30, 2005             --              --             --              --      (3,005,000)             --      (3,005,000)
                     ------------    ------------   ------------    ------------    ------------    ------------    ------------

Balance,
September 30, 2005    109,236,571    $    109,000   $ 16,104,000    $         --    $(20,301,000)   $ (2,053,000)   $ (6,141,000)
                     ============    ============   ============    ============    ============    ============    ============
</TABLE>

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


                                      F-4
<PAGE>

                                TELECONNECT INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED SEPTEMBER 30, 2005 AND 2004
                                   Page 1 of 2

<TABLE>
<CAPTION>
                                                                    2005              2004
                                                               --------------    --------------
<S>                                                            <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)                                                     $   (3,005,000)   $   (3,202,000)
Adjustments to reconcile net (loss) to
  net cash used in operating activities:
Depreciation                                                          444,000           480,000
Loss on write-off of syndication fees                                      --           418,000
Gain on disposition of assets                                              --            (4,000)
Stock issued for consulting services, interest and loan fees        1,251,000         1,247,000
Decrease (increase) in operating assets:
Accounts receivable - trade                                           108,000          (160,000)
Accounts receivable - other                                            (1,000)          145,000
Inventory                                                              12,000            13,000
Prepaid expenses                                                        2,000             8,000
Vendor and other deposits                                             (23,000)           19,000
Increase (decrease) in operating liabilities:
Accounts payable and accrued liabilities                             (121,000)         (951,000)
Deferred income and deposits received                                 139,000           115,000
                                                               --------------    --------------
Net cash provided by (used in) operating activities                (1,194,000)       (1,872,000)
                                                               --------------    --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment                                   (214,000)               --
Proceeds from sale of property                                             --            15,000
                                                               --------------    --------------
Net cash provided by (used in) investing activities                  (214,000)           15,000
                                                               --------------    --------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Loan proceeds from related parties                                    993,000         2,194,000
Loan proceeds from bank                                               379,000            15,000
Payment on tax agency obligation                                      (82,000)          (90,000)
Payment on loan from bank                                            (507,000)               --
Payments on loans from related parties                               (504,000)               --
Repurchase and cancellation of stock                                  (15,000)               --
Proceeds from sale of common stock                                  1,160,000           115,000
                                                               --------------    --------------
Net cash provided by financing activities                           1,424,000         2,234,000
                                                               --------------    --------------

EFFECT OF EXCHANGE RATE                                               (39,000)         (443,000)
                                                               --------------    --------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                  (23,000)          (66,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                           93,000           159,000
                                                               --------------    --------------

CASH AND CASH EQUIVALENTS, END OF YEAR                         $       70,000    $       93,000
                                                               ==============    ==============
</TABLE>

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


                                      F-5
<PAGE>

                                TELECONNECT INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED SEPTEMBER 30, 2005 AND 2004
                                   Page 2 of 2

<TABLE>
<CAPTION>
                                                                    2005              2004
                                                               --------------    --------------
<S>                                                            <C>               <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest                                                       $       74,000   $       28,000

SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
Long-term debt converted to common stock                       $    1,896,000   $    1,970,000
Common stock issued for interest on notes payable              $      400,000   $      582,000
Common stock issued for services received                      $      751,000   $      665,000
Common stock issued for loan fee                               $      100,000   $           --
</TABLE>

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


                                      F-6
<PAGE>

                                TELECONNECT INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                           SEPTEMBER 30, 2005 AND 2004

1. THE COMPANY

Teleconnect Inc. (the "Company") was incorporated in the State of Florida on
November 23, 1998. However, it did not conduct any significant operations until
December 200 when there was a change in control of the Company. The new
controlling stockholders changed its corporate name from Technology Systems
International, Inc. to ITS Networks Inc. and increased the authorized number of
shares of common stcok. In connection with the change of control of the Company
in December 2000, the Company acquired all of the issued and oiutstanding
capital stock of ITS Europe, S.L. a Spanish telecommunications company that was
organized in 1995. As a result, ITS Europe, S.L. (ITS Europe") becasme a
wholly-owned subsidiary of the Company.

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

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

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

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

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

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

2. GOING CONCERN

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

As shown in the accompanying financial statement, the Company incurred losses of
($3,005,000) and ($3,202,000) for the years ended September 30, 2005 and 2004,
respectively. In addition, the Company has incurred substantial losses since its
inception. As of September 30, 2005, current liabilities exceed assets by
$6,643,000 and total liabilities exceed total assets by $6,141,000. These
factors raise substantial doubt about the Company's ability to continue as a
going concern.

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

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

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


                                      F-7
<PAGE>

3. SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents - The Company considers all highly liquid investments
with maturities of three months or less when purchased to be cash equivalents.
There are no cash equivalents at September 30, 2005.

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

Revenue Recognition - Revenues from the sale of prepaid calling cards are
recognized at the time the cards are used. Unused time is reflected in deferred
revenue until the time it is utilized or the card reaches its expiration date.
The Company had deferred revenues of $1,903,000 as of September 30, 2005.

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

Property and Equipment - Property and equipment are stated at cost. Depreciation
is provided primarily on 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.

Earnings per Share - Basic Net Earnings (Loss) per Common Share is computed by
dividing the Net Income (Loss) applicable to Common Shareholders by the
weighted-average number of common shares outstanding during the period. Diluted
Net Earnings (Loss) per Common Share is determined using the weighted-average
number of common shares outstanding during the period, adjusted for the dilutive
effect of common stock equivalents, consisting of shares that might be issued
upon exercise of common stock options. In periods where losses are reported, the
weighted-average number of shares outstanding excludes Common Stock equivalent,
because their inclusion would be anti-dilutive.

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 September 30, 2005 exchange rate for
shareholders' equity, assets and liabilities and at the historical exchange
rate. 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.

Accounts Receivable - The Company uses the allowance method to account for
uncollectible accounts receivable. Accounts receivable are presented net of an
allowance for doubtful accounts of $1,382,000 at September 30, 2005.

Advertising Cost - Advertising and sales promotion costs are expensed as
incurred. Advertising expense totaled $22,000 and $76,000 for the fiscal years
ended September 30, 2005 and 2004, respectively.

Comprehensive Income - Comprehensive income consists of other gains and losses
affecting shareholders' equity that, under generally accepted accounting
principles, are excluded from Net Income. For the Company, Comprehensive Income
consists entirely of exchange losses which totaled $(39,000) and $(443,000) for
the fiscal years ended September 2005 and 2004, respectively.

Financial Instruments - The Company's financial instruments are cash and cash
equivalents, accounts receivable, accounts payable and long-term payment
obligations. The recorded values of cash and cash equivalents, accounts
receivable, accounts payable and notes payable approximate their fair values
based on their short-term nature. The recorded value of long-term payment
obligations approximates its fair market value, as interest approximates market
rates.


                                      F-8
<PAGE>

Reclassification of Prior Year Balances - The classification of certain items
within the financial statements for the year ended December 31, 2004 have been
changed to be consistent with the classifications adopted by the Company in
2005.

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

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

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

The grant-date for fair value of employee share options and similar instruments
will be estimated using option-pricing models adjusted for the unique
characteristics of these instruments.'

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

In December 2004, the FASB issued SFAS No. 153 "Exchanges of Nonmonetary
Assets-amendment of APB Opinion No. 29". Statement 153 eliminates the exception
to fair value for exchanges of similar productive assets and replaces it with a
general exception for exchange transactions that do not have commercial
substance, defined as transactions that are not expected to result in
significant changes in the cash flows of the reporting entity. This statement is
effective for exchanges of nonmonetary assets occurring after June 15, 2005.

In May 2005, the FASB issued SAFS No 154, Accounting Changes and Error
Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3.
Statement 154 requires retrospective application to prior period's financial
statements of changes in accounting principle, unless it is impractical to
determine either the period-specific effects of the cumulative effect of the
change. The statement is effective for accounting changes and corrections of
errors made in fiscal years beginning after December 15, 2005. The Company does
not expect this statement to have a material effect on its reporting.

4. CONCENTRATION OF CREDIT

The Company extends credit to retailers on the sale of prepaid calling cards. In
the past, it has extended credit to fixed line customers for fixed line charges.
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
September 30, 2005 its allowance for credit related losses is adequate to cover
any uncollectible receivables.

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

As of September 30, 2005, three customers accounted for 26%, 15% and 13% of net
accounts receivables.

5. 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 recognizes no impairment losses related to the realization
of property and equipment during the fiscal years ended September 2005 and 2004.


                                      F-9
<PAGE>

Property and equipment, substantially all of which are located in Spain, at
September 30, 2005 was comprised as follows:

          Computers and switching systems            $   2,157,000
          Furniture and fixtures                           170,000
          Transportation equipment                           5,000
                                                     -------------
          Total at cost                                  2,332,000
          Less: Accumulated depreciation
            and amortization                            (1,883,000)
                                                     -------------
          Net Property and Equipment                 $     449,000
                                                     =============

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

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

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

6. LOANS FROM RELATED PARTIES

As of September 30, 2005, the Company had short term loans totaling $1,045,000
from shareholders. These loans bear interest at 9% annual, are unsecured, and
are due upon demand.

7. NOTE PAYABLE TO BANK

As of September 30, 2005, the Company had a $120,000 (100,000 Euro) loan from a
bank. This loan bears interest at the rate of 4.25% and is due on November 14,
2005. This loan is secured by a bank guarantee issued by the Rabobank
Netherlands in the name of a stockholder. The Company repaid this loan
subsequent to its fiscal year end.

8. 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 September 30,
2005, $160,000 ((euro)133,000) of this debt is long-term.

Maturities on long term debt by year are as follows:

          Due within one year                         $    147,000

          Due in year two                                  151,000
          Due in year three                                  9,000
          Due in year four                                      --
          Due in five years                                     --
          Thereafter                                            --
                                                                --
                                                      ------------
          Total                                       $    307,000
                                                      ============


                                      F-10
<PAGE>

9. INCOME TAXES

The Company's subsidiaries, ITS Europe and Teleconnect, file their income taxes
on a calendar year basis. Statutory tax laws of Spain allow net losses from
operations to be carried forward for a period of 15 years. For the year ended
December 31, 2004, the available tax loss carryforwards for ITS Europe and
Teleconnect are (euro)4,292,000 and (euro)13,318,000 respectively. The
utilization of these losses expires as follows:

                               ITS Europe                Teleconnect

          Year
          2010            (euro)       11,000        (euro)          --
          2011            (euro)       25,000        (euro)          --
          2012            (euro)       63,000        (euro)          --
          2013            (euro)       79,000        (euro)          --
          2014            (euro)      713,000        (euro)     129,000
          2015            (euro)    1,319,000        (euro)     638,000
          2016            (euro)      783,000        (euro)   2,770,000
          2017            (euro)      778,000        (euro)   6,240,000
          2018            (euro)      521,000        (euro)   2,019,000
          2019            (euro)           --        (euro)   1,522,000
                                   ----------                ----------
          Total           (euro)    4,292,000        (euro)  13,318,000
                                   ==========                ==========

At September 30, 2005, the Company had US net operating loss carryforwards of
approximately $4,692,000 for federal income tax purposes.

The US carryforward expiration years and amounts are as follows:

          Year          Amount

          2022       $    195,000
          2023            547,000
          2024          2,138,000
          2025          1,812,000
                     ------------
                     $  4,692,000
                     ============

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

Deferred tax assets and liabilities are comprised of the following as of
September 30, 2005 and 2004:

                                                      September 30,
                                                2005                  2004
          Deferred income tax assets:
            Tax effect of net operating
              loss carryforward                 1,877,000            1,152,000
          Valuation allowance                  (1,877,000)          (1,152,000)
                                           --------------       --------------
          Net deferred tax asset           $           --       $           --
                                           ==============       ==============

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

A reconciliation of the difference between the expected tax benefit at the U.S.
federal statutory rate and the Company's of effective tax benefit for the years
ended September 30, 2004 and 2003 are as follows:


                                                      September 30,
                                                2005                  2004

          Net loss                         $    3,005,000       $    3,202,000
          Federal income tax rate                      34%                  34%
                                           --------------       --------------
          Expected benefit                      1,022,000            1,089,000
          Less tax effect of foreign
            losses not deductible                (406,000)            (362,000)
          Valuation allowance                    (725,000)            (855,000)
          State income tax benefits               109,000              128,000
                                           --------------       --------------
          Effective actual income tax      $           --       $           --
                                           ==============       ==============


                                      F-11
<PAGE>

10. OPERATING LEASES

The Company leases various office space and equipment under operating leases
expiring in various years through 2007. Rent expense incurred in operating
leases for the fiscal years ended September 30, 2004 and 2003 are $133,000 and
$294,000 respectively.

Minimum future rental payments under non-cancelable operating leases having
remaining terms in excess of one year as of September 30, 2005 for each of the
next five years and in the aggregate are:

          Year ended September 30,                       Amount
          2005                                      $       92,000
          2006                                              66,000
          2007                                                  --
          2008                                                  --
          2009                                                  --
                                                    --------------
          Total minimum future rental payments      $      158,000
                                                    ==============

11. SALE OF FIXED LINE BUSINESS

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

The sale of this fixed line business was necessary to ensure the continuity of
the Company given the financial condition of the company at that time. As per
the Board minutes dated October 15, 2003, the Board detailed the immediate cash
needs of 975,000 euros to avoid the sale of the fixed line business as well as
to satisfy some other creditors and cover the operating loss being carried
forward.

Management's efforts to raise money from bank loans, existing shareholders or
new investors under negotiation, were not successful due to the company's
financial situation at that point in time as well as the very short time
available to raise this amount in order to avoid the main carrier paralyzing the
company's operations.

The proceeds from the sale of the fixed line business were used to satisfy the
situation with the main carrier.

In accordance with the requirements of Accounting Principal Board Opinion 30,
the discontinued operations were reflected after the loss from continuing
operations in the financial statements.

12. LITIGATION AND CONTINGENT LIABILITIES

A shareholder filed suite against the Company claiming the right to an
additional 623,100 shares of the Company's common stock and 246,624 euros in
damage due to the failure to issue these shares on a timely basis. In August
2005, an agreement was reached whereby the company will pay 29,000 euros and
issue 1,000,000 2-yr restricted shares once the shareholder had collaborated
with some internal issues. As of September 30, 2005 the Company has paid 14,500
euros and accured $168,000 for this settlement.

In the normal course of its operations, the Company may, from time to time, be
named in legal actions seeking monetary damages. While the outcome of these
matters cannot be estimated with certainty, management does not expect, based
upon consultation with legal counsel, that they will have a material effect on
the Company's business or financial condition or results of operations. As of
September 30, 2005, the Company has accrued $136,000 to cover the anticipated
cost of settling several litigation matters.

13. PREFERRED STOCK

The Company has 5,000,000 shares of authorized and unissued Preferred Stock with
par value of $0.001, which is noncumulative and nonparticipating. No shares of
preferred stock were issued and outstanding as of September 30, 2005.


                                      F-12
<PAGE>

14. STOCK TRANSACTIONS

During the year ended September 30, 2005, the Company issued 31,600,917 shares
of restricted common stock in exchange for debts and related interest totaling
$2,298,000; 1,000,000 restricted shares for a loan fee in the amount of
$100,000, 6,825,000 shares for professional fees totaling $751,000. During the
year ended, the Company increased its authorized shares to 500,000,000. During
the year ended September 30, 2005 the Company sold 9,325,000 shares of common
stock for a total of $1,160,000. The Company repurchased and retired 102,626
shares of common stock for $15,000.

During the year ended September 30, 2004, the Company issued 28,038,002 shares
of restricted common stock in exchange for debts totaling $1,970,000; 6,800,000
restricted shares for accrued interest in the amount of $582,000 on notes
payable; and 2,180,000 shares of unrestricted common stock for professional
services rendered at $665,000.

15. STOCK WARRANTS AND OPTIONS

During the year ended September 30, 2002, the Company adopted an Employee Stock
Option, SAR and Stock Bonus Plan (the "Employee Plan"), which reserves 1,250,000
shares of Common Stock, after the effect of the 1 for 2 reverse stock split on
December 29, 2003, for issuance under the Plan. The Employee Plan allows the
Company to issue awards of incentive or non-qualified stock options, stock
appreciation rights, and stock bonuses, which may be subject to restrictions. No
options have been issued under this plan as of September 30, 2005

During the year ended September 30, 2002, the Company adopted a Stock Option,
SAR and Stock Bonus Consultant Plan (the "Consultant Plan"), which reserves
1,000,000 shares of Common Stock, after the effect of the 1 for 2 reverse stock
split on December 29, 2003, for issuance under the Plan. The Consultant Plan
allows the Company to issue awards of incentive or non-qualified stock options,
stock appreciation rights, and stock bonuses, which may be subject to
restrictions. During the fiscal years ended September 30, 2004 and 2003 the
Company issued 2,180,000 and 150,000 shares respectively under the provision of
this plan. On July 29, 2004, the Board of Directors and shareholders approved
amending the existing plans to reserving up to 15,000,000 shares for the two
plans, however, the amended plan has not yet been filed under Form S 8 with the
Securities and Exchange Commission.

As of September 30, 2003, the Company has warrants outstanding to purchase
440,000 shares of Common Stock, after the effect of the 1 for 2 reverse stock
split on December 29, 2003, at the exercise price of $2.00 per share, which
expire on or before December 24, 2004. Each of the warrants contain provisions
for the adjustment of the exercise price and the aggregate number of shares
issuable upon the exercise of the warrants in the event of stock dividends,
stock splits, reorganization and reclassifications and consolidations.

2004 Stock Option, SAR and Stock Bonus Plan

Effective July 29, 2004, the Company adopted and approved its 2004 Stock Option,
SAR and Stock Bonus Plan which reserved 15,000,000 shares of Common Stock for
issuance under the Plan. The Plan allows us to issue awards of incentive
non-qualified stock options, stock appreciations rights, and stock bonuses to
consultants to the Company which may be subject to restrictions. As of September
30, 2005 the following consultants to the company received the following awards
against this 2004 Plan: FersaMar 130,000 shares, Produciones Monjos 130,000
shares, Cobrasky S. L. 65,000 shares, Jeffrey Goddard 600,000 shares, Fredrick
P. Lutz 50,000 shares, Kirk Haynes 2,000,000 shares, S.B.T. Entretenimiento
3,500,000 (restricted).

On February 1, 2004, the Company issued restricted stock options which have a
term of five years at an exercise price of $0.25 per share covering 1,000,000
shares of restricted common stock. The stock can be exercised on or after
January 1, 2005. Restricted stock on the date the option was granted was valued
at $.10 per share based on other restricted stock transactions during the year.

The Company applies APB 25 and related interpretations in accounting for its
plan. Compensation for services that a corporation receives under APB 25 through
stock-based compensation plans should be measured by the quoted market price of
the stock at the measurement date less the amount, if any, that the individual
is required to pay. No compensation expense was recorded during the years ended
September 30, 2005, and 2004 related to its stock option plan under APB 25. If
the Company had elected to recognize compensation based on the fair value of the
options granted at the grant date as prescribed by "Statement of Financial
Accounting Standards No. 123, ("SFAS 123") Accounting for Stock-Based
Compensation", net earnings (loss) and net earnings (loss) per share would have
increased to the pro forma amounts shown below for the years ending September
30, 2005 and 2004:

<TABLE>
<CAPTION>
                                                                 2005                2004

<S>                                                         <C>                 <C>
Pro forma net (loss) applicable to common stockholders      $   (3,005,000)     $   (3,202,000)
Less: Total stock based compensation expense determined
under fair value based method for all awards, net of
related tax effect                                                     (--)           (395,000)
                                                            --------------      --------------
Pro forma net (loss) per common share                       $   (3,005,000)     $   (3,597,000)
                                                            ==============      ==============
</TABLE>

                                                2005          2004

Earnings (loss) per share:
Basic - as reported                         $    (0.04)   $   (0.10)
Basic - pro forma                           $    (0.04)   $   (0.10)
Diluted - as reported                       $    (0.04)   $   (0.10)
Diluted - pro forma                         $    (0.04)   $   (0.11)


                                      F-13
<PAGE>

Information with respect to restricted stock options and warrants for restricted
common stock outstanding are as follows:

                                                              2005
                                              ----------------------------------
                                                                     Average
                                                                     Exercise
                                                  Shares              Price
Outstanding at beginning of year                   4,755,790      $         1.40
Granted at market value
Exercised                                                 --                  --
Expired                                             (440,000)               2.00
                                              --------------      --------------
Outstanding at the end of year                     4,315,790      $         0.63
                                              ==============      ==============

                                                              2004
                                              ----------------------------------
                                                   Shares
                                                 (After the
                                              effect of the 1
                                               for 2 reverse          Average
                                               stock split on         Exercise
                                             December 29, 2003)        Price
Outstanding at beginning of year                   3,755,790      $         1.40
Granted at market value                            1,000,000                0.25
Exercised                                                 --                  --
Expired                                                   --                  --
                                              --------------      --------------
Outstanding at the end of year                     4,755,790      $         1.16
                                              ==============      ==============

<TABLE>
<CAPTION>
                           OPTIONS AND WARRANTS OUTSTANDING                OPTIONS EXERCISABLE
                        Shares          Average         Average            Shares         Average
                     Outstanding       Remaining        Exercise       Outstanding        Exercise
                       9/30/05       Life (Years)        Price            9/30/05          Price
                    ------------     ------------     ------------     ------------     ------------
<S>                 <C>              <C>              <C>              <C>              <C>
$0.20                    315,790              1.5     $       0.20          315,790     $       0.10

$0.50 - $2.50          3,000,000              2.2             1.45        3,000,000             1.45

$ .25                  1,000,000              3.5             0.25               --             0.25
                    ------------     ------------     ------------     ------------     ------------
                       4,315,790                      $       0.63        4,315,790     $       0.63
                    ============                      ============     ============     ============

<CAPTION>
                           OPTIONS AND WARRANTS OUTSTANDING                OPTIONS EXERCISABLE
                        Shares          Average         Average            Shares         Average
                     Outstanding       Remaining        Exercise       Outstanding        Exercise
                       9/30/04       Life (Years)        Price            9/30/04          Price
                    ------------     ------------     ------------     ------------     ------------
<S>                 <C>              <C>              <C>              <C>              <C>
$0.20                    315,790              3.5     $       0.20          315,790     $       0.10

$2.00                    440,000              1.2             2.00          440,000             2.00

$0.50 - $2.50          3,000,000              3.2             1.45        3,000,000             1.45

$0.25                  1,000,000              4.5             0.25
                    ------------     ------------     ------------     ------------     ------------
                       4,755,790                      $       1.16        3,755,790     $       1.16
                    ============                      ============     ============     ============
</TABLE>

16. EARNINGS (LOSS) PER SHARE

Basic earnings per share amounts are computed based on the weighted average
number of shares outstanding on that date during the applicable periods. The
numbers of shares used in the computations were 78,748,850 and 37,271,857 in
2005 and 2004, respectively. The earnings per share amounts for the discontinued
operations have been computed using these numbers of shares.


                                      F-14
<PAGE>

Diluted earnings per share was not disclosed as of September 30, 2005 and 2004
since the options and warrants outstanding at those dates were antidilutive.
Warrants and options total 4,315,000 and 4,755,790 shares were outstanding at
September 30, 2005 and 2004, respectively

17. SUBSEQUENT EVENTS

In November 2005, the Company repaid the $120,000 ((euro)100,000) bank loan.


                                      F-15
<PAGE>

                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
hereunto duly authorized.

                                  Teleconnect Inc.


Date: December 29, 2005           By: /s/ Gustavo Gomez
                                      Gustavo Gomez
                                      Director, Chief Executive Officer,
                                      President and Treasurer


                                  By: /s/ Herman de Haas
                                      Herman de Haas
                                      Chief Financial Officer,
                                      Executive Vice President and
                                      principal accounting and financial officer

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.


Date: December 29, 2005           By: /s/ Gustavo Gomez
                                      Gustavo Gomez
                                      Director, Chief Executive Officer,
                                      President and Treasurer


                                  By: /s/ Herman de Haas
                                      Herman de Haas
                                      Director, Chief Financial Officer,
                                      Executive Vice President and
                                      principal accounting and financial officer


                                       31
<PAGE>

                           INDEX OF EXHIBITS ATTACHED

Exhibit             Description

10.                 Material Contracts:
      10.1          Management Agreement dated October 29, 2004, between the
                    Company and Openvia S. L.
      10.2          Management Agreement dated October 29, 2004, between the
                    Company and Shareworks Espana S. L.
      10.3          Management Agreement dated October 29, 2004, between the
                    Company and Cobrasky S. L.
31.1                Certification of Gustavo Gomez
31.2                Certification of Herman de Haas
32.1                Certification of Gustavo Gomez and Herman de Haas


                                       32