U. S. SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

(MARK ONE)

[X]  Annual report under Section 13 or 15(d) of the Securities Exchange Act of
     1934 for the fiscal year ended August 31, 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 on 
        Title of Each Class                          which registered

               None                                       None
     ---------------------------------------------------------------------

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

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

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the 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 [ ]

<PAGE>

     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. [ ]

     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]



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                                     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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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.

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     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.

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     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.

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     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


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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.

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     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.

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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.

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.

     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


                                       17
<PAGE>

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 plans on having an  independent
consultant  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 activities will be completed by March 31, 1999.
The Company has completed an assessment  of all other  internal  systems and has
determined  that no  modifications  to such systems are  necessary.  Total costs
incurred  to date by the  Company  in  connection  with  its  assessment  of its
internal vulnerability to the Year 2000 Issue 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 the end of the first
quarter of calendar year 1999. The Company currently estimates that its costs to
be incurred with such  modification will be approximately  $50,000.  The Company
does not have material  relationships  with any other third  partners 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.

     Presently,  the Company does not have a contingency plan in the event it is
unable to correct any  vulnerability  to the Year 2000 Issue,  but is  reviewing
alternatives,  such as using a service bureau to  temporarily  process calls and
run applications, should any problems arise in system operations.

     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


                                       18
<PAGE>

addition, even if available,  the Company may be required to incur substantially
higher  costs in order to  provide  such  services.  The  Company  has  adequate
resources to complete its Year 2000 assessment and any necessary modifications.

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                                          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                                           $ (1,216,887)   $ (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
                                  ------------
<TABLE>
<CAPTION>
                                                                1998           1997
                                                            -----------    -----------
<S>                                                         <C>            <C>         
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
                                                            ===========    ===========
</TABLE>

                        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


                                       28
<PAGE>

                          WAVETECH INTERNATIONAL, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                 --------------


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

     directly  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.

6.   PROPERTY AND EQUIPMENT  

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

                                       31
<PAGE>

                          WAVETECH INTERNATIONAL, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                 --------------



6.   PROPERTY AND EQUIPMENT, CONTINUED  

                                                                    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
----------------------------------------------------------------------------------------------------------------------
     NAME AND         FISCAL     SALARY ($)       BONUS       OTHER ANNUAL    RESTRICTED    SECURITIES      ALL OTHER
PRINCIPAL POSITION     YEAR                     AWARDS ($)    COMPENSATION      STOCK       UNDERLYING    COMPENSATION
                                                                              AWARDS ($)     OPTIONS
                                                                                               (#)            (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                                          *

------------------

*    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 report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                         WAVETECH INTERNATIONAL, INC.

Date: November 30, 1998                  By: /s/ Gerald I. Quinn
                                            ------------------------------------
                                         Name:  Gerald I. Quinn
                                              ----------------------------------
                                         Title: President & CEO
                                               ---------------------------------


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

Dated: November 30, 1998                 By:  /s/ Gerald I. Quinn
                                            ------------------------------------
                                            GERALD I. QUINN, PRESIDENT AND
                                            CHIEF EXECUTIVE OFFICER, DIRECTOR
                                            (Principal Executive Officer)

Dated: November 30, 1998                 By:  /s/ Lydia M. Montoya
                                            ------------------------------------
                                            LYDIA M. MONTOYA, 
                                            CHIEF FINANCIAL OFFICER
                                            (Principal Financial Officer)

Dated: November 30, 1998                 By:  /s/ Richard P. Freeman
                                            ------------------------------------
                                            RICHARD P. FREEMAN, DIRECTOR

Dated: November 30, 1998                 By:  /s/ Terrence H. Pocock
                                            ------------------------------------
                                            TERRENCE H. POCOCK, DIRECTOR

Dated: November 30, 1998                 By:  /s/ John P. Clements
                                            ------------------------------------
                                            JOHN P. CLEMENTS, DIRECTOR

                                       51