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, 2008
 
  ̈
              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 companyx





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
June 30, 2009:  $14,860,851 with 495,361,707 shares
outstanding.





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,
2008:  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
                            8Item
      1B
                            Unresolved
      Staff Comments
                            8Item
      2
                            Properties
                            8Item
      3
                            Legal
      Proceedings
                            8Item
      4
                            Submission
      of Matters to a Vote of Security Holders
                            8PART
      IIItem
      5
                            Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                            8Item
      6
                            Selected
      Financial Data
                            9Item
      7
                            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                            10Item
      7A
                            Quantitative
      and Qualitative Disclosures About Market Risk
                            16Item
      8
                            Financial
      Statements and Supplementary Data
                            16Item
      9
                            Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                            32Item
      9A
                            Controls
      and Procedures
                            32Item
      9B
                            Other
      Information
                            33PART
      IIIItem
      10
                            Directors,
      Executive Officers and Corporate Governance
                            33Item
      11
                            Executive
      Compensation
                            33Item
      12
                            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                            35Item
      13
                            Certain
      Relationships and Related Transactions, and Director
      Independence
                            35Item
      14
                            Principal
      Accounting Fees and Services
                            35PART
      IVItem
      15
                            Exhibits,
      Financial Schedules
                            35Signatures
                            37




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 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
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
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 consistent with previous plans, it is our plan to dispose of the
Spanish subsidiaries involved in the telephone business in 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 regain its
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, this
issuance will be addressed in   the next shareholders’
meeting,  since this share issuance did have a significant dilutive
effect for all shareholders.





Management
is convinced that stock issuance is a useful means to 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




We are
currently in the process of creating a small, clean and flexible company,
which  targets to be extremely suitable and attractive to operate as a
parent for high potential businesses. As such, the initial value being created
today in Teleconnect Inc, is therefore, the intrinsic value
that   a clean parent company with access to a financial market
represents. With our ongoing negotiations and plans, as part of the change in
course, we are focusing simultaneously on a new core business. Currently, the
Company is exploring with the relevant parties an acquisition that is expected
to make Teleconnect viable. The 10% share in a telecommunications company in
Spain, the 100% stake in Mediawizz in Holland, and the  49% stake in a
Dutch marketing company (GigaMatrix)  are all foreseen to compliment
this future business.





Telecommunications Industry
in Spain





The
Company has traditionally been involved in the telecommunications business in
Spain and essentially all the discontinued business represented in this filing
relates to this type of business.





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 2008, Teleconnect maintained interconnection
agreements with BT Spain, Jazztel, Primus, Worldcom and other major
carriers.





Products and
Services





During
2008 Mediawizz has renegotiated its supplier contracts for components as well as
changed its scope from producing a turnkey product to now supplying a more
modular/custom-build product.  This component based business allows
Mediawizz to be more flexible and responsive to customer design configurations
and requests.  This new approach has lead to an agreement for 150
retail terminals as well as inquiries which could lead to significant additional
business.





During
2008, Teleconnect SA provided prepaid voice telephone services to its customers
through prepaid calling cards as well as prepaid residential and small business
accounts. It also has a prepaid long distance service which can be accessed from
any mobile phone. 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 465,000 calling cards during its
fiscal year ended September 30, 2008.





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





Mediawizz
has aimed its marketing at companies with a high potential in
retail.  As such, all marketing efforts have been face-to-face
meetings with these companies which, either directly or indirectly, supply to
the large supermarket chains.





Teleconnect
SA’s marketing strategy of the residential services during fiscal year 2008
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.




4




Industry Participants and
Competition





There is
a variety of companies involved in the production of multimedia kiosks. Most of
these kiosks relate to customer services and as such provide similar services in
different formats.  Mediawizz is focusing its efforts to find access
to new markets in retail, including vending applications and in other
applications where its kiosk systems help industries comply with laws relating
to the sale of products which require a minimum age for purchase.





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.





Regulation





General. In relation
to continued operations, today based in Holland, Mediawizz products are in
compliance with the European law:  specifically with the Machine
Directive and relevant electromagnetic requirements.





In
relation to our discontinued operations, in general terms, the General Law on
Telecommunications adopted all European Union directives mandating the
liberalization of telecommunications services.





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.





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.





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.





Regulation in the United
States





Our
operations are in Spain and Holland and not currently subject to specific
regulation in the U.S., either at the federal or state level.





Employees





Mediawizz
currently has one fulltime employee and subcontracts its software/hardware
design as well as delivery and maintenance to other parties.   As
such, a team of 5 is involved in the Mediawizz operation.





As of
September 30, 2008, the Company and its discontinued subsidiaries had 17
full-time employees, of which nine persons in operations, three 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.




5




Banking
Arrangements





On
September 30, 2008, there are no current outstanding bank loans.





Information
Structure. While the Company is investigating new markets and products,
we have depended mainly on our Spanish subsidiaries although progressively more
emphasis is being place on the information systems of Mediawizz.  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.





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 event 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. If any growth
is not properly managed, management may be unable to adequately support our
clients in the future.





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. 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.
For both continued and discontinued business, 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.





Suppliers.   We depend on the supply of electronic components and
parts from various suppliers.  They have from time to time experienced
short-term delays in provided the requested parts. There are no assurances that
we will be able to obtain these components in the future within the time frames
required by us at a reasonable cost. Any failure to obtain supplies on a timely
basis and at a reasonable cost, or any interruption of local access services,
could have an adverse effect on our final product and service
level.





Service Disruptions.
If the network infrastructure is disrupted or security breaches occur on our
communications lines with our clients, 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.




6




Competition. The
markets we serve are highly competitive and our competitors may have much
greater resources to commit to growth, new technology and
marketing.  As for our continuing business, Mediawizz enjoys
no  distinctive advantage.





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. 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;
 *
              the
      length of our contract cycles; and
 *
              our
      success in expanding our sales force and expanding our distribution
      channels.




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





Governmental Regulation. With respect to our discontinued operations, 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 local laws or regulations could prevent us from carrying
on our operations cost effectively.  With respect to Mediawizz current
business, there is no specific government regulation applicable.





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, 2008, 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, for the development of, and
access to everything from communications and networking technologies, to kiosk
hardware, components and parts. 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. We must 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.




7




Voting Control. The
largest single shareholder of the Company as of September 30, 2008, Mr.
Leonardus Geeris, owned directly and indirectly approximately 45% 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. At the beginning of this fiscal year 2008, Mr. Geeris on October 31,
2007, 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, 2008, we had an accumulated deficit of
$30,573,787 and had a stockholders' deficit of $3,809,124. As shown in the
accompanying consolidated financial statements, the Company incurred losses of
$3,510,739 and $2,999,829 for the years ended September 30, 2008 and 2007,
respectively. In addition, the Company has incurred substantial losses since its
inception.  As of September 30, 2008, the Company had a working
capital deficit of $5,287,306.  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.





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 presently 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 legal actions in Spain and Holland 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, 2008.





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.PK.





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.




8





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





Year Ended December 31,
20081
      stQuarter
                          
                          $
                          0.029
                          
                          
                          $
                          0.0062
      ndQuarter
                          
                          $
                          0.009
                          
                          
                          $
                          0.0073
      rdQuarter
                          
                          $
                          0.007
                          
                          
                          $
                          0.0054
      thQuarter
                          
                          $
                          0.03
                          
                          
                          $
                          0.03





The
closing bid price of the Common Stock of the Company on September 30, 2008 was
$0.005 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, 2008, 14,574,324 shares of common stock had been issued under
this plan.





Sale of Unregistered
Securities





During
the fiscal year ended September 30, 2008, there were no sales of unregistered
securities.





Item
6.  Selected Financial Data





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





Year Ended
                        
                        
                        Year EndedSeptember 30, 2008
                        
                        
                        September 30, 2007Revenues
                        
                        $
                        181,935
                        
                        
                        $
                        28,485Cost
      of sales
                        
                        $
                        578,381
                        
                        
                        $
                        107,986Selling,
      general and administrative
                        
                        $
                        744,572
                        
                        
                        $
                        3,010,305Bad
      debt expense
                        
                        $
                        549,074
                        
                        
                        $
                        -Depreciation
                        
                        $
                        41,136
                        
                        
                        $
                        5,202Other
      (Expenses) Income
                        
                        $
                        (54,603
                        )
                        
                        $
                        18,433Gain
      on forgiveness of debt
                        
                        $
                        -
                        
                        
                        $
                        57,172Loss
      on investment
                        
                        $
                        (103,397
                        )
                        
                        $
                        (380,277
                        )Interest
      expense
                        
                        $
                        (106,323
                        )
                        
                        $
                        (125,302
                        )Provision
      for income taxes
                        
                        $
                        (80,000
                        )
                        
                        $
                        -Net
      (loss) income from discontinued operations
                        
                        $
                        (1,435,188
                        )
                        
                        $
                        525,153Net
      Loss
                        
                        $
                        (3,510,739
                        )
                        
                        $
                        (2,999,829
                        )Comprehensive
      Loss
                        
                        $
                        (3,341,575
                        )
                        
                        $
                        (3,360,015
                        )Net
      Loss Per Share
                        
                        $
                        (0.01
                        )
                        
                        $
                        (0.02
                        )




9




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.





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 in which title has passed
and services have been rendered.





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 adopted SFAS-123R on October 1, 2005 utilizing
the modified prospective method. The adoption of SFAS-123R had no impact on the
financial statements as the Company did not issue any options during 2008 or
2007. All options and warrants were fully vested at the date of
issuance.





Under
SFAS-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 SFAS-123R is adopted.




10




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





Segment Reporting. We have
adopted SFAS 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 with the Company retaining 10% of Teleconnect
Spain.  The Company has accounted for the transaction under SFAS 144,
Accounting for the Impairment
or Disposal of Long-Lived Assets, and the results of operations of these
subsidiaries were reported as “discontinued operations” and assets and
liabilities have been separated on the balance sheet.





Overview





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





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





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





Our most
significant customers during fiscal year 2008, now included in discontinued
operations, were only two customers which accounted for more than 10% of our
revenues during the year ended September 30, 2008; these represented 28%,
and  21%,.  Domestic sales in Spain accounted for 99.6% in
2007 and 95.25% in 2008 of total revenues.   Mediawizz is in the
process of obtaining business in retail.





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





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





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





Year Ended September 30,
2008, compared to year ended September 30, 2007





Assets.  Total
assets as of September 30, 2008 decreased 2.1% to $4,205,858 from $4,297,582 at
September 30, 2007.  This decrease is due to reduction in cash
available for operating activities; the 2008 writeoff of a long-term notes
receivable in default; decreases in the current assets of discontinued
operations as cash for operations was used in the discontinued operations. This
was offset by an increase in inventory in Mediawizz for the production of kiosks
for a fulfillment of orders.




11




Liabilities. Total
liabilities as of September 30, 2008 increased 67.9% to $8,014,982 compared to
$4,726,640 as of September 30, 2007.  This increase is due primarily
to the increase of $2,315,526 loans from related parties as well as the increase
of $727,008 in liabilities from discontinued operations as well as the increased
liabilities associated to the increased production of Mediawizz for a
fulfillment of orders.





Revenues. Revenues
from continuing operations for the year ended September 30, 2008 amounted to
$181,935 compared to $28,485  in the prior
year.   These 2008 revenues were derived from the sales activity
of Mediawizz.  Since the purchase date of Mediawizz was June 15th, 2007,
the 2008 results include a full year of Mediawizz’s activity while the 2007
results reflect three and one half months of activity.





Pricing Policies. The
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
Sales.  Cost of sales from continuing operations for the year
ended September 30, 2008 amounted to $578,381 as compared to $107,986 for the
year ended September 30,2007,and consisted principally of the material and
assembly costs of the kiosks which increased with increased production of the
kiosks in 2008.





We
reflected a gross loss during fiscal 2008 of $396,446. Compared to a grosss loss
in 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 2008.





Selling, General and
Administrative. Selling, general and administrative expenses during 2008
were $744,572, a decrease of $2,265,733 or 75.27% from the prior year’s
operating expenses of $3,010,305.  The primary reason for the sharp
decrease was that there was no stock issued to consultants as compensation for
services in 2008 while in 2007, this amounted to $1,839,429. If this amount were
factored out of 2007 operating costs, the result would be $1,170,876, which
reflects fewer management fees and fewer consultant costs in 2008 compared to
2007.





Interest Expense.
Interest expense for the year ended September 30, 2008 was $106,323 compared to
$125,302 for the prior year; a reduction of 15.15% This decrease was due
primarily to less interest incurred on loans made from affiliated parties.
Specifically, the interest on certain loans went from 8% in 2007 to 4% in
2008.





(Loss) Income From
Discontinued Operations





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





Year Ended
                      Sept 30, 2008
                    
                    
                    Year Ended
                      Sept 30, 2007Revenues
                    
                    $
                    3,625,575
                    
                    
                    $
                    4,139,491Cost
      of Sales
                    
                    
                    2,847,288
                    
                    
                    
                    2,855,401Gross
      Profit
                    
                    
                    778,287
                    
                    
                    
                    1,284,090Selling,
      general and administrative expenses
                    
                    
                    2,101,485
                    
                    
                    
                    1,867,864Depreciation
                    
                    
                    131,470
                    
                    
                    
                    150,905Operating
      loss
                    
                    
                    (1,454,668
                    )
                    
                    
                    (734,679
                    )Gain
      on forgiveness of debt
                    
                    
                    -
                    
                    
                    
                    1,267,194Other
      (expense) income
                    
                    
                    19,480
                    
                    
                    
                    (7,362
                    )(Loss)
      income from discontinued operations
                    
                    $
                    (1,435,188
                    )
                    
                    $
                    525,153





Revenues. Revenues
from discontinued operations in 2008 decreased 12.4% to $3,625,575, compared to
$4,139,491 in 2007.   The decrease in sales is due to the
increased competitiveness of the market and our inability to lower prices of our
goods and services to the levels of our competitors. We were not able to
increase sales with lower margins to compensate the decrease in revenues due to
less competitive end user pricing.  It is expected that the
discontinued operations will effectively be sold during 2009.





Cost of
Sales.  Cost of sales in 2008 were $2,847,288, a decrease of
$8,113 or 0.3% from the prior year cost of sales of $2,855,401. Cost of sales as
a percentage of sales was 69.1% in 2007 while it was 78.5% for the same period
in 2008. The main reason for the increase was the inability to renegotiate
better carrier pricing during this period.





Gross
profit during 2008 was $778,287 as compared to gross profit in 2007 of
$1,284,090.  The principal reason for the reduction was the setting of
a lower sales price in order to be competitive while carrier pricing remained
practically unchanged.




12




Selling, General and
Administrative. Selling, general and administrative expenses in 2008 were
$2,101,485 an increase of $233,621 or 12.5% from the prior year ́s operating
expenses of $1,867,864 due to the cost of services to external consultants who
were involved with accounting, auditing, general business and strategy
planning.




Net Loss. In 2008 the
Company reported a net loss from discontinued operations of $1,435,188 compared
to a net income of $525,153 during 2007.  The 2007 net income is
primarily a result of a gain on forgiveness of debt obtained by the settlement
with a vendor which amounted to $1,267,194.  The poorer result is due
to the explanations already given for the 11.8% decrease in sales, unchanged
cost of sales, and higher selling, general and administrative
expenses.





Liquidity and Capital
Resources. At September 30, 2008, the Company had negative working
capital of approximately $5,287,000, compared to negative working capital of
$2,488,000, at September 30, 2007, a decline of approximately $2,719,000 making
it more difficult to independently fund its activities.





Net
cash used in operating activities





The
Company used $2,679,275 of its cash in operations in 2008 primarily from net
losses during the year and an increase in inventory of $1,159,197.  In
2007 the Company used $3,140,014 in operations which was primarily from net
losses during the year and changes to current assets and liabilities in
discontinued operations during the year.





Net
cash used in investing activities





The
Company generated cash from investing activities in 2008 of $148,701 from the
disposal of assets of $29,654 by Mediawizz and $202,435 by discontinued
operations offset by advancing $83,388 to Giga Matrix BV during the year. In
2007, the Company used cash in investing activities of $1,745,396 as the Company
purchased Mediawizz; and made some equity investments and note receivable
investments.





Net
Cash provided by financing activities





The
Company had cash provided by financing activities of $2,257,675 in 2008 which
consisted of loans from related parties of $2,306,842 offset by repayments on
capital leases during the year of $49,167.   During 2007 the
Company sold common stock of $4,405,201, received loans of $1,297,636,
repurchased common stock of $200,000 and made payments on capital leases of
$5,193 which resulted in $5,497,644 of cash provided by financing
activities.





The
fiscal year 2007, proved to be more demanding than other years due to the urgent
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, 2008.


Payments Due by PeriodTotal
                    
                    
                    Less than One Year
                    
                    
                    1-3 YearsLoans
      from related parties
                    
                    $
                    3,313,728
                    
                    
                    $
                    3,313,728
                    
                    
                    $
                    -Note
      payable to third party
                    
                    
                    171,636
                    
                    
                    
                    171,636
                    
                    
                    
                    -Capital
      & Operating Leases
                    
                    
                    252,214
                    
                    
                    
                    117,051
                    
                    
                    
                    135,163Total
      Contractual Cash Obligations
                    
                    $
                    3,737,578
                    
                    
                    $
                    3,602,415
                    
                    
                    $
                    135,163





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.




13




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





Year
      Ended
                          
                          
                          Year
      EndedSeptember
      30, 2007
                          
                          
                          September
      30, 2006Revenues
                          
                          $
                          28,485
                          
                          
                          $
                          -Cost
      of sales
                          
                          $
                          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 discontinuedoperations
                          
                          $
                          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 2007 results only include three months of Mediawizz’s startup
activity.





Pricing Policies: The
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
Sales:  Cost of sales 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:




14




Year
      Ended
                        
                        
                        Year
      EndedSeptember
      30, 2007
                        
                        
                        September
      30, 2006Revenues
                        
                        $
                        4,139,491
                        
                        
                        $
                        4,656,546Cost
      of sales
                        
                        $
                        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 discontinuedoperations
                        
                        $
                        525,153
                        
                        
                        $
                        (14,373
                        )





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
Sales:  Cost of sales 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 Sales 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 sales 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




15





Recent Accounting
Pronouncements.





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
resigned from the position of President and CEO effective October 31, 2007 when
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 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 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;
retaining 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




16





REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors





Teleconnect
Inc.





We have
audited the accompanying consolidated balance sheets of Teleconnect Inc. and its
subsidiaries (the “Company”) as of September 30, 2008 and 2007, and the related
consolidated statements of operations, changes in stockholders’ deficit, and
cash flows for the years 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
audits.





We
conducted our audits 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 audits 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 audits
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 audits provide 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, 2008 and 2007, and the
consolidated results of its operations and its consolidated cash flows for the
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 18
to the consolidated financial statements, the Company has suffered recurring
losses from operations and has a net capital deficiency in addition to a working
capital deficiency, which raises substantial doubt about its ability to continue
as a going concern. Management’s plans regarding those matters are described in
Note 18.  The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.




/s/Coulter
& Justus, P.C.





August
12, 2009





Knoxville,
Tennessee




17




TELECONNECT,
INC.


CONSOLIDATED
BALANCE SHEET





September 30,
                
                
                September 30,2008
                
                
                2007ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                
                $
                48,342
                
                
                $
                441,121Accounts
      receivable - trade
                
                
                69,199
                
                
                
                8,010Accounts
      receivable - other
                
                
                990
                
                
                
                -Due
      from related parties
                
                
                468,146
                
                
                
                381,439Inventory
                
                
                1,535,630
                
                
                
                373,186Prepaid
      taxes
                
                
                44,663
                
                
                
                94,201Prepaid
      expenses
                
                
                14,313
                
                
                
                118,622Asset
      of discontinued operations
                
                
                546,393
                
                
                
                822,029Total
      current assets
                
                
                2,727,676
                
                
                
                2,238,608PROPERTY
      AND EQUIPMENT, NET
                
                
                90,461
                
                
                
                159,860OTHER
      ASSETS:Investment
      in Giga Matrix Holdings B.V.
                
                
                44,626
                
                
                
                142,173Goodwill
                
                
                444,712
                
                
                
                440,856Long-term
      notes receivable (net of allowance for doubtful accounts of $
      549,074  at September 30, 2008)
                
                
                57,212
                
                
                
                571,414Assets
      of discontinued operations
                
                
                841,171
                
                
                
                744,671$
                4,205,858
                
                
                $
                4,297,582LIABILITIES
      AND STOCKHOLDERS' DEFICITCURRENT
      LIABILITIES:Accounts
      payable - trade
                
                $
                207,397
                
                
                $
                134,740Accrued
      liabilities
                
                
                139,467
                
                
                
                37,887Notes
      payable
                
                
                171,636
                
                
                
                170,148Income
      tax payable
                
                
                80,000
                
                
                
                -Loans
      from related parties
                
                
                3,313,728
                
                
                
                998,202Current
      portion of capital lease obligations
                
                
                38,825
                
                
                
                48,742Liabilities
      of discontinued operations
                
                
                4,063,929
                
                
                
                3,336,921Total
      current liabilities
                
                
                8,014,982
                
                
                
                4,726,640Capital
      lease obligations, less current portion
                
                
                -
                
                
                
                38,491STOCKHOLDERS'
      DEFICIT:Preferred
      stock; par value of $0.001, 5,000,000 shares authorized, no shares
      outstanding
                
                
                -
                
                
                
                -Common
      stock; par value of $0.001, 500,000,000 shares
      authorized, 332,243,707 shares outstanding as of September 30,
      2008 and 2007
                
                
                332,244
                
                
                
                332,244Additional
      paid-in capital
                
                
                28,999,901
                
                
                
                28,999,901Accumulated
      deficit
                
                
                (30,573,787
                )
                
                
                (27,063,048
                )Accumulated
      other comprehensive loss
                
                
                (2,567,482
                )
                
                
                (2,736,646
                )Net
      stockholders' deficit
                
                
                (3,809,124
                )
                
                
                (467,549
                )$
                4,205,858
                
                
                $
                4,297,582





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




18





TELECONNECT,
INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


FOR THE
YEARS ENDED SEPTEMBER 30,





2008
                                                
                                                
                                                2007SALES
                                                
                                                $
                                                181,935
                                                
                                                
                                                $
                                                28,485COST
      OF SALES
                                                
                                                
                                                578,381
                                                
                                                
                                                
                                                107,986GROSS
      PROFIT (LOSS)
                                                
                                                
                                                (396,446
                                                )
                                                
                                                
                                                (79,501
                                                )OPERATING
      EXPENSES:Selling,
      general and administrative expenses
                                                
                                                
                                                744,572
                                                
                                                
                                                
                                                3,010,305Bad
      debt expense
                                                
                                                
                                                549,074
                                                
                                                
                                                
                                                -Depreciation
                                                
                                                
                                                41,136
                                                
                                                
                                                
                                                5,202Total
      operating expenses
                                                
                                                
                                                1,334,782
                                                
                                                
                                                
                                                3,015,507LOSS
      FROM CONTINUING OPERATIONS
                                                
                                                
                                                (1,731,228
                                                )
                                                
                                                
                                                (3,095,008
                                                )OTHER
      INCOME (EXPENSES):Gain
      on forgiveness of debt
                                                
                                                
                                                -
                                                
                                                
                                                
                                                57,172Other
      income (expense)
                                                
                                                
                                                (54,603
                                                )
                                                
                                                
                                                18,433Loss
      on investment
                                                
                                                
                                                (103,397
                                                )
                                                
                                                
                                                (380,277
                                                )Interest
      expense - related parties
                                                
                                                
                                                (106,323
                                                )
                                                
                                                
                                                (125,302
                                                )LOSS
      FROM CONTINUING OPERTIONS BEFORE INCOME TAXES
                                                
                                                
                                                (1,995,551
                                                )
                                                
                                                
                                                (3,524,982
                                                )PROVISION
      FOR INCOME TAXES
                                                
                                                
                                                (80,000
                                                )
                                                
                                                
                                                -NET
      LOSS BEFORE DISCONTINUED OPERATIONS
                                                
                                                
                                                (2,075,551
                                                )
                                                
                                                
                                                (3,524,982
                                                )NET
      INCOME (LOSS) FROM DISCONTINUED OPERATIONS
                                                
                                                
                                                (1,435,188
                                                )
                                                
                                                
                                                525,153NET
      LOSS
                                                
                                                $
                                                (3,510,739
                                                )
                                                
                                                $
                                                (2,999,829
                                                )BASIC
      AND DILUTED LOSS PER SHARE:From
      continuing operations
                                                
                                                
                                                (0.01
                                                )
                                                
                                                
                                                (0.02
                                                )From
      discontiued operations
                                                
                                                
                                                (0.00
                                                )
                                                
                                                
                                                (0.00
                                                )Total
                                                
                                                $
                                                (0.01
                                                )
                                                
                                                $
                                                (0.02
                                                )AVERAGE
      COMMON AND COMMONEQUIVALENT
      SHARES OUTSTANDING
                                                
                                                
                                                332,243,707
                                                
                                                
                                                
                                                207,845,524THE
      COMPONENTS OF COMPREHENSIVE LOSS:Net
      loss
                                                
                                                $
                                                (3,510,739
                                                )
                                                
                                                $
                                                (2,999,829
                                                )Foreign
      currency translation adjustment
                                                
                                                $
                                                256,309
                                                
                                                
                                                $
                                                (545,736
                                                )Tax
      effect on currency translation
                                                
                                                
                                                (87,145
                                                )
                                                
                                                
                                                185,550COMPREHENSIVE
      LOSS
                                                
                                                $
                                                (3,341,575
                                                )
                                                
                                                $
                                                (3,360,015
                                                )





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




19





TELECONNECT,
INC.


CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT





Common Stock
                      
                      
                      
                      
                      
                      
                      
                      
                      AccumulatedNumber
                      
                      
                      $0.001
                      
                      
                      Additional
                      
                      
                      
                      
                      
                      Other
                      
                      
                      Netof
                      
                      
                      par
                      
                      
                      Paid-In
                      
                      
                      Accumulated
                      
                      
                      Comprehensive
                      
                      
                      Stockholders'Shares
                      
                      
                      Value
                      
                      
                      Capital
                      
                      
                      Deficit
                      
                      
                      Loss
                      
                      
                      DeficitBalance,
      October 1, 2006
                      
                      
                      180,680,383
                      
                      
                      $
                      180,681
                      
                      
                      $
                      20,586,190
                      
                      
                      $
                      (24,063,219
                      )
                      
                      $
                      (2,376,460
                      )
                      
                      $
                      (5,672,808
                      )Common
      stock issued for conversion of debt to equity
                      
                      
                      30,644,000
                      
                      
                      
                      30,644
                      
                      
                      
                      2,027,950
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      2,058,594Common
      stock issued for services
                      
                      
                      46,574,324
                      
                      
                      
                      46,574
                      
                      
                      
                      1,792,855
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,839,429Common
      stock issued for purchase of 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 translation adjustment, 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
                      )Foreign
      currency translation adjustment, net of tax
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      169,164
                      
                      
                      
                      169,164Net
      loss
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (3,510,739
                      )
                      
                      
                      -
                      
                      
                      
                      (3,510,739
                      )Balance,
      September 30, 2008
                      
                      
                      332,243,707
                      
                      
                      $
                      332,244
                      
                      
                      $
                      28,999,901
                      
                      
                      $
                      (30,573,787
                      )
                      
                      $
                      (2,567,482
                      )
                      
                      $
                      (3,809,124
                      )




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




20





TELECONNECT,
INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR THE
YEARS ENDED SEPTEMBER 30,




Page 1 of
2




2008
                  
                  
                  2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      (loss)
                  
                  $
                  (3,510,739
                  )
                  
                  $
                  (2,999,829
                  )Adjustments
      to reconcile net (loss) to net cash used in operating
      activities:Depreciation
                  
                  
                  41,136
                  
                  
                  
                  5,202Gain
      on forgiveness of debt
                  
                  
                  -
                  
                  
                  
                  (57,172
                  )Bad
      debt expense
                  
                  
                  549,074
                  
                  
                  
                  -Loss
      on equity investment
                  
                  
                  103,397
                  
                  
                  
                  38,627Loss
      on equity investment in Ownersair, Ltd.
                  
                  
                  -
                  
                  
                  
                  341,650Common
      stock issued for services
                  
                  
                  -
                  
                  
                  
                  1,839,429Change
      in operating assets and liabilitiesAccounts
      receivable - trade
                  
                  
                  (61,119
                  )
                  
                  
                  (1,931
                  )Accounts
      receivable - other
                  
                  
                  (990
                  )
                  
                  
                  -Accrued
      interest receivable
                  
                  
                  (30,036
                  )
                  
                  
                  -Inventory
                  
                  
                  (1,159,197
                  )
                  
                  
                  (366,558
                  )Prepaid
      expenses
                  
                  
                  105,341
                  
                  
                  
                  (103,169
                  )Prepaid
      taxes
                  
                  
                  50,358
                  
                  
                  
                  (82,858
                  )Accounts
      payable
                  
                  
                  71,485
                  
                  
                  
                  343Accrued
      liabilities and income taxes payable
                  
                  
                  181,250
                  
                  
                  
                  4,628Operating
      cash flows from discontinued operations
                  
                  
                  688,309
                  
                  
                  
                  (1,758,376
                  )Net
      cash used in operating activities
                  
                  
                  (2,971,731
                  )
                  
                  
                  (3,140,014
                  )CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of subsidary
                  
                  
                  -
                  
                  
                  
                  (277,097
                  )Purchase
      of investment in Ownersair, Ltd.
                  
                  
                  -
                  
                  
                  
                  (341,650
                  )Advances
      to equity investment
                  
                  
                  (83,388
                  )
                  
                  
                  (381,439
                  )Proceeds
      from the issuance of notes receivable
                  
                  
                  -
                  
                  
                  
                  (571,414
                  )Purchase
      of property and equipment
                  
                  
                  -
                  
                  
                  
                  (36,240
                  )Proceeds
      from disposal of equipment
                  
                  
                  29,654
                  
                  
                  
                  -Investing
      activities of discontinued operations
                  
                  
                  202,435
                  
                  
                  
                  (137,556
                  )Net
      cash provided by (used in) investing activities
                  
                  
                  148,701
                  
                  
                  
                  (1,745,396
                  )CASH
      FLOWS FROM FINANCING ACTIVITIES:Loan
      proceeds from related parties
                  
                  
                  2,306,842
                  
                  
                  
                  1,297,636Payments
      on capital leases
                  
                  
                  (49,167
                  )
                  
                  
                  (5,193
                  )Repurchase
      and cancellation of stock
                  
                  
                  -
                  
                  
                  
                  (200,000
                  )Proceeds
      from sale of common stock
                  
                  
                  -
                  
                  
                  
                  4,405,201Net
      cash provided by (used in) financing activities
                  
                  
                  2,257,675
                  
                  
                  
                  5,497,644EFFECT
      OF EXCHANGE RATE
                  
                  
                  172,576
                  
                  
                  
                  (174,573
                  )NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                  
                  
                  (392,779
                  )
                  
                  
                  437,661CASH
      AND CASH EQUIVALENTS, BEGINNING OF YEAR
                  
                  
                  441,121
                  
                  
                  
                  3,460CASH
      AND CASH EQUIVALENTS, END OF YEAR
                  
                  $
                  48,342
                  
                  
                  $
                  441,121





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


21


TELECONNECT,
INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR THE
YEARS ENDED SEPTEMBER 30,





Page 2 of
2





2008
                
                
                2007SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:Cash
      paid during the year for:Interest
                
                $
                -
                
                
                $
                -SUPPLEMENTAL
      DISCLOSURE OF NONCASH TRANSACTIONS:Purchases
      of equipment outstanding in accounts payable (included in discontinued
      operations)
                
                $
                292,456
                
                
                $
                -Common
      stock issued for purchase of subsidary
                
                $
                -
                
                
                $
                281,250Common
      stock issued for purchase of equity investment
                
                $
                -
                
                
                $
                180,800Common
      stock issued for conversion of debt
                
                $
                -
                
                
                $
                2,058,594Common
      stock issued for services received
                
                $
                -
                
                
                $
                1,839,428






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





22





TELECONNECT,
INC.





NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS





September
30, 2008





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 sale of multimedia kiosks and 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, 2008, two customers
accounted for 28%, and 21% of accounts receivables included in assets of
discontinued operations.   As of September 30, 2007, two
customers accounted for 26%, and 23% of accounts receivable included in assets
of discontinued operations.





Advertising
Costs -





Advertising
and sales promotion costs are expensed as incurred and totaled $66,173 in 2008
and $54,946 in 2007.





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, 2008 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”), and 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.


23


TELECONNECT,
INC.





NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS


(Continued)


September
30, 2008





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.  The Company’s policy
is to classify the 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.





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.





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 years ended September 30, 2008 and
2007, the Company did not incur any charges for impairment.





Fair
value of financial instruments–





The
Company applies the provisions of Statement of Financial Accounting Standards
(SFAS) No. 107, Disclosures
about Fair Value of Financial Instruments(SFAS No. 107). SFAS No. 107 requires all
entities to disclose the fair value of financial instruments, both assets and
liabilities recognized and not recognized on the balance sheet, for which it is
practicable to estimate fair value.  SFAS No. 107 defines fair value
of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties.  As
of  September 30, 2008 and 2007 the fair value of cash, accounts
receivable, other receivables, accounts payable, notes payable, and accrued
expenses approximated carrying value due to the short maturity of the
instruments, quoted market prices, or interest rates, which fluctuate with
market rates.





Accounting
for Stock-Based Compensation –





The
Company adopted SFAS-123R on October 1, 2005 utilizing the modified prospective
method. The adoption of SFAS-123R had no impact on the financial statements as
the Company did not issue any options during 2008 or 2007. All options and
warrants were fully vested at the date of issuance.





Under
SFAS-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.





The
Company uses the "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 SFAS-123 for all awards granted to employees prior
to the effective date of SFAS-123R that remain unvested on the effective
date.





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.


24


TELECONNECT,
INC.





NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS


(Continued)


September
30, 2008





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 SA.
Going forward the Company will account for the 10% of Teleconnect SA by the cost
method.





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





2008
                          
                          
                          2007Sales
                          
                          $
                          3,625,575
                          
                          
                          $
                          4,139,491Cost
      of Sales
                          
                          
                          2,847,288
                          
                          
                          
                          2,855,401Gross
      Profit
                          
                          
                          778,287
                          
                          
                          
                          1,284,090Selling,
      general and administrative expenses
                          
                          
                          2,101,485
                          
                          
                          
                          1,867,864Depreciation
                          
                          
                          131,470
                          
                          
                          
                          150,905Operating
      loss
                          
                          
                          (1,454,668
                          )
                          
                          
                          (734,679
                          )Gain
      on forgiveness of debt
                          
                          
                          -
                          
                          
                          
                          1,267,194Other
      income (expense)
                          
                          
                          19,480
                          
                          
                          
                          (7,362
                          )Loss
      (income) from discontinued operations
                          
                          $
                          (1,435,188
                          )
                          
                          $
                          525,153





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





2008
                      
                      
                      2007Cash
                      
                      $
                      22,372
                      
                      
                      $
                      104,148Accounts
      receivable – trade, net of allowance for doubtful accounts of $678,167 and
      $605,718 at September 30, 2008 and 2007, respectively
                      
                      
                      384,709
                      
                      
                      
                      641,295Accounts
      receivable - other
                      
                      
                      122,860
                      
                      
                      
                      24,486Inventory
                      
                      
                      13,332
                      
                      
                      
                      50,893Prepaid
      expenses
                      
                      
                      3,120
                      
                      
                      
                      1,207Current
      assets of discontinued operations
                      
                      
                      546,393
                      
                      
                      
                      822,029Property
      and equipment, net
                      
                      
                      478,214
                      
                      
                      
                      237,884Vendor
      deposits
                      
                      
                      362,957
                      
                      
                      
                      506,787Other
      assets of discontinued operations
                      
                      
                      841,171
                      
                      
                      
                      744,671Accounts
      payable
                      
                      
                      1,231,822
                      
                      
                      
                      943,736Accrued
      liabilities
                      
                      
                      253,952
                      
                      
                      
                      178,729Taxes
      payable
                      
                      
                      342,439
                      
                      
                      
                      258,557Deferred
      income
                      
                      
                      2,235,716
                      
                      
                      
                      1,955,899Liabilities
      of discontinued operations
                      
                      
                      4,063,929
                      
                      
                      
                      3,336,921Net
      liabilities of discontinued operations
                      
                      $
                      2,676,365
                      
                      
                      $
                      1,770,221





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


25


TELECONNECT,
INC.





NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS


(Continued)


September
30, 2008





4.  NOTES
RECEIVABLE





In
February 2007, the Company loaned $500,605 (350,000 Euros) to a business
development firm with a maturity date of February 2009. The note is in default
and the Company determined that it was uncollectible as of September 30, 2008.
Although the Company has pursued legal action for collection, the amount
(including unpaid interest) was reserved as uncollectible as of September 30,
2008.





5.
PROPERTY AND EQUIPMENT





Property
and equipment was comprised of the following as of September 30:





2008
                  
                  
                  
                  2007Computers
      and switching systems
                  
                  $
                  123,681
                  
                  
                  $
                  164,581Less:
      Accumulated depreciation
                  
                  
                  (33,220
                  )
                  
                  
                  (4,721
                  )Net
      property and equipment
                  
                  $
                  90,461
                  
                  
                  $
                  159,860





6.
LOANS FROM RELATED PARTIES





As of
September 30, 2008 and 2007, the Company had short term loans totaling
$3,313,728 and $998,202, respectively, from shareholders. These loans bear
interest at 4% to 8% annually, are unsecured and due upon demand. Interest
expense of $106,323 and $125,302, respectively, was incurred on these notes
during 2008 and 2007.





7.
NOTE PAYABLE





As of
September 30, 2008 and 2007 the Company has a short-term bridge loan of $171,636
and $170,148, respectively, from a potential investor.  This note does
not bear interest and is due on demand.





8.
OPERATING LEASES





The
Company leases certain equipment with a carrying value of approximately $105,000
at September 30, 2008 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 $142,331 in 2008 and
$193,729 in 2007.





Future
minimum lease payments, by year and in the aggregate, consist of the following
as of September 30, 2008:





Capital
                    
                    
                    Operating
                    
                    
                    TotalLease
                    
                    
                    Leases2009
                    
                    $
                    39,815
                    
                    
                    $
                    77,236
                    
                    
                    $
                    117,0512010
                    
                    
                    -
                    
                    
                    
                    77,236
                    
                    
                    
                    77,2362011
                    
                    
                    -
                    
                    
                    
                    57,927
                    
                    
                    
                    57,92739,815
                    
                    
                    $
                    212,379
                    
                    
                    $
                    252,214Less
      amounts representing interest
                    
                    
                    (990
                    )Total
                    
                    $
                    38,825





9.
INCOME TAXES





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


26




TELECONNECT,
INC.





NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS


(Continued)


September
30, 2008





2008
                  
                  
                  2007Tax
      carry forwards
                  
                  $
                  11,828,632
                  
                  
                  $
                  10,506,302Valuation
      allowance
                  
                  
                  (11,828,632
                  )
                  
                  
                  (10,506,302
                  )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:


2008
                
                
                2007Income
      tax (benefit) provision at U.S Federal statutory rate
                
                $
                (1,166,451
                )
                
                $
                (1,019,942
                )Foreign
      income taxed at rates other than 34%
                
                
                (13,738
                )
                
                
                5,270Tax
      effect of NOL absorbed
                
                
                (17,953
                )
                
                
                (113,075
                )Foreign
      tax return adjustments
                
                
                -
                
                
                
                (68,040
                )Other
                
                
                80,000
                
                
                
                (49,060
                )Increase
      in valuation allowance, net of foreign currency
adjustments
                
                
                1,198,142
                
                
                
                1,244,847Tax
      (benefit) provision
                
                $
                80,000
                
                
                $
                -







The
following table summarizes the amount and expiration dates of our operating loss
carryovers as of September 30, 2008:




Expiration Dates
                
                
                AmountsU.S.
      federal net operating loss carryovers
                
                
                2023-2028
                
                
                $
                13,298,522Non-U.S.
      net operating loss carryovers
                
                
                2014-2022
                
                
                
                20,907,121Total
                
                
                
                
                
                $
                34,205,643





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 2008, the Company increased
its valuation allowance by $1,322,330 to reflect the effect of current year net
operating losses.





The
company is delinquent in filing tax returns with the Internal Revenue service
and state taxing authorities.  The Company is in the process of
completing and filing these delinquent returns.  With respect to the
fiscal year 2007 returns $80,000 of penalties and interest have been accrued and
included in the current year income tax provision.  Similar penalties
and interest could be incurred for fiscal year 2008 returns as
well.





10.
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.





11.
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, 2008 or
2007.





12.
EQUITY TRANSACTIONS





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.


27




TELECONNECT,
INC.





NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS


(Continued)


September
30, 2008


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 B.V.





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 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 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 and 20,000,000 shares valued at $800,000 were issued to
this individual 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.





13.
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 Employee 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, 2008.





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 Consultant 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
provisions 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 options 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.





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, 2008, 14,574,324 shares of
common stock had been issued under this plan.





During
the years ended September 30, 2008 and 2007 no stock options were
issued.





Information
with respect to stock options for restricted common stock outstanding are as
follows as of September 30:





2008
                  
                  
                  2007Average
                  
                  
                  Exercise
                  
                  
                  Average
                  
                  
                  ExerciseShares
                  
                  
                  Price
                  
                  
                  Shares
                  
                  
                  PriceOutstanding
      at beginning of year
                  
                  
                  4,000,000
                  
                  
                  $
                  0.63
                  
                  
                  
                  4,315,790
                  
                  
                  $
                  0.63Granted
      at market value
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Exercised
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Expired
                  
                  
                  (3,000,000
                  )
                  
                  $
                  1.45
                  
                  
                  
                  (315,790
                  )
                  
                  $
                  0.20Outstanding
      at the end of year
                  
                  
                  1,000,000
                  
                  
                  $
                  0.25
                  
                  
                  
                  4,000,000
                  
                  
                  $
                  0.63




28




Options Outstanding
                  
                  
                  ExercisableShares
                  
                  
                  Average
                  
                  
                  Average
                  
                  
                  Shares
                  
                  
                  AverageOutstanding
                  
                  
                  Remaining
                  
                  
                  Exercise
                  
                  
                  Outstanding
                  
                  
                  ExercisePrice
                  
                  September 30, 2008
                  
                  
                  Life (Years)
                  
                  
                  Price
                  
                  
                  September 30, 2008
                  
                  
                  Price$0.25
                  
                  
                  1,000,000
                  
                  
                  
                  0.5
                  
                  
                  
                  0.25
                  
                  
                  
                  1,000,000
                  
                  
                  
                  0.251,000,000
                  
                  
                  
                  
                  
                  
                  $
                  0.25
                  
                  
                  
                  1,000,000
                  
                  
                  $
                  0.25








Options Outstanding
                  
                  
                  ExercisableShares
                  
                  
                  Average
                  
                  
                  Average
                  
                  
                  Shares
                  
                  
                  AverageOutstanding
                  
                  
                  Remaining
                  
                  
                  Exercise
                  
                  
                  Outstanding
                  
                  
                  ExercisePrice
                  
                  September 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$0.25
                  
                  
                  1,000,000
                  
                  
                  
                  1.5
                  
                  
                  
                  0.25
                  
                  
                  
                  1,000,000
                  
                  
                  
                  0.254,000,000
                  
                  
                  
                  
                  
                  
                  $
                  0.63
                  
                  
                  
                  4,000,000
                  
                  
                  $
                  0.63





14.
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 1,000,000 and 4,000,000 shares that were outstanding at September 30,
2008 and 2007, respectively, have not been included in diluted earnings per
share as their inclusion would have been anti-dilutive.





The
following reconciles the components of the earnings (loss) per share computation
for the years ended September 30:





2008
                  
                  
                  2007Basic
      and Diluted loss per share computationNumerator:Net
      loss from continuing operations
                  
                  $
                  (2,075,551
                  )
                  
                  $
                  (3,524,982
                  )Net
      (loss)  income from discontinued operations
                  
                  $
                  (1,435,188
                  )
                  
                  
                  525,153Denominator:Weighted
      average common shares outstanding
                  
                  
                  332,243,707
                  
                  
                  
                  207,845,524Basic
      and Diluted income (loss) per shareFrom
      continuing operations
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.02
                  )From
      discontinued operations
                  
                  $
                  0.00
                  
                  
                  $
                  0.00





15.
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:





29




TELECONNECT,
INC.





NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS


(Continued)


September
30, 2008





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 subsequent 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.





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, 2008 the
Company has advanced Giga $468,146 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 $103,397 and $38,627 in losses on its equity investment during 2008
and 2007, respectively.





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 or
approximately $338,000.  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.


30




TELECONNECT,
INC.





NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS


(Continued)


September
30, 2008





16.
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 for the year ended September
30, 2007.





17.
SUBSEQUENT EVENTS





Subsequent
to September 30, 2008, the Company’s then president and chief executive officer
entered into an arrangement permitting all of his then outstanding loans of
$1,719,179 to be converted into 29,118,000 common shares.





Subsequent
to September 30, 2008 the Company and an investor entered into an arrangement to
convert part of the debt owed to the investor 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 Recarganet, 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, 2008 foreign exchange rates have changed; it is not practicable
to determine the effect of these changes on these financial
statements.





18.
GOING CONCERN





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





As shown
in the accompanying consolidated financial statements, the Company incurred
losses of $3,510,739 and $2,999,829 for the years ended September 30, 2008 and
2007, respectively. In addition, the Company has incurred substantial losses
since its inception.  As of September 30, 2008, the Company had a
working capital deficit of approximately $5,287,000 and a total shareholders’
deficit of approximately $3,809,000.  These factors raise substantial
doubt about the Company's ability to continue as a going concern.





The
consolidated 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.





19.
SEGMENT INFORMATION





The
Company has two segments media kiosks and telecommunications.  Segment
information for media kiosks are represented by continuing operations and
discontinued operations (Note 3) for telecommunications in these financial
statements.


31





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, 2008, 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, 2008.  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 (2008) operations.





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.




32


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, 2008 are as
follows:





Name
                        
                        Age
                        
                        PositionLeonardus G.M.R. Geeris
                        
                        64
                        
                        Director, Chief Executive Officer, President and TreasurerAlfonso de Borbón
                        
                        34
                        
                        Executive Vice-President Corporate Development





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





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. 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.
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,
2008.


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)Leonardus
      Geeris
                                        
                                        2008
                                        
                                        $
                                        0
                                        
                                        
                                        $
                                        0
                                        
                                        
                                        $
                                        0
                                        
                                        
                                        $
                                        0
                                        
                                        
                                        $
                                        0
                                        
                                        
                                        $
                                        0
                                        
                                        
                                        $
                                        0Chief
      Executive Officer, President,Secretary
      and TreasurerAlfonso
      de Borbon
                                        
                                        2008
                                        
                                        $
                                        92,251
                                        
                                        
                                        $
                                        0
                                        
                                        
                                        $
                                        0
                                        
                                        
                                        $
                                        0
                                        
                                        
                                        $
                                        0
                                        
                                        
                                        $
                                        0
                                        
                                        
                                        $
                                        0Executive
      Vice PresidentErwin
      Lanting
                                        
                                        2008
                                        
                                        $
                                        99,091
                                        
                                        
                                        $
                                        0
                                        
                                        
                                        $
                                        0
                                        
                                        
                                        $
                                        0
                                        
                                        
                                        $
                                        0
                                        
                                        
                                        $
                                        0
                                        
                                        
                                        $
                                        0Director




All
executive officers as a group (Mr. Geeris and Mr. de Borbon)
$92,251





(1)
            Mr.
      Geeris received no remuneration of any type and was sole member of the
      Board at September 30, 2008.


33





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





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





Committees of the Board of
Directors





The
Company does not have an audit committee, compensation committee, nominating
committee, or an executive committee of the Board of Directors. The Company does
have a Stock Option Plan Committee which has been established to administer the
stock option, SAR and stock bonus plans of the Company. The Board of Directors,
formed solely by Mr. Geeris, at September 30, 2008, does 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, 2008 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, 2008.  Mr. Lanting’s
compensation was as a consultant and not for services as a member of the
Board.





Director and Officer
Indemnification and Limitations on Liability





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





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





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





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





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





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





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


34


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, 2008
are as follows:





Shares
                  
                  
                  Percent
      ofManagement
                    Shareholders (1)
                  
                  Beneficially
                    Owned (1)
                  
                  
                  Common
                    StockLeonardus
      Geeris (2)
                  
                  
                  156,934,805
                  
                  
                  
                  47.23
                  %Erwin
      Lanting (Destalink)
                  
                  
                  33,000,000
                  
                  
                  
                  9.93
                  %Alfonso
      de Borbón
                  
                  
                  4,000,000
                  
                  
                  
                  1.20
                  %Directors
      and officers as a group (3) persons, including the above
      persons)
                  
                  
                  193,934,805
                  
                  
                  
                  58.36
                  %





(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)
            As
      of the fiscal year ended September 30, 2008, Mr. Geeris had converted all
      stock into his own personal name, L.G.M.R. Geeris, including Common Stock
      which he had beneficially owned through his ownership of Geeris Holding
      Nederland B.V. and Diependael BV.





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





Subsequent
to September 30, 2008, the Company’s then president and chief executive officer,
Mr. Geeris, entered into an arrangement permitting all of his then outstanding
loans of $1,719,179 to be converted into 29,118,000 common shares.




Subsequent
to September 30, 2008, Mr. Lanting (Destalink) sold to Quick Holding BV (60%),
Quack Holding BV (20%) and Queck Holding BV (20%) 20,000,000 shares for a total
of 1,028,571 Euros in the percentages specified, as well as 13,000,000 shares to
Mr. Geeris for an amount of  668,571 Euros.





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, 2008 and 2007 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
                  
                  $
                  59,341
                  
                  
                  $
                  0
                  
                  
                  $
                  3,500
                  
                  
                  $
                  0Coulter
      & Justus PC for fiscal year ended  September 30,
      2008
                  
                  $
                  179,744
                  
                  
                  $
                  0
                  
                  
                  $
                  0
                  
                  
                  $
                  0September
      30, 2007
                  
                  $
                  133,900
                  
                  
                  $
                  0
                  
                  
                  $
                  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


35


(a)
Financial Statements





1.
            Financial
      statements for the fiscal year ended September 30,
  2007


2.
            Financial
      statements for the fiscal year ended September 30,
  2008





(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, 2008.1(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 shareearnings
                  
                  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,
2008.




36





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: August
      12, 2009
                By:
                /s/ Dirk BenschopDirk
      BenschopSole
      Director, Chief  Executive Office, President and
      Treasurer





By:
                      /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: August
      12, 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




37





INDEX OF
EXHIBITS ATTACHED




Exhibit
                        
                        Description21
                        
                        Description
      of Subsidiaries31.1
                        
                        Certification
      of Dirk Benschop31.2
                        
                        Certification
      of Alfonso de Borbón32.1
                        
                        Certification
      of Dirk Benschop and Alfonso de Borbón


38