U.S.
Securities and Exchange Commission





Washington,
D.C. 20549





Form
10-K








x
            ANNUAL REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF
      1934





For
the fiscal year ended September 30, 2007





 ̈
            TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
the transition period from ______________ to ______________





Commission
File Number: 0-30611





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)





Centro
Comercial Camoján Corner, 1a plta


Camino
de Camoján, Urb. Sierra Blanca


29603 Marbella –
Málaga


(Address
of principal executive offices)





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





Securities
registered pursuant to Section 12(b) of the Exchange Act: None





Securities
registered pursuant to Section 12(g) of the Exchange Act:





Title of
Class


Common Stock, $0.001 par
value





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes  ̈ No x





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.  Yes  ̈ No x





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





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  Yes  ̈   No
x





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (229.405 of this chapter) is not contained herein, and will not
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-K
or any amendment to this Form 10-K. x





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





Large
      accelerated filer   ̈
              Accelerated
      filer   ̈Non-accelerated
      filer   ̈
              Smaller
      reporting company x





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





State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recent completed fiscal quarter ended
March 31, 2009:  $1,344,000





APPLICABLE
ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY


PROCEEDINGS
DURING THE PRECEDING FIVE YEARS





Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1943 subsequent to the distribution of securities under a plan confirmed by a
court. Yes  ̈  No  ̈





(APPLICABLE
ONLY TO CORPORATE REGISTRANTS)





Indicate
the number of shares outstanding of each of the registrant's classes of common
stock, as of the last practicable date:  September 30,
2007:  332,243,707 shares of common stock, $.001 par
value.





DOCUMENTS
INCORPORATED BY REFERENCE





List
hereunder the following documents if incorporated by reference and the Part of
the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933:  None.








TABLE
OF CONTENTS





PART
      IItem
      1
                Business
                3Item
      1A
                Risk
      Factors
                11Item
      1B
                Unresolved
      Staff Comments
                11Item
      2
                Properties
                11Item
      3
                Legal
      Proceedings
                11Item
      4
                Submission
      of Matters to a Vote of Security Holders
                11PART
      IIItem
      5
                Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                12Item
      6
                Selected
      Financial Data
                13Item
      7
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                13Item
      7A
                Quantitative
      and Qualitative Disclosures About Market Risk
                18Item
      8
                Financial
      Statements and Supplementary Data
                18Item
      9
                Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                36Item
      9A
                Controls
      and Procedures
                36Item
      9B
                Other
      Information
                37PART
      IIIItem
      10
                Directors,
      Executive Officers and Corporate Governance
                37Item
      11
                Executive
      Compensation
                37Item
      12
                Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                39Item
      13
                Certain
      Relationships and Related Transactions, and Director
      Independence
                39Item
      14
                Principal
      Accounting Fees and Services
                40PART
      IVItem
      15
                Exhibits,
      Financial Schedules
                40Signatures
                41


2





PART
I





Item
1.    Business





General





Teleconnect
Inc. (the Company) (initially named Technology Systems International Inc.) was
incorporated under the laws of the State of Florida on November 23, 1998. It did
not conduct any significant operations until December 2000 when there was a
change in control and name of the Company.  Affiliated with the change
of control, the Company, now named ITS Networks Inc., acquired all of the issued
and outstanding capital stock of ITS Europe, S.L., a Spanish telecommunications
company founded in 1995. As a result, ITS Europe, S.L. (ITS Europe) became a
wholly owned subsidiary and the Company entered into the telephone business in
Spain.





On
December 15, 2002, the Company entered into a stock exchange agreement in
reliance upon Regulation S under the Securities Act of 1934 with Teleconnect
Comunicaciones, S.A. (Teleconnect SA), a company formed under the laws of Spain,
conducting a pre-paid telephone card business in Spain.  During the
2003 fiscal year, the operating activities of ITS Europe S.L. were assumed by
Teleconnect. As a result, all substantial operations of the Company were
conducted by Teleconnect, where business was merely based on pre-paid telephone
services and post-paid services in Spain.





During
October 2003, the Company sold its postpaid business to Affinalia, a Spanish
postpaid accounts reseller. Therefore, at the end of 2003, the Company was only
engaged in prepaid telephone voice services.





During
the 2004 fiscal year, the Company decreased its debt, and focused on improving
margins and reducing cost. Its telephone services were redefined and certain
services were relaunched with a new image and brand name associated with its
prepaid telephone card business.





Its prime
activities being conducted by Teleconnect SA, in February 2005 the Company
changed its name into Teleconnect Inc. During 2005 and 2006 the Company’s main
objective was to achieve a monthly operational breakeven situation. Attempting
to increase its sales, it developed a new prepaid telephone card with a magnetic
strip which was launched into the market though several significant distribution
channels.





During
the fiscal year 2007, the Company was mainly engaged in the telecommunication
industry in Spain and offered prepaid telecommunications services for home and
business use.  In order to become more competitive in the market,
Teleconnect SA invested in 2007 in setting up additional switching
infrastructure in order to reduce its traffic carrying cost (telephone
transmission costs).





Also, the
Company in 2007 planned steps that would increase sales, streamline the
distribution of prepaid telephony, and further reduce other costs. As part of
these plans, stakes in three early stage companies were acquired: Mediawizz
(100% Holland), Giga Matrix (49% Holland) and Ownersair (35% U.K.). The products
of these three companies were identified as complementary to Teleconnect. They
involved customer loyalty programs which aimed for an increase in clientele, as
well as multimedia kiosks for the sales of prepaid telephone vouchers enabling
easier distribution of Teleconnect SA’s products.





During
the fiscal year 2007 and 2008 however, in execution of these plans, the Company
again was not able to change its fortune. As a consequence, towards the end of
2008, plans were developed in the direction of a drastic change in
course.





This
drastic change in course involves a relief from cash draining activities. Even
though the Company maintained its telecommunications activities during the
fiscal year 2007 and 2008 in consistency with previous plans, it is our plan to
dispose of the Spanish subsidiaries involved in the telephone business in the
early fiscal year 2009. A Preliminary Proxy Statement has been filed on April
8th 2009 seeking shareholder approval for this step.





The
change in course also involves the Company to be transparent and recuperate the
status of good standing with the regulatory authorities. As to this, the Company
is in the process of submitting past due filings and thus provide relevant
information to shareholders. In this annual report, we elaborate as much as
possible on events that took place up to date. In parallel, the Company is
establishing principles of proper Corporate Governance and the plans to
implement it.





The Board
recently approved the issuance of shares to Hombergh Holdings BV in exchange for
debt forgiveness as well as the commitment for its support in providing funds
that enable the Company to enter this period of transition. Though the Board is
fully aware that it had the proper authorization to execute the issuance of
these shares, in line with its enforced philosophy of transparency, it requests
ratification by the shareholders of this Board decision in the next shareholders
meeting, since in this particular case, this share issuance did have a
significant dilutive effect for all shareholders.





Management
is convinced that the instrument of stock issuance is a useful means to
incidentally raise funds that enable the Company to better achieve increased
stockholder’s value, rather than stock issuances structurally applied in the
process of business. As for raising the necessary funds, the Company plans a
route towards sustainable income, credibility and sustainable
financing.





For
reasons mentioned in the Preliminary Proxy Statement of April 8th 2009, and in
line with its plans towards sustainable income and financing as the alternative
to structural stock issuances, the Company plans a 1 for 100 reverse stock
split.


3





The
Company is currently involved in a series of ongoing negotiations, and plans, as
part of the change in course, a new core business. Currently, the Company is
exploring with the relevant parties an acquisition that is expected to make
Teleconnect viable.





Telecommunications 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.





In order
to offer telecommunications services in Spain, a company must hold 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. Teleconnect  SA (96,63% owned by Teleconnect Inc.)
possesses a carrier license to sell telecommunications services and as such to
interconnect itself with other carriers.





Long
distance services in Spain became very competitive after 1999, forcing a
continuous decrease in prices to end users, putting a strain on margins and
results. Teleconnect SA’s initial service offering focused primarily on offering
inexpensive international prepaid calling to foreign residents in Spain that
make a higher than average number of calls internationally. In order to offer
this service during fiscal 2007, Teleconnect maintained interconnection
agreements with BT Spain, Jazztel, Primus, Worldcom and other major
carriers.





Products and
Services





During
2007, Teleconnect SA provided  prepaid voice telephone services only
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. Teleconnect SA intends to
diversify its service offering with other prepaid services.





Currently,
Teleconnect SA offers various types of prepaid calling cards which are used
primarily by tourists, students, and immigrants. They are purchased from a
variety of local merchants, kiosks, etc. These cards 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 expire sixty days after first
activation. Teleconnect sold approximately 500,000 calling cards during its
fiscal year ended September 30, 2007.





For those
clients who have a fixed line and/or a mobile provided by a telecom operator in
Spain, the Teleconnect SA offers a pre-paid residential account with which
clients  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.





The
prepaid accounts technically work similar to the prepaid calling cards except
for the fact that our network recognizes the caller’s line identification. A PIN
is therefore not needed, making prepaid accounts more convenient. Customers can
recharge their balance manually or automatically.





Marketing





The
marketing strategy of the residential services during fiscal year 2007 remained
focused on foreigners in Spain. These foreigners are primarily located on the
coastal areas of Spain, including the islands.





The
prepaid calling cards are distributed in Spain through thousands of vending
points including some  large retail chains.  Teleconnect SA
concentrated its marketing activities to maintain this network of outlets, where
the before-mentioned stakes in the three startup companies were acquired with a
main objective to improve the efficiency in distribution of prepaid telephony
and attract a larger group of customers.





Industry Participants and
Competition





The
growth of the telecommunications industry from 1997 to 2002 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 Orange, Jazztel, Citycall
and Communitel.   The market since 2004 has grown much slower
than in previous years.





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.


4





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:





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
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


5


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) 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.





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 España'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 España's petition,
except with respect to interconnection rates in connection with Internet access.
As a result, Telefonica de España 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.





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.




6




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.




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.




Regulation in the United
States





Our
operations are in Spain and Holland 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, 2007, the Company and its subsidiaries had 22 full-time
employees, of which one person was engaged in general management, eleven
persons in operations, five people in marketing and sales, three in
accounting and finance, one in human resources and office management, and
one person 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. 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 and
Holland 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




On
September 30, 2007, there are no current outstanding bank loans.





Information
Structure. While the Company is investigating new markets and products,
we are depending mainly on our Spanish subsidiaries. We must continue to develop
our information systems infrastructure as the number of our clients and the
amount of information they wish to access might increase. The development of our
Information Systems network infrastructure might therefore require 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 to developments, additional stress may be placed on our network
hardware, the traffic management and other systems and operating facilities.
There is a risk that our network may be unable to service our clients while
maintaining high performance.




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 may affect our network. A failure
to provision adequate transmission facilities in certain locations as we
maintain our planned service coverage may have a material adverse effect on our
ability to service our clients and maintain our business.


7


Growth. Limited
growth in the past has been a function of the funds available to invest in
capacity and equipment. Also, we have been unfortunate in acquisitions or
co-operations that were engaged to establish the desired growth. This has placed
a significant strain on management, financial controls, operating and accounting
systems, personnel and other resources. We currently rely on a relatively small
core management team. In the unlikelihood that we grow, we must not only manage
demands on this team but also increase management resources, among other things,
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 in Spain, technical support, applications,
and other resources may not be sufficient to facilitate any growth. If any
growth is not properly managed, management may be unable to adequately support
our clients in the future.




Teleconnect
SA efforts continuously aim to expand its services and increase its customer
base simultaneously so that both are increased in a proportional relationship
which allows them to mutually support each other. Rapid expansion of the 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 the 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 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 its 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. It is difficult to
predict the effect of technological changes on our business. We will rely in
part on third parties, including our competitors, for the development of and
access to communications and networking technologies. It is expected that new
services and technologies applicable to the Spanish 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. New access to
technologies on acceptable terms may, or may not, be obtained such that the
company may or may not be able to provide new services in a competitive
manner.




Management Changes .
On July 31, 2007, an agreement was reached with Gustavo Gomez that he would
leave the Company by October 30, 2007 and Mr. Leonardus Geeris assumed the
function of President and Chief Executive Officer of the Company. On December
11,th, 2008, Mr. Geeris stepped down from all of the positions he occupied in
the company in favor of Mr. Dirk Benschop. Mr. Benschop is now President and CEO
of Teleconnect Inc. If members of our senior management team leave the Company,
the Company’s ability to operate its business could be negatively affected. Our
future success depends to a significant extent on the continued services of the
senior management. The loss of services or any other present or future key
management or employee, could have a material adverse effect on 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 ability to attract and retain
highly-skilled employees. As Teleconnect Inc grows, the Company will need to
hire additional personnel in all areas. 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. No assurances can be
provided 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, synergies, software or related
products that are important to our success. Accordingly, no assurances are
provided 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 and
maintaining the regulatory approvals and licenses that it may need to offer our
communications services in other jurisdictions and provinces.




8




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
growth.




Transmission
capacity is acquired by lease or purchase by our subsidiaries from various
suppliers to connect client premises to our network and for other network
connections. They have from time to time experienced short-term delays in
receiving the requisite transmission capacity from suppliers. There are no
assurances that they 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 their service levels and our growth.




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




We 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 others have been insufficient or
circumvented in the past. There can be no assurance that our 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.




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.




9




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.




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
332,243,707 shares of our Common Stock outstanding as “restricted securities” as
defined in Rule 144 as of September 30, 2007, 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.




Technological Changes. Global industries are subject to rapid and significant technological
changes. 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.




10




Voting Control. The
largest single shareholder of the Company as of September 30, 2007, Mr.
Leonardus Geeris, owns directly and indirectly approximately 45.37% of the
Company’s outstanding Common Stock as of that date.. This stockholder has
exercised considerable influence over all matters requiring approval by our
stockholders, including approval of significant corporate transactions and
acquisitions. Geeris Holding Nederland, B.V. and Diependael BV are companies
owned by Leonardus Geeris, a director and executive officer of the Company.
During fiscal year 2007, Mr. Geeris has transferred all stock in name of Geeris
Holding Nederland and in Diependael, into his own personal name. Subsequent to
the closing of this fiscal year end, Mr. Geeris on October 31, 2007, also
assumed the role of President and CEO of Teleconnect Inc from Mr. Gomez.
Subsequently, on December 11th, 2008,
Mr. Benschop replaced Mr. Geeris as President and CEO of the
Company.





Item
1A        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, 2007, we had an accumulated deficit of
$(27,063,048) and had a stockholders' equity of $(467,549). As shown in the
accompanying financial statement, the Company incurred losses of ($2,999,829)
and ($3,763,738) for the years ended September 30, 2007 and 2006, respectively.
In addition, the Company has incurred substantial losses since its inception. As
of September 30, 2007, the Company had a working capital deficit of $(2,488,032)
and a total shareholders’ deficit of $(467,549). These factors raise substantial
doubt about the Company's ability to continue as a going concern. These results
and facts are the justification for a significant change in direction and focus
of the Company to be implemented by new management during the current fiscal
year 2009.




If the
telecommunications services of Teleconnect SA and Teleconnect Telecom SL do not
become widely used in our market, and the above mentioned significant change in
direction cannot be achieved, it is unlikely that we will become
profitable.




In order
for us to be successful, cash draining activities must be disposed off, debt
needs to be restructured and cost must be reduced, and new markets must be
entered with new and profitable products. We may not succeed in attracting
sufficient funds to overcome the period of transition that is necessary to
create viable situation.





The lack
of liquidity of the Company’s stock inherently has the risk that shares may not
find a buyer thus making it more difficult for shareholders to sell their
shares.





Item
1B        Unresolved Staff
Comments





None





Item
2.          Properties





The
Company’s principal executive offices are located at Centro Comercial Camoján
Corner, 1a plta, Camino de Camoján, Urb. Sierra Blanca, 29603 Marbella – Málaga,
Spain.





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





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




To this
effect, we have a provision of approximately $136,000 to cover these and other
litigation cases threatened against the Company.





The
Company has filed in Spain and in Holland legal actions against parties which
owe money to the Company.





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





There
were no matters put forth to vote at a meeting of the security holders during
the fiscal year ended September 30, 2007.


11





PART
II




Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities





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
                              Bid Price
                            
                            
                            Low
      Closing
                              Bid PriceYear Ended December 31,
20051
      stQuarter
                            
                            $
                            0.48
                            
                            
                            $
                            0.202
      ndQuarter
                            
                            $
                            0.40
                            
                            
                            $
                            0.153
      rdQuarter
                            
                            $
                            0.23
                            
                            
                            $
                            0.114
      thQuarter
                            
                            $
                            0.15
                            
                            
                            $
                            0.08Year Ended December 31,
20061
      stQuarter
                            
                            $
                            0.22
                            
                            
                            $
                            0.132
      ndQuarter
                            
                            $
                            0.30
                            
                            
                            $
                            0.143
      rdQuarter
                            
                            $
                            0.17
                            
                            
                            $
                            0.064
      thQuarter
                            
                            $
                            0.16
                            
                            
                            $
                            0.05Year Ended December 31,
20071
      stQuarter
                            
                            $
                            0.10
                            
                            
                            $
                            0.042
      ndQuarter
                            
                            $
                            0.10
                            
                            
                            $
                            0.043
      rdQuarter
                            
                            $
                            0.08
                            
                            
                            $
                            0.024
      thQuarter
                            
                            $
                            0.04
                            
                            
                            $
                            0.01





The
closing bid price of the Common Stock of the Company on September 30, 2007 was
$0.02 per share.




Stock Option, SAR and Stock
Bonus Consultant Plan




Effective
March 31, 2006, the Company adopted and approved its 2006 Stock Option, SAR and
Stock Bonus Plan (the “Plan”) which reserved 20,000,000 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. As
of September 30, 2007, 14,574,324 shares of common stock had been issued under
this plan.





Sale of Unregistered
Securities




During
2007, the Company issued 30,644,000 shares in exchange for $2,058,594 in debt
from an existing shareholder. These issuances are broken down as follows:
14,040,000 shares of the common stock of the Company to Leonardus G.M.R. Geeris
for assuming the Company’s debt payable to UNI2, a Spanish telecommunications
carrier, and 16,604,000 shares for debt forgiveness of €1,186,000 or $1,660,400
from an existing shareholder.





During
the year ended September 30, 2007, the Company issued 49,104,000 shares for a
capital injection of €1,650,000 (or $2,310,000) and the right of claim on a
€150,000 ($210,000) loan on Giga Matrix (company which Teleconnect acquired 49%
during the fiscal year 2007)





During
the year ended September 30, 2007, the Company issued 3,616,000 shares of common
stock at $0.05 usd per share totaling $180,800 in exchange for 49% of Giga
Matrix BV.




During
the year ended September 30, 2007, the Company issued 5,625,000 shares of common
stock at $0.05 usd per share totaling $281,250 in exchange for 100% of Photowizz
BV (Mediawizz).




During
the year ended September 30, 2007, the Company issued 42,680,000 shares of
common stock for consulting services totaling $1,722,599. These issuances of
stock are broken down as follows: 33,000,000 shares of common stock were issued
at $0.036 usd for consulting services totaling $1,190,000 to Destalink (a
company beneficially owned by Mr. Lanting); 9,000,000 shares of common stock
with a fair market value of $450,000 for services to Quick Holdings BV, Quack,
Holdings BV and Queck Holdings BV in the proportions of 60%, 20% and 20%
respectively; 500,000 shares of common stock with a fair market value of $70,000
for services to Kirk Haynes and 180,000 shares of common stock issued with a
fair market value of $12,600 for services to two partners of Qtro, a distributor
of Teleconnect Comunicaciones SA for extra consulting services
rendered.


12





During
the year ended September 30, 2007, the Company issued 20,000,000 shares of
common stock for a capital contribution of €1,538,462 or $2,153,847





During
the year ended September 30, 2007 the Company issued 3,894,324 shares of common
stock pursuant to the Company’s 2006 Stock Option, SAR and Stock Bonus Plan for
total compensation of $116,830.




Item
6. Selected Financial Data





The
following table sets forth certain operating information regarding the
Company.




Year
      Ended
                  
                  
                  Year
      EndedSeptember
      30, 2007
                  
                  
                  September
      30, 2006Revenues
                  
                  $
                  28,485
                  
                  
                  $
                  -Cost
      of goods sold
                  
                  $
                  107,986
                  
                  
                  $
                  -Selling,
      general and administrative
                  
                  $
                  3,010,305
                  
                  
                  $
                  3,391,114Depreciation
                  
                  $
                  5,202
                  
                  
                  $
                  -Other
      Income (Expenses)
                  
                  $
                  18.433
                  
                  
                  $
                  -Gain
      on forgiveness of debt
                  
                  $
                  57,172
                  
                  
                  $
                  -Loss
      on investment
                  
                  $
                  (380,277
                  )
                  
                  $
                  -Interest
      expense
                  
                  $
                  125,302
                  
                  
                  $
                  358,251Net
      income (loss) from discontinued operations
                  
                  $
                  525,153
                  
                  
                  $
                  (14,373
                  )Net
      Loss
                  
                  $
                  (2,999,829
                  )
                  
                  $
                  (3,763,738
                  )Comprehensive
      Loss
                  
                  $
                  (3,360,015
                  )
                  
                  $
                  (4,088,416
                  )Net
      Loss Per Share
                  
                  $
                  (0.02
                  )
                  
                  $
                  (003
                  )





Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations





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-K 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.




Critical Accounting
Policies




Our
significant accounting policies are discussed in Note 2 to the financial
statements. We consider the following accounting policies to be the most
critical:





Estimates.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.




13




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.




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 the sale of multimedia kiosks from our Mediawizz
subsidiary are recognized in the period ended September 30, 2007.




Revenue
from sales of telecommunication services (included in discontinued operations)
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.The Company applied APB 25 and related interpretations in
accounting for its plan through September 2005.




In
December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123R (FAS-123R), Share-Based Payment, which
is a revision of Statement of Financial Accounting Standards No. 123 (FAS-123),
Accounting for Stock-Based Compensation. In addition to requiring supplemental
disclosures, FAS-123R addresses the accounting for share-based payment
transactions in which a company receives goods or services in exchange for (a)
equity instruments of the company or (b) liabilities that are based on the fair value of
the company's equity instruments or that may be settled by the issuance of such
equity instruments. FAS-123R focuses primarily on accounting for transactions in
which a company obtains employee services in share-based payment transactions.
The Statement eliminates the ability to account for share-based compensation
transactions using Accounting Principles Board Opinion No. 25 (APB-25),
Accounting for Stock Issued to Employees, and generally requires that such
transactions be accounted for using a fair-value-based method. Accordingly,
proforma disclosure is no longer an alternative.





Under
FAS-123R, the Company is required to recognize compensation cost for the portion
of outstanding awards previously accounted for under the provisions of APB-25
for which the requisite service had not been rendered as of the adoption date
for this Statement. The Statement also requires companies to estimate
forfeitures of stock compensation awards as of the grant date of the award.
Because the Company's current policy is to recognize forfeitures as they occur,
a cumulative effect of a change in accounting principle will be recognized in
income based on the estimate of remaining forfeitures for awards outstanding as
of the date FAS-123R is adopted.





FAS-123R
permits public companies to adopt its requirements using one of the following
two methods:





A
"modified prospective" method in which compensation cost is recognized beginning
with the effective date (a) based on the requirements of FAS-123R for all
share-based payments granted after the effective date and (b) based on the
requirements of FAS-123 for all awards granted to employees prior to the
effective date of FAS-123R that remain unvested on the effective date;
or





A
"modified retrospective" method, which includes the requirements of the modified
prospective method described above but also permits entities to restate, based
on the amounts previously recognized under FAS-123 for purposes of pro forma
disclosures, either (a) all prior periods presented for which FAS-123 was
effective or (b) prior interim periods of the year in which FAS-123R is
adopted.





The
Company adopted FAS-123R on October 1, 2005 utilizing the modified prospective
method. The adoption of FAS -123 R had no impact on the financial statements as
the Company did not issue any options during either of the two fiscal years
ended on September 30, 2007. All options and warrants were fully vested at the
date of issuance.





Segment Reporting. We have
adopted FAS 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
two reportable segments; multimedia kiosk sales and service, which encompasses
Mediawizz , and telecommunications systems and related services which
encompasses the companies of Teleconnect Comunicaciones SA, Teleconnect Telecom
SL, Recarganet and ITS Europe.




Discontinued operations.In
March 2009, the Company entered into an agreement to sell ITS Europe,
Teleconnect Spain, Teleconnect Telecom and Recarganet to certain employees and
officers of Teleconnect Spain for €1,001 with the Company retaining 10% of
Teleconnect Spain. The Company has accounted for the subsidiaries as per SFAS
144, Accounting for the Impairment or Disposal of Long-Lived Assets, and the
results of operations of these subsidiaries were reported as “discontinued
operations” and assets and liabilities have been separated on the balance
sheet.


14


Overview




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




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




Our
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 during fiscal year 2007, now included in discontinued
operations, each accounted for more than 10% of our revenues during the year
ended September 30, 2007. These are: Telecor 27.22%, Grupo Sigla 12.39%, Satti
Telecom 11.49%. Domestic sales in Spain accounted for 100% of our revenues in
2006 and 99.6% in 2007; having received some revenue from Mediawizz, affiliated
company based in Holland. Mediawizz is in the process of obtaining new retail
chains to carry the kiosk. Once the contracts are firm, they will be made
public.





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.




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




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




Year Ended September 30,
2007, compared to the year ended September 30, 2006




Assets





Total
assets for the period ended September 30, 2007 increased 179.13% to $4,297,582
compared to $1,539,632 for the period ended September 30, 2006. This increase is
due primarily to the consolidation in 2007 of PhotoWizz; 100% owned by
Teleconnect. The assets from discontinued operations in 2006 of $1,520,719
represent 98.77% of all assets while the assets from discontinued operations in
2007 represented $1,566,700 or 36.46% of total assets.





Liabilities




Current
liabilities for the period ended September 30, 2007 decreased 34.47% to
$4,726,640 compared to $7,212,440 for the period ended September 30, 2006. This
decrease is due primarily to the debt forgiveness of a large creditor as well as
other debt forgiveness of loans from related parties. The liabilities from
discontinued operations in 2006 of $5,376,032 represent 74.54% of total current
liabilities while the liabilities from discontinued operations in 2007
represented $3,336,921 or 70.60% of total current liabilities.





With the
sale of the Spanish subsidiaries, the Company will reduce its assets by 36.36%
but its liabilities by 70.60% leaving $1,389,719 of current liabilities, 71,83%
of which is due to related parties. In addition, with this sale, the Company
stops the cash drain characteristic of the Spanish business since its
inception.





Income (Loss) From Continued
Operations




The
following table sets forth certain operating information regarding the
Company


15





Year
      Ended
                  
                  
                  Year
      EndedSeptember
      30, 2007
                  
                  
                  September
      30, 2006Revenues
                  
                  $
                  28,485
                  
                  
                  $
                  -Cost
      of goods sold
                  
                  $
                  107,986
                  
                  
                  $
                  -Selling,
      general and administrative
                  
                  $
                  3,010,305
                  
                  
                  $
                  3,391,114Depreciation
                  
                  $
                  5,202
                  
                  
                  $
                  -Other
      Income (Expenses)
                  
                  $
                  18.433
                  
                  
                  $
                  -Debt
      forgiveness income
                  
                  $
                  57,172
                  
                  
                  $
                  -Loss
      on investment
                  
                  $
                  (380,277
                  )
                  
                  $
                  -Interest
      expense
                  
                  $
                  125,302
                  
                  
                  $
                  358,251Net
      income (loss) from discontinued operations
                  
                  $
                  525,153
                  
                  
                  $
                  (14,373
                  )Net
      Loss
                  
                  $
                  (2,999,829
                  )
                  
                  $
                  (3,763,738
                  )Comprehensive
      (Loss)
                  
                  $
                  (3,360,015
                  )
                  
                  $
                  (4,088,416
                  )Net
      Loss Per Share
                  
                  $
                  (0.02
                  )
                  
                  $
                  (0.03
                  )





Revenues. Revenues
from continuing operations for the year ended September 30, 2007 amounted to
$28,485, compared to none in the prior year. These 2007 revenues were derived
from the sales activity of Mediawizz, our wholly owned subsidiary which was
acquired in 2007 The activity of Mediawizz involves the production of multimedia
kiosks. Since the purchase date of Mediawizz was June 15th, 2007,
the Company’s
2007 results only include three months of Mediawizz’s startup
activity.





Pricing PoliciesThe
pricing for our products and services from continuing business may vary
depending on the services provided, the speed of service, geographic location
and capacity utilization. It is not the intention of the Company to enter “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 by
providing a unique value add to the service. The existing prices reflect the
fact that the continuing operations are derived from relatively new services and
products which are still in their infancy.




Client Contracts. Our
contracts with customers generally include an agreed-upon price schedule that
details both fixed and variable prices for contracted services. Our sales
representatives can easily add additional services to existing contracts,
enabling clients to increase the number of locations.




Cost of Goods Sold:
Cost of goods sold from continuing operations for the year ended September 30,
2007 amounted to $107,986 and consisted principally of the material and assembly
costs of the kiosks.




We
reflected a gross loss during fiscal 2007 of $79,501. The principal reasons for
the negative gross profit is the fact that this continuing business is in its
infancy and sales have not had time to ramp up during the fiscal year ended
September 30, 2007.




Selling, General and
Administrative. Selling, general and administrative expenses for the
year ended September 30, 2007 were $3,010,305, a decrease of $380,809 or 11.2%
from the prior year’s operating expenses of $3,391,114. Hence, though the actual
reduction in selling, general and administrative expenses associated to the
operations of the Company was significant, this reduction was partially offset
by the valuation of stock issued as compensation for services of $1,839,429 for
2007 while stock issued for services in 2006 was $2,814,000.





Interest Expense.
Interest expense for the year ended September 30, 2007 was $125,302 as compared
to $358,251 for the prior year; a reduction of 74.3 % This decrease was due
primarily to less interest incurred on loans made from affiliated parties due to
the conversion of certain of those loans into common stock during
2007.





Income (Loss) From
Discontinued Operations




The
following table sets forth certain operating information regarding the
discontinued operations:




Year
      Ended
                  
                  
                  Year
      EndedSeptember
      30, 2007
                  
                  
                  September
      30, 2006Revenues
                  
                  $
                  4,139,491
                  
                  
                  $
                  4,656,546Cost
      of goods sold
                  
                  $
                  2,855,401
                  
                  
                  $
                  3,054,023Selling,
      general and administrative
                  
                  $
                  1,867,864
                  
                  
                  $
                  1,635,872Depreciation
                  
                  $
                  150,905
                  
                  
                  $
                  240,289Other
      Income (Expenses)
                  
                  $
                  (6.230
                  )
                  
                  $
                  259,265Debt
      forgiveness income
                  
                  $
                  1,267,194
                  
                  
                  $
                  -Interest
      expense
                  
                  $
                  1,132
                  
                  
                  $
                  -Net
      income (loss) from discontinued operations
                  
                  $
                  525,153
                  
                  
                  $
                  (14,373
                  )


16


Revenues. Revenues
from discontinued operations for the year ended September 30, 2007 decreased to
$4,139,491, compared to $4,656,546 from the prior year. These revenues during
the year ended September 30, 2007 were primarily derived from the sale of
prepaid telephone cards through major accounts, retail chains as well as call
shops and other small establishments. Other services which contributed to the
revenue figures come from the sale of prepaid long-distance calling minutes to
residential users. It is expected that the discontinued operations will
effectively be sold during the fiscal year 2009.





Cost of Goods Sold:
Cost of goods sold for the year ended September 30, 2007 were $2,855,401, a
decrease of $198,622 or 6.5% from the prior year cost of sales of $3,054,023.
The main reason for the decrease is the drop in sales. Cost of Goods sold as a
percentage of sales was 69.1% in 2007 while it was 65.6% for the same period in
2006.





Gross
profits during fiscal 2007 were $1,284,090 as compared to gross profits for the
fiscal year of 2006 of $1,602,523. Hence, gross profits declined by $318,433 or
19.9%. The principal reason for the reduction is the setting of the lower sales
price of services in order to be competitive but carrier pricing remained
relatively constant.





Selling, General and
Administrative. Selling, general and administrative expenses for the
year ended September 30, 2007 were $1,867,864, an increase of $231,992 or 14.2%
from the prior year ‘s operating expenses of $1,635,872. Hence, though the
actual reduction in sales and costs of goods sold was noteworthy, it was
partially offset by the valuation of stock issued as compensation for services
to an external consultant.




Depreciation Expense. Depreciation expense for the year ended September 30, 2007 was $150,905
compared to $240,289 for the year ended September 30, 2006. This decrease of
$89,384 or 37.20% is due primarily to the fact that some equipment became fully
depreciated in 2007.




Net Loss. In 2007
the Company reported net income from discontinued operations of $525,153
compared to a net loss of $(14,373) during the 2006. The 2007 net income is
primarily a result of a gain on forgiveness of debt obtained by the settlement
with a vendor which accounted for $1,267,194. On a pro forma basis without
including this gain the Company would have had a loss from discontinued
operations of $(742,041) in 2007; an increase in the net loss of 5,063%. The
poorer result is partially due to the following facts, the decrease in sales,
decrease in margins, and the additional monthly costs born by the Company
associated to an in-house consultant.





Liquidity and Capital
Resources. At September 30, 2007, the Company had negative working
capital of approximately $(2,488,000), compared to negative working capital of
$(6,280,000), at September 30, 2006. Therefore the Company experienced an
improvement of approximately $3,791,968 though insufficient to independently
fund its activities. The Company had in 2007 net uses of its cash flows from
operations of $3,140,014 while in 2006 the same was $1,179,709. In addition, in
2007 the company had debt-forgiveness income of $1,324,366 while in 2006 it did
not have any. Also, since its net cash used in investing activities increase in
2007 to $1,745,396 from $185,167 in 2006, the Company found itself in the need
to raise additional funds from the sale of common stock in 2007 of $4,405,201
compared to only $380,868 in 2006. In addition to these funds raised from the
sale of common stock, funds were also made available to the Company by loans
from related parties amounting to $1,297,636 at September 30, 2007. The fiscal
year 2007, proved to be more demanding than other on the need to generate new
sources of funding to cover the operational deficit, the investment in new
switching infrastructure, the investments and acquisitions of new companies, and
the additional fees of consultants.




The
ability of the Company to satisfy its obligations and to continue as a going
concern will depend in part upon its ability to raise funds through the sale of
additional shares of its Common Stock, increasing borrowing, and in part upon
its ability to reach a profitable level of operations. The Company’s financial
statements do not reflect adjustments that might result from its inability to
continue as a going concern and these adjustments could be
material.




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




Contractual Obligations and
Commercial Commitments. The following table is a recap of the Company s
contractual obligations as of September 30, 2007.




Payments Due by PeriodTotal
                  
                  
                  Less than One Year
                  
                  
                  1-3 YearsLoans
      from related parties
                  
                  $
                  998,202
                  
                  
                  $
                  998,202
                  
                  
                  $
                  -Note
      payable to third party
                  
                  
                  170,148
                  
                  
                  
                  170,148
                  
                  
                  
                  -Operating
      Leases
                  
                  
                  87,233
                  
                  
                  
                  48,742
                  
                  
                  
                  38,491Total
      Contractual Cash Obligations
                  
                  $
                  1,255,583
                  
                  
                  $
                  1,217,092
                  
                  
                  $
                  38,491





Recent Accounting
Pronouncements.




In June
2006, the FASB issued Interpretation 48, “Accounting for Uncertainty in Income
Taxes” (“FIN 48”), an interpretation of FASB Statement No. 109, “Accounting for
Income Taxes.” FIN 48 clarifies the accounting and reporting for income taxes
where interpretation of the law is uncertain. FIN 48 prescribes a comprehensive
model for the financial statement recognition, measurement, presentation and
disclosure of income tax uncertainties with respect to positions taken or
expected to be taken in income tax returns. FIN 48 is effective for fiscal years
beginning after December 15, 2006. Management adopted this Statement on October
1, 2006 and its initial adoption of FIN 48 had no material impact on the
Company's financial position, results of operations, or cash
flows.


17


In
September 2006, the FASB issued Statement No. 157, “Fair Value Measurements”
(“FAS 157”). FAS 157 addresses how companies should measure fair value when they
are required to use a fair value measure for recognition or disclosure purposes
under GAAP. FAS 157 defines fair value, establishes a framework for measuring
fair value and expands disclosures about fair value measurements. FAS 157 is
effective for fiscal years beginning after November 15, 2007, with earlier
adoption permitted. Management is assessing the impact of the adoption of this
Statement.





In
February 2007, the FASB issued Statement No. 159 “The Fair Value Option for
Financial Assets and Financial Liabilities” (“FAS159”). This statement permits
companies to choose to measure many financial assets and liabilities at fair
value. Unrealized gains and losses on items for which the fair value option has
been elected are reported in earnings. FAS 159 is effective for fiscal years
beginning after November 15, 2007. The Company is currently assessing the impact
of FAS 159 on its consolidated financial statements.





Item
7A.        Quantitative and Qualitative
Disclosures About Market Risk





After
serving the Company since March 2002 and after reaching agreement in July 2007
that secured his stay for a transition period of three months, Mr. Gomez, on
October 31st, 2007 resigned from the position of President and CEO, where these
positions were assumed by Mr. Leonardus Geeris, a major shareholder and investor
to the Company.





Mr. 
Lanting, who was appointed to the Board of Directors of the Company shortly
prior to the purchase of a 35% stake in Ownersair Ltd on August 28th 2007,
voluntarily resigned on November 16, 2007 after he and some significant
stakeholders as well as Mr. Geeris concluded that it was in the best interest of
the Company that Mr Lanting assume full responsibility for this Ownersair
investment. There were no disputes nor disagreements leading to Mr. Lanting’s
resignation and departure.




In
November 2008, Teleconnect Inc’s President and CEO at the time, Mr. Leonardus
Geeris, in preparation of the appointment of new executive management,
facilitated a large restructuring of the Company’s debt permitting all his
outstanding loans to be converted into common shares for this future
management.





Effective
December 11, 2008, Mr. Dirk L. Benschop was appointed as a director of
Teleconnect Inc., by Mr. Leonardus Geeris, to fill a vacancy on the Board of
Directors. At the same time, Mr. Benschop was also appointed as the new Chief
Executive Officer and President of the Corporation. Additionally, Mr Geeris
provided Mr. Benschop with an irrevocable proxy to represent all his voting
rights at shareholder meetings until November 2009.





In March
2009 the Company entered into an arrangement providing for the sale of 100 % of
the Company’s interest in ITS Europe, Recarganet, and Teleconnect Telecom in
addition to approximately 87% of its interest in Teleconnect Comunicaciones SA;
thus only remaining with a 10% stake in the latter. On March 25th, 2009,
tentative agreements were signed between the Company and several private
individuals (some of which are also employees and officers of Teleconnect
Comunicaciones SA) to affect the purchase. The stock purchase agreements will be
formalized before a public Spanish notary upon approval by the Company’s
shareholders. By selling off the Spanish subsidiaries and maintaining a 10%
stake in Teleconnect Comunicaciones SA, Teleconnect Inc is relieved of its
obligation to fund these companies whereas Teleconnect Inc. could possibly
benefit from future dividends, if so declared by Teleconnect Spain.




Besides
the above-mentioned purposes of the special shareholders’ meeting announced in a
preliminary proxy statement on April 8th, 2009,
the Company, in this special meeting, will also seek approval to execute a
reverse split of the Company’s common stock in the ratio of 1 for
100.




On May
14th, 2009,
the sale of ITS Europe SL was consummated before a Spanish Notary. ITS Europe SL
has been a dormant company since 2003 when its activities were merged with those
of Teleconnect Communicaciones SA. The sale of ITS Europe SL has no significant
effect on future financial statements.





Item
8.          Financial Statements and
Supplementary Data


18





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, 2006, 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, 2006, 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 raises 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
12, 2006




Oklahoma
City, Oklahoma




This
report is a copy of the previously issued report and Murrell, Hall, McIntosh
& Co., PLLP has not reissued the report.


19





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. (the
“Company”) and its subsidiaries as of September 30, 2007, and the related
consolidated statements of operations, changes in stockholders’ deficit, and
cash flows for the year then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit. The
consolidated financial statements of Teleconnect Inc. as of and for the year
ended September 30, 2006 were audited by other auditors who have ceased
operations.  Those auditors have expressed an unqualified opinion on
those consolidated financial statements in their report, dated December 12,
2006.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). 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 consolidated 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, 2007, and the consolidated results
of its operations and its consolidated cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.




As
discussed above, the consolidated financial statements of Teleconnect Inc. as of
September 30, 2006 and for the year then ended were audited by other auditors
who have ceased operations.  As described in Note 17, these
consolidated financial statements have been restated. We audited the adjustments
described in Note 17 that were applied to restate the 2006 financial statements.
In our opinion, such adjustments are appropriate and have been properly applied.
However, we were not engaged to audit, review, or apply any procedures to the
2006 consolidated financial statements of the Company other than with respect to
such adjustments and, accordingly, we do not express an opinion or any other
form of assurance on the 2006 consolidated financial statements taken as a
whole.





/s/Coulter
& Justus, P.C.





June 10,
2009





Knoxville,
Tennessee





20




TELECONNECT,
INC.
 CONSOLIDATED
BALANCE SHEETS
  September
      30,
                                                                            
                                                                            
                                                                            September
      30,2007
                                                                            
                                                                            
                                                                            2006(Restated)ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                                                                            
                                                                            $
                                                                            441,121
                                                                            
                                                                            
                                                                            $
                                                                            3,460Accounts
      receivable - trade
                                                                            
                                                                            
                                                                            8,010
                                                                            
                                                                            
                                                                            
                                                                            -Due
      from related parties
                                                                            
                                                                            
                                                                            381,439
                                                                            
                                                                            
                                                                            
                                                                            -Inventory
                                                                            
                                                                            
                                                                            373,186
                                                                            
                                                                            
                                                                            
                                                                            -Prepaid
      taxes
                                                                            
                                                                            
                                                                            94,201
                                                                            
                                                                            
                                                                            
                                                                            -Prepaid
      expenses
                                                                            
                                                                            
                                                                            118,622
                                                                            
                                                                            
                                                                            
                                                                            15,453Assets
      of discontinued operations
                                                                            
                                                                            
                                                                            822,029
                                                                            
                                                                            
                                                                            
                                                                            913,604Total
      current assets
                                                                            
                                                                            
                                                                            2,238,608
                                                                            
                                                                            
                                                                            
                                                                            932,517PROPERTY
      AND EQUIPMENT, NET
                                                                            
                                                                            
                                                                            159,860
                                                                            
                                                                            
                                                                            
                                                                            -OTHER
      ASSETS:Investment
      in Giga Matrix Holdings B.V.
                                                                            
                                                                            
                                                                            142,173
                                                                            
                                                                            
                                                                            
                                                                            -Goodwill
                                                                            
                                                                            
                                                                            440,856
                                                                            
                                                                            
                                                                            
                                                                            -Long-term
      notes receivable
                                                                            
                                                                            
                                                                            571,414
                                                                            
                                                                            
                                                                            
                                                                            -Assets
      of discontinued operations
                                                                            
                                                                            
                                                                            744,671
                                                                            
                                                                            
                                                                            
                                                                            607,115$
                                                                            4,297,582
                                                                            
                                                                            
                                                                            $
                                                                            1,539,632LIABILITIES
      AND STOCKHOLDERS' DEFICITCURRENT
      LIABILITIES:Accounts
      payable - trade
                                                                            
                                                                            $
                                                                            134,740
                                                                            
                                                                            
                                                                            
                                                                            29,513Accrued
      liabilities
                                                                            
                                                                            
                                                                            37,887
                                                                            
                                                                            
                                                                            
                                                                            33,259Notes
      payable
                                                                            
                                                                            
                                                                            170,148
                                                                            
                                                                            
                                                                            
                                                                            151,920Loans
      from related parties
                                                                            
                                                                            
                                                                            998,202
                                                                            
                                                                            
                                                                            
                                                                            1,621,716Current
      portion of capital lease obligations
                                                                            
                                                                            
                                                                            48,742
                                                                            
                                                                            
                                                                            
                                                                            -Liabilities
      of discontinued operations
                                                                            
                                                                            
                                                                            3,336,921
                                                                            
                                                                            
                                                                            
                                                                            5,376,032Total
      current liabilities
                                                                            
                                                                            
                                                                            4,726,640
                                                                            
                                                                            
                                                                            
                                                                            7,212,440Capital
      lease obligations, less current portion
                                                                            
                                                                            
                                                                            38,491
                                                                            
                                                                            
                                                                            
                                                                            -STOCKHOLDERS'
      DEFICIT:Preferred
      stock; par value of $0.001, 5,000,000 sharesauthorized, no shares
      outstanding
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -Common
      stock; par value of $0.001, 500,000,000 sharesauthorized,
      332,243,707 and 180,680,363 shares issued and outstanding at September 20,
      2007 and 2006, respectively
                                                                            
                                                                            
                                                                            332,244
                                                                            
                                                                            
                                                                            
                                                                            180,681Additional
      paid-in capital
                                                                            
                                                                            
                                                                            28,999,901
                                                                            
                                                                            
                                                                            
                                                                            20,586,190Accumulated
      deficit
                                                                            
                                                                            
                                                                            (27,063,048
                                                                            )
                                                                            
                                                                            
                                                                            (24,063,219
                                                                            )Accumulated
      other comprehensive loss
                                                                            
                                                                            
                                                                            (2,736,646
                                                                            )
                                                                            
                                                                            
                                                                            (2,376,460
                                                                            )Total
      stockholders' deficit
                                                                            
                                                                            
                                                                            (467,549
                                                                            )
                                                                            
                                                                            
                                                                            (5,672,808
                                                                            )$
                                                                            4,297,582
                                                                            
                                                                            
                                                                            $
                                                                            1,539,632
  The
accompanying notes are an integral part of these consolidated financial
statements.
  21
  TELECONNECT,
INC.
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 FOR THE
YEARS ENDED SEPTEMBER 30,
  2007
                                                                                                  
                                                                                                  
                                                                                                  2006(Restated)SALES
                                                                                                  
                                                                                                  $
                                                                                                  28,485
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  -COST
      OF GOODS SOLD
                                                                                                  
                                                                                                  
                                                                                                  107,986
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -GROSS
      PROFIT (LOSS)
                                                                                                  
                                                                                                  
                                                                                                  (79,501
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  -OPERATING
      EXPENSES:Selling,
      general and administrative expenses
                                                                                                  
                                                                                                  
                                                                                                  3,010,305
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  3,391,114Depreciation
                                                                                                  
                                                                                                  
                                                                                                  5,202
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -Total
      operating expenses
                                                                                                  
                                                                                                  
                                                                                                  3,015,507
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  3,391,114LOSS
      FROM CONTINUING OPERATIONS
                                                                                                  
                                                                                                  
                                                                                                  (3,095,008
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (3,391,114
                                                                                                  )OTHER
      INCOME (EXPENSES):Gain
      on forgiveness of debt
                                                                                                  
                                                                                                  
                                                                                                  57,172
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -Other
      income (expense)
                                                                                                  
                                                                                                  
                                                                                                  18,433
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -Loss
      on investment
                                                                                                  
                                                                                                  
                                                                                                  (380,277
                                                                                                  )Interest
      expense - related parties
                                                                                                  
                                                                                                  
                                                                                                  (125,302
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (358,251
                                                                                                  )LOSS
      FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
                                                                                                  
                                                                                                  
                                                                                                  (3,524,982
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (3,749,365
                                                                                                  )PROVISION
      FOR INCOME TAXES
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -NET
      LOSS BEFORE DISCONTINUED OPERATIONS
                                                                                                  
                                                                                                  
                                                                                                  (3,524,982
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (3,749,365
                                                                                                  )NET
      INCOME (LOSS) FROM DISCONTINUED OPERATIONS
                                                                                                  
                                                                                                  
                                                                                                  525,153
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (14,373
                                                                                                  )NET
      LOSS
                                                                                                  
                                                                                                  $
                                                                                                  (2,999,829
                                                                                                  )
                                                                                                  
                                                                                                  $
                                                                                                  (3,763,738
                                                                                                  )BASIC
      AND DILUTED LOSS PER SHARE:From
      continuing operations
                                                                                                  
                                                                                                  
                                                                                                  (0.02
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (0.03
                                                                                                  )From
      discontinued operations
                                                                                                  
                                                                                                  
                                                                                                  0.00
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (0.00
                                                                                                  )Total
                                                                                                  
                                                                                                  $
                                                                                                  (0.02
                                                                                                  )
                                                                                                  
                                                                                                  $
                                                                                                  (0.03
                                                                                                  )AVERAGE
      COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING
                                                                                                  
                                                                                                  
                                                                                                  207,845,524
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  147,878,326THE
      COMPONENTS OF COMPREHENSIVE LOSS:Net
      loss
                                                                                                  
                                                                                                  $
                                                                                                  (2,999,829
                                                                                                  )
                                                                                                  
                                                                                                  $
                                                                                                  (3,763,738
                                                                                                  )Foreign
      currency translation adjustment
                                                                                                  
                                                                                                  
                                                                                                  (545,736
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (491,936
                                                                                                  )Tax
      effect on currency translation
                                                                                                  
                                                                                                  
                                                                                                  185,550
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  167,258COMPREHENSIVE
      LOSS
                                                                                                  
                                                                                                  $
                                                                                                  (3,360,015
                                                                                                  )
                                                                                                  
                                                                                                  $
                                                                                                  (4,088,416
                                                                                                  )
  The
accompanying notes are an integral part of these consolidated financial
statements.
  22
  TELECONNECT,
INC.
 CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
  Common
      Stock
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            AccumulatedNumber
                                                                            
                                                                            
                                                                            $0.001
                                                                            
                                                                            
                                                                            Additional
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            Other
                                                                            
                                                                            
                                                                            Totalof
                                                                            
                                                                            
                                                                            par
                                                                            
                                                                            
                                                                            Paid-In
                                                                            
                                                                            
                                                                            Accumulated
                                                                            
                                                                            
                                                                            Comprehensive
                                                                            
                                                                            
                                                                            Stockholders'Shares
                                                                            
                                                                            
                                                                            Value
                                                                            
                                                                            
                                                                            Capital
                                                                            
                                                                            
                                                                            Deficit
                                                                            
                                                                            
                                                                            Loss
                                                                            
                                                                            
                                                                            DeficitBalance,
      October 1, 2005
                                                                            
                                                                            
                                                                            109,236,571
                                                                            
                                                                            
                                                                            $
                                                                            109,237
                                                                            
                                                                            
                                                                            $
                                                                            16,102,448
                                                                            
                                                                            
                                                                            $
                                                                            (20,299,481
                                                                            )
                                                                            
                                                                            $
                                                                            (2,051,782
                                                                            )
                                                                            
                                                                            $
                                                                            (6,139,578
                                                                            )Common
      stock issued for conversionof debt to
      equity
                                                                            
                                                                            
                                                                            5,000,000
                                                                            
                                                                            
                                                                            
                                                                            5,000
                                                                            
                                                                            
                                                                            
                                                                            150,035
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            155,035Common
      stock issued forservices
                                                                            
                                                                            
                                                                            13,300,000
                                                                            
                                                                            
                                                                            
                                                                            13,300
                                                                            
                                                                            
                                                                            
                                                                            2,800,700
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            2,814,000Common
      stock issued forsettlement
                                                                            
                                                                            
                                                                            1,000,000
                                                                            
                                                                            
                                                                            
                                                                            1,000
                                                                            
                                                                            
                                                                            
                                                                            149,000
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            150,000Sale
      of common stock
                                                                            
                                                                            
                                                                            52,200,000
                                                                            
                                                                            
                                                                            
                                                                            52,200
                                                                            
                                                                            
                                                                            
                                                                            1,393,634
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            1,445,834Common
      stock canceled
                                                                            
                                                                            
                                                                            (56,188
                                                                            )
                                                                            
                                                                            
                                                                            (56
                                                                            )
                                                                            
                                                                            
                                                                            (9,627
                                                                            )
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            (9,683
                                                                            )Foreign
      currency translationadjustment, net of
      tax
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            (324,678
                                                                            )
                                                                            
                                                                            
                                                                            (324,678
                                                                            )Net
      (loss)-restated
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            (3,763,738
                                                                            )
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            (3,763,738
                                                                            )Balance,
      September 30, 2006 - restated
                                                                            
                                                                            
                                                                            180,680,383
                                                                            
                                                                            
                                                                            
                                                                            180,681
                                                                            
                                                                            
                                                                            
                                                                            20,586,190
                                                                            
                                                                            
                                                                            
                                                                            (24,063,219
                                                                            )
                                                                            
                                                                            
                                                                            (2,376,460
                                                                            )
                                                                            
                                                                            
                                                                            (5,672,808
                                                                            )Common
      stock issued for conversionof debt to
      equity
                                                                            
                                                                            
                                                                            30,644,000
                                                                            
                                                                            
                                                                            
                                                                            30,644
                                                                            
                                                                            
                                                                            
                                                                            2,027,950
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            2,058,594Common
      stock issued forservices
                                                                            
                                                                            
                                                                            46,574,324
                                                                            
                                                                            
                                                                            
                                                                            46,574
                                                                            
                                                                            
                                                                            
                                                                            1,792,855
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            1,839,429Common
      stock issued for purchaseof
      subsidaries
                                                                            
                                                                            
                                                                            9,241,000
                                                                            
                                                                            
                                                                            
                                                                            9,241
                                                                            
                                                                            
                                                                            
                                                                            452,809
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            462,050Sale
      of common stock
                                                                            
                                                                            
                                                                            69,104,000
                                                                            
                                                                            
                                                                            
                                                                            69,104
                                                                            
                                                                            
                                                                            
                                                                            4,336,097
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            4,405,201Repurchase
      and cancellation of common stock
                                                                            
                                                                            
                                                                            (4,000,000
                                                                            )
                                                                            
                                                                            
                                                                            (4,000
                                                                            )
                                                                            
                                                                            
                                                                            (196,000
                                                                            )
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            (200,000
                                                                            )Foreign
      currency translationadjustment, net of
      tax
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            (360,186
                                                                            )
                                                                            
                                                                            
                                                                            (360,186
                                                                            )Net
      (loss)
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            (2,999,829
                                                                            )
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            (2,999,829
                                                                            )Balance,
      September 30, 2007
                                                                            
                                                                            
                                                                            332,243,707
                                                                            
                                                                            
                                                                            $
                                                                            332,244
                                                                            
                                                                            
                                                                            $
                                                                            28,999,901
                                                                            
                                                                            
                                                                            $
                                                                            (27,063,048
                                                                            )
                                                                            
                                                                            $
                                                                            (2,736,646
                                                                            )
                                                                            
                                                                            $
                                                                            (467,549
                                                                            )
  The
accompanying notes are an integral part of these consolidated financial
statements.
  23
  TELECONNECT,
INC.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 FOR THE
YEARS ENDED SEPTEMBER 30,
  Page 1
of 2
  2007
                                                      
                                                      
                                                      2006(restated)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      (loss)
                                                      
                                                      $
                                                      (2,999,829
                                                      )
                                                      
                                                      $
                                                      (3,763,738
                                                      )Adjustments
      to reconcile net (loss) tonet cash used in operating
      activities:Depreciation
                                                      
                                                      
                                                      5,202
                                                      
                                                      
                                                      
                                                      -Gain
      on forgiveness of debt
                                                      
                                                      
                                                      (57,172
                                                      )
                                                      
                                                      
                                                      -Loss
      on equity investment
                                                      
                                                      
                                                      38,627
                                                      
                                                      
                                                      
                                                      -Loss
      on equity investment in Ownersair, Ltd.
                                                      
                                                      
                                                      341,650
                                                      
                                                      
                                                      
                                                      -Common
      stock issued for services
                                                      
                                                      
                                                      1,839,429
                                                      
                                                      
                                                      
                                                      3,113,000Change
      in operating assets and liabilities:Accounts
      receivable - trade
                                                      
                                                      
                                                      (1,931
                                                      )
                                                      
                                                      
                                                      -Inventory
                                                      
                                                      
                                                      (366,558
                                                      )
                                                      
                                                      
                                                      -Prepaid
      expenses
                                                      
                                                      
                                                      (103,169
                                                      )
                                                      
                                                      
                                                      (15,453
                                                      )Prepaid
      taxes
                                                      
                                                      
                                                      (82,858
                                                      )
                                                      
                                                      
                                                      -Accounts
      payable
                                                      
                                                      
                                                      343
                                                      
                                                      
                                                      
                                                      282,898Accrued
      liabilities
                                                      
                                                      
                                                      4,628
                                                      
                                                      
                                                      
                                                      (302,517
                                                      )Operating
      cash flows from discontinued operations
                                                      
                                                      
                                                      (1,758,376
                                                      )
                                                      
                                                      
                                                      (493,899
                                                      )Net
      cash used in operating activities
                                                      
                                                      
                                                      (3,140,014
                                                      )
                                                      
                                                      
                                                      (1,179,709
                                                      )CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of subsidary
                                                      
                                                      
                                                      (277,097
                                                      )
                                                      
                                                      
                                                      -Purchase
      of investment in Ownersair, Ltd.
                                                      
                                                      
                                                      (341,650
                                                      )
                                                      
                                                      
                                                      -Advances
      to equity investment
                                                      
                                                      
                                                      (381,439
                                                      )
                                                      
                                                      
                                                      -Proceeds
      from issuance of notes receivable
                                                      
                                                      
                                                      (571,414
                                                      )
                                                      
                                                      
                                                      -Purchases
      of property and equipment
                                                      
                                                      
                                                      (36,240
                                                      )
                                                      
                                                      
                                                      -Investing
      activities of discontinued operations
                                                      
                                                      
                                                      (137,556
                                                      )
                                                      
                                                      
                                                      (185,167
                                                      )Net
      cash used in investing activities
                                                      
                                                      
                                                      (1,745,396
                                                      )
                                                      
                                                      
                                                      (185,167
                                                      )CASH
      FLOWS FROM FINANCING ACTIVITIES:Loan
      proceeds from related parties
                                                      
                                                      
                                                      1,297,636
                                                      
                                                      
                                                      
                                                      1,288,996Loan
      proceeds from bank
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      151,500Payments
      on notes payable
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      (120,000
                                                      )Payments
      on capital leases
                                                      
                                                      
                                                      (5,193
                                                      )
                                                      
                                                      
                                                      -Repurchase
      and cancellation of stock
                                                      
                                                      
                                                      (200,000
                                                      )
                                                      
                                                      
                                                      (9,683
                                                      )Proceeds
      from sale of common stock
                                                      
                                                      
                                                      4,405,201
                                                      
                                                      
                                                      
                                                      380,868Net
      cash provided by financing activities
                                                      
                                                      
                                                      5,497,644
                                                      
                                                      
                                                      
                                                      1,691,681EFFECT
      OF EXCHANGE RATE
                                                      
                                                      
                                                      (174,573
                                                      )
                                                      
                                                      
                                                      (324,678
                                                      )NET
      INCREASE IN CASH AND CASH EQUIVALENTS
                                                      
                                                      
                                                      437,661
                                                      
                                                      
                                                      
                                                      2,127
  The
accompanying notes are an integral part of these consolidated financial
statements.
  24
  TELECONNECT,
INC.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
  Page 2 of
2
  2007
                                                        
                                                        
                                                        2006(restated)CASH
      AND CASH EQUIVALENTS,BEGINNING OF
      YEAR
                                                        
                                                        
                                                        3,460
                                                        
                                                        
                                                        
                                                        1,333CASH
      AND CASH EQUIVALENTS,END OF YEAR
                                                        
                                                        $
                                                        441,121
                                                        
                                                        
                                                        $
                                                        3,460SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:Cash
      paid during the year for interest
                                                        
                                                        $
                                                        -
                                                        
                                                        
                                                        $
                                                        7,000SUPPLEMENTAL
      DISCLOSURE OF NONCASH TRANSACTIONS:Common
      stock issued for purchase of subsidary
                                                        
                                                        $
                                                        281,250
                                                        
                                                        
                                                        $
                                                        -Common
      stock issued for purchase of equity investment
                                                        
                                                        $
                                                        180,800
                                                        
                                                        
                                                        $
                                                        -Common
      stock issued for conversion of debt
                                                        
                                                        $
                                                        2,058,594
                                                        
                                                        
                                                        $
                                                        1,065,000Common
      stock issued for services received
                                                        
                                                        $
                                                        1,839,428
                                                        
                                                        
                                                        $
                                                        2,814,000Common
      stock issued for loan fee
                                                        
                                                        $
                                                        -
                                                        
                                                        
                                                        $
                                                        150,000
  The
accompanying notes are an integral part of these consolidated financial
statements.





25




TELECONNECT,
INC.





NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS





September
30, 2007





1.
THE COMPANY





Teleconnect
Inc. (the “Company”, “Teleconnect”, “we”, “us” or “our”) was incorporated under
the laws of the State of Florida on November 23, 1998. The Company is engaged in
the telecommunication industry in Spain and offers telecommunications services
for home and business use.  All of the Company’s operations are in the
European Union.





2.
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES





Accounts
Receivable -





Trade
accounts receivable are recorded at their estimated net realizable values using
the allowance method. The Company generally does not require
collateral.  The Company establishes an allowance for doubtful
accounts based upon factors surrounding the credit risk of specific customers,
historical trends and other information.  When accounts are determined
to be uncollectible they are charged off against an allowance for doubtful
accounts.  Credit losses, when realized, have been within the range of
the Company’s expectations.  As of September 30, 2007, three customers
accounted for 27%, 12%, and 11% of net accounts receivables included in assets
of discontinued operations.   As of September 30, 2006, two
customers accounted for 33% and 12% of net accounts receivable included in
assets of discontinued operations.





Advertising
Costs -





Advertising
and sales promotion costs are expensed as incurred and totaled $54,946 in 2007
and $63,326 in 2006.





Cash
Equivalents -





The
Company considers deposits that can be redeemed on demand and highly liquid
investments that have original maturities of less than three months, when
purchased, to be cash equivalents. Substantially all cash on hand at September
30, 2007 was held in Spanish financial institutions and is not
insured.





Consolidation
Policy -





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





Revenue
Recognition -





The
Company recognizes revenue from the sale of multimedia kiosks in the period in
which title has passed and services have been rendered. Deferred revenue
consists of the sale of prepaid calling cards which have not yet been
utilized.  The Company recognizes revenue from these cards in the
period in which time on the cards is utilized.





Earnings
per Share -





Basic net
income (loss) per common share is computed by dividing net earnings (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 affect 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 common shares outstanding excludes common stock equivalents, because their
exclusion would be anti-dilutive.





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 certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.





Foreign
Currency Adjustments -





The
financial position and results of substantially all foreign operations are
consolidated using the local currencies in which the Company operates as a
functional currency. The financial statements of foreign operations are
translated using exchange rates in effect at year-end for assets and liabilities
and average exchange rates during the year for results of
operations.  The related translation adjustments are reported as a
separate component of shareholders’ equity.





26




Income
Taxes -





The
Company uses the asset/liability method of accounting for income
taxes.  Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse.





In July
2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes - an Interpretation of FASB
Statement No. 109” (“FIN 48”).  FIN 48 is intended to clarify the
accounting for uncertainty in income taxes recognized in a company’s financial
statements and prescribes the recognition and measurement of a tax position
taken or expected to be taken in a tax return.  FIN 48 also provides
guidance on de-recognition, classification, interest and penalties, accounting
in interim periods, disclosure and transition.  The Company’s adoption
of FIN 48 at October 1, 2006 did not have a material effect on the Company’s
financial position.  The Company’s policy is to classify penalties and
interest associated with uncertain tax positions, if required, as a component of
its income tax provision.





Inventories
-





Inventories
are stated at the lower of cost or market with cost determined on the first in,
first out basis.





Goodwill
–





Goodwill
is calculated as the difference between the cost of acquisition and the fair
value of the net assets acquired of any business that is acquired. The
Company follows the provisions of SFAS No. 142, “Goodwill and Other
Intangible Assets,” and performs impairment tests of the intangible assets at
least annually and impairment losses are recognized if the carrying value of the
intangible exceeds its fair value. For the year ended September 30, 2007, the
Company did not incur any charges for impairment.





New
Accounting Pronouncements -





In
September 2006, the FASB issued Statement No. 157, “Fair Value Measurements”
(“FAS 157”) which addresses how companies should measure fair value when they
are required to use a fair value measure for recognition or disclosure purposes
under GAAP. FAS 157 defines fair value, establishes a framework for measuring
fair value and expands disclosures about fair value measurements. FAS 157 is
effective for fiscal years beginning after November 15, 2007, with earlier
adoption permitted. Management is assessing the impact of the adoption of this
Statement.





In
February 2007, the FASB issued Statement No. 159 “The Fair Value Option for
Financial Assets and Financial Liabilities.” (“FAS 159”)  This
statement permits companies to choose to measure many financial assets and
liabilities at fair value. Unrealized gains and losses on items for which the
fair value option has been elected are reported in earnings. SFAS 159 is
effective for fiscal years beginning after November 15, 2007. The Company is
currently assessing the impact of SFAS 159 on its consolidated financial
statements.





3.
DISCONTINUED OPERATIONS





In March
2009, the Company entered into an agreement to sell ITS Europe, Teleconnect
Spain, Teleconnect Telecom and Recarganet to certain employees and officers of
Teleconnect Spain for €1,001 with the Company retaining 10% of Teleconnect
Spain.





Summarized
financial information (which consists principally of Teleconnect Spain) included
in discontinued operations is as follows for the year ended September
30:





2007
                      
                      
                      2006Sales
                      
                      $
                      4,139,491
                      
                      
                      $
                      4,656,546Cost
      of Sales
                      
                      
                      2,855,401
                      
                      
                      
                      3,054,023Gross
      Profit
                      
                      
                      1,284,090
                      
                      
                      
                      1,602,523Selling,
      general and administrative expenses
                      
                      
                      1,867,864
                      
                      
                      
                      1,635,872Depreciation
                      
                      
                      150,905
                      
                      
                      
                      240,289Operating
      loss
                      
                      
                      (734,679
                      )
                      
                      
                      (273,638
                      )Gain
      on forgiveness of debt
                      
                      
                      1,267,194
                      
                      
                      
                      -Other
      (expense) income
                      
                      
                      (7,362
                      )
                      
                      
                      259,265Income
      (loss) from discontinued operations
                      
                      $
                      525,153
                      
                      
                      $
                      (14,373
                      )





27





The net
liabilities of discontinued operations(which consists principally of Teleconnect
Spain), which are included in the consolidated balance sheets as assets and
liabilities of discontinued operations, consist of the following at September
30:




2007
                        
                        
                        
                        2006Cash
                        
                        $
                        104,148
                        
                        
                        $
                        194,209Accounts
      receivable – trade, net of allowanceFor
      bad debts of $605,718 and $1,007,740 at  September 30, 2007 and
      2006, respectively
                        
                        
                        641,295
                        
                        
                        
                        549,640Accounts
      receivable - other
                        
                        
                        24,486
                        
                        
                        
                        8,345Inventory
                        
                        
                        50,893
                        
                        
                        
                        18,680Vendor
      deposits
                        
                        
                        -
                        
                        
                        
                        120,421Prepaid
      expenses
                        
                        
                        1,207
                        
                        
                        
                        22,309Current
      assets of discontinued operations
                        
                        
                        822,029
                        
                        
                        
                        913,604Property
      and equipment, net
                        
                        
                        237,884
                        
                        
                        
                        264,584Other
      assets
                        
                        
                        -
                        
                        
                        
                        39,095Vendor
      deposits
                        
                        
                        506,787
                        
                        
                        
                        303,436Other
      assets of discontinued operations
                        
                        
                        744,671
                        
                        
                        
                        607,115Accounts
      payable
                        
                        
                        943,736
                        
                        
                        
                        2,624,188Accrued
      liabilities
                        
                        
                        178,729
                        
                        
                        
                        259,343Taxes
      payable
                        
                        
                        258,557
                        
                        
                        
                        782,883Deferred
      income
                        
                        
                        1,955,899
                        
                        
                        
                        1,709,618Liabilities
      of discontinued operations
                        
                        
                        3,336,921
                        
                        
                        
                        5,376,032Net
      liabilities of discontinued operations
                        
                        $
                        1,770,221
                        
                        
                        $
                        3,855,313




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





4.
PROPERTY AND EQUIPMENT





Property
and equipment are recorded at cost.  Expenditures for major additions
and improvements are capitalized, and minor replacements, maintenance, and
repairs are charged to expenses as incurred.  When property and
equipment are retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the accounts and any resulting gains or losses
included in the results of operation for the respective
period.  Depreciation is computed on a straight line basis over its
useful lives which is 5-7 years.





Property
and equipment at September 30, 2007 was comprised of the following:





Computers
      and switching systems
                  
                  $
                  164,581Less:
      Accumulated depreciation
                  
                  
                  (4,721
                  )Net
      Property and Equipment
                  
                  $
                  159,860





5.
LOANS FROM RELATED PARTIES





As of
September 30, 2007 and 2006, the Company had short term loans totaling $998,202
and $1,621,716, respectively, from shareholders. These loans bear interest at 8%
annually, are unsecured, and are due upon demand.   Interest
expense of $125,302 and $358,251, respectively, was incurred on these notes
during 2007 and 2006.





6.
NOTE PAYABLE





As of
September 30, 2007 and 2006 the Company has a short-term bridge loan of $170,148
and $151,920, respectively, from a potential investor.  This note
bears interest at 4% and is due on demand.





7.
OPERATING LEASES





The
Company leases certain equipment with a carrying value of approximately $144,000
under a capital lease agreement.  The initial lease term is thirty-six
months and expires in June 2009.  Amortization of capital leases is
included with depreciation expense in the accompanying consolidated financial
statements.  The Company also leases office space and other equipment
under non-cancelable operating leases expiring on various dates through
2011.  Total rental expense for all non-cancelable operating leases,
totaled $193,729 in 2007 and $128,557 in 2006.





28


Future
minimum lease payments, by year and in the aggregate, consist of the following
as of September 30, 2007:





Capital
                                
                                
                                Operating
                                
                                
                                TotalLease
                                
                                
                                Leases2008
                                
                                $
                                52,627
                                
                                
                                $
                                76,567
                                
                                
                                $
                                129,1942009
                                
                                
                                39,470
                                
                                
                                
                                76,567
                                
                                
                                
                                116,0372010
                                
                                
                                -
                                
                                
                                
                                76,567
                                
                                
                                
                                76,5672011
                                
                                
                                -
                                
                                
                                
                                57,425
                                
                                
                                
                                57,42592,097
                                
                                
                                $
                                287,126
                                
                                
                                $
                                379,223Less
      amounts representing interest
                                
                                
                                (4,864
                                )Total
      (including $48,742classified as current)
                                
                                $
                                87,233





8.
INCOME TAXES





The tax
effects of temporary differences giving rise to the Company's deferred tax
assets are as follows as of September 30:


2007
                  
                  
                  2006Tax
      carry forwards
                  
                  $
                  10,506,302
                  
                  
                  $
                  8,455,775Valuation
      allowance
                  
                  
                  (10,506,302
                  )
                  
                  
                  (8,455,775
                  )Net
      deferred tax assets
                  
                  $
                  -
                  
                  
                  $
                  -





A
reconciliation of the Company’s income tax provision (benefit) computed at the
statutory U.S. Federal rate and the actual tax provision is as follows for the
years ended September 30:




2007
                  
                  
                  2006Income
      tax (benefit) provision at U.S Federal statutory rate
                  
                  $
                  (1,019,942
                  )
                  
                  $
                  (1,279,671
                  )Foreign
      income taxed at rates other than 34%
                  
                  
                  5,270
                  
                  
                  
                  (144
                  )Tax
      effect of NOL absorbed
                  
                  
                  (113,075
                  )
                  
                  
                  -Foreign
      tax return adjustments
                  
                  
                  (68,040
                  )
                  
                  
                  -Other
                  
                  
                  (49,060
                  )
                  
                  
                  -Increase
      in valuation allowance, net of foreign currency
adjustments
                  
                  
                  1,244,847
                  
                  
                  
                  1,279,815Tax
      (benefit) provision
                  
                  $
                  -
                  
                  
                  $
                  -




The
following table summarizes the amount and expiration dates of our operating loss
carryovers as of  September 30, 2007:




Expiration Dates
                    
                    AmountsU.S.
      federal net operating loss carryovers
                    
                    
                    2022-2027
                    
                    
                    $
                    12,065,319Non-U.S.
      net operating loss carryovers
                    
                    
                    2013-2021
                    
                    
                    
                    18,085,300Total
                    
                    
                    
                    
                    
                    $
                    30,150,619





As
a result of significant pre-tax losses, the Company cannot conclude that it is
more likely than not that the deferred tax asset will be
realized.  Accordingly a full valuation allowance has been established
against our deferred tax assets.  During 2007, the Company increased
its valuation allowance by $2,050,527 to reflect the effect of current year net
operating losses net of currency translation adjustments.





9.
LITIGATION AND CONTINGENT LIABILITIES





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
amounts recorded in the consolidated financial statements.





10.
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, 2007 or
2006.





29




11.
EQUITY TRANSACTIONS





During
the year ended September 30, 2006, the Company issued 5,000,000 shares of
restricted common stock for payment of interest from related party notes payable
totaling $155,000.





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





During
the year ended September 30, 2006 the Company issued 52,200,000 shares of common
stock for a capital contribution of $1,445,000.





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





During
the year ended September 30, 2006 the Company issued 1,000,000 share of common
stock to a stockholder pursuant to a settlement agreement.





During
the year ended September 30, 2007, the Company issued 30,644,000 shares for debt
forgiveness of $2,058,594 from an existing shareholder.





During
the year ended September 30, 2007, the Company issued 49,104,000 shares for a
capital injection of €1,650,000 (or $2,310,000) and the right of claim on a
€150,000 ($210,000) loan on Giga Matrix (company which Teleconnect acquired 49%
during the fiscal year 2007)





During
the year ended September 30, 2007, the Company issued 20,000,000 shares of
common stock for a capital contribution of €1,538,462 or $2,153,847





During
the year ended September 30, 2007, the Company issued 3,616,000 shares of common
stock at $0.05 usd per share totaling $180,800 in exchange for 49% of Giga
Matrix BV.





During
the year ended September 30, 2007, the Company issued 5,625,000 shares of common
stock at $0.05 usd per share totaling $281,250 in exchange for 100% of Photowizz
BV (Mediawizz).





During
the year ended September 30, 2007, the Company issued 42,680,000 shares of
common stock for consulting services totaling $1,722,599. Of these shares,
13,000,000 shares, valued at $390,000 were issued to a director of the company
for consulting services. Additionally 20,000,000 valued at $800,000 were issued
to this director prior to being named to the board of directors.





During
the year ended September 30, 2007 the Company issued 3,894,324 shares of common
stock pursuant to the Company’s 2006 Stock Option, SAR and Stock Bonus Plan for
total compensation of $116,830.





Pursuant
to an agreement of termination signed on July 31, 2007 the Company repurchased
and cancelled 4,000,000 shares of common stock valued at $200,000 from an
officer of the corporation.





12.
STOCK WARRANTS AND OPTIONS





During
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, 2007.





During
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 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.





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 applied APB 25 and related interpretations in accounting for its plan
through September 2005. 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.





30


In
December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123R (FAS-123R), Share-Based Payment, which
is a revision of Statement of Financial Accounting Standards No. 123 (FAS-123),
Accounting for Stock-Based Compensation. In addition to requiring supplemental
disclosures, FAS-123R addresses the accounting for share-based payment
transactions in which a company receives goods or services in exchange for (a)
equity instruments of the company or (b) liabilities that are based on the fair
value of the company's equity instruments or that may be settled by the issuance
of such equity instruments. FAS-123R focuses primarily on accounting for
transactions in which a company obtains employee services in share-based payment
transactions. The Statement eliminates the ability to account for share-based
compensation transactions using Accounting Principles Board Opinion No. 25
(APB-25), Accounting for Stock Issued to Employees, and generally requires that
such transactions be accounted for using a fair-value-based method. Accordingly,
pro-forma disclosure is no longer an alternative.





Under
FAS-123R, the Company is required to recognize compensation cost for the portion
of outstanding awards previously accounted for under the provisions of APB-25
for which the requisite service had not been rendered as of the adoption date
for this Statement. The Statement also requires companies to estimate
forfeitures of stock compensation awards as of the grant date of the
award.





FAS-123R
permits public companies to adopt its requirements using one of the following
two methods:





A
"modified prospective" method in which compensation cost is recognized beginning
with the effective date (a) based on the requirements of FAS-123R for all
share-based payments granted after the effective date and (b) based on the
requirements of FAS-123 for all awards granted to employees prior to the
effective date of FAS-123R that remain unvested on the effective date;
or





A
"modified retrospective" method, which includes the requirements of the modified
prospective method described above but also permits entities to restate, based
on the amounts previously recognized under FAS-123 for purposes of pro forma
disclosures, either (a) all prior periods presented for which FAS-123 was
effective or (b) prior interim periods of the year in which FAS-123R is
adopted.





The
Company adopted FAS-123R on October 1, 2005 utilizing the modified prospective
method. The adoption of FAS-123 R had no impact on the financial statements as
the Company did not issue any options during either of the two fiscal years
ended on September 30, 2007 and 2006 and all options and warrants were fully
vested at the date of issuance.





Effective
March 31, 2006, the Company adopted and approved its 2006 Stock Option, SAR and
Stock Bonus Plan (the “Plan”) which reserved 20,000,000 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.   As of September 30, 2007, 14,574,324 shares of
common stock had been issued under this plan.





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





2007Average
                        
                        
                        ExerciseShares
                        
                        
                        PriceOutstanding
      at beginning of year
                        
                        
                        4,315,790
                        
                        
                        $
                        0.63Granted
      at market valueExercised
                        
                        
                        —
                        
                        
                        
                        —Expired
                        
                        
                        (315,790
                        )
                        
                        $
                        0.20Outstanding
      at the end of year
                        
                        
                        4,000,000
                        
                        
                        $
                        0.63





Options
      Outstanding
                                          
                                          
                                          ExercisableShares
                                          
                                          
                                          Average
                                          
                                          
                                          Average
                                          
                                          
                                          Shares
                                          
                                          
                                          AverageOutstanding
                                          
                                          
                                          Remaining
                                          
                                          
                                          Exercise
                                          
                                          
                                          Outstanding
                                          
                                          
                                          ExerciseSeptember
      30, 2007
                                          
                                          
                                          Life
      (Years)
                                          
                                          
                                          Price
                                          
                                          
                                          September
      30, 2007
                                          
                                          
                                          Price$0.50
      - $2.50
                                          
                                          
                                          3,000,000
                                          
                                          
                                          
                                          0.2
                                          
                                          
                                          
                                          1.45
                                          
                                          
                                          
                                          3,000,000
                                          
                                          
                                          
                                          1.45$.25
                                          
                                          
                                          1,000,000
                                          
                                          
                                          
                                          1.5
                                          
                                          
                                          
                                          0.25
                                          
                                          
                                          
                                          1,000,000
                                          
                                          
                                          
                                          0.254,000,000
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          0.63
                                          
                                          
                                          
                                          4,000,000
                                          
                                          
                                          $
                                          0.63





31





Options
      Outstanding
                                          
                                          
                                          ExercisableShares
                                          
                                          
                                          Average
                                          
                                          
                                          Average
                                          
                                          
                                          Shares
                                          
                                          
                                          AverageOutstanding
                                          
                                          
                                          Remaining
                                          
                                          
                                          Exercise
                                          
                                          
                                          Outstanding
                                          
                                          
                                          ExerciseSeptember
      30, 2006
                                          
                                          
                                          Life
      (Years)
                                          
                                          
                                          Price
                                          
                                          
                                          September
      30, 2006
                                          
                                          
                                          Price$0.20
                                          
                                          
                                          315,790
                                          
                                          
                                          
                                          1.5
                                          
                                          
                                          $
                                          0.20
                                          
                                          
                                          
                                          315,790
                                          
                                          
                                          $
                                          0.10$0.50
      - $2.50
                                          
                                          
                                          3,000,000
                                          
                                          
                                          
                                          1.2
                                          
                                          
                                          
                                          1.45
                                          
                                          
                                          
                                          3,000,000
                                          
                                          
                                          
                                          1.45$.25
                                          
                                          
                                          1,000,000
                                          
                                          
                                          
                                          2.5
                                          
                                          
                                          
                                          0.25
                                          
                                          
                                          
                                          1,000,000
                                          
                                          
                                          
                                          0.254,315,790
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          0.63
                                          
                                          
                                          
                                          4,315,790
                                          
                                          
                                          $
                                          0.63





During
the year ended September 30, 2006, 440,000 warrants to purchase common stock
expired. As of September 30, 2007and 2006, the Company does not have any
warrants outstanding.





13.
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 Options
totaling 4,000,000 and 4,315,790 shares that were outstanding at September 30,
2007 and 2006, respectively, have not been included in diluted earnings per
share as their effect would have been anti-dilutive.





The
following reconciles the components of the EPS computation for the years ended
September 30, 2007 and 2006:





2007
                          
                          
                          2006Basic
      and Diluted (loss) per share computationNumerator:Net
      loss from continuing operations
                          
                          $
                          (3,524,982
                          )
                          
                          $
                          (3,749,365
                          )Net
      income (loss) from discontinued operations
                          
                          $
                          525,153
                          
                          
                          
                          (14,373
                          )Denominator:Weighted
      average common shares outstanding
                          
                          
                          207,845,524
                          
                          
                          
                          147,878,326Basic
      and Diluted (loss) per shareFrom
      continuing operations
                          
                          $
                          (0.02
                          )
                          
                          $
                          (0.03
                          )From
      discontinued operations
                          
                          $
                          0.00
                          
                          
                          $
                          0.00




14.
ACQUISITIONS





MEDIAWIZZ





On June
15, 2007 the Company finalized an agreement to acquire 100% on the outstanding
stock in PhotoWizz BV (MediaWizz) to streamline the distribution of prepaid
telephone cards, for the issuance of 5,625,000 shares of the Company’s common
stock valued at $281,250 and $332,725 in cash for a total purchase price of
$558,347, net of cash acquired of $55,628.  The purchase price was
allocated as follows:





Accounts
      receivable
                      
                      $
                      6,079Receivable
      from Teleconnect
                      
                      
                      188,988Inventory
                      
                      
                      6,628Fixed
      assets
                      
                      
                      128,822Other
      assets
                      
                      
                      11,343Goodwill
                      
                      
                      413,797Accounts
      payable andaccrued liabilities
                      
                      
                      (104,884
                      )Notes
      payable
                      
                      
                      (92,426
                      )$
                      558,347





The
Company also committed to provide an additional $192,000 in capital to Media
Wizz over the next twenty months at approximately $16,000 per
month.





Mediawizz’s
results of operations are included in the Company’s statement of operations from
the acquisition date.  The transaction was accounted for using the
purchase method of accounting in accordance with SFAS No. 141, Business
Combinations.





Unaudited
Pro Forma Condensed Combined Financial Information





The
unaudited pro forma condensed combined statements of operations for the years
ended September 30, 2007 and September 30, 2006 give effect to the June 15, 2007
acquisition of Mediawizz as if the transactions occurred on October 1, 2005, the
first day of the Company’s fiscal year. The acquisition was accounted for using
the purchase method of accounting.





32




The
unaudited pro forma information is presented for illustration purposes only and
is not necessarily indicative of the financial position or results of operations
which would actually have been reported had the combinations been in effect
during these periods or which might be reported in the future.




Year Ended September 30,2007
                
                
                2006Pro
      forma Sales
                
                $
                102,369
                
                
                $
                169,267Pro
      forma net (loss) from continuing operations
                
                $
                (3,696,917
                )
                
                $
                (3,738,029
                )Pro
      forma net income (loss) from discontinued operations
                
                $
                525,153
                
                
                $
                (14,373
                )Pro
      forma net (loss)
                
                $
                (3,171,764
                )
                
                $
                (3,752,402
                )Pro
      forma Basic and diluted income (loss) per shareFrom
      continuing operations
                
                $
                (0.02
                )
                
                $
                (0.03
                )From
      discontinued operations
                
                $
                0.00
                
                
                $
                0.00





Giga
Matrix Holding





On
February 15, 2007, the Company entered into an agreement to issue 3,616,000
shares of the Company's common stock valued at $180,800 for a 49% interest in
Giga Matrix Holdings, BV (“Giga”).  As of September 30, 2007 the
Company has advanced Giga $381,439 in loans which is included in “due from
related parties” in the accompanying consolidated balance sheet.  The
Company accounts for its investment in Giga under the equity method and had
recognized $38,627 in losses on its equity investment during 2007.





Ownersair
Ltd.





In August
2007, the Company entered into an agreement to acquire 35% of Ownersair Ltd, a
company registered in the United Kingdom but with all of its operations taking
place in Spain, in exchange for a one-time payment of  236,500
Euros.  Ownersair was a startup company which distributed loyalty
cards to residents of the Spanish coasts.  During 2007, the Company
assessed the impairment on this investment and has written the carrying value
off to reflect the decline in value.





15.
GAIN ON DEBT FORGIVENESS





In March
2007, the Company entered into an agreement to settle approximately $1,613,000
of debt with vendors for $289,000 resulting in a gain of approximately
$1,324,000, of which $1,267,000 is included in discontinued operations in the
accompanying consolidated statements of operations.





16.
SUBSEQUENT EVENTS





Subsequent
to September 30, 2007, the Company’s then president and chief executive officer
advanced the Company $1,484,144 for working capital and ultimately entered into
an arrangement permitting all of his then outstanding loans of $1,719,179 to be
converted into 29,811,000 common shares.





Subsequent
to September 30, 2007 the Company and an investor entered into an arrangement to
convert part of the debt owed to him amounting to €326,988 or approximately
$428,000 into 138,000,000 common shares of the Company.





As
discussed in Note 3, in March 2009 the Company entered into an arrangement
providing for the sale of 100 % of the Company’s interest in ITS Europe,
Recarganet, and Teleconnect Telecom in addition to approximately 87% of its
interest in Teleconnect Comunicaciones SA.  The stock purchase
agreements for the sale of Teleconnect Telecom and Teleconnect Comunicaciones
will be formalized before a public Spanish notary upon approval by the Company’s
shareholders at the forthcoming meeting.  Since ITS Europe had been a
dormant company since 2003 and did not materially impact the financials of the
Company, it was formally sold to a third party on May 14th, 2009
before a public notary.





Subsequent
to September 30, 2007 foreign exchange rates have changed; it is not practicable
to determine the effect of these changes on these financial
statements.





33


17.  RESTATEMENT





In
connection with the audit of the Company’s consolidated financial statements for
the year ended September 30, 2007, the Company discovered accounting errors
related to the following transactions and has restated the 2006 consolidated
financial statements accordingly:





The
Company is restating, for reasons described below, its consolidated balance
sheet as of September 30, 2006 and related statements of operations,
stockholders’ equity and cash flows.  All financial information in
these financial statements gives effect to these restatements.




Restatement
Related to Vendor Payable





During
2007 the Company discovered an unrecorded liability to a vendor which related to
the year ended September 30, 2006.  The impact of the correction
increased our previously reported net loss by $69,906 for the year ended
September 30, 2006.





Restatement
Related to Deferred Income





During
2007 the Company also discovered it had understated its calculation of deferred
revenue as of September 30, 2006, the correction of which increased our
previously reported net loss in 2006 by $25,054.





Restatement
Related to Deposits with Vendors





The
Company noted it had improperly written off a deposit to a vendor in
2006.  The impact of the correction decreased our previously reported
net loss by $120,421 in 2006.





Restatement
Related to Provision for Repairs and Maintenance





The
Company discovered it had improperly recorded a provision for future repairs and
maintenance in the amount of $104,419 resulting in a decrease in our previously
reported net loss by $104,419 for the year ended September 30,
2006.








The
effects of the restatements for the year ended September 30, 2006 are as
follows:





As
      PreviouslyReported
                              
                              
                              As RestatedConsolidated
      Balance SheetAssets
      of discontinued operations
                              
                              $
                              793,183
                              
                              
                              $
                              913,604Total
      current assets
                              
                              $
                              812,096
                              
                              
                              $
                              932,517Liabilities
      of discontinued operations
                              
                              $
                              5,385,491
                              
                              
                              $
                              5,376,032Total
      current liabilities
                              
                              $
                              7,221,899
                              
                              
                              $
                              7,212,440Accumulated
      (deficit)
                              
                              $
                              (24,193,099
                              )
                              
                              $
                              (24,063,219
                              )Total
      stockholders’ (deficit)
                              
                              $
                              (5,802,688
                              )
                              
                              
                              (5,672,808
                              )Consolidated
      Statement of OperationsNet
      (loss) from discontinued operations
                              
                              $
                              (144,253
                              )
                              
                              $
                              (14,373
                              )Net
      (loss)
                              
                              $
                              (3,893,618
                              )
                              
                              $
                              (3,763,738
                              )Comprehensive
      (loss)
                              
                              $
                              (4,218,296
                              )
                              
                              $
                              (4,088,416
                              )Basic
      and diluted loss per share
                              
                              $
                              (0.03
                              )
                              
                              $
                              (0.03
                              )Consolidated
      Statement of EquityAccumulated
      deficit
                              
                              $
                              (24,193,099
                              )
                              
                              
                              (24,063,219
                              )Total
      Stockholders’ equity (deficit)
                              
                              $
                              (5,802,688
                              )
                              
                              
                              (5,672,808
                              )Consolidated
      Statement of Cash FlowsNet
      (loss)
                              
                              $
                              (3,893,618
                              )
                              
                              $
                              (3,763,738
                              )Operating
      cash flows from discontinued operations
                              
                              $
                              (417,100
                              )
                              
                              $
                              (493,899
                              )Net
      cash (used in) operating activities
                              
                              $
                              (1,179,709
                              )
                              
                              $
                              (1,179,709
                              )





34




18.
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
$2,999,829 and $3,763,738 for the years ended September 30, 2007 and 2006,
respectively. In addition, the Company has incurred substantial losses since its
inception.  As of September 30, 2007, the Company had a working
capital deficit of approximately $2,488,000 and a total shareholders’ deficit of
approximately $467,500.  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.




35




Item
      9.
            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
9(A)T.    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-K for September 30, 2007, have concluded that as of the Evaluation
      Date, the Company’s disclosure controls and procedures were not
      sufficiently adequate nor 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-K was being prepared.
      The actions being taken by the Company to address these ineffective
      disclosure controls and procedures are set forth in the following
      section.





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13A-15(f) and 15d-15(f)
under the Securities Exchange Act. Our internal control over financial reporting
is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles (GAAP). Our
internal control over financial reporting includes those policies and procedures
that:





(1)
              pertain
      to the maintenance of records that in reasonable detail accurately and
      fairly reflect transactions involving our
  assets;





(2)
              provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with U.S. GAAP, and that
      our receipts and expenditures are being made only in accordance with the
      authorization of our management,
and





(3)
              provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of our assets that could have
      a material effect on the financial
statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.





Management
assessed the effectiveness of our internal control over financial reporting as
of September 30, 2007.  Our management has concluded that during the
period covered by this report, such disclosure controls and procedures were not
effective and there is a material weakness in our internal control over
financial reporting.    A material weakness is a deficiency,
or a combination of control deficiencies, in internal control over financial
reporting such that there is a reasonable possibility that a material
misstatement of the Company’s annual or interim financial statements will not be
prevented or detected on a timely basis.





The
Company has policies and procedures that require the financial statements and
related disclosures be reviewed and that the financial statements are presented
in accordance with accounting principles generally accepted in the United States
of America. The Company, in certain circumstances, utilizes a third party
consultant to assist with the preparation of the financial statements and
related disclosures.   The financial statements were not timely
prepared and reviewed by Management.  Further, there were numerous
audit adjustments related to the current year (2007) operations in addition to a
restatement of the prior year financial statements due to errors noted during
the current year.





In order
to mitigate this material weakness, management intends to implement procedures
providing for the timely review of all subsidiary supplied financial statements,
consolidated financial statements and the notes thereto.





The
presence of these material weaknesses does not mean that a material misstatement
has occurred in our financial statements, but only that our present controls
might not be adequate to detect or prevent a material misstatement in a timely
manner.





This
Annual Report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting. Management
was not subject to attestation by our registered public accounting firm pursuant
to temporary rules of the Securities and Exchange Commission that permit the
Company to provide only management’s report in this Annual Report.





36


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.   The audit adjustments made in this annual filing will
likely affect our internal controls over financial reporting.  The
Company recognizes certain weaknesses in its control procedures and is in the
process of establishing the principles to correct these as well as to implement
proper Corporate Governance; the first step of which is to name new members to
the Board of Directors.





Item
9B.    Other Information


None


PART
III





Item
10.                         Directors,
Executive Officer and Corporate Governance





The
directors and officers of the Company as of September 30, 2007 are as
follows:





Name
                      
                      Age
                      
                      PositionGustavo
      A. Gomez
                      
                      44
                      
                      Director,
      Chief Executive Officer, President and TreasurerAlfonso
      de Borbón
                      
                      33
                      
                      Executive
      Vice-President Corporate DevelopmentLeonardus
      G.M.R. Geeris
                      
                      63
                      
                      DirectorErwin
      Lanting
                      
                      41
                      
                      Director





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





Mr. Gomez
was a director, the Chief Executive Officer, President, Secretary and Treasurer
of the Company from March 6, 2002 to October 31, 2007. From January 1992 up to
before joining Teleconnect Inc, Mr. Gomez occupied several senior positions in
Spain with multinational telecom companies.  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 that terminated on October 31, 2007.





Mr. de
Borbón became the Vice President of Corporate Development of the Company on May
27, 2005 and occupies the position of Executive Vice President Teleconnect Inc
and Director of Sales in Teleconnect Comunicaciones which are subsidiaries of
the Company.  Mr. Borbón 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. Mr. Geeris became Chief
Executive Officer, President, Treasurer and Secretary of the Company on October
31, 2007, upon the resignation of Mr. Gómez.  The former is the
President, managing director and owner of Geeris Holding Nederland B.V. which
owns and invests in real estate and other industries.





Mr.
Lanting, who was appointed to the Board of Directors of the Company shortly
prior to the purchase of a 35% stake in Ownersair Ltd on August 28th 2007,
voluntarily resigned on November 16, 2007 after he and some significant
stakeholders as well as Mr. Geeris concluded that it was in the best interest of
the Company that Mr. Lanting assume full responsibility for this Ownersair
investment. There were no disputes nor disagreements leading to Mr. Lanting’s
resignation and departure.








Item
11.   Executive Compensation





All
executive officers, for services in all capacities to the Company, received the
following compensation during the fiscal year ended September 30,
2007.




Long-Term
      Compensation(2)Annual
      compensation(1)
                                              
                                              
                                              Awards
                                              
                                              
                                              
                                              
                                              
                                              PayoutsName
      and
                                                Principal
                                                Position
                                              
                                              Fiscal
                                                Year
                                              
                                              Salary(1)(2)
                                              
                                              
                                              Bonus
                                              
                                              
                                              Other
                                                Annual
                                                Compensation
                                              
                                              
                                              Restricted
                                                Stock
                                                Awards(3)
                                              
                                              
                                              Securities
                                                Underlying
                                                Options/
                                                SARs
                                              
                                              
                                              LTIP
                                                Payouts
                                              
                                              
                                              All
      Other
                                                Compensation
                                                (4)Gustavo
      Gomez
                                              
                                              2007
                                              
                                              $
                                              213,000
                                              
                                              
                                              $
                                              0
                                              
                                              
                                              $
                                              0
                                              
                                              
                                              $
                                              0
                                              
                                              
                                              $
                                              0
                                              
                                              
                                              $
                                              0
                                              
                                              
                                              $
                                              217,853Chief
      Executive Officer, President, Secretary and TreasurerLeonardus
      Geeris
                                              
                                              2007
                                              
                                              $
                                              0
                                              
                                              
                                              $
                                              0
                                              
                                              
                                              $
                                              0
                                              
                                              
                                              $
                                              0
                                              
                                              
                                              $
                                              0
                                              
                                              
                                              $
                                              0
                                              
                                              
                                              $
                                              0Director
      of the BoardAlfonso
      de Borbon
                                              
                                              2007
                                              
                                              $
                                              118,562
                                              
                                              
                                              $
                                              0
                                              
                                              
                                              $
                                              0
                                              
                                              
                                              $
                                              0
                                              
                                              
                                              $
                                              0
                                              
                                              
                                              $
                                              0
                                              
                                              
                                              $
                                              0Executive
      Vice PresidentErwin
      Lanting
                                              
                                              2007
                                              
                                              $
                                              161,115
                                              
                                              
                                              $
                                              0
                                              
                                              
                                              $
                                              51,575
                                              
                                              
                                              $
                                              1,190,000
                                              
                                              
                                              $
                                              0
                                              
                                              
                                              $
                                              0
                                              
                                              
                                              $
                                              0Director
      of the Board





37




All
executive officers as a group (Mr. Gómez and Mr. de Borbon)
$495,121





(1)
            The
      salary of Mr. Gomez has been fixed at 120,000 Euro since 2002. However,
      differences in reported amounts vary due to the varying currency exchange
      rates between the Euro and U.S. dollar as well as the adjustment for cost
      of living.





(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.





(4)
            Amount
      paid pursuant to an agreement of termination as described in Item 13
      below.





All
members of the Board of Directors as a group (Mr Gómez, Mr. Geeris and Mr.
Lanting)





(1)
            Mr.
      Gomez’s remuneration was for his function as CEO and not as member of the
      Board.(2)
            Mr.
      Geeris received no remuneration of any type.(3)
            Mr.
      Lanting received remuneration as a consultant and not as a member of the
      Board.





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,
formed by Mr. Gomez, Mr. Geeris, and Mr. Lanting at September 30, 2007, did have
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.





The
Company continuously encourages control persons to be up to date with their
filings in relation to Section 16.





2006 Stock Option, SAR and
Stock Bonus  Plan





Effective
March 30, 2006, the Company adopted and approved its 2006 Stock Option, SAR and
Stock Bonus Plan which reserved 20,000,000 shares of Common Stock for issuance
under the Plan. The Plan allows the Company 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, 2007 total stock for services had been issued totaling 14,574,324 shares of
Common Stock.





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, 2007.





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:





38





*
            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
12.    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 splits, 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, 2007
are as follows:





Management
                          Shareholders
      (1)
                      
                      Shares
                        Beneficially
                        Owned
      (1)
                      
                      
                      Percent
      of
                          Common
                        StockLeonardus
      Geeris
                      
                      
                      150,722,730
                      
                      
                      
                      45.37
                      %Erwin
      Lanting (Destalink - Cyprus)
                      
                      
                      35,000,000
                      
                      
                      
                      10.53
                      %Alfonso
      de Borbón
                      
                      
                      4,000,000
                      
                      
                      
                      1,20
                      %Directors
      and officers as a group (3 persons,including
      the above persons)
                      
                      
                      189,722,730
                      
                      
                      
                      57.10
                      %





(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)
            During
      fiscal year ended September 30, 2007, Mr. Geeris began to convert all
      stock into his own personal name, including Common Stock which he
      beneficially owned through his ownership of Geeris Holding Nederland B.V.
      and Diependael BV





Item
13.    Certain Relationships and Related Transactions, and Director
Independence





During
2007, Mr. Leonardus Geeris converted and exchanged personal loans to the Company
totaling €1,186,000 or $1,660,400 into 16,604,000 shares of Common Stock of the
Company.





During
the fiscal year ended September 30, 2007, Mr. Lanting, through his beneficial
ownership of Destalink Limited, a company registered in Cyprus, received
20,000,000 shares of restricted Common Stock of the Company as a fee for setting
up the acquisitions of Giga Matrix Holdings B.V (49%). and Photo Wizz B.V.
(100%) and he received an additional 13,000,000 shares of Common Stock of the
Company in exchange for arranging an agreement with a commercial agent which
would search for business in Asia for Teleconnect Comunicaciones
SA.  Mr. Lanting also received during 2006, two million (2,000,000)
shares in his own name from the 2006 Stock Option, SAR and Stock Bonus
Plan.





Effective
July 31, 2007, the Company entered into an agreement with Gustavo Gomez, a
former director, Chief Executive Officer, President and Secretary of the Company
in which Mr. Gomez resigned on October 31, 2007 as a director and an officer of
the Company and the Company agreed to repurchase his 4,000,000 shares of Common
Stock of the Company in exchange for $417,853 (300,000 Euros) to be paid to him
in four equal installments. The common stock was valued at the closing stock
price on the date of the agreement of $0.05 per share, or $200,000, with the
balance allocated to other compensation.  These funds had been
disbursed as of September 30, 2007 and the Company had no further liability as
of this date.




39





Item
14.      Principal Accounting Fees and
Services





The
aggregate fees billed by our principal accounting firm, for fees billed for
fiscal years ended September 30, 2007 and 2006 are as follows:





Name
                  
                  Audit
      Fees
                  
                  
                  Audit
      Related Fees
                  
                  
                  Tax
      Fees
                  
                  
                  All
      Other FeesMurrell,
      Hall, McIntosh & Co., PLLP
                    for
      fiscal year ended
                    September
      30, 2007
                    September
      30, 2006
                  
                  $
                    $
                  59,341
                    52,500
                  
                  
                  $
                    $
                  0
                    0
                  
                  
                  $
                    $
                  3,500
                    3,400
                  
                  
                  $
                    $
                  0
                    0Coulter
      & Justus PLLP
                    for
      fiscal year ended
                    September
      30, 2007
                  
                  $
                  133,900
                  
                  
                  $
                  0
                  
                  
                  $
                  
                  
                  
                  $
                  0





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.





PART
IV





Item
15.      Exhibits





Financial
Statement Schedules





(a)
Financial Statements





1.
            Financial
      statements for the fiscal year ended September 30,
  2006


2.
            Financial
      statements for the fiscal year ended September 30,
  2007





(b)
Exhibits


1(i)
      Articles of Incorporation of the Company
                        
                        The
      Articles of Incorporation of the Company are incorporated herein by
      reference to Exhibit 3.1 to the Form SB-2 registration statement of the
      Company (File No. 333-93583)1(ii)
      Amendment to Articles of Incorporation
                        
                        An
      Amendment to the Articles of Incorporation of the Company is incorporated
      herein by reference to Exhibit 99.1 to the Form 8-K current report of the
      Company dated January 29, 2001.1(iii)
      Amendment to Articles of Incorporation
                        
                        An
      Amendment to the Articles of Incorporation of the Company filed on
      February 26, 2003, is incorporated hereby by reference to Exhibit 1 (iii)
      to the Form 10-K annual report of the Company for its fiscal year ended
      September 30, 2007.1(iv)
      By-Laws of the Company
                        
                        The
      By-Laws of the Company are incorporated herein by reference to Exhibit 3.2
      to the Form SB-2 registration statement of the Company (File No.
      333-93583)10.
      Material Contracts11. Statement re:
      computation of per share earnings
                        
                        Reference
      is made to the Consolidated Statements of Operations of the Consolidated
      Financial Statements which are incorporated by reference herein.21.
      A description of the subsidiaries of the Company
                        
                        A
      description of the subsidiaries of the Company is incorporated herein by
      reference to Exhibit No. 21 to the Form 10-K annual report of the Company
      for its fiscal year ended September 30, 2006.23. Consent of
      Coulter & Justus,
      P.C.
                        
                        Coulter
      & Justus, P.C., independent
auditor


40





Item
16.  Principal Accountant Fees and Services





SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.





Teleconnect
      Inc.Date: June
      17, 2009
                              By:
                              /s/ Dirk BenschopDirk
      BenschopSole
      Director, Chief  Executive Office, President and
      Treasurer





/s/ Alfonso de
  BorbonAlfonso
      de BorbonChief
      Financial Officer,Executive
      Vice President andPrincipal
      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: June
      17, 2009
                                By:
                                /s/ Dirk BenschopDirk
      BenschopDirector,
      Chief Executive Officer, President and
                                  Treasurer





By:
                        /s/ Alfonso de BorbonAlfonso
      de BorbonDirector,
      Chief Financial Officer,Executive
      Vice President andPrincipal
      Accounting and Financial Officer


41





INDEX OF
EXHIBITS ATTACHED





Exhibit
              
              Description10.1
              
              Acquisition
      of Giga Matrix Holding B.V.10.2
              
              Acquisition
      of Owersair Limited10.3
              
              Acquisition
      of Photo Wizz B.V.10.4
              
              Transfer
      shares of Photo Wizz B.V.21
              
              Description
      of Subsidiaries23
              
              Consent
      of Coulter & Justus, P.C., independent auditor31.1
              
              Certification
      of Dirk Benschop31.2
              
              Certification
      of Alfonso de Borbón32.1
              
              Certification
      of Dirk Benschop and Alfonso de
Borbón


42