U. S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
    1934 for the fiscal year ended August 31, 1999.

[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
    of 1934 for the transition period from ____________ to ___________.

                         Commission File Number: 0-15482

                          WAVETECH INTERNATIONAL, INC.
                 ----------------------------------------------
                 (Name of small business issuer in its charter)

           Nevada                                                 86-0916826
----------------------------                                 -------------------
(State or other jurisdiction                                  (I.R.S. Employer
     of incorporation)                                       Identification No.)

                       5210 E. Williams Circle, Suite 200
                              Tucson, Arizona 85711
                    ----------------------------------------
                    (Address of principal executive offices)

                                 (520) 750-9093
              ----------------------------------------------------
              (Registrant's telephone number, including area code)

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

                                                   Name of exchange on
             Title of Each Class                    which registered
             -------------------                    ----------------
                     None                                 None

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

                          Common Stock $.001 Par Value
                          ----------------------------
                                (Title of Class)

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

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

     Issuer's revenues for the fiscal year ended September 30, 1999: $13,580.

     The aggregate  market value of the Common Stock of the  registrant  held by
non-affiliates as of November 8, 1999 was approximately  $8,892,142.69  based on
the  average bid and asked  prices for such Common  Stock as reported on the OTC
Bulletin Board.

     The number of shares of Common Stock outstanding as of November 8, 1999 was
3,059,662.

     Documents Incorporated by Reference - None.

     Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
<PAGE>
                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS.

     THIS ANNUAL  REPORT ON FORM 10-KSB  CONTAINS  CERTAIN  STATEMENTS  WHICH WE
BELIEVE  ARE  FORWARD-LOOKING  STATEMENTS  WITHIN THE MEANING OF THE SAFE HARBOR
PROVISIONS OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.  THESE STATEMENTS RELATE
TO FUTURE  EVENTS AND THE FUTURE  FINANCIAL  PERFORMANCE  OF  WAVETECH.  IN SOME
CASES, YOU CAN IDENTIFY FORWARD-LOOKING STATEMENTS BY TERMINOLOGY SUCH AS "MAY,"
"WILL," "SHOULD," "EXPECTS," "PLANS,"  "ANTICIPATES,"  "BELIEVES,"  "ESTIMATES,"
"PREDICTS,"  "POTENTIAL,"  OR "CONTINUE" OR THE NEGATIVE OF SUCH TERMS AND OTHER
COMPARABLE  TERMINOLOGY.   THESE  ONLY  REFLECT  MANAGEMENT'S  EXPECTATIONS  AND
ESTIMATES  ON THE DATE OF THIS  REPORT.  ACTUAL  EVENTS OR  RESULTS  MAY  DIFFER
MATERIALLY FROM THESE EXPECTATIONS.  IN EVALUATING THOSE STATEMENTS,  YOU SHOULD
SPECIFICALLY  CONSIDER  VARIOUS  FACTORS,  INCLUDING  THE RISK  INCLUDED  IN THE
REPORTS FILED BY WAVETECH WITH THE  SECURITIES  AND EXCHANGE  COMMISSION.  THESE
FACTORS MAY CAUSE ACTUAL RESULTS TO DIFFER  MATERIALLY FROM ANY  FORWARD-LOOKING
STATEMENTS.   WAVETECH  IS  NOT   UNDERTAKING  ANY  OBLIGATIONS  TO  UPDATE  ANY
FORWARD-LOOKING STATEMENTS CONTAINED IN THIS REPORT.

BUSINESS DEVELOPMENT

COMPANY PROFILE

         Wavetech   International,   Inc.  (the  "Company"  or  "Wavetech")  was
incorporated  in the  State  of New  Jersey  on July  10,  1986  under  the name
"Wavetech,  Inc." In February 1998, the Company  reincorporated  in the State of
Nevada.  The  Company  became  subject  to  the  reporting  requirements  of the
Securities  Exchange Act of 1934, as amended (the "Exchange Act"), by filing and
registering with the Securities and Exchange  Commission (the "SEC") a Form S-18
under the  Securities  Act of 1933, as amended (the "1933 Act"),  400,000 units,
each unit  consisting  of three  shares of Common  Stock and one Class A and one
Class B redeemable  Common Stock purchase  warrant.  Its Registration  Statement
became  effective on February 11, 1987. A total of 400,000 units were sold at an
offering  price of $6.75 per unit for gross total  proceeds of  $2,700,000.  The
Company's  Common  Stock is listed on the OTC  Bulletin  Board  under the symbol
"ITEL."

WAVETECH SUBSIDIARIES

         INTERNATIONAL  ENVIRONMENTAL  SERVICES  CORPORATION.  On June 6,  1991,
Wavetech  acquired  all  of  the  outstanding  capital  stock  of  International
Environmental   Services   Corporation   ("IES"),   a  privately  held  Delaware
corporation, in exchange for 8,000,000 shares (66,667 shares after giving effect
to the Company's  reverse  stock splits) of the Company's  Common Stock and a $5
per cubic yard royalty payment on IES's future operations,  if any. To date, IES
has not derived any revenue from its operations.

         IES  was  incorporated  in  1988  and at the  time  of its  acquisition
reported as its sole asset approximately 1,000 acres of real property located in
Carroll  County,  Ohio.  The  property  was  acquired  by IES for the purpose of
converting  all, or a portion  thereof,  to a  non-hazardous  sanitary  landfill
facility.  In November 1995,  Wavetech was advised that all of the land was sold
to satisfy real estate taxes in arrears by Carroll  County,  Ohio. This tax sale
was  consummated in April 1994. The Company  intends to pursue legal recourse to
recover  the  value  of the  land  from  responsible  parties  as soon as it has
sufficient funding that can be allocated  exclusively for legal expenses related
to this matter.

         Following  the  acquisition  of  IES,  Wavetech  was  comprised  of two
divisions: an Environmental  Laboratory Testing and Engineering Division through
a wholly owned subsidiary,  Applied Environmental Technology,  Inc. ("Applied"),
and a Landfill Development & Management Division ("IES").  During the year ended
August 31, 1995, Wavetech, with the then President abstaining, voted to sell the
stock of Applied to the father of the then President.  This divestiture occurred
before  March 8, 1995,  during the year ended  August  31,  1995,  resulting  in
Wavetech  having  no  further  liabilities  nor  assets  on  its  balance  sheet
associated with Applied.
<PAGE>
         INTERPRETEL,  INC. On March 8, 1995, Wavetech entered into an agreement
with  Interpretel,  Inc.  ("Interpretel")  pursuant to which Wavetech  agreed to
issue  6,000,000  shares  of its  Common  Stock  in  exchange  for  100%  of the
outstanding  1,532,140  shares of Common Stock of  Interpretel.  The transaction
resulted in the former  shareholders of Interpretel owning  approximately 80% of
the outstanding shares of Wavetech.  Following the acquisition of Interpretel by
Wavetech,  the former  principals  of  Interpretel  were elected to serve as the
management for the newly-structured corporation.

         Interpretel is a  facilities-based  telecommunication  company using an
advanced computer  telephony platform to deliver enhanced calling card services.
Incorporated  in the State of Arizona in  September  of 1993,  the  Company  was
formed  to create a simple  calling  card  product  featuring  direct  access to
over-the-phone  language  interpreters  with services  provided by AT&T Language
Line. Employing a digital  computer/telephony  integrated platform (switch) as a
back-bone,   the  company's  products  and  services  evolved  significantly  to
capitalize on features and  capabilities  of the system.  The Company focused on
highly  customized  and branded,  enhanced  calling  cards,  virtual  office and
interactive   marketing   applications.   Interpretel  focused  on  creating  an
infrastructure to support product development, administration, sales, marketing,
and  customer  support.  In 1999,  Interpretel  discontinued  all  calling  card
services as the costs to provide  these  services were greater than revenues and
the Company had recently shifted its focus into Internet-related products.

         INTERPRETEL (CANADA) INC. On March 10, 1995,  Interpretel (Canada) Inc.
("Interpretel  (Canada)")  was  incorporated  under the laws of the  Province of
Ontario as a wholly  owned  subsidiary  of  Interpretel,  Inc.  It was formed to
secure a long  distance  reseller's  registration  and  license in that  country
through  the  Canadian  Radio and  Television  Commission  (CRTC),  which is the
Canadian  equivalent of the FCC. This reseller's  license qualifies  Interpretel
(Canada) to operate as a reseller of long distance services and secure contracts
with Canadian  corporations and organizations as a Canadian entity.  Interpretel
(Canada) is essentially a sales and customer service operation.

         TELPLEX  INTERNATIONAL  COMMUNICATIONS,  INC.  On January 1, 1997,  the
Company  acquired  certain  intangible  assets  of  Telplex,  Inc.,  an  Arizona
corporation,  in exchange for $25,000 in cash.  These  assets,  which  consisted
primarily of goodwill,  an international long distance  wholesaler's  license, a
few customer contracts for the resale of switchless  international long distance
numbers,  as well as a non-compete  agreement  from the owner of Telplex,  Inc.,
were acquired by the Company  through its new wholly owned  subsidiary,  Telplex
International  Communications,  Inc. ("Telplex"). The Company did not assume any
of the liabilities of Telplex, Inc. Subsequent to February 28, 1998, the Company
had no revenues from Telplex, as the Company no longer had the sales and billing
support staff to accommodate the international long distance wholesale business.
The remaining book value of the acquired assets was written off in 1999.

RECENT DEVELOPMENTS

         Effective  November 13, 1999, the Company  acquired  through its wholly
owned subsidiary,  Interpretel (Canada),  certain products and accounts, as well
as  first-right-of-refusal  on the sale of  Softalk,  Inc.,  an  Ontario  Canada
corporation  ("Softalk"), its  intellectual  property,  software  code,  and any
patents owned by Softalk (the "Acquisition"). The Acquisition was consummated in
accordance  with  the  terms  of  a  Purchase  Agreement  between  the  Company,
Interpretel (Canada), and Softalk, dated as of October 25, 1999.

         The aggregate  consideration paid by the Company in connection with the
Acquisition was $10,000,000,  consisting of 4,329,004 shares of non-voting Class
A Preferred Stock of Interpretel (Canada) (the "Interpretel  Preferred Shares").
Each Interpretel Preferred Share is exchangeable,  at the option of Softalk, for
one  share  of  Wavetech  Common  Stock.  As of the  date of this  Report,  such
Interpretel  Preferred  shares are  convertible  into  approximately  58% of the
issued  and  outstanding   shares  of  Wavetech  Common  Stock.   The  aggregate
consideration  paid in the  Acquisition  was  determined  through  arm's  length
negotiations  between  representatives  of the Company and Softalk.  Neither the
Company nor, to the knowledge of the Company, any affiliate, director or officer
of the  Company  had any  material  relationship  with  Softalk,  except for the
Amended  and  Restated   License   Agreement.   See   "Business  of  Issuer  and
Subsidiaries" below.

                                       2
<PAGE>
         The Acquisition  consisted principally of certain hardware and software
required by Interpretel  (Canada) to operate their  telecommunication  services,
any  existing or future  Softalk  contracts  with  customers,  distributors  and
suppliers,   and  the   first-right-of-refusal   to  purchase   Softalk,   their
intellectual  property,  software  code,  and any patents owned by Softalk.  The
value of the purchase was U.S. $10,000,000.

         In a separate  transaction,  the Company  and  Softalk  agreed to amend
their existing Amended and Restated  License  Agreement,  effective  October 25,
1999, to grant Wavetech and its subsidiaries a world-wide  exclusive  license to
distribute,  market,  service,  sell  and  sublicense  any and all of  Softalk's
services and products  (whether now existing or hereafter  developed or acquired
by Softalk) to commercial  accounts,  and a world-wide  nonexclusive  license to
distribute,  market,  service,  sale  and  sublicense  any and all of  Softalk's
services and products  (whether now existing or hereafter  developed or acquired
by Softalk) to individual customer accounts. In consideration of such Amendment,
the Company  issued to Softalk  five year  warrants to purchase an  aggregate of
5,246,753  shares of Common Stock,  3,246,753 of which have a per share exercise
price of  $3.25,  1,000,000  have a per  share  exercise  price of $5.00 and the
remaining 1,000,000 have a per share exercise price of $10.00.

         Softalk has been given two seats on the Board of Directors of Wavetech,
the  parent of  Interpretel  (Canada). Wavetech  has been  given one seat on the
Softalk  Board of Directors.  Softalk,  as a private  company,  will continue to
develop  software and, as required,  provide  technical  support to  Interpretel
(Canada) and Wavetech.  Interpretel  (Canada) and Wavetech will provide customer
support,  billing  services  and  marketing  for the Softalk  software  products
globally on an exclusive  basis to  commercial  accounts and on a  non-exclusive
basis to individual consumer accounts.

BUSINESS OF ISSUER AND SUBSIDIARIES

OVERVIEW

         From 1995 until the present,  the Company  created  customized  calling
card  services   through  the  application  of   "intelligent"   call-processing
technology  and  proprietary  software  targeted to the business  traveler.  The
Company  marketed  these systems to large  organizations  or companies for their
membership  base.  With the wide scale  deployment of cellular  telephones  with
messaging capability,  the market for business related calling card services has
greatly diminished.

         During  fiscal  1999,  the  Company's  efforts  centered  primarily  on
completing a merger with DCI Telecommunications,  Inc. ("DCI"), an international
telecommunications  company.  When it became  apparent to the Company's Board of
Directors that the  consummation of this merger would be delayed,  combined with
the declining  market for calling card  services,  the Company's  management was
instructed  to  explore  alternative  industry  segments  in which to expand its
business ventures.

         On April 23,  1999,  the  Company  signed a  licensing  agreement  with
Softalk (the "Softalk License  Agreement"),  a developer of proprietary Internet
Protocol-based  ("IP-based")   telecommunication   technologies  ("the  Licensed
Technology"),  based in Toronto, Ontario.  Softalk's technology enables personal
computer  users who access the World  Wide Web to make long  distance  telephone
calls at substantially reduced rates from those offered over the Public Switched
Telephone  Network  ("PSTN").  The  licensing  agreement  granted to the Company
non-exclusive  rights to market and resell Softalk's  patent-pending  technology
and, in addition, granted the Company the exclusive right to provide billing and
customer support services for all accounts.

         On May 3, 1999, the Company  terminated  its Merger  Agreement with DCI
(the "Merger  Agreement")  pursuant to the terms of the Merger Agreement,  as it
was not  reasonably  likely that the conditions to the merger would be satisfied
prior to the expiration of the Merger Agreement on August 31, 1999.

         On June 18,  1999,  Wavetech  and DCI  terminated  the  Share  Exchange
Agreement  that was  previously  executed on February  26, 1999.  The  companies
returned  their  respective  shares of Common Stock that had been issued to each
other.  The  decision to terminate  the Share  Exchange  Agreement  followed the
previous termination of the Merger Agreement.

                                       3
<PAGE>
         On May 4, 1999,  the  Company  received  formal  notification  from the
Nasdaq Stock Market  ("Nasdaq")  that the  conditional  listing  under which its
shares  had been  quoted  had  terminated  and the  Company's  Common  Stock was
delisted from the Nasdaq SmallCap  Market  effective at the close of business on
May 4, 1999. The Company  subsequently applied for inclusion of its Common Stock
on the OTC  Bulletin  Board  and on  June  23,  1999  received  notification  of
acceptance for trading as OTC BB: ITEL. The Company's Common Stock began trading
on the OTC Bulletin Board on June 28, 1999.

         The Company's business strategy is now focused exclusively on providing
the web-enabled long distance service it markets pursuant to the Softalk License
Agreement.  Best Net Call is the  Company's  brand  name for this  service.  The
Company has begun  integrating  the proprietary  software  licensed from Softalk
into its billing system.  The Company has also begun  development of its website
to launch its Best Net Call business.  The Company anticipates an initial launch
of its service in January 2000.

FEATURES AND CAPABILITIES OF THE COMPANY'S SERVICE

         Best Net Call allows  companies and  individuals to enter long distance
calling  information on the Company's World Wide Website at  www.bestnetcall.com
from anywhere in the world.  The Company  believes that the Licensed  Technology
provides the platform for developing a distributed,  intelligent IP-based global
network that manages voice,  video and fax traffic for routing and  transporting
over a combination of networks,  including the Internet, frame relay, Integrated
Services  Digital Network  ("ISDN"),  in addition to the  traditional  PSTN. The
Licensed  Technology is based on  Microsoft's NT operating  platform,  which the
Company  believes will play an important role in redefining the next  generation
of communication systems within the next five years.

         The Company's Best Net Call service uses existing  telephone  equipment
and does not require the purchase of hardware or software by the customer; users
only need access to the  Internet  and an  available  phone line.  Best Net Call
offers real-time billing to all users. Following completion of a telephone call,
the total cost for that call may be viewed on the caller's online account.  Best
Net Call also offers  convenient  speed dialing,  personalized  directories  and
client billing code capabilities.

STRATEGIES FOR THE FUTURE

         The Company  believes  that Best Net Call provides  customers  with the
cost  savings of data  networks  and the  global  reach of the  Internet,  while
providing  the Company with a platform  for  delivering  additional  value-added
services.  The  Company  intends to continue  to  distribute  Best Net Call on a
global basis by taking advantage of the growth of the Internet.

         To rapidly accelerate distribution of this service, the Company intends
to utilize its existing relationships with leading multi-national  corporations.
The Company intends to expand its relationships with international  professional
service firms,  telecommunications carriers and other third-party intermediaries
to attract  local,  regional and national  advertisers  that seek to efficiently
target business customers.

         The Company  also  intends to become a global  provider of high quality
Internet-enabled  voice and fax services.  The Company believes that the planned
deployment of its network and  proprietary  software will allow its customers to
capitalize on the  convergence of the  traditional  telephone  network with both
private  and  public  data  networks,  such as the  Internet.  The  Company  has
established  facilities in Canada and has  arrangements  with  affiliates in the
U.S. and outside of the U.S. to place and complete telephone calls on the PSTN.

                                       4
<PAGE>
COMPETITION

         The Company  expects that  information and  telecommunication  services
markets will continue to attract new competitors and new technologies,  possibly
including  alternative   technologies  that  are  more  sophisticated  and  cost
effective  than the Company's  technology.  The Company does not have the right,
contractually  or otherwise,  to prevent its  subscribers  from using  competing
products and the Company's  subscribers  may generally  terminate their services
with the  Company at any time.  In  addition,  consumer  demand  for  particular
telecommunications  products may be adversely  affected by the increasing number
of competitive products from which to choose, making it difficult to predict the
Company's  future  success  in  producing  telecommunications  products  for the
marketplace.

         Currently,  the Company's  primary  competitors for Internet  telephony
services include Net2Phone, Inc., ITXC, Inc., DeltaThree, Inc., and iBasis, Inc.
The Company also competes  against  traditional  long distance  carriers such as
AT&T, MCI WorldComm, Sprint, and Qwest Communications, Inc. The Company may also
compete  with  online  services  and  other  Web  site  operators,  as  well  as
traditional  media  such  as  television,  radio  and  print,  for  a  share  of
advertisers'  total  advertising  budgets.  There can be no  assurance  that the
Company' s competitors  will not develop  services that are superior to those of
the Company or that may achieve  greater  market  acceptance  than the Company's
offerings.  Certain of the Company's  competitors  have, and any new competitors
that enter the  industry may have,  access to  significantly  greater  financial
resources than the Company.

RESEARCH AND DEVELOPMENT

         The  Company  has not spent  any  capital  during  each of the last two
fiscal years on research and development activities.

ITEM 2. DESCRIPTION OF PROPERTY

         The  Company  leases  its office  and  administrative  space at 5210 E.
Williams Circle,  Suite 200,  Tucson,  Arizona 85711. The lease expires November
30, 2001,  and requires the Company to make  payments  thereunder  in an average
amount of approximately  $8,400 per month over the term of the lease.  Effective
May 13, 1998, the Company began to sublet approximately 2,000 square feet of its
office space for $3,000 per month on a month-to-month basis.

ITEM 3. LEGAL PROCEEDINGS

         As of the date of this  report,  the  Company  is  aware of no  pending
litigation.

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

         None.

                                       5
<PAGE>
                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         The  Company's  Common Stock was quoted on the Nasdaq  SmallCap  Market
until May 4, 1999, and then on the OTC:BB from June 28, 1999 to the present. The
high and low bid prices of the Company's Common Stock as reported from September
1,  1997  through  August  31,  1999 by fiscal  quarters  (i.e.,  1st  Quarter =
September 1 through November 30) were as follows,  as adjusted for a one-for-six
reverse split effective December 18, 1998:

                  1ST QTR          2ND QTR          3RD QTR         4TH QTR
               ------------     -------------    ------------     ------------
               HIGH     LOW     HIGH      LOW    HIGH     LOW     HIGH     LOW
               ----     ---     ----      ---    ----     ---     ----     ---
1998
Common Stock  $3 5/8  $2 1/4  $2 13/16  $2 7/16 $4 1/8   $3 3/8  $4 5/16 $1 5/16

1999
Common Stock   3 9/16  1 1/2   3 9/16    2       2 15/16    1/8   2 5/8     1/2

         The bid and the asked price of the  Company's  Common Stock on November
8, 1999, were $2 7/8 and $3, respectively.

         As of November 8, 1999, the Company had 332  shareholders  of record of
its Common Stock.  As of November 10, 1999,  the Company had 1,734  shareholders
that beneficially own the stock in the name of various brokers.

         The Company has never declared any cash  dividends and currently  plans
to retain future earnings, if any, for its business operations.

         NASDAQ  DELISTING.  The  Company's  Common Stock was delisted  from the
NASDAQ Small Cap Market on May 4, 1999, due to the fact that the Company was not
in compliance with Nasdaq's $1.00 minimum bid price requirement.  Since June 28,
1999, the Company's Common Stock has been traded on the OTC Bulletin Board under
the symbol "ITEL."

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

OPERATIONS OVERVIEW

         REVENUES. Revenues decreased to $13,580 in fiscal 1999 from $157,838 in
1998.  $60,151 of the  decrease  was  attributable  to the  Company  having zero
revenues from the resale of international  long distance minutes in fiscal 1999.
As of February  28,  1998,  the Company  discontinued  the business of reselling
international long distance minutes. At that time, the Company no longer had the
sales and billing  support staff to  accommodate  that  business.  A decrease of
$59,523 was due to receipts of licensing fees from Switch Telecommunications Pty
Limited ("Switch") in fiscal 1998, which did not occur again in fiscal 1999. The
licensing agreement with Switch was terminated on June 30, 1998,  therefore,  no
such revenue was received in fiscal 1999.  Revenues  from calling card  services
such as long distance, voice and fax mail services decreased by $26,256 in 1999,
as the Company was not able to obtain  competitive  rates for these services and
was not able to attract new customers.

         COST OF SALES.  Costs of sales  decreased to $9,468 in fiscal 1999 from
$85,082 in fiscal  1998.  A decrease  of $49,129 was related to prior year costs
associated with the resale of international long distance minutes.  Reduction in
the  number of T-1  telephone  lines and  software  maintenance  resulted  in an
additional  decrease of  $14,277.  Costs  associated  with lower  revenues  from
calling card services decreased by $11,439.

         GENERAL AND  ADMINISTRATIVE  EXPENSES.  Operating expenses decreased to
$691,479 in fiscal 1999 from $794,004 in fiscal 1998.  Renegotiation of the fees
paid by the Company for platform  services and support resulted in a decrease of
$54,191 in fiscal 1999 as compared to fiscal 1998.  Investor  relations expenses
decreased  by $49,659  in fiscal  1999,  due to the  Company  handling  investor
relations  in-house.  Legal and accounting  fees  decreased by $16,419.  Fees to
NASDAQ  decreased  by $8,118  during  fiscal 1999 as compared to the prior year.

                                       6
<PAGE>
During fiscal 1999, the Company's office and equipment lease expenses  increased
by $7,721 over the previous year,  while travel  expenses  related to completing
due diligence on potential business opportunities  increased by $17,650 over the
prior year.

         DEPRECIATION AND AMORTIZATION  EXPENSES.  Depreciation and amortization
expenses  decreased  to $146,977  for fiscal year 1999 from  $156,965 for fiscal
year  1998,  due  to a  reduction  in  amortization  expense  of  capital  lease
obligations.

         INTEREST  INCOME.  Interest income  increased to $70,519 in fiscal 1999
from $6,565 in fiscal  1998 due to an  increase  in the  average  balance in the
Company's money market fund during fiscal 1999 as compared to fiscal 1998.

         RENTAL INCOME. The Company subleases approximately 2,000 square feet of
its office space to another company.  This sublease is on a month-to-month basis
and earns the Company  $3,000 per month.  The Company  intends to continue  this
sublease until such time as the Company requires this additional space.

         INTEREST EXPENSE.  Interest expense decreased to $8,995 for fiscal year
1999 from $45,182 for fiscal year 1998. The decrease in interest expense related
to a line of credit that was repaid in 1998.

         COSTS INCURRED IN CONNECTION  WITH MERGER.  The Company had expenses of
$118,450  directly  related to the proposed,  but  terminated,  merger with DCI.
These expenses included $62,079 in legal fees, $20,000 for fairness opinions and
$25,340 in  registration  fees to NASDAQ  and the SEC and  $8,632 in  consulting
fees.

         PREFERRED STOCK CONVERSION  PENALTY.  The Company incurred  $144,000 in
costs  relating to Series A  Convertible  Preferred  Stock  issued in April 1998
which  requires  the Company to pay a penalty of $12,000 for each 30-day  period
until such time as a Registration  Statement on Form S-3 covering the underlying
shares of common  stock is declared  effective.  The  purchaser  of the Series A
Convertible  Preferred  Stock has agreed to accept  payment for the penalties in
restricted  common shares in lieu of cash. Such common shares are priced at fair
value on the date each penalty payment is due.

         WRITE-OFF  OF  INTANGIBLES.  The  Company  determined  that  $36,125 in
certain fixed and  intangible  assets were no longer of value to the Company and
were written off. These assets  included  $20,556 in intangibles  related to the
original purchase of goodwill,  a reseller's  license and customer contracts for
Telplex.  An  additional  amount of $12,369 for  development  costs for software
specifically  for calling card  services was written off, as that software is no
longer being used.

         OTHER  EXPENSES.  The Company had a one-time  expense of $15,000 during
fiscal 1999 to settle a  previously  reported  lawsuit by Steven A.  Ezell.  The
details  relating to this expense were reported in the Company's  10-QSB for the
period ending February 28, 1999.

         INCOME TAXES. At August 31, 1999, the Company has federal net operating
loss carryforwards  totaling  approximately  $11,000,000 and state net operating
loss  carryforwards  of  approximately  $7,100,000.  The  federal  and state net
operating loss  carryforwards  expire in various  amounts  beginning in 2011 for
federal  purposes  and 2000 for state  purposes.  Additionally,  the Company has
capital loss  carryforwards of approximately  $216,000 which will expire in 2004
unless  offset  by  capital  gains.  No tax  benefit  has been  recorded  in the
financial  statements  since  realization of these loss  carryforwards  does not
appear likely.

LIQUIDITY AND CAPITAL RESOURCES

         At August 31,  1999,  the Company  had  working  capital of $618,440 as
compared to a working capital of $1,863,442 at August 31, 1998.

         The Company  expects to incur  operating  losses until such time as the
Internet-based communication product is introduced and is operating. The Company
believes it has sufficient funds to meet its current operating  expenses for the
next fiscal year.

                                       7
<PAGE>
         The  Company  as of  November  13,  1999 has on a fully  diluted  basis
15,446,117  outstanding  in stock,  options,  and warrants and is  authorized to
issue 50 million common shares. The Company has 561 preferred shares outstanding
and is authorized to issue 10 million preferred shares.  The Company believes it
can finance its global build-out and growth by issuing additional shares, either
through  private  placements,  a secondary  public  offering or a combination of
both.

INFLATION

         Although the Company's  operations are  influenced by general  economic
trends  and,   specifically,   technology  advances  in  the  telecommunications
industry,  the Company  does not believe that  inflation  has had or will have a
material impact on its limited operations.

RISK FACTORS

         This annual report on Form 10-KSB contains "forward-looking statements"
that involve risks and uncertainties, which statements may be deemed to include,
but  are not  limited  to,  the  Company's  plans  to  grow  its  Internet-based
communications  businesses,  to expand  the  range of  services  offered  by the
Company,  to increase the number of customers  and revenues  using the Company's
services  and the  minutes  of use and  price per  minute of use of the  traffic
booked  through the  Company's  websites  and network,  to otherwise  expand its
business activities in new cities and foreign countries, to retain key personnel
or  otherwise  to  implement  its  strategy  as  well as the  Company's  beliefs
regarding consumer acceptance of the Internet as a means of commerce and the use
of the Internet as a source of advertising.  Such statements  include statements
regarding the belief or current expectation of the Company's  management and are
necessarily  based on  management's  current  understanding  of the  markets and
industries in which the Company  operates.  That  understanding  could change or
could prove to be inconsistent  with actual  developments.  The Company's actual
results could differ  materially from the results discussed in this Form 10-KSB,
including  those  anticipated in or implied by any  forward-looking  statements.
Factors  that  could  cause or  contribute  to such  differences  include  those
discussed below, as well as those discussed elsewhere in this Report.

THE QUALITY OF THE COMPANY'S SERVICES AND THE COMPANY'S CAPACITY TO TRANSMIT
INTERNATIONAL VOICE AND FAX CALLS DEPENDS LARGELY ON THIRD PARTIES.

         VENDORS THAT  MAINTAIN  PHONE AND DATA LINES.  The  Company's  business
model depends on the  availability  of the Internet to transmit data packets for
voice and fax calls.  The  Company  also  relies on third  parties  who  provide
traditional  phone lines.  Some of these third  parties are  national  telephone
carriers.  They may increase their charges for using these lines at any time and
decrease the Company's  profitability.  They may also fail to properly  maintain
their  lines and  disrupt  the  Company's  ability  to  provide  service  to the
Company's customers.  Any failure by these third parties to maintain these lines
and networks that leads to a material  disruption  of the  Company's  ability to
complete  calls over the Internet  would have a material  adverse  effect on the
Company's business, financial condition and results of operations. No assurances
can be made that the Company will be able to continue  purchasing  such services
from these  third  parties on  acceptable  terms,  if at all.  If the Company is
unable to purchase the  necessary  services to maintain and expand the Company's
network as currently configured, the Company's business, financial condition and
results of operations would be materially adversely affected.

         INTERNATIONAL  COMMUNICATIONS SERVICE PROVIDERS. The Company intends to
develop  relationships  with  local  communications  service  providers  in many
countries,  some of whom own the equipment that translates voice to data in that
country.  The Company relies upon these third parties to both provide lines over
which the Company  completes calls and to increase their capacity when necessary
as the volume of the  Company's  traffic  increases.  There is a risk that these
third  parties may be slow, or fail,  to provide  lines,  which would affect the
Company's  ability  to  complete  calls to those  destinations.  There can be no
assurances that the Company will establish  and/or continue  relationships  with
these local  service  providers  on  acceptable  terms,  if at all.  Because the

                                       8
<PAGE>
Company relies upon these  relationships  with local service providers to expand
into additional countries,  there can be no assurances that they will be able to
increase  the number of  countries to which the Company  provides  service.  The
Company may not be able to enter into enough  relationships  with local  service
providers  in foreign  locations  to handle the  increase in the volume of calls
from the Company's  customers.  Finally,  any technical  difficulties that these
providers  suffer would affect the Company's  ability to transmit calls to those
locations.

         STRATEGIC RELATIONSHIPS. The Company depends on strategic relationships
to  continually  develop the  Licensed  Technology  and to expand the  Company's
distribution  channels. In particular,  the Company depends in large part on the
Company's  joint  product  development  efforts with  Softalk.  Softalk or other
strategic relationship partners may choose not to renew existing arrangements on
commercially  acceptable  terms,  if at all.  The  Company's  loss  of this  key
strategic  relationship,  or the  failure to develop  new  relationships  in the
future,  would  have  a  material  adverse  effect  on the  Company's  business,
financial condition and results of operations.

THE TELECOMMUNICATIONS  INDUSTRY IS SUBJECT TO DOMESTIC GOVERNMENTAL  REGULATION
AND LEGAL  UNCERTAINTIES  WHICH COULD MATERIALLY  ADVERSELY AFFECT THE COMPANY'S
BUSINESS.

         While the Federal Communications Commission (the "FCC") has tentatively
decided  that  information  service  providers,   including  Internet  telephony
providers, are not telecommunications  carriers for regulatory purposes, various
companies  have  challenged  that  decision.  Congress has indicated  that it is
dissatisfied with the conclusions of the FCC and the FCC could impose greater or
lesser regulation on the Company's industry.  The FCC is currently  considering,
for example,  whether to impose  surcharges  or other  regulations  upon certain
providers  of  Internet  telephony,   primarily  those  which  provide  Internet
telephony services to end-users located within the United States.

         Aspects of the Company's operations may be, or become, subject to state
or federal  regulations  governing  universal  service  funding,  disclosure  of
confidential  communications,  copyright  and  excise  taxes.  There  can  be no
assurance   that   government   agencies   will   not   increasingly    regulate
Internet-related  services.  Increased  regulation  of the Internet may slow its
growth.  Such regulation may also  negatively  impact the cost of doing business
over the  Internet  and  materially  adversely  affect the  Company's  business,
financial condition and results of operations.

THE  TELECOMMUNICATIONS   INDUSTRY  IS  SUBJECT  TO  INTERNATIONAL  GOVERNMENTAL
REGULATION AND LEGAL UNCERTAINTIES  WHICH COULD MATERIALLY  ADVERSELY AFFECT THE
COMPANY'S BUSINESS.

         The Company  intends on  marketing  its service to  international  long
distance callers.  Because it will be conducting business  internationally,  the
Company is subject  to certain  direct or  indirect  risks.  These  risks  would
include  unexpected  changes is regulatory  requirements for the Internet and/or
Internet  telephony;  foreign  currency  fluctuations,  which could  increase or
decrease operating expenses and increase or decrease revenue;  foreign taxation;
and the burdens of complying  with a variety of foreign laws,  trade  standards,
tariffs and trade barriers.

         The Company may also be subject to general  geopolitical risks, such as
political  and  economic   instability  and  changes  in  diplomatic  and  trade
relationships.  Adverse conditions  internationally  could materially  adversely
affect the Company's business, financial condition and results of operations.

                                       9
<PAGE>
LIMITED OPERATING HISTORY

         The Company has operated at a loss for the last six years. The Best Net
Call  service is a new product for the Company and  therefore  has no  operating
history upon which an  evaluation of the Company and its prospects can be based.
The Company's  prospects must be considered in light of the risks,  expenses and
difficulties  frequently  encountered  by  companies  in their  early  stages of
development,  particularly companies in new and rapidly evolving markets such as
those in which the Company competes. Such risks include, but are not limited to,
evolving and unpredictable business models,  management of growth, the Company's
ability to anticipate  and adapt to developing  markets,  acceptance by Internet
users,  businesses  and  business  customers of the  Company's  services and the
ability of the Company to  establish  relationships  with  additional  strategic
partners. To address these risks, the Company must, among other things,  attract
and retain an audience of frequent users of its services in its target  markets,
maintain  its  business  customer  base,  attract  a  significant  number of new
Internet  telephony  business  customers in target markets,  expand its sales of
voice, fax and value-added  telecom  services through Best Net Call,  respond to
competitive  developments,  continue  to form and  maintain  relationships  with
telecom carrier  partners,  continue to attract,  retain and motivate  qualified
personnel,  provide  superior  customer  service,  and  continue  to develop and
upgrade its  technologies  and  commercialize  its services  incorporating  such
technologies.  There can be no assurance  that the Company will be successful in
addressing  such  risks,  and a failure to do so could  have a material  adverse
effect on the Company's business, financial condition and results of operations.

ANTICIPATED CONTINUED OPERATING LOSSES

         At August 31, 1999,  Wavetech had an accumulated deficit of $7,467,861.
Prior years'  financial  information has no particular  bearing on future years'
results  because the focus of the Company has changed from calling card services
to Internet telephony.

         The Company  believes  that its future  profitability  and success will
depend in large part on its ability to generate  sufficient  revenues  from Best
Net Call revenues and websites to businesses. Revenues are also anticipated from
the  licensing of its  technology  and business  systems to partners  setting up
Internet  telephony services in partner-led  foreign markets.  The profitability
and  success of the Company  will  depend on its  ability to  maintain  existing
relationships and enter into new  relationships  with Post Telephone & Telegraph
("PTT") administrations and other carriers for which it sells Internet telephony
services  and to obtain  or  retain  for  Wavetech  the  right to sell  Internet
telephony services and related  value-added telecom services online, its ability
to effectively maintain existing relationships with its multinational  partners,
its  ability  to  successfully  enter  into  new  strategic   relationships  for
distribution  and  increased  usage of the Best Net Call and Internet  telephony
services and its ability to generate sufficient online traffic and sales volume.
Accordingly,  the Company expects to expend significant financial and management
resources  on the roll-out of the Internet  telephony  service,  and on site and
content  development on its Best Net Call websites,  integration of the Internet
telephony and Best Net Call services,  strategic  relationships,  technology and
operating infrastructure.  As a result, the Company expects to incur significant
additional  losses and  continued  negative  cash flow from  operations  for the
foreseeable  future.  There can be no assurance that the Company's revenues will
increase or even  continue  at their  current  levels or that the  Company  will
achieve or maintain  profitability  or generate  cash from  operations in future
periods. In view of the rapidly evolving nature of the Company's  business,  the
limited operating  history of both Internet  telephony and Best Net Call and the
risks associated with integrating  these  businesses,  the Company believes that
period-to-period  comparisons of operating results are not meaningful and should
not be relied upon as an indication of future performance.

                                      10
<PAGE>
POTENTIAL CONFLICTS OF INTEREST

         Conflicts of interest may arise between the Company, including Best Net
Call, on the one hand, and its affiliates, including Softalk, on the other hand,
in areas relating to past, ongoing and future relationships,  including the Best
Net Call License Agreement, corporate opportunities, indemnity arrangements, tax
and  intellectual   property  matters,   potential   acquisitions  or  financing
transactions,   sales  or  other  dispositions  by  Wavetech  principals.  These
conflicts  also may include  disagreements  regarding  the Best Net Call License
Agreement, including with respect to possible amendments to, or modifications or
waivers of provisions  of such  agreement.  Such  amendments,  modifications  or
waivers may adversely  affect the Company's  business,  financial  condition and
results of  operations.  Ownership  interests  of  directors  or officers in the
Company's Common Stock, or serving as both a director/officer of the Company and
a  director/officer/employee  of  Softalk,  could  create  or  appear  to create
potential  conflicts  of interest  when  directors  and  officers are faced with
decisions  that could have different  implications  for the Company and Softalk.
Two of the  members of the  Company's  Board of  Directors  are also  directors,
officers or employees of Softalk.

DEPENDENCE ON INCREASED NETWORK BANDWIDTH AND CALL PROCESSING SERVICES

         The  Company's  future  success,  and in  particular  its  revenues and
operating results, depends in large part upon its ability to increase the dollar
volume of transactions through Best Net Call, either by generating significantly
higher levels of traffic to its Internet telephony and Best Net Call websites or
by  increasing  the  percentage  of  visitors to its online  sites who  purchase
Internet telephony or value-added telecom services,  or through some combination
thereof. The Company's ability to increase network bandwidth and call processing
services will also depend in part upon Softalk's  ability to develop  additional
products and enhance existing products.  The Softalk License Agreement obligates
Softalk to continuing  product  development  and to research and  development of
improvements and  modifications  for the purpose of augmenting  exploitations by
Wavetech in all markets  for, and all uses of, the Softalk  products.  While the
Company  believes that, due to the perpetual  right of Best Net Call to serve as
Softalk agent for web-based call processing,  Softalk has a substantial interest
in its  relationship  with Best Net Call, there can be no assurance that Softalk
will provide fulfillment services to Best Net Call in excess of the requirements
of the Best Net Call License  Agreement and, in  particular,  after December 31,
2006. In addition, in order to generate sufficient revenues from sponsorship and
advertising on the Best Net Call websites, the Company must deliver a high level
of service and  compelling  pricing in order to attract  users with  demographic
characteristics valuable to sponsors and advertisers.  There can be no assurance
that the Company  will be able to  increase  the dollar  volume of  transactions
booked through its online sites,  increase traffic to its online sites, increase
the percentage of visitors who purchase  advertisers'  products or the Company's
value-added  telecom  services,  increase  the  number of repeat  purchasers  or
increase its sponsorship and advertising revenues. The failure to do one or more
of the foregoing  would likely have a material  adverse  effect on the Company's
business, financial condition and results of operations.

                                       11
<PAGE>
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING

         Since inception,  Internet telephony has experienced negative cash flow
from  operations and the Company  expects to continue to experience  significant
negative  cash flow from  operations  for the  foreseeable  future.  There is no
current  obligation or agreement to provide any future  capital or other funding
to the  Company.  The  Company  currently  believes  that its  existing  capital
resources will be sufficient to meet its presently anticipated cash requirements
through  August 31,  2000.  Thereafter,  the  Company  may be  required to raise
additional  funds.  No  assurance  can be  given  that the  Company  will not be
required to raise  additional  financing prior to such time. If additional funds
are raised  through  the  issuance  of equity  securities,  stockholders  of the
Company  may  experience  significant  dilution.  Furthermore,  there  can be no
assurance  that  additional  financing  will be available when needed or that if
available,  such  financing  will include terms  favorable to the Company or its
stockholders.  If  such  financing  is not  available  when  required  or is not
available on acceptable  terms,  the Company may be unable to develop or enhance
its services, take advantage of business opportunities or respond to competitive
pressures,  any of which could have a material  adverse  effect on the Company's
business, financial condition and results of operations.

DEPENDENCE ON CONTINUED GROWTH OF INTERNET TELEPHONY

         The Company's future revenues and any future profits are  substantially
dependent upon the widespread  acceptance and use of the Web and online services
such as Internet  telephony  as an effective  medium of commerce by  businesses.
Rapid  growth  in the use of,  and  interest  in,  the  Web,  the  Internet  and
commercial online services is a recent phenomenon, and there can be no assurance
that  acceptance and use will continue to develop or that a  sufficiently  broad
base of businesses will adopt,  and continue to use, the Web and online services
as a medium of commerce,  particularly  for  purchasing  network  bandwidth  and
access and related value-added telecom services.  Demand for recently introduced
services  and  products  over the Web and online  services  is subject to a high
level of uncertainty, and there are relatively few proven services and products.
The  development  of  the  Web  and  online  services  as  a  viable  commercial
marketplace is subject to a number of factors, including continued growth in the
number of Internet users and users of such services,  concerns about transaction
security,  continued development of the necessary  technological  infrastructure
and the  development  of  complementary  services and  products.  If the Web and
online  services do not become a viable  commercial  marketplace,  the Company's
business,  financial condition and results of operations would be materially and
adversely affected.

DEPENDENCE ON INCREASED USAGE AND STABILITY OF THE INTERNET AND THE WEB

         The usage of the Web for services  such as those offered by the Company
will  depend in  significant  part on  continued  rapid  growth in the number of
households and commercial,  educational and government  institutions with access
to the Web, in the level of usage by  individuals  and in the number and quality
of products and services  designed for use on the Web.  Because usage of the Web
as a source for  information,  products  and  services  is a  relatively  recent
phenomenon,  it is difficult to predict whether the number of users drawn to the
Web will  continue to increase and whether any  significant  market for usage of
the Web for such purposes  will continue to develop and expand.  There can be no
assurance  that Internet  usage  patterns will not decline as the novelty of the
medium recedes or that the quality of products and services  offered online will
improve sufficiently to continue to support user interest. Failure of the Web to
stimulate  user interest and be accessible to a broad audience at moderate costs
would jeopardize the markets for the Company's services.

         Moreover,  the rapid rise in the number of Internet users and increased
transmission of audio, video,  graphical and other multi-telecom carrier content
over the Web has placed increasing strains on the Internet's  communications and
transmission  infrastructures.   Continuation  of  such  trends  could  lead  to
significant  deterioration in transmission speeds and reliability of the Web and
could reduce the usage of the Web by businesses and individuals. In addition, to

                                       12
<PAGE>
the extent that the Web continues to experience significant growth in the number
of users and level of use without  corresponding  increases and  improvements in
the Internet infrastructure, there can be no assurance that the Internet will be
able to support the demands placed upon it by such continued growth. Any failure
of the Internet to support  such  increasing  number of users due to  inadequate
infrastructure  or otherwise would seriously limit the development of the Web as
a viable alternative to the use of the Public Switched Telephone Network,  which
could materially and adversely affect the acceptance of the Company's  services,
which would, in turn,  materially and adversely  affect the Company's  business,
financial condition and results of operations.

DEPENDENCE ON KEY PERSONNEL; NEED TO HIRE ADDITIONAL QUALIFIED PERSONNEL

         The  Company's  success  depends  to  a  significant  degree  upon  the
continued  contributions of the Company's executive  management team,  including
Gerald Quinn,  the Company's Chief Executive  Officer and Richard  Freeman,  the
Company's Vice  President.  The loss of the services of Mr. Quinn or Mr. Freeman
or other members of the Company's  management team could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, the Best Net Call technology was previously managed by Softalk. The
success  of the  Company  will  depend  upon a  successful  transition  of  this
technology to the Company's  senior  management  team. The Company's  employees,
including its senior officers,  may voluntarily  terminate their employment with
the Company at any time, and competition for qualified employees is intense. The
Company's success also depends upon its ability to attract and retain additional
highly qualified  management,  technical and sales and marketing personnel.  The
process of locating and hiring such personnel with the combination of skills and
attributes  required to carry out the Company's  strategy is often lengthy.  The
loss of the  services of key  personnel or the  inability to attract  additional
qualified  personnel  could  have a  material  adverse  effect on the  Company's
business, financial condition and results of operations.

COMPETITION

         The Company  expects that  information and  telecommunication  services
markets will continue to attract new competitors and new technologies,  possibly
including  alternative   technologies  that  are  more  sophisticated  and  cost
effective  than the Company's  technology.  The Company does not have the right,
contractually  or otherwise,  to prevent its  subscribers  from using  competing
products and the Company's  subscribers  may generally  terminate their services
with  the  Company  at  will.  In  addition,   consumer  demand  for  particular
telecommunications  products may be adversely  affected by the increasing number
of competitive products from which to choose, making it difficult to predict the
Company's  future  success  in  producing  telecommunications  products  for the
marketplace.

         Currently,  the Company's  primary  competitors for Internet  telephony
services include Net2Phone, Inc., ITXC, Inc., DeltaThree, Inc., and iBasis, Inc.
The Company also competes  against  traditional  long distance  carriers such as
AT&T, MCI WorldComm, Sprint, and Qwest Communications, Inc. The Company may also
compete  with  online  services  and  other  Web  site  operators,  as  well  as
traditional  media  such  as  television,  radio  and  print,  for  a  share  of
advertisers'  total  advertising  budgets.  There can be no  assurance  that the
Company' s competitors  will not develop  services that are superior to those of
the Company or that may achieve  greater  market  acceptance  than the Company's
offerings.

         The Company  believes that the principal  competitive  factors  include
ease-of-use, real-time billing, transmission quality, distribution,  web-linkage
and brand recognition.  Many of the Company's competitors have greater financial
and marketing  resources than the Company and may have  significant  competitive
advantages through other lines of business and existing business  relationships.
There can be no assurance that the Company will be able to successfully  compete
against its current or future  competitors or that  competition  will not have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.  Furthermore,  as a strategic  response to changes in the
competitive  environment,  the Company may make  certain  pricing,  servicing or
marketing decisions or enter into acquisitions or new ventures that could have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.

                                       13
<PAGE>
ONLINE COMMERCE AND DATABASE SECURITY RISKS

         A fundamental requirement for online commerce and communications is the
secure  transmission  of  confidential  information  over public  networks.  The
Company relies on encryption and authentication  technology  licensed from third
parties to provide the security and  authentication  necessary to effect  secure
transmission  of  confidential  information,  such  as  businesses  credit  card
numbers. In addition,  the Company maintains an extensive  confidential database
of consumer profiles and transaction information. There can be no assurance that
advances in computer capabilities, new discoveries in the field of cryptography,
or other events or developments will not result in a compromise or breach of the
methods used by the Company to protect  consumer  transaction  and personal data
contained in the  Company's  database.  If any such  compromise of the Company's
security were to occur, it could have a material adverse effect on the Company's
reputation and on its business,  operating  results and financial  condition.  A
party  who  is  able  to  circumvent  the  Company's   security  measures  could
misappropriate  proprietary  information or cause interruptions in the Company's
operations.  The Company may be required to expend significant capital and other
resources to protect  against such  security  breaches or to alleviate  problems
caused by such breaches. Concerns over the security of transactions conducted on
the Internet and  commercial  online  services and the privacy of users may also
inhibit  the  growth of the Web and  online  services  as a means of  conducting
commercial  transactions.  To the  extent  that  activities  of the  Company  or
third-party  contractors  involve the storage and  transmission  of  proprietary
information, such as credit card numbers or other personal information, security
breaches  could expose the Company to a risk of loss or litigation  and possible
liability.  In  addition,  the Company  may suffer  losses as a result of orders
placed with fraudulent credit card data, even though the consumer's  payment for
such orders has been authorized by the associated financial  institution.  Under
current credit card practices,  a merchant is liable for fraudulent  credit card
transactions  where,  as is the case  with  the  transactions  processed  by the
Company, no cardholder signature is obtained. There can be no assurance that the
Company  will not suffer  significant  losses as a result of  fraudulent  use of
credit card data in the future,  which could have a material  adverse  effect on
the Company's business, financial condition and results of operations.

RAPID TECHNOLOGICAL CHANGE

         The Internet and the online  commerce  industry  are  characterized  by
rapid  technological  change,  changes  in user and  customer  requirements  and
preferences,  frequent  new  product  and service  introductions  embodying  new
technologies  and the emergence of new industry  standards  and  practices  that
could render the Company's existing online sites and proprietary  technology and
systems  obsolete.  The emerging nature of these products and services and their
rapid  evolution  will  require  that  the  Company   continually   improve  the
performance,  features and reliability of its online  services,  particularly in
response to competitive  offerings.  The Company's success will depend, in part,
on its ability to enhance its  existing  services,  to develop new  services and
technology that address the increasingly  sophisticated  and varied needs of its
prospective  customers  and to respond to  technological  advances  and emerging
industry  standards and  practices on a  cost-effective  and timely  basis.  The
development of online sites and other proprietary technology entails significant
technical  and business  risks and requires  substantial  expenditures  and lead
time.  There can be no  assurance  that the Company  will  successfully  use new
technologies  effectively or adapt its online sites,  proprietary technology and
transaction-processing  systems to customer  requirements  or emerging  industry
standards.  If the Company is unable, for technical,  legal,  financial or other
reasons,  to adapt in a timely manner in response to changing market  conditions
or  customer  requirements,   its  business,  operating  results  and  financial
condition could be materially adversely affected.

                                       14
<PAGE>
LIABILITY FOR ONLINE CONTENT

         The Company may face potential  liability for  defamation,  negligence,
copyright, patent or trademark infringement and other claims based on the nature
and  content of the  materials  that appear on the  Company's  sites or on sites
operated  by its  respective  partners.  Such  claims  have  been  brought,  and
sometimes  successfully  pressed,  against online  services  providers and other
"non-common carrier status" providers.  Although the Company intends to continue
its general liability insurance, the Company's insurance may not cover claims of
these types or may not be adequate to  indemnify  the Company for any  liability
that may be imposed. Any imposition of liability, particularly liability that is
not covered by  insurance or is in excess of  insurance  coverage,  could have a
material adverse effect on the Company's reputation and its business,  financial
condition and results of operations.

UNCERTAIN PROTECTION OF INTELLECTUAL PROPERTY; RISKS OF THIRD PARTY LICENSES

         The Company  regards the Company's and  Softalk's  copyrights,  service
marks, trademarks,  trade dress, trade secrets, proprietary software and similar
intellectual  property as critical to its success,  and relies on trademark  and
copyright  law,  trade secret  protection  and  confidentiality  and/or  license
agreements  with  employees,  customers,  partners  and  others to  protect  its
proprietary  rights.  The Company pursues the registration of certain of its key
trademarks and service marks in the United States and internationally. Effective
trademark,  service  mark,  copyright  and trade  secret  protection  may not be
available  or sought by the  Company  in every  country  in which the  Company's
products and services are made available online. The Company has licensed in the
past, and expects that it may license in the future, certain proprietary rights,
such as trademarks or copyrighted material, to and from third parties. While the
Company  attempts to ensure that the quality of its brands is maintained by such
licensees,  there can be no assurance  that such licensees will not take actions
that might materially  adversely  affect the value of the Company's  proprietary
rights  or  reputation,  which  could  have a  material  adverse  effect  on the
Company's business,  financial condition and results of operations. There can be
no  assurance  that the steps taken by the  Company to protect  its  proprietary
rights  will  be  adequate  or  that  third   parties   will  not   infringe  or
misappropriate its copyrights,  trademarks,  trade dress and similar proprietary
rights.  In  addition,  there can be no  assurance  that other  parties will not
assert infringement claims,  including patent infringement  claims,  against the
Company.  In January 1996,  Softalk filed an application  entitled  "Systems and
Methods for  Establishing  Long Distance Through the Internet" for United States
registration of their proprietary software and trademarks with the United States
Patent and Trademark Office ("USPTO").  There can be no assurance that the USPTO
will grant  registration  of this technology and trademarks or that an inability
to obtain such  registration  will not have an adverse  effect on the ability of
such  licenser  or the Company to utilize  such  trademark  in the  future.  The
Company may be subject to legal  proceedings and claims of alleged  infringement
of the trademarks and other intellectual property rights of third parties by the
Company and its licensees. Such claims, even if not meritorious, could result in
the  expenditure of significant  financial and managerial  resources which could
result  in a  material  adverse  effect  on the  Company's  business,  financial
condition  and  results of  operations  licensed  from  Softalk.  The Company is
dependent  upon Softalk to maintain and assert its rights to the  trademarks and
to defend infringement claims, if any.

RISKS ASSOCIATED WITH REGULATORY MATTERS

         The  Company  is  subject  to  regulations   applicable  to  businesses
generally  and laws or  regulations  directly  applicable  to  accessing  online
commerce.  Although  there  are  currently  few  laws and  regulations  directly
applicable to the Internet and commercial online services, it is possible that a
number of laws and  regulations  may be adopted  with respect to the Internet or
commercial  online  services  covering  issues  such as user  privacy,  pricing,
content, taxation, copyrights,  distribution,  antitrust and characteristics and
quality of products and services. Furthermore, the growth and development of the
market  for  online  commerce  may  prompt  calls  for more  stringent  consumer
protection laws that may impose additional burdens on those companies conducting
business online. The adoption of any additional laws or regulations may decrease

                                       15
<PAGE>
the growth of the Internet or commercial online services,  which could, in turn,
decrease  the demand for the  Company's  products  and services and increase the
Company's cost of doing business, or otherwise have a material adverse effect on
the Company's business, financial condition and results of operations. Moreover,
the  applicability  to the Internet and commercial  online  services of existing
laws in various jurisdictions governing issues such as property ownership, sales
and other taxes,  libel and personal  privacy is uncertain and may take years to
resolve.  For  example,  tax  authorities  in a number of states  are  currently
reviewing the appropriate tax treatment of companies engaged in online commerce,
and new state tax regulations may subject the Company to additional  state sales
and income taxes.  Any such new  legislation or regulation,  the  application of
laws and regulations from jurisdictions whose laws do not currently apply to the
Company's  business,  or the application of existing laws and regulations to the
Internet and commercial  online services could have a material adverse effect on
the Company's business, financial condition and results of operations.

YEAR 2000 COMPLIANCE

         Many older computer  systems and software  products are coded to accept
only two digit entries in the date code field.  These date code fields will need
to accept four digit entries to distinguish 21st century dates from 20th century
dates. As a result,  computer systems and/or software used by some companies may
need to be upgraded to comply with such "Year 2000" requirements.

         As reported  in previous  10-QSBs,  the  Company  hired an  independent
consultant to review the Company's  main billing  program.  All  assessments  of
internal systems and minor modifications have been completed and the Company has
determined that it is compliant with Year 2000 requirements. Total costs for the
initial  programming,  fees for the outside  consultant,  associated testing and
modifications  were $6,500.  Additionally,  all hardware and software to provide
the Best Net Call service has been verified to be Year 2000 compliant.

         The  Company is  reliant  on other  third  parties  such as  utilities,
vendors,  telecommunication carriers whose non-compliance or non-readiness could
adversely impact  operations.  The Company is taking steps to assure third party
compliance,  however,  there can be no  assurance  that all such parties will be
Year 2000 compliant.

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.


                          Wavetech International, Inc.

                          Audited Financial Statements

                           Year ended August 31, 1999


                                    CONTENTS

Report of Independent Auditors..........................................  F-1

Audited Financial Statements

Consolidated Balance Sheet..............................................  F-2
Consolidated Statements of Operations...................................  F-3
Consolidated Statements of Changes in Stockholders' Equity..............  F-4
Consolidated Statements of Cash Flows...................................  F-5
Notes to Consolidated Financial Statements..............................  F-6

                                       16
<PAGE>
                         Report of Independent Auditors

Board of Directors
Wavetech International, Inc.


We  have  audited  the  accompanying  consolidated  balance  sheet  of  Wavetech
International,  Inc.  as of  August  31,  1999,  and  the  related  consolidated
statements of operations,  stockholders' equity and cash flows for the year then
ended.  These  financial  statements  are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements   based  on  our  audit.   The   financial   statements  of  Wavetech
International,  Inc.  for the year ended  August 31, 1998 were  audited by other
auditors whose report dated November 6, 1998,  expressed an unqualified  opinion
on those statements.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance  about  whether  the  financial  statements  are  free  from  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion,  the 1999 financial statements referred to above present fairly,
in all  material  respects,  the  consolidated  financial  position  of Wavetech
International,  Inc. as of August 31, 1999, and the consolidated  results of its
operations  and its cash  flows  for the year then  ended,  in  conformity  with
generally accepted accounting principles.

/s/ Ernst & Young LLP

Tucson, Arizona
October 18, 1999,
except for Note 11, as to which the date is
November 13, 1999

                                      F-1
<PAGE>
                          Wavetech International, Inc.

                           Consolidated Balance Sheet

                                 August 31, 1999


ASSETS
Current assets:
  Cash and cash equivalents                                         $   889,620
  Prepaid expenses and other assets                                       8,529
                                                                    -----------
Total current assets                                                    898,149

Property and equipment, net                                             363,559
License fee, net of amortization of $9,524                              190,476
Note receivable from affiliate                                          100,000
Deposits and other assets                                                22,211
                                                                    ===========
Total assets                                                        $ 1,574,395
                                                                    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued expenses                             $   243,029
  Notes payable to officer                                               13,000
  Capital lease obligations, current portion                             23,680
                                                                    -----------
Total current liabilities                                               279,709

Capital lease obligation, net of current portion                          1,579

Commitments

Stockholders' equity:
  Series A preferred stock, 6% cumulative, par value
   $.001 per share; 10,000,000 shares authorized, 600
   shares issued and outstanding (liquidation value $600,000)                 1
  Common stock, par value $.001 per share; 50,000,000
   shares authorized, 3,021,288 shares issued and outstanding             3,021
  Additional paid-in capital                                          8,757,946
  Accumulated deficit                                                (7,467,861)
                                                                    -----------
Total stockholders' equity                                            1,293,107
                                                                    -----------

Total liabilities and stockholders' equity                          $ 1,574,395
                                                                    ===========

See notes to consolidated financial statements.

                                      F-2
<PAGE>
                          Wavetech International, Inc.

                      Consolidated Statements of Operations

                  For the years ended August 31, 1999 and 1998


                                                        1999            1998
                                                     -----------    -----------
Revenues                                             $    13,580    $   157,838

Expenses:
  Cost of sales (exclusive of depreciation
   and amortization shown separately below)                9,468         85,082
  General and administrative                             691,479        794,004
  Depreciation and amortization expense                  146,977        156,965
                                                     -----------    -----------
Total expenses                                           847,924      1,036,051
                                                     -----------    -----------
Net loss from operations                                (834,344)      (878,213)
Other income (expense):
  Interest income                                         70,519          6,565
  Rental income                                           36,000          8,833
  Interest expense                                        (8,995)       (45,182)
  License agreement termination income                        --        236,906
  Loss on sale of investment in Switch                        --       (216,165)
  Debt conversion expense                                     --        (92,894)
  Costs incurred in connection with unconsummated
   merger                                               (118,450)      (236,737)
  Write-off of intangible and other assets               (36,125)            --
  Preferred stock conversion penalty                    (144,000)            --
  Other expenses                                         (15,000)            --
                                                     -----------    -----------
Total other income (expense)                            (216,051)      (338,674)
Net loss before preferred dividends                   (1,050,395)    (1,216,887)
Cumulative preferred dividends declared and
  preferred stock conversion benefit                      36,500        135,994
                                                     -----------    -----------
Net loss available to common shareholders            $(1,086,895)   $(1,352,881)
                                                     ===========    ===========

Net loss per common share, basic and diluted         $      (.37)   $      (.51)

Weighted average number of shares outstanding,
 basic and diluted                                     2,904,693      2,663,257

See notes to consolidated financial statements.

                                      F-3
<PAGE>
                          Wavetech International, Inc.

           Consolidated Statements of Changes in Stockholders' Equity

                  For the years ended August 31, 1999 and 1998

<TABLE>
<CAPTION>

                              PREFERRED STOCK       COMMON STOCK         ADDITIONAL
                              ---------------   ---------------------     PAID-IN      ACCUMULATED
                              SHARES   AMOUNT     SHARES      AMOUNT      CAPITAL        DEFICIT        TOTAL
                              ------   ------     ------      ------      -------        -------        -----
<S>                          <C>      <C>       <C>          <C>        <C>          <C>             <C>
Balances, September 1, 1997     --      $  -    15,076,807   $ 15,077    $7,024,823   $(5,028,085)   $ 2,011,815
Common stock issued for
   payroll and services         --         -       476,069        476       155,754            --        156,230
Warrants exercised              --         -       380,280        380       222,123            --        222,503
Conversion of debt into
   common stock                 --         -     1,061,731      1,062       370,511            --        371,573
Debt conversion expense         --         -            --         --        92,894            --         92,894
Sale of Series A Preferred
   Stock                       600         1            --         --       527,923            --        527,924
Preferred stock conversion
   benefit                      --         -            --         --       122,894            --        122,894
Preferred stock dividend        --         -            --         --            --      (135,994)      (135,994)
Net loss                        --         -            --         --            --    (1,216,887)    (1,216,887)
                               ---      ----     ---------   --------    ----------   -----------    -----------
Balances, August 31, 1998      600         1    16,994,887     16,995     8,516,922    (6,380,966)     2,152,952
Net loss                        --         -            --         --            --    (1,050,395)    (1,050,395)
Conversion of debt into
   common stock                 --         -       156,250        156        49,844            --         50,000
Reverse 1-for-6 stock split     --         -   (14,292,473)   (14,292)       14,292            --             --
Preferred stock dividends       --         -        27,798         28        24,272       (36,500)       (12,200)
Preferred stock conversion
   penalty                      --         -       128,993        129       143,871            --        144,000
Stock options exercised         --         -         5,833          5         8,745            --          8,750
                               ---      ----     ---------   --------    ----------   -----------    -----------
Balances, August 31, 1999      600      $  1     3,021,288   $  3,021    $8,757,946   $(7,467,861)   $ 1,293,107
                               ===      ====     =========   ========    ==========   ===========    ===========
</TABLE>

See notes to consolidated financial statements.

                                      F-4
<PAGE>
                          Wavetech International, Inc.

                      Consolidated Statements of Cash Flows

                  For the years ended August 31, 1999 and 1998

                                                      1999              1998
                                                  -----------       -----------
Operating activities:
  Net loss                                        $(1,050,395)      $(1,216,887)
  Adjustments to reconcile net loss to net
   cash used in operating activities:
   Depreciation and amortization                      146,977           156,965
   Common stock issued for services and accrued
    interest                                               --           168,732
   Debt conversion expense                                 --            92,894
   Loss on disposition of Switch shares                    --           216,165
   Bad debt provision                                  18,276                --
   Write-off of intangible and other assets            36,125                --
   Preferred stock conversion penalty                 144,000                --
  Changes in assets and liabilities:
   (Increase) decrease in prepaid expenses
    and other current assets                           (1,983)           11,175
   Decrease in deposits and other assets                7,872                --
   Decrease in accounts payable and accrued
    expenses                                          (12,216)         (151,426)
   Decrease in unearned revenue                            --          (146,429)
                                                  -----------       -----------
Net cash used in operating activities                (711,344)         (868,811)

Investing activities:
  Purchase of property and equipment                 (252,445)           (1,985)
  Decrease in other assets                                 --             5,550
  Issuance of notes receivable                       (100,000)               --
  Purchase of licensing agreements                   (200,000)               --
  Proceeds from sale of investment in Switch               --         2,100,000
                                                  -----------       -----------
Net cash (used in) provided by investing
 activities                                          (552,445)        2,103,565

Financing activities:
  Proceeds from notes payable                              --           580,000
  Payments on notes payable                                --          (330,000)
  Payments on capital lease obligations               (45,714)          (39,037)
  Proceeds from common stock issued                     8,750           222,503
  Proceeds from preferred stock issued                     --           527,924
  Dividends paid in cash on preferred stock           (12,200)           (6,900)
                                                  -----------       -----------
Net cash (used in) provided by financing
 activities                                           (49,164)          954,490

Net (decrease) increase in cash and cash
 equivalents                                       (1,312,953)        2,189,244
Cash and cash equivalents, beginning of year        2,202,573            13,329
                                                  ===========       ===========
Cash and cash equivalents, end of year            $   889,620       $ 2,202,573
                                                  ===========       ===========

See notes to consolidated financial statements.

                                      F-5
<PAGE>
                          Wavetech International, Inc.

                   Notes to Consolidated Financial Statements

                                 August 31, 1999

1. ORGANIZATION

Wavetech  International,  Inc.  (the  Company) is currently  conducting  minimal
operations  while  actively  pursuing  to  implement  its  business  strategy of
providing  Internet telephony  services.  The Company has recorded net operating
losses in each of the previous six years and does not anticipate  realization of
full operations until its strategy is fully implemented.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF CONSOLIDATION

The consolidated  financial  statements  include the accounts of the Company and
its wholly owned  subsidiaries,  Interpretel,  Inc.  (Interpretel),  Interpretel
Canada Inc.  and Telplex  International  Communications,  Inc.  All  significant
intercompany accounts and transactions have been eliminated.

On March 8,  1995,  the  Company  entered  into an  agreement  with  Interpretel
pursuant to which the Company agreed to issue  6,000,000  (pre-split)  shares of
its common stock in exchange  for 100% of the  outstanding  1,532,140  shares of
common stock of Interpretel. The transaction resulted in the former shareholders
of  Interpretel  owning  approximately  80% of  the  outstanding  shares  of the
Company. In accordance with Accounting Principles Board Opinion No. 16 "Business
Combinations,"  the acquisition was accounted for as a reverse  acquisition with
Interpretel deemed to be the acquiring entity of the Company.  The common shares
issued in  connection  with the  acquisition  were assigned no value because the
Company had no assets or liabilities at the date of the acquisition.

CASH AND CASH EQUIVALENTS

The Company  considers  all highly liquid  instruments  with a maturity of three
months or less  when  purchased  (money  market  accounts  and  certificates  of
deposit) to be cash equivalents.

PROPERTY AND EQUIPMENT

Property and  equipment is recorded at cost and  depreciated  over the estimated
useful lives of the related assets, as follows:

             Furniture and fixtures               7 years
             Computer equipment                   5 years
             Software                             5 years

                                      F-6
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The costs of  maintenance,  repairs and minor renewals are charged to expense in
the year incurred.  Expenditures that increase the useful lives of the asset are
capitalized.  When items are  retired or disposed  of, the cost and  accumulated
depreciation  are removed  from the accounts and any gain or loss is included in
income.

LICENSE FEES

Fees to  license  certain  communications  software  are  recorded  at cost  and
amortized over the seven year life of the underlying agreement.

INCOME TAXES

Income  taxes are  determined  using the  liability  method.  This method  gives
consideration  to  the  future  tax   consequences   associated  with  temporary
differences between the carrying amounts of assets and liabilities for financial
statement purposes and the amounts used for income tax purposes.

CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS

At August 31, 1999, the Company  maintained the majority of its cash balances in
bank accounts insured by the FDIC.

The carrying amounts for cash and cash equivalents,  notes receivable,  accounts
payable and notes payable  approximate  fair value because of the short maturity
of these instruments.  The Company does not hold or issue financial  instruments
for trading purposes.

REVENUE RECOGNITION

Revenue from the sale of licensing agreements is recognized over the term of the
agreement.  Revenue  from the  installation  of  equipment  is  recognized  when
delivered.  Revenue from the resale of minutes is recorded  when the minutes are
used by the customer.  Cost of sales includes  expenses  directly related to the
operation  and  maintenance  of  the  telephony   platform.   Depreciation   and
amortization expense is separately stated.

STOCK-BASED COMPENSATION

The Company  accounts for its  employee  stock-based  compensation  arrangements
under the  provisions of APB No. 25,  ACCOUNTING  FOR STOCK ISSUED TO EMPLOYEES.
Stock Options are granted to employees and directors under its Stock Option Plan
with an exercise price equal to fair value at the date of grant and  accordingly
recognizes no compensation expense in connection with such grants.

                                      F-7
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

NET LOSS PER COMMON SHARE

Diluted  loss  per  share is equal to  basic  loss  per  share  for all  periods
presented as the effect of all applicable  securities  (preferred  stock,  stock
options and warrants; see Note 6) is anti-dilutive  (decrease the loss per share
amount). References to share and per share amounts have been restated to reflect
a one-for-six stock split effective December 18, 1998 unless otherwise noted.

USE OF ESTIMATES

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial  statements and accompanying notes.
Actual results could differ from those estimates.

RECLASSIFICATIONS

The 1998  financial  statements  have been  reclassified  to conform to the 1999
presentations.

3. PROPERTY AND EQUIPMENT

Property and equipment is composed of the following at August 31, 1999:

        Furniture and fixtures                              $   170,415
        Computer equipment                                      618,807
        Software                                                218,108
                                                            -----------
        Total property and equipment, at cost                 1,007,330
        Less: accumulated depreciation and amortization        (643,771)
                                                            -----------
                                                            $   363,559
                                                            ===========

Amortization expense related to assets held under capital leases was $23,847 and
$36,139 in 1999 and 1998 respectively.

4. NOTE PAYABLE

Note payable to officer at August 31, 1999 consists of an unsecured note payable
to an officer and shareholder of the Company, due on demand, interest payable at
15%.

On October 12, 1998, a note payable for $50,000,  plus accrued  interest,  to an
unrelated entity was converted into 156,250  (pre-split) shares of Common Stock.
The  conversion  price was based on the average of the high and low price on the
date of the letter of agreement  for  repayment of this note  payable.  Interest
paid on notes  payable  and  capital  lease  obligations  amounted to $6,317 and
$30,282 in 1999 and 1998, respectively.

                                      F-8
<PAGE>
5. LEASES

The Company has entered into capital lease arrangements for office furniture and
equipment and operating lease arrangements for office space.

Future lease commitments at August 31, 1999 are as follows:

                                                       CAPITAL     OPERATING
                                                       LEASES        LEASES
                                                      ---------    ---------
        2000                                          $  24,874    $ 110,659
        2001                                              1,615      116,262
        2002                                                 --       29,416
                                                      ---------    ---------
                                                         26,489    $ 256,337
                                                                   =========
        Less amounts representing interest                1,230
                                                      ---------
        Present value of net minimum lease payments   $  25,259
        Less current portion                            (23,680)
                                                      ---------
                                                      $   1,579
                                                      =========

Total rent  expense  under  operating  leases in 1999 and 1998 was  $128,270 and
$121,000, respectively.

6. STOCKHOLDERS EQUITY

PREFERRED STOCK: The Company issued 600 shares of Series A Convertible Preferred
Stock in 1998 at $1,000 per share. The 6% Preferred stockholders are entitled to
receive annual  cumulative  dividends of $60 per share per annum,  accrued daily
and payable quarterly in arrears on March 31, June 30, September 30 and December
31 of each year, in preference and priority to any payment to any other class or
series of stock of the  Corporation.  In 1999, a portion of these dividends were
settled by the issuance of common shares. Series A Preferred stockholders do not
have any voting rights.

The Preferred  Stock is  convertible at the option of the Company at any time on
at least ten days advance  notice once the shares  issuable upon  conversion are
registered  for resale by an effective  registration  statement.  The conversion
price  is  the  lesser  of  five  dollars  and  twenty-five   cents  ($5.25)  or
eighty-three  percent  (83%) of the  average  of the  closing  bid prices of the
common stock as reported by NASDAQ during the five (5) consecutive  trading days
preceding  the  conversion  date (but not  including  such date).  However,  all
outstanding  shares of Preferred  Stock shall be  automatically  converted  into
common  stock  in  April  2000  at the  conversion  price  as set  forth  in the
subscription  agreement. A beneficial conversion feature of $122,894 resulted in
a charge to retained earnings in 1998.

                                      F-9
<PAGE>
6. STOCKHOLDERS EQUITY (CONTINUED)

The Preferred stock is redeemable at the option of the Company after the date on
which a  registration  statement  under  the  Securities  Act has been  declared
effective; provided the Company has given at least 5 days written notice. If any
conversion of preferred shares in aggregate cause the Company to issue in excess
of 20% of common shares  outstanding  and issued,  the Company shall redeem such
number of  preferred  shares as is necessary to limit the issuance of the common
shares to 20% unless  shareholder  approval has been obtained to issue in excess
of 20% of the outstanding and issued common shares.  If redemption  occurs,  the
Company  must  remit  within 5 days of  notice in the form of a  cashiers  check
$1,250 per preferred share plus all accrued and unpaid dividends.

The holder of Preferred Stock may elect to convert such shares into Common Stock
at the conversion price described above upon written notice to the Company. Such
common  shares  are  to  be  converted  pursuant  to an  effective  registration
statement.  Should the Company fail to register  such common shares to allow for
conversion  as noted  above,  the Company is required to pay monthly  liquidated
damages to the Preferred  Stock holder equal to 2% of the purchase  price of the
Preferred  Stock.  The Company  expensed  $144,000 and issued  128,993 shares of
Common Stock in 1999 in liquidated  damage payments,  and will continue to incur
such costs until such time as the shares are registered.

COMMON STOCK:  The Company issued in 1998 348,187  (pre-split)  shares of common
stock for consulting services pursuant to various agreements valued at $130,477.
The value assigned to the common stock was based on the fair market value of the
common  stock on the date  that the  liability  was  incurred.  The value of the
consulting services was charged to expense during the period incurred.

The Company issued 54,557 (pre-split)  deferred shares of common stock under the
1997 Stock  Incentive  Plan in 1998 to meet  payroll  expenses  in the amount of
$25,753.  The value  assigned  to the common  stock was based on the fair market
value on the date of issue.

The  Company  issued  73,325  (pre-split)  shares  of  common  stock  in 1998 in
satisfaction  for  services  valued  at  $29,000  performed  in 1997.  The value
assigned  to the common  stock was  charged to expense in 1997 based on the fair
market values of the common stock.

During the  quarter  ended May 31,  1998,  the  Company  offered to all  warrant
holders  with  warrants  expiring  May 31, 1998 and an  exercise  price of $1.00
(pre-split) per share, the following  option:  for a specific eleven day period,
the right to exercise  their  warrants for $0.585  (pre-split)  per common share
(the fair market value on the date of the warrant exchange offer).  The warrants
were initially issued with convertible  notes that matured during the year ended
August 31, 1996 and were  converted  into common shares at the face value of the
notes  plus  accrued  interest.  A total of 380,280  (pre-split)  out of 784,781
(pre-split)  warrants were exercised under this offer and the balance of 404,501
(pre-split)  warrants expired on May 31, 1998. The Company received $222,503 for
the warrants.  The Company  recorded the exercise of the warrants as an increase
to additional paid-in-capital and common stock.

                                      F-10
<PAGE>
6. STOCKHOLDERS EQUITY (CONTINUED)

In October of 1997, the Company received  proceeds of $250,000 from the issuance
of convertible  notes payable.  The notes were issued with attached  warrants to
purchase an  aggregate  of 40,000  (pre-split)  shares of the  Company's  common
stock. Each of the warrants is convertible at any time prior to October 24, 1999
by the holder thereof at an exercise price of $0.46  (pre-split) per share.  The
warrants are granted at fair market value of the common stock on the date of the
grant. The warrants are valued at $18,400.  These warrants remained  outstanding
at August 31, 1998.  The notes  accrued  interest at a rate of 12% per annum and
principal and accrued interest thereon were payable on or before April 24, 1998.
On November 30, 1997,  $200,000 in notes payable along with accrued  interest of
$2,067  were  converted  into  577,424  (pre-split)  shares of common  stock.  A
beneficial conversion feature of $92,894 was charged to expense in the period of
the conversion.  The balance of $50,000 payable at August 31, 1998 was converted
into  156,250  (pre-split)  shares in 1999 (Note 4). An aggregate of $100,000 of
these notes  payable was held by the wife and son of a director of the  Company,
who  received  288,096  (pre-split)  shares of the  Company's  common stock upon
conversion.

On November 30, 1997, the Company  converted  $165,335 in existing notes payable
plus accrued interest of $4,171 to 484,307  (pre-split)  shares of common stock.
The  conversion  price was based on the fair market value of the common stock on
the date of the conversion.

The following summarizes warrant activity in 1999:

                                                             EXERCISE
                                               NUMBER         PRICE
                                              --------    --------------
        Outstanding, September 1, 1998         382,500    $2.64 - $10.50
        Expired                                (34,167)   $2.64 - $10.50
                                              --------    --------------
        Outstanding, August 31, 1999           348,333    $2.76 - $ 9.00
                                              ========    ==============

STOCK INCENTIVE PLAN: The Company is authorized to issue up to 766,667 shares of
common  stock  under its 1997  Stock  Incentive  Plan.  Shares  may be issued as
incentive stock options,  deferred shares or restricted  shares. The options are
granted at the fair market  value of the common  stock on the date of the grant;
options  have terms of up to ten years.  The Company  also grants  non-statutory
options.

The fair  value of these  options  was  estimated  at the date of grant  using a
Black-Scholes   option  pricing  model  with  the  following   weighted  average
assumptions:  risk-free interest rate of 5.60%, dividend yield of 0%, volatility
factor of the expected market price of the Company's  common stock of 2.334, and
a weighted-average expected life of the options of 2 years.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded  options  that have no vesting  restrictions  and are fully
transferable.  In addition,  option valuation models require the input of highly
subjective  assumptions  including the expected stock price volatility.  Because
the Company's stock options have  characteristics  significantly  different from
those traded options,  and because changes in the subjective  input  assumptions
can materially  affect the fair value  estimate,  in management's  opinion,  the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options.

                                      F-11
<PAGE>
6. STOCKHOLDERS EQUITY (CONTINUED)

SFAS No. 123  requires the Company to present pro forma  disclosure  for options
granted  subsequent  to 1995.  These  disclosures  are not  indicative of future
amounts,  as options granted prior to 1995 have not been included as provided by
SFAS No. 123. For purposes of pro forma disclosure,  the estimated fair value of
stock  options was amortized to expense over the vesting  period.  Pro forma net
loss and loss per share are as follows:

                                                     1999               1998
                                                 -----------        -----------
        Net loss available to common
          stockholders, as reported              $(1,086,895)       $(1,352,881)

        Pro forma compensation expense
          for stock options                         (249,557)           (17,000)
                                                 -----------        -----------
        Pro forma net loss available
          to common stockholders                  (1,336,452)        (1,369,881)
                                                 -----------        -----------
        Pro forma loss per share available
          to common stockholders                 $      (.43)       $      (.51)
                                                 ===========        ===========

A summary  of the  Company's  stock  option  activity  (including  Non-Statutory
options) is as follows:

                                                                        WEIGHTED
                                                          OPTION        EXERCISE
                                        NUMBER OF         PRICE          PRICE
                                     OPTIONS GRANTED     PER SHARE     PER SHARE
                                     ---------------     ---------     ---------
     Outstanding, September 1, 1997      375,000       $2.25 - 6.00      $4.17
       Granted                            11,667               2.40       2.40
       Canceled                         (100,000)              3.96       3.96
                                      ----------       ------------      -----
     Outstanding, August 31, 1998        286,667       $2.25 - 6.00       4.17
       Granted                         1,896,667        1.00 - 3.00       1.06
       Exercised                          (5,833)           1.5            1.5
       Canceled                         (133,333)       1.00 - 3.96       2.14
                                      ----------       ------------      -----
     Outstanding, August 31, 1999      2,044,168       $1.00 - 6.00       1.43
                                      ==========       ============      =====

The remaining contractual life of options outstanding at August 31, 1999 was 9.6
years.  Options for the purchase of 266,667 and 360,833 shares were  immediately
exercisable at August 31, 1999 and 1998 with a  weighted-average  price of $3.33
and $4.31 per share.

The weighted  average fair values of stock options  granted during 1999 and 1998
for which the  exercise  price was equal to the fair  market  value of the stock
were $.96 and $0.40 per share, respectively.

                                      F-12
<PAGE>
7. INCOME TAXES

At August 31, 1999,  the Company has federal net  operating  loss  carryforwards
totaling approximately $11,000,000 and state net operating loss carryforwards of
approximately $7,100,000. The federal and state net operating loss carryforwards
expire in various  amounts  beginning in 2011 for federal  purposes and 2000 for
state purposes. Certain of the Company's net operating loss carryforwards may be
subject to annual  restrictions  limiting their  utilization in accordance  with
Internal Revenue Code Section 382, which include limitations based on changes in
control.   In  addition,   approximately   $3,200,000  of  net  operating   loss
carryforwards  are further limited to activities in a trade or business in which
the Company is not  presently  involved.  Additionally,  the Company has capital
loss  carryforwards of  approximately  $216,000 which will expire in 2004 unless
offset by capital  gains.  No tax  benefit has been  recorded  in the  financial
statements since realization of these loss carryforwards does not appear likely.

The  income  tax  benefit  for the years  ended  August 31 is  comprised  of the
following amounts:

                                                1999             1998
                                             ---------        ---------
        Current                              $      --        $      --

        Deferred:
         Federal                              (359,000)        (453,000)
         State                                 (55,000)         (19,000)
                                             ---------        ---------
                                              (414,000)        (472,000)
        Valuation allowance                    414,000          472,000
                                             ---------        ---------
                                             $      --        $      --
                                             =========        =========

The Company's tax benefit differs from the benefit  calculated using the federal
statutory income tax rate for the following reasons:

                                                1999             1998
                                               -----            -----
        Statutory tax rate                      34.0%            35.0%
        State income taxes                       5.3%             9.0%
        Amortization of organization costs        --             (7.0)%

        Change in valuation allowance          (39.3)%          (37.0)%
                                               -----            -----

        Effective tax rate                       0.0%             0.0%
                                               =====            =====

                                      F-13
<PAGE>
7. INCOME TAXES (CONTINUED)

The components of the net deferred tax asset are as follows:

                                                    1999               1998
                                                -----------        -----------
        Deferred tax asset:
          Amortization of Intangibles           $    33,000        $    70,000
          Net Capital Loss                           85,000                 --
          Net operating loss carryforward         3,756,000          3,390,000
                                                -----------        -----------
                                                  3,874,000          3,460,000
        Valuation allowance                      (3,874,000)        (3,460,000)
                                                -----------        -----------
                                                $        --        $        --
                                                ===========        ===========

Income taxes of $50 and $200 were paid in 1999 and 1998, respectively.

Statement of  Financial  Accounting  Standards  No. 109,  ACCOUNTING  FOR INCOME
TAXES,  requires a valuation  allowance  to reduce the  deferred  tax assets if,
based on the weight of the evidence, it is more likely than not that some or all
of the deferred tax assets will not be realized.  After consideration of all the
evidence,  both  positive  and  negative,   management  has  determined  that  a
$3,874,000  valuation  allowance  at August 31, 1999 is  necessary to reduce the
deferred  tax assets to the amount that will more  likely than not be  realized.
The change in the valuation allowance for the current year is $414,000.

8. INVESTMENT IN SWITCH TELECOMMUNICATIONS PTY LIMITED

During  August  1996  the  Company   entered  into  an  agreement   with  Switch
Telecommunications  Pty Limited  (Switch) to exchange an equity  interest in the
Company  for an equity  interest  in  Switch.  The equity  interests  consist of
outstanding common stock of the respective companies.  The Company received five
shares of Switch  common  stock  representing  5% of the issued and  outstanding
common stock, in exchange for 257,352 shares of the Company's stock. On June 30,
1998,  an agreement  was reached  between the Company and Switch which set forth
the terms and conditions of a one year put option for the shares of common stock
of Switch  which are owned by the  Company.  On August  25,  1998,  the  Company
exercised  the put option  thereby  selling  its entire  interest  in Switch for
$2,100,000.  The sale resulted in recognition of a net loss on the investment of
$216,165.

Switch  purchased a three-year  warrant to purchase up to 333,333  shares of the
Company's  common stock at a price of $9 per share.  The warrants expire January
17, 2000. Consideration of $20,000 was received for the warrants.

                                      F-14
<PAGE>
8. INVESTMENT IN SWITCH TELECOMMUNICATIONS PTY LIMITED (CONTINUED)

The Company entered into an Equipment and Software Turnkey Agreement with Switch
during  August,  1996.  This agreement sets forth the terms of fees and services
between  Interpretel and Switch.  The agreement  provides for the purchase of an
Interpretel  system and  licensing for its use in  Australia,  New Zealand,  the
subcontinent of India and Asia (excluding Korea and Japan).  The initial term of
the license was seven years. In the agreement,  Switch contracted to purchase an
Interpretel  System consisting of a computer platform and related software.  The
agreement also provided for a licensing fee in the amount of $500,000 to be paid
to Interpretel over a three-year  period.  The Company received  $200,000 of the
licensing fee during the year ended August 31, 1997. Effective June 30, 1998, an
agreement  was reached  between the Company and Switch  terminating  the license
agreement.  Switch agreed to pay the Company  $150,000 in  consideration  of the
termination  of the  agreement.  The payment was received on July 10,  1998.  In
consideration of the termination of the licensing agreement,  the Company agreed
to release Switch from any other obligations including the gross revenue fee. In
connection  with the  termination of the licensing  fee, the Company  recognized
$86,906 in unamortized  deferred revenue and $150,000  termination payment for a
total of $236,906 in license fee termination income.

9. RELATED PARTY TRANSACTIONS

The Company  executed a loan agreement on August 6, 1999 with a company owned by
certain of the Company's board members. The agreement,  under which $100,000 was
advanced at August 31, 1999 in the form of a note receivable, gives the borrower
the option to convert the outstanding principal into shares of such company in a
specified  amount.  Borrowings  under the loan  agreement bear interest at prime
plus 1%.

10. LOSS ON ASSET IMPAIRMENT

The Company  determined in the fourth  quarter of fiscal 1999 that certain fixed
and intangible assets no longer were of value to the Company.  Accordingly, such
assets and the related accumulated depreciation and amortization (net book value
of $36,125) were written off.

11. SUBSEQUENT EVENTS

The Company  amended its license  agreement  with  Softalk,  Inc.  (Softalk)  on
October 25, 1999.  The amended  agreement is a worldwide,  exclusive  license to
distribute,  market,  service,  sell  and  sublicense  any and all of  Softalk's
services  and  products to  commercial  accounts  and a worldwide  non-exclusive
license for  individual  accounts.  The  Company  issued  five-year  warrants to
purchase  the  Company's  common  stock in  connection  with this  amendment  as
follows:  3,246,753  exercisable at $3.25;  1,000,000 at $5.00; and 1,000,000 at
$10.00.

On  November  13,  1999,  the  Company purchased  certain  assets  (products and
accounts)  from  Softalk  in  exchange  for  4,329,004  shares of Class A voting
preferred  stock  of  Interpretel  Canada Inc. (the Class A shares). The Class A
shares  are exchangeable on a one-for-one basis into the Company's common shares
at  any time. The Class A shares must at all times represent at least 15% of the
voting shares and 15% of the fair market value of Interpretel Canada.

                                      F-15
<PAGE>
                          INDEPENDENT AUDITOR'S REPORT

To the Stockholders and Board of Directors
  Wavetech International, Inc.

We have audited the accompanying consolidated statements of operations,  changes
in stocholders'  equity and cash flows of Wavetech  International,  Inc. for the
year ended August 31, 1998.  These  consolidated  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance  about whether the  consolidated  financial  statements  are free from
material  misstatement.  An audit includes examining,  on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting  principles used and significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audit provides a reasonable  basis
for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the consolidated  results of operations and
cash flows of Wavetech  International,  Inc. for the year ended August 31, 1998,
in conformity with generally accepted accounting principles.


/s/ Addison, Roberts & Ludwig, P.C.

Tucson, Arizona
November 6, 1998

                                       17
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANT ON ACCOUNTING
        AND FINANCIAL DISCLOSURES.

         On August 12, 1999,  the Company  filed a Form 8-K in which the Company
reported the declination for reelection notice from their independent  auditors,
Addison,  Roberts & Ludwig, P.C. ("AR&L"). AR&L declined to stand for reelection
as the Company's  independent  auditors for the year ending August 31, 1999, due
to the firm's  cessation of audit and accounting  services and the withdrawal of
all the  firm's  partners.  AR&L had  expressed  an  unqualified  opinion on the
Company's financial statements in 1998. There were no disagreements with AR&L on
any  matter  of  accounting   principles  or  practices,   financial   statement
disclosure, or auditing scope or procedure.

         On August 16, 1999,  the company  filed a Form 8-K in which the Company
reported the appointment of Ernst & Young,  LLP as their  independent  auditors,
replacing Addison, Roberts & Ludwig.

                                    PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY; COMPLIANCE WITH
        SECTION 16(a) OF THE EXCHANGE ACT

         All directors hold office until the next annual meeting of stockholders
of the Company and thereafter  until their  successors are chosen and qualified.
All officers hold office at the selection and pleasure of the Board of Directors
of the Company.

DIRECTORS AND OFFICERS

         The  current  directors  and  executive  officers of the Company are as
follows:

         Name                  Age           Position Held with Company
         ----                  ---           --------------------------

         Gerald I. Quinn       55    President, Chief Executive Officer and a
                                     member of the Company's Board of Directors

         Richard P. Freeman    41    Vice President, Investor Relations and
                                     Product Development and a member of the
                                     Company's Board of Directors

         John P. Clements      48    Director

         Alexander C. Lang     46    Director

         Rosnani Atan          34    Director

GERALD I. QUINN has been the President of Interpretel  (Canada), a subsidiary of
the Company,  since 1995.  In May 1996,  Mr. Quinn became the  President,  Chief
Executive  Officer and a Director of the Company.  From 1986 to 1994,  Mr. Quinn
was Vice  President of University  Affairs and  Development at the University of
Guelph,  which is one of Canada's  leading  teaching and research  universities.
While  at the  University  of  Guelph,  Mr.  Quinn's  responsibilities  included
marketing,  image  development,   constituent  relations  and  media  relations,
including  systems  development,  telemarketing  and the development of affinity
programs.  From 1975  until  1986,  Mr.  Quinn held many  senior  administrative
positions  with  Canada's  largest  college  of  applied  arts  and  technology,
including  positions  relating  to  the  development  and  commercialization  of
technology and multimedia-based  interactive learning programs.  Since 1984, Mr.
Quinn has served as a consultant to Cableshare Interactive  Technology,  Inc., a
Canadian TSE listed public company that operates in the  interactive  television
industry ("Cableshare").  Mr. Quinn has been a director of Cableshare since 1993
and has chaired its board  committee  on mergers and  acquisitions.  In 1997 Mr.
Quinn  negotiated a merger of Cableshare with Source Media,  Inc.  (NASDAQ:SRCM)
culminating in Source Media, Inc. owning 100% of Cableshare. Mr. Quinn is active
in numerous civic and professional organizations and has been recognized for his
work in  marketing,  sales,  promotion  and public  relations  by various  trade
organizations.  Mr. Quinn has two arts degrees with majors in English, Economics
and Political Science.

                                       18
<PAGE>
RICHARD  P.  FREEMAN  was  a  co-founder  of  Interpretel   and  has  served  as
Interpretel's  Vice President  since 1993 and as a Director of the Company since
March 1995. Prior to joining Interpretel, Mr. Freeman was a principal in several
entrepreneurial  companies located in Arizona,  which were primarily involved in
the tourism and travel  industries.  Those companies  included Desert Divers,  a
scuba retail and boat charter  company,  and  Vacation,  Etc., a tour and travel
company which focused on corporate, leisure and adventure travel, wholesale tour
operations  and  escorted  senior  travel.  Mr.  Freeman  has also  served  as a
consultant to several travel-related organizations, including the Business Radio
Network,  a national  network.  Mr. Freeman holds a Bachelor of Arts degree from
the  University  of  Arizona  and is  active  in  various  civic  and  community
organizations.

JOHN P. CLEMENTS has been a Director of the Company  since  February  1998.  Mr.
Clements is currently Vice President of Lovitt & Touche, an insurance  brokerage
firm in Tucson,  Arizona.  The firm  services a variety  of  industries,  with a
specialty in real estate. Prior to joining Lovitt & Touche in 1989, Mr. Clements
served as Chief Operating  Officer for Ashland  Equities Company in Tucson where
he  directed   development  of  shopping  centers  and  formed  land  investment
partnerships.  Mr. Clements is also a Certified Public Accountant. For the first
14 years of his  career  he was  with  Coopers  &  Lybrand  (subsequently  named
PriceWaterhouseCoopers LLP) where he started in a staff position and moved up to
become a General  Practice  Partner in charge of Audit  Practice  for the Tucson
office, specializing in real estate and healthcare.

ALEXANDER C. (Chris) LANG was appointed to the  Company's  Board of Directors in
July 1999.  Mr. Lang is president,  principal  shareholder,  and a member of the
Board of  Directors  of Softalk in  Toronto,  Ontario.  Mr. Lang has been in the
telecommunications  business for 22 years,  holding various technical  positions
related to marketing and product design. From 1993 to the present,  Mr. Lang has
served as  President  of  Softalk,  a  private  telecommunications  &  web-based
software development company,  where he introduced products which have worldwide
reach through the use of the Internet for control and  management.  From 1988 to
1993, Mr. Lang provided consulting services to the telecom industry. He launched
a long distance reselling company, participated in the development of the Novell
Certification Program, and strategic partnerships program for voice recognition.
From  1985  to  1988,   he  worked   for   Rolm/IBM   in  the   development   of
telecommunication systems which included a posting at the strategic presentation
center in Santa Clara,  CA. From 1981 to 1985,  he was a marketing  manager with
Rockwell  International  Switching Division.  From 1978 to 1981, Mr. Lang worked
for Bell Canada in many different technical capacities. Mr. Lang received his BA
in Economics in 1977.

ROSNANI ATAN was appointed to the Company's Board of Directors in July 1999. Ms.
Atan is the Chief  Executive  Officer and a member of the Board of  Directors of
Softalk.  She has been with  Softalk  since  January  1999.  Ms.  Atan served as
Telecom Analyst,  Global Telecom Services with Arthur Andersen  World-wide S.C.,
Asia Pacific Office,  Singapore.  Her  responsibilities  included data and voice
telecommunications  activities  for Arthur  Andersen and Andersen  Consulting in
Asia Pacific, Europe, the Middle East, Africa and India. She was responsible for
all project  management  related to  telecommunications  as well as sourcing new
communication  technologies  for global  rollout by Andersen.  Ms. Atan provided
advice to all IT Directors  worldwide and participated in the  implementation of
communication  systems and technologies.  From 1991 to 1995, she was with Keppel
Corporation Limited. Ms. Atan was responsible for data networking for Keppel and
its 11 subsidiaries. She set company-wide standards for Office Automation tools,
implemented a document imaging project and redesigned the company's  LAN/WAN and
converted  the networks OS from 3COM to Netware.  From 1989 to 1991,  she worked
with Nikko Electronics Toy Pty Ltd. as an EDP Officer designing,  developing and
maintaining  in-house  applications  including  a  Domestic  Sales  System and a
Warehouse  Inventory  System.  She managed the day-to-day  activities of the EDP
department  including the co-ordination of programmers.  Ms. Atan has a Bachelor
of Science degree in Information Technology from Monash University in Melbourne,
Australia  and a Bachelor  of  Engineering  (Electrical  and  Electronics)  from
Nanyang Technical University, Singapore. Ms. Atan programs in four languages and
has won awards for her  programming  skills.  She is fluent in  English,  Malay,
Bahasa Indonesia, Japanese and Mandarin.

                                       19
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION

Cash Compensation

         The following table summarizes all  compensation  paid to the Company's
Chief Executive Officer (the "Named Executive Officer") for services rendered in
all  capacities to the Company  during each of the fiscal years ended August 31,
1999, 1998 and 1997. None of the Company's other employees received in excess of
$100,000 in compensation  during the last completed  fiscal year.  Share figures
have been adjusted to reflect the one-for-six split effected in December 1998.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                   ANNUAL COMPENSATION                LONG-TERM COMPENSATION AWARDS
                           -------------------------------------  -------------------------------------
NAME AND                                                          RESTRICTED   SECURITIES
PRINCIPAL        FISCAL                             OTHER ANNUAL    STOCK     UNDERLYING    ALL OTHER
POSITION          YEAR     SALARY($)       BONUS    COMPENSATION   AWARDS($)    AWARDS ($)  AWARDS($)(#)
--------          ----     ---------       -----    ------------   ---------    ----------  ------------
<S>               <C>      <C>             <C> <C>    <C> <C>       <C> <C>     <C>           <C> <C>
Gerald I. Quinn   1999     $85,000         $  -0-     $  -0-        $  -0-      500,000       $  -0-
President/CEO     1998     $85,000(2)      $  -0-     $  -0-        $  -0-          -0-       $  -0-
                  1997     $85,000(1)      $  -0-     $  -0-        $  -0-      133,333       $  -0-
</TABLE>

----------
(1)  Includes the fair market value of 14,809 shares of Common Stock,  for which
     Mr. Quinn elected to receive deferred shares pursuant to the Company's 1997
     Stock  Incentive  Plan in lieu of a portion of his annual  base  salary for
     services  rendered.  The aggregate fair market value of these shares at the
     expiration of the applicable deferral periods equaled $34,163.

(2)  Includes the fair market value of 3,316 shares of Common  Stock,  for which
     Mr. Quinn elected to receive deferred shares pursuant to the Company's 1997
     Stock  Incentive  Plan in lieu of a portion of his annual  base  salary for
     services  rendered.  The aggregate fair market value of these shares at the
     expiration of the respective deferral periods equaled $8,734.

         On July 19, 1999, the Named Executive Officer was granted 500,000 stock
options,  with a vesting date of July 19, 2000,  at an exercise  price of $1.00.
This grant represented 26.4% of all grants made in 1999.

         The  following  table sets forth  certain  information  concerning  the
aggregated value of the unexercised options of the Named Executive Officer as of
August 31, 1999.

                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                        AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                                   NUMBER OF SECURITIES
                                                        UNDERLYING               VALUE OF UNEXERCISED
                                                    UNEXERCISED OPTIONS           IN-THE-MONEY OPTIONS
                  SHARES ACQUIRED     VALUE         AT FISCAL YEAR END(#)         AT FISCAL YEAR END($)
NAME               ON EXERCISE(#)   REALIZED($)  EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
----               --------------   -----------  -----------   -------------   -----------   -------------
<S>                   <C>           <C>        <C>             <C>              <C>         <C>
GERALD I. QUINN         -0-            $ 0        133,333(1)      500,000          $ 0         $500,000
</TABLE>

----------
(1)  All of these  options  are  immediately  exercisable  at any time  prior to
     January 2007 at a price of $3.96 per share.

                                       20
<PAGE>
COMPENSATION PURSUANT TO PLANS

         None.

COMPENSATION OF DIRECTORS

         All  Directors  are  reimbursed  for  their  reasonable   out-of-pocket
expenses incurred in connection with attendance at Board meetings. Directors who
are  employees  of the  Company do not receive  compensation  for service on the
Board in addition to their compensation as employees. In March 1997, the Company
adopted the 1997 Stock Incentive Plan (the "Plan"). As originally  adopted,  the
Plan provided that each Director would receive  options to purchase 1,667 shares
of Common Stock upon election to the Board, and annual automatic grants of 1,667
options  for each  year of  service  thereafter.  In March  1998,  the  Board of
Directors  amended and restated the 1997 Stock Incentive Plan to provide greater
flexibility  in the  methods  by  which  the  Board  of  Directors  may  provide
incentives  and  rewards.  Under  the  Restated  Plan,  members  of the Board of
Directors  of  the  Company,  who  are  not  employees  of  the  Company  or its
subsidiaries,  will receive an option to purchase  5,000 shares of the Company's
Common Stock upon their initial election to the Board and thereafter  receive an
annual grant of an additional 5,000 options.  Board members serving on the Audit
Committee receive an additional option to purchase 3,333 shares of the Company's
Common Stock upon their initial  designation to the Audit  Committee.  All these
options vest one year from the  respective  date of grant and terminate upon the
earlier  of 10 years  from the date of grant or 24  months  after  the  Director
ceases to be a member of the Board.

EMPLOYMENT CONTRACTS

         In May 1996,  the Board of  Directors  approved a  two-year  employment
agreement  with Gerald I. Quinn for  services as President  and Chief  Executive
Officer. The agreement requires Mr. Quinn to devote his full time to the Company
and provides for a base salary of $85,000  annually.  Mr. Quinn is also entitled
to receive  any fringe  benefits  generally  extended  to the  employees  of the
Company,  including medical,  disability and life insurance.  Mr. Quinn also has
the right to  receive  certain  sales  commissions  from the  Company  under his
agreement.  In May 1998 and again in May 1999, Mr. Quinn's  contract was renewed
for an additional one-year term.

         In June 1996,  the Board of  Directors  approved a one-year  employment
agreement with Richard P. Freeman for services as Vice President.  The agreement
provides for a base salary of $72,000 per year. The agreement  requires  Richard
P. Freeman to devote his full time to the Company.  In May 1998 and again in May
1999, Mr. Freeman's contract was renewed under the same terms.

         After  their  initial  terms,  each of the  above-described  agreements
continue at will,  terminable with/on ninety days written notice by either party
to the  other.  The  agreements  terminate  upon  the  occurrence  of any of the
following  events:  (i) if the  employee  voluntarily  terminates;  (ii)  if the
employee  dies;  (iii) if the  employee  is unable  to  properly  discharge  his
obligations  under  his  employment  agreement  due to  illness,  disability  or
accident for three consecutive  months or for a period aggregating six months in
any continuous  twelve  months;  (iv) if the employee is convicted of a crime of
moral  turpitude  by a court of competent  jurisdiction;  (v) if the employee is
convicted of a felony,  except to the extent that the charge  arises from an act
taken at the board's direction;  or (vi) if the employee is grossly negligent or
guilty of willful  misconduct in connection  with the performance of his duties,
which negligence or misconduct,  if curable, is not cured within fifteen days of
a  notice  of  cure by the  Board  or the  Chairman  of the  Board.  Each of the
above-described agreements provides that the employee shall not compete with the
Company  during  the  term  of the  agreement  and  for a  period  of  one  year
thereafter.

         In the event of any Corporate  Transaction  or Change of Control of the
Company  (each as defined in the Plan),  the Common Stock at the time subject to
each outstanding  option, but not otherwise vested,  shall automatically vest in
full, so that each such option shall, immediately prior to the effective date of
such corporate  transaction or change of control,  become fully  exercisable for
all of the Common Shares at the time subject to the option, and may be exercised
for all or any portion of those shares as fully vested Common Stock.

                                       21
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section  16(a) of the Exchange Act  requires  the  Company's  executive
officers,  directors,  and  persons  who  own  more  than  10% of the  Company's
outstanding  Common  Stock to file initial  reports of ownership  and changes in
ownership  with  the  Commission.  Officers,  directors,  and  greater  than 10%
stockholders are required by Commission  regulations to furnish the Company with
copies of all  Section  16(a)  forms they file.  Based  solely  upon a review of
copies of such filings or written  representations  that no forms were  required
that  were  furnished  to the  Company,  the  Company  believes  that all of the
Company's  executive  officers,  directors,  and greater  than 10%  stockholders
complied  during  the  fiscal  year ended  August  31,  1999 with the  reporting
requirements of Section 16(a).

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The  following  table  sets  forth  as of  November  8,  1999,  certain
information  with regard to the  beneficial  ownership of the  Company's  Common
Stock by (i) each  shareholder  known by the Company to  beneficially  own 5% or
more of the Company's outstanding Common Stock, (ii) each Director individually,
(iii) the Named  Executive  Officer and (iv) all Officers  and  Directors of the
Company as a group:


Name and Address of               Amount and Nature of
Beneficial Owner(1)              Beneficial Owner (2)(3)    Percent of Class (3)
-------------------              -----------------------    --------------------
Gerald I. Quinn(4)                       222,872                     7.0%
Richard P. Freeman(5)                    196,093                     6.3%
Terence E. Belsham(6)                    191,504                     6.2%
John P. Clements(7)                       41,666                    1.35%
ProFutures Special Equities
 Fund, L.P.(8)                           162,698                    5.32%
Tech Pacific Holdings
 Pty Limited(9)                          333,333                     9.8%
All Directors and executive
 officers as a group (5 persons)(10)     620,230                    19.1%

----------
*  Represents less than one percent of the outstanding Common Stock.

(1)  Unless  otherwise  noted,  the address of each holder is 5210 East Williams
     Circle, Suite 200, Tucson, Arizona 85711.
(2)  A person is deemed to be the  beneficial  owner of  securities  that can be
     acquired  within 60 days from  November 8, 1999 through the exercise of any
     option,  warrant or other right. Shares of Common Stock subject to options,
     warrants or rights which are currently exercisable or exercisable within 60
     days are deemed  outstanding  solely for  computing  the  percentage of the
     person  holding  such  options,  warrants  or  rights,  but are not  deemed
     outstanding for computing the percentage of any other person.
(3)  The amounts and percentages in the table are based upon 3,059,662 shares of
     Common Stock outstanding as of November 8, 1999.
(4)  Includes  133,333  shares  subject  to  options  granted  pursuant  to  the
     Company's  Plan which are currently  exercisable  or become  exercisable at
     $3.96 within 60 days after November 8, 1999.
(5)  Includes 33,334 shares subject to options granted pursuant to the Company's
     Plan which are currently  exercisable or become exercisable at $4.86 within
     60 days after November 8, 1999.
(6)  Includes 33,334 shares subject to options granted pursuant to the Company's
     Plan which are currently  exercisable or become exercisable at $4.86 within
     60 days after November 8, 1999.
(7)  Includes 41,666 shares subject to options granted pursuant to the Company's
     Plan which are  currently  exercisable  or become  exercisable  at $1.50 to
     $3.00 within 60 days after November 8, 1999.
(8)  This holder has an address at 11612 Bee Cave Road, Austin, Texas 78733.
(9)  Based on a Form 3 filing,  this  holder has an  address at Level 2,  Epping
     Road,  Lane Cover,  N.S.W.  Australia  2066.  This amount  includes  shares
     underlying a warrant to purchase 333,333 Common Shares at $9.00 per share.
(10) Includes  241,667  shares  subject  to  options  granted  pursuant  to  the
     Company's Plan which are currently exercisable or become exercisable within
     60 days after November 8, 1999.

                                       22
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         None.

                                     PART IV

ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.

     (a)(1) the financial  statements  listed in the index set forth in Item 7
            of this Form 10-KSB are filed as part of this report.

     (a)(2) Exhibits

           Number              Description of Filing                     Method
           ------              ---------------------                     ------

            10.1   Purchase Agreement by and among Softalk,
                   Inc., Interpretel (Canada) Inc. and Wavetech
                   International, Inc. dated October 25, 1999               *

            10.2   Amendment No. 1 to Amended and Restated
                   License Agreement                                        *

            10.3   Amended and Restated License Agreement                   *

            10.4   Share Exchange Agreement by and among
                   Wavetech International, Inc., Interpretel
                   (Canada) Inc. and Softalk, Inc. dated
                   November 13, 1999                                        *

            21     Subsidiaries of the Registrant                           *

            27     Financial Data Schedule                                  *

----------
*  Filed herewith.

     (b)  Reports  on Form 8-K  Filed  During  the Last  Quarter  of The  Period
          Covered by This Report are as Follows:

         On August 12, 1999,  the Company  filed a Form 8-K in which the Company
reported the declination for reelection notice from their independent  auditors,
Addison,  Roberts & Ludwig, P.C. ("AR&L"). AR&L declined to stand for reelection
as the Company's  independent  auditors for the year ending August 31, 1999, due
to the firm's  cessation of audit and accounting  services and the withdrawal of
all  the  firm's  partners.  AR&L  had  expressed  unqualified  opinions  on the
Company's financial statements in 1998. There were no disagreements with AR&L on
any  matter  of  accounting   principles  or  practices,   financial   statement
disclosure, or auditing scope or procedure.

         On August 16, 1999,  the Company  filed a Form 8-K in which the Company
reported the  appointment of Ernst & Young,  LLP as their  independent  auditors
replacing Addison, Roberts & Ludwig.

                                       23
<PAGE>
                                   SIGNATURES

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

                                          WAVETECH INTERNATIONAL, INC.

Date: November 29, 1999                   By: /s/ Gerald I. Quinn
                                             ---------------------------------
                                          Name:  Gerald I. Quinn
                                          Title: President & CEO

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

Dated: November 29, 1999               By: /s/ Gerald I. Quinn
                                       -----------------------------------------
                                       Gerald I. Quinn, President and
                                       Chief Executive Officer, Director
                                       (Principal Executive Officer)


Dated: November 29, 1999               By: /s/ Richard P. Freeman
                                       -----------------------------------------
                                       Richard P. Freeman, Director


Dated: November 29, 1999               By: /s/ John P. Clements
                                       -----------------------------------------
                                       John P. Clements, Director


Dated: November 29, 1999               By: /s/ Alexander C. Lang
                                       -----------------------------------------
                                       Alexander C. Lang, Director


Dated: November 29, 1999               By: /s/ Rosnani Atan
                                       -----------------------------------------
                                       Rosnani Atan, Director

                                       24