U.S.
Securities and Exchange Commission





Washington,
D.C. 20549





Form
10-K




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





For
the fiscal year ended September 30, 2010





or





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




For
the transition period from ______________ to ______________





Commission
File Number: 0-30611





Teleconnect
Inc.


(Exact
name of registrant as specified in its charter)





Florida
              
              90-0294361(State
      or other jurisdiction of
              
              (I.R.S.
      Employer Identification No.incorporation
      or organization)





Oude
Vest 4


4811
HT, Breda


The
Netherlands


(Address
of principal executive offices)





Registrant’s
telephone number, including area code: 011-31-630 048
023





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





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





Common Stock, $0.001 par
value


Title of
Class





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





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





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





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





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. x





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





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





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





State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed fiscal quarter
ended June 30, 2010: $5,696,755 with 4,953,700 shares outstanding at $1.15 each
after the effect of the 1 for 100 reverse split approved by the shareholders at
a meeting held on November 12, 2009 and made effective by FINRA on February 23,
2010.





APPLICABLE
ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY


PROCEEDINGS
DURING THE PRECEDING FIVE YEARS





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





(APPLICABLE
ONLY TO CORPORATE REGISTRANTS)





Indicate
the number of shares outstanding of each of the registrant's classes of common
stock, as of the last practicable date: December 10, 2010: 5,629,205 shares of
common stock, $.001 par value after the effect of the 1 for 100 reverse split
approved by the shareholders at a meeting held on November 12,
2009.





DOCUMENTS
INCORPORATED BY REFERENCE





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





TABLE
OF CONTENTS





PART
      IItem
      1
                                  Business
                                  3Item
      1A
                                  Risk
      Factors
                                  5Item
      1B
                                  Unresolved
      Staff Comments
                                  7Item
      2
                                  Properties
                                  7Item
      3
                                  Legal
      Proceedings
                                  7Item
      4
                                  Submission
      of Matters to a Vote of Security Holders
                                  8PART
      IIItem
      5
                                  Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                                  8Item
      6
                                  Selected
      Financial Data
                                  9Item
      7
                                  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                  10Item
      7A
                                  Quantitative
      and Qualitative Disclosures About Market Risk
                                  14Item
      8
                                  Financial
      Statements and Supplementary Data
                                  14Item
      9
                                  Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                                  28Item
      9A
                                  Controls
      and Procedures
                                  28Item
      9B
                                  Other
      Information
                                  29PART
      IIIItem
      10
                                  Directors,
      Executive Officers and Corporate Governance
                                  30Item
      11
                                  Executive
      Compensation
                                  30Item
      12
                                  Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                                  32Item
      13
                                  Certain
      Relationships and Related Transactions, and Director
      Independence
                                  32Item
      14
                                  Principal
      Accounting Fees and Services
                                  32PART
      IVItem
      15
                                  Exhibits,
      Financial Statements, Schedules
                                  33Signatures
                                  35




2




PART
I





Item
1. Business





General





Teleconnect
Inc. (the Company) (initially named Technology Systems International Inc.) was
incorporated under the laws of the State of Florida on November 23,
1998.





Serving
as a telecommunications service provider in Spain for almost 9 years, the
Company never fully reached expectations and decided late in 2008 to change its
course of business. In November 2009, 90% of the Company’s telecommunication
business was sold to a Spanish group of investors, and on
October 15, 2010, the Company completed the acquisition of Hollandsche
Exploitatie Maatschappij BV (HEM), a Dutch entity established in 2007. HEM’s
core business involves the age validation of consumers when purchasing products
which cannot be sold to minors, such as alcohol or tobacco. The Company regards
this age validation business as its new strategic direction. The Dutch companies
acquired in 2007 (Giga Matrix, The Netherlands, 49% and Photowizz, The
Netherlands, 100%) are considered to function complementary to this new service
offering.





Through
the purchase of HEM and its ownership in Photowizz and Giga Matrix the Company
now controls all four pillars under its business model: the manufacturing and
leasing of electronic age validation equipment, the performance of age
validation transactions remotely, the performance of market surveys and the
broadcasting of in-store commercial messages using the age validation equipment
in between age checks.





Products
and service offering


Unlike
traditional methods of age validation, the Company’s system (‘Ageviewers’) is
designed to check ages remotely. Using a special terminal at our customers’
checkout and a secure internet connection, during transactions involving
products with a minimum legal age limit, a brief video connection is created
between the terminal and an external age-verification center of the Company. At
this center, specially trained verification personnel perform the actual age
verification based on the incoming images of customers buying alcohol or
tobacco. Also, the system provides for the exact age to be determined based on
photo identification in such cases the buyer is not unmistakably of
age.





The
operators of the external age-verification center are not in direct contact with
the person being assessed. The chances of human error and integrity problems
(due to intimidation, familiarity or disinterest, for example) are thus reduced.
In addition, because of the central approach in which operators are assigned
incoming images at random, it is unlikely that minors can predict where
non-compliance (if any) will occur. The system therefore aligns with what is
legally expected of alcohol and tobacco distributors.





If a
terminal is not in use (before or after age verification), the system can
display specific advertising material, geared to the products being scanned at
that moment, if desired. This may result in additional or alternative revenue
through advertising. The terminals are also suitable for brief market
surveys.





In
addition, the Company has developed an in-store camera-security system which is
now being piloted in The Netherlands. The system, which serves outside opening
hours, shares connections and part of the hardware needed in relation to age
validation, and is therefore expected to be very cost efficient for shop
owners.





The
Company’s hardware products are fully in compliance with the European Machine
Directive and have been tested and approved for electromagnetic compatibility.
The operations are momentarily limited to Europe and therefore not subject to
specific regulation in the U.S., either at the federal or state
level.





There are
currently no known systems which are similar to Ageviewers, but the constant
attention on sanctions and on tightening sanctions with regard to illegal sale
of alcohol and tobacco will undoubtedly cause a certain amount of pressure in
the direction of better age-verification systems. The Company has applied for
patents for its specific technology. To date, several of these patent
applications have been awarded.





Service
is provided from the office in Breda, The Netherlands, and can largely also be
provided ‘remotely’. The customers’ terminals are linked with the Company’s
database server every few seconds, such that background tests are continuously
performed to confirm that the technology is available. If the connection or
operation of a terminal fails, an alert is immediately displayed on a central
screen at the Company, indicating which location is affected by what
problem.


3


Market


The
Company is focused primarily on retail trade. For instance in the Netherlands
(population 16.5M – the home market), some 7,500 liquor stores and supermarkets
conclude about 350 million age-restricted transactions per annum and account for
approximately 80% of all alcohol sold. The operable European and US market is
estimated to be at least 30 times larger.





Despite
the increasing social pressure to improve the quality of age verification, and a
trend towards self-scan checkouts (without personnel), there is a concentrated
resistance within the alcohol industry and the supermarket branch to
reorganizing the way that alcohol is sold. The efforts of the Company are
therefore logically also focused on breaking through the resistance in the
market and offering an alternative for traditional age
verification.





The objective is to introduce the Company’s products as
efficiently as possible along the various paths in the retail trade, and at the
same time to generate as much social support for the solution as possible. Sales
are organized in such a way that these efforts and developments are well
supported. Management is actively pursuing key strategic partners in the
countries targeted in our business plan.




Management
and personnel




The
Teleconnect Board of Directors consists of three officers (Dirk Benschop, CEO
and President; Gustavo Gomez, CCO and Les Pettitt, CFO) and two non-executive
directors (Kees Lenselink, Director and Jan Hovers, Supervisory
Director).





The Dutch
subsidiaries HEM, Photowizz and Giga Matrix are managed by a team of three, with
a staff of two administrators. In addition four external independent specialists
(automation, design) are employed practically full time. The validation center
currently employs 12 operators, bringing the total number of people involved in
the operation as of September 30, 2010 at 26.





The
Company currently operates 96 hours per week (coinciding with the opening times
of the retail trade) and all operators work part time and in short shifts. In
addition, the daily and weekly peaks and valleys in sales are extremely
predictable, which makes it very simple to plan the number of required operators
at a given moment of the day or week.





None of
the Company's employees are represented by a labor union with respect to his or
her employment by the Company.





Stage
of development of business




After
starting marketing the Ageviewers solution in July 2010, by September the
Company had entered into contracts with over 20 individual alcohol outlets in
the Netherlands for a period of 36 months of which 6 stores have received
delivery of the system. Delivery of other currently outstanding orders is due
during the quarter ending March 31, 2011. Initial contracts are based on
revenues from advertising only, which is expected to ramp up during the fiscal
quarter ending June 30, 2011. The Company does not expect that it will derive a
significant percentage of its revenue from just one or few
customers.





Banking arrangements and financial
reporting


The
Company has no outstanding bank loans and is up to date in its financial
reporting.





Discontinued
operation


Even
though the Company has discontinued its majority share in telecommunications in
Spain, it has maintained a 10% stake in Teleconnect SA. During the fiscal year
2010, Teleconnect SA continued to provide prepaid voice telephone services to
its customers.


4


Item 1A
Risk Factors





Continuity


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, 2010, we had an accumulated deficit of $30,019,592 and had a
stockholders' deficit of $1,510,480. As shown in the accompanying consolidated
financial statements, the Company had net income of $1,972,838 in 2010 due to
gain of $3,119,901 on the sale of the discontinued operations while it incurred
a loss of $1,828,443 in 2009. As of September 30, 2010, the Company had a
working capital deficit of $1,941,946 as compared to its working capital deficit
as of September 30, 2009 of $4,556,111. These factors raise substantial doubt
about the Company's ability to continue as a going concern. These results and
facts are the justification for the significant change in direction and focus of
the Company implemented by new management.





In order
for us to be successful, cash draining activities were disposed of and debt was
restructured. Looking forward, when entering new markets with new innovative
service offerings, such as the age validation solution, we may not succeed in
attracting sufficient funds to successfully accomplish the transition that is
necessary to create a viable situation.





Exit
for investors


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





The market:
resistance


Despite
the increasing need for measures protecting youth and limiting social damage,
monitoring age limits effectively also meets resistance from political and other
arenas. In many cases, the legal regulation is at odds with specific objectives
in the alcohol and tobacco industries which can mobilize supply industries and
distribution channels in their resistance. Examples include the advertising
industry, or the supermarket branch, which is financially largely dependent on
the marketing of both the alcohol and tobacco products.





The
strategic resistance of the alcohol and tobacco industry to changes that may
affect their main distribution; the loyalty of store owners and chains of stores
to the traditional verification methods imposed by branch organizations and the
price perception of clients with respect to Ageviewers are factors that might
negatively affect the profitability of the Company.





Management and personnel


We
currently rely on a small core management team. In the event that we grow, we
must not only manage demands on this team but also increase management
resources, among other things, to expand, train and manage our employee base and
maintain close coordination among our technical, accounting, financing,
marketing and sales staff. If any growth is not properly managed, management may
be unable to adequately support our clients in the future.





If
members of our senior management team or key personnel leave the Company, the
Company’s ability to operate its business could be negatively affected. There
can be no assurance that the Company will be successful in replacing management
or key personnel in such events. Our future success depends to a significant
extent on the continued services of the senior management and these key
personnel. The loss of services or any other present or future key management or
employee, could have a material adverse effect on our business. We do not
maintain “key person” life insurance for any of our personnel.





Also, if
our business grows, we might not be able to attract additionally required key
employees or other highly qualified employees in the future. We have experienced
this from time to time in the past, 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


Management
has identified that future expansion outside The Netherlands requires us to
enter into partnerships with local parties. Also, our sales rely on the efforts
of branch organizations that support the use of Ageviewers. If we are unable to
expand and maintain our sales representative and third-party sales channel
relationships, then our ability to sell and support our services may be
negatively impacted. In addition, no assurances can be provided that these third
parties are committed sufficiently to our business, that they will meet their
sales targets or that they will not develop their own competitive
services.





We may
not be able to maintain our current relationships or form new relationships with
third parties that supply us with clients, synergies, software or related
products that are important to our success. Accordingly, no assurances are
provided that our existing or prospective relationships will result in sustained
business partnerships, successful offerings or the generation of significant
revenues.


5


Suppliers


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





Service
Disruptions


The Ageviewers solution requires
real-time communications between the retail stores and the centralized
validation center. If the
network infrastructure of the service provider is disrupted or security breaches
occur on our communications lines with our clients, we may lose clients or incur
additional liabilities.





We may in
the future experience interruptions in service as a result of fire, natural
disasters, power loss, or the accidental or intentional actions of service
users, current and former employees and others. Although we continue to
implement industry-standard disaster recovery, security and service continuity
protection measures, including the physical protection of our offices and
equipment, similar measures taken by others have been insufficient or
circumvented in the past. There can be no assurance that our measures will be
sufficient or that they will not be circumvented in the future. Unauthorized use
of our network could potentially jeopardize the security of confidential
information stored in the computer systems or transmitted by our clients.
Furthermore, addressing security problems may result in interruptions, delays or
cessation of services to our clients. These factors may result in liability to
us or our clients.




Competition.




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





Many of
HEM’s future competitors may have substantially greater financial, technical and
marketing resources, larger customer bases, greater name recognition and more
established relationships in the retail 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, or
      alternative products 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





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:





*
            political
      climate at any point in time;


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


*
            the timing of new service
      offerings;


*
            changes in our pricing
      policies;


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


*
            the length of our contract
      cycles; and


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





In
addition, a relatively large portion of our expenses are fixed in the short-term
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


Governments
are slowly approving stricter laws with respect to the penalties applied to
those that sell alcohol or tobacco to minors yet some fail in the enforcement of
those same laws. Lack of penalties and law enforcement significantly influence
demand for effective age verification systems. No assurances can be provided
that stricter laws will be implemented or existing laws will not be abolished.
Also no guarantees exist that governments will impose stricter law enforcement
or that existing law enforcement will not be abolished.





In
addition, there are no guarantees that privacy laws might not be changed in such
way that processing personal data for the purpose of preventing minors to buy
alcohol or tobacco will be illegal. In such circumstances, it would be
impossible for the Company to continue its operations in age
validation.


6


Consumer
susceptibility for privacy issues


Abuse of
personal data in any other system, such as camera systems or body scanners,
might affect the public opinion on the automated processing of personal data and
images. If the public opinion would turn against systems that process these
data, this might severely affect our continuity.





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 4,953,700 post-split shares of our Common Stock
outstanding as “restricted securities” as defined in Rule 144 as of September
30, 2010, which will be available for sale in the future. This number of shares
takes into consideration the 1-for-100 reverse split approved at the
shareholders meeting of November 12, 2009. These shares may be sold in the
future without registration under the Securities Act to the extent permitted by
Rule 144 or other exemptions under the Securities Act.





Technological
Changes


Global
industries are subject to rapid and significant technological changes. We cannot
predict the effect of technological changes on our business. We will rely in
part on third parties, for the development of, and access to everything from
communications and networking technologies, to hardware, components and parts
for user terminals. We expect that new services and technologies applicable to
our market will emerge. New products and technologies may be superior and/or
render obsolete the products and technologies that we currently use to deliver
our services. We must anticipate and adapt to technological changes and evolving
industry standards. We may be unable to obtain access to new technologies on
acceptable terms or at all, and we may be unable to obtain access to new
technologies and offer services in a competitive manner. Any new products and
technologies may not be compatible with our technologies and business
plan.




Voting
Control




The
largest single shareholder of the Company as of September 30, 2010, Mr. Hendrik
van den Hombergh, owned directly and beneficially approximately 36.0% of the
Company’s outstanding Common Stock as of that date. During 2010, this
stockholder has financially made possible the change in course described
earlier. As of September 30, 2010, Mr. Geeris remained a significant shareholder
of the Company with 31.8% of the common stock of the Company. Subsequent to
September 30, 2010, with the issuance of stock in relation to the purchase of
HEM, the percentage ownership of Mr. van den Hombergh was 31.7% and that of Mr.
Geeris became 28.0%





Item
1B    Unresolved Staff Comments





None





Item
2.      Properties





The
Company’s principal executive offices were located during fiscal 2010 at Oude
Vest 4, 4811 HT, Breda, The Netherlands.





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





Item
3.      Legal Proceedings





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


7


During
fiscal 2010, the Company has commenced legal actions in Spain and The
Netherlands against parties which owe money to the Company. One of these parties
has filed a counterclaim in defense against the Company.





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





During
the fiscal year ended September 30, 2010, security holders of the Company were
asked to vote to approve a 1-for-100 reverse stock split; which was approved on
November 12, 2009. Shareholders were also requested on November 12, 2009 to
ratify the Board’s decision to sell the Spanish subsidiaries and on October 8,
2010 to ratify the purchase of HEM. In both cases approval was
obtained.





PART
II





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





General





The
Common Stock of the Company is currently traded on the NASD Pink Sheets under
TLCO.PK. Steps are being taken to bring the Company back to the OTC Bulletin
Board where it used to be quoted as TLCO.OB.





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. For consistency reasons with the
financial statements, the per share historical prices listed below, reflect
retroactively the effect of the 1-for-100 reverse split approved by the majority
of the shareholders of the Company at its shareholders’ meeting on November 12,
2009.





High Closing
                            Bid Price
                          
                          
                          Low Closing
                            Bid PriceYear Ended December 31,
20081
      st
      Quarter
                          
                          $
                          2.90
                          
                          
                          $
                          0.602
      nd
      Quarter
                          
                          $
                          0.90
                          
                          
                          $
                          0.703
      rd
      Quarter
                          
                          $
                          0.70
                          
                          
                          $
                          0.504
      th
      Quarter
                          
                          $
                          3.00
                          
                          
                          $
                          3.00Year Ended December 31,
20091
      st
      Quarter
                          
                          $
                          1.00
                          
                          
                          $
                          0.302
      nd
      Quarter
                          
                          $
                          1.50
                          
                          
                          $
                          0.103
      rd
      Quarter
                          
                          $
                          2.50
                          
                          
                          $
                          0.804
      th
      Quarter
                          
                          $
                          2.50
                          
                          
                          $
                          1.00Year Ended December 31,
20101
      st
      Quarter
                          
                          $
                          1.55
                          
                          
                          $
                          0.412
      nd
      Quarter
                          
                          $
                          1.40
                          
                          
                          $
                          1.103
      rd
      Quarter
                          
                          $
                          1.15
                          
                          
                          $
                          0.604
      th
      Quarter (up to December 14, 2010)
                          
                          $
                          1.05
                          
                          
                          $
                          0.60





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 200,000 post-split shares of Common
Stock for issuance under the Plan. The Plan allowed 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. At
the termination date of the Plan, on midnight May 31, 2010, there had been
145,743 shares of common stock issued under the Plan.


8


On
October 8, 2010, the Company adopted and approved its 2010 Stock Option, SAR and
Stock Bonus Plan (the “2010 Plan”) which reserved 500,000 shares of Common Stock
for issuance under this new 2010 Plan. This Plan allows us to issue awards of
incentive non-qualified stock options, stock appreciation rights, and stock
bonuses to Officers, Directors or consultants to the Company. As of the date of
this filing, no shares have been issued under this 2010 Plan.





Sale of Unregistered
Securities





During
the fiscal year ended September 30, 2010, there were no sales of unregistered
securities.





Item
6. Selected Financial Data





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





Year Ended
                  
                  
                  Year EndedSeptember 30, 2010
                  
                  
                  September 30, 2009Revenues
                  
                  $
                  254,446
                  
                  
                  $
                  361,989Cost
      of sales
                  
                  $
                  282,333
                  
                  
                  $
                  435,147Selling,
      general and administrative
                  
                  $
                  968,146
                  
                  
                  $
                  1,365,550Depreciation
                  
                  $
                  2,619
                  
                  
                  $
                  31,794Other
      income
                  
                  $
                  87
                  
                  
                  $
                  21,652Loss
      on investment
                  
                  $
                  (130,057
                  )
                  
                  $
                  (44,626
                  )Interest
      expense – related parties
                  
                  $
                  (68,111
                  )
                  
                  $
                  (54,396
                  )Benefit
      (provision) for income taxes
                  
                  $
                  49,670
                  
                  
                  $
                  (50,000
                  )Net
      loss from continuing operations
                  
                  $
                  (1,147,063
                  )
                  
                  $
                  (1,597,872
                  )Net
      income (loss) from discontinued operations
                  
                  $
                  3,119,901
                  
                  
                  $
                  (230,571
                  )Net
      income (loss)
                  
                  $
                  1,972,838
                  
                  
                  $
                  (1,828,443
                  )Comprehensive
      income (loss)
                  
                  $
                  1,889,174
                  
                  
                  $
                  (1,774,596
                  )Net
      income (loss) per share
                  
                  $
                  0.40
                  
                  
                  $
                  (0.43
                  )


9




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





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





Forward Looking
Statements





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





Critical Accounting
Policies





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





Estimates.The discussion and
analysis of our financial condition and results of operations is based upon our
consolidated financial statements which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenue and expenses, and
related disclosure of contingent assets and liabilities. On an on-going basis,
we evaluate our estimates including the allowance for doubtful accounts, the
reselling 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.





Revenue Recognition. Our
revenue recognition policies are based on the requirements of SEC Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements. Revenue from the sale of multimedia hardware components from
our Photowizz subsidiary are recognized in the period in which title has passed
and services have been rendered.





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





Accounting for Stock-Based
Compensation. The Company accounts for employee equity awards under the
fair value method. Accordingly, the Company measures stock-based compensation at
the grant date based on the fair value of the award. The fair value of stock
option awards, if any, are estimated using the Black-Scholes option pricing
model. Estimated compensation cost relating to restricted stock awards, if any,
are based on the fair value of the Company’s common stock on the date of the
grant. The compensation expense for stock-based awards is reduced by an estimate
of forfeitures and is recognized over the expected term of the award under a
graded vesting method.


10


Variable Interest Entities.
We analyze any potential Variable Interest or Special-Purpose Entities in
accordance with the guidance of FASB ASC 810-10, Consolidation of Variable
Interest and Special-Purpose Entities. Once an entity is determined to be a
Variable Interest Entity (VIE), the party with the controlling financial
interest, the primary beneficiary, is required to consolidate it. The Company
has analyzed its investment in Giga and after analysis we have determined that,
while Giga is a VIE as defined by FASB ASC 810-10, we are not the primary
beneficiary, and therefore Giga is not required to be consolidated.





Segment Reporting. Based on
the criteria within accounting guidance, we have determined that we have two
reportable segments; the age-validation sales and services, which as per
September 30, 2010, encompasses Photowizz, and telecommunications systems and
related services (discontinued operations) which encompasses the companies of
Teleconnect Comunicaciones SA, Teleconnect Telecom SL, Recarganet.





Discontinued operations. In
March 2009, the Company entered into an agreement to sell ITS Europe,
Teleconnect SA, Teleconnect Telecom and Recarganet to certain employees and
officers of Teleconnect SA with the Company retaining 10% of Teleconnect SA. The
Company perfected the sale in 2010.





Overview





At the
time of this filing, we derived our revenues from continuing operations
primarily from the sale of multimedia terminals and hardware components to the
suppliers of retail chains. These terminals and components can be applied to
different functions such as recharging prepaid telephone cards. Our revenues and
operating results will depend in the future upon the success of the four pillars
described in our business model which 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.





Today,
our existing revenues 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.





The
Company is not reliant on any specific customer for revenues. The Company’s
present and future revenues are based on the following four pillars: the
manufacturing and leasing of electronic age validation equipment, the
performance of age validation transactions remotely, the performance of market
surveys and the broadcasting of in-store commercial messages using age
validation equipment in between age checks.





As of
November 25, 2009, the Company no longer perceives any revenues from the
discontinued operations. The remaining 10% shareholding the Company has retained
in Teleconnect SA, may provide for future revenue in the form of dividend and
/or sales of stock.





Year Ended September 30,
2010, compared to year ended September 30, 2009




Assets. Total assets
as of September 30, 2010 decreased 48.5% to $1,936,685 from $3,765,332 at
September 30, 2009. This decrease is due primarily to approximately $1,260,000
from previous year’s discontinued operations which were sold in 2010 as well an
increase in our reserve for slow moving inventory of $57,467; losses on our
investment in Giga Matrix of $130,057; and $54,592 of notes receivable which
were transferred in connection with the sale of our Spanish subsidiaries offset
by a minor increase in accounts receivable.




Liabilities. Total
liabilities as of September 30, 2010 decreased 51.9% to $3,447,165 compared to
$7,164,986 as of September 30, 2009. This decrease is due primarily to the
elimination of $4,377,269 of liabilities associated with our discontinued
operations offset by an increase of $652,805 in loans from related
parties.





Revenues. Revenues
from continuing operations for the year ended September 30, 2010 amounted to
$254,446 compared to $361,989 in the prior year; a decrease of 29.7%. 2009
revenues primarily were derived from the sales of calling credit through kiosks
that Photowizz custom built and installed in supermarkets for a Netherlands
customer. These calling credit sales were terminated during this fiscal year
because they generated insufficient margin for Photowizz and involved a credit
risk from unused calling credits. Photowizz’ activities have been transformed
during the fiscal year to compliment the Company’s future core business. The
decrease in sales is attributed to this transformation.


11


Pricing Policies. The
pricing for our products and services from continuing business may vary
depending on which combination of services is provided, the speed of service,
geographic location and capacity utilization. It is not the intention of the
Company to enter “price wars”, but the Company will market its Ageviewers
solution at reduced cost at strategically selected locations if the reduced
revenues can be offset with revenue generated from in-store commercial messages
or market surveys, for example. The Company strives to differentiate itself with
the effectiveness of its service and by achieving more added value from the
hardware and connectivity installed with regards to age validation.





Client Contracts. Our
contracts with customers generally include an agreed-upon price schedule that
details both fixed and variable prices for contracted services. Our sales
representatives can add additional services to existing contracts, enabling
clients to increase the number of locations. Recent contracts for the
age-verification service are for a 36-month period.





Cost of Sales. Cost
of sales from continuing operations for the year ended September 30, 2010
amounted to $282,333 as compared to $435,147 for the year ended September 30,
2009. Cost of sales decreased 35.1% while Revenues decreased by 29.7% due to the
excess capacity costs associated with the discontinued sales of calling credit
and with the rescheduled delivery of hardware components for first quarter of
fiscal 2011. The cost of sales in 2010 includes a charge for slow moving
inventory of $57,467 compared to $128,678 in 2009.





Accordingly;
we reflected a gross loss during fiscal 2010 of $27,887 compared to a gross loss
in 2009 of $73,158.





Selling, General and
Administrative. Selling, general and administrative expenses during 2010
was $968,146, a decrease of $397,404 or 29.1% from the prior year’s operating
expenses of $1,365,550. This decrease is primarily due to the reduction in the
use of outside professional services related to the Company’s accounting and
taxes in 2010 compared to 2009.





Interest Expense .
Interest expense for the year ended September 30, 2010 was $68,111 compared to
$54,396 for the prior year; an increase of 13,715 or 25.2%. This increase was
due primarily to an increase in loans made from affiliated parties during 2010
which resulted in additional interest as compared to 2009.





Loss From Discontinued
Operations





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





Year Ended
                    Sept 30, 2010
                  
                  
                  Year Ended
                    Sept 30, 2009Revenues
                  
                  $
                  586,479
                  
                  
                  $
                  4,274,248Cost
      of sales
                  
                  
                  364,021
                  
                  
                  
                  3,070,712Gross
      profit
                  
                  
                  222,458
                  
                  
                  
                  1,203,536Selling,
      general and administrative expenses
                  
                  
                  218,695
                  
                  
                  
                  1,430,742Depreciation
                  
                  
                  7,466
                  
                  
                  
                  101,648Operating
      loss
                  
                  
                  (3,703
                  )
                  
                  
                  (328,854
                  )Gain
      on sale of subsidiary
                  
                  
                  3,145,545
                  
                  
                  
                  85,308Other
      income (expense)
                  
                  
                  (21,941
                  )
                  
                  
                  12,975Gain
      (loss) from discontinued operations
                  
                  $
                  3,119,901
                  
                  
                  $
                  (230,571
                  )





Revenues . Revenues
from discontinued operations in 2010 decreased 86.3% to $586,479 compared to
$4,274,248 in 2009. The decrease in sales is due to the fact that the sales for
the current fiscal year consider only the period from October 1 to November 25,
2009; date at which the subsidiaries were sold.





Cost of Sales. Cost
of sales in 2010 was $364,021, a decrease of 88.1% from the prior year cost of
sales of $3,070,712. The decrease in cost of sales is also due
to the fact that the cost of sales for the current fiscal year consider only the
period from October 1 to November 25, 2009; date at which the subsidiaries were
sold.





Selling, General and
Administrative. Selling, general and administrative expenses in 2010 were
$218,695 a decrease of $1,212,047 or 84.7% from the prior year ́s operating
expenses of $1,430,742. Similarly, this change is due primarily the fact that
the operating expenses for the current fiscal year also consider only the period
from October 1 to November 25, 2009.





Net Loss. In 2010 the
Company reported a net gain from discontinued operations of $3,119,901 compared
to a net loss of $230,571 during 2009. The change is a direct result of sale of
the remaining Spanish subsidiaries in 2010.


12


Net
cash used in operating activities





In 2010,
the Company used $801,405 in operating activities which was primarily from net
losses before discontinued operations during the year and changes to current
assets and liabilities. The Company used $1,274,661 of its cash in operations in
2009 primarily from net losses during the year.





Net
cash used in investing activities





The
Company generated cash from investing activities in 2010 of $3,845 from the
disposal of assets. In 2009, the Company generated cash from investing
activities of $233,163 principally from discontinued operations.





Net
Cash provided by financing activities





The
Company generated cash from financing activities of $810,767 in 2010 through
loans from related parties. During 2009, the Company generated cash of $861,137
through loans from related parties of $900,886 offset by repayments on capital
leases of $39,749.





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 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 summary of the
Company’s contractual obligations as of September 30, 2010.


Payments Due by PeriodTotal
                                    
                                    
                                    Less than One Year
                                    
                                    
                                    1-3 YearsLoans
      from related parties
                                    
                                    $
                                    2,790,765
                                    
                                    
                                    $
                                    2,790,765
                                    
                                    
                                    $
                                    -Note
      payable to third party
                                    
                                    
                                    300,256
                                    
                                    
                                    
                                    300,256
                                    
                                    
                                    
                                    -Operating
      Leases
                                    
                                    
                                    15,088
                                    
                                    
                                    
                                    15,088
                                    
                                    
                                    
                                    -Total
      Contractual Cash Obligations
                                    
                                    $
                                    3,106,109
                                    
                                    
                                    $
                                    3,106,109
                                    
                                    
                                    $
                                    -




13


Recent Accounting
Pronouncements .





In June
and December 2009, the FASB issued amendments toexisting accounting
guidance to address the elimination of the concept of a qualifying special
purpose entity. The amendments also replace the quantitative-based risks and
rewards calculation for determining which enterprise has a controlling financial
interest in a variable interest entity with an approach focused on identifying
which enterprise has the power to direct the activities of a variable interest
entity and the obligation to absorb losses of the entity or the right to receive
benefits from the entity. Additionally, the amendments provide more timely and
useful information about an enterprise’s involvement with a variable interest
entity. The Company adopted this guidance in the first quarter of 2010, and it
did not have a material impact on our financial condition, results of operations
or cash flows.




In
January 2010, the FASB issued amendments toexisting accounting
guidance regarding fair value measurements and disclosures and improvement in
the disclosure about fair value measurements. These amendments require
additional disclosures regarding significant transfers in and out of Levels 1
and 2 of fair value measurements, including a description of the reasons for the
transfers. Further, this amendment requires additional disclosures for the
activity in Level 3 fair value measurements, requiring presentation of
information about purchases, sales, issuances, and settlements in the
reconciliation for fair value measurements. This amendment is effective for
fiscal years beginning after December 15, 2010, and for interim periods within
those fiscal years. We are currently evaluating the impact of
these amendments; however, we do not expect the adoption of
these amendments to have a material impact on our consolidated financial
statements.





In
February 2010, the FASB issued amendments toexisting accounting
guidance regarding subsequent events and amendments to certain recognition and
disclosure requirements. Under this amendment, a public company that is a
SEC filer, as defined, is not required to disclose the date through which
subsequent events have been evaluated. This amendment was effective
upon the issuance of this amendment. The adoption of this amendment did not
have a material impact on our consolidated financial statements





Item 7A.  Quantitative
and Qualitative Disclosures About Market Risk





On
November 12, 2009, at a meeting of the shareholders of Teleconnect Inc, all
shareholders present, representing 94.69% of the outstanding shares of common
stock of the Company, unanimously agreed on the sale of the Spanish
subsidiaries. The stock purchase agreements were formalized on November 25, 2009
before a public Spanish notary upon approval by the Company’s shareholders. By
selling off the Spanish subsidiaries and maintaining a 10% stake in Teleconnect
Comunicaciones SA, Teleconnect Inc is relieved of its obligation to fund these
companies whereas Teleconnect Inc. could possibly benefit from future dividends,
if so declared by Teleconnect SA.





The
shareholders’ also approved a reverse split of the Company’s Common Stock in the
ratio of 1-for-100 at the November 12, 2009 shareholders’ meeting.





On
October 8, 2010, at a meeting of the shareholders of Teleconnect Inc, all
shareholders present, representing 91.69% of the outstanding shares of common
stock of the Company, agreed to approve the Company’s 2010 Stock Option, SAR and
Stock Bonus Plan. At the same meeting, the shareholders ratified the decision of
the Board of Directors to complete the purchase of HEM.





14


Item 8.   Financial
Statements and Supplementary
Data




REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors





Teleconnect
Inc.





We have
audited the accompanying consolidated balance sheets of Teleconnect Inc. and its
subsidiaries (the “Company”) as of September 30, 2010 and 2009, and the related
consolidated statements of operations, changes in stockholders’ deficit, and
cash flows for the years then ended. The Company’s management is responsible for
these consolidated financial statements. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.





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





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Teleconnect
Inc. and its subsidiaries as of September 30, 2010 and 2009, and the
consolidated results of its operations and its consolidated cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States of America.





The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 17 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has a net capital deficiency in addition to a working
capital deficiency, which raises substantial doubt about its ability to continue
as a going concern. Management’s plans regarding those matters are described in
Note 17. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.





/s/Coulter
& Justus, P.C.





December
23, 2010





Knoxville,
Tennessee


15




TELECONNECT,
INC.


CONSOLIDATED
BALANCE SHEET





September 30,
                        
                        
                        September 30,2010
                        
                        
                        2009ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                        
                        $
                        17,420
                        
                        
                        $
                        15,652Accounts
      receivable - trade
                        
                        
                        36,276
                        
                        
                        
                        2,911Due
      from Giga Matrix Holding, B.V.
                        
                        
                        361,441
                        
                        
                        
                        530,992Inventory,
      work in process (net of reserve for slow moving inventoryof
      $187,478 and $139,109 at September 30, 2010 and
      2009,respectively)
                        
                        
                        1,076,580
                        
                        
                        
                        1,419,522Prepaid
      taxes
                        
                        
                        8,278
                        
                        
                        
                        -Prepaid
      expenses
                        
                        
                        5,224
                        
                        
                        
                        6,994Asset
      of discontinued operations
                        
                        
                        -
                        
                        
                        
                        632,804Total
      current assets
                        
                        
                        1,505,219
                        
                        
                        
                        2,608,875PROPERTY
      AND EQUIPMENT, NET
                        
                        
                        7,120
                        
                        
                        
                        14,574OTHER
      ASSETS:Investment
      in Giga Matrix Holdings B.V.
                        
                        
                        -
                        
                        
                        
                        -Goodwill
                        
                        
                        424,346
                        
                        
                        
                        455,283Long-term
      notes receivable (net of allowance for bad debtsof
      $558,136 and $560,974 at September 30, 2010 and 2009,
      respectively)
                        
                        
                        -
                        
                        
                        
                        58,572Assets
      of discontinued operations
                        
                        
                        -
                        
                        
                        
                        628,028$
                        1,936,685
                        
                        
                        $
                        3,765,332LIABILITIES
      AND STOCKHOLDERS' DEFICITCURRENT
      LIABILITIES:Accounts
      payable - trade
                        
                        $
                        111,576
                        
                        
                        $
                        106,155Accrued
      liabilities:Related
      parties
                        
                        
                        127,619
                        
                        
                        
                        54,347Other
                        
                        
                        36,949
                        
                        
                        
                        47,059Notes
      payable
                        
                        
                        300,256
                        
                        
                        
                        322,146Income
      Taxes payable
                        
                        
                        80,000
                        
                        
                        
                        130,000Loans
      from related parties
                        
                        
                        2,790,765
                        
                        
                        
                        2,128,010Liabilities
      of discontinued operations
                        
                        
                        -
                        
                        
                        
                        4,377,269Total
      current liabilities
                        
                        
                        3,447,165
                        
                        
                        
                        7,164,986STOCKHOLDERS'
      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, 4,953,700
      shares outstanding
                        
                        
                        4,954
                        
                        
                        
                        4,954Additional
      paid-in capital
                        
                        
                        31,511,257
                        
                        
                        
                        31,511,257Accumulated
      deficit
                        
                        
                        (30,019,592
                        )
                        
                        
                        (31,992,430
                        )Accumulated
      other comprehensive loss
                        
                        
                        (3,007,099
                        )
                        
                        
                        (2,923,435
                        )Total
      stockholders' deficit
                        
                        
                        (1,510,480
                        )
                        
                        
                        (3,399,654
                        )$
                        1,936,685
                        
                        
                        $
                        3,765,332





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


16




TELECONNECT,
INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


FOR THE
YEARS ENDED SEPTEMBER 30,





2010
                
                
                2009SALES
                
                $
                254,446
                
                
                $
                361,989COST
      OF SALES
                
                
                282,333
                
                
                
                435,147GROSS
      LOSS
                
                
                (27,887
                )
                
                
                (73,158
                )OPERATING
      EXPENSES:Selling,
      general and administrative expenses
                
                
                968,146
                
                
                
                1,365,550Depreciation
                
                
                2,619
                
                
                
                31,794Total
      operating expenses
                
                
                970,765
                
                
                
                1,397,344LOSS
      FROM CONTINUING OPERATIONS
                
                
                (998,652
                )
                
                
                (1,470,502
                )OTHER
      INCOME (EXPENSES):Interest
      income
                
                
                87
                
                
                
                21,652Loss
      on investment
                
                
                (130,057
                )
                
                
                (44,626
                )Interest
      expense
                
                
                (68,111
                )
                
                
                (54,396
                )LOSS
      FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
                
                
                (1,196,733
                )
                
                
                (1,547,872
                )BENEFIT
      (PROVISION) FOR INCOME TAXES
                
                
                49,670
                
                
                
                (50,000
                )NET
      LOSS BEFORE DISCONTINUED OPERATIONS
                
                
                (1,147,063
                )
                
                
                (1,597,872
                )NET
      INCOME (LOSS) FROM DISCONTINUED OPERATIONS
                
                
                3,119,901
                
                
                
                (230,571
                )NET
      INCOME (LOSS)
                
                $
                1,972,838
                
                
                $
                (1,828,443
                )BASIC
      AND DILUTED INCOME (LOSS) PER SHARE:From
      continuing operations
                
                $
                (0.23
                )
                
                $
                (0.38
                )From
      discontiued operations
                
                
                0.63
                
                
                
                (0.05
                )Total
                
                $
                0.40
                
                
                $
                (0.43
                )AVERAGE
      COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING
                
                
                4,953,700
                
                
                
                4,254,836THE
      COMPONENTS OF COMPREHENSIVE INCOME (LOSS):Net
      Income (loss)
                
                $
                1,972,838
                
                
                $
                (1,828,443
                )Foreign
      currency translation adjustment
                
                
                (126,764
                )
                
                
                81,586Tax
      effect on currency translation
                
                
                43,100
                
                
                
                (27,739
                )COMPREHENSIVE
      INCOME (LOSS)
                
                $
                1,889,174
                
                
                $
                (1,774,596
                )





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


17





TELECONNECT,
INC.


CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT





Common StockAs adjusted for stock split
                  
                  
                  
                  
                  
                  
                  
                  
                  AccumulatedNumber
                  
                  
                  $0.001
                  
                  
                  Additional
                  
                  
                  
                  
                  
                  Other
                  
                  
                  Totalof
                  
                  
                  par
                  
                  
                  Paid-In
                  
                  
                  Accumulated
                  
                  
                  Comprehensive
                  
                  
                  Stockholders'Shares
                  
                  
                  Value
                  
                  
                  Capital
                  
                  
                  Deficit
                  
                  
                  Loss
                  
                  
                  DeficitBalance,
      October 1, 2008
                  
                  
                  3,322,520
                  
                  
                  $
                  3,322
                  
                  
                  $
                  29,328,823
                  
                  
                  $
                  (30,163,987
                  )
                  
                  $
                  (2,977,282
                  )
                  
                  $
                  (3,809,124
                  )Conversion
      of debt to common stock
                  
                  
                  1,671,180
                  
                  
                  
                  1,672
                  
                  
                  
                  2,109,599
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,111,271Retirement
      of common stock
                  
                  
                  (40,000
                  )
                  
                  
                  (40
                  )
                  
                  
                  40
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Capital
      contribution for stock award
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  72,795
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  72,795Foreign
      currency translation adjustment, net of tax
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  53,847
                  
                  
                  
                  53,847Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (1,828,443
                  )
                  
                  
                  -
                  
                  
                  
                  (1,828,443
                  )Balance,
      September 30, 2009
                  
                  
                  4,953,700
                  
                  
                  
                  4,954
                  
                  
                  
                  31,511,257
                  
                  
                  
                  (31,992,430
                  )
                  
                  
                  (2,923,435
                  )
                  
                  
                  (3,399,654
                  )Foreign
      currency translation adjustment, net of tax
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (83,664
                  )
                  
                  
                  (83,664
                  )Net
      income
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,972,838
                  
                  
                  
                  -
                  
                  
                  
                  1,972,838Balance,
      September 30, 2010
                  
                  
                  4,953,700
                  
                  
                  $
                  4,954
                  
                  
                  $
                  31,511,257
                  
                  
                  $
                  (30,019,592
                  )
                  
                  $
                  (3,007,099
                  )
                  
                  $
                  (1,510,480
                  )





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


18





TELECONNECT, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR THE
YEARS ENDED SEPTEMBER 30,





2010
                      
                      
                      2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
                      
                      $
                      1,972,838
                      
                      
                      $
                      (1,828,443
                      )Adjustments
      to reconcile net income (loss) to net cash used in operating
      activities:Depreciation
                      
                      
                      2,619
                      
                      
                      
                      31,794Stock-based
      compensation
                      
                      
                      -
                      
                      
                      
                      72,795Inventory
      allowance
                      
                      
                      57,467
                      
                      
                      
                      128,678Fixed
      asset impairment
                      
                      
                      -
                      
                      
                      
                      43,412Loss
      on equity investments
                      
                      
                      130,057
                      
                      
                      
                      44,626Gain
      on sale of subsidiaries
                      
                      
                      (3,145,545
                      )
                      
                      
                      -Change
      in operating assets and liabilitiesAccounts
      receivable - trade
                      
                      
                      (33,563
                      )
                      
                      
                      67,935Accounts
      receivable - other
                      
                      
                      -
                      
                      
                      
                      1,014Inventory
                      
                      
                      189,018
                      
                      
                      
                      23,978Prepaid
      expenses
                      
                      
                      1,295
                      
                      
                      
                      7,660Prepaid
      taxes
                      
                      
                      (8,278
                      )
                      
                      
                      45,726Accounts
      payable
                      
                      
                      12,634
                      
                      
                      
                      (65,667
                      )Accrued
      liabilities and income taxes payable
                      
                      
                      20,053
                      
                      
                      
                      8,620Operating
      cash flows from discontinued operations
                      
                      
                      -
                      
                      
                      
                      143,211Net
      cash used in operating activities
                      
                      
                      (801,405
                      )
                      
                      
                      (1,274,661
                      )CASH
      FLOWS FROM INVESTING ACTIVITIES:Proceeds
      from disposal of equipment
                      
                      
                      3,845
                      
                      
                      
                      -Investing
      activities of discontinued operations
                      
                      
                      -
                      
                      
                      
                      233,163Net
      cash provided by investing activities
                      
                      
                      3,845
                      
                      
                      
                      233,163CASH
      FLOWS FROM FINANCING ACTIVITIES:Loan
      proceeds from related parties
                      
                      
                      810,767
                      
                      
                      
                      900,886Payments
      on capital leases
                      
                      
                      -
                      
                      
                      
                      (39,749
                      )Net
      cash provided by financing activities
                      
                      
                      810,767
                      
                      
                      
                      861,137EFFECT
      OF EXCHANGE RATE
                      
                      
                      (11,439
                      )
                      
                      
                      147,671NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                      
                      
                      1,768
                      
                      
                      
                      (32,690
                      )CASH
      AND CASH EQUIVALENTS, BEGINNING OF YEAR
                      
                      
                      15,652
                      
                      
                      
                      48,342CASH
      AND CASH EQUIVALENTS, END OF YEAR
                      
                      $
                      17,420
                      
                      
                      $
                      15,652SUPPLEMENTAL
      DISCLOSURE OF NONCASH TRANSACTIONS:Stock-based
      compensation
                      
                      $
                      -
                      
                      
                      $
                      72,795Common
      stock issued for conversion of debt and accrued interest
                      
                      $
                      -
                      
                      
                      $
                      2,111,271





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


19




TELECONNECT,
INC.





NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS





September
30, 2010





1.
THE COMPANY





Teleconnect
Inc. (the “Company”, “Teleconnect”, “we”, “us” or “our”) was incorporated under
the laws of the State of Florida on November 23, 1998. The Company is engaged in
the sale of multimedia hardware components and, with the our acquisition of
Hollandsche Exploitatie Maatschappij BV (HEM), a Dutch entity established in
2007, subsequent to September 30, 2010, we are preparing a new service offering
based on remotely performing age verification checks for retail stores and
supermarkets in order to reduce the possibilities of selling alcohol and tobacco
to under aged youths. All of the Company’s operations are in the European Union.
Prior to November 25, 2009 the Company offered telecommunication services for
home and business use in Spain (see Note 3).





2.
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES





Accounts
and notes receivable -





Trade
accounts receivable and notes receivable are recorded at their estimated net
realizable values using the allowance method. The Company generally does not
require collateral. The Company establishes an allowance for doubtful accounts
based upon factors surrounding the credit risk of specific customers, historical
trends and other information. When accounts are determined to be uncollectible
they are charged off against an allowance for doubtful accounts. Also, accounts
determined to be uncollectible are put in nonaccrual status whereby interest is
not accrued on those accounts. Credit losses, when realized, have been within
the range of the Company’s expectations. As of September 30, 2010, one customer
accounted for 94% of accounts receivables. As of September 30, 2009, one
customer accounted for 28% of accounts receivable and another customer accounted
for 28% of accounts receivable included in assets of discontinued
operations.





Advertising
Costs -





Advertising
and sales promotion costs are expensed as incurred. There were no advertising
and sales promotion costs in 2010 and $24,394 in 2009.





Cash
Equivalents -





The
Company considers deposits that can be redeemed on demand and highly liquid
investments that have original maturities of less than three months, when
purchased, to be cash equivalents. Substantially all cash on hand at September
30, 2010 was held in European financial institutions and is not
insured.





Consolidation
Policy -





The
consolidated financial statements include the accounts of the Company and its
subsidiary PhotoWizz BV for the year ended September 30, 2010, in addition to
the accounts of its discontinued subsidiaries Teleconnect SA, Teleconnect
Telecom, and Recarganet which were sold in November 2009. All significant
inter-company balances and transactions have been eliminated in the consolidated
financial statements.





Revenue
Recognition -





The
Company recognizes revenue from the sale of multimedia hardware components in
the period in which title has passed and services have been rendered. During the
years ended September 30, 2010 and 2009 revenues from HEM was 84% and 36% of
total sales, respectively. Prior to November 25, 2009, the Company recognized
revenue from the sale of calling cards in the period in which the time on the
cards is utilized (see Note 3).


20




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 effect of common stock
equivalents, consisting of shares that might be issued upon exercise of common
stock options. In periods where losses are reported, the weighted average number
of common shares outstanding excludes common stock equivalents, because their
exclusion would be anti-dilutive.




Reclassifications
–





Certain
amounts in prior year have been reclassified to conform to current year
classifications.





Estimates
-





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.





Foreign
Currency Adjustments -





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





Income
Taxes -





The
Company uses the asset/liability method of accounting for income
taxes.  Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse.  The Company’s policy
is to classify the penalties and interest associated with uncertain tax
positions, if required, as a component of its income tax provision.





Inventories
-





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





Property
and equipment -





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





Goodwill
–





Goodwill
is calculated as the difference between the cost of acquisition and the fair
value of the net assets acquired of any business that is acquired. The
Company performs impairment tests of the intangible assets at least annually and
impairment losses are recognized if the carrying value of the intangible exceeds
its fair value. For the years ended September 30, 2010 and 2009, the Company did
not incur any charges for impairment.




Variable
Interest Entities -




The
Company analyzes any potential variable interest or special-purpose entities in
accordance with the guidance of FASB ASC 810-10, Consolidation of Variable
Interest and Special-Purpose Entities. Once an entity is determined to be a
variable interest entity (VIE), the party with the controlling financial
interest, the primary beneficiary, is required to consolidate it.  The
Company has analyzed its investment in Giga (see Note 15) and after analysis we
have determined that, while Giga is a VIE as defined by FASB ASC 810-10, we are
not the primary beneficiary, and therefore Giga is not required to be
consolidated.


21


Fair
value of financial instruments –





The
Company applies accounting guidance that requires all entities to disclose the
fair value of financial instruments, both assets and liabilities recognized and
not recognized on the balance sheet, for which it is practicable to estimate
fair value.  The guidance defines fair value of a financial instrument
as the amount at which the instrument could be exchanged in a current
transaction between willing parties.  As of  September 30,
2010 and 2009 the fair value of cash, accounts receivable, other receivables,
accounts payable, notes payable, and accrued expenses approximated carrying
value due to the short maturity of these instruments.





Accounting
for Stock-Based Compensation –





The
Company accounts for employee equity awards under the fair value
method.  Accordingly, the Company measures stock-based compensation at
the grant date based on the fair value of the award.  The fair value
of stock option awards, if any, are estimated using the Black-Scholes option
pricing model.  Estimated compensation cost relating to restricted
stock awards, if any, are based on the fair value of the Company’s common stock
on the date of the grant.  The compensation expense for stock-based
awards is reduced by an estimate of forfeitures and is recognized over the
expected term of the award under a graded vesting method.





New
Accounting Pronouncements -





In June
and December 2009, the FASB issued amendments toexisting accounting
guidance to address the elimination of the concept of a qualifying special
purpose entity. The amendments also replace the quantitative-based risks and
rewards calculation for determining which enterprise has a controlling financial
interest in a variable interest entity with an approach focused on identifying
which enterprise has the power to direct the activities of a variable interest
entity and the obligation to absorb losses of the entity or the right to receive
benefits from the entity. Additionally, the amendments provide more timely and
useful information about an enterprise’s involvement with a variable interest
entity. The Company adopted this guidance in the first quarter of 2010, and it
did not have a material impact on our financial condition, results of operations
or cash flows.




In
January 2010, the FASB issued amendments toexisting accounting
guidance regarding fair value measurements and disclosures and improvement in
the disclosure about fair value measurements.  These amendments
require additional disclosures regarding significant transfers in and out of
Levels 1 and 2 of fair value measurements, including a description of the
reasons for the transfers.  Further, this amendment requires
additional disclosures for the activity in Level 3 fair value measurements,
requiring presentation of information about purchases, sales, issuances, and
settlements in the reconciliation for fair value measurements.  This
amenment is effective for fiscal years beginning after December 15, 2010, and
for interim periods within those fiscal years.  We are currently
evaluating the impact of these amendments; however, we do not expect the
adoption of these amendments to have a material impact on our consolidated
financial statements.





In
February 2010, the FASB issued amendments toexisting accounting
guidance regarding subsequent events and amendments to certain recognition and
disclosure requirements.  Under this amendment, a public company that
is a SEC filer, as defined, is not required to disclose the date through which
subsequent events have been evaluated.  This amendment was
effective upon the issuance of this amendment.  The adoption of this
amendment did not have a material impact on our consolidated financial
statements





3.
DISCONTINUED OPERATIONS





In March
2009, the Company entered into an agreement to sell ITS Europe, Teleconnect SA,
Teleconnect Telecom and Recarganet to certain employees and officers of
Teleconnect SA for €1,001 with the Company retaining 10% of Teleconnect SA. The
Company accounts for its remaining stake in Teleconnect SA by the cost
method.





The sale
of ITS Europe to certain employees and officers of Teleconnect SA for €1 and the
assumption of ITS Europe debts was completed on May 14, 2009 and resulted in a
gain on the sale of subsidiary of $85,308.





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




2010
                    
                    
                    2009Sales
                    
                    $
                    586,479
                    
                    
                    $
                    4,274,248Cost
      of Sales
                    
                    
                    364,021
                    
                    
                    
                    3,070,712Gross
      Profit
                    
                    
                    222,458
                    
                    
                    
                    1,203,536Selling,
      general and administrative expenses
                    
                    
                    218,695
                    
                    
                    
                    1,430,742Depreciation
                    
                    
                    7,466
                    
                    
                    
                    101,648Operating
      loss
                    
                    
                    (3,703
                    )
                    
                    
                    (328,854
                    )Gain
      on sale of subsidiary
                    
                    
                    3,145,545
                    
                    
                    
                    85,308Other
      income (expense)
                    
                    
                    (21,941
                    )
                    
                    
                    12,975Income
      (loss) from discontinued operations
                    
                    $
                    3,119,901
                    
                    
                    $
                    (230,571
                    )




22


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





2010
                  
                  
                  2009Cash
                  
                  $
                  -
                  
                  
                  $
                  23,938Accounts
      receivable – trade, net of allowance for doubtful accounts of
      $714,782  at September 30, 2009
                  
                  
                  -
                  
                  
                  
                  385,914Accounts
      receivable - other
                  
                  
                  -
                  
                  
                  
                  207,953Inventory
                  
                  
                  -
                  
                  
                  
                  12,631Prepaid
      expenses
                  
                  
                  -
                  
                  
                  
                  2,368Current
      assets of discontinued operations
                  
                  
                  -
                  
                  
                  
                  632,804Property
      and equipment, net
                  
                  
                  -
                  
                  
                  
                  385,820Vendor
      deposits
                  
                  
                  -
                  
                  
                  
                  242,208Other
      assets of discontinued operations
                  
                  
                  -
                  
                  
                  
                  628,028Accounts
      payable
                  
                  
                  -
                  
                  
                  
                  1,372,068Accrued
      liabilities
                  
                  
                  -
                  
                  
                  
                  189,246Taxes
      payable
                  
                  
                  -
                  
                  
                  
                  342,231Notes
      payable
                  
                  
                  -
                  
                  
                  
                  146,430Due
      from related parties
                  
                  
                  -
                  
                  
                  
                  259,181Deferred
      income
                  
                  
                  -
                  
                  
                  
                  2,068,113Liabilities
      of discontinued operations
                  
                  
                  -
                  
                  
                  
                  4,377,269Net
      liabilities of discontinued operations
                  
                  $
                  -
                  
                  
                  $
                  3,116,437





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





4.  NOTES
RECEIVABLE





In
February 2007, the Company loaned $512,505 to a business development firm with a
maturity date of February 2009. The note is in default and the Company has
pursued legal action for collection. The amount (including unpaid interest) was
reserved as of September 30, 2010 and 2009.





5.
PROPERTY AND EQUIPMENT





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





2010
                    
                    
                    2009Computers
      and switching systems
                    
                    $
                    112,283
                    
                    
                    $
                    129,670Less:
      Accumulated depreciation
                    
                    
                    (105,163
                    )
                    
                    
                    (115,096
                    )Net
      property and equipment
                    
                    $
                    7,120
                    
                    
                    $
                    14,574





During
the year ended September 30, 2009 Photowizz recognized impairment of $43,412 on
computers and equipment no longer used to produce kiosks. The impairment is
included in selling, general and administrative expense in the consolidated
statements of operations.





6.
LOANS FROM RELATED PARTIES





As of
September 30, 2010 and 2009, the Company had short term loans totaling
$2,790,765 and $2,128,010, respectively, from shareholders. These loans bear
interest at 4% annually, are unsecured and due upon demand. Interest expense of
$64,025 and $48,497, respectively, was incurred on these notes during 2010 and
2009.  Accrued interest on these loans totaled $111,348 and $54,347 at
September 30, 2010 and 2009, respectively.


23


7.
NOTE PAYABLE





As of
September 30, 2010 and 2009 the Company has two short-term bridge loans totaling
$300,256 and $322,146, respectively, from a potential investor.  The
notes bear interest between 0% and 8% per year and are due on
demand.





8.
LEASES





The
Company leases its office and warehouse space under a lease expiring December
2011.  The future lease payments required under the lease in the next
year are $15,088.  Total rent expense for the years ended September
30, 2010 and 2009 was $23,133 and $21,998, respectively.





9.
INCOME TAXES





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





2010
                
                
                2009Bad
      debt allowances
                
                $
                199,978
                
                
                $
                196,897Litigation
      reserve and other reserves
                
                
                (1,496
                )
                
                
                4,601Equity
      method investment loss
                
                
                107,680
                
                
                
                50,328Capital
      loss carry-forwards
                
                
                443,167
                
                
                
                -Tax
      carry forwards
                
                
                4,665,129
                
                
                
                11,605,820Valuation
      allowance
                
                
                (5,414,458
                )
                
                
                (11,857,646
                )Net
      deferred tax assets
                
                $
                -
                
                
                $
                -





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


2010
                
                
                2009Income
      tax (benefit) provision at U.S Federal statutory rate
                
                $
                653,877
                
                
                $
                (621,670
                )Foreign
      losses taxed at rates other than 34%
                
                
                38,475
                
                
                
                66,155Tax
      effect of capital loss carryover absorbed
                
                
                (1,069,485
                )
                
                
                1,291Foreign
      tax return adjustments
                
                
                -
                
                
                
                -Temporary
      tax differences
                
                
                44,219
                
                
                
                -(Decrease)
      increase in penalties and interest on delinquent tax
    returns
                
                
                (49,670
                )
                
                
                50,000(Decrease)
      increase in valuation allowance, net of foreign currency
      adjustments
                
                
                (382,584
                )
                
                
                554,224Tax
      (benefit) provision
                
                $
                (49,670
                )
                
                $
                50,000




The
following table summarizes the amount and expiration dates of our operating loss
carryovers as of September 30, 2010:




Expiration Dates
                
                
                AmountsU.S.
      federal net operating loss carryovers
                
                
                2024-2029
                
                
                $
                12,693,023Non-U.S.
      net operating loss carryovers
                
                
                2022-2025
                
                
                
                1,747,516Total
                
                
                
                
                
                $
                14,440,539





As a
result of significant pre-tax losses, the Company cannot conclude that it is
more likely than not that the deferred tax assets will be
realized.  Accordingly a full valuation allowance has been established
against our deferred tax assets.  During 2010, the Company decreased
its valuation allowance by $6,443,188 to reflect the effect of use of capital
loss carryovers to offset current year income as well as  disposal of
losses from Teleconnect SA, Teleconnect Telecom and Recarganet.





The
Company was delinquent in filing tax returns with the Internal Revenue Service
and state taxing authorities in 2007.  With respect to the fiscal year
2008 returns, $50,000 of penalties and interest have been abated and are
included in the current year income tax benefit offset by $330 in accrued state
penalties and interest.





Tax
returns for the years ended September 30, 2006 through September 30, 2010 are
subject to examination by the Internal Revenue Service.


24


10.
LITIGATION AND CONTINGENT LIABILITIES





In the
normal course of its operations, the Company may, from time to time, be named in
legal actions seeking monetary damages. While the outcome of these matters
cannot be estimated with certainty, management does not expect, based upon
consultation with legal counsel, that they will have a material effect on the
amounts recorded in the consolidated financial statements.





11.
PREFERRED STOCK





The
Company has 5,000,000 shares of authorized and unissued Preferred Stock with par
value of $0.001, which is noncumulative and nonparticipating. No shares of
preferred stock were issued and outstanding as of September 30, 2010 or
2009.





12.
EQUITY TRANSACTIONS





On
November 12, 2009 the shareholders approved a 1-for-100 reverse stock split of
the Company’s common stock.  This reverse stock split has been
reflected retroactively for all periods presented in these consolidated
financial statements.





On March
6, 2009 the Company converted $1,766,271 of debt and accrued interest from a
related party into 291,180 shares of the Company’s common stock which were
issued in the name of DLB Finance and Consultancy, owned by the Company’s Chief
Executive Officer.  The Company recognized $72,795 in stock-based
compensation for these costs incurred by this related party on the Company’s
behalf.





On March
6, 2009 the Company converted $345,000 of debt from certain investors into
1,380,000 shares of the Company’s common stock.





On April
1, 2009, 40,000 shares of the Company’s common stock were returned to the
Company by Teleconnect Spain employees and retired.





13.
STOCK WARRANTS AND OPTIONS





On
February 1, 2004, the Company issued restricted stock options which have a term
of five years at an exercise price of $25 per share covering 10,000 shares of
restricted common stock. The options could have been exercised on or after
January 1, 2005, however they expired during the year ended September 30, 2010.
Restricted stock on the date the option was granted was valued at $10 per share
based on other restricted stock transactions during the year.





Effective
March 31, 2006, the Company adopted and approved its 2006 Stock Option, SAR and
Stock Bonus Plan (the “Plan”) which reserved 200,000 of Common Stock for
issuance under the Plan. The Plan allows us to issue awards of incentive
non-qualified stock options, stock appreciation rights, and stock bonuses to
consultants to the Company which may be subject to
restrictions.   As of May 31, 2010, date at which the plan
expired, 145,743 shares of common stock had been issued under this
plan.





During
2010 and 2009 no stock options were issued.





On
October 8, 2010, the shareholders approved the 2010 Stock Option, SAR and Stock
Bonus Plan (the “Plan”) authorizing 500,000 shares of Common Stock to be
reserved for issuance under the Plan.





Information
with respect to stock options for restricted common stock outstanding are as
follows as of September 30, 2009:





Average
                      
                      
                      ExerciseShares
                      
                      
                      PriceOutstanding
      at beginning of year
                      
                      
                      10,000
                      
                      
                      $
                      25.00Granted
      at market value
                      
                      
                      —
                      
                      
                      
                      —Exercised
                      
                      
                      —
                      
                      
                      
                      —Expired
                      
                      
                      (10,000
                      )
                      
                      $
                      25.00Outstanding
      at the end of year
                      
                      
                      —
                      
                      
                      $
                      —


25




14.
LOSS PER SHARE




Basic
loss per share amounts are computed based on the weighted average number of
shares outstanding on that date during the applicable periods.





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





2010
                
                
                2009Basic
      and Diluted income (loss) per share computationNumerator:Net
      loss from continuing operations
                
                $
                (1,147,063
                )
                
                $
                (1,597,872
                )Net
      income (loss) from discontinued operations
                
                $
                3,119,901
                
                
                
                (230,571
                )Denominator:Weighted
      average common shares outstanding
                
                
                4,953,700
                
                
                
                4,254,836Basic
      and Diluted loss per shareFrom
      continuing operations
                
                $
                (0.23
                )
                
                $
                (0.38
                )From
      discontinued operations
                
                $
                0.63
                
                
                $
                (0.05
                )





15.
GIGA MATRIX HOLDING





The
Company accounts for its investment in Giga Matrix Holding, BV (“Giga”),
including amounts due from Giga, under the equity method.  Pursuant to
accounting guidance the Company has combined its investment in Giga and amounts
due from Giga for purposes of determining the amount of losses to be recognized
under the equity method, accordingly, the Company recognized $130,057 and
$44,626 in losses on its equity investment during 2010 and 2009,
respectively.





The
Company has analyzed its investment in Giga and determined that, while Giga is a
variable interest entity the Company is not the primary beneficiary due to the
fact that the Company has no further financial obligations to support Giga, and
therefore it is not required to be consolidated.





Assets
and liabilities of Giga at September 30, 2010 and 2009 are as
follows:





2010
                      
                      
                      2009(Unaudited)
                      
                      
                      (Unaudited)Assets:Current
      assets
                      
                      $
                      78,458
                      
                      
                      $
                      103,249Financial
      assets – non-current
                      
                      
                      215,805
                      
                      
                      
                      197,877Fixed
      assets
                      
                      
                      3,154
                      
                      
                      
                      11,026Intangible
      assets
                      
                      
                      41,352
                      
                      
                      
                      46,563$
                      338,769
                      
                      
                      $
                      358,715Liabilities:Current
      liabilities
                      
                      $
                      386,513
                      
                      
                      $
                      271,294Long-term
      debt
                      
                      
                      688,277
                      
                      
                      
                      738,455$
                      1,074,790
                      
                      
                      $
                      1,009,749Results
      of operationsNet
      loss
                      
                      $
                      (128,454
                      )
                      
                      $
                      (166,000
                      )





16.
SUBSEQUENT EVENTS





On
October 15, 2010, the Company completed the acquisition of HEM. HEM’s core
business involves the age validation of consumers when purchasing products which
cannot be sold to minors, such as alcohol or tobacco. The Company regards this
age validation business as its new strategic direction. The Dutch companies
acquired in 2007 (Giga Matrix, 49% and Photowizz, 100%) are considered to
function complementary to this new service offering.  During 2010 and
2009 the Company paid consulting services of $171,346 and $169,617,
respectively, to certain shareholders of HEM.  As of September 30,
2010, there was $16,271 of these costs included in accrued
expenses.


26


Through
the purchase of HEM and its ownership in Photowizz and Giga Matrix the Company
now controls all four pillars under its business model: the manufacturing and
leasing of electronic age validation equipment, the performance of age
validation transactions remotely, the performance of market surveys and the
broadcasting of in-store commercial messages using the age validation equipment
in between age checks.





The
Company purchased 100% of HEM in exchange for 675,505 shares of the Company’s
common stock with a fair value of $709,280 based on the quoted closing price of
the Company’s common stock on the date of the purchase.  The Company
is currently in the process of determining the fair value of certain HEM assets
and liabilities to aid in the allocation of the purchase price.





During
the period October 1, 2010 to December 31, 2010, a related party advanced the
Company approximately $221,000 to help cover normal operating costs in the short
term. The advances are due on demand and are non-interest bearing.





On
December 2, 2010 the Company agreed to issue 250,000 shares of Company common
stock in exchange for approximately $356,000 in accrued related party interest
and further reached an agreement that the outstanding loans from this party
amounting to $7,532,331 (5,519,000 Euros) would bear no interest for the period
October 1, 2010 through September 30, 2011. Of the
outstanding loans, $404,544 is included in loans from related parties in these
financial statements, the balance of $7,127,787 is reflected to
HEM.





Subsequent
to September 30, 2010, foreign exchange rates have changed; it is not
practicable to determine the effect of these changes on these financial
statements.





17.
GOING CONCERN





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





As shown
in the accompanying consolidated financial statements, the Company incurred net
losses from continuing operations of $1,147,063 for the year ended September 30,
2010 and $1,597,872 in 2009.  In addition, the Company has incurred
substantial losses since its inception.





As of
September 30, 2010, the Company had a working capital deficit of $1,941,946 as
compared to its working capital deficit as of September 30, 2009 of
$4,556,111.  These factors raise substantial doubt about the Company's
ability to continue as a going concern. The consolidated financial statements do
not include any adjustments relating to the recoverability and classification of
recorded assets, or the amounts and classification of liabilities that might be
necessary in the event that the Company cannot continue as a going concern. 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. Management has also completed the purchase of
HEM to move toward profitability and has commitments from related parties for
short-term financing.  Management expects additional financing through
long-term borrowing and equity placements in the future.   There
can be no assurance that management's plan will be successful.


27


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





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





Item
9(A)T.    Controls and Procedures





A.
            Evaluation of
      Disclosure Controls and
Procedures.





The
Company’s Chief Executive Officer and Chief Financial Officer as of September
30, 2010, after evaluating the effectiveness of the Company’s disclosure
controls and procedures (as defined in the Securities Exchange Act of 1934, Rule
13a-14(c)and 15d-14(c) as of a date within 90 days of the filing date of this
report on Form 10-K for September 30, 2010, has concluded that as of the
Evaluation Date, the Company’s disclosure controls and procedures were not
sufficiently adequate nor effective to ensure that material information relating
to the Company and the Company’s consolidated subsidiaries would be made known
to them by others within those entities, particularly during the period in which
this annual report on Form 10-K was being prepared. The actions being taken by
the Company to address these ineffective disclosure controls and procedures are
set forth in the following section.





Management’s Annual Report
on Internal Control Over Financial Reporting





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





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





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





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





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





Management
assessed the effectiveness of our internal control over financial reporting as
of September 30, 2010.  Our management has concluded that during the
period covered by this report that our internal control over financial reporting
was not sufficiently effective and that there are material weaknesses in our
internal control over financial reporting.    A material
weakness is a deficiency, or a combination of control deficiencies, in internal
control over financial reporting such that there is a reasonable possibility
that a material misstatement of the Company’s annual or interim financial
statements will not be prevented or detected on a timely basis.





The
Company has policies and procedures that require the financial statements and
related disclosures be reviewed and that the financial statements are presented
in accordance with accounting principles generally accepted in the United States
of America. The Company was required to correct its reporting of investments
accounted for under the equity method of accounting during the year ended
September 30, 2010.





In order
to mitigate this material weakness, management intends to implement procedures
providing for the review of all subsidiary supplied financial statements,
consolidated financial statements and the notes thereto to assure they are in
compliance with accounting principles generally accepted in the United States of
America.





At the
subsidiary level there is a lack of segregation of duties over cash
disbursements.





In order
to mitigate this material weakness, management intends to implement controls to
insure that all disbursements are reviewed by responsible parties within the
Company before funds are disbursed.


28


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





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





B. Changes in Internal
Controls . There were no significant changes in the Company’s internal
controls or in other factors that could significantly affect the Company’s
disclosure controls and procedures subsequent to the Evaluation
Date.   The Company identified certain weaknesses in its control
procedures during 2009 and 2010 and is in the process of establishing the
principles to correct these as well as to implement proper Corporate Governance;
the first step of which was to name three members to the Board of Directors in
October 2010 as well as having established an Audit Committee, and a Stock Bonus
Plan Committee.





Item
9B.    Other Information


None


29


PART
III





Item
10.     Directors, Executive Officer and Corporate
Governance





The
directors and officers of the Company as of September 30, 2010 are as
follows:





Name
              
              Age
              
              PositionDirk
      L. Benschop
              
              43
              
              Director, Chief Executive Officer, President and TreasurerMr
      Jan Hovers
              
              67
              
              Supervisory
      Director





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





Mr.
Benschop became Chief Executive Officer, President, Treasurer and Secretary of
the Company on December 11, 2008, upon the resignation of Mr.
Geeris.  Mr. Benschop is a seasoned businessman and
entrepreneur.  Mr. Benschop is a major stakeholder in Giga Matrix
BV.





Mr.
Hovers became a Supervisory Director on February 23, 2010. Mr.
Hovers is a seasoned successful executive board member with extensive experience
in corporate governance, expansion and publically traded companies. Mr. Hovers,
former CEO of Stork NV and former member of the Supervisory board of the DUTCH
CENTRAL BANK (DNB NV), obtained his Ph.D. in Econometrics from Tilburg
University, The Netherlands in 1972. Mr. Hovers oversees and advises on all
corporate governance issues as well as provides recommendations on the Company’s
current intentions to expand its business.




Item
11.     Executive Compensation





All
executive officers, for services in all capacities to the Company, received the
following compensation during the fiscal year ended September 30,
2010.




Long-Term Compensation(2)Annual compensation(1)
                        
                        
                        Awards
                        
                        
                        
                        
                        
                        PayoutsName and
                          Principal
                          Position
                        
                        Fiscal
                          Year
                        
                        Salary(1)(2)
                        
                        
                        Bonus
                        
                        
                        Other
                          Annual
                          Compensation
                        
                        
                        Restricted
                          Stock
                          Awards(3)
                        
                        
                        Securities
                          Underlying
                          Options/
                          SARs
                        
                        
                        LTIP
                          Payouts
                        
                        
                        All Other
                          CompensationDirk
      L. Benschop
                        
                        2010
                        
                        $
                        0
                        
                        
                        $
                        0
                        
                        
                        $
                        0
                        
                        
                        $
                        0
                        
                        
                        $
                        0
                        
                        
                        $
                        0
                        
                        
                        $
                        0Chief
      Executive Officer, President,
                        
                        2009
                        
                        $
                        0
                        
                        
                        $
                        0
                        
                        
                        $
                        0
                        
                        
                        $
                        72,785
                        
                        
                        $
                        0
                        
                        
                        $
                        0
                        
                        
                        $
                        0Secretary
      and Treasurer





All
executive officers as a group $0





(1)
            Mr. Benschop received no salary
      or bonus during fiscal 2010.





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





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





Committees of the Board of
Directors





During
the fiscal year ended September 30, 2010, the Company did 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, comprised of Mr.
Benschop, and Mr. Jan Hovers at September 30, 2010, named three more members to
the Board of Directors at a meeting held on October 8, 2010.  These
new members are; Mr. Kees Lenselink, Mr. Les Pettitt (also Chief Financial
Officer) and Mr. Gustavo Gomez (also Chief Compliance Officer). At the same
meeting, an Audit Committee was established as well as a new Stock Plan
Committee.


30


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





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





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





2006 Stock Option, SAR and
Stock Bonus  Plan





Effective
March 31, 2006, the Company adopted and approved its 2006 Stock Option, SAR and
Stock Bonus Plan (the “Plan”) which reserved 200,000 post-split shares of Common
Stock for issuance under the Plan. The Plan allows us to issue awards of
incentive non-qualified stock options, stock appreciation rights, and stock
bonuses to consultants to the Company which may be subject to restrictions. At
the termination date of this Plan, on midnight May 31, 2010, there had been
145,743 shares of common stock issued under this plan.





Given the
lack of a Stock Bonus Plan at September 30, 2010 (due to the natural termination
of the previous Plan), subsequent to year end, effective October 8, 2010, the
Company adopted and approved its 2010 Stock Option, SAR and Stock Bonus Plan
(the “Plan”) which reserved 500,000 shares of Common Stock for issuance under
this new 2010 Plan. This Plan allows us to issue awards of incentive
non-qualified stock options, stock appreciation rights, and stock bonuses to
Officers, Directors or consultants to the Company. As of the date of this
filing, no shares have been issued under this 2010 Plan.





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





The
Directors of the Company have not received any compensation in their capacity as
directors during the fiscal year ended September 30, 2010.





Director and Officer
Indemnification and Limitations on Liability





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





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




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





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





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





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





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


31


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





The total
number of shares of Common Stock of the Company, as adjusted to record effects
of stock splits, beneficially owned by each of the officers and directors, and
all of such directors and officers as a group, and their percentage ownership of
the outstanding shares of Common Stock of the Company as of September 30, 2010
are as follows:





Shares
                  
                  
                  Percent ofManagement
                    Shareholders (1)
                  
                  Beneficially
                    Owned (1)
                  
                  
                  Common
                    StockLeonardus Geeris
                  
                  
                  1,574,136
                  
                  
                  
                  31.8
                  %Hendrik
      van den Hombergh
                  
                  
                  1,784,733
                  
                  
                  
                  36.0
                  %DLB
      Finance and Consultancy BV (2)
                  
                  
                  291,180
                  
                  
                  
                  5.9
                  %Directors,  officers  as
      a group (1) person, including the above persons
                  
                  
                  291,180
                  
                  
                  
                  5.9
                  %





(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)
            DLB
      Finance and Consultancy BV is owned by Dirk L. Benschop, the director,
      Chief Executive Officer and Treasurer of the
  Company.





(3)
            Mr.
      de Borbon resigned as a director of the Company on November 26,
      2009.





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





At
September 30, 2010, the Company had outstanding loans from HEM, of $1,580,692
with accrued interest of $44,974. DLB Finance and Consultancy BV owned a 25%
interest in HEM as of September 30, 2010.  These loans were made in
the ordinary course of business and bear interest at 4% per year.





Item
14.     Principal Accounting Fees and
Services





The
aggregate fees billed by our principal accounting firm, for fees billed for
fiscal years ended September 30, 2010 and 2009 are as follows:





Name
                    
                    Audit Fees
                    
                    
                    Audit Related
                      Fees
                    
                    
                    Tax Fees
                    
                    
                    All Other
                      FeesCoulter
      & Justus PC for fiscal year ended  September 30,
      2009
                    
                    $
                    105,779
                    
                    
                    $
                    0
                    
                    
                    $
                    0
                    
                    
                    
                    0Coulter
      & Justus PC for fiscal year ended  September 30,
      2010
                    
                    $
                    243,149
                    
                    
                    $
                    0
                    
                    
                    $
                    57,043
                    
                    
                    $
                    0





The
Company did not have an audit committee at the end of fiscal 2010. As a result,
our Board of Directors performed the duties and functions of an audit committee.
The Company's Board of Directors has evaluated and approved in advance, the
scope and cost of the engagement of an auditor before the auditor renders audit
and non-audit services. At the Board Meeting dated October 8, 2010, an audit
committee was established and its initial two members are: Les Pettitt, Director
and Chief Financial Officer and Mr. Kees Lenselink, Director.  The
Company is currently searching for its third member of the audit
committee.


32


PART
IV





Item
15.     Exhibits, Financial Statement Schedules





Financial
Statement Schedules





(a)
Financial Statements





(b) Exhibits


1(i)
      Articles of Incorporation of the Company
                  
                  The
      Articles of Incorporation of the Company are incorporated herein by
      reference to Exhibit 3.1 to the Form SB-2 registration statement of the
      Company (File No. 333-93583)1(ii)
      Amendment to Articles of Incorporation
                  
                  An
      Amendment to the Articles of Incorporation of the Company is incorporated
      herein by reference to Exhibit 99.1 to the Form 8-K current report of the
      Company dated January 29, 2001.1(iii)
      Amendment to Articles of Incorporation
                  
                  An
      Amendment to the Articles of Incorporation of the Company filed on
      February 26, 2003, is incorporated hereby by reference to Exhibit 1 (iii)
      to the Form 10-K annual report of the Company for its fiscal year ended
      September 30, 2009.1(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 ContractsExhibit
      10.1
                  
                  Contract
      dated November 25, 2009 selling Spanish subsidiaries to Alfonso de Borbon
      is incorporated by reference to the Schedule 14A proxy statement of the
      Company filed August 27, 2009.11.
      Statement re: computation of per share earningsReference
      is made to the Consolidated Statements of Operations of the Consolidated
      Financial Statements which are incorporated by reference
      herein.21.
      A description of the subsidiaries of the Company
                  
                  A
      description of the subsidiaries of the
Company.




33


SIGNATURES





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





Teleconnect
      Inc.Date: December
      23, 2010
                  By:
                  /s/ Dirk L.
BenschopDirk
      L. BenschopChief  Executive
      Officer, President and
Treasurer





Teleconnect
      Inc.Date: December
      23, 2010
                  By:
                  /s/ Leslie G.
  PettittLeslie
      G. PettittChief  Financial
      Officer and principal accounting
                    officer





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.





Teleconnect
      Inc.Date: December
      23, 2010
                  By:
                  /s/ Dirk L.
BenschopDirk
      L. BenschopChief  Executive
      Officer, President and
Treasurer





Teleconnect
      Inc.Date: December
      23, 2010
                  By:
                  /s/ Leslie G.
  PettittLeslie
      G. PettittChief  Financial
      Officer and principal accounting
officer




34


INDEX OF
EXHIBITS ATTACHED




Exhibit
              
              Description3.1
      (v)
              
              Signed
      Minutes of Shareholders Meeting held on November 12,
  20093.2
      (v)
              
              Signed
      Minutes of Shareholders Meeting held on October 8, 201021
              
              Description
      of subsidiaries31.1
              
              Certification
      of  Dirk L. Benschop31.2
              
              Certification
      of  Les Pettitt32.1
              
              Certification
      of  Dirk L. Benschop and Les
Pettitt




35