U. S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
   
                                 FORM 10-KSB/A
                                AMENDMENT NO. 1
    

(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, 1998.

[ ]  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                                  (IRS Employer
     of incorporation)                                    Identification Number)


            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 each exchange
          Title of Each Class                        on 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  Securities  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. [ ]
<PAGE>
State issuer's revenues for its most recent fiscal year: $157,838.

The  aggregate  market  value  of the  Common  Stock of the  registrant  held by
non-affiliates as of November 23, 1998 was approximately $8,610,837 based on the
average  bid and asked  prices for such  Common  Stock as reported on the Nasdaq
SmallCap Market.

The number of shares of Common  Stock  outstanding  as of November  23, 1998 was
17,151,137.

Documents  Incorporated  by Reference - Various like numbered  exhibits from the
Company's 1987 Registration Statement File No. 33-8353; Post-Effective Amendment
No. 1 to Form S-18 Registration Statement,  SEC File No. 33-8353 filed September
2, 1988; Form 10-K for the fiscal year ending August 31, 1991.

           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 ARE
FOWARD-LOOKING  STATEMENTS  WITHIN THE MEANING OF THE SAFE HARBOR  PROVISIONS OF
SECTION 27A OF THE  SECURITIES  ACT AND SECTION 21E OF THE EXCHANGE  ACT.  THESE
STATEMENTS  RELATE TO FUTURE EVENTS,  INCLUDING A PROPOSED  MERGER OR 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 SEC. 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.

(A) BUSINESS DEVELOPMENT

COMPANY PROFILE

     Wavetech  International,  Inc. (hereinafter referred to as 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 (the "Exchange  Act") by filing and registering
with the Securities and Exchange Commission a Form S-18 under the Securities Act
of 1933; 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 the offering price of $6.75 per unit for gross total proceeds
of  $2,700,000.  The  Company's  Common  Stock is listed on the Nasdaq  SmallCap
Market under the symbol "ITEL."

WAVETECH SUBSIDIARIES

     INTERNATIONAL ENVIRONMENTAL SERVICES CORPORATION. On June 6, 1991, Wavetech
acquired all of the outstanding  stock of International  Environmental  Services
Corporation  (hereinafter  referred  to as "IES"),  a  privately  held  Delaware

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<PAGE>
corporation,  in exchange for 8,000,000  shares  (400,000  shares after the 1-20
split) of the company and a $5 per cubic yard  royalty  payment on IES's  future
operations, if any. 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.

     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.

     INTERPRETEL,  INC. On March 8, 1995,  Wavetech,  Inc.  ("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.  The  Acquisition
agreement also provides that during the three-year period following the March 8,
1995 closing,  former  shareholders  of  Interpretel  are entitled to receive an
additional  7,500,000 Common Shares of Wavetech through an "earn-out" based upon
before tax net profit.  During the two-year  period  following  closing,  former
shareholders of Interpretel could earn up to 3,750,000 Common Shares of Wavetech
for every $0.50 net profit before  taxes,  and an  additional  3,750,000  Common
Shares of Wavetech for every $1.00 of cumulative  total net profit before taxes.
During the third year  following  closing,  any  shares  not  previously  issued
pursuant to this  agreement  can be earned at $1.50 net profit  before taxes per
share.  To date,  no  additional  shares have been issued  pursuant to the "earn
out."

     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 have evolved  significantly  to
capitalize on features and  capabilities of the system.  The Company now focuses
on highly  customized and branded,  enhanced  calling cards,  virtual office and
interactive marketing applications. Since its inception, Interpretel has focused
on creating an  infrastructure to support product  development,  administration,
sales, marketing, and customer support.

                                       4
<PAGE>
     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 (CANADA) INC. On March 10, 1995,  Interpretel (Canada) Inc. 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) Inc. to operate as a
reseller  of  long  distance   services  and  secure   contracts  with  Canadian
corporations and organizations as a Canadian entity.  Interpretel  (Canada) Inc.
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 International  Communications,  Inc. The Company no longer
had the sales and billing  support staff to accommodate the  international  long
distance wholesale business.

(B)  BUSINESS OF ISSUER AND SUBSIDIARIES

OVERVIEW

     The  Company  conducts  most of its  operations  through  its  wholly-owned
subsidiary,  Interpretel.  Interpretel is a  facilities-based  telecommunication
company  using an  advanced  computer  telephony  platform  to deliver  enhanced
calling card services.  The Company's products are highly customized and branded
for specific distributor  applications and feature a single point of access, via
any touch-tone telephone, to a suite of information and communication services.

     Sample  services  include  worldwide  direct  calling,  instant  conference
calling,  over-the-phone language interpretation  supporting over 100 languages,
fax-based language translation,  news, weather and sports headlines,  integrated
voice and fax mail, integration with customer call centers; and in Canada, Dun &
Bradstreet Express business services, and legal consultations and referrals. All
services are billed on a post-pay basis directly to the subscriber,  usually via
a credit card.

     Positioned as an added-value  service,  principal  benefits to distributors
include cost-effective  information distribution,  and interactive marketing and
promotion capability.  The product also becomes a customer retention vehicle and
new profit center.

                                       5
<PAGE>
     Since  its  inception,   Interpretel  has  focused   primarily  on  product
specifications,  proprietary  application  software (including  call-processing,
billing, membership and customer service database software), execution of vendor
contracts,  development of corporate infrastructure (including customer service,
sales and marketing  divisions,  regional  sales staff),  design and printing of
product and  marketing  brochures,  and  strategic  planning  for  international
business  development.  The Company's  software  packages are integrated  into a
state-of-the-art  communications  system creating a platform network that can be
easily duplicated in other locations.

     Interpretel has been issued a tariff, bearing F.C.C. Tariff No. 2, filed in
compliance with the requirements of the  Communication  Act of 1934, as amended,
with the Federal Communications Commission.

     Interpretel  has a staff of five  employees of which four are employed on a
full-time basis. Wavetech has no employees. The Company currently has operations
underway in the United States and Canada.

FEATURES AND CAPABILITIES OF THE COMPANY'S INTERACTIVE SYSTEM

     The Company's  call-processing  architecture is a UNIX-based  multi-tasking
digital  call-processing  system integrated with a Tandem database server, which
provides the ability to manage a wide range of diverse  applications on a single
platform.  The Company's computer telephony integration  technology is modularly
designed and can support virtually limitless expansion and capacity.  The system
offers direct  connectivity  with the public telephone network via MCI and it is
also networked remotely for customer service and database management.

     The Company's database management system is currently administered from its
corporate offices in Tucson, Arizona, with the call processing platforms located
in Lincoln, Nebraska. In 1996 the Company sold an Interpretel System, consisting
of hardware and various call  processing  and billing  software  programs,  to a
subsidiary of Tech Pacific Holdings Pty Limited in Sydney, Australia.

     The Company currently offers the following programs:

     1. THE  INTERPRETEL  TRAVELER  CARD.  Designed for  worldwide  business and
travel use, this application offers voice and fax mail with pager  notification;
over-the-phone language interpretation;  fax-based document translation;  12-way
conference  calling;  news and  sports  headlines;  and access to  domestic  and
international calling card long distance service. Line charges are billed to the
subscriber's  credit card of choice. The Company has distributed this program by
bundling it with other third party membership  packages,  where the demographics
of the membership base include  frequent and/or regular travel.  The Company has
also promoted this product through direct mail marketing.

                                       6
<PAGE>

     2. THE  AFFINITY  CARD  PROGRAM.  Building on the  Interpretel  Card,  this
program  allows a company to  customize  and brand  Interpretel's  communication
services,  as  well as  integrate  present  or new  services  into an  automated
telephone  application.  The Company  currently  has Affinity Card programs with
Diners Club International and Delta Hotels & Resorts.  The Affinity Card Program
has  historically  constituted  the  cornerstone of the Company's  marketing and
sales initiatives.

     3. THE VIRTUAL OFFICE PROGRAM. Built as a customized "affinity" product and
featuring  many of the same  services as the  Interpretel  Traveler  Card,  this
product is positioned for the Small Office/Home  Office (SOHO) market and uses a
private  '888'  number  for  access.  Unique to this  program  is a  "follow-me"
function  which  dials  and  searches  multiple  phone  numbers  to  locate  the
subscriber.

     4.   THE   INTERACTIVE    MARKETING   PROGRAM.   The   Company's   advanced
call-processing  system can be used for non-card based  applications,  including
interactive voice response, fax-backs,  surveys/polling and meet-me conferencing
systems.  The  modular  call-processing  architecture  allows  easy  creation of
applications with virtually no limit. If the Company is able to develop greater,
stronger sales and marketing  infrastructure  and  resources,  this program will
receive greater attention in the future.

     To date, the Company has been unable to generate  significant revenues from
its Interpretel  program offerings.  However, to the extent that it has received
such  revenues,  they have been almost  entirely from the  Interpretel  Traveler
Card.

STRATEGIES FOR THE FUTURE

     The Company's  management  and Board of Directors  believe that the Company
has strong relationships and contracts with major companies and also has product
offerings  that can  easily be  customized  and  expanded  to meet a variety  of
business and individual needs.  However,  the Company lacks the resources needed
to  properly  market  these  products  and  services  and thereby  achieve  high
distribution and usage, which would generate revenues. Early in fiscal 1998, the
Board of Directors  instructed the Company's  management to seek out a potential
business  combination  for the  Company.  The Board  determined  that a business
combination presented a greater opportunity to rapidly promote its products than
commercial  or  other  financing.  In  addition,  the  Board  believed  that any
financing  that would be available to the Company would be so on terms that were
unattractive. As a result of these considerations,  in January 1998, the Company
executed a Reorganization Agreement with Imagitel, Inc. However, in August 1998,
the  Reorganization  Agreement was terminated  because the Company determined it
was no longer in the best interests of its  shareholders due to certain material
adverse  changes in  Imagitel's  business  since  execution  of that  Agreement.
Promptly following  termination of the Imagitel agreement,  the Company reviewed
dozens of potential  merger and acquisition  candidates.  After  considering the
relative risks and merits of the opportunities which it reviewed, on November 6,
1998, the Company signed a Merger  Agreement with DCI  Telecommunications,  Inc.
(OTCBB:DCTC) ("DCI"), an international provider of telephone and other services,
including long distance, prepaid telephone cards and Internet services. DCI has

                                       7
<PAGE>
an extensive  distribution network throughout North America,  Europe and the Far
East. DCI owns telephone  switching  facilities in Canada,  the United  Kingdom,
Spain and Denmark and has 12  operating  facilities  serving  customers in eight
countries.  The  Company  expects the Merger to combine  the  strengths  of both
companies and to create an international carrier with enhanced services and call
management  switching  equipment in the U.S.,  Canada and Europe.  The Merger is
anticipated to provide the support the Company needs to successfully  market its
product  through its current  and future  contracts.  The Merger is subject to a
number of  conditions  and there can be no  assurance,  however,  when or if the
Merger will be completed.

     If the Merger is  completed,  it will  result in a change of control of the
Company,  with DCI's  shareholders  holding in excess of 85% of the  outstanding
Common Stock and a new slate of executive  officers and directors.  As a result,
the strategy  for  developing  and  marketing  the  Company's  products  will be
directed by this new  management.  In the  interim,  the Company has pursued the
promotion of its products through the following  methods:  select advertising in
travel-related  publications  for the  Interpretel  Traveler  Card  designed  to
increase the number of subscribers of the Company's basic product.  In addition,
the Company is also working with current clients to revise existing  programs in
order to  increase  distribution  and  usage of the  services.  The  Company  is
preserving its capital pending the completion of the Merger, if ever.

COMPETITION

     Wavetech's  strategy is to gain a competitive  advantage by being among the
first  companies to offer single  point of access for enhanced  information  and
communication  services,  being  an  innovator  in the  enhanced  communications
service market and offering unique and innovative  services to its  subscribers.
The   Company   seeks   to   capitalize   on   strategic    relationships   with
DinersClub/enRoute,  ShipTel, Delta Hotels & Resorts, among others, to build its
subscriber  base and to maintain and increase  subscriber  loyalty.  The Company
believes  that the  principal  competitive  factors  affecting  the  market  for
enhanced communications  services are price, quality of service,  reliability of
service,  degree of service integration,  ease of use and service features.  The
Company  believes it can compete in those areas.  However,  to date, the Company
has lacked the  resources  necessary to introduce its products and services to a
significant number of customers.

     The market for the  Company's  services is intensely  competitive,  rapidly
evolving  and  subject  to  rapid  technological  change.  The  Company  expects
competition  to  increase  in the  future.  Many of the  Company's  current  and
potential competitors have longer operating histories, greater name recognition,
larger customer bases and substantially greater financial, personnel, marketing,
engineering,  technical  and other  resources.  Although the Company is aware of
several companies that are marketing  enhanced calling cards, it is not aware of
any major competitor that is providing enhanced communication services identical
to the services  marketed by the Company.  The Company  believes  that  existing
competitors  are  likely  to  expand  their  service   offerings  and  that  new
competitors are likely to enter the enhanced communication market and attempt to
integrate such services,  resulting in greater competition for the Company. Such
competition could materially adversely affect the Company's business,  financial
condition and results of operations.

                                       8
<PAGE>
     The  Company  attempts to  differentiate  itself  from its  competition  by
offering an integrated suite of information and communications services that are
customized and branded for each client.  A number of other  providers  currently
offer each of the individual  services and a certain combination of the services
offered by the Company.  The  Company's  worldwide  long  distance  services and
features,  such  as  conference  calling,  compete  with  services  provided  by
companies such as AT&T  Corporation  ("AT&T"),  MCI WorldCom,  Inc.  ("MCI") and
Sprint  Communications  Company ("Sprint") as well as smaller interexchange long
distance  carriers.  The Company's  voice mail services  compete with voice mail
services  provided by certain  regional bell operating  companies  ("RBOCs") and
other  service  bureaus  as well as by  equipment  manufacturers,  such as Octel
Communications  Corporation  ("Octel"),   NorthernTelecom,  Inc.  (Nortel),  and
Siemens Business Communications Systems, Inc. ("Siemens"), among others.

     The Company may  introduce  enhancements  to its  existing  services in the
future.  Such  services  are likely to compete  with  services  offered by other
companies,  many of which have greater marketing,  financial and other resources
than the Company.  The Company also expects that other  parties will develop and
implement information and  telecommunications  service platforms similar to that
of the  Company,  thereby  increasing  competition  for the  Company's  existing
services.

     In addition, the Telecommunications Act of 1996 (the "1996 Act") allows the
RBOC's to immediately  provide long distance  telephone  services  between Local
Access and  Transport  Areas  ("LATAs")  located  outside of their local service
territories,  which will  likely  significantly  increase  competition  for long
distance  services.   The  1996  Act  also  grants  the  Federal  Communications
Commission  (the  "FCC") the  authority  to  deregulate  certain  aspects of the
telecommunications  industry, which in the future may, if authorized by the FCC,
facilitate  the  offering  of an  integrated  suite of  personal  communications
services by regulated  entities,  including the RBOCs,  in competition  with the
Company.

     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 personal  telecommunications  products for
the retail market.

                                       9
<PAGE>
DEPENDENCE ON PRINCIPAL SUPPLIERS

     The  Company  currently   maintains  four  UNIX-based   multi-tasking  call
processing  platforms  integrated  with a  Tandem  database  server  located  in
Lincoln,  Nebraska.  The Company's  network service  operations are dependent on
Interact,  Inc.,  who on a  contractual  basis with the Company,  is providing a
facility,  technical support,  repair,  maintenance,  use of the Tandem database
server and access to the public network through an MCI DS-3  connection.  In the
event that the Company  chooses  not to rely on  Interact,  or  Interact  ceases
business,  the Company is developing  contingency  plans for relocating the call
processing operations to another facility with minimal interruption of service.

     In the event that an  alternative  supplier of call  processing  systems is
required, the Company has investigated the availability of alternative providers
and  has  identified  several  telecommunication   equipment  manufacturers  and
software  vendors whose systems could provide the equivalent level of service as
offered by Interact,  Inc.  However,  the Company does not have any  commitments
from such  alternative  suppliers.  There can be no assurances that  alternative
suppliers  will be able to provide  services to the Company  when needed and, if
available, will be on terms favorable to the Company.

     The Company does not own a transmission network and,  accordingly,  depends
on MCI for  transmission of its  subscribers'  long distance calls. For the year
ended August 31, 1998, MCI was  responsible  for carrying  traffic  representing
approximately  100% of the minutes of long distance  transmission  billed to the
Company. Further, the Company is dependent upon local exchange carriers for call
origination  and  termination.  If there is an outage  affecting  the  Company's
terminating carriers,  the Company's call processing platform may not complete a
call. The Company has not experienced  significant losses in the past because of
interruptions of service at terminating  carriers,  but no assurance can be made
in this regard with respect to the future integrity of such carriers.

GOVERNMENT REGULATION

     The Company is subject to regulation by the FCC and by various state public
service  and public  utility  commissions.  Federal  and state  regulations  and
regulatory  trends  have had,  and may have in the  future,  both  positive  and
negative  effects on the Company and on the information  and  telecommunications
service  industries  as a whole.  FCC policy  currently  requires  interexchange
carriers to provide resale of the use of their transmission facilities.  The FCC
also requires local exchange carriers to provide all interexchange carriers with
equal access to the  origination  and termination of calls. If either or both of
these requirements were removed, the Company would be adversely affected.

     In order to  provide  intrastate  long  distance  service,  the  Company is
required to obtain certification to provide  telecommunications service from the
public service or pubic utility  commissions of each state, or to register or be
found exempt from registration by such commissions. The Company has not yet made
any  filings or taken any  actions to become  certified  or  tariffed to provide
intrastate card services to customers throughout the United States. To date, the
Company has not been denied any licenses or tariffs.

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<PAGE>
     TARIFFS  AND  DETARIFFING.  The  Company  is  classified  by  the  FCC as a
non-dominant carrier for its domestic interstate and international long distance
services.  Common carriers that provide  domestic  interstate and  international
telecommunications   services  must  maintain  tariffs  on  file  with  the  FCC
describing  rates,  terms  and  conditions  of  service.  While the  tariffs  of
non-dominant carriers,  such as the Company, are subject to FCC review, they are
presumed to be lawful upon filing with the FCC. In October 1996,  the FCC issued
an order  detariffing long distance service which prohibited  non-dominant  long
distance  carriers from filing tariffs for domestic,  interstate,  long distance
services in the future.  The FCC's  scheduled  detariffing  rules were to become
effective  September 22, 1997.  The  detariffing  rules were appealed by several
parties,  and in February  1997,  the U.S.  Court of Appeals for the District of
Columbia Circuit issued a temporary stay preventing the rules from taking effect
pending judicial review.  This stay is still in effect and the Company is unable
to predict what impact the outcome of the FCC's detariffing proceeding will have
on the Company.

     UNIVERSAL  SERVICE  REFORM.  On May 8,  1997,  the FCC  released  an  order
establishing a significantly expanded federal telecommunications subsidy regime.
For example, the FCC established new subsidies for schools and libraries with an
annual cap of $2.5  billion and for rural health care  providers  with an annual
cap of $400 million. Providers of interstate telecommunications service, such as
the  Company,  as well as  certain  other  entities,  must  pay for the  federal
programs.  The Company's contribution to the federal subsidy funds will be based
on  their  share  of  total   interstate   (including   certain   international)
telecommunications  services and on certain defined  telecommunications and user
revenues. Several parties have appealed the May 8, 1997 order, and those appeals
have been  consolidated  in the U.S. Court of Appeals for the Fifth Circuit.  No
assurance  can be given that the FCC's  universal  service order will not have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.

     PAYPHONE COMPENSATION.  In September 1996, the FCC issued an order adopting
rules  to  implement  the  1996  Act's  requirements  establishing  "a per  call
compensation   plan  to  ensure  all  payphone  service   providers  are  fairly
compensated for each and every completed call using their  payphone." This order
included a specific  fee to be paid to each  payphone  service  provider by long
distance  carriers and intra-LATA toll providers  (including  LECs) on all "dial
around"  calls,  including  debit card and  calling  card  calls.  In  decisions
released on July 1, 1997,  and September 16, 1997, the U.S. Court of Appeals for
the  D.C.   Circuit  vacated  and  remanded  some  of  the  FCC  rules  for  the
implementation plan. In response to these decisions, on October 7, 1997, the FCC
issued a second order,  revising the per-call  compensation amount to be paid to
payphone  service  providers.  Specifically,  the FCC decreased the compensation
amount to $0.284 per call. This compensation  amount will remain in effect until
October 6, 1999,  when a market-based  rate will become  effective.  The Company
pays these charges through its long distance carrier MCI. Payphone  compensation
charges  appear  on the  Company's  MCI  phone  bills  which  are paid when due.
Although the Company incurs additional costs to receive "dial around" calls that
originate  from  payphones,  to date, the Company has not passed this cost on to
its customers.

                                       11
<PAGE>
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 for $3,000 per
month on a month-to-month basis.

ITEM 3. LEGAL PROCEEDINGS

     On March 14,  1996,  Steven A.  Ezell  ("Ezell"),  a former  officer of the
Company,  sued the Company and two of its current  officers and directors in the
Superior  Court of the State of Arizona in an action titled EZELL VS.  WAVETECH,
INC.,  GERALD I. QUINN AND TERENCE E. BELSHAM.  The  Complaint  alleges that the
Company breached its employment  contract with Ezell and that Messrs.  Quinn and
Belsham tortiously interfered with Ezell's employment contract with the Company.
The  complaint  seeks  unspecified  compensatory  damages,  including  costs and
attorney's  fees. The Company  believes Ezell's claims have no merit and intends
to  vigorously  defend this action.  A trial date is  scheduled  for January 26,
1999.

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

     None.

                                       12
<PAGE>
                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Company's  Common Stock is quoted on the Nasdaq  SmallCap  Market.  The
high and low bid prices of the Company's Common Stock as reported by Nasdaq from
September 1, 1996 through August 31, 1998 by fiscal quarters (i.e. 1st Quarter =
September 1 through November 30) were as follows:

                  1st Qtr           2nd Qtr          3rd Qtr          4th Qtr
                ------------      ------------     -----------      -----------
                High     Low      High     Low     High    Low      High    Low
                ----     ---      ----     ---     ----    ---      ----    ---
1997:
Common Stock   1 1/16   17/32    1 1/32    1/4     15/16   11/32     3/4    5/16

1998:
Common Stock    19/32    3/8      15/32   13/32    11/16    9/16    23/32   7/32

     The bid and the asked price of the  Company's  Common Stock on November 23,
1998 were 19/32 and 17/32, respectively.

     As of November 23, 1998, the Company had 165  shareholders of record of its
Common  Stock.  As of June 24,  1998,  the Company had 2,240  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 additional revenues, if any, for its business operations.

     NASDAQ  DELISTING.  The  Company  has been  notified  by Nasdaq  that it is
currently  not in  compliance  with the $1.00  minimum  bid  price  requirement.
Wavetech  appealed  Nasdaq's  decision to delist its Common Stock for failure to
meet this  requirement  at a hearing in November 1998.  However,  an unfavorable
outcome  of such  hearing or the  failure  to  satisfy  one or more of the other
maintenance  requirements  of Nasdaq  could result in the  Company's  securities
being delisted from Nasdaq. Even if Wavetech's appeal is successful, Nasdaq will
need to approve the listing of the shares of Wavetech  Common Stock to be issued
as a result  of the  proposed  merger  with DCI.  If  Wavetech  Common  Stock is
delisted for any of the results  discussed  above,  the result would be that the
Company's  securities  would  trade on the OTC  Bulletin  Board or in the  "pink
sheets"  maintained  by  the  National  Quotation  Bureau  Incorporated.   As  a
consequence  of such  delisting,  an investor  could find it more  difficult  to
dispose  of or to  obtain  accurate  quotations  as to the  market  value of the
Company's securities. Among other consequences,  delisting from Nasdaq may cause
a decline in the stock price,  the loss of news  coverage  about the Company and
difficulty in obtaining future financing.

                                       13
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

OPERATIONS OVERVIEW

     The  Company's  business  consists  of  operating,  marketing,  selling and
customizing  interactive   communication  systems  through  the  application  of
"intelligent" call processing  technology and proprietary software to reflect or
target the needs of an  identified  audience.  These  systems  are often used as
privatized  networks for organizations  and special purpose groups.  During 1995
and 1994, the Company's  operations  focused primarily on the development of the
infrastructure for its call processing and data management  systems.  Operations
in the U.S. and Canada  commenced on a limited basis in 1996.  During the fiscal
year  1997,  the  Company  sold an  Interpretel  System,  consisting  of certain
hardware  and  proprietary  software  to Switch  Telecommunications  Pty Ltd. of
Australia and installed this system on site.

     During 1998,  the Company spent the majority of its  management's  time and
other resources  working to complete a merger with Imagitel,  Inc. On January 6,
1998, the Company executed a definitive  reorganization agreement with Imagitel,
Inc.  After that date,  the  Company  did not  implement  new  solicitation  and
marketing  initiatives  for its  services in an attempt to conserve  capital and
resources  pending  completion of the Merger.  On August 24, 1998,  the Board of
Directors of Wavetech  and  Imagitel  each  determined  that the  Reorganization
Agreement  should be terminated  due to an  unanticipated  decline in Imagitel's
revenues and the uncertainty about Imagitel's future revenues.

     On June 30, 1998, an agreement  was reached  between the Company and Switch
which  terminated  an  existing  license  agreement  and any future  obligations
thereunder.  Consideration  of $150,000  was  received in  connection  with this
agreement. The license agreement would have entitled Wavetech to receive license
fees equal to 2% of gross revenues  generated by use of the licensed  technology
upon Switch activating a minimum of 15,000 cards.  However,  Switch and Wavetech
were unable to mutually agree upon the  calculation  of such  revenues.  Also on
June 30, 1998, an agreement was reached between the Company and Switch which set
forth the terms and conditions of a put option for the shares of common stock of
Switch which the Company acquired in August 1996. The option  established a sale
price of $2,100,000  and had a term of one year. On August 25, 1998, the Company
exercised  the put option  thereby  selling  its entire  interest  in Switch and
receiving $2,100,000 in proceeds.

     On November  6, 1998,  the Company  signed a Merger  Agreement  with DCI to
create an  international  carrier with  enhanced  services  and call  management
switch equipment able to provide services in the U.S.,  Canada,  Europe, and the
Far East.

     The Company continues to support its current subscribers and to acquire new
subscribers   through  its  ongoing  programs.   The  Company  acquired  72  new
subscribers  during  the  year  and as of  August  31,  1998  had a total of 307
subscribers  on its system.  As of November 23, 1998, the Company had a total of
277 subscribers on its system.

                                       14
<PAGE>
     REVENUES.  Revenues decreased to $157,838 in 1998 from $719,142 in 1997. Of
this decrease,  $474,106 was attributable to the extraordinary revenues received
from the sale of an Interpretel System to Switch  Telecommunications Pty Ltd. in
Australia in 1997. An additional  decrease of $89,000 was from lowered  revenues
due to less minutes sold for the resale of international  long distance minutes.
The $157,838 in revenues  during fiscal year 1998 includes  $60,151 in resale of
international long distance minutes,  $24,687 in enhanced calling card services,
$12,000 in  application  generation  fees,  and $59,523  for revenue  recognized
pursuant to a licensing agreement with Switch.

     COST OF SALES. Costs of sales decreased to $85,082 in 1998 from $679,930 in
1997. Of the decrease, $378,009 is from previous year costs to purchase hardware
and  software  components  to duplicate  an  Interpretel  System for the sale to
Switch in 1997. A decrease of $76,637 was for costs  associated  with the resale
of  international  long distance minutes due to less minutes sold. A decrease of
$69,168 was attributable to reduced  marketing and fulfillment  costs associated
with a direct mail marketing  campaign  initiated in 1997. Due to lower revenues
for enhanced  calling card services the Company had lower  associated costs such
as long distance and interpretation services resulting in an additional decrease
of  $58,151.  Reduction  in the  number  of T-1  telephone  lines  and  software
maintenance resulted in a decrease of $8,662.

     The  $85,082 in costs of sales for  fiscal  year 1998  included  $49,129 in
costs  to  resell  international  long  distance  minutes;   $15,662  for  costs
associated with providing enhanced calling card services;  $19,427 for T-1 lines
and software  maintenance;  and $864 in commissions to clients  distributing the
Interpretel Card service to its membership.

     GENERAL  AND  ADMINISTRATIVE  EXPENSES.  Operating  expenses  decreased  to
$785,171 in 1998 from $1,584,747 in 1997. A reduction of the Company's workforce
resulted  in a decrease  of  $353,786  in  payroll  related  expenses.  Investor
relations expenses decreased by $66,243 due to higher fees paid to an investment
relations firm in 1997 and also costs  associated  with the 1997 annual meeting.
Renegotiation of the fees paid by the Company for platform  services and support
resulted in an additional decrease of $63,765. During 1997, the Company incurred
expenses in  compensating  certain  vendors for creating  and  printing  general
Company  marketing  materials.  In 1998, the Company did not create or print any
additional marketing materials,  which resulted in a decrease of $48,661 in 1998
for general  marketing and advertising  expenses.  Travel expenses  decreased in
1998 by $28,701.  General legal and professional  fees decreased by $127,862 due
to reclassifying costs associated with the proposed, but terminated, Merger from
"General and Administrative  Expenses" into "Other Expenses -- Costs incurred in
connection  with the Merger."  See "Costs  incurred in  connection  with Merger"
below for details on these costs.

     The $785,171 of operating expenses includes $280,373 in payroll and related
expenses; $94,369 in rent; $78,107 for platform services and support; $63,996 in
general legal  expenses;  $62,482 for investor  relations  expenses;  $40,421 in
accounting fees and other  professional  fees;  $34,010 for licenses and fees to
Nasdaq and to the  Company's  transfer  agent;  $22,941  for  outside  services,

                                       15
<PAGE>
primarily for EDGARizing filings for the Securities and Exchange  Commission and
expenses  related to solicitation of proxies in connection with the 1998 Special
Meeting; and $18,646 in travel related expenses,  and $17,347 in operating lease
expenses.

     DEPRECIATION  AND  AMORTIZATION  EXPENSES.  Depreciation  and  amortization
expenses  decreased  to $156,965  for fiscal year 1998 from  $211,786 for fiscal
year 1997.  The Company  purchased one computer for $1,985 during the year ended
August 31, 1998.

     INTEREST  INCOME.  Interest  income was $6,565 from interest  earned on the
Company's money market account.

     INTEREST  EXPENSE.  Interest  expense  increased to $45,182 for fiscal year
1998 from  $26,893 for fiscal year 1997.  The  increase in interest  expense was
related to interest  payable  with the  Company's  financing  through a $400,000
short-term  line of credit,  and certain  convertible  notes payable and capital
leases.

     LICENSE AGREEMENT TERMINATION INCOME. Effective June 30, 1998, an agreement
was reached between the Company and Switch terminating the licensing  agreement.
The Company  recognized income of $86,906 from unamortized  deferred revenue and
$150,000 as income from the termination fee. See "--Operations Overview above."

     LOSS ON SALE OF INVESTMENT IN SWITCH.  The June 30, 1998 agreement  between
the Company and Switch,  included  the grant to the Company of a put option with
respect to the sale of shares of common stock of Switch  which were  acquired by
the Company in August 1996.  On August 25, 1998,  the Company  exercised the put
option thereby  selling its entire  interest in Switch.  On August 31, 1998, the
Company  received  $2,100,000  upon  exercise  of the put  option.  The  Company
recognized a capital loss of $216,165 upon disposition of the investment.

     DEBT CONVERSION  EXPENSE.  Debt  conversion  costs of $92,894 were recorded
during the quarter  ended  November  30, 1997.  This expense  relates to certain
notes payable and accrued  interest  thereon that were  converted into shares of
the  Company's  Common  Stock at the rate of $0.4375 per share.  The  difference
resulted  in an  increase  in  expenses  which was  charged  to debt  conversion
expense.

     COSTS  INCURRED IN  CONNECTION  WITH  MERGER.  The Company had  expenses of
$236,737 directly related to the proposed, but terminated, merger with Imagitel,
Inc.  These  expenses  included  $125,000  in legal fees,  $91,737 for  fairness
opinions  and  $20,000  in fees  for  EDGARizing  merger-related  documents  and
solicitation of the proxy.

     INCOME  TAXES.  At August 31,  1998,  the  Company had net  operating  loss
carryforwards  totaling  approximately  $8,994,000.  These  losses may be offset
against  future  income,  if any,  during 1998 to 2011 with  varying  expiration
dates. No tax benefit  associated with these  carryforwards has been recorded in
the financial  statements since realization of net operating loss  carryforwards
does  not  appear  likely.  The  potential  benefit  of the net  operating  loss
carryforwards  and the deferred tax benefit of future timing  differences  under
SFAS No. 109 is approximately $3,460,000. The March 8, 1995 acquisition (Note 3)

                                       16
<PAGE>
resulted  in a "change  in  control"  as  defined by  Internal  Revenue  Service
Regulations.  Accordingly,  the  utilization of the Company's net operating loss
carryforwards  are deemed more likely than not to expire  unutilized.  The total
amount  of  the  net  operating  loss  carryforwards,  $8,994,000,  consists  of
pre-acquisition  losses of  approximately  $3,186,000.  These  losses  cannot be
applied against income generated in a trade or business significantly  different
from that which gave rise to the carryforward.

   
         PREFERRED DIVIDENDS.  Preferred dividends increased to $135,994 for the
year ended  August 31, 1998 from zero for the year ended  August 31,  1997.  The
increase is due to the issuance of 600 shares of Series A Convertible  Preferred
Stock in April  1998.  The  amount is  comprised  of  $122,894  recorded  as the
preferred  stock  conversion  benefit  and $13,100  recorded  as the  cumulative
preferred dividend.  Dividends accumulate, with respect to outstanding shares of
the Preferred  Stock, at a rate of 6% per annum and are payable  quarterly,  and
may be paid in cash or in  shares of 6%  Preferred  Stock  valued at $1,000  per
share,  at the  Company's  option.  The Company has opted to pay the  cumulative
preferred dividend in cash.
    

LIQUIDITY AND CAPITAL RESOURCES

     At August  31,  1998 the  Company  had  working  capital of  $1,863,442  as
compared to a working capital deficit of $650,761 at August 31, 1997.

     During the fiscal year 1998 the Company received capital from the following
sources:  during the first quarter,  the Company borrowed  $250,000 from various
individuals,  of which $200,000 plus accrued interest was converted to shares of
the Company's Common Stock in November 1998.

     On February 9, 1998, the Company  executed a line of credit  agreement with
Imagitel  pursuant to which the  Company  was able to borrow up to $450,000  for
working  capital  purposes.  During the year ended August 31, 1998,  the Company
borrowed  $330,000 under this line of credit.  The total principal  balance plus
accrued  interest  was  paid by  August  31,  1998 and the  line of  credit  was
terminated on the same date.

     On April 22,  1998 the  Company  sold 600  shares  of Series A  Convertible
Preferred Stock for gross proceeds of $600,000.  After paying the costs incurred
in  connection  with the  issuance  of the  Preferred  Stock,  the net  proceeds
received were $527,925.

     During the  quarter  ended May 31,  1998,  the  Company  offered to certain
warrant  holders with  warrants  expiring May 31, 1998 and an exercise  price of
$1.00 per share,  the following  option:  for a specific eleven day period,  the
right to exercise  their  warrants for $0.585 per common share (the market price
of the underlying Common Stock on the date of the offer). A total of 380,280 out
of 784,781  warrants were exercised  under this offer and the balance of 404,501
warrants  expired on May 31,  1998.  The  Company  received  gross  proceeds  of
$222,503 for the warrants.

     On June 30, 1998, an agreement  was reached  between the Company and Switch
which  terminated  an  existing  license  agreement  and any future  obligations
thereunder.  Consideration  of $150,000  was  received in  connection  with this
agreement.

                                       17
<PAGE>
     On August 25, 1998, the Company  exercised a put option with Switch thereby
selling its entire equity  interest in Switch.  On August 31, 1998,  the Company
received $2,100,000 upon exercise of the option agreement.

     The Company expects to incur operating losses until such time as the Merger
with DCI is completed,  if ever. The Company is preserving its capital resources
and  focusing  its  efforts  on  supporting  its  current  customer  base  while
completing the Merger. However, there can be no assurances as to when the Merger
will be completed, if ever. The Company has sufficient funds to meet its current
operating expenses for the next fiscal year.

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.

RISKS ASSOCIATED WITH YEAR 2000

   
     Many computer  programs were designed to recognize  calendar years by their
last two digits.  As a result,  such programs are expected to misidentify  dates
commencing in calendar year 2000.  This problem is referred to as the "Year 2000
Issue."  These  errors are likely to lead to computer  errors,  miscalculations,
delays and business  interruptions if not properly corrected in a timely manner.
The Company's main billing  program was originally  written to accept dates from
the year  2000  and  beyond.  However,  the  Company  has  hired an  independent
consultant to review the billing  system for the purpose of  thoroughly  testing
its operation for readiness associated with the Year 2000 Issue. Estimated costs
for the consultant and associated testing activities is $700. The Company
anticipates  that  such  assessment  and  any  necessary  modifications  will be
completed by March 31, 1999.  The Company is in the process of testing all other
internal  systems and  believes  that no  modifications  to such systems will be
necessary.  Total  costs  incurred  and  expensed  to  date  by the  Company  in
connection  with its  assessment  of its Year  2000  software  compliance  equal
approximately $5,000.

     The Company has also contacted its major  supplier,  which handles the call
processing   software  and  supports  platform  services.   The  Company's  call
processing  hardware and operating systems are not currently able to address the
Year 2000 Issue.  Modifications  to this system have begun and the host server's
operating  system is expected to be compliant no later than March 31, 1999.  The
Company does not have material  relationships  with any other third parties upon
which its business and  operations  are  substantially  dependent.  However,  it
intends to seek  assurances  from any third  parties  with which it enters  into
agreements  in the future  that the  systems  are  compliant  with the Year 2000
Issue.  The  Company  currently  estimates  that its total  costs to be incurred
relating  to the Year 2000  Issue  will be  approximately  $60,000.  When  costs
associated with the Year 2000 Issue are incurred,  the Company intends to charge
these costs to "Expense."

     Presently,  the Company is exploring  options to develop a contingency plan
in the event it is unable to correct any  vulnerability  to the Year 2000 Issue,
such  as  using  a  service  bureau  to   temporarily   process  calls  and  run
applications, should any problems arise in system operations.
    
                                       18
<PAGE>
   
     The Company believes there exist multiple  alternative  suppliers for these
services.  However,  if it is  unable  to  obtain  such  services  and at  terms
acceptable to it, it may be forced to interrupt or suspend its services. In
addition, even if available,  the Company may be required to incur substantially
higher  costs in order to  provide  such  services.  In the event  the  computer
applications  of the  Company  or any third  party  with which it has a material
relationship  are  not  Year  2000  compliant,  the  Company's  business  may be
interrupted.  The Company may be unable to compute  customer  charges  and/or be
unable to correctly bill and collect those charges.

         The Company has adequate resources to complete its Year 2000 assessment
and any necessary modifications. The Company estimates that it has completed 85%
of its assessment and that 30% of the necessary modifications have been made.
    

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                  WAVETECH INTERNATIONAL, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                     Page Number
                                                                     -----------

REPORT OF INDEPENDENT AUDITORS.......................................    21

CONSOLIDATED BALANCE SHEET - August 31, 1998.........................    22

CONSOLIDATED STATEMENT OF OPERATIONS -
     For the years ended August 31, 1998 and 1997....................    23

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY -
     For the years ended August 31, 1998 and 1997....................    24

CONSOLIDATED STATEMENTS OF CASH FLOWS -
     For the years ended August 31, 1998 and 1997....................    25

NOTES TO FINANCIAL STATEMENTS........................................    26


                                       19
<PAGE>
                          WAVETECH INTERNATIONAL, INC.

                          Audited Financial Statements

                  For the years ended August 31, 1998 and 1997

                                   -----------



                                       20
<PAGE>
                          INDEPENDENT AUDITOR'S REPORT



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


We  have  audited  the  accompanying  consolidated  balance  sheet  of  Wavetech
International,  Inc.  as  of  August  31,  1998  and  the  related  consolidated
statements of operations, changes in stockholders' equity and cash flows for the
years ended August 31, 1998 and 1997. These  consolidated  financial  statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an  opinion  on these  consolidated  financial  statements  based on our
audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits 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  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Wavetech  International,  Inc.  as of August  31,  1998 and the  results  of its
operations  and its cash flows for the years ended August 31, 1998 and 1997,  in
conformity with generally accepted accounting principles.


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

Tucson, Arizona
November 6, 1998

                                       21
<PAGE>
                          WAVETECH INTERNATIONAL, INC.

                           CONSOLIDATED BALANCE SHEET
                                 August 31, 1998


                                     ASSETS
                                                                        1998
Current assets:                                                     -----------
 Cash and cash equivalents                                         $ 2,202,573
 Accounts receivable, net of allowance of $9,927                        18,276
 Prepaid expenses and other assets                                       6,547
                                                                    -----------
    Total current assets                                              2,227,396

Property and equipment, net                                             259,270
Noncurrent assets:
 Intangibles, net of amortization of $11,578                            25,422
 Deposits and other assets                                              30,083
                                                                    -----------
    Total noncurrent assets                                              55,505
                                                                    -----------
    Total assets                                                    $ 2,542,171
                                                                    ===========
                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
 Accounts payable and accrued expenses                             $   246,666
 Accrued interest payable                                                8,579
 Notes payable, current portion                                         63,000
 Capital leases payable, current portion                                45,709
                                                                    -----------
    Total current liabilities                                           363,954

Noncurrent liabilities:
 Capital leases payable                                                 25,265
                                                                    -----------
    Total liabilities                                                   389,219

Commitments                                                                 -0-

Stockholders' equity:
 Preferred stock 6%, par value $.001 per share;
   10,000,000 shares  authorized, 600 shares issued
   and outstanding, with a liquidation value of $600,000                    -0-
 Common stock, par value $.001 per share;
   50,000,000 shares authorized, 16,994,887 shares
   issued and outstanding                                                16,995
 Additional paid-in capital                                           8,516,923
 Accumulated deficit                                                 (6,380,966)
                                                                    -----------
    Total stockholders' equity                                        2,152,952
                                                                    -----------
    Total liabilities and stockholders' equity                      $ 2,542,171
                                                                    ===========

                        See independent auditor's report.
              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       22
<PAGE>
                          WAVETECH INTERNATIONAL, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  For the years ended August 31, 1998 and 1997

   
                                                      1998           1997
                                                      ----           ----

Revenues                                           $   157,838    $   719,142
                                                   -----------    -----------
Expenses:
  Cost of sales (exclusive of depreciation
   and amortization shown separately below)             85,082        679,930
  General and administrative                           785,171      1,584,747
  Depreciation and amortization expense                156,965        211,786
                                                   -----------    -----------
    Total expenses                                   1,027,218      2,476,463
                                                   -----------    -----------
Net loss from operations                              (869,380)    (1,757,321)
Other income and expense:
  Interest income                                        6,565          8,500
  Interest expense                                     (45,182)       (26,893)
  License agreement termination income                 236,906            -0-
  Loss on sale of investment in Switch                (216,165)           -0-
  Debt conversion expense                              (92,894)           -0-
  Costs incurred in connection with merger            (236,737)           -0-
                                                   -----------    -----------
    Total other income and expense                    (347,507)       (18,393)
                                                   -----------    -----------
Net loss before preferred dividends                $(1,216,887)   $(1,775,714)

Cumulative preferred dividends declared and
 Preferred stock conversion benefit                $   135,994             --
                                                   -----------     ----------

Net loss available to common shareholders          $(1,352,881)   $(1,775,714)
                                                   ===========    ===========
Net loss per common share, basic                   $      (.08)   $      (.12)
                                                   ===========    ===========
Net loss per common share, diluted                 $      (.08)   $      (.12)
                                                   ===========    ===========
Weighted average number of
  shares outstanding, basic                         15,979,543     14,455,167
                                                   ===========    ===========
Weighted average number of
  shares outstanding, diluted                       15,979,543     14,455,167
                                                   ===========    ===========
    
                        See independent auditor's report.
              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       23
<PAGE>
                          WAVETECH INTERNATIONAL, INC.

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                  For the years ended August 31, 1998 and 1997
<TABLE>
<CAPTION>
                                                     Additional
                                            Common    Paid-in    Accumulated
                                Shares      Stock     Capital      Deficit        Total
                                ------      -----     -------      -------        -----
<S>                         <C>          <C>      <C>          <C>           <C>
Balances, August 31, 1996     14,114,441   $14,114  $6,747,967   $(3,252,371)  $ 3,509,710

Common stock issued              962,366       963     256,856                     257,819

Warrants issued                                         20,000                      20,000

Net loss                                                          (1,775,714)   (1,775,714)
                              ----------   -------  ----------   -----------   -----------
Balances, August 31, 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                           527,924                    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     16,994,887   $16,995  $8,516,923   $(6,380,966)  $ 2,152,952
                              ==========   =======  ==========   ===========   ===========
</TABLE>
                        See independent auditor's report.
              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       24
<PAGE>
                          WAVETECH INTERNATIONAL, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  For the years ended August 31, 1998 and 1997


                                                        1998            1997
                                                        ----            ----
Cash flows from operating activities:
 Net loss                                           $(1,216,887)    $(1,775,714)
 Adjustments to reconcile net loss to
  net cash used in operating activities:
   Depreciation and amortization                        156,965         211,876
   Common stock issued for services and
    accrued interest                                    168,732         204,180
   Debt conversion expense                               92,894             -0-
   Loss on disposition of Switch shares                 216,165             -0-
 Changes in assets and liabilities:
   (Increase) decrease in accounts receivable
    and other current assets                             11,175           1,108
   (Increase) decrease in inventory deposit                 -0-         241,037
   Increase (decrease) in accounts payable
    and accrued expenses                               (154,757)        264,507
   Increase (decrease) in accrued interest
    payable                                               3,331           5,248
   Increase (decrease) in unearned revenue             (146,429)       (153,556)
                                                    -----------     -----------
      Total adjustments                                 348,076         774,400
                                                    -----------     -----------
      Net cash used in operating activities            (868,811)     (1,001,314)

Cash flows from investing activities:
 Purchase of property and equipment                      (1,985)        (25,237)
 (Increase) decrease in other assets                      5,550             -0-
 Proceeds from sale of investment in Switch           2,100,000             -0-
 Payment of notes receivable                                -0-          45,282
 Purchase of intangibles                                    -0-         (25,000)
                                                    -----------     -----------
      Net cash provided by (used in)
       investing activities                           2,103,565          (4,955)

Cash flows from financing activities:
 Proceeds from notes payable                            580,000         172,071
 Payments on notes payable                             (330,000)            -0-
 Payments on capital lease payable                      (39,037)        (29,961)
 Proceeds from common stock issued                      222,503             -0-
 Proceeds from preferred stock issued                   527,924             -0-
 Proceeds from sale of warrants                             -0-          20,000
 Dividends paid                                          (6,900)            -0-
                                                    -----------     -----------
      Net cash provided by financing activities         954,490         162,110
                                                    -----------     -----------
Net increase (decrease) in cash and
 cash equivalents                                     2,189,244        (844,159)
Cash and cash equivalents, beginning of year             13,329         857,488
                                                    -----------     -----------
Cash and cash equivalents, end of year              $ 2,202,573     $    13,329
                                                    ===========     ===========


                        See independent auditor's report.
              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       25
<PAGE>
                          WAVETECH INTERNATIONAL, INC.

                          NOTES TO FINANCIAL STATEMENTS


1.  ORGANIZATION

    The  consolidated  financial  statements  include  the  accounts of Wavetech
    International,  Inc.  (the  Company)  and  its  wholly  owned  subsidiaries,
    Interpretel,   Inc.   (Interpretel),   Interpretel  (Canada)  Inc.,  Telplex
    International Communications,  Inc. and International Environmental Services
    Corporation (an inactive  corporation).  All material  intercompany balances
    and transactions  have been  eliminated.  As of August 31, 1998, and for the
    previous four years, the Company had no operations other than its investment
    in  Interpretel,  which  was made on  March 8,  1995.  On  March  10,  1995,
    Interpretel  (Canada) Inc. was  incorporated in Ontario,  Canada as a wholly
    owned subsidiary of Interpretel.  Interpretel  (Canada) Inc. had not yet had
    any activities as of August 31, 1998.

    The  Company is  currently  conducting  minimal  operations  while  actively
    pursuing a merger  candidate.  The Company has recorded net operating losses
    in each of the previous five years and does not  anticipate  realization  of
    full operations until a qualified merger or acquisition can be effected. The
    Company is currently negotiating a merger agreement. (Note 16)

    Interpretel was incorporated  April 15, 1993, under the laws of the state of
    Arizona to develop, market and provide interactive telecommunication systems
    and services to business and individual  customers.  The systems incorporate
    interactive   call   processing,    computer-telephony   integration,   card
    production/fulfillment,   bill  services,   marketing,  sales  support,  and
    customer service to provide features and services, including but not limited
    to,  long  distance  dialing,  voice/fax  messaging,   voice/fax  broadcast,
    language  interpretation/translation,  information  retrieval,  interface to
    existing databases,  and product promotion services. Each Interpretel system
    is  developed  to  reflect  or target  the needs of an  identified  (target)
    market,  with services  provided to individual  customers via a calling card
    product incorporating the use of certain trade secrets, trademarks,  service
    marks, and materials related thereto.

    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  were  placed in a new  wholly-owned  subsidiary  of  Wavetech
    International,  Inc.  called  Telplex  International  Communications,   Inc.
    ("Telplex").  The Company did not assume any of the  liabilities of Telplex.
    Telplex  is  a  switchless   international  long  distance   reseller.   The
    acquisition  of  Telplex's  assets was made  pursuant  to an Asset  Purchase
    Agreement  dated  January 22, 1997,  by the  Company,  although it is deemed
    effective as of January 1, 1997.

    This  acquisition  has been  accounted  for  under  the  purchase  method of
    accounting  and the results of Telplex's  operations  since the  acquisition
    date have been included with those of the Company.

                                       26
<PAGE>
                          WAVETECH INTERNATIONAL, INC.

                          NOTES TO FINANCIAL STATEMENTS


2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    CASH AND CASH EQUIVALENTS

    For  purposes of the  consolidated  statements  of cash  flows,  the Company
    considers all highly liquid debt instruments with a maturity of three months
    or less  (money  market  accounts  and  certificates  of deposit) to be cash
    equivalents.

    PROPERTY AND EQUIPMENT

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

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

    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.

    INTANGIBLE ASSETS

    Intangible  assets  consist of start-up  costs.  These  costs are  primarily
    consulting  fees and other costs incurred in connection with the development
    of the Company.  Management believes that these costs will be recovered with
    future  operations.  Start-up  costs are amortized over five years using the
    straight-line   method.   Intangibles   are  presented  net  of  accumulated
    amortization  of $11,578 and $7,511 for the years ended  August 31, 1998 and
    1997, respectively.

    INCOME TAXES

    The Company  uses  Statement  of  Financial  Accounting  Standards  No. 109,
    "Accounting  for Income  Taxes"  (SFAS 109).  SFAS 109  requires a liability
    approach to accounting for deferred income taxes in that the deferred income
    tax liability or benefit at the end of an accounting  period should  reflect
    the  estimated  deferred  tax  liability  or tax  benefit  on the  temporary
    book-tax differences at anticipated federal and state income tax rates.

                                       27
<PAGE>
                          WAVETECH INTERNATIONAL, INC.

                          NOTES TO FINANCIAL STATEMENTS


2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

    CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS

    At August 31, 1998,  the Company  maintained  cash balances in bank accounts
    insured by the FDIC. The cash balance  exceeded the FDIC insurable amount by
    $2,090,015.

    The  Company  extends  credit  to  customers  on an  unsecured  basis in the
    ordinary  course of business.  The Company  bills its  services  directly to
    authorized customer credit cards as usage is incurred.

    SFAS 107  requires  disclosing  fair  value to the  extent  practicable  for
    financial  instruments  that are recognized or  unrecognized  in the balance
    sheet. The fair value of the financial  instruments  disclosed herein is not
    necessarily  representative of the amount that could be realized or settled,
    nor does the fair value amount consider the tax  consequences of realization
    or settlement.

    The carrying  amounts for cash and cash  equivalents,  accounts  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.

    ADVERTISING COSTS

    The  cost of  advertising  is  expensed  when  incurred  or when  the  first
    advertising  takes place.  Wavetech and  Interpretel  do not  participate in
    direct-response   advertising,   which  requires  the   capitalization   and
    amortization  of related costs.  The Company  incurred no advertising  costs
    during the year ended August 31, 1998.

    INVESTMENTS

    Investments  in  companies in which the Company has less than a 20% interest
    are carried at cost. Dividends received from those companies are included in
    other income.  Dividends  received in excess of the Company's  proportionate
    share of accumulated  earnings are applied as a reduction of the cost of the
    investment.

    REVENUE RECOGNITION

    Revenue from the sale of the licensing agreement 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

                                       28
<PAGE>
                          WAVETECH INTERNATIONAL, INC.

                          NOTES TO FINANCIAL STATEMENTS


2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

    related  to  the  operation  and  maintenance  of  the  telephony  platform.
    Depreciation and amortization expense is separately stated.

    CONCENTRATION OF REVENUE

    During the year ended August 31,  1998,  the Company  recognized  revenue of
    $59,523  from  the  recognition  of  income  from  the  sale of a  licensing
    agreement and $236,906 from termination of the licensing  agreement all from
    Switch.  This  represents 74% of total revenue for the year ended August 31,
    1998.

    During the year ended August 31, 1997, the Company  recognized  revenue from
    the installment of equipment of $474,160 and $53,571 from the recognition of
    income  from  the  sale of a  licensing  agreement  all  from  Switch.  This
    represents 73% of total revenue for the year ended August 31, 1997.

    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.

    LOSS PER COMMON SHARE

    Statement of Financial  Accounting  Standards No. 128,  "Earnings per Share"
    (SFAS 128),  which became  effective in 1997,  requires  presentation of two
    calculations  of earnings  per common  share.  "Basic"  earnings  (loss) per
    common share equals net income  (loss)  divided by weighted  average  common
    shares outstanding  during the period.  "Diluted" earnings (loss) per common
    share equals net income (loss) divided by the sum of weighted average common
    shares outstanding  during the period plus common stock equivalents.  Common
    stock  equivalents  are  shares  assumed to be issued if  outstanding  stock
    options were  exercised.  Common stock  equivalents  from stock  options and
    warrants are excluded from the computation  when the effect is antidilutive.
    Prior period amounts have been restated in accordance with SFAS 128.

    USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS

    The  preparation  of  financial  statements  in  conformity  with  generally
    accepted  accounting  principles  requires  management to make estimates and
    assumptions  that affect the reported  amount of assets and  liabilities and
    disclosure of contingent assets and liabilities at the date of the financial
    statements  and the reported  amounts of revenues  and  expenses  during the
    reporting period. Actual results could differ from those estimates.

                                       29
<PAGE>
                          WAVETECH INTERNATIONAL, INC.

                          NOTES TO FINANCIAL STATEMENTS


3.  BUSINESS COMBINATION - COMMITMENT

    On March 8, 1995,  the Company  entered into an agreement  with  Interpretel
    pursuant to which the Company 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 the
    Company.  In  accordance  with  Accounting  Principles  Board Opinion No. 16
    "Business Combinations," the acquisition has been 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.

    The  acquisition  agreement also provides that during the three-year  period
    following the March 8, 1995 closing,  former shareholders of Interpretel can
    receive an  additional  7,500,000  common  shares of the Company  through an
    "earn-out"  based upon  before tax net  profit.  During the two year  period
    following  closing,  former  shareholders  of  Interpretel  shall earn up to
    3,750,000  common  shares of the Company  for every $0.50 net profit  before
    taxes,  and an additional  3,750,000  common shares of the Company for every
    $1.00 of cumulative  total net profit  before  taxes.  During the third year
    following  closing,  any  shares  not  previously  issued  pursuant  to this
    agreement  can be earned at $1.50 net profit  before taxes per share.  These
    additional  shares  will not be  considered  in  recording  the  Acquisition
    transaction until such time as the earnings targets have been met.

4.  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  1,544,110  shares of the
    Company's stock.

    Switch is a wholly owned  subsidiary of Tech Pacific  Holdings Limited (Tech
    Pacific).  Tech  Pacific is an  Australian  corporation  whose  stock is not
    publicly traded. Tech Pacific is a wholly owned subsidiary of First Pacific,
    a publicly traded company on the Hong Kong stock  exchange.  Switch conducts
    business as a  telecommunications  Fixed Network  Service  Provider and also
    validates mobile telephone  connections for Telestra Mobilenet in Australia.
    The  Company  entered  into a contract  appointing  Switch as the  exclusive
    provider of  Interpretel's  telecommunications  services in  Australia,  New
    Zealand,  the  subcontinent  of India and Asia  (excluding  Korea and Japan)
    (Note 5).

                                       30
<PAGE>
                          WAVETECH INTERNATIONAL, INC.

                          NOTES TO FINANCIAL STATEMENTS


4.  INVESTMENT IN SWITCH TELECOMMUNICATIONS PTY LIMITED, CONTINUED

    On June 30, 1998,  an agreement  was reached  between the Company and Switch
    which sets 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 2,000,000 shares of
    the  Company's  common  stock at a price of $1.50 per  share.  The  warrants
    expire  January 17,  2000.  Consideration  of $20,000 was  received  for the
    warrants.

5.  LICENSING AGREEMENT

    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 is 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.  Switch shall not have an
    obligation  to pay  any  fees  pursuant  to  termination  provisions  in the
    agreement.  The Company  received  $200,000 of the  licensing fee during the
    year ended August 31, 1997. The agreement  provides for payments of $150,000
    each in year two and three.  A payment of $150,000  was due on May 22, 1998.
    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.

                                        31
<PAGE>

                          WAVETECH INTERNATIONAL, INC.

                          NOTES TO FINANCIAL STATEMENTS


6.  PROPERTY AND EQUIPMENT

    Property and equipment is composed of the following at August 31, 1998:

                                                                     1998
                                                                  ---------

    Furniture and fixtures                                        $ 170,415
    Computer equipment                                              507,362
    Software                                                        112,318
                                                                  ---------
      Total property and equipment, at cost                         790,095

    Less:  accumulated depreciation and amortization               (530,825)
                                                                  ---------
      Net property and equipment                                  $ 259,270
                                                                  =========

    Depreciation  expense  related to capital leases was $36,139 and $37,257 for
    the years ended August 31, 1998 and 1997, respectively.

7.  NOTES PAYABLE

    Notes payable are composed of the following at August 31, 1998:


    Note payable to a  shareholder and  officer of the
    Company due on demand with interest payable at 15%
    annually. This Note is uncollateralized. (Note 13)            $  13,000

    Note payable to an unrelated entity due and payable on
    demand with interest payable at 12%. At the option of
    the holder, principal and interest can be paid in shares
    of common stock of Wavetech, Inc. with an aggregate
    payoff value equal to the amount of principal plus
    interest. This Note is uncollateralized.                         50,000
                                                                  ---------
      Total short-term notes payable                              $  63,000
                                                                  =========

8.  CAPITAL LEASES PAYABLE

    The Company has entered into capital lease arrangements for office furniture
    and  equipment.  The  leases  require  monthly  payments  of  principal  and
    interest.

                                       32
<PAGE>
                          WAVETECH INTERNATIONAL, INC.

                          NOTES TO FINANCIAL STATEMENTS


8.  CAPITAL LEASES PAYABLE, CONTINUED

    Future lease commitments are as follows:

        1999                                      $45,709
        2000                                       23,671
        2001                                        1,594
                                                  -------
                                                   70,974
        Amounts due within one year                45,709
                                                  -------
        Long-term debt                            $25,265
                                                  =======

9.  COMMITMENTS

    The  Company  has  entered  into  cancelable  operating  agreements  with  a
    telecommunications  service  provider.  The  Company  has agreed to a $2,575
    monthly  minimum  charge.  Although  there are a limited  number of  service
    providers for the call  processing  systems used by the Company,  management
    believes that other suppliers  could provide similar  services on comparable
    terms.

    Total rent expense under all operating leases for the years ended August 31,
    1998 and 1997 approximated $121,000 and $107,000, respectively.

    The Company has entered into a lease agreement for office space.

    Future lease commitments are as follows:

        1999                                      $105,056
        2000                                       110,659
        2001                                       116,262
        2002                                        29,416
                                                  --------
                                                  $361,393
                                                  ========
10. PREFERRED STOCK

    During the year ended  August 31,  1998,  the  Company  issued 600 shares of
    Series A Convertible Preferred Stock (6% Preferred) at $1,000 per share. The
    6% Preferred  stockholders  are entitled to receive annual cash 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. Series A Preferred stockholders do not have any voting rights.

                                       33
<PAGE>
                          WAVETECH INTERNATIONAL, INC.

                          NOTES TO FINANCIAL STATEMENTS


10. PREFERRED STOCK, CONTINUED

    The 6%  Preferred  is  convertible  at the option of the Company at any time
    after  January  1,  1999,  on at least ten (10) days  advance  notice,  at a
    conversion price determined as set forth in the  subscription  agreement.  A
    beneficial  conversion  feature of $122,894 resulted in a charge to retained
    earnings in the current period.

    The 6% Preferred 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.

    Liquidation, dissolution or winding up of the Company entitles the preferred
    shareholders to receive,  prior to and in preference of any  distribution of
    assets to any other  class or series of share the amount of $1,000 per share
    plus the accrued but unpaid dividends.

11. COMMON STOCK

    During the year ended August 31, 1998,  the Company issued 348,187 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.

    During the year ended August 31, 1998,  the Company  issued 54,557  deferred
    shares of common stock under the 1997 Stock  Incentive  Plan 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.

    During the year ended August 31, 1998,  the Company  issued 73,325 shares of
    common stock in satisfaction for services valued at $29,000 performed in the
    previous year. The previous values assigned to the common stock were charged
    to expense in the period the services  were  performed and based on the fair
    market values of the common stock.

                                       34
<PAGE>
                          WAVETECH INTERNATIONAL, INC.

                          NOTES TO FINANCIAL STATEMENTS


11. COMMON STOCK, CONTINUED

    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
    per share, the following option: for a specific eleven day period, the right
    to  exercise  their  warrants  for $0.585 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 out of 784,781 warrants
    were exercised under this offer and the balance of 404,501  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.

    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 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 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, 1998, $200,000 in notes payable along
    with accrued interest of $2,067 were converted into 577,333 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  remains  payable at
    August 31, 1998.

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

    During the year ended August 31, 1997,  the Company  issued 62,342 shares of
    common stock for consulting  services pursuant to various  agreements valued
    at $37,303.  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.

    During the year ended August 31, 1997, the Company  issued 361,269  deferred
    shares of common stock under the 1997 Stock  Incentive  Plan to meet payroll
    expenses in the amount of $137,877.  The value  assigned to the common stock
    was based on the fair market value on the date of issue.

    During the year ended August 31, 1997,  the Company issued 100,000 shares in
    satisfaction of a note  payable of $53,639. The value assigned to the common

                                       35
<PAGE>
                          WAVETECH INTERNATIONAL, INC.

                         NOTES TO FINANCIAL STATEMENTS


11. COMMON STOCK, CONTINUED

    stock was based on the fair market  value of the common stock on the date of
    the agreement was negotiated.

    During the year ended August 31, 1997,  the Company issued 438,755 shares of
    stock in  satisfaction  for  services  valued at $203,125  performed  in the
    previous year. The previous  values assigned to the common stock and charged
    to expense in the period the services were  performed were based on the fair
    market values of the common stock.

    During 1995 and 1994,  Interpretel  issued  warrants for the purchase of its
    common  stock in  connection  with a note  offering.  On March 8, 1995,  the
    warrants were converted to warrants to purchase common stock of the Company.
    The warrants are exercisable at a price of $1.00 per share at any time prior
    to May 31, 1998.

    During 1995 and 1994,  Interpretel  issued  warrants for the purchase of its
    common stock in  connection  with a private  placement  offering of units of
    common stock. At the date of the acquisition, the warrants were converted to
    warrants  to  purchase  common  stock  of  the  Company.  The  warrants  are
    exercisable  at a price of $3.50 per share.  The  warrants  expired June 30,
    1998.

    During  August,  1996 and pursuant to an agreement  with Switch (Note 4) the
    Company issued  warrants to purchase up to 2,000,000  shares of common stock
    at a price of $1.50 per share. Consideration received was $20,000. The value
    assigned  to  the  warrants  was  based  on an  allocation  pursuant  to the
    comprehensive agreement (Note 4).

    During  the  year  ended  August  31,  1997,  in  consideration  of  various
    consulting and loan  agreements,  the Company issued warrants to purchase up
    to 235,000  shares of common stock at an exercise  price of between $.44 and
    $1.75 per share.  The exercise  price  reflects the fair market value of the
    shares of common stock on the date of the grant of the warrants.

    The total number of warrants outstanding at August 31, 1998, is 2,295,000.

    The Company has elected to follow  Accounting  Principles  Board Opinion No.
    25,  Accounting  for Stock  Issued to  Employees  ("APB No. 25") and related
    Interpretations  in accounting  for its stock  options  because as discussed
    below, the alternative fair value accounting provided for under Statement of
    Financial   Accounting   Standards  No.  123,   Accounting  for  Stock-Based
    Compensation  ("SFAS No. 123"),  requires the use of option valuation models
    that were not developed for use in valuing employee stock options. Under APB
    No. 25, because the exercise price of the Company's  stock options equals or
    exceeds the fair market value of the underlying stock on the dates of grant,
    no compensation expense is recognized.

                                       36
<PAGE>
                          WAVETECH INTERNATIONAL, INC.

                         NOTES TO FINANCIAL STATEMENTS


11. COMMON STOCK, CONTINUED

    During the year ended August 31,  1997,  the Company  adopted the  Wavetech,
    Inc. 1997 Stock Incentive  Plan.  Under this plan, the Company is authorized
    to issue up to 4,600,000 shares of common stock.  Such options have terms of
    up to ten years.  Shares may be issued as incentive stock options,  deferred
    shares or  restricted  shares.  The options  were granted at the fair market
    value of the common stock on the date of the grant.

    Pro forma information  regarding net loss and net loss per share is required
    by SFAS No. 123, and such  information has been determined as if the Company
    had accounted for its employee  stock options under the fair value method of
    that  statement.  The fair value for 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 .91, 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.

    For  purposes  of pro forma  disclosures,  the  estimated  fair value of the
    options is  amortized  to  expense  over the  related  vesting  period.  The
    Company's pro forma information follows:

                                           Year ended         Year ended
                                        August 31, 1998    August 31, 1997
                                        ---------------    ---------------

    Net loss, as reported                 $(1,216,887)       $(1,629,285)
    Pro forma compensation expense
     for stock options
      1997 grants                                               (414,000)
      1998 grants                             (17,000)
                                          -----------        -----------
    Pro forma net loss                     (1,233,887)        (2,043,285)
                                          -----------        -----------
    Pro forma loss per share              $      (.08)       $      (.14)
                                          ===========        ===========

                                       37
<PAGE>
                          WAVETECH INTERNATIONAL, INC.

                         NOTES TO FINANCIAL STATEMENTS


11. COMMON STOCK, CONTINUED

    A summary of the Company's stock options activity is as follows:

                                                               Weighted
                                           Number of        Exercise Price
                                        Options Granted        Per Share
                                        ---------------     --------------

    Outstanding, August 31, 1995             136,250            $ 1.39
      Granted                              1,550,000              1.73
      Canceled                              (450,000)             1.94
                                          ----------            ------

    Outstanding, August 31, 1996           1,236,250              1.73
      Granted                              2,328,935               .68
      Canceled                            (1,236,250)             1.73
                                          ----------            ------

    Outstanding, August 31, 1997           2,328,935            $  .68
      Granted                                 70,000               .40
      Canceled                               (78,935)              .48
                                          ----------            ------

    Outstanding, August 31, 1998           2,320,000            $  .69
                                          ==========            ======

    Exercise  prices for options  outstanding  as of August 31, 1998 ranged from
    $0.36 per share to $0.81 per share.  The remaining  contractual life of such
    options ranged from two to ten years.  Options for the purchase of 1,650,000
    shares were immediately exercisable at August 31, 1998.

    Pro forma compensation expense presented may not be representative of future
    pro forma  expense,  when  amortization  of multiple  years of awards may be
    reflected.

    The weighted  average fair values of stock options  granted  during 1998 for
    which the  exercise  price was equal to the fair  market  value of the stock
    were $0.40 per share.  The  weighted  average  fair values of stock  options
    granted  during  1997 for  which  the  exercise  price was equal to the fair
    market value of the stock were $0.68 per share.

                                       38
<PAGE>
                          WAVETECH INTERNATIONAL, INC.

                         NOTES TO FINANCIAL STATEMENTS

12. INCOME TAXES

    At August  31,  1998,  the  Company  has net  operating  loss  carryforwards
    totaling approximately $8,994,000 that may offset future income from 1998 to
    2011 with varying  expiration dates. No tax benefit has been recorded in the
    financial  statements since realization of net operating loss  carryforwards
    does not appear  likely.  The potential  benefit of the net  operating  loss
    carryforwards  and the  deferred  tax benefit of future  timing  differences
    under  SFAS  No.  109  is  approximately  $3,460,000.   The  March  8,  1995
    acquisition  (Note 3)  resulted  in a "change  in  control"  as  defined  by
    Internal Revenue Service  Regulations.  Accordingly,  the utilization of the
    Company's net operating loss  carryforwards  are deemed more likely than not
    to  expire   unutilized.   The  total  amount  of  the  net  operating  loss
    carryforwards,   $8,994,000,   consists   of   pre-acquisition   losses   of
    approximately  $3,186,000.  These losses  cannot be applied  against  income
    generated  in a trade or business  significantly  different  from that which
    gave rise to the carryforward.

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

                                                  1998            1997
                                                  ----            ----
    Current                                    $     -0-       $     -0-

    Deferred
      Federal                                   (453,000)       (429,000)
      State                                      (19,000)        (28,000)
                                               ---------       ---------
                                                (472,000)       (457,000)
    Valuation allowance                          472,000         457,000
                                               ---------       ---------
    Total tax benefit                          $     -0-       $     -0-
                                               =========       =========

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

                                                   1998            1997
                                                   ----            ----
    Statutory tax rate                           (35.0%)          (35.0%)
    State income taxes                            (9.0%)           (9.0%)
    Amortization of organization costs             7.0%             7.0%
    Release of valuation allowance                37.0%            37.0%
                                                 ------           ------
    Effective tax rate                              .0%              .0%
                                                 ======           ======

                                       39
<PAGE>
                          WAVETECH INTERNATIONAL, INC.

                         NOTES TO FINANCIAL STATEMENTS


12. INCOME TAXES, CONTINUED

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

                                                          1998
                                                          ----
    Deferred tax asset:
      Amortization of organization costs              $   (70,000)
      Net operating loss carryforward                  (3,390,000)
                                                      -----------
                                                       (3,460,000)

      Valuation allowance                              (3,460,000)
                                                      -----------
                                                      $       -0-
                                                      ===========

13. COSTS INCURRED IN CONNECTION WITH MERGER

    During the year  ended  August  31,  1998,  the  Company  incurred  costs in
    connection with merger  negotiations with an unrelated  Company.  The merger
    negotiations  were  terminated by mutual  agreement and the costs charged to
    expense in the current period.

14. RELATED PARTY TRANSACTIONS

    The Company has cancelable  operating  agreements with a  telecommunications
    service  provider who is a shareholder  of common stock of the Company.  The
    Company  has agreed to a $2,575  monthly  minimum  charge  with the  service
    provider.  The current and future  contracts with the service  provider have
    been and are anticipated to be at market rates. During the year ended August
    31, 1997,  the Company also purchased  computer  equipment and software from
    this provider valued at $378,009.

    During the year ended August 31, 1997, an officer and  shareholder  advanced
    $109,071  to the  Company.  During  the  year  ended  August  31,  1998,  an
    additional  amount of $6,264 was  advanced.  On November 30, 1997,  $115,335
    plus accrued  interest of $1,422 was  converted to shares of common stock at
    $0.35  per  share  (the  fair  market  value of the stock on the date of the
    conversion).

    An  officer  and  shareholder  advanced  $13,000  to the  Company  which  is
    reflected in notes payable (Note 7).

    During the year ended August 31, 1997 a shareholder of the Company  advanced
    $50,000  to the  Company.  The  Company  pledged  as  collateral  a security
    interest in accounts receivable, inventory, general intangibles,  equipment,
    instruments and personal  guarantees of corporate  officers.  As of November
    30, 1997 the  collateral  was released  and the note  converted to shares of
    common stock of the Company (Note 11).

                                       40
<PAGE>

                          WAVETECH INTERNATIONAL, INC.

                         NOTES TO FINANCIAL STATEMENTS


14. RELATED PARTY TRANSACTIONS, CONTINUED

    During the year ended August 31, 1998, the Company issued  promissory  notes
    for the  benefit of the wife and son of a director  of the  Company,  in the
    aggregate principal amount of $100,000. The notes were due on April 24, 1998
    and accrued  interest  at a rate of 12% per annum.  On  November  30,  1997,
    $100,000,  plus accrued  interest of $833, was converted into 288,096 shares
    of the  Company's  common stock at $0.35 per share (the fair market value of
    the stock on the date of conversion). (Note 11)

15. SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES

    During the year ended August 31,  1998,  the Company  converted  $365,335 in
    notes  payable  to  1,061,731  shares of common  stock of the  Company.  The
    conversion  price was the fair market  value of the common stock on the date
    of conversion.

    During the year ended  August 31,  1997,  the Company  entered  into capital
    leases in the amount of $53,783 to purchase office equipment.

    During the year ended August 31, 1997,  the Company issued 100,000 shares of
    common stock in satisfaction of a note payable of $53,639.

    Supplemental disclosure of cash flow information:

                                                   1998           1997
                                                   ----           ----
    Cash paid during the period for:
      Income taxes                               $   200        $    50
                                                 =======        =======
      Interest                                   $30,282        $20,454
                                                 =======        =======

16. SUBSEQUENT EVENTS

    The Company received  correspondence  on September 16, 1998 from Nasdaq that
    the  Company  must  petition  to remain  eligible  for listing on the Nasdaq
    Smallcap Market due to the inability to meet the bid price  requirement,  as
    set forth in NASD Marketplace  Rule 4310(c)(4).  The Company has appealed to
    the Listing  Qualifications  Panel.  Final  determination  of the  Company's
    listing  has  been  stayed  until  the  outcome  of such  hearing  has  been
    determined.

    On October 12, 1998, a note payable for $50,000,  plus accrued interest,  to
    an unrelated  entity (Note 7) was  converted  into 156,250  shares of Common
    Stock.  The  conversion  price was based on the  average of the high and low

                                       41
<PAGE>

                          WAVETECH INTERNATIONAL, INC.

                         NOTES TO FINANCIAL STATEMENTS


16. SUBSEQUENT EVENTS, CONTINUED

    price on the date of the  letter of  agreement  for  repayment  of this note
    payable.

    On November 6, 1998, the Company executed a definitive merger agreement with
    DCI  Telecommunications,   Inc.,  an  international  provider  of  telephone
    services,  including long  distance,  prepaid  telephone  cards and Internet
    services.  Pursuant to such agreement, DCI Telecommunications,  Inc. will be
    merged into the Company.  In addition,  Wavetech  plans to effect as soon as
    practicable 1-for-6 reverse stock split. At closing,  Wavetech will exchange
    one share of its common stock for each share of DCI common stock. Completion
    of the merger is  subject  to  conclusion  of  due-diligence,  review by the
    Securities and Exchange  Commission and  shareholder  approval.  The Company
    intends to solicit  approval by its  stockholders at a meeting to be held in
    early calendar year 1999.

                                       42
<PAGE>

ITEM 8. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTS ON ACCOUNTING AND FINANCIAL
        DISCLOSURE.

     None.

                                    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
      
      Lydia M. Montoya        45     Chief Financial Officer
      
      Richard P. Freeman      41     Vice President, Investor Relations and
                                     Product Development and a member of the
                                     Company's Board of Directors
      
      Terrence H. Pocock      65     Director
      
      John P. Clements        48     Director

     GERALD I. QUINN has been the  President  of  Interpretel  (Canada)  Inc., 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

                                       43
<PAGE>
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.  Mr.
Quinn's sister is married to Terrence H. Pocock.

     LYDIA  M.  MONTOYA  joined  the  Company  in  September  1996 as its  Chief
Financial  Officer.  From  May  1994  until  September  1996,  Ms.  Montoya  was
self-employed  as a Certified Public  Accountant.  Ms. Montoya was Controller of
Ugly Duckling  Corporation,  a publicly  traded company ("Ugly  Duckling")  from
November  1992 to May  1994.  Ugly  Duckling  is an  operator  of nine  used car
dealerships  which  also  finance  and  service  retail  installment   contracts
generated  from the sale of used  cars by its  dealerships.  From  July  1987 to
October  1992,  Ms.  Montoya was Director of  Partnership  Accounting  for Verde
Investments, Inc., a real estate development company that constructed,  operated
and sold over 5,000 apartment units. Ms. Montoya began her career with Coopers &
Lybrand (now  PriceWaterhouseCoopers  LLP). Ms. Montoya has a B.S. in Accounting
from the  University  of Arizona  and a B.S. in  Sociology  from  Arizona  State
University.

     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.

     TERRENCE H. POCOCK has been a Director of the Company since March 1997. Mr.
Pocock is the Vice Chairman of  Cableshare,  a public company he founded in 1973
that operates in the interactive television industry.  Currently,  Mr. Pocock is
involved in technology oversight for the Board of Directors at Cableshare.  From
its inception in 1973 until 1992, Mr. Pocock was the CEO of Cableshare. While at
Cableshare,  Mr. Pocock was involved in product  development and was responsible
for obtaining several patents on interactive television  technology.  Mr. Pocock
holds B.A., B Comm. and MBA degrees from various Canadian  universities and is a
graduate of the Canadian  Royal Military  College.  Mr. Pocock is married to the
sister of Gerald I. Quinn.

                                       44
<PAGE>
     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  was 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.

ITEM 10. EXECUTIVE COMPENSATION

(A) 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, 1998,
1997 and 1996.  None of the  Company's  other  employees  received  in excess of
$100,000 in compensation during the last completed fiscal year.

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
                                    ANNUAL COMPENSATION                LONG-TERM COMPENSATION AWARDS
                           -------------------------------------  --------------------------------------
                                                                  RESTRICTED  SECURITIES
     NAME AND       FISCAL                BONUS     OTHER ANNUAL    STOCK     UNDERLYING    ALL OTHER
PRINCIPAL POSITION   YEAR   SALARY($)   AWARDS($)   COMPENSATION   AWARDS($)  OPTIONS(#)  COMPENSATION(5)
------------------   ----   ---------   ---------   ------------   ---------  ----------  ---------------
<S>                 <C>    <C>           <C>         <C>             <C>      <C>            <C>
GERALD I. QUINN      1998   $85,000(2)    $ -0-         $ -0-      $    -0-    800,000        $ -0-
PRESIDENT/CEO        1997   $85,000(1)    $ -0-         $ -0-      $    -0-    800,000        $ -0-
                     1996   $85,000       $ -0-         $ -0-      $203,637    500,000        $ -0-
</TABLE>
----------
(1)  Includes the fair market value of 88,853 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 18,817 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.

                                       45
<PAGE>
     There were no grants of stock options made to the Named  Executive  Officer
during the last completed fiscal year.

     The  following  table  sets  forth  certain   information   concerning  the
aggregated value of the unexercised options of the Named Executive Officer as of
August 31, 1998.

                 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
                                                 AT FISCAL YEAR END(#)        AT FISCAL YEAR END($)
                SHARES ACQUIRED     VALUE     ---------------------------  ---------------------------
    NAME         ON EXERCISE(#)  REALIZED($)  EXERCISABLE   UNEXERCISABLE  EXERCISABLE   UNEXERCISABLE
    ----        ---------------  -----------  -----------   -------------  -----------   -------------
<S>             <C>             <C>        <C>                <C>          <C>            <C>
GERALD I. QUINN     -0-             $ 0        800,000(1)        -0-           $0             $0
</TABLE>
----------
(1)  All of these  options  are  immediately  exercisable  at any time  prior to
     January 2007 at a price of $0.66 per share.

(B) COMPENSATION PURSUANT TO PLANS

     None.

(C) 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  10,000 shares of
Common Stock upon election to the Board,  and annual  automatic grants of 10,000
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 30,000 shares of the Company's
Common Stock upon their initial election to the Board and thereafter  receive an
annual grant of an additional 30,000 options. Board members serving on the Audit
Committee  receive  an  additional  option  to  purchase  20,000  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.

                                       46
<PAGE>
(D) 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,  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,  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.  The
proposed Merger will constitute a "Corporate Transaction."

(E) 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

                                       47
<PAGE>
Company's  executive  officers,  directors,  and greater  than 10%  stockholders
complied  during  the  fiscal  year ended  August  31,  1998 with the  reporting
requirements  of Section 16(a),  with the exception of one Form 3 filing by Tech
Pacific Holdings Pty Limited, which was made after the applicable deadline.

(F) COMPENSATION COMMITTEE REPORT ON REPRICING

     None.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth as of November 23, 1998 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)                    1,337,230                    7.4%

Richard P. Freeman (5)                 1,195,192                    6.9%

Terrence H. Pocock (6)                   488,096                    2.8%

John P. Clements (7)                     150,200                      *

Terence E. Belsham (8)                 1,179,024                    6.8%

Tech Pacific Holdings Pty
   Limited (9)                         3,544,110                   18.5%

All Directors and executive
officers as a group (5 persons)
(4)(5)(6)(7)                           3,320,718                   17.6%

----------
 *   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 23, 1998 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.

                                       48
<PAGE>
(3)  The amounts and percentages in the table are based upon  17,151,137  shares
     of Common Stock outstanding as of November 23, 1998.

(4)  Includes 800,000 shares  underlying  outstanding  options  exercisable at a
     price of $0.66 per share.

(5)  Includes 200,000 shares underlying  outstanding  options,  exercisable at a
     price of $0.81 per share.

(6)  Includes  200,000 shares  underlying  outstanding  options,  exercisable at
     prices  ranging  from  $0.25 to $0.375  per share.  Also  includes  288,096
     outstanding  shares,  all of which are held by Mr. Pocock's spouse and son.
     Mr. Pocock expressly disclaims beneficial ownership of such shares.

(7)  Includes 150,000 shares underlying  outstanding  options,  exercisable at a
     price of $0.25 per share.  Also  includes 200  outstanding  shares,  all of
     which are held by Mr.  Clements'  sons. Mr.  Clements  expressly  disclaims
     ownership of such shares.

(8)  Includes 200,000 shares underlying  outstanding  options,  exercisable at a
     price of $0.81 per share.

(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  2,000,000  Common  Shares at $1.50 per
     share.

(C) CHANGE IN CONTROL

     On November 6, 1998, the Company  entered into a Merger  Agreement with DCI
Telecommunications,  Inc.  At  closing,  DCI will be merged  into  Wavetech  and
Wavetech  will issue shares of its Common Stock to the then former  shareholders
of DCI in  exchange  for  their  shares of DCI  Common  Stock.  It is  currently
anticipated  that  following  the Merger,  DCI's  shareholders  will own, in the
aggregate,  in excess of 85% of the Company's Common Stock.  Consummation of the
Merger with DCI is subject to a number of conditions,  including the approval of
Wavetech's and DCI's shareholders.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     During the year ended  August 31,  1997,  Gerald I.  Quinn,  an officer and
director of the Company advanced $109,071 to the Company.  During the year ended
August 31, 1998, an additional amount of $6,264 was advanced. The Company issued
a  promissory  note  to Mr.  Quinn  in  consideration  of such  advances  in the
principal  amount  of  $115,335.  The note was due April  24,  1998 and  accrued
interest at a rate of 12% per annum.  On November  30, 1997  $115,335  principal
amount,  plus accrued  interest of $1,422,  was converted into 333,593 shares of
the  Company's  Common  Stock at $0.35 per share (the fair  market  value of the
stock on the date of conversion).

     During the year ended August 31, 1998, the Company issued  promissory notes
for the  benefit of the wife and son of Terrence  H.  Pocock,  a director of the
Company,  in the aggregate  principal amount of $100,000.  The notes were due on
April 24, 1998 and accrued  interest at a rate of 12% per annum. On November 30,

                                       49
<PAGE>

1997 $100,000  principal  amount,  plus accrued  interest of $833, was converted
into 288,096  shares of the Company's  Common Stock at $0.35 per share (the fair
market  value of the  stock on the date of  conversion).  Mr.  Pocock  expressly
disclaims beneficial ownership of such shares.

                                     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

                                                                         Method
          Number              Description                              of Filing
          ------              -----------                              ---------
   
      2      Merger Agreement, dated November 6, 1998, between the         *
             Registrant and DCI Telecommunications, Inc.

      10.1   Put Option, dated June 30, 1998, between the Registrant       *
             and Tech Pacific Holdings Pty Limited

      10.2   License Termination Agreement, dated June 30, 1998, between   *
             the Registrant and Switch Telecommunications Pty Limited

      21     Subsidiaries of the Registrant                                *

      23     Consent of Addison, Roberts & Ludwig                          **

      27     Financial Data Schedule                                       *

----------
 *   Previously filed.
**   Filed herewith.
    

    (b) Reports on Form 8-K filed during the last quarter of the period covered
        by this report are as follows:

        None.

                                       50
<PAGE>
                                   SIGNATURES

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

                                         WAVETECH INTERNATIONAL, INC.


Date: February 25, 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: February 25, 1999                 By: /s/ Gerald I. Quinn
                                            ---------------------------------
                                            Gerald I. Quinn, President and
                                            Chief Executive Officer, Director
                                            (Principal Executive Officer)


Dated: February 25, 1999                 By: /s/ Lydia M. Montoya
                                            ---------------------------------
                                            Lydia M. Montoya,
                                            Chief Financial Officer
                                            (Principal Financial Officer)


Dated: February 25, 1999                 By: /s/ Richard P. Freeman
                                            ---------------------------------
                                            Richard P. Freeman, Director


Dated: February 25, 1999                 By: /s/ Terrence H. Pocock
                                            ---------------------------------
                                            Terrence H. Pocock, Director


Dated: February 25, 1999                 By: /s/ John P. Clements
                                            ---------------------------------
                                            John P. Clements, Director
    
                                       51