United States Securities and Exchange Commission

                             Washington, D.C. 20549

                                   Form 10-KSB

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

for the fiscal year ended September 30, 2006

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

For the transition period from ______________ to ______________

                         Commission File Number: 0-30611

                                Teleconnect Inc.
                                ----------------
                 (Name of small business issuer in its charter)

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

                   Centro Comercial Camojan Corner, 1(a) plta
                      Camino de Camojan, Urb. Sierra Blanca
                             29603 Marbella - Malaga

                    ________________________________________
                    (Address of principal executive offices)

Issuer's telephone number, including area code: 011-34-95-202-9400
                                                ------------------

Securities registered under Section 12(b) of the Exchange Act:

        Title of each class   Name of each exchange on which registered
        -------------------   -----------------------------------------
                 N/A                              N/A

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

                          common stock, par value $.001

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No |_|

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act: Yes | | No |X|

State issuer's revenues for its most recent fiscal year: $4,657,000

The aggregate market value of voting and non-voting equity held by
non-affiliates of the registrant as of September 30, 2006: common stock, $.001
par value: $1,806,804

ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS

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

<PAGE>

The number of shares of the registrant's common stock outstanding as of December
15, 2006: 180,680,383 shares.

Documents incorporated by reference: None

Transitional Small Business Disclosure Format: Yes No |X|


                                        2

<PAGE>

                                TABLE OF CONTENTS

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

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

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


                                        3

<PAGE>

                                     PART I

Item 1.  Description of Business.

General

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

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

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

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

During the 2004 fiscal year, Teleconnect management focused on improving margins
on its prepaid business by reducing operating costs and reducing outstanding
debt. As a result, it decreased its debt and looked for additional debt/equity
funding. Its telephone services were redefined as a part of a new marketing mix
and certain services relaunched with a raw image and brand name associated with
the prepaid telephone card business of Teleconnect. The Company constantly
focused on reducing its operating costs to a minimum.

During the 2005 and 2006 fiscal years, the Company continued to take measures to
reduce its monthly expenses. The Company's objective is to have a monthly
breakeven situation during fiscal 2007.

In parallel to the cost reductions, the Company has developed a new pre-paid
telephone card with a magnetic strip. Other marketing actions are being planned
to bring up sales levels to help reach a monthly breakeven as quickly as
possible including the introduction of a mobile plug for calling from mobiles
through the Teleconnect network as well as Multimedia On-line, Real Time Kiosks
to increase the distribution of cards.

Telecommunication Industry in Spain

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


                                       4

<PAGE>

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

Long distance services in Spain have become very competitive since 1999 and as
such prices have been reduced considerably. Teleconnect focuses primarily on
offering inexpensive international calling to foreign residents in Spain that
make a higher than average number of calls internationally. In order to offer
this service during fiscal 2006, Teleconnect reached agreements mainly with, BT
Spain, Jazztel, Primus, Worldcom and other major carriers.

Products and Services

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

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

The calling cards require the user to dial a toll free prefix number, listen to
the instructions, which can be given in either Spanish, English, German or
French, and dial in their "code" or "PIN". The code is then confirmed and the
user dials the number. The calling cards typically have sixty days after first
activation expiration date. Teleconnect sold approximately 645,000 calling cards
during its fiscal year ended September 30, 2005, and sold 471,500 cards during
its fiscal year ended September 30, 2006.

For those clients who have a fixed line and/or a mobile provided by a telecom
operator in Spain, the Company offers a pre-paid residential account with which
they can save money on their international calls. These customers are typically
foreigners living in Spain or having a second home in Spain, as well as small
and medium enterprises with international contacts. During the 2004 fiscal year,
the Company offered prepaid and postpaid accounts. The prepaid accounts are
based on credit card payments. During fiscal 2004, Teleconnect eliminated all
postpaid accounts, which were based on a monthly billing cycle and automatic
collection system, and thereby, reducing bad debt expense considerably. These
actions helped improve the results for the fiscal 2005 year end. During fiscal
2006, continued negotiations with carriers have helped to reduce cost of goods
sold and thus provided for an improvement of results.


                                        5

<PAGE>

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

Marketing

The marketing strategy of the residential services of the Company (Teleconnect)
was focused during fiscal 2006 on foreigners in Spain. These foreigners are
primarily located on the costal areas of Spain, including the islands.

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

Teleconnect is not in a position, due to its size and limited financial
resources, to compete against the major carriers for corporate clients in the
big cities. Teleconnect requires additional external financing in order to carry
out its marketing plans, to increase its capacity with carriers, and to expand
to other countries in Europe. During the fiscal years 2005 and 2006, Teleconnect
did virtually no marketing due to its lack of financial resources.

Industry Participants and Competition

The growth of the telecommunications industry from 1997 to 2005 attracted many
new entrants as well as existing businesses from different industries to enter
the telecommunications business. Current and prospective industry participants
include multinational alliances, long distance and local telecommunications
providers, systems integrators, cable television and satellite communications
companies, software and hardware vendors, wireless telecommunications providers
and national, local and regional ISPs. Our present primary competitor is
Telefonica S.A. Other significant competitors include France Telecom (UNI2),
Jazztel, Citycall and Communitel.

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

In order to become more competitive in the market, Teleconnect will have to
invest in setting up additional switching infrastructure in order to reduce its
traffic carrying cost (telephone transmission costs). The Company will require
additional funding in order to be able to do so. During fiscal 2006, Teleconnect
reduced its transmission costs with other carriers by over 20%. The actual cost
of sales went down by only 6.8% while sales went down by 5.5%. As such, the
savings resulting from the reduction in carrier costs were passed on to
customers in order to keep the products and services competitive.

Regulation

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

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

*     conditions for granting licenses to provide telecommunications services;
      and


                                        6

<PAGE>

*     the obligation of telecommunications providers to extend service to rural
      areas and the financing of associated capital expenditures.

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

*     regulations designed to ensure the full liberalization of the
      telecommunications sector;

*     regulations which impose standard conditions throughout member states for
      granting individual licenses and general authorizations;

*     regulations regarding access and interconnection between competing
      operators;

*     regulations dealing with the universal service obligation;

*     regulations requiring member states to allocate wireless radio based
      services according to the DCS-1800 standard and the UMTS standard;

*     regulations relating to telecommunications data protection and privacy
      regulations; and

*     regulations for unbundled access to the local loop.

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

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

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

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

*     to construct or operate public telecommunications networks;


                                        7

<PAGE>

*     to provide fixed-line telephone services to the general public; and

*     to provide telecommunications services or construct or operate
      telecommunications networks using radio spectrum

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

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

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

*     the effective cost of the applicable service; and

*     the degree of competition in the market for the applicable service

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

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

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


                                        8

<PAGE>

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

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

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

The public service obligations include:

*     the universal service obligation, which is elaborated in the Royal Decree
      of July 31, 1998;

*     the compulsory services obligation; and

*     other public service obligations.

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

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

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

*     maximum time periods for the provision of initial interconnection to
      telecommunications networks;

*     requirements with respect to the guarantee of continuing fixed-line
      telephone service to the public;

*     criteria with respect to the information included in public telephone
      directories; and

*     standards for the quality of service and systems for measuring the quality
      of services.


                                        9

<PAGE>

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

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

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

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

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

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

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


                                       10

<PAGE>

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

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

Employees

As of September 30, 2006, the Company and its subsidiaries had 22 full-time
employees, of which 1 was engaged in general management, 11 in operations, 5 in
marketing and sales, 3 in accounting and finance, 1 in human resources and
office management, and 1 in business development including marketing. None of
the Company's employees are represented by a labor union with respect to his or
her employment by the Company.

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

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, 2006, we had an accumulated deficit of
$(24,192,000) and had a stockholders' deficit of $(5,802,000). For the years
ended September 30, 2006, and 2005, we had net losses of $(3,891,000), and
$(3,005,000), respectively. We may also in the future incur operating and net
losses and negative cash flow from operations, due in part to anticipated
increases in expenses for expansion of our sales and marketing capabilities. We
may not be able to achieve or maintain profitability.

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

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


                                       11

<PAGE>

Going Concern Qualification by Auditors. The accountants' reports of the
independent registered public accounting firm of the Company for fiscal years
2006 and 2005 express a going concern qualification. The Company has had
recurring operating losses for the past several years which raise substantial
doubts about its ability to continue as a going concern. See Report of
Independent Registered Public Accounting Firm, Note 2 to the Consolidated
Financial Statements of the Company, and Management's Discussion and Analysis or
Plan of Operations - Plan of Operations.

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

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

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

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

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

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


                                       12

<PAGE>

Management Changes. If members of our senior management team leave the Company,
then our ability to operate our business may be negatively affected. Our future
success depends to a significant extent on the continued services of our senior
management, particularly Gustavo Gomez and other employees of the new executive
team. The loss of their services or any other present or future key employee,
could have a material adverse effect on the management of our business. We do
not maintain "key person" life insurance for any of our personnel.

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

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

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

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

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

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

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


                                       13

<PAGE>

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

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

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

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

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

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

      *     develop and expand their network infrastructures and service
            offerings more quickly;

      *     adapt better to new or emerging technologies and changing client
            needs;

      *     take advantage of acquisitions and other opportunities more readily;

      *     devote greater resources to the marketing and sale of their services
            and products; and

      *     adopt more aggressive pricing policies

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


                                       14

<PAGE>

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

      *     the size and timing of significant equipment and software purchases;

      *     the timing of new service offerings;

      *     changes in our pricing policies or those of our competitors;

      *     the timing and completion of the expansion of our service offering;

      *     market acceptance of voice and data communications generally, and of
            new and enhanced versions of our services in particular;

      *     the length of our contract cycles; and

      *     our success in expanding our sales force and expanding our
            distribution channels.

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

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

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

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


                                       15

<PAGE>

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

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

Future Sales of Our Common Stock May Depress Our Stock Price. The market price
of our Common Stock could decline as a result of sales of substantial amounts of
our Common Stock in the public market in the future. In addition, it is more
difficult for us to raise funds through future offerings of Common Stock. There
were approximately 155,673,439 shares of our Common Stock outstanding as
"restricted securities" as defined in Rule 144 as of September 30, 2006, 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.


                                       16

<PAGE>

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

Voting Control. The largest single shareholder of the Company, Mr. Leonardus
Geeris., owns directly and indirectly approximately 71% of the Company's
outstanding Common Stock as of September 30, 2006. This stockholder has
exercised considerable influence over all matters requiring approval by our
stockholders, including approval of significant corporate transactions. Geeris
Holding Nederland, B.V. and Diependael BV are companies owned by Leonardus
Geeris, a director of the Company.

Item 2.  Description of Property

Recently, the Company moved its principal executive offices from Parque
Tecnologico de Andalucia (PTA), Edif. Estepona, Malaga Business Park, C/Severo
Ochoa No. 16-20 1a, Campanillas, Malaga 28590, Spain, to Centro Comercial
Camojan Corner, 1(a) plta,, Camino de Camojan, Urb. Sierra Blanca, 29603
Marbella - Malaga. These new offices in Marbella are about 60% the cost of the
previous offices in Malaga.

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

Item 3.  Legal Proceedings

There is a provision of $101,000 to cover minor litigation cases threatened or
pending against the Company:

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

The shareholders of the Company held a special meeting on June 1, 2006 where the
majority of the shareholders of the Company approved and ratified the adoption
of the Corporation's 2006 Stock Option, SAR and Stock Bonus Plan. The
shareholders further approve filing a Form S-8 Registrations Statement to
register this plan with the U.S. Securities and Exchange Commission to register
20,000,000 shares of the common stock of the Corporation to be issued to
consultants to the Corporation.


                                       17

<PAGE>

                                     PART II

Item 5.  Market for Common Equity and Related Shareholder Matters

General

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

Market Price

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

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

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

Year Ended December 31, 2006
1 st Quarter                            $0.22         $0.13
2 nd Quarter                            $0.30         $0.14
3 rd Quarter                            $0.17         $0.06
4 th Quarter (through 12-15-2006)       $0.16         $0.05

The closing bid price of the Common Stock of the Company on September 30, 2006
was $0.10 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 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.

Sale of Unregistered Securities

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

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

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

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

During the year ended September 30, 2006 the Company issued 1,000,000 shares of
common stock to a stockholder pursuant to a settlement agreement(See note 10 in
footnotes). This transaction was valued at $150,000 for financial reporting
purposes.


                                       18

<PAGE>

Item 6.  Management's Discussion and Analysis or Plan of Operation

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

Forward Looking Statements

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

Significant Accounting Estimates and Policies

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

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

Property and equipment are evaluated for impairment whenever indicators of
impairment exist. Accounting standards require that if an impairment indicator
is present, the Company must assess whether the carrying amount of the asset is
unrecoverable by estimating the sum of the future cash flows expected to result
from 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.

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

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

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

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


                                       19

<PAGE>

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

Stock-Based Compensation

      Stock Options. Prior to the fiscal year ended September 30, 2006, the
Company accounted for those options under the recognition and measurement
provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations. No stock-based employee compensation was reflected in
fiscal 2005 net income, as no potions were granted during this period. Effective
October 1, 2005, the company adopted the fair value recognition provisions of
SFAS 123, Accounting for Stock-Based Compensation, SFAS 123(R), Share-Based
Payment and SFAS 148, Accounting for Stock-Based Compensation-Transition and
Disclosure.

      SFAS 123(R) established standards for the accounting of transactions in
which an entity exchanges its equity instruments for goods or services by
requiring a public entity to measure the cost of employee services received in
exchange for an award of equity instruments based on the grant-date fair value
of the award. That cost is recognized over the period during which an employee
is required to provide services in exchange for the award. For all unvested
options outstanding as of October 1, 2005, the previously measured but
unrecognized compensation expense, based on the fair value at the original grant
date, will be recognized in our financial statements over the remaining vesting
period. For stock options granted or modified subsequent to October 1, 2005,
compensation expense, based on the fair value on the date of grant or
modification, will be recognized in our financial statements over the vesting
period. The fair value of employee stock options is estimated using the
Black-Scholes option pricing model. Excess tax benefits are recognized as an
addition to paid-in capital. Cash retained as a result of those excess tax
benefits is presented in the statement of cash flows as financing cash inflows.
The write-off of deferred tax assets relating to unrealized tax benefits
associated with recognized compensation cost is recognized as income tax expense
unless there are excess tax benefits from previous awards remaining in paid-in
capital to which it can be offset.

      Under the modified prospective method of adoption selected by the Company
under the provision of SFAS 148, compensation cost recognized in fiscal 2006 is
the same as that which would have been recognized had the recognition provisions
of SFAS 123 been applied from its original effective date. The Company did not
issue any stock options in either of the fiscal years ended September 30, 2006
or 2005.

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

Overview

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

Our revenues also may be impacted by other factors including the length of our
sales cycle, the timing of sales orders, budget cycles of our customers,
competition, the timing and introduction of new versions of our products, the
loss of, or difficulties affecting, key personnel and distributors, changes in
market dynamics or the timing of product development or market introductions.
These factors have impacted our historical results to a greater extent than has
seasonality. Combinations of these factors have historically influenced our
growth rate and profitability significantly in one period compared to another,
and is expected to continue to influence future periods, which may compromise
our ability to make accurate forecasts.

Our two most significant customers each accounted for more than 10% of our
revenues during the year ended September 30, 2006. These are: Telecor 32.64% and
Grupo Sigla 11.65.% Domestic sales in Spain accounted for 100% of our revenues
in each of the last two years.

Telecommunication revenues decreased by $273,000 in 2006, or 5.54% from 2005
revenues though gross profit decreased in 2006 by $41,000 or 2.69% compared to
2005.

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

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

Selling, general and administrative expenses consist primarily of salaries and
related expenses for executive, finance, accounting, legal and human resources
personnel, professional fees and corporate expenses. We expect general and
administrative expenses to increase in absolute dollars as we employ additional
personnel and incur additional costs related to the growth of our business and
our operation as a public company. We include stock-based compensation as a part
of general and administrative expenses. SG&A also includes stock issued for
services as can be stock from the Stock Bonus Plan to employees or consultants.


                                       20

<PAGE>

Stock-based compensation charges are recorded based on the fair value of the
awards to employees. We use the Black-Scholes valuation method to estimate the
fair value of stock option awards. We also record stock-based compensation
charges when options are granted to non-employees. Compensation charges for
non-employees are based on estimates of the underlying stock fair values. In
addition the Company has issued Common Stock to consultants and professionals in
exchange for services to the Company.

Year Ended September 30, 2006, Compared to September 30, 2005

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

                                          Year Ended           Year Ended
                                      September 30, 2006   September 30, 2005
                                      ------------------   ------------------
Revenues                                  $ 4,657,000          $ 4,930,000
Cost of goods sold                        $ 3,174,000          $ 3,406,000
Selling, general and administrative       $ 5,061,000          $ 3,574,000
Depreciation                              $   240,000          $   444,000
Interest Expense                             (358,000)            (474,000)
Other Income (Expenses)                   $   285,000          $   (37,000)
Net Loss                                  $(3,891,000)         $(3,005,000)
Comprehensive (Loss)                      $(4,215,000)         $(3,044,000)
Net Loss Per Share                        $     (0.03)         $     (0.04)

Revenues. Revenues for the year ended September 30, 2006 decreased to
$4,657,000, compared to $4,930,000 or 5% from the prior year revenues.

Our revenues during the year ended September 30, 2006, were derived primarily
from providing a range of integrated telephone service solutions to our clients:

*     Prepaid Calling Cards

*     Prepaid fixed line long distance calling

*     Other

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

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

Cost of Goods Sold. Cost of goods sold for the year ended September 30, 2006
were $3,174,000, a decrease of $232,000 or 6.8% from the prior year cost of
sales of $3,406,000. Cost of goods sold as a percentage of sales was 68.1% in
2006 while it was 69.1% for the same period in 2005.

Gross profits decreased during fiscal 2006 to $1,483,000 or 2.7% from $1,524,000
in fiscal 2005. The principal reason for the decrease was the 5.5% decrease in
sales though management's conscious effort to renegotiate its carrier pricing
resulted in only a 2.7% decrease in Gross Profit. The gross profit margins were
improved by almost 1% from 30.9% to 31.8% even though the Company did not have
the liquidity to do any promotion or marketing of its products.


                                       21

<PAGE>

Selling, General and Administrative. Selling, general and administrative
expenses for the year ended September 30, 2006 were $5,061,000, an increase of
$1,487,000 or 41.6% from the prior year's operating expenses of $3,574,000. The
principal reason for the increase is the stock issued to employees and
consultants which totals $2,814,000. If this amount is subtracted to reveal the
true SG&A of operations, the value for September 30, 2006 would be $2,247,000 or
a reduction of $476,000 from September 30, 2005. If we also consider the stock
compensation in 2005 of $851,000. This reduction is due to management's effort
to reduce its fixed costs which included the move of the office to much more
economical and smaller office back in Marbella. Hence, though the actual
reduction in selling, general and administrative expenses was significant, it
was partially offset by the valuation of stock issued as compensation for
services to external consultants and shareholders that provided financing.

SG&A for the period ending September 30, 2006 was 108.7% of revenue compared to
72.5% for the same period in 2005. If consideration is given to the fact that
stock compensation for services is included in the SG&A, then reducing SG&A in
2006 by this amount of $476,000 associated with services, SG&A in 2006 becomes
48.2% of sales, a reduction of 8% from 2005 ratio of 55.23% obtained by
factoring in the stock compensation in 2005 of $851,000.

Depreciation Expense. Depreciation expense for the year ended September 30, 2006
was $240,000, a decrease of $204,000 or 45.9% from the prior year's depreciation
expense of $444,000. This decrease is due primarily to the fact that some
equipment became fully depreciated in 2006.

Interest Expense. Interest expense for the year ended September 30, 2006 was
$358,000 as compared to $474,000 for the prior year. This decrease was due
primarily to loans converted to common stock during 2006

Other Income (Expense). Other income for 2006 was $285,000 compared to other
expense of $37,000. This improvement was due primarily to a settlement with a
former officer and the write off of certain payables for which the Company
believes the vendors have lost their rights to collect.

Net Loss. The net loss of the Company increased to ($3,891,000) during the
fiscal year ended September 30, 2006 compared to $(3,005,000) during the fiscal
year ended September 30, 2005, an increase of approximately 29.5%. If stock
issued for services is factored out, the net loss for 2006 would be
($1,077,000). If stock issued for services is factored out of the Net Loss for
2005 the amount would be $(2,154,000). Hence in this case with the "Stock for
Services" factored out, the net loss improved by $1,077,000.

Liquidity and Capital Resources. At September 30, 2006, the Company had negative
working capital of approximately $(6,396,000), compared to negative working
capital of $(6,643,000), at September 30, 2005. Therefore, the Company
experienced an improvement of $247,000 or 3.7%.

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, 2006.

Contractual Obligations Table

                                              Less than             More than
                                    Total      one year   1-3 yrs    3 years
                                  ---------   ---------   -------   ---------
Tax Agency Debt                      96,000      83,000    13,000         --
Loans from related parties        1,622,000   1,622,000        --         --
Deferred Income                   1,685,000   1,685,000        --         --
Operating Leases                    321,000      66,000   204,000     51,000
Advance from potential investor     152,000     152,000        --         --
                                  ---------   ---------   -------     ------
Total Contractual Obligations     3,876,000   3,608,000   217,000     51,000
                                  =========   =========   =======     ======

Plan of Operations.

The Company expects that new funds will be injected into the Company during the
three months ending March 31, 2007.

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


                                       22

<PAGE>

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

Recent Accounting Pronouncements.

New Accounting Pronouncements

In February 2006, the FASB issued Statement No. 155, "Accounting for Certain
Hybrid Financial Instruments" ("SFAS No. 155"), which amends FASB Statements No.
133 and 140. This Statement permits fair value remeasurement for any hybrid
financial instrument containing an embedded derivative that would otherwise
require bifurcation, and broadens a Qualified Special Purpose Entity's ("QSPE")
permitted holdings to include passive derivative financial instruments that
pertain to other derivative financial instruments. This Statement is effective
for all financial instruments acquired, issued or subject to a remeasurement
event occurring after the beginning of an entity's first fiscal year beginning
after September 15, 2006. This Statement has no current applicability to the
Company's financial statements. Management plans to adopt this Statement on
January 1, 2007 and it is anticipated that the initial adoption of this
Statement will not have a material impact on the Company's financial position,
results of operations, or cash flows.

In March 2006, the FASB issued Statement No. 156, "Accounting for Servicing of
Financial Assets - an amendment of FASB Statement No. 140" ("SFAS No. 156").
This Statement is effective for fiscal years beginning after September 15, 2006.
This Statement requires that all separately recognized servicing assets and
servicing liabilities be initially measured at fair value, if practicable. This
Statement has no current applicability to the Company's financial statements.
Management plans to adopt this Statement on January 1, 2007 and it is
anticipated that the initial adoption of this Statement will not have a material
impact on the Company's financial position, results of operations, or cash
flows.

In June 2006, the FASB issued Interpretation 48, "Accounting for Uncertainty in
Income Taxes" ("FIN 48"), an interpretation of FASB Statement No. 109,
"Accounting for Income Taxes." FIN 48 clarifies the accounting and reporting for
income taxes where interpretation of the law is uncertain. FIN 48 prescribes a
comprehensive model for the financial statement recognition, measurement,
presentation and disclosure of income tax uncertainties with respect to
positions taken or expected to be taken in income tax returns. FIN 48 is
effective for fiscal years beginning after December 15, 2006. This Statement has
no current applicability to the Company's financial statements. Management plans
to adopt this Statement on January 1, 2007 and it is anticipated that the
initial adoption of FIN 48 will not have a material impact on the Company's
financial position, results of operations, or cash flows.

In September 2006, the FASB issued Statement No. 157, "Fair Value Measurements"
("SFAS No. 157"). SFAS No. 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. SFAS No. 157 defines fair value, establishes a framework
for measuring fair value and expands disclosures about fair value measurements.
SFAS No. 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 September 2006, the FASB issued Statement No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans" ("SFAS No. 158"), an
amendment of FASB Statements No. 87, 88, 106 and 132(R). SFAS No. 158 requires
(a) recognition of the funded status (measured as the difference between the
fair value of the plan assets and the benefit obligation) of a benefit plan as
an asset or liability in the employer's statement of financial position, (b)
measurement of the funded status as of the employer's fiscal year-end with
limited exceptions, and (c) recognition of changes in the funded status in the
year in which the changes occur through comprehensive income. The requirement to
recognize the funded status of a benefit plan and the disclosure requirements
are effective as of the end of the fiscal year ending after December 15, 2006.
The requirement to measure the plan assets and benefit obligations as of the
date of the employer's fiscal year-end statement of financial position is
effective for fiscal years ending after December 15, 2008. This Statement has no
current applicability to the Company's financial statements. Management plans to
adopt this Statement on December 31, 2006 and it is anticipated the adoption of
SFAS No. 158 will not have a material impact to the Company's financial
position, results of operations, or cash flows.

In September 2006, the Securities Exchange Commission issued Staff Accounting
Bulletin No. 108 ("SAB No. 108"). SAB No. 108 addresses how the effects of prior
year uncorrected misstatements should be considered when quantifying
misstatements in current year financial statements. SAB No. 108 requires
companies to quantify misstatements using a balance sheet and income statement
approach and to evaluate whether either approach results in quantifying an error
that is material in light of relevant quantitative and qualitative factors. When
the effect of initial adoption is material, companies will record the effect as
a cumulative effect adjustment to beginning of year retained earnings and
disclose the nature and amount of each individual error being corrected in the
cumulative adjustment. SAB No. 108 will be effective beginning January 1, 2007
and it is anticipated that the initial adoption of SAB No. 108 will not have a
material impact on the Company's financial position, results of operations, or
cash flows.


                                       23

<PAGE>

Item 7.  Financial Statements

                                TELECONNECT INC.

                        CONSOLIDATED FINANCIAL STATEMENTS

                           SEPTEMBER 30, 2004 AND 2003

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


                                       24

<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Teleconnect Inc.

We have audited the accompanying consolidated balance sheet of Teleconnect Inc.
and its subsidiaries as of September 30, 2006, and the related consolidated
statements of operations, changes in stockholders' deficit, and cash flows for
the two years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Teleconnect Inc.
and its subsidiaries as of September 30, 2006, and the consolidated results of
its operations and its consolidated cash flows for the two years then ended in
conformity with accounting principles generally accepted in the United States of
America.

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


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

December 12, 2006

Oklahoma City, Oklahoma


                                       F-1

<PAGE>

                                TELECONNECT INC.

                           CONSOLIDATED BALANCE SHEET
                               SEPTEMBER 30, 2006

<TABLE>
                                     ASSETS
<S>                                                                <C>
CURRENT ASSETS:
Cash and cash equivalents                                          $    198,000
Accounts receivable - trade, net of allowance
  for doubtful accounts of $1,080,000                                   550,000
Accounts receivable - other                                               8,000
Inventory                                                                19,000
Other current assets                                                     38,000
                                                                   ------------
Total current assets                                                    813,000
PROPERTY AND EQUIPMENT, NET                                             265,000
OTHER ASSETS:
Vendor deposits                                                         303,000
Other assets, net of amortization of $23                                 39,000
                                                                   ------------
  Total assets                                                     $  1,420,000
                                                                   ============
                     LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES:
Accounts payable - trade                                           $  2,675,000
Accrued liabilities                                                     992,000
Advance from potential investor                                         152,000
Current portion of payment obligation to taxing authority                83,000
Loans from related parties                                            1,622,000
Deferred income                                                       1,685,000
                                                                   ------------
Total current liabilities                                             7,209,000
                                                                   ------------
LONG TERM DEBT
Payment obligation to tax agency, net of current portion
  shown above                                                            13,000
STOCKHOLDERS' DEFICIT:
Preferred stock; par value of $0.001, 5,000,000 shares
  authorized, no shares outstanding                                          --
Common stock; par value of $0.001, 500,000,000 shares
  authorized, 180,680,363 shares outstanding                            181,000
Additional paid-in capital after effect of reverse stock split,      20,586,000
Less: Prepaid syndication fees                                               --
Accumulated (deficit)                                               (24,192,000)
Effect of cumulative translation adjustment                          (2,377,000)
                                                                   ------------
Total stockholders' (deficit)                                        (5,802,000)
                                                                   ------------
  Total liabilities and stockholders deficit                       $  1,420,000
                                                                   ============
</TABLE>

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


                                       F-2

<PAGE>

                                TELECONNECT INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005

<TABLE>
<CAPTION>
                                                            2006          2005
                                                        ------------   -----------
<S>                                                     <C>            <C>
SALES                                                   $  4,657,000   $ 4,930,000
COST OF GOODS SOLD (exclusive of Depreciation
  shown separately below)                                  3,174,000     3,406,000
                                                        ------------   -----------
GROSS PROFIT                                               1,483,000     1,524,000
                                                        ------------   -----------
OPERATING EXPENSES:
Selling, general and administrative expenses               5,061,000     3,574,000
Depreciation                                                 240,000       444,000
                                                        ------------   -----------
Total operating expenses                                   5,301,000     4,018,000
                                                        ------------   -----------
(LOSS) FROM OPERATIONS                                    (3,818,000)   (2,494,000)
                                                        ------------   -----------
OTHER INCOME (EXPENSES):
Other income (expense)                                       285,000       (37,000)
Interest expense                                            (358,000)     (474,000)
                                                        ------------   -----------
  Total other income (expense)                               (73,000)     (511,000)
                                                        ------------   -----------
(LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES     (3,891,000)   (3,005,000)
PROVISION FOR INCOME TAXES                                        --            --
                                                        ------------   -----------
NET (LOSS)                                              $ (3,891,000)  $(3,005,000)
                                                        ============   ===========
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:            $      (0.03)  $     (0.04)
                                                        ============   ===========
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING                            147,878,326    78,748,850
                                                        ============   ===========
THE COMPONENTS OF COMPREHENSIVE LOSS:
Net (loss)                                              $ (3,891,000)  $(3,005,000)
Foreign currency translation adjustment                     (324,000)      (39,000)
                                                        ------------   -----------
COMPREHENSIVE (LOSS)                                    $ (4,215,000)  $(3,044,000)
                                                        ============   ===========
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
  Comprehensive (loss)                                  $      (0.03)  $     (0.04)
                                                        ============   ===========
</TABLE>

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


                                       F-3

<PAGE>

                               TELECONNECT, INC.
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

<TABLE>
<CAPTION>
                                                          Common Stock
                                                           As adjusted
                                                         for stock split
                                                      ---------------------                              Accumulated
                                                         Number     $0,001    Additional                    Other         Total
                                                           of         par      Paid-In     Accumulated  Comprehensive  Stockholders'
                                                         Shares      Value     Capital       Deficit        Loss          Deficit
                                                      -----------  --------  -----------  ------------  -------------  -------------
<S>                                                   <C>          <C>       <C>          <C>            <C>            <C>
Balance, September 30, 2005                            60,588,280  $ 61,000   11,858,000  $(17,296,000)  $(2,014,000)   $(7,391,000)
  Common stock issued for conversion of debt to
    equity                                             31,600,917    31,000    2,265,000                                  2,296,000
  Common stock issued for loan fee consideration        1,000,000     1,000       99,000                                    100,000
  Common stock issued for services                      6,100,000     6,000      604,000                                    610,000
  Common stock issued for services                        725,000     1,000      140,000                                    141,000
  Sale of common stock                                  9,325,000     9,000    1,151,000                                  1,160,000
  Common shares repurchased and canceled                 (102,626)       --      (15,000)                                   (15,000)
  Foreign currency translation adjustment                                                                    (39,000)       (39,000)
Net (loss) for the year ended September 30, 2005                                            (3,005,000)                  (3,005,000)
                                                      -----------  --------  -----------  ------------   -----------    -----------
Balance, September 30, 2006                           109,236,571   109,000   16,102,000   (20,301,000)   (2,053,000)    (6,143,000)
  Common stock issued for conversion of debt to
    equity                                              5,000,000     5,000      150,000                                    155,000
  Common stock issued for services                     13,300,000    13,000    2,801,000                                  2,814,000
  Common stock issued for settlement                    1,000,000     1,000      149,000                                    150,000
  Sale of common stock                                 52,200,000    52,000    1,393,000                                  1,445,000
  Common stock canceled                                   (56,188)    1,000       (9,000)                                    (8,000)
  Foreign currency translation adjustment                                                                   (324,000)      (324,000)
Net (loss) for the year ended September 30, 2005                                            (3,891,000)                  (3,891,000)
                                                      -----------  --------  -----------  ------------   -----------    -----------
Balance, September 30, 2005                           180,680,383  $181,000  $20,586.000  $(24,192,000)  $(2,377,000)   $(5,802,000)
                                                      ===========  ========  ===========  ============   ===========    ===========
</TABLE>


                                       F-4

<PAGE>

                                TELECONNECT INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005
                                   Page 1 of 2

                                                          2006          2005
                                                      -----------   -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)                                            $(3,891,000)  $(3,005,000)
Adjustments to reconcile net (loss) to
  net cash used in operating activities:
Depreciation                                              240,000       444,000
Gain on disposition of assets                                  --
Non-cash expenditures paid with Stock                   3,113,000     1,251,000
Decrease (increase) in operating assets:
Accounts receivable - trade                              (299,000)      109,000
Accounts receivable - other                                67,000            --
Inventory                                                  15,000        12,000
Prepaid expenses                                          (38,000)        2,000
Vendor and other deposits                                 (90,000)      (23,000)
Increase (decrease) in operating liabilities:
Accounts payable and accrued liabilities                  249,000      (121,000)
Deferred income and deposits received                    (218,000)      138,000
                                                      -----------   -----------
Net cash provided by (used in) operating activities      (852,000)   (1,193,000)
                                                      -----------   -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of other assets                                  (39,000)           --
Purchase of property and equipment                        (56,000)     (214,000)
                                                      -----------   -----------
Net cash provided by (used in) investing activities       (95,000)     (214,000)
                                                      -----------   -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan proceeds from related parties                      1,289,000       993,000
Loan proceeds from bank                                   152,000       379,000
Payment on tax agency obligation                         (294,000)      (83,000)
Payment on loan from bank                                (120,000)     (507,000)
Payments on loans from related parties                         --      (504,000)
Repurchase and cancellation of stock                       (8,000)      (15,000)
Proceeds from sale of common stock                        380,000     1,160,000
                                                      -----------   -----------
Net cash provided by financing activities               1,399,000     1,423,000
                                                      -----------   -----------
EFFECT OF EXCHANGE RATE                                  (324,000)      (39,000)
                                                      -----------   -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS                                          128,000       (23,000)
CASH AND CASH EQUIVALENTS,
  BEGINNING OF YEAR                                        70,000        93,000
                                                      -----------   -----------
CASH AND CASH EQUIVALENTS,
  END OF YEAR                                         $   198,000   $    70,000
                                                      ===========   ===========

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


                                       F-5

<PAGE>

                                TELECONNECT INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005
                                   Page 2 of 2

                                                        2006         2005
                                                     ----------   ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest                                             $    7,000   $   74,000

SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
Shareholder loans converted to common stock          $1,065,000   $1,898,000
Common stock issued for interest on notes payable    $       --   $  400,000
Common stock issued for services received            $2,814,000   $  751,000
Common stock issued for loan fee                     $       --   $  100,000
Common stock issued for loan fee                     $  150,000   $       --

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


                                       F-6

<PAGE>

                                TELECONNECT, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               September 30, 2006

1. THE COMPANY

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

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

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

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

2. GOING CONCERN

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

As shown in the accompanying financial statement, the Company incurred losses of
($3,891,000) and ($3,005,000) for the years ended September 30, 2006 and 2005,
respectively. In addition, the Company has incurred substantial losses since its
inception. As of September 30, 2006, the Company had a working capital deficit
of $(6,396,000) and a stockholders' deficit of $(5,802,000). These factors raise
substantial doubt about the Company's ability to continue as a going concern.

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

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

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

3. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounts Receivable -

The Company uses the allowance method to account for uncollectible accounts
receivable. Accounts receivable are presented net of doubtful accounts of
$1,080,000.

Advertising Costs -

Advertising and sales promotion costs are expensed as incurred. Advertising
expenses totaled (euro)49,800 and (euro)18,552 for respectively for the fiscal
years ended September 30, 2006 and 2005.

Cash Equivalents -

The Company considers deposits that can be redeemed on demand and investments
that have original maturities of less than three months, when purchased, to be
cash equivalents. Substantially all cash on had at September 30, 2006 was held
in Spanish financial institutions and is not protected by FDIC insurance.


                                       F-7

<PAGE>

Comprehensive Income -

Comprehensive income consisted entirely of foreign currency translation gains
and losses during the two years ended September 30, 2006.

Consolidation Policy -

The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, after elimination of all material
intercompany accounts, transactions, and profits.

Deferred Revenues -

The Company recognizes revenue when earned. The proceeds from the sales of
prepaid calling cards are recorded in the deferred income until such time as the
time is utilized on the cards. In from each card is recognized on a prorated
basis as a time is utilized on that card.

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-diluting

Estimates -

Preparing that Company's financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect reported amounts of
assets and liabilities and disclosure of contention assets and liabilities at
the date of the financial statements and reporting periods of revenues and
expenses during the reporting period. 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 abaca foreign countries in which the sea
company operates as a functional currency. Local currency assets and liabilities
are translated at the rates and exchange on the balance sheet date, and local
currency revenues and expenses are translated at the average rates and exchange
during the period. The resulting translation adjustments are recorded directly
into a separate component of shareholders equity.

Income Taxes -

The deferred tax assets and liabilities are recorded for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets, including tax losses and credit carryforwards, and
liabilities are measured using enacted tax rates expected to apply to taxable
income and in the years in which these temporary differences are expected to be
recovered or settled. The effect of deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment change. Deferred income tax expense represents the change during the
period in the deterred tax assets and deferred tax liabilities. The components
of the deferred tax assets and liabilities are individually classified as
current and non-current based on their characteristics. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized.

Inventories -

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

New Accounting Pronouncements -

      In February 2006, the FASB issued Statement No. 155, "Accounting for
Certain Hybrid Financial Instruments" ("SFAS No. 155"), which amends FASB
Statements No. 133 and 140. This Statement permits fair value remeasurement for
any hybrid financial instrument containing an embedded derivative that would
otherwise require bifurcation, and broadens a Qualified Special Purpose Entity's
("QSPE") permitted holdings to include passive derivative financial instruments
that pertain to other derivative financial instruments. This Statement is
effective for all financial instruments acquired, issued or subject to a
remeasurement event occurring after the beginning of an entity's first fiscal
year beginning after September 15, 2006. This Statement has no current
applicability to the Company's financial statements. Management plans to adopt
this Statement on October 1, 2006 and it is anticipated that the initial
adoption of this Statement will not have a material impact on the Company's
financial position, results of operations, or cash flows.


                                       F-8

<PAGE>

      In March 2006, the FASB issued Statement No. 156, "Accounting for
Servicing of Financial Assets - an amendment of FASB Statement No. 140" ("SFAS
No. 156"). This Statement is effective for fiscal years beginning after
September 15, 2006. This Statement requires that all separately recognized
servicing assets and servicing liabilities be initially measured at fair value,
if practicable. This Statement has no current applicability to the Company's
financial statements. Management plans to adopt this Statement on October 1,
2006 and it is anticipated that the initial adoption of this Statement will not
have a material impact on the Company's financial position, results of
operations, or cash flows.

      In June 2006, the FASB issued Interpretation 48, "Accounting for
Uncertainty in Income Taxes" ("FIN 48"), an interpretation of FASB Statement No.
109, "Accounting for Income Taxes." FIN 48 clarifies the accounting and
reporting for income taxes where interpretation of the law is uncertain. FIN 48
prescribes a comprehensive model for the financial statement recognition,
measurement, presentation and disclosure of income tax uncertainties with
respect to positions taken or expected to be taken in income tax returns. FIN 48
is effective for fiscal years beginning after December 15, 2006. This Statement
has no current applicability to the Company's financial statements. Management
plans to adopt this Statement on October 1, 2006 and it is anticipated that the
initial adoption of FIN 48 will not have a material impact on the Company's
financial position, results of operations, or cash flows.

      In September 2006, the FASB issued Statement No. 157, "Fair Value
Measurements" ("SFAS No. 157"). SFAS No. 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. SFAS No. 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. SFAS No. 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 September 2006, the FASB issued Statement No. 158, "Employers'
Accounting for Defined Benefit Pension and Other Postretirement Plans" ("SFAS
No. 158"), an amendment of FASB Statements No. 87, 88, 106 and 132(R). SFAS No.
158 requires (a) recognition of the funded status (measured as the difference
between the fair value of the plan assets and the benefit obligation) of a
benefit plan as an asset or liability in the employer's statement of financial
position, (b) measurement of the funded status as of the employer's fiscal
year-end with limited exceptions, and (c) recognition of changes in the funded
status in the year in which the changes occur through comprehensive income. The
requirement to recognize the funded status of a benefit plan and the disclosure
requirements are effective as of the end of the fiscal year ending after
December 15, 2006. The requirement to measure the plan assets and benefit
obligations as of the date of the employer's fiscal year-end statement of
financial position is effective for fiscal years ending after December 15, 2008.
This Statement has no current applicability to the Company's financial
statements. Management plans to adopt this Statement on October 1, 2006 and it
is anticipated the adoption of SFAS No. 158 will not have a material impact to
the Company's financial position, results of operations, or cash flows.

      In September 2006, the Securities Exchange Commission issued Staff
Accounting Bulletin No. 108 ("SAB No. 108"). SAB No. 108 addresses how the
effects of prior year uncorrected misstatements should be considered when
quantifying misstatements in current year financial statements. SAB No. 108
requires companies to quantify misstatements using a balance sheet and income
statement approach and to evaluate whether either approach results in
quantifying an error that is material in light of relevant quantitative and
qualitative factors. When the effect of initial adoption is material, companies
will record the effect as a cumulative effect adjustment to beginning of year
retained earnings and disclose the nature and amount of each individual error
being corrected in the cumulative adjustment. SAB No. 108 will be effective
beginning October 1, 2006 and it is anticipated that the initial adoption of SAB
No. 108 will not have a material impact on the Company's financial position,
results of operations, or cash flows.

3. CONCENTRATION OF CREDIT

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

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

As of September 30, 2006, three customers accounted for 32.64%, 11.65% and 9.08%
of net accounts receivables.

4. PROPERTY AND EQUIPMENT

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

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


                                       F-9

<PAGE>

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

Computers and switching systems   $ 2,249,000
Furniture and fixtures                147,000
Transportation equipment                5,000
                                  -----------
Total at cost                       2,401,000
                                  -----------

Less: Accumulated depreciation
  and amortization                 (2,136,000)
                                  -----------
Net Property and Equipment        $   265,000
                                  ===========

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

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

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

5. LOANS FROM RELATED PARTIES

As of September 30, 2006, the Company had short-term loans totaling $1,622,000
from shareholders. These loans bear interest at 8% annually, are unsecured, and
are due upon demand. Interest expense of $358,000 was incurred on these notes
during the year ended September 30, 2006.

6. NOTE PAYABLE

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

7. LONG-TERM DEBT

During November 2002, the Company entered into an agreement with Spanish taxing
authorities to pay past due employment tax liabilities incurred during the
period commencing in January of 2001 through April of 2002 totaling
(euro)412,356. Payment terms call for a sixty month payout with interest paid
monthly at 4.24% per annum and principal payments ranging from (euro)3,436 per
month in year one to (euro)10,309 per month in year five. As of September 30,
2006, $13,000 ((euro)11,000) of this debt is long-term.

Maturities on long term debt by year are as follows:

Due within one year   $83,000
Due in year two        13,000
Due in year three          --
Due in year four           --
Due in five years          --
Thereafter                 --
                      -------
Total                 $96,000
                      =======

8. OPERATING LEASES

The Company leases various office space and equipment under operating leases
expiring in various years through 2011. Rent expense incurred in operating
leases for the fiscal years ended September 30, 2006 and 2005 are $121,000 and
$132,000 respectively.

Minimum future rental payments under non-cancelable operating leases having
remaining terms in excess of one year as of September 30, 2006 for each of the
next five years and in the aggregate are:

Year ended September 30, 2006,          Amount
------------------------------         -------
  2007                                  66,000
  2008                                  68,000
  2009                                  68,000
  2010                                  68,000
  2011                                  51,000
                                       -------
Total Minimum future rental payments   321,000
                                       =======


                                      F-10

<PAGE>

9. INCOME TAXES

The Company's subsidiaries, ITS Europe and Teleconnect, file their income taxes
on a calendar year basis. Statutory tax laws of Spain allow net losses from
operations to be carried forward for a period of 15 years. For the year ended
December 31, 2005, the available tax loss carryforwards for ITS Europe and
Teleconnect are (euro)4,292,000 and (euro)13,597,000 respectively. The
utilization of these losses expires as follows:

Year      ITS Europe        Teleconnect
----   ---------------   ----------------
2010   (euro)   11,000   (euro)        --
2011   (euro)   25,000   (euro)        --
2012   (euro)   63,000   (euro)        --
2013   (euro)   79,000   (euro)        --
2014   (euro)  713,000   (euro)   129,000
2015   (euro)1,319,000   (euro)   638,000
2016   (euro)  783,000   (euro) 2,770,000
2017   (euro)  778,000   (euro) 6,240,000
2018   (euro)  521,000   (euro) 2,019,000
2019   (euro)       --   (euro) 1,522,000
2020   (euro)       --            279,000
       ---------------   ----------------
Total  (euro)4,292,000   (euro)13,597,000
       ===============   ================

At September 30, 2006, the Company had US net operating loss carryforwards of
approximately $8,280,000 for federal income tax purposes.

The US carryforward expiration years and amounts are as follows:

Year     Amount
----   ----------
2022   $  195,000
2023      547,000
2024    2,138,000
2025    1,649,000
2026    3,751,000
       ----------
       $8,280,000
       ==========

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

Deferred tax assets and liabilities are comprised of the following as of
September 30, 2006 and 2005:

                                          September 30,
                                    -------------------------
                                        2006         2005
                                    -----------   -----------
Deferred income tax assets:
  Tax effect of impairment of
    goodwill in excess of amounts
    amortized for income tax
    reporting purposes              $   996,000   $   996,000
  Tax effect of net operating
    loss carryforward                 2,815,000     1,540,000
                                    -----------   -----------
                                      3,811,000     2,536,000
Valuation allowance                  (3,811,000)   (2,536,000)
                                    -----------   -----------
Net deferred tax asset              $        --   $        --
                                    ===========   ===========

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


                                      F-11

<PAGE>

A reconciliation of income tax expense (benefit) at the expected rate to income
tax expense (benefit) for financial reporting purposes is as follows:

                                                    Fiscal Year Ended
                                                      September 30,
                                                -------------------------
                                                    2006          2005
                                                -----------   -----------
Income tax (benefit) at expected benefit at
  34% rate                                      $(1,323,000)  $(1,022,000)
Less effect of foreign losses                        48,000        95,000
Less Valuation allowance                          1,275,000       927,000
                                                -----------   -----------
Income tax (benefit) per financial statements   $        --   $        --
                                                ===========   ===========

10. LITIGATION AND CONTINGENT LIABILITIES

A shareholder filed suit against the Company claiming the right to an additional
623,100 shares of the Company's common stock and 246,624 euros in damage due to
the failure to issue these shares on a timely basis. In August 2005, an
agreement was reached whereby the Company will pay 29,000 euros and issue
1,000,000 two-year restricted shares once the shareholder had collaborated with
some internal issues. As of September 30, 2006 the Company has paid 14,500 euros
and accrued 96,000 euros for this settlement The associated 1,000,000 shares
were issued in September 2006.

In the normal course of its operations, the Company may, from time to time, be
named in legal actions seeking monetary damages. While the outcome of these
matters cannot be estimated with certainty, management does not expect, based
upon consultation with legal counsel, that they will have a material effect on
the Company's business or financial condition or results of operations. As of
September 30, 2006, the Company has accrued $101,000 to cover the anticipated
cost of settling several litigation matters.

11. STOCK TRANSACTIONS

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

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

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

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

During the year ended September 30, 2006 the Company issued 1,000,000 share of
common stock to a stockholder pursuant to a settlement agreement(See note 10).

12. 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, 2006.

13. STOCK WARRANTS AND OPTIONS

During the year ended September 30, 2002, the Company adopted an Employee Stock
Option, SAR and Stock Bonus Plan (the "Employee Plan"), which reserves 1,250,000
shares of Common Stock, after the effect of the 1 for 2 reverse stock split on
December 29, 2003, for issuance under the Plan. The Employee Plan allows the
Company to issue awards of incentive or non-qualified stock options, stock
appreciation rights, and stock bonuses, which may be subject to restrictions. No
options have been issued under this plan as of September 30, 2006.

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

As of September 30, 2003, the Company has warrants outstanding to purchase
400,000 shares of Common Stock, after the effects of the reverse 1 to 2 stock
split on December 29, 2003, at the exercise price of $2.00 per share, which
expire on or before December 24, 2004. Each of the warrants contain provisions
for the adjustments of the exercise price and the aggregate number of shares
issuable upon the exercise of the warrants in the event of stock dividends,
stock splits, reorganization and reclassifications and consolidations.


                                      F-12

<PAGE>

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

The Company applied APB 25 and related interpretations in accounting for its
plan through September 2005. Compensation for services that a corporation
receives under APB 25 through stock-based compensation plans should be measured
by the quoted market price of the stock at the measurement date less the amount,
if any, that the individual is required to pay.

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

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

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

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

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

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

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

                                           2006
                                   --------------------
                                                Average
                                               Exercise
                                     Shares      Price
                                   ---------   --------
Outstanding at beginning of year   4,755,790     $1.16
Granted at market value
Exercised                                 --        --
Expired                             (440,000)    $2.00
                                   ---------     -----
Outstanding at the end of year     4,315,790     $0.63
                                   =========     =====

                   Options and Warrants Outstanding           Exercisable
                -------------------------------------   ----------------------
                   Shares        Average      Average      Shares      Average
                Outstanding     Remaining    Exercise   Outstanding   Exercise
                  9/30/06     Life (Years)     Price      9/30/06       Price
                -----------   ------------   --------   -----------   --------
$0.20              315,790         0.5         $0.20       315,790      $0.10
$0.50 - $2.50    3,000,000         1.2          1.45     3,000,000       1.45
$.25             1,000,000         2.5          0.25     1,000,000       0.25
                 ---------         ---         -----     ---------      -----
                 4,315,790                     $0.63     4,315,790      $0.63
                 =========                     =====     =========      =====

                   Options and Warrants Outstanding           Exercisable
                -------------------------------------   ----------------------
                   Shares        Average      Average      Shares      Average
                Outstanding     Remaining    Exercise   Outstanding   Exercise
                  9/30/05     Life (Years)     Price      9/30/05       Price
                -----------   ------------   --------   -----------   --------
$0.20              315,790         1.5         $0.20       315,790      $0.10
$2.00              440,000         1.2          2.00       440,000       2.00
$0.50 - $2.50    3,000,000         2.2          1.45     3,000,000       1.45
$0.25            1,000,000         3.5          0.25     1,000,000       0.25
                 ---------         ---         -----     ---------      -----
                 4,755,790                     $1.16     4,755,790      $1.16
                 =========                     =====     =========      =====


                                      F-13

<PAGE>

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
numbers of shares used in the computations were 147,878,326 and 78,748,850 in
2006 and 2005, respectively.

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

15. SUBSEQUENT EVENTS

In November 2006, the Company repaid the $126,350 ((euro)95,000) of Social
Security debt.


                                      F-14

<PAGE>

Item 8.  Changes In and Disagreements with Accountants on Accounting and
         Financial Disclosure

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

Item 8.A Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure

A. Evaluation of Disclosure Controls and Procedures. The Company's Chief
Executive Officer and the Company's principal financial officer, after
evaluating the effectiveness of the Company's disclosure controls and procedures
(as defined in the Securities Exchange Act of 1934, Rule 13a-14(c)and 15d-14(c)
as of a date within 90 days of the filing date of this report on Form 10-KSB for
September 30, 2006, have concluded that as of the Evaluation Date, the Company's
disclosure controls and procedures were adequate and effective to ensure that
material information relating to the Company and the Company s consolidated
subsidiaries would be made known to them by others within those entities,
particularly during the period in which this annual report on Form 10-KSB was
being prepared.

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

Item 8.B Other Information

None


                                       25

<PAGE>

                                    PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons and
         Corporate Governance; Compliance with Section 16(a) of the Exchange Act

The directors and officers of the Company as of September 30, 2006 are as
follows:

Name               Age    Position
----               ---    --------
Gustavo A. Gomez    43    Director, President and Treasurer
Alfonso de Borbon   31    Executive Vice-President Corporate Development
Leonardus Geeris    61    Director

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

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

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

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

Item 10. Executive Compensation

All executive officers, for services in all capacities to the Company, received
the following compensation during the fiscal year ended September 30, 2006 and
2005

<TABLE>
<CAPTION>
                                                                                  Long-Term Compensation(2)
                                              Annual compensation(1)         ---------------------------------
                                       -----------------------------------     Awards     Securities
Name and                                                          Other      Restricted   Underlying   Payouts       All
Principal                     Fiscal                             Annual         Stock      Options/      LTIP        Other
Position                       Year    Salary(1)(2)   Bonus   Compensation    Awards(3)      SARs      Payouts   Compensation
---------------------------   ------   ------------   -----   ------------   ----------   ----------   -------   ------------
<S>                            <C>       <C>            <C>        <C>           <C>       <C>            <C>         <C>
Gustavo Gomez                  2006      $143,000       $0         $0            $0        $880,000       $0          $0
President and Treasurer        2005      $143,000       $0         $0            $0        $      0       $0          $0
Alfonso de Borbon              2006      $ 77,880       $0         $0            $0        $440,000       $0          $0
Chief Financial Officer and
Executive Vice President       2005      $ 77,880       $0         $0            $0        $      0       $0          $0
</TABLE>

All executive officers as a group (2 persons) during fiscal 2006 $220,880.

(1)   The salary of Mr. Gomez was fixed at 120,000 Euro in 2002.

(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.


                                       26

<PAGE>

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

Committees of the Board of Directors

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

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

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

Based on its review of the copies of such forms received by it, the Company
believes that during the year ended September 30, 2006, all such filing
requirements applicable to its officers and directors were complied with except
that Mr. Leonardus Geeris was late in filing certain Form 4 reports.

2002 Employee Stock Option, SAR and Stock Bonus Plan

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

2004 Stock Option, SAR and Stock Bonus Plan

Effective July 29, 2004, the Company adopted and approved its 2004 Stock Option,
SAR and Stock Bonus Plan which reserved 15,000,000 shares of Common Stock for
issuance under the Plan. The Plan allows us to issue awards of incentive
non-qualified stock options, stock appreciations rights, and stock bonuses to
consultants to the Company which may be subject to restrictions. During the
fiscal year ended September 30, 2006 the following consultants to the company
received the following awards against this 2004 Plan, Kirk Haynes 1,000,000, and
Mr. Erwin Lanting 2,000,000 shares.

2006 Stock Option, SAR and Stock Bonus Plan

Effective March 31, 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 us to issue awards of
incentive non-qualified stock options, stock appreciations rights, and stock
bonuses Officers, Directors, employees and to consultants to the Company which
may be subject to restrictions. As of September 30, 2006 the following persons
to the company received the following awards under this 2006 Plan: Gustavo Gomez
4,000,000 shares, Alfonso de Borbon 2,000,000 shares, Alvaro Lopez 2,000,000
shares, Barbara Ocana 2,000,000 shares.

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, 2006.

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;


                                       27

<PAGE>

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

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

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

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

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

Item 11. Security Ownership of Certain Beneficial Owners and Management and
         Related Stockholder Matters

The total number of shares of Common Stock of the Company beneficially owned by
each of the officers and directors, and all of such directors of the Company and
officers as a group, and their percentage ownership of the outstanding shares of
Common Stock of the Company as of September 30, 2006 are as follows:

                                                   Shares
Management                                      Beneficially    Percent of
Shareholders (1)                                 Owned (1)     Common Stock
----------------                                ------------   ------------
Leonardus Geeris (2)                             120,878,730       66.9%
Gustavo A. Gomez                                   4,000,000        2.2%
Alfonso de Borbon                                  2,230,000        1.2%
Directors and officers as a group (4 persons,
including the above persons)                     127,108,730       70.3%

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

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

The following table sets forth information with respect to the beneficial
ownership of the Company's Common Stock, as adjusted for the stock split, by
each shareholder who beneficially owns more than five percent (5%) of the
Company's Common Stock, the number of shares beneficially owned by each and the
percent of outstanding Common Stock so owned of record as of September 30, 2006.
It is believed by the Company that all persons listed have sole voting and
investment power with respect to their shares, except as otherwise indicated.

                                      Title of      Shares of
                                    Beneficially    Outstanding   Percent
Names and Addresses                     Class      Common Stock    Owned
---------------------------------   ------------   ------------   -------
Geeris Holding Nederland B.V. and      Common       120,078,730    66.9%
Diepandael BV(1) + Mr. Leo Geeris
Helvoirtseweg 146, 5263, EH Vught
Postbus 317, 5260, AH Vught
The Netherlands

Volim Holding B.V.                     Common         5,976,864    3.31%
Zandpad 55
3621 NE Breukelen
The Netherlands

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


                                       28

<PAGE>

Item 12. Certain Relationships and Related Transactions, and Director
         Independence

During the year ended September 30, 2006, Mr. Leonardus Geeris converted
personal loans to the Company and committed to assume other debt obligations of
the Company totaling 1,240,000 Euros in exchange for 52,200,000 shares of
restricted common stock of the Company.

Item 13. Exhibits

(A)   Reports on Form 8-K

No current reports on Form 8-K were filed by the Company during the three month
period ended September 30, 2006.

(B)   Exhibits

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

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 Contracts

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

21. A description of the         A description of the subsidiaries of the
subsidiaries of the Company      Company.

23. Consent of Murrell, Hall,    Consent of Murrell, Hall, McIntosh & Co., PLLP,
McIntosh & Co., PLLP             independent auditor


                                       29

<PAGE>

Item 14. Principal Accountant Fees and Services

The aggregate fees billed by our principal accounting firm, for fees billed for
fiscal years ended September 30, 2006 and 2005 are as follows:

<TABLE>
<CAPTION>
Name                                  Audit Fees   Audit Related Fees    Tax Fees   All Other Fees
----                                  ----------   ------------------    --------   --------------
<S>                                    <C>                 <C>            <C>             <C>
Murrell, Hall, McIntosh & Co., PLLP
  for fiscal year ended
September 30, 2006                     $52,500             $0             $3,400          $0
September 30, 2005                     $47,500             $0             $3,400          $0
</TABLE>

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


                                       30

<PAGE>

                                   SIGNATURES

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

                                            Teleconnect Inc.


Date: December 22, 2006                 By: /s/ Gustavo Gomez
                                            ------------------------------------
                                            Gustavo Gomez
                                            Director, President and Treasurer


                                            /s/ Alfonso de Borbon
                                            ------------------------------------
                                            Alfonso de Borbon
                                            Chief Financial Officer,
                                            Executive Vice President and
                                            Principal Accounting and Financial
                                            Officer

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


Date: December 22, 2006                 By: /s/ Gustavo Gomez
                                            ------------------------------------
                                            Gustavo Gomez
                                            Director, Chief Executive Officer,
                                            President and Treasurer


                                        By: /s/ Alfonso de Borbon
                                            ------------------------------------
                                            Alfonso de Borbon
                                            Director, Chief Financial Officer,
                                            Executive Vice President and
                                            Principal Accounting and Financial
                                            Officer


                                       31

<PAGE>

                           INDEX OF EXHIBITS ATTACHED

Exhibit                               Description
-------                               -----------
21.                                   Description of Subsidiaries

23.       Consent of Murrell, Hall,   Consent of Murrell, Hall, McIntosh &
          McIntosh & Co., PLLP        Co., PLLP, independent auditor

31.1                                  Certification of Gustavo Gomez

31.2                                  Certification of Alfonso de Borbon

32.1                                  Certification of Gustavo Gomez and
                                      Alfonso de Borbon


                                       32