<PAGE>   1
                   U.S. SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, DC  20549

                                 FORM 10-Q/A


(Mark One)
[X]    Quarterly report under Section 13 or 15(d) of the Securities
       Exchange Act of 1934
       For the quarterly period ended  June 30, 1997   or
                                     -----------------
[ ]    Transition report under Section 13 or 15(d) of the Exchange Act
       For the transition period from                 to
                                      ---------------    --------------
           Commission file number      0-26072 and 814-00157
                                 -------------------------------------

                       Walnut Financial Services, Inc.
--------------------------------------------------------------------------------
           (Exact Name of Registrant as Specified in Its Charter)

                  Utah                                  87-0415597
--------------------------------------------------------------------------------
     (State or Other Jurisdiction of                    (I.R.S. Employer
     Incorporation or Organization)                     Identification No.)

        8000 Towers Crescent Drive, Suite 1070
        Vienna, Virginia                                   22182
--------------------------------------------------------------------------------
        (Address of Principal Executive Offices)        (Zip Code)

                                   (703) 448-3771
--------------------------------------------------------------------------------
                (Registrant's Telephone Number, Including Area Code)

                                      N/A
--------------------------------------------------------------------------------
  (Former Name, Former Address and Former Fiscal Year, if Changed Since Last
                                    Report)

     Indicate by check mark whether the registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes   X         No 
    -----          -----

                    APPLICABLE ONLY TO CORPORATE ISSUERS

     As of November 24, 1997, the registrant had 14,616,687 shares of Common
Stock issued and outstanding.



                                Page 1 of 16

<PAGE>   2


              WALNUT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                            INDEX TO FORM 10-Q/A

                                JUNE 30, 1997

                                                                     Page Number
                                                                     -----------
                       Part I - Financial Information

Item 1 - Financial Statements

Consolidated Statements of Assets and Liabilities for the six months and
twelve months as of June 30, 1997 and December 31, 1996                        3

Investments in Securities for the six months as of June 30, 1997               4

Consolidated Statements of Operations for the six months ended June 30,
1997 and 1996 and three months ended June 30, 1997 and June 30, 1996           6

Consolidated Statement of Changes in Net Assets for the six months ended
June 30, 1997 and 1996                                                         7

Consolidated Statement of Cash Flows for the six months ended June 30, 1997
and 1996                                                                       8

Notes to Condensed Consolidated Financial Statements                           9

Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations                                                     11

                         Part II - Other Information

Item 1 - Legal Proceedings                                                    15

Item 6 - Exhibits Required by Item 601 and Reports on Form 8-K                15

Signatures                                                                    16


                                Page 2 of 16


<PAGE>   3

                       PART 1 - FINANCIAL INFORMATION

ITEM I - FINANCIAL STATEMENTS
                       WALNUT FINANCIAL SERVICES, INC.
              CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
                                 (UNAUDITED)



<TABLE>
<CAPTION>
                                                                                                JUNE 30, 1997     DECEMBER 31, 1996*
                                                                                                -------------     ------------------
<S>                                                                                               <C>                  <C>          
Assets:                                                                                                                             
Investments at Market or Fair Value:                                                                                                
  Marketable equity securities   (cost: 1997 - $ 8,150,000; 1996 - $ 10,108,000)                  $14,717,000         $22,903,000   
  Non-marketable equity securities (cost: 1997 - $ 10,934,000; 1996 - $12,930,000 )                 7,941,000           7,094,000   
  Non-marketable debt securities (cost: 1997 - $ 2,057,000; 1996 - $ 2,168,000 )                    1,651,000           1,647,000   
                                                                                                ------------------------------------
    Total investments                                                                              24,309,000          31,644,000   

Cash and cash equivalents                                                                             812,000             350,000   
Other assets                                                                                          364,000             353,000   
Fixed assets, net of accumulated depreciation                                                          10,000               6,000   
                                                                                                ------------------------------------

    Total assets                                                                                   25,495,000          32,353,000   



Liabilities:                                                                                                                        
  Margin payable to brokers                                                                         3,469,000           5,459,000   
  Notes payable to banks                                                                            2,765,000           3,725,000   
  Notes payable to other                                                                              400,000                       
  Accounts payable, accrued expenses and other current liabilities                                    642,000             624,000   
  Debentures payable                                                                                4,000,000           8,000,000   
  Deferred tax liability                                                                              345,000             158,000   
                                                                                                ------------------------------------


    Net assets                                                                                    $13,874,000         $14,387,000   
                                                                                                ====================================



Net Assets:                                                                                                                         

Preferred stock, no stated value, 1,000,000 shares authorized, no shares issued                                                     

Common stock, $.01 stated value, 50,000,000 shares authorized, 14,616,687 issued                                                    
and outstanding                                                                                      $146,000            $146,000   

Additional paid in capital                                                                         15,030,000          15,030,000   

Accumulated:                                                                                                                        

  Net investment (loss)                                                                           (11,647,000)        (11,020,000)  
  Net realized gain on investments                                                                 10,762,000           6,622,000   
  Net unrealized (depreciation) appreciation of investments                                          (417,000)          3,609,000   
                                                                                                ------------------------------------

    Net assets applicable to outstanding common shares                                                                              
    (equivalent to $.95 per share at June 30, 1997 and                                                                              
    $.98 per share at December 31, 1996 based on 14,616,687                                                                         
    outstanding common shares.)                                                                   $13,874,000         $14,387,000   
                                                                                                ====================================

</TABLE>

____________________
*  Restated to conform to current period presentation.

 Attention is directed to the accompanying notes to these financial statements


                                 Page 3 of 16


<PAGE>   4



                       WALNUT FINANCIAL SERVICES, INC.
                          INVESTMENTS IN SECURITIES
                                JUNE 30, 1997
                                 (UNAUDITED)


<TABLE>
<CAPTION>
                                                       SHARES              VALUE
                                                    ------------       -------------
<S>                                                   <C>                 <C>
Common and Preferred Stocks - 76%
  Healthcare - 62%
     American Psych Systems                            122,950         $     150,000
     American HealthChoice                              45,000               214,000
     Avitar                                              1,608                    --
     Grancare, Inc.                                    200,000             2,087,000
     HealthCare Compare, Corp.                         167,500             9,042,000
     I-Flow Corp.                                      300,000             1,169,000
     Ivonyx Group Services, Inc.                       100,000               100,000
     Med Images                                        172,872               379,000
     Mental Health Management                           82,455                69,000
     Rainbow Medical                                    25,000                50,000
     Vitalink                                           95,600             1,794,000
                                                                       -------------
                                                                          15,054,000
                                                                       -------------
  High technology - 5%
     NHancement Technology                              16,185                57,000
     Consolidated Technology                           475,000                39,000
     Logic Devices                                      45,000                93,000
     Thermo Information                                 10,000                90,000
     Wickham & Co.                                     250,696             1,034,000
                                                                       -------------
                                                                           1,313,000
                                                                       -------------
  Communications - 4%
     Site Based Media, Inc.                            321,108                30,000
     Trans Global Services, Inc.                        62,003               110,000
     Vision III Imaging                                  9,960               797,000
                                                                       -------------
                                                                             937,000
                                                                       -------------
  Biotechnology - 1%
     Cell Therapeutics, Inc.                             2,857                31,000
     Metatech Corp.                                     14,817                    --
     Optiva Corp                                        10,000                63,000
     Osteoimplant                                       80,000                96,000
     Titan Pharmaceuticals                              24,411                66,000
     VaxGen                                             20,000                70,000
                                                                       -------------
                                                                             326,000
                                                                       -------------
  Environmental - 1%
     Clean America Corp.                                59,375                96,000
     Inorganic Recycling                                10,000                    --
                                                                       -------------
                                                                              96,000
                                                                       -------------
  Other - 3%
     Linters                                            28,500                50,000
     Jenna Lane                                         47,619               448,000
     SoftKat, Inc.                                     155,309                40,000
     VINnet, Inc.                                       25,000               305,000
                                                                       -------------
                                                                             843,000
                                                                       -------------
        Total common and preferred stocks (cost                           18,569,000
        $15,116,000)                                                   -------------
                                                                                    

</TABLE>

                                 Page 4 of 16
<PAGE>   5

                       WALNUT FINANCIAL SERVICES, INC.
                          INVESTMENTS IN SECURITIES
                                JUNE  30, 1997
                                 (UNAUDITED)
                                 (CONTINUED)


<TABLE>
<S>                                                                     <C>

Partnership interests - 17%
  Universal Partners, L.P. (majority-owned subsidiary)                     1,995,000
  Knox Liquidating L.P.                                                    2,094,000
                                                                        ---------------
      Total partnership interests (cost $3,968,000)                        4,089,000
                                                                        ---------------

Debt securities - 3%
  NFS (wholly-owned subsidiary)                                              826,000
  Clean America Corp.                                                         29,000
  Knox International                                                         200,000
  SoftKat, Inc.                                                              160,000
  TCOM Systems                                                               414,000
  VINnet                                                                      22,000
                                                                        ---------------

       Debt securities (cost $2,057,000)                                   1,651,000
                                                                        ---------------

       Total - 100% (cost $21,141,000)                                 $  24,309,000
                                                                        ===============
</TABLE>

Attention is directed to the accompanying notes to these financial statements

                                 Page 5 of 16


<PAGE>   6


                       WALNUT FINANCIAL SERVICES, INC.
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (UNAUDITED)




<TABLE>
<CAPTION>
                                                            FOR THE SIX MONTHS ENDED              FOR THE THREE MONTHS ENDED
                                                        -------------------------------------------------------------------------
                                                        JUNE 30, 1997     JUNE 30, 1996*      JUNE 30, 1997       JUNE 30, 1996*
                                                        -------------------------------------------------------------------------
<S>                                                     <C>               <C>                 <C>                 <C>
Investment income:

  Interest income                                       $     41,000      $       23,000      $       5,000       $       16,000
  Dividend income                                             13,000              11,000              9,000               11,000
                                                        -------------------------------------------------------------------------

    Total income                                              54,000              34,000             14,000               27,000
                                                        -------------------------------------------------------------------------
Expenses:                                                                                                              

  Interest expense                                           607,000             829,000            247,000              405,000
  General and administrative                                 492,000             725,000            238,000              400,000
                                                        -------------------------------------------------------------------------

     Total expenses                                        1,099,000           1,554,000            485,000              805,000
                                                        -------------------------------------------------------------------------
  Net investment (loss) before                                                                                         
  income tax                                              (1,045,000)         (1,520,000)          (471,000)            (778,000)

  Income tax benefit                                         418,000             609,000            188,000              311,000
                                                        -------------------------------------------------------------------------
  Net investment (loss)                                     (627,000)           (911,000)          (283,000)            (467,000)
                                                        -------------------------------------------------------------------------
Realized and unrealized gains on investments:                                                                          

  Realized gains from sales on investments before                                                                      
  income tax                                               6,900,000           1,314,000          1,092,000              576,000

  Income tax (provision) benefit                          (2,760,000)           (525,000)          (437,000)            (230,000)
                                                        -------------------------------------------------------------------------

  Net realized gain from sale of investments               4,140,000             789,000            655,000              346,000
                                                        -------------------------------------------------------------------------
  Unrealized appreciation (depreciation) on investments                                                                
  before tax                                              (6,135,000)          2,426,000            784,000             (325,000)

  Income tax (provision) benefit                           2,109,000          (1,025,000)          (634,000)             101,000
                                                        -------------------------------------------------------------------------
  Net unrealized appreciation (depreciation) on                                                                         
  investments                                             (4,026,000)          1,401,000            150,000             (224,000)
                                                        -------------------------------------------------------------------------
  Net realized and unrealized gains (losses) on                                                                         
  investments                                                114,000           2,190,000            805,000              122,000
                                                        -------------------------------------------------------------------------
    Net increase (decrease) in net assets resulting                                               
    from operations                                     $   (513,000)     $    1,279,000      $    (522,000)      $     (345,000)
                                                        =========================================================================
    Income (loss) per share                             $      (0.04)     $         0.09      $        0.04       $        (0.02)
                                                        -------------------------------------------------------------------------
    Weighted average shares outstanding                   14,616,687          14,296,173         14,638,512           13,930,554
                                                        -------------------------------------------------------------------------
</TABLE>
_____________________
*  Restated to conform to current period presentation.

 Attention is directed to the accompanying notes to these financial statements


                                 Page 6 of 16


<PAGE>   7
                       WALNUT FINANCIAL SERVICES, INC.
               CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
                                 (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                 FOR THE SIX MONTHS ENDED JUNE 30,
                                                                               -------------------------------------
                                                                                     1997                1996*
                                                                               -------------------------------------
<S>                                                                             <C>                 <C>
Increase in net assets resulting from operations:

  Net investment income (loss)                                                         (972,000)        (964,000)
  Net realized gains (losses) on investments                                          4,140,000          788,000
  Net unrealized appreciation (depreciation) on investments                          (3,681,000)       1,455,000
                                                                               -------------------------------------
  Net increase (decrease) in net assets resulting from operations                      (513,000)       1,279,000

Capital share transactions:
  Issuance of common stock for legal fees                                                     0           35,000
  Issuance of common stock for Universal Partners acquisition                                 0        1,793,000

Net assets at beginning of period:                                                   14,387,000       15,399,000
                                                                               -------------------------------------
Net assets at end of period                                                          13,874,000       18,506,000
                                                                               =====================================
</TABLE>
_______________________
*  Restated to conform to current period presentation.

  Attention is directed to the accompanying notes to these financial statements
                                      

                                 Page 7 of 16


<PAGE>   8



                       WALNUT FINANCIAL SERVICES, INC.
                     CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (UNAUDITED)


<TABLE> 
<CAPTION>
                                                                                  SIX MONTHS ENDED           
                                                                                       JUNE 30,               
                                                                      -----------------------------------------
                                                                              1997                 1996*      
                                                                      --------------------   ------------------
<S>                                                                   <C>                    <C>          
Cash flows from operating activities:                                                                         
  Net increase in net assets resulting from operations                        (513,000)            1,279,000  
  Adjustments to reconcile net increase in net assets                                                         
  resulting from operations to net cash provided by                                                           
  operating activities:                                                                                       
    Net unrealized depreciation of investments                               6,135,000            (2,426,000) 
    Net realized gain on investments                                        (6,900,000)           (1,314,000) 
    Change in net deferred tax liability                                       187,000               941,000  
    Change in assets and liabilities:                                                                         
      Other assets                                                             (15,000)             (104,000) 
      Other liabilities                                                         15,000               217,000  
                                                                      --------------------   ------------------

        Net cash provided by (used in) operating activities                 (1,088,000)           (1,407,000) 
                                                                      --------------------   ------------------

Cash flows from investing activities:                                                                         
  Purchases of common stock, healthcare                                       (120,000)             (234,000) 
  Purchases of common stock, other                                            (110,000)                    0  
  Proceeds from sale of common stock, healthcare                             7,818,000             3,170,000  
  Proceeds from sale of common stock, communications                                 0                11,000  
  Proceeds from sale of common stock, other                                    510,000                     0  
  Proceeds from sale of common stock, high tech                                  2,000                     0  
                                                                      --------------------   ------------------

        Net cash provided by investing activities                            8,100,000             2,947,000  
                                                                      --------------------   ------------------

Cash flows from financing activities:                                                                         
  Borrowings (repayments) of short term debt                                  (560,000)             (859,000) 
  Increase (decrease) in margin accounts                                    (1,990,000)              351,000  
  Repayments of long-term debt                                              (4,000,000)                    0  
                                                                      --------------------   ------------------

        Net cash used in financing activities                               (8,550,000)             (508,000) 
                                                                      --------------------   ------------------

Net increase (decrease) in cash and cash equivalents                           462,000             1,032,000  

Cash and cash equivalents, beginning                                           350,000               375,000  
                                                                      --------------------   ------------------

Cash and cash equivalents, end                                          $      812,000       $     1,407,000  
                                                                      ====================   ================== 

Supplemental Information:                                                                                     

Cash paid for interest                                                  $      481,000       $       857,000  
                                                                      ====================   ================== 
</TABLE>
--------------------
*  Restated to conform to current period presentation.

 Attention is directed to the accompanying notes to these financial statements

                                 Page 8 of 16


<PAGE>   9


                       WALNUT FINANCIAL SERVICES, INC.
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.   BASIS OF PREPARATION

     The accompanying consolidated financial statements as of June 30, 1997,
and for the three and six months ended June 30, 1997 and June 30, 1996, are
unaudited; however, in the opinion of the management of Walnut Financial
Services, Inc., a Utah corporation (the "Company"), such statements include all
adjustments (consisting of normal recurring accruals) necessary to present a
fair statement of the information presented therein.

     Pursuant to accounting requirements of the Securities and Exchange
Commission applicable to quarterly reports on Form 10-Q, the accompanying
financial statements and these notes do not include all disclosures required by
generally accepted accounting principles for audited financial statements.
Accordingly, these statements should be read in conjunction with the Company's
most recent audited financial statements included in its Form 10-K for the
fiscal year ended December 31, 1996, as amended.

     Results of operations for interim periods are not necessarily indicative
of those to be achieved for fiscal years.

2.   ORGANIZATION.

     The Company currently has three primary business focuses:  (i) investing
in start-up and early stage development companies, (ii) operating an investment
vehicle that specializes in bridge financing to small to medium sized companies
and (iii) providing diversified consulting and asset recovery services
(recovery of financial assets, e.g., cash and securities, which had not been
accounted for by its clients) to securities firms, banks and others.  The
Company engages in the investment business through its wholly-owned subsidiary,
Walnut Capital Corp., a Delaware corporation ("Walnut").  Walnut was formed for
the purpose of operating as a Small Business Investment Company (a "SBIC")
under the Small Business Investment Act of 1958 (as amended, the "SBIA"), and
is subject to regulations promulgated by the Small Business Administration (the
"SBA") pursuant to the provisions of the SBIA.  The Company pursues its bridge
financings through its wholly-owned subsidiary, Universal Bridge Fund, Inc., a
Delaware corporation ("Universal Bridge"). Universal Bridge owns 50% of the
outstanding general partnership interests and approximately 83% of the limited
partnership interests of Universal Partners, L.P., an Illinois limited
partnership ("UPLP").  The Company engages in the consulting and asset recovery
business through its wholly-owned subsidiary, NFS Services, Inc., a New York
corporation ("NFS"), and NFS' wholly-owned subsidiaries: (i) Asset Recovery
Services, Inc., a New York corporation ("ARS"), and (ii) NFS Collection
Services, Inc., a New York corporation ("NFS Collection").  NFS conducts its
operations both directly and through its subsidiaries.  The Company also has
other subsidiaries, the operations of which are currently immaterial to the
Company's results on a consolidated basis.


                                 Page 9 of 16



<PAGE>   10


     On October 15, 1997 the Company and certain of its subsidiaries (Walnut,
Universal Bridge and Walnut Funds, Inc.) elected to regulated as business
development companies ("BDCs") as provided by the Investment Company Act of
1940, as amended (the "1940 Act"). The Company inadvertently became  subject to
the requirements of the 1940 Act as a result  of the 1995 business combination
between the Company and Walnut, a then privately held Small Business Investment
Company managed by members of the Company's current management. From and after
such business combination, the Company had relied on the one-year safe harbor
exemption provided by Rule 3a-2 under the 1940 Act from the registration,
filing and operating requirements imposed by the 1940 Act. The Company's
one-year exemption period expired on February 27, 1996 and from such date the
Company may be deemed to have been an unregistered investment company. As a
result, certain actions taken after the expiration of the one-year exemption
period may have violated the 1940 Act. Management anticipates that the Company
may seek to cease to be a BDC upon acquisition of additional operating
businesses; however, the Company cannot change the nature of its business so as
to cease to be a BDC unless such change is approved by the Company's
stockholders in accordance with the 1940 Act.

     The Company has determined it is required to present its financial
statements in accordance with generally accepted accounting principles and
Securities and Exchange Commission ("SEC") regulations in the format applicable
to investment companies. The Company had previously reported its financial
statements in accordance with generally accepted accounting principles and SEC
rules and regulations in the format applicable to operating companies.
Accordingly, the financial information presented herein for December 31, 1996
and for the three and six month periods ended June 30, 1996 has been restated
in accordance with generally accepted accounting principles and SEC rules in
the format applicable to investment companies.


3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.

     PRINCIPLES OF CONSOLIDATION.  The financial statements of the Company
include the accounts of Walnut and Universal Bridge (from the date of
acquisition). Intercompany transactions and balances have been eliminated in
consolidation.

     ACQUISITION OF UPLP. On June 17, 1996, the Company issued 801,974 shares
of Common Stock, together with five-year warrants to purchase an additional
697,391 shares of Common Stock at an exercise price of $3.00, in connection
with Universal Bridge's purchase of approximately 83% of the limited
partnership interests and 50% of the general partnership interests of UPLP.
The investment assets of UPLP at the time of acquisition were $1,251,000, net
debt securities were $423,000, total assets were $2,226,000 and liabilities
were $75,000.  These values were at fair market value at the time of the
acquisition, which, in turn, was the cost for Universal Bridge.

     NET INCOME (LOSS) PER SHARE.  Net income (loss) per share is computed
based on the weighted average number of shares outstanding for each period.
Common stock equivalents have been considered where they are not anti-dilutive.

                                Page 10 of 16


<PAGE>   11



     A new accounting pronouncement FAS 128 (Accounting for Earnings per Share)
will provide a simplified standard for accounting for earnings per share. This
will be effective December 31, 1997.

4.   RELATED PARTY TRANSACTIONS.

     The Company and its subsidiaries retain a law firm at which a Company
officer is of counsel. Payments of $114,400 were paid to such firm by the
Company for reimbursement of expenses and legal services incurred during the
six months ended June 30, 1997.  Such expenses and fees were incurred in
connection with normal business activities.

     The Company has an outstanding $2,275,000 loan to a third party
institutional lender. Such loan, as amended, matures on June 30, 1999 and
repayment is guaranteed by two Directors of the Company.

     In April, 1997, the Company received an unsecured loan from a related
party in the amount of $400,000.  The loan bears interest at 9.5%.  The note
will be repaid in the  quarter ended December 31, 1997.

ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

     RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996.
For the six months ended June 30, 1997, the  decrease in net assets resulting
from operations was $513,000, or  $.04 per share, as compared to a net increase
in net assets resulting from operations of $1,279,000, or $.09 per share, for
the six months ended June 30, 1996.

     The increase in earnings from the six months ended June 30, 1997 as
compared to June 30, 1996 is due to the realized gains recognized in connection
with the sale of marketable securities and changes in valuation of portfolio
investments. Realized gains were $6,900,000 and unrealized depreciation was
$6,135,000 for the six months ended June 30, 1997. Net realized gains and
unrealized appreciation for the six month period ended June 30, 1996 was
$3,740,000. For the six month period ended June 30, 1997, the unrealized
depreciation attributable to the Company's wholly-owned subsidiary, NFS, was
$1,018,000 and the unrealized appreciation from the Company's wholly-owned
subsidiary, Universal Bridge, and it majority owned subsidiary, UPLP, was
$155,000.

     Interest expense for the six months ended June 30, 1997 was $607,000 as
compared to $829,000 for the same period in the prior fiscal year. The decrease
of $222,000 is attributable to a repayment of $4,000,000 of the SBA debentures
on April 1, 1997 and a reduction in margin loans payable to brokers.

     General and administrative expenses decreased $233,000 for the six months
ended June 30, 1997 as compared to the same period in 1996 from $725,000 to
$492,000 primarily due to a reduction in personnel costs.

                                Page 11 of 16


<PAGE>   12
     RESULTS OF OPERATIONS FOR THE THREE  MONTHS ENDED JUNE 30, 1997 AND 1996.
For the three months ended June 30, 1997, the net increase in net assets
resulting from operations was $522,000, or  $.04 per share, as compared to a
net decrease in net assets resulting from operations of $345,000, or $.02 per
share, for the three months ended June 30, 1996.

     The increase in earnings from the three months ended June 30, 1997 as
compared to June 30, 1996 is due to the realized gains recognized in connection
with the sale of marketable securities and changes in valuation of portfolio
investments. Realized gains and unrealized appreciation was $1,876,000 for the
three months ended June 30, 1997. For the three months ended June 30, 1996,
realized gains were $576,000 and unrealized depreciation was $325,000.
Unrealized depreciation attributable to the Company's wholly-owned subsidiaries
was $814,000 as compared to $68,000 for the same period in the prior fiscal
year.

     Interest expense for the three months ended June 30, 1997 was $247,000 as
compared to $405,000 for the same period in the prior fiscal year. The decrease
of $158,000 is attributable to a repayment of $4,000,000 on the Walnut
Debentures (as hereinafter defined) on April 1, 1997 and a reduction in margin
payable to brokers.

     General and administrative expenses decreased $162,000 for the three
months ended June 30, 1997 as compared to the same period in 1996 from $400,000
to $238,000 primarily due to a reduction in personnel costs.

     LIQUIDITY AND CAPITAL RESOURCES OF WALNUT.  As part of the SBIC program,
Walnut has, from time to time, issued $12 million of debentures (the "Walnut
Debentures") to an affiliate of the SBA.  On September 1, 1995, debentures in
the principal amount of $4 million were repaid and on April 1, 1997 debentures
in the amount of $4 million were repaid.  Walnut Debentures in the principal
amount of $4 million were outstanding as of June 30, 1997.  The amounts,
maturities and interest rates of such Walnut Debentures are set forth below:


<TABLE>
<CAPTION>
           Principal Balance  Date Issued  Maturity  Interest Rate
           -----------------  -----------  --------  -------------
           <S>                <C>          <C>       <C>
               2,000,000       06/08/88    06/01/98      9.80%
               2,000,000       09/27/89    09/01/99      8.80%
</TABLE>

Interest on the Walnut Debentures is paid semi-annually, and principal is due
at maturity.  Payment of the Walnut Debentures is guaranteed by the SBA.
Walnut has been current in all of its interest payments on the Walnut
Debentures.  Walnut repaid the $4 million Walnut Debentures due at April 1,
1997, in accordance with its terms.  Additionally, Walnut reduced its broker
margin account by $1.99 million.  The source of funds were primarily from the
sale of HealthCare COMPARE Corp. securities. creating a realized capital gain
of approximately $6 million in the first quarter.  Currently management
anticipates selling a portion of its portfolio securities in order to repay the
$2 million Walnut Debentures due June 1998.
        
                                Page 12 of 16


<PAGE>   13
     The Walnut Debentures prohibit the distribution of earnings or other 
assets of Walnut to the Company, except for distributions made out of
undistributed realized earnings computed in accordance with SBA regulations.
For so long as any indebtedness under the Walnut Debentures remains
outstanding, Walnut is prohibited from repurchasing or converting any of its
equity (but not debt) securities or paying dividends (including dividends to
the Company) without the consent of the SBA.  In addition, Walnut is prohibited
from incurring any secured indebtedness, except for the $5,765,000 of secured
indebtedness that was outstanding at April 8, 1994.  There are no limitations
on the amount of unsecured indebtedness Walnut can incur.  The Walnut
Debentures cannot be prepaid without payment of a prepayment penalty related to
the time of such prepayment.

     The SBA has issued a finding that the Company has violated Section
107.903(b)(1) and (d) of Part 13 of the Code of Federal Regulations ("CFR") by
financing an Associate and paying fees to an Associate (as defined in 13 CFR
Section 121.103). The Company has provided information to the SBA to show that
such findings are inaccurate. Additionally, the SBA has issued a finding that
the Company has violated Section 107.501(b)(1), (3), and (4) by not seeking
prior approval of the SBA for management services provided by Associates. The
Company believes that such findings are inaccurate and current SBA regulations
no longer require prior approval in such circumstances.

     The last examination report issued to Walnut by the SBA is dated May 14, 
1996 and covered the 14-month period ended February 28, 1995. To date, the
SBA has not declared or threatened to declare a default with respect to any of
its finding; however, there can be assurance that the SBA will be willing to
further refrain from declaring an event of default under the SBA Act and it is
likely that the SBA will continue to deem these issues to be open until fully
resolved to the SBA's satisfaction, irrespective of any continuing discussions
with respect thereto between the SBA and Walnut's management. If such a default
were to be declared and Walnut failed to cure the same, the SBA would have the
right to accelerate the maturity of the Walnut Debentures then outstanding.
Another SBA examination covering the period from March 1, 1995 until February   
28, 1997 was completed in April 1997.  A written report is expected to be
issued by the SBA in the near future.  Management believes that the SBA's
findings, if any, from this examination will not have a material affect on
Walnut or the Company as a whole.

     In April 1997, Walnut received an unsecured loan from a related party in 
the amount of $400,000. The loan bears interest, which is payable upon 
maturity, at a rate of 9.5% per annum and matures on December 31, 1997. The
note will be repaid in the quarter ended December 31, 1997.

     LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY.  Through June 1995, the
Company sold 1,015,625 shares of Common Stock in a private placement at an
offering price of $2.00 per share.  The proceeds of such private placement were
used primarily to (i) repay indebtedness, (ii) pay accrued federal, state and
city taxes, interest and penalties, and (iii) increase working capital.

     On August 31, 1995, the Company established a $4 million line of credit
with American National Bank and Trust Company of Chicago (ANB).  This credit
line was replaced as of 


                                Page 13 of 16
<PAGE>   14
September 8, 1996 with a term loan of $2,850,000. This loan requires interest
only payments of September 30, 1996 and December 31, 1996. A principal payment
of $575,000 was made on March 31, 1997, with the balance due, as amended, on
June 30, 1999.  The interest rate associated with this loan is ANB's base rate
plus 2% (10.25% as of June 30, 1997).  This loan is personally guaranteed by two
Directors of the Company.
        
     The Company is currently in the process of circulating a private placement
memorandum relating to the sale of up to 80 Units, with each Unit consisting of
50,000 shares of Common Stock and 35,000 Class A Common Stock purchase
warrants, for $50,000 per Unit.  Such private placement is subject to, among
other things, stockholder approval.  Provided all conditions to closing are
satisfied (and there can be no assurance that such satisfaction will occur),
the Company anticipates that the private placement will close in the fourth
quarter.

     The Company is currently in the process of negotiating for the acquisition
of additional operating business which may affect the Company's liquidity.

     INVESTMENT PORTFOLIO CHANGES.  For the six months ended June 30, 1997, the
Company's portfolio decreased $7,335,000 due to the sale of  certain
investments which resulted in realized gains and changes in market prices for
other marketable investments.

     The sale of certain portfolio  investments resulted in unrealized
appreciation/(depreciation) and the recognition of realized gains/(losses)
during the six months ended June 30, 1997 as follows:


<TABLE>
<CAPTION>
                                 Unrealized           Realized
                                Appreciation            Gain
                               (Depreciation)          (Loss)
                            --------------------   --------------
<S>                         <C>                    <C>
HealthCare Compare, Inc.    $     (4,646,000)      $  6,510,000
Jenna Lane                           398,000            283,000
Others, net                          (41,000)           107,000
</TABLE>

     The Company's equity investments that appreciated/(depreciated) in value
during the six months ended June 30, 1997  were as follows:


<TABLE>
<CAPTION>
                              Unrealized
                             Appreciation
                            (Depreciation)
                         --------------------
<S>                      <C>
GranCare, Inc.           $        537,000
I-Flow                           (409,000)
NFS                            (1,018,000)
Trans Global Services            (608,000)
Titan Pharmaceuticals            (135,000)
Vitalink                         (255,000)
</TABLE>






                                Page 14 of 16


<PAGE>   15


<TABLE>
<S>                                 <C>
Other                               42,000
</TABLE>

No unrealized gains or losses were recorded in connection with the Company's
non-marketable securities for the six months ended June 30, 1997.


                         PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS.

     There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business of the Company, to which the
Company or any of the subsidiaries is a party or of which any of their property
is the subject.

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.

     (a)  Exhibit 27 - Financial Data Schedule
     (b)  No reports on Form 8-K have been filed during the quarter for
          which the report is filed.









                                Page 15 of 16


<PAGE>   16
                                  SIGNATURES

     In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.

                                        WALNUT FINANCIAL SERVICES, INC.
                                        (Registrant)




Date:  November 24, 1997                /s/ Joel S. Kanter
                                        -----------------------------------
                                        Joel S. Kanter                     
                                        President (Chief Executive Officer)



Date: November 24, 1997                 /s/ Robert F. Mauer
                                        -----------------------------------
                                        Robert F. Mauer
                                        Treasurer (Chief Accounting Officer)


                                Page 16 of 16