UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 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 JUNE 30, 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. 0-24138


                             DIAMOND EQUITIES, INC.
                 ----------------------------------------------
                 (Name of Small Business Issuer in its Charter)

          NEVADA                                         88-0232816
------------------------------              ------------------------------------
State or Other Jurisdiction of              (I.R.S. Employer Identification No.)
Incorporation or Organization


2010 E. UNIVERSITY DRIVE, STE. # 3 - TEMPE, ARIZONA          85281
---------------------------------------------------          -----
    (Address of Principal Executive Offices)               (Zip Code)

                                 (602) 921-2760
                ------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)

       Securities registered under Section 12(b) of the Exchange Act: NONE
                                                                     -------
         Securities registered under Section 12(g) of the Exchange Act:

                     COMMON STOCK, PAR VALUE $.001 PER SHARE
                                CLASS A WARRANTS
                                CLASS B WARRANTS

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

               Yes [X]  No [ ]

              Check  here 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 definite proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
<PAGE>
         The Issuer's revenues for the year ended June 30, 1998, were $ none.

         The aggregate  market value of the voting stock held by  non-affiliates
(approximately 1,775,034 shares as of September 27, 1997) based upon the average
of the bid and asked prices of such stock as of September  23, 1998, as reported
on the Electronic Bulletin Board, was $0.05.

         The number of shares of Common  Stock of the issuer  outstanding  as of
September 23, 1998, was 4,666,099.

         Transitional Small Business Disclosure Format (check one): Yes  No [X]

                                       Documents incorporated by Reference:

         Incorporated  by reference to this annual report are Forms 8-K filed by
the Registrant on June 19, 1998 and July 29, 1998, respectively, which disclosed
acquisitions of two entities engaged in the plastic  injection molding industry.
One acquisition  took place after the  Registrant's  fiscal year ending June 30,
1998.

         In  addition,  a Form  8-K was  filed  on July  17,  1998  regarding  a
voluntary change of auditors for the Registrant.
<PAGE>
                                TABLE OF CONTENTS



PART I                                                                  Page No.

Item 1.   Description of Business...........................................3
Item 2.   Description of Property...........................................9
Item 3.   Legal Proceedings.................................................9
Item 4.   Submission of Matters to a Vote of Security Holders..............10

PART II

Item 5.   Market Price of and Dividends on the Registrant's Common 
          Equity and Other Stockholder Matters.............................10

Item 6.   Management's Discussion and Analysis or Plan of Operation........11
Item 7.   Financial Statements.............................................12
Item 8.   Changes in and Disagreements With Accountants....................13

PART III

Item  9.  Directors, Executive Officers, Promoters and Control Persons.....13
Item 10.  Executive Compensation...........................................13
Item 11.  Security Ownership of Certain Beneficial Owners and Management...14
Item 12.  Certain Relationships and Related Transactions...................16
Item 13.  Exhibits List and Reports on Form 8-K............................16


                                       2
<PAGE>
                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS.

    HISTORY.  The Company was organized under the laws of the State of Nevada on
July 24, 1987,  under the name of KTA  Corporation.  On September 25, 1989,  the
Company  changed its name to United  Payphone  Services,  Inc. At that time, the
Company was in the business of operating,  servicing and maintaining a system of
privately-owned  public pay telephones in Nevada.  In January,  1990 the Company
expanded its operations into Arizona. In December, 1994, the Company sold all of
its pay telephone location  contracts in Las Vegas,  Nevada, but did not include
the pay telephone  equipment.  All of the Nevada equipment was then relocated to
Arizona where the Company did business under the name "U.S. Payphone,  Inc." The
Company generated  revenues,  after the sale of its Nevada contracts,  from coin
and non-coin calls made from  approximately 865 telephones located and installed
throughout the State of Arizona.

    On November 15, 1996, the Company sold substantially all of its fixed assets
(the "Asset Sale") to Tru-Tel Communications, L.L.C., a Nevada limited liability
company  ("Tru-Tel").  Under an asset purchase  agreement  (the "Asset  Purchase
Agreement")  for  $1,711,250 in cash and a secured  promissory  note of $811,250
(the "Tru-Tel Note").  The Tru-Tel Note is payable on a monthly basis commencing
on February 15, 1997, and bears interest at the rate of 8% per annum.  The final
payment of all accrued and unpaid interest and  outstanding  principal is due on
or before  January 15, 2002. The Tru-Tel Note is secured by a lien on all assets
transferred in the Asset Sale and is further  secured by personal  guarantees of
the  principals  of Tru-Tel.  The Company  effected  the Asset Sale  because the
directors  determined  that the  changing  regulatory  environment  and business
prospects would have a negative effect on the Company's future operations.

    The Asset Purchase Agreement  prohibits the Company from engaging in, either
directly or indirectly,  in any business  which  operates  public or private pay
phones within the State of Arizona. In addition,  the Company may not install or
maintain any phone equipment,  or provide related services, for any party to its
existing contracts, which were sold to Tru-Tel. As a result, the Company has had
no  business  operations  since the Asset Sale and had no income in fiscal  year
1997. On June 20, 1997, the company changed its name to Diamond Equities, Inc.

    RECENT  DEVELOPMENTS.  Prior to June,  1998,  the Company was  essentially a
"blank check" company,  as a result of the Asset Sale discussed above, with cash
and a promissory  note as its primary  assets.  On November,  1997,  the Company
established a subsidiary,  Precision Plastics Molding,  Inc. ("Precision" or the
"Subsidiary"),  a Nevada  corporation,  and on June 15,  1998  the  Company  and
Precision purchased the assets of Premier Plastics Corporation, a Tempe, Arizona
private   corporation   engaged  in  the  plastic  injection  molding  business.
Consideration  of $80,000 in cash was paid along with the  assumption of various
notes and payables in the amount of  approximately  $40,000.  In  addition,  the
selling  shareholder of Premier  received  300,000 shares of common stock of the
Subsidiary valued at $0.25 per share. Prior to this acquisition,  the Subsidiary
had no assets.  The purchase  price was determined by  negotiations  between the
parties.  The cash paid was from the Registrant's own funds.  There was no prior
relationship  between  Premier and its sole  shareholder  and the  officers  and
directors of the Registrant or its Subsidiary.

    On July 15, 1998, the Company and Precision  closed a transaction  involving
the purchase of substantially  all the assets of Accurate  Thermoplastics,  Inc.
("Accurate") an Arizona  private  corporation  engaged in the plastic  injection
molding business. The assets purchased included equipment, inventories, contract
rights,  customer lists,  know-how,  drawings,  specifications  and intellectual
property.  The sole  shareholder of Accurate,  Roy L.  Thompson,  was engaged to
serve as a consultant to  Precision.  The business of Accurate will be continued
under the name  Precision  Plastics,  Inc..  Precision  acquired  the  assets of
Accurate  for  payment  of  Five  Hundred  Sixty  Thousand  Dollars   ($560,000)
consisting  of  cash  and a  promissory  note,  and  in  consideration  for  the
assumption by Precision of certain  liabilities of Accurate.  The purchase price
paid by Precision was determined by negotiations  between the parties.  The cash
paid was from funds paid to Precision by the Registrant for 2,000,000  shares of
Precision's  common stock 68.9% of the  outstanding  common stock of  Precision.
There was and is no relationship  between  Accurate and its sole shareholder and
the officers and directors of the Registrant or Precision.

                                       3
<PAGE>
    OVERVIEW  OF THE  PLASTICS  INDUSTRY.  The  plastics  industry,  as  broadly
defined,  is the fourth largest  industry in the United  States.  Only the motor
vehicle, petroleum refining and electronics manufacturing industries are larger.

    While  plastics in various  forms have been around for many years,  the real
growth of the  industry  began in the  1970's  and in the  1980's it  enjoyed 6%
average annual growth.  Plastics invaded wood,  metal,  glass,  paper, and other
industries  as new and better  plastics  were found to be  superior  or adequate
substitutes  for traditional  materials.  New uses were found for plastics which
other materials could not compete with.

    Presently,  plastics manufacturers produce over five hundred different types
of resins and compounds. There are varying grades of physical property and price
associated with this wide array of materials.

    There  are four  major  divisions  of  plastics  resins.  They are  commonly
referred to as:

1.   Commodity  resins - represents  the bulk of production  and is low tech and
     produced by many suppliers.
2.   Intermediate resins - more advanced and specialized than commodity resins.
3.   Engineering resins - exhibit more advanced physical characteristics and are
     generally produced on a smaller scale.
4.   Advanced  resins - most capable of  withstanding  impact and high heat. Can
     carry high loads and resists chemicals and solvents.

    Plastics are often divided by their physical properties.  Thermoplastics can
be  re-melted  and  reused  repeatedly.  They  represent  83%  of  the  industry
production.  Polyethylene  represents  40% of the  thermoplastics  market and is
heavily used in packaging.  Quantum Chemical, Union Carbide and Dow Chemical are
some of the largest producers of Polyethylene.  PVC is the second largest of the
thermoplastics  products and is commonly  used in  construction  (PVC pipe,  for
instance).  Occidental Petroleum,  Shintech and Formosa Plastics are some of the
leading PVC  producers.  Thermosets  are plastics  that are hardened by chemical
reaction.  They  represent  the  remaining  17% of the plastics  market.  50% of
Thermosets are used in construction as plywood adhesives,  insulation,  etc This
is a more mature and less dynamic sector of the plastics industry

    Shipments of plastics have grown 22% in the most recent  two-year period for
which figures are available.  Prices of plastics,  which had remained relatively
flat during the early 90's jumped  dramatically  in the  mid-90's  due to strong
demand and short supplies of raw materials.  At present, the top twenty plastics
manufacturers  account  for 66% of all  production.  Smaller  purchasers  have a
difficult  time  securing  price  breaks,  creating a motivation  for molders to
consolidate to be competitive and profitable.

    The  United  States is a huge  consumer  of  plastics,  using 24% of all the
plastics  used in the world.  The U.S. is an exporter of plastics,  with 4.2% of
all plastics jobs tied to exports.

    A 1995 report from U.S.  Industry  Profiles states,  "The plastics  industry
should grow from 8% to 10% annually in the late 1990's, as a general increase in
the use of plastics leads to strong demand." This appears to be occurring as the
industry  creates new  compounds  and invests in research and  development.  The
industry's overall share of the economy continues to grow.

    OVERVIEW OF THE COMPANY'S LOCAL MARKET.  Arizona is one of seven states with
double-digit  growth in the number of plastics jobs according to a recent report
from Probe Economics as commissioned by The Society of the Plastics Industry.

    Database  Publishing's  Arizona Industrial Directory for 1997 indicates that
there were  forty  eight  companies  in Arizona  defined as  "plastic  injection
molders".  Of these, at least thirty six are estimated by Database to have sales
in either  the  $1,000,000  to  $5,000,000  range or to have  sales of less than
$1,000,000.  Actually, there are probably no companies over $3,000,000 from this
group.  The December  29,1997 issue of the Plastics News provided a table of the
largest plastic injection  molders below the top 100 in the United States.  Only
three Arizona  molders are on the list.  Their sales ranged from $2,300,000 down
to $1,600,000.

                                       4
<PAGE>
    Of the  remaining  twelve  companies on  Database's  list,  only two to four
companies  appear to be in the  mid-range.  Several,  such as  Badger  Meter and
Richco are primarily involved in non-plastics  production (i.e. in Richco's case
they are primarily a metals manufacturer).

    Geographically, the molders are concentrated in the metro Phoenix area. Only
fourteen  are located in other  parts of the state and,  of those,  eight are in
Tucson.  Consequently,  it is most likely that additional companies which may be
acquired  will be located in the metro  Phoenix area,  making  consolidation  of
operations  easier and less costly to accomplish,  with more immediate impact on
profits.  However,  should a good acquisition  opportunity  arise outside of the
metro Phoenix area, the Company will carefully consider such an opportunity.

    It is clear that there is a need for an active,  mid-range plastic injection
molding  company  in  Arizona  to  serve  customers  who are in  need of  larger
production  capabilities and the lower prices resulting from the enhanced buying
power of a mid-sized molder.  Companies such as Motorola,  Intel and others have
many products that would lend themselves to being produced by a mid-range molder
and the Company intends to pursue those customers.

    CURRENT  MANUFACTURING  OPERATIONS  -- BUSINESS.  The  Company,  through its
majority-owned  subsidiary,  Precision Plastics Moldings, Inc., is now primarily
engaged in the plastics  injection molding  business.  The operations of Premier
have been combined with those of Accurate,  with both acquisitions now operating
under the name of Precision  Plastics  Molding,  Inc.,  and all  operations  are
conducted at the former  Accurate  facility at 216 S. Alma School Rd., Mesa, AZ.
The following is a brief discussion of the business conducted by Precision / the
Company.

    BUSINESS. The business of Precision is to produce a plastic product from the
customer's  designs.  The  customers  either  provide  their  own  molds or have
Precision  build a mold in its  facility.  When the mold is completed  Precision
then  manufactures  as many or as few  products as the  customers  desire.  Most
products require more than just one molded part. In most cases several parts are
molded and then  assembled.  Precision does not always mold all of the parts for
assembly nor does Precision normally do the assembly.

    PRODUCTS.  Precision  manufactures  many  products  that  are  owned  by its
customers.  Precision  does not  presently own the rights to any of the products
that it  produces.  Precision  offers the service of  manufacturing  parts for a
customer's products at the level of quality they demand.

    MARKETING.  Currently,  Precision  does not have a marketing or sales force.
The current  customers  were acquired from the  companies  purchased.  Precision
intends to hire personnel to find companies that need plastic parts manufactured
for their own products.

    CUSTOMERS / SUPPLIERS.  Precision currently makes products for approximately
twenty five (25) different  customers.  The largest by far is Ryobi.  Management
estimates  that  Ryobi's  business  makes up at  least  forty  percent  (40%) of
Precision's  sales.  Precision  works with thirty (30)  different  suppliers  of
different products consumed in manufacturing  products such as boxes and plastic
resin.  Precision's  main  suppliers  of plastic  are Ferro Corp,  GE  Plastics,
Polymerland, and Plastics General Polymers.

    SALES.  Precision  has, as of September 1, 1998, a sales  backlog of 20 days
but already has the raw materials to run production for these sales. The tooling
department  has a sales  backlog  of  $75,000  and will  require  $20,000 of raw
material and $7,500 of in-house labor to produce the tools.

    GENERAL.  The Company intends to continue to use its working capital to take
advantage of business  opportunities  which arise from time to time.  Management
anticipates  that  such  opportunities  will be  available  to the  Company  due
primarily  to its  status  as a small,  publicly-held  entity  with a bona  fide
business  with  liquid  assets  and  to  its   flexibility  in  structuring  and
participating  in  business  opportunities.   Decisions  as  to  which  business
opportunities  to acquire will be made by management of the Company,  which will
in all  probability  act without the consent,  vote or approval of the Company's
shareholders.  The Company presently has no other agreements,  understandings or
arrangements to acquire or participate in any specific business opportunity.

                                       5
<PAGE>
    FUTURE OPERATIONS.  The Company, Diamond Equities, Inc., will seek corporate
opportunities  which it finds or which are  presented  to it by persons or firms
that desire to employ the Company's  funds in their  business  and/or obtain the
perceived  advantages being part of a publicly-held  corporation.  The Company's
principal  business  objective will be to seek long-term  growth  potential in a
business venture rather than to seek immediate, short-term earnings. The Company
will not restrict its search to any specific business,  industry or geographical
location,  and the Company may  participate in a business  ventures of virtually
any kind or nature.

    Management  anticipates  that  it may be able to  participate  in a  limited
number of business  ventures,  due primarily to the Company's  limited  capital.
Lack of  diversification  is a  substantial  risk in  investing  in the  Company
because it may not  permit  the  Company  to offset  potential  losses  from one
venture  against  gains  from  another  and  will  expose  the  Company  to  the
cyclicality and other risks of any business in which it invests.

    The  Company has been  seeking  business  opportunities  in firms which have
recently commenced  operations,  are developing  companies in need of additional
funds for expansion  into new products or markets,  are seeking to develop a new
product or service,  or are  established  businesses  which may be  experiencing
financial or operating  difficulties and are in need of additional  capital.  In
some instances, a business opportunity may involve the acquisition of, or merger
with a corporation  which does not need  substantial  additional  cash but which
desires to establish a public trading  market for its common stock.  The Company
may purchase  assets and establish  wholly- or  majority-owned  subsidiaries  in
various businesses or purchase existing businesses as subsidiaries.

    The Company  anticipates  that the  selection of a business  opportunity  in
which to  participate  may be  complex.  However,  because of  general  economic
conditions,  rapid  technological  advances being made in some  industries,  and
shortages of available  capital,  the Company  believes  that there are numerous
other companies  seeking even the limited  additional  capital which the Company
has and/or the benefits of a publicly-traded corporation. The perceived benefits
of a publicly-traded corporation may include facilitating or improving the terms
on which additional equity financing may be sought,  providing liquidity for the
principals of a business, creating a means for providing incentive stock options
or  similar  benefits  to  key  employees,   providing   liquidity  (subject  to
restrictions of applicable  statutes) for all shareholders,  estate planning and
other factors. Business opportunities may occur in many different industries and
at various stages of development,  all of which can make the task of comparative
investigation and analysis of such business  opportunities  extremely  difficult
and complex.

    The Company may have  insufficient  capital with which to provide the owners
of business  opportunities  with sufficient cash or other assets.  However,  the
Company  plans to offer  owners of business  opportunities  the  possibility  of
acquiring equity  interests in a public company at substantially  less cost than
is required,  for example, to conduct an initial public offering.  The owners of
the business  opportunities  could,  however,  incur significant  post-merger or
acquisition  registration  costs if they wish to  register  a  portion  of their
shares for subsequent  sale. The Company will also incur  significant  legal and
accounting  costs in connection with the  acquisition of a business  opportunity
including the costs of preparing registration statements if required, Forms 8-K,
agreements and related reports and documents.

    In connection with the acquisition of or merger with another  business,  the
Company may use a portion of its working capital to make  short-term  (less than
one year) loans to a target  business.  The Company  will attempt to assure that
the borrower  will have the ability to repay the loan within its stated term and
that the loan is either fully secured or personally guaranteed, but there can be
no  assurance in this regard.  The Company may make  unsecured  loans as well as
secured  loans and, in either event,  could lose its entire  principal in such a
loan.

    EVALUATION OF OPPORTUNITIES.  Analyses of new business  acquisitions will be
undertaken  by or under the  supervision  of the officers  and  directors of the
Company,  none  of  whom  is  a  professional  business  analyst.  In  analyzing
prospective  business  opportunities,  management  considers such matters as the
available technical,  financial,  and managerial resources;  working capital and
other financial  requirements;  history of operation,  if any; prospects for the
future; nature of present and expected  competition;  the quality and experience
of management  services which may be available and the depth of such management;
the potential for further research,  development, or exploration;  specific risk
factors  not now  foreseeable  but which then may be  anticipated  to impact the
proposed activities of the Company;  the potential for growth or expansion;  the
potential  for  profit;  the  perceived  public  recognition  or  acceptance  of
products, services, or trades; name identification;  and other relevant factors.
Officers and directors of the Company will meet  personally  with 

                                       6
<PAGE>
management  and  key  personnel  of  the  target   business  as  part  of  their
investigation.  To the extent  possible,  the Company intends to utilize written
reports and personal  investigation  to evaluate the above factors.  The Company
may allocate a minor portion of its working capital for the retention of outside
consultants,  if the  Board  deems it  necessary,  to aid in the  analysis  of a
business opportunity.

    Since the Company is subject to Section 13 of the  Exchange  Act, it will be
required  to  furnish  certain   information  about  significant   acquisitions,
including audited  financial  statements for the company(s)  acquired,  covering
one, two or three years  depending  upon the relative  size of the  acquisition.
Consequently, acquisition prospects that do not have or are unable to obtain the
required  audited  statements may not be appropriate  for acquisition so long as
the reporting requirements of the Exchange Act are applicable.

    It is anticipated  that any  opportunity  in which the Company  participates
will present certain risks. Many of these risks cannot be adequately  identified
prior to selection of the specific opportunity, and the Company must, therefore,
depend on the ability of management to identify and evaluate such risks. Certain
opportunities  available  to the Company may have been unable to develop a going
concern  or  may be in  development  stage  in  that  they  have  not  generated
significant  revenues  from their  principal  business  activities  prior to the
Company's participation.  In such cases, the combined enterprises may not become
going concerns or advance beyond the development  stage even after the Company's
participation  in the  activity  and the related  expenditure  of the  Company's
findings.  Many of the  opportunities  may  involve new and  untested  products,
processes,  or market  strategies  which may not  succeed.  Such  risks  will be
assumed by the Company and, therefore, its shareholders.

    The Company will not restrict its search to any specific kind of firms,  but
may acquire a venture  which is in any stage of its corporate  life,  including,
but not limited to,  companies  in the  development  stage and those  already in
operation.  It is  impossible  to predict at this time the status or maturity of
any  business in which the Company may become  engaged  through  acquisition  or
otherwise.

    ACQUISITION  OF  OPPORTUNITIES.  In  acquiring a  particular  business,  the
Company  may  become  party to a merger,  consolidation,  reorganization,  joint
venture,  or licensing agreement with another corporation or entity. It may also
purchase the stock or assets of an existing  business.  On the consummation of a
transaction,  it is possible that the present management and shareholders of the
Company will not be in control of the Company. In addition, a majority or all of
the  Company's   directors  may,  as  part  of  the  terms  of  the  acquisition
transaction,  resign  and be  replaced  by new  directors  without a vote of the
Company's shareholders.

    It is  anticipated  that any  securities  issued in any such  reorganization
would be issued in reliance on exemptions  from  registration  under  applicable
federal  and  state  securities  laws.  In  some  circumstances,  however,  as a
negotiated  element of this transaction,  the Company may agree to register such
securities  either at the time the  transaction  is  consummated,  under certain
conditions,  or at  specified  times  thereafter.  The  issuance of  substantial
additional securities and their potential sale into any trading market which may
develop in the Company's  Common Stock may adversely  affect the market for such
securities.

    While the actual terms of a transaction  to which the Company may be a party
cannot be predicted, it is expected that the parties to the business transaction
will find it  desirable  to avoid the  creation  of a taxable  event and thereby
structure  the  acquisition  in  a  "tax  free"  reorganization  under  Sections
368(a)(1) or 351 of the Internal  Revenue Code of 1954, as amended (the "Code").
In order to obtain tax free  treatment  under the Code,  it may be necessary for
the owners of the  acquired  business to own 80% or more of all classes of stock
of the surviving entity.  In such event, the shareholders of the Company,  would
retain  less than 20% of the  issued  and  outstanding  shares of the  surviving
entity,  which could result in significant  dilution in the percent ownership of
such shareholders.

    As  part of the  Company's  investigation,  officers  and  directors  of the
Company may meet with  management  and key  personnel of a target  company,  may
visit and inspect  facilities,  obtain  independent  analysis or verification of
certain information provided by such Company, check references of management and
key personnel,  and take other reasonable  investigative measures, to the extent
that the Company's limited financial resources and management expertise allow.

                                       7
<PAGE>
    The manner in which the Company  participates in an opportunity  will depend
on the  nature of the  opportunity,  the  respective  needs and  desires  of the
Company  and other  parties,  the  management  of the  target  company,  and the
relative negotiating strength of the Company and such other management.

    With  respect  to any  mergers or  acquisitions,  negotiations  with  target
company  management  will be expected to focus on the  percentage of the Company
which  target  company   shareholders   would  acquire  in  exchange  for  their
shareholdings  in the target company.  Depending upon,  among other things,  the
target company's assets and liabilities, the Company's shareholders will, in all
likelihood, hold a lesser percentage ownership interest in the Company following
any  merger  or  acquisition.   Such  dilution  of  ownership  interest  may  be
significant in the event the Company  acquires a target company with substantial
assets.  Any merger or  acquisition  effected  by the Company can be expected to
have a  significant  dilutive  effect on the  percentage  of shares  held by the
Company's   shareholders,   including  those  shareholders  who  continue  their
investment.

    It is possible that the Company will not have sufficient  working capital to
undertake  any  significant  development,  marketing,  or  manufacturing  of any
product which may be acquired.  Accordingly,  following the  acquisition  of any
such  product,  the Company may be  required to either seek  additional  debt or
equity financing or obtain funding from third parties, in exchange for which the
Company may be required to give up a substantial  portion of its interest in any
acquired  product.  There can be no  assurance  that the Company will be able to
obtain  additional  financing or to interest third parties in providing  funding
for the  further  development,  marketing,  and  manufacturing  of any  products
acquired.

    The  Company  will  participate  in a  business  opportunity  only after the
negotiation and execution of appropriate written agreements.  Although the terms
of such agreements  cannot be predicted,  generally such agreements will require
specific  representations  and  warranties by all of the parties  thereto,  will
specify  certain  events of  default,  will  detail the terms of closing and the
conditions which must be satisfied by each of the parties prior to such closing,
will outline the manner of bearing costs if the transaction is not closed,  will
set  forth  remedies  on  default,  and will  include  other  terms  typical  in
transactions of such nature.

    It is anticipated that the investigation of specific business  opportunities
and the negotiation,  drafting, and execution of relevant agreements, disclosure
documents,  and other instruments will require  substantial  management time and
attention and substantial costs for accountants,  attorneys,  and others,.  If a
decision is made not to  participate  in a specific  business  opportunity,  the
costs  incurred  in  the  related   investigation   would  not  be  recoverable.
Furthermore, even if an agreement is reached for the participation in a specific
business  opportunity,  the failure to consummate that transaction may result in
the loss to the Company of the related costs incurred.

    As is  customary  in the  industry,  the Company may pay a finder's  fee for
locating  a merger or  acquisition  candidate  and for  location  of  additional
financing.  If any such fee is paid, it will be approved by the Company's  board
of directors and will be in accordance with industry standards. This type of fee
would not be paid to any employee, officer, director or a 5% or more shareholder
of the Company.

    FORWARD-LOOKING  STATEMENTS. This report contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities  Exchange Act of 1934, as amended,  and is subject
to the safe harbors  created  thereby.  Actual  results could differ  materially
because of the following  uncertain  factors:  the inability to make  additional
acquisitions;  the  probability  of losses due to its new line of business;  the
continued employment of key management; a change in control of the Company.

    COMPETITION.  In terms of making other  acquisitions,  the Company will be a
minor  participant  among the firms which engage in the  acquisition of business
opportunities. There are many established venture capital and financial concerns
which have significantly greater financial and personnel resources and technical
expertise  than  the  Company.  In  view  of  the  Company's  limited  financial
resources,  the  Company  will  continue  to  be  at a  significant  competitive
disadvantage   compared  to  the  Company's   competitors  in  making  desirable
acquisitions.  Also, the Company may be competing with other small,  blind-pool,
public companies located in the Southwest and elsewhere.

    REGULATION. The Company might, in certain circumstances,  be deemed to be an
investment  company  under the  provisions  of Section  3(a)(3) of the 1940 Act,
which could have substantial adverse impact on its operations.  This could occur

                                       8
<PAGE>
if a significant  proportion of its working  capital were invested in short-term
debt  instruments  for longer  than a one-year  period  and the  Company  had no
significant  operations.  The Company  intends to take all  reasonable  steps to
avoid such classification.

    Mergers or acquisitions of the Company are structured in such a manner as to
minimize  federal  and state tax  consequences  to the  Company  and the  target
company.  Management of the Company also reviews any mergers or  acquisitions in
an effort to minimize the  possibility  that any merger or  acquisition  will be
classified as a taxable event by the Internal Revenue Service.

    EMPLOYEES.  The  Company  presently  has three  employees,  all  engaged  in
management,  administrative or clerical functions. The Company will also engage,
from time to time, services of outside consultants to assist it in evaluation of
prospective  target  companies.  The Company may allocate a minor portion of its
working capital for part-time secretarial services required by the Company.

    The  Company's  subsidiary,  Precision,  has  twenty  eight  (28)  non-union
employees and fifteen (15) machine operators. Two (2) are tool makers, three (3)
shift supervisors,  four (4) are quality assurance  inspectors,  one (1) handles
shipping and receiving, and three (3) are office and clerical personnel.

ITEM 2. DESCRIPTION OF PROPERTY.

    Until September, 1997 the Company maintained its offices rent-free in office
space  provided by the  Company's  President in his home.  The President did not
receive any rent, but was reimbursed for out-of-pocket  expenses,  not to exceed
$500.00 per month.

    On September 1, 1997, the Company leased  approximately 1,725 square feet of
office space,  located at 2010 E. University  Drive,  Suite # 3, Tempe,  Arizona
85281.  The term of the lease is from September 1, 1997 through August 31, 1999.
The rent for the first year was  $1036.80  plus tax per month and for the second
year, $1071.36 plus tax per month.

    Effective July 15, 1998, the Company's subsidiary,  Precision, leases 15,000
square feet of space at 216 South Alma School  Road,  Mesa,  Arizona  85210,  of
which  13,000  square  feet are used for  production  and 2,000  square feet for
offices. The space is rented at $6,750 per month.

ITEM 3. LEGAL PROCEEDINGS.

    Neither the Company nor any of its  subsidiaries  is a party to any material
pending legal  proceedings  or government  actions  (except as set forth below),
including any material bankruptcy,  receivership, or similar proceedings. Except
as set forth  below,  management  of the Company does not believe that there are
any material  proceedings to which any officer or affiliate of the Company,  any
owner of  record of  beneficially  of more  than 5% of the  Common  Stock of the
Company,  or any  associate  of any such  director,  officer,  affiliate  of the
Company,  or security holder is a party adverse to the Company or has a material
interest adverse to the Company.

    FEDERAL  GRAND  JURY  INDICTMENTS.  On  November  6,  1996,  a true bill was
returned by the Grand Jury in the United States District Court in Nevada against
certain  former  directors and officers of the Company and other  non-affiliated
individuals, who were accused of racketeering, RICO violations, securities fraud
and wire fraud.  All of the charges  against the former  directors  and officers
arose out of alleged  activities  the  individuals  undertook  while  serving as
directors and officers of the Company. The Company is not a party of and was not
named as a defendant in the indictments. However, because the indictments relate
to activities alleged to have been perpetrated by then officers and directors of
the Company,  there can be no assurance that the indictments ultimately will not
have a material adverse effect on the Company.

    The persons named in the  indictments as discussed in prior 10-KSB  filings,
are no longer officers, directors or control persons of the Company.

                                       9
<PAGE>
    The  government  informed  the  Company on August 21, 1996 that Mr. and Mrs.
Westfere,   the   Company's   then   current   Chief   Executive   Officer   and
Secretary/Treasurer,  were  neither  subjects  or  targets  of  the  grand  jury
investigation,  and the  government  did not  contact  any  other  then  current
officers or employees  concerning  the  investigation.  The government has never
informed  the  Company  as to the  relief,  if any,  to be sought.  The  Company
complied  with  the  subpoena  DUCES  TECUM  (to  produce  Company  records  and
documents) it received and cooperated with the government's  investigation.  The
Company is presently  unable to assess the potential  liability,  if any, to the
Company  as  a  result  of  activities  which  are  the  subject  of  the  above
investigation.

    BREACH  OF  CONTRACT  LITIGATION.   In  connection  with  the  sale  of  its
pay-telephone  operations,  the  Company  received  a  promissory  note  in  the
principal  sum of  $811,250.  Monthly  payments  of  $14,000 on the note were to
commence on February 15, 1997.  No payments on the note have been  received.  On
March 18,  199_____ a complaint for breach of contract was filed with the Eighth
Judicial  District  Court of Clark  County,  Nevada.  The  complaint  alleges an
anticipatory breach by the defendant, Tru-Tel Communications, LLC, issuer of the
promissory note. The complaint also names as party defendants, the principals of
Tru-Tel  Communications,  LLC and Finova  Capital  Corporation  (provider of the
financing used to purchase the assets.)

    The defendants have responded by issuing  counterclaims.  The  counterclaims
allege that the revenues of the Company reported to Tru-Tel Communications,  LLC
and Finova Capital  Corporation were  purportedly  overstated at the time of the
asset  purchase  agreement.  The  Company  intends  to  vigorously  contest  the
counterclaims and pursue the original claims against all party defendants. While
it is not feasible at this time to predict or determine  the ultimate  financial
outcome of the complaint,  management  does not believe that the Company will be
party to any unfavorable judgments.

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

    No matter was  submitted  during the fiscal year ended June 30,  1998,  to a
vote of the Company's security holders.

                                     PART II

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

    The  Company's  Common  Stock is  currently  traded in the  over-the-counter
market  and is  quoted  on the OTC  Bulletin  Board.  According  to  information
provided to the  Company,  during the fiscal year ended June 30,  1998,  303,800
shares of the  Company's  Common  Stock were traded on the Bulletin  Board.  The
Company  therefore  believes that there is no established  public trading market
for the Company's  Common  Stock.  The Company also believes that there are only
five market makers which currently make a market in the Company's  Common Stock.
These quotations reflect inter-dealer prices,  without retail markup,  markdown,
or commission and may not necessarily represent actual transactions.

                              Quarter            High                Low
                              -------            ----                ---

     FISCAL YEAR ENDED         First             $ 0.75             $ 0.50
       JUNE 30, 1997           Second            $ 0.63             $ 0.50
                               Third             $ 0.69             $ 0.50
                               Fourth            $ 0.82             $ 0.50


     FISCAL YEAR ENDED         First             $0.1875            $ 0.125
       JUNE 30, 1998           Second            $  0.16            $0.0625
                               Third             $  0.08            $0.0325
                               Fourth            $  0.51            $0.0325

                                       10
<PAGE>
    As of September 14, 1998, there were  approximately 639 holders of record of
the Company's Common Stock as reported to the Company by its transfer agent.

    No cash dividends have been declared or paid to date on the Company's Common
Stock.

    The  Registrant  previously  had 727 shares of Series A 6%  Preferred  Stock
outstanding,  with $194,023 in accrued but unpaid dividends. On October 28, 1997
the Registrant  entered into an agreement with Dingaan Holdings,  S.A., the sole
shareholders  of the Series A Preferred  Stock, to exchange these shares and the
accrued  dividends for 18,000 shares of new Series B Preferred Stock. The Series
B Preferred Stock carries no dividend and is convertible to 18,000,000 shares of
common stock of the Registrant.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

RESULTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

    On November  15, 1996,  the Company  sold its payphone  base and all related
equipment, contracts, automobiles and nearly all furniture & fixtures to Tru-Tel
Communications, L.L.C. for $1,711,250 in cash and a note receivable of $811,250.
The Company  assigned the office and warehouse  lease to the buyer and moved its
operations to another location in Tempe,  Arizona.  Since November 15, 1996, the
Company has been winding down operations  relative to the payphone  business and
has been involved in searching for new business  ventures  through June 15, 1998
when it acquired Premier Plastics,  Inc. a plastic injection molding business in
Tempe,  Arizona.  Because the Company had some  operations  in the pay telephone
industry in fiscal year 1997, the results of operations will differ from that of
fiscal year 1998.

    The Company had a net loss of  $(769,923)  in the fiscal year ended June 30,
1998 as compared to a net income of $1,598,517 in the fiscal year ended June 30,
1997. The difference in net loss in the year ended June 30, 1998 versus the gain
in 1997 is largely due to the gain  recognized on the sale of the  operations of
$1,688,750 in 1997. The net loss from continuing  operations for the fiscal 1998
was $(734,500),  as compared to $(171,661) for the fiscal 1997 and the allowance
for  defaulted  collection  on the Tru-Tel note  receivable.  The  difference is
partially  due  to  general  and  administrative   expenses  being  included  in
discontinued  operations  for the fiscal  1997 year.  When these two factors are
considered the net loss from operations were very comparable for the two years.

    Interest  income  decreased to $53,179 in fiscal 1998 as compared to $98,076
in the fiscal year ended June 30, 1997,  due to diminishing  cash  balances.  No
operating  revenues from the new plastics  operations  were realized  until July
1998.

    The Company's selling,  general and administrative expenses decreased by 52%
to  $355,100  for the  fiscal  year  1998 as  compared  to  $744,442  (including
discontinued  operations)  for the fiscal year ended June 30, 1997. The decrease
is due to the change of operations as well as a large  decrease in  depreciation
due to the sale of assets. The Company had a gain on the sale of equipment of $0
and $1,848,279 in the fiscal years ended June 30, 1998, and 1997,  respectively.
The difference was due to the sale of  approximately  99% of the fixed assets of
the Company.

    In June 1994,  the  Company  issued 727 shares of its Series A 6%  Preferred
Stock to  Teletek in  consideration  for cash  advances  and the  settlement  of
certain  litigation  involving the Company.  In 1997,  these shares were sold by
Teletek to Dingaan  Holdings,  S.A., during the fiscal year ended June 30, 1997.
The above shares requires the Company to pay a cumulative  annual dividend equal
to 6% of the face value of the Preferred  Stock  ($1,817,591),  plus accrued and
unpaid dividends,  until redeemed or converted.  The Company accrued $109,056 in
preferred  dividends  during the fiscal year ended June 30,  1997.  However,  in
September 1997 the Company  issued a Series B Preferred  Stock to the holders of
the Series A  Preferred  Stock in an  exchange.  The Series B  Preferred  has no
dividend and  converts  into  18,000,000  shares of common.  No  dividends  were
therefore accrued during the fiscal 1998 year.

    The Company's  future results of operations will be materially  affected due
to the recent  change of  operations  into the  plastics  industry.  The Company
anticipates that in the fiscal year ending June 30, 1999, that the operations in
the plastics industry will be expanded with additional  acquisitions and growth.
Subsequent to June 30, 1998, the Company  acquired its second plastics  company,

                                       11
<PAGE>
Accurate  Thermoplastics,  Inc,  and is  looking  for a third  acquisition.  THE
FOREGOING IS A  FORWARD-LOOKING  STATEMENT  WITHIN THE MEANING OF SECTION 27A OF
THE  SECURITIES  ACT OF 1933,  AS AMENDED,  AND  SECTION  21E OF THE  SECURITIES
EXCHANGE ACT OF 1934,  AS AMENDED,  AND IS SUBJECT TO THE SAFE  HARBORS  CREATED
THEREBY.  ACTUAL  RESULTS  COULD  DIFFER  MATERIALLY  BECAUSE  OF THE  FOLLOWING
FACTORS:  THE  INABILITY  TO  SECURE  BUSINESS  OPERATIONS;  LOSSES  DUE  TO  AN
UNPROFITABLE NEW LINE OF BUSINESS; THE CONTINUED EMPLOYMENT OF KEY MANAGEMENT; A
CHANGE IN CONTROL OF THE COMPANY DUE TO THE CONVERSION BY DINGAAN HOLDINGS, S.A.
OF ITS SERIES B PREFERRED STOCK OR OTHER EVENTS.

    LIQUIDITY AND CAPITAL RESOURCES. The Company requires capital to support the
new injection molding operations and general and administrative  expenses of the
Company in its search for viable acquisitions.

    At June 30,  1998,  the  Company had cash and cash  equivalents  of $600,231
compared to cash and cash  equivalents  of  $1,586,983  at June 30,  1997.  This
decrease of $986,752  resulted  primarily from the purchases of a Certificate of
Deposit  in the  amount of  $500,000,  the  purchase  of  investments  and notes
receivable  of $175,  000 and the use of cash in  operations  of  $545,000.  The
company borrowed $250,000 against the CD which increased the cash position.

    The funding sources currently  available to the Company include two lines of
credit for $200,000 and $235,000 each and potential public or private offerings.
The  Company  has  current  plans to raise  additional  funds in its  subsidiary
Precision  Plastics through private  placements of its common stock or preferred
stock to assist with the capital requirements of additional  acquisitions and to
consolidate  debt.  There are however no third party  financing  arrangements in
place at this time.  Therefore,  the Company's sole source of operating  capital
for the foreseeable future is likely to be from current cash reserves.

    Principal  uses of working  capital  will include  payment of the  Company's
general and administrative expenses and the payment of notes associated with the
purchase of assets by  Precision.  Subsequent  to June 30, 1998 the Company paid
$375,000 for the acquisition of Accurate Thermoplastics and signed a 90-day Note
for an additional $185,000. There is currently no requirement to pay accrued and
unpaid dividends on its previously  outstanding  shares of Series A 6% Preferred
Stock and no dividends are payable on its Series B Preferred Stock.

    The Company believes that its existing cash balances and net cash flows from
operations (if any) will be sufficient to meet the Company's  cash  requirements
for the next 12 months.  However,  the foregoing  and the  Company's  ability to
operate  profitably  are  subject to material  uncertainties  due to the lack of
significant  revenues and operations.  See Item 6 "Results of Operations for the
Fiscal  Years  Ended  June 30,  1998 and  1997".  The  acquisition  of  Accurate
Thermoplastics   subsequent  June  30,  1998  may  materially  change  the  cash
requirements  of the  Company  depending  on the success of  operations  of that
entity.

ITEM 7. FINANCIAL STATEMENTS.

    The following  financial  statements  are attached  hereto and  incorporated
herein:
                        HEADING                                            PAGE
                        -------                                            ----
Independent Auditor's Report                                                F-3

Balance Sheets for the Years Ended June 30, 1998 and 1997                   F-4

Statements of Operations for the Years Ended June 30, 1998
 and 1997                                                                   F-6

Statements of Stockholder's Equity for the years ended June 30, 1998, 
 1997 and 1996                                                              F-8

Statements of Cash Flows for the years ended June 30, 1998, 1997 
 and 1996                                                                   F-9
                    
Notes to Financial Statements                                               F-10

                                       12
<PAGE>

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.

    As  reported  on  Form  8-K  dated  July  17,  1998,  the  Company   changed
accountants, without any disagreement or adverse opinion or disclaimer.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.

GENERAL.

    The following information is provided for each of the executive officers and
directors of the Company:

    DAVID WESTFERE,  32, has been a Director,  President and Chief Executive and
Operating Officer of the Company since April 6, 1995, and was General Manager of
Operations  from  January  1991 to April  1995.  From 1988 until 1990 he was the
route  supervisor  for the  Company's pay  telephone  operation in  Bakersfield,
California,  and  from  1990  until  1991 he was  the  route  supervisor  of the
Company's pay telephone  operation in Phoenix,  Arizona.  From September 1984 to
June 1987 Mr. Westfere attended the University of Akron.

    TODD D.  CHISHOLM,  36, has been a Director  of the  Company  since June 27,
1995. From June 1990 until September 1992 he was employed as a staff  accountant
by Orton & Company, Certified Public Accountants,  and from September 1992 until
June 1994 he was employed as audit  manager by Jones,  Jensen,  Orton & Company,
Certified  Public  Accountants.  Since June 1994 he has been  self-employed as a
certified   public   accountant.   Since   April  1995  he  has  also  been  the
vice-president  and chief financial  officer of The Solarium,  Inc., a privately
held travel and tanning center.  Mr. Chisholm received a bachelor of arts degree
in  business  from the  University  of  Utah.  He has  been a  certified  public
accountant since 1992.

    The   Registrant   also   employs   Mr.   Chisholm   as  it's   C.F.O.   and
Secretary/Treasurer.   Mr.  Chisholm,   performs  accounting  services  for  the
Registrant for which he is paid a flat fee of $920 per month for compilation and
payroll  services  and is paid an  hourly  fee for any  additional  work.  It is
believed  that  the  terms  of the  arrangement  between  Mr.  Chisholm  and the
Registrant  are at least as  favorable  as terms that could be  obtained  with a
non-affiliated party.

    Mr.  Westfere and Mrs.  Ramona  Westfere were  appointed as directors of the
company on April 6, 1995 by the Company's sole remaining  directors at the time.
Mr. Chisholm was appointed as a director on June 27, 1995 by the directors. Mrs.
Westfere resigned as a director and officer of the Company on February 1, 1997.

ITEM 10. EXECUTIVE COMPENSATION.

    The following table set forth the aggregate executive compensation earned by
or paid to current  management of the Company for the fiscal year ended June 30,
1998, 1997 and 1996.

                                             Annual Compensation
 Name and Principal Positions  Year   Salary   Bonus   Other Annual Compensation

 David Westfere, President (1) 1998  $36,800   $0.00          $51,787 (2)
                               1997  $36,800   $0.00         $42,429.81 (3)
                               1996  $32,400  $16,000        $46,972.00 (4)
----------

                                       13
<PAGE>
    (1) The  Company  did not pay any  long-term  compensation  to Mr.  Westfere
during the above periods.

    (2) During  the fiscal  year 1998,  the  Company  paid (i) health  insurance
premiums of $5,920 and (ii),  $36,000 to C&N, Inc., a company  controlled by Mr.
Westfere,  for management  services.  See "Item 12 -- Certain  Relationships and
Related Transactions.

    (3) The Company paid health insurance premiums of $6,429.81 for Mr. Westfere
and his family  during the fiscal year 1997.  The  Company  also paid a total of
$36,000 to C&N,  Inc., a company  controlled  by Mr.  Westfere,  for  management
services during such period.

    (4) During the fiscal year 1996, the Company paid health insurance  premiums
for Mr.  Westfere  and his  family  of  $5,972;  and  $36,000  to C&N,  Inc.,  a
corporation controlled by Mr. Westfere.

    No executive officer of the Company received compensation exceeding $100,000
for the fiscal years ended June 1998, 1997, 1996.

    COMPENSATION OF DIRECTORS. Directors are permitted to receive fixed fees and
other  compensation for their services as directors,  as determined by the Board
of Directors.  No such fees were paid to the Company's  directors for the fiscal
year 1998.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

    The following  table sets forth certain  information  concerning  the Common
Stock  ownership as of September 1, 1998, of (i) each person who is known to the
Company to be the  beneficial  owner of more than five percent of the  Company's
Common  Stock;  (ii)  all  directors;  (iii)  each  of the  Company's  executive
officers; and (iv) directors and executive officers of the Company as a group:

     NAME AND ADDRESS OF           AMOUNT AND NATURE OF
      BENEFICIAL OWNER             BENEFICIAL OWNERSHIP    PERCENT OF CLASS (8)
     ----------------              --------------------    --------------------
       Oak Holdings, Inc.              2,500,000 (1)              53.6%
         Apartado 63685
   Panama, Republic of Panama

     Grafton Holdings S.A.             2,500,000 (2)              53.6%
         Apartado 63685
   Panama, Republic of Panama

       Peter Robin Baily               2,500,000 (3)              53.6%
        Apartado 6-4569
Panama City, Republic of Panama

         Pedro Coronado                2,500,000 (4)              53.6%
        Apartado 6-2495
Panama City, Republic of Panama

     Dingaan Holdings, S.A.             992,065 (5)              21.3%(5)
      Enro Canadian Center
          First Floor
       Marlborough Street
        P.O. Box N-3802
        Nassau, Bahamas

                                       14
<PAGE>
        Todd D. Chisholm                 10,000 (6)                (8)
        50 West Broadway
           Suite 1130
   Salt Lake City, Utah 84101

         David Westfere                  46,000 (7)                (8)
       105 E. Ellis Drive
        Tempe, AZ 85282

Directors and Executive Officers         56,000 (8)                (8)
   as a Group (2 persons)
----------

    (1) These shares are held directly and of record by Oak Holdings, Inc.

    (2)  These  shares  are held and of record by Oak  Holdings,  Inc.,  Grafton
Holdings, S.A. ("Grafton") has indicated that it has direct beneficial ownership
of such  shares.  However,  the  Company  believes  that  Grafton  has  indirect
ownership of such shares as the sole corporate  director of Oak Holdings,  Inc..
As the sole corporate director of Oak Holdings, Inc., Grafton has represented to
the Company that it is responsible for the management of Oak Holdings, Inc..

    (3) These shares are held by and of record by Oak Holdings,  Inc.. Mr. Baily
has indicated to the Company that he has indirect  beneficial  ownership of such
shares by virtue of being a controlling  shareholder of Oak Holdings,  Inc. with
Pedro Coronado.

    (4) These shares are held directly and of record by Oak Holdings,  Inc.. Mr.
Coronado has indicated to the Company that he has indirect beneficial  ownership
of such shares by virtue of being a  controlling  shareholder  of Oak  Holdings,
Inc.

    (5) These shares were previously held by Teletek,  Inc., Las Vegas,  Nevada,
and were sold to Dingaan Holdings,  S.A. under a Stock Purchase  Agreement dated
December 1, 1996, the  consideration  for the transfer of the securities was the
forgiveness  of debt in the amount of two million  dollars  representing  a loan
made by Dingaan Holdings, S.A., to Teletek on August 22, 1996.

    Of the  shares  sold,  a total of  992,065  shares are now held of record by
Dingaan  Holdings,  S.A.  ("Dingaan").  Based solely upon the foregoing  shares,
Dingaan currently owns  approximately  21.3% of the total issued and outstanding
shares of Common Stock of the Company (4,666,099 shares).  In addition,  Dingaan
owns 18,000 shares of the Company's  Series B Preferred  Stock.  These shares of
Series B Preferred Stock are  convertible to 18,000,000  shares of common stock.
In the event Dingaan  converts all the Series B Preferred  Stock,  Dingaan would
own a total of  18,992,065  shares of Common  Stock,  or 80.3% of the total then
issued and outstanding shares of Common Stock of the Company.

    (6) These  shares are held  directly and of record by Todd D.  Chisholm,  an
individual.

    (7) These  shares are owned  jointly by Mr. and Mrs.  Westfere,  husband and
wife.

    (8) Less than 1%.

    (9) Percentages  reflect the beneficial  ownership of related  parties.  See
above footnotes.  The above table and footnotes  reflects the removal of certain
entities which no longer own 5% or more of the outstanding Common Stock.

                                       15
<PAGE>
    As of  September  24, 1998,  the Company had  outstanding  18,000  shares of
Series B Preferred  Stock,  all of which  shares were owned of record by Dingaan
Holdings, S.A..

    There are no arrangements  known to the Company,  the operation of which may
at a subsequent date result in a change of control of the Company.  However,  if
at any time  Dingaan  should  elect to convert  its shares of Series B Preferred
Stock into shares of Common  Stock,  control of the Company would change to that
entity upon such conversion. See Footnote 5 to the Table immediately above.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

    The  Company  pays  $3,000  per  month  to C&N,  Inc.  ("C&N"),  an  Arizona
corporation,  for management  services.  The Company paid C&N a total of $36,000
under this agreement  during the fiscal year ended June 30, 1998. Mr.  Westfere,
an officer  and  director  of the  Company,  is the  president  of C&N,  and Mr.
Westfere and his wife and their minor children are C&N's sole shareholders.  The
agreement  between  the  Company and C&N  commenced  on January 1, 1995,  and is
renewable from year to year. The agreement was negotiated  between Mr.  Westfere
and former management of the Company as part of the total  compensation  package
for Mr. and Mrs.  Westfere.  It is believed  that the terms of the agreement are
more  favorable to Mr. and Mrs.  Westfere  than the Company  could obtain with a
non-affiliated party.

    Mr. Chisholm,  a director of the Company,  performs  accounting services for
the Company. He is paid a flat fee of $920 per month for compilation and payroll
services and is paid an hourly fee for any additional  work. It is believed that
the terms of the  arrangement  are at least as favorable as the terms that could
be obtained with a non-affiliated party.

    On October 3, 1996, the Company and Mr. Michael G. Swan, formerly a director
of the  Company,  entered  into a Severance  Agreement,  pursuant to which (a) a
prior  consulting  agreement was  terminated;  (b) Mr. Swan is  prohibited  from
performing any services for the company,  or from representing  himself to be an
agent or representative of the Company, without the prior written consent of the
Company's  Chief Executive  Officer;  and (c) the Company agreed to pay Mr. Swan
$5,000 per month  through  April 1998.  The Company may  terminate the Severance
Agreement in the event Mr. Swan (i) breaches the  Severance  Agreement,  (ii) is
convicted of a felony  involving or related to his previous  employment with the
Company  or  services  provided  by him for the  benefit  of or  related  to the
Company; or (iii) dies.

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

    (a) The following  exhibits are furnished with this Report  pursuant to Item
601 of Regulation SB-2.

Exhibit No.              Description of Exhibit                             Page
-----------              ----------------------                             ----
3 (i)    Articles of Incorporation as amended                                  *

3 (ii)   Bylaws of the Company, as currently in effect                         *

3 (iii)  Certificate regarding Series A 6% Preferred Stock                   ***

3 (iv)   Certificate of Amendment of Articles of Incorporation, 
         dated June 20, 1997

3 (v)    Articles of Incorporation - Precision Plastics Molding, Inc.

3 (vi)   Bylaws - Precision Plastics Molding, Inc.

4 (a)    Form of certificate evidencing shares of Common Stock                 *

4 (b)    Form of certificate evidencing shares of Series A 6% 
         Preferred Stock                                                     ***

                                       16
<PAGE>
 10.1    Assignment and Assumption of Liabilities Agreement                   **

 10.2    Stock Purchase Agreement dated April 3, 1995 between Oak Holdings  ****
         and Teletek, Inc.

 10.3    Consulting Agreement dated April 6, 1995, between the Company 
          and Michael Swan                                                  ****

 10.4    Consulting Agreement dated January 1, 1995, between the Company
           and C&N, Inc.                                                     ***

 10.5    Severance Agreement dated October 3, 1996 between the Company
           and Michael Swan                                                   *2

 10.6    Form 12b-25 dated September 27, 1997                              *****

 10.7    Stock Purchase Agreement between Teletek, Inc. and Dingaan  
         Holdings, S.A. dated December 1, 1996 (change in control 
         of registrant)                                                   ******
         
 10.8    Asset Purchase Agreement between the Company, Precision 
         and Premier Plastics Corp, dated June 15, 1998.

 10.9    Asset Purchase Agreement between the Company, Precision 
         and Accurate Thermoplastics, Inc., dated July 15, 1998

10.10    Preferred Stock Exchange Agreement

  23     Consent of Independent Certified Public Accountants

  27     Financial Data Schedule

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

*  Incorporated  by reference to the exhibits  with the  Company's  registration
statement on Form 10-SB  (Commission File No. 0-24138) filed with the Securities
and Exchange Commission on May 13, 1994.

**  Incorporated  by  reference to the exhibits  filed with the  Company's  1994
annual  report on Form  10-KSB  (Commission  File No.  0-24138)  filed  with the
Securities and Exchange Commission on October 13, 1994.

***  Incorporated  by  reference  to  the  exhibits  filed  with  the  Company's
registration statement on Form SB-2 (Commission File No. 33-85884).

****  Incorporated by reference to the exhibits filed with the Company's Current
Report on form 8-K  (Commission  File No. 0-24138) filed with the Securities and
Exchange Commission on December 1, 1996.

***** Incorporated by reference to the Company's Form 12b-25 dated September 27,
1997.

*2  Incorporated  by  reference to the exhibits  filed with the  Company's  1996
Annual  Report on Form  10-KSB  (Commission  file No.  0-24138)  filed  with the
Securities and Exchange Commission on October 11, 1996.

******  Incorporated  by reference to the Company's  current  Report on Form 8-K
(Commission File No. 0-24138) filed with the Securities and Exchange  Commission
on March 15, 1997.

    (b) Form 8-Ks were filed  electronically  by the  Company  on June 19,  1997
(amended  July 17, 1998) and July 29, 1998  disclosing  the  acquisition  of the
assets of Premier Plastics Corp and Accurate Thermoplastics, Inc., respectively.
It also filed a Form 8-K to report a voluntary  change in  accountants,  on July
17, 1998.

                                       17
<PAGE>
                                   SIGNATURES

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


DIAMOND EQUITIES, INC.
Registrant

By /s/ David D. Westfere  
   -------------------------------------
David D. Westfere, President


Date: October 13, 1998
     -----------------

By: /s/ Todd D. Chisholm     
   -------------------------------------
Todd D. Chisholm, Chief Financial Officer


Date: October 13, 1998
     -----------------

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.


By: /s/ David D. Westfere
   -------------------------------------
David D. Westfere, Director


Date: October 13, 1998
     -----------------


By: /s/ Todd D. Chisholm
   -------------------------------------
Todd D. Chisholm, Director


Date: October 13, 1998
     -----------------
                                       18
<PAGE>
                                   FORM 10-KSB

                             DIAMOND EQUITIES, INC.

                                    EXHIBITS


 10.8    Asset Purchase Agreement between the Company, Precision and 
         Premier Plastics Corp, dated June 15, 1998

 10.9    Asset Purchase Agreement between the Company, Precision and 
         Accurate Thermoplastics, Inc., dated July 15, 1998

 10.10   Preferred Stock Exchange Agreement

  23     Consent of Independent Certified Public Accountants

  27     Financial Data Schedule


Independent Auditor's Report..............................................  F-3

Balance Sheets for the Years Ended June 30, 1998 and 1997.................  F-4

Statements of Operations for the Years Ended June 30, 1998 and 1997.......  F-6

Statements of Stockholder's Equity for the years ended June 30, 1998,
 1997 and 1996............................................................  F-8

Statements of Cash Flows for the years ended June 30, 1998, 1997 and 1996.  F-9

Notes to Financial Statements.............................................  F-10

                                       19
<PAGE>
                             DIAMOND EQUITIES, INC.

                              FINANCIAL STATEMENTS

                          JUNE 30, 1997, 1996 AND 1995


<PAGE>


                                 C O N T E N T S

                                                                       Page

INDEPENDENT AUDITORS' REPORT ............................................F-3

BALANCE SHEETS...........................................................F-4

STATEMENTS OF OPERATIONS ................................................F-6

STATEMENTS OF STOCKHOLDERS' EQUITY.......................................F-8

STATEMENTS OF CASH FLOWS.................................................F-9

NOTES TO FINANCIAL STATEMENTS ...........................................F-10



<PAGE>
INDEPENDENT AUDITORS' REPORT


OFFICERS AND DIRECTORS
DIAMOND EQUITIES, INC.
TEMPE, ARIZONA


We have audited the accompanying balance sheets of Diamond Equities,  Inc. as of
June 30, 1997 and 1996, and the related statements of operations,  stockholders'
equity, and cash flows for the years then ended. These financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these  financial  statements  based on our audits.  The  financial
statements  of Diamond  Equities,  Inc. for the year ended June 30,  1995,  were
audited by other  auditors  whose report  dated  August 28,  1995,  expressed an
unqualified opinion on those statements.

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 financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial  position of Diamond Equities,  Inc. as of
June 30, 1996 and 1997, and the results of its operations and its cash flows for
the  years  then  ended,  in  conformity  with  generally  accepted   accounting
principles.

As discussed in Note 14 to the financial  statements,  an error in the recording
of a severance agreement as of June 30, 1997, was discovered. The error resulted
in the  understatement  of  liabilities  and the  overstatement  of net  income.
Accordingly,  the June 30,  1997  financial  statements  have been  restated  to
correct the error.


Salt Lake City, Utah
August 6, 1997
except for Note 14, as to which the date is
September 28, 1998

                                       F-3
<PAGE>
                             DIAMOND EQUITIES, INC.
                                 BALANCE SHEETS
                          JUNE 30, 1997, 1996 AND 1995


                                                        1997              1996  
                                                        ----              ----  
    ASSETS

CURRENT ASSETS
  Cash and cash equivalents                           $1,586,983      $  694,293

  Receivables:
   Trade accounts receivable                              20,292          29,524
   Interest receivable                                     1,900              --
   Note receivable - current portion                      41,123              --

  Prepaid expenses                                            --           5,000
                                                      ----------      ----------
      TOTAL CURRENT ASSETS                             1,650,298         728,817

PROPERTY AND EQUIPMENT                                    20,980         707,204

OTHER ASSETS
  Deposits                                                    --           2,106
  Note receivable - noncurrent portion                   770,127              --




      TOTAL ASSETS                                    $2,441,405      $1,438,127
                                                      ==========      ==========


CERTAIN 1996 ITEMS HAVE BEEN RECLASSIFIED TO CONFORM TO THE 1997 PRESENTATION.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.


                                       F-4
<PAGE>
                             DIAMOND EQUITIES, INC.
                                 BALANCE SHEETS
                          JUNE 30, 1997, 1996 AND 1995


                                                        1997            1996    
                                                        ----            ----    
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable                                    $   112,812     $   106,997
         Accrued expenses                               107,723          32,212
Sales tax payable                                        88,098              --
Accrued preferred dividends                             194,023          84,967
Current portion of long-term liabilities                     --             770
                                                    -----------     -----------
         TOTAL CURRENT LIABILITIES                      502,656         224,946

LONG-TERM LIABILITIES                                        --         173,201
         CONTINGENT LIABILITIES                              --         132,442
                                                    -----------     -----------
               TOTAL LIABILITIES                        502,656         530,589

         COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
Preferred stock, par value $.001, 6%
    cumulative convertible, non-voting
    Authorized 100,000 shares, issued
    727 shares at stated value                        1,817,591       1,817,591
    Common stock, par value $.001
    Authorized 50,000,000 shares,
    issued 4,666,099 and 5,277,099
    shares, respectively                                  4,666           5,277
    Capital in excess of par value                    2,582,282       3,039,921
    Retained earnings (deficit)                      (2,465,790)     (3,955,251)
                                                    -----------     -----------
                TOTAL STOCKHOLDERS' EQUITY            1,938,749         907,538
                                                    -----------     -----------

                TOTAL LIABILITIES AND EQUITY        $ 2,441,405     $ 1,438,127
                                                    ===========     ===========

CERTAIN 1996 ITEMS HAVE BEEN RECLASSIFIED TO CONFORM TO THE 1997 PRESENTATION.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.


                                       F-5
<PAGE>
                             DIAMOND EQUITIES, INC.
                            STATEMENTS OF OPERATIONS
                    YEARS ENDED JUNE 30, 1997, 1996 AND 1995


                                                1997         1996       1995    
                                                ----         ----       ----    
INCOME
  Revenues                                  $        --   $      --   $      --
  Cost of sales                                      --          --          -- 
                                            -----------   ---------   ---------
                     GROSS PROFIT                    --          --          --

EXPENSES
  General and administrative expenses           225,042          --          --
  Depreciation and amortization                   4,979          --          -- 
                                            -----------   ---------   ---------
                                                230,021          --          -- 
                                            -----------   ---------   ---------
                      OPERATING LOSS           (230,021)         --          -- 
                                            -----------   ---------   ---------
OTHER INCOME (EXPENSE)
  Miscellaneous income                              896          --          --
  Interest income                                57,514       2,995       4,041
                                            -----------   ---------   ---------
                                                 58,410       2,995       4,041
                                            -----------   ---------   ---------

Income (loss) from continuing
 operations before income taxes                (171,611)      2,995       4,041

Income tax expense                                   50          --          -- 
                                            -----------   ---------   ---------

                      INCOME (LOSS) FROM
                    CONTINUING OPERATIONS      (171,661)      2,995       4,041
                                            -----------   ---------   ---------

DISCONTINUED OPERATIONS
  Loss from discontinued operations,
   net of applicable income taxes of $0,
   $50 and $50                                  (78,101)    (95,524)   (194,204)
  Gain on disposal of discontinued
   operations, net of applicable income
   taxes of $11,740                           1,848,279          --          -- 
                                            -----------   ---------   ---------
                                              1,770,178     (95,524)   (194,204)
                                            -----------   ---------   ---------

                      NET INCOME (LOSS)       1,598,517     (92,529)   (190,163)

  Preferred dividends                           109,056     109,056     109,278
                                            -----------   ---------   ---------
                      NET INCOME (LOSS)
                      ATTRIBUTABLE TO
                      COMMON STOCK          $ 1,489,461   $(201,585)  $(299,441)
                                            ===========   =========   =========

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

                                       F-6
<PAGE>
                             DIAMOND EQUITIES, INC.
                      STATEMENTS OF OPERATIONS (CONTINUED)
                    YEARS ENDED JUNE 30, 1997, 1996 AND 1995


                                            1997         1996       1995       
                                            ----         ----       ----       
PRIMARY EARNINGS (LOSS)
 PER COMMON SHARE
  Loss before discontinued operations   $   (0.06)   $    (0.02) $   (0.02)

  Discontinued operations                    0.36         (0.02)     (0.04)
                                        ----------   ----------  ----------

       PRIMARY EARNINGS
       (LOSS) PER SHARE                 $     0.30   $    (0.04) $    (0.06)
                                        ==========   ==========  ==========

       WEIGHTED AVERAGE NUMBER
       OF COMMON SHARES USED IN
       PRIMARY CALCULATION               4,971,878    4,734,544   4,666,099
                                        ==========   ==========  ==========

FULLY-DILUTED EARNINGS (LOSS)
 PER COMMON SHARE
  Loss before discontinued operations   $    (0.02)  $       --  $       --

  Discontinued operations                     0.18        --          -- 
                                        ----------   ----------  ----------

        FULLY-DILUTED EARNINGS
          PER SHARE                     $     0.16   $       --  $       -- 
                                        ==========   ==========  ==========

        WEIGHTED AVERAGE NUMBER
        OF COMMON SHARES USED IN
        FULLY-DILUTED CALCULATION        9,818,787           --          -- 
                                        ==========   ==========  ==========


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

                                       F-7
<PAGE>
                             DIAMOND EQUITIES, INC.
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                    YEARS ENDED JUNE 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
                                                 CAPITAL IN                 RETAINED       TOTAL
                              COMMON STOCK       EXCESS OF    PREFERRED     EARNINGS    STOCKHOLDERS'
                           SHARES      AMOUNT    PAR VALUE      STOCK       (DEFICIT)    (EQUITY)   
                           ------      ------    ---------      -----       ---------    --------   
<S>                     <C>         <C>       <C>           <C>         <C>           <C>        
Balance at 6/30/94        4,666,099   $ 4,666   $ 2,587,282   $1,817,591  $(3,454,225)  $   955,314
                          ---------   -------   -----------   ----------  -----------   -----------

Preferred dividends              --        --            --           --     (109,278)     (109,278)

Net loss for year ended
 6/30/95                         --        --            --           --     (190,163)     (190,163)
                          ---------   -------   -----------   ----------  -----------   -----------

Balance at 6/30/95        4,666,099     4,666     2,587,282    1,817,591   (3,753,666)      655,873

Issuance of common
 stock with warrants
 attached for $.75
 per unit                   611,000       611       457,639           --           --       458,250

Cost of stock offering           --        --        (5,000)          --           --        (5,000)

Preferred dividends              --        --            --           --     (109,056)     (109,056)

Net loss for year ended
 6/30/96                         --        --            --           --      (92,529)      (92,529)
                          ---------   -------   -----------   ----------  -----------   -----------

Balance at 6/30/96        5,277,099     5,277     3,039,921    1,817,591   (3,955,251)      907,538

Recision of common
 stock issuance            (611,000)     (611)     (457,639)          --           --      (458,250)

Preferred dividends              --        --            --           --     (109,056)     (109,056)

Net income for year
 ended 6/30/97                   --        --            --           --    1,598,517     1,598,517
                          ---------   -------   -----------   ----------  -----------   -----------

Balance at 6/30/97        4,666,099   $ 4,666   $ 2,582,282   $1,817,591  $(2,465,790)  $ 1,938,749
                          =========   =======   ===========   ==========  ===========   ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

                                       F-8
<PAGE>
                             DIAMOND EQUITIES, INC.
                            STATEMENTS OF CASH FLOWS
                    YEARS ENDED JUNE 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
                                                            1997         1996        1995      
                                                            ----         ----        ----      
<S>                                                      <C>           <C>         <C>      
CASH FLOWS FROM OPERATING ACTIVITIES
  Cash received from interest and other income           $    56,510   $   2,995   $   4,041

   Less cash paid for:
    General and administrative expenses                      223,845          --          --
    Income taxes paid to governments                              50          --          -- 
                                                         -----------   ---------   ---------
                                                             223,895          --          -- 
                                                         -----------   ---------   ---------
  Net cash flows from (used by) continuing activities       (167,385)      2,995       4,041
  Net cash flows from discontinued operations                 49,157     218,730     384,437
                                                         -----------   ---------   ---------
     Net cash flows from operating activities               (118,228)    221,725     388,478

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of property and equipment                          (4,994)         --          --
  Capital expenditures of discontinued operations            (40,617)   (148,210)   (480,913)
  Sale of property and equipment                                  --       7,500      74,500
  Proceeds from the sale of discontinued operations        1,688,750          --          --
  Cash paid for deposits                                          --          --        (979)
                                                         -----------   ---------   ---------
     Net cash flows from (used by) investing activities    1,643,139    (140,710)   (407,392)

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from loans                                             --          --     125,294
  Cash used to reduce short-term borrowing                        --          --     (13,496)
  Cash used to reduce long-term liabilities                 (173,971)       (882)         --
  Cash used to pay dividends                                      --     (24,089)   (113,759)
  Cash used to rescind stock issuance                       (458,250)         --          --
  Cash received from issuance of stock                            --     453,250          -- 
                                                         -----------   ---------   ---------
     Net cash flows from (used by) financing activities     (632,221)    428,279      (1,961)
                                                         -----------   ---------   ---------
     NET INCREASE (DECREASE) IN
     CASH AND CASH EQUIVALENTS                               892,690     509,294     (20,875)

     CASH AND CASH EQUIVALENTS
     AT BEGINNING OF YEAR                                    694,293     184,999     205,874
                                                         -----------   ---------   ---------
     CASH AND CASH EQUIVALENTS
     AT END OF YEAR                                      $ 1,586,983   $ 694,293   $ 184,999
                                                         ===========   =========   =========
</TABLE>

NON-CASH FINANCING ACTIVITIES
During  the year ended  June 30,  1997 the  Company  sold  equipment  for a note
receivable totaling $811,250.

During the year ended June 30, 1996 the Company acquired office equipment with a
cost of $5,410 through a capital lease.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

                                       F-9
<PAGE>
                             DIAMOND EQUITIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                          JUNE 30, 1997, 1996 AND 1995


NOTE 1 -       SIGNIFICANT ACCOUNTING POLICIES
               The Company's  accounting  policies conform to generally accepted
               accounting  principles.  The following policies are considered to
               be significant:

               NATURE OF OPERATIONS
               The  Company  was  incorporated  on July  24,  1987  as a  Nevada
               corporation under the name KTA Corporation. In February, 1989 the
               Company began operating pay telephones in the Reno,  Nevada area.
               On  September  25,  1989 the  Company  changed its name to United
               Payphone  Services,  Inc.  The Company  moved its  operations  to
               Arizona  where it  operated  pay-telephones  in the  Phoenix  and
               Tucson  areas.  On November  15, 1996 the Company sold all of its
               pay-telephone assets to Tru-Tel Communications,  LLC. On June 20,
               1997 the Company changed its name to Diamond Equities, Inc.

               USE OF ESTIMATES IN THE 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  reported  amounts of
               assets  and  liabilities,  disclosure  of  contingent  assets and
               liabilities at the date of the financial statements, and revenues
               and expenses  during the  reporting  period.  In these  financial
               statements,  assets, liabilities,  and earnings involve extensive
               reliance on management's  estimates.  Actual results could differ
               from those estimates.

               CASH AND CASH EQUIVALENTS
               Cash and cash  equivalents  include all cash  balances and highly
               liquid  investments  with original  maturities of less than three
               months.

               ACCOUNTS RECEIVABLE
               Accounts receivable balances considered uncollectible are written
               off and bad debt expense is recognized using the direct write-off
               method.  No allowance for  uncollectible  accounts is recognized.
               The  difference  between  the  direct  write-off  method  and the
               allowance method is not considered material.

               REVENUE RECOGNITION
               Revenue  from  the  discontinued   pay-telephone   operation  was
               recognized  upon  receipt  of coin  and  rendering  of  telephone
               service.

               DEPRECIATION
               Depreciation  expense is computed using the straight-line  method
               in amounts sufficient to write off the cost of depreciable assets
               over their estimated useful lives.

                                       F-10
<PAGE>
                             DIAMOND EQUITIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                          JUNE 30, 1997, 1996 AND 1995


NOTE 1 -       SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
               DEPRECIATION (CONTINUED)
               Normal  maintenance  and  repair  items are  charged to costs and
               expenses as incurred.  The cost and  accumulated  depreciation of
               property and equipment sold or otherwise retired are removed from
               the accounts and gain or loss on  disposition is reflected in net
               income in the period of disposition.

               INCOME TAXES
               Income  taxes are  provided  for the tax effects of  transactions
               reported in the financial  statements and consist of income taxes
               currently  due plus  deferred  income tax  charges  and  credits.
               Deferred  tax assets are  evaluated  for their  potential  future
               benefit to the Company and valuation  allowances are  established
               based on such analysis.

               EARNINGS (LOSS) PER COMMON SHARE
               Net earnings  (loss) per common share is  calculated  by dividing
               net income  (loss)  attributable  to common stock by the weighted
               average number of common shares  outstanding.  The calculation of
               fully  diluted  earnings  per  share  assumes  conversion  of the
               preferred  stock  and  the  elimination  of the  preferred  stock
               dividend.  Fully diluted  earnings per share were not reported in
               1996 and 1995 because they were greater than primary earnings per
               common share.

NOTE 2 -       CASH AND CASH EQUIVALENTS
               The Company maintains cash balances at banks in Arizona. Accounts
               are insured by the Federal  Deposit  Insurance  Corporation up to
               $100,000. At June 30, 1997, the Company's uninsured bank balances
               total $1,368,674 ($358,550 for 1996).

NOTE 3 -       NOTE RECEIVABLE
               On November 15, 1996 the Company  sold all of its assets  related
               to the operation of the  pay-telephone  business (see Note 9). In
               connection  with the sale of the assets,  the Company  received a
               note  receivable  totaling  $811,250.  The note is payable to the
               Company in monthly  installments of $14,000 including interest at
               8% per annum,  beginning  February 15, 1997, with the balance due
               January 15, 2002.


                                       F-11
<PAGE>
                             DIAMOND EQUITIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                          JUNE 30, 1997, 1996 AND 1995

NOTE 3 -       NOTE RECEIVABLE (CONTINUED)
               As  discussed  in Note 7, no payments  have been  received on the
               note and the Company has commenced  legal  proceedings to collect
               the amount. The Company reports impaired loans in accordance with
               SFAS No. 114, "Accounting by Creditors for Impairment of a Loan",
               as  amended  by  SFAS  No.  118,  "Accounting  by  Creditors  for
               Impairment  of a  Loan".  This  accounting  standard  defines  an
               impaired loan as any loan where the creditor is unable to collect
               all  the  amounts  due  according  to  the  contractual  interest
               payments and contractual  principal  payments as scheduled in the
               loan agreement.  The note  receivable  discussed above meets this
               definition for an impaired loan. Management is unable to estimate
               the amount of the  impairment  and  therefore  the Company has no
               valuation allowance against the note receivable.  Interest income
               on impaired loans is recognized only when payments are received.

NOTE 4 -       PROPERTY AND EQUIPMENT
               Property and  equipment as of June 30, 1997 and 1996 are detailed
               in the following summary:

                                                    ACCUMULATED      NET BOOK
          1997                             COST     DEPRECIATION      VALUE    
          ----                             ----     ------------      -----    
          Furniture and fixtures        $   21,368     $7,295        $ 14,073
          Office equipment                   7,367      2,323           5,044
          Automobiles                        2,192        329           1,863
                                        ----------     ------        --------
          
                                        $   30,927     $9,947        $ 20,980
                                        ==========     ======        ========

                                                      ACCUMULATED     NET BOOK
          1996                              COST      DEPRECIATION     VALUE
          ----                              ----      ------------     -----
          Furniture and fixtures        $   22,544     $   11,569    $ 10,975
          Office equipment                  92,536         59,578      32,958
          Automobiles                       64,804         37,785      27,019
          Payphones                      1,650,865      1,559,959      90,906
          Payphone accessories             379,002        179,842     199,160
          Payphone installations           475,554        161,004     314,550
          Property improvements             32,121          5,084      27,037
          Equipment under capital leases     5,410            811       4,599
                                        ----------     ----------    --------

                                        $2,722,836     $2,015,632    $707,204
                                        ==========     ==========    ========

                                       F-12
<PAGE>
                             DIAMOND EQUITIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                          JUNE 30, 1997, 1996 AND 1995

NOTE 5 -       SALES TAX PAYABLE
               During March,  1993, the Arizona Department of Revenue assessed a
               sales tax  deficiency  of $73,680  against  the  Company  for the
               period from January 1, 1990 through January 31, 1993 with respect
               to coin revenues from privately operated pay-telephones. A timely
               protest  was  filed  with  the  Department  of  Revenue   seeking
               abatement of the entire  assessment.  The basis of the protest is
               the  taxability  of coin  revenue  under  the  classification  of
               telecommunications  which is  defined  under  Arizona  law as the
               transmitting of a signal.

               The  Company's  protest  was  consolidated  with  those  of other
               private  pay  telephone   operators.   A  favorable   ruling  was
               originally  received from a Department  of Revenue  officer which
               was overturned by the Director of the  Department of Revenue.  An
               appeal was made before the Arizona  State Board of Tax Appeals in
               October, 1995.

               Previously the Company has  recognized a contingent  liability of
               $132,442 for the  estimated  sales tax due. On January 29, 1997 a
               preliminary settlement was agreed to whereby the Company will owe
               $88,098  for sales  taxes for the  period  from  January  1, 1990
               through   November,   1997.  The  difference  in  the  previously
               recognized  contingent  liability  and the  settlement  amount of
               $44,344  has  been   recognized   as  a  gain  and   included  in
               discontinued operations.


NOTE 6 -       LONG-TERM LIABILITIES
                                                               1997      1996   
                                                               ----      ----   
               Note payable to related party, principal and
                interest due September, 1997, bearing
                interest at 8%, unsecured                    $   --    $ 55,683

               Note payable to related party, principal and
                interest due September, 1997, bearing
                interest at 8%, unsecured                         --    113,760

               Capital lease payable to vendor in monthly  
                installments of $106, due December, 2001, 
                bearing interest at 12%, secured by
                equipment                                         --      4,528
                                                             -------   --------
                                                                  --    173,971
               Less current portion                               --       (770)
                                                             -------   --------

               Long-term portion                             $   --    $173,201
                                                             =======   ========

                                       F-13
<PAGE>
                             DIAMOND EQUITIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                          JUNE 30, 1997, 1996 AND 1995

NOTE 7 -       COMMITMENTS AND CONTINGENCIES
               CONCENTRATION OF CREDIT RISK
               In connection with the sale of its pay-telephone operations,  the
               Company  received  a  promissory  note  in the  principal  sum of
               $811,250.  Monthly  payments  of  $14,000  on the  note  were  to
               commence on February  15,  1997.  To date no payments on the note
               have been  received.  On March 18, 1997 a complaint for breach of
               contract was filed with the Eighth Judicial  District Court.  The
               complaint  alleges  an  anticipatory  breach  by  the  defendant,
               Tru-Tel  Communications,  LLC, issuer of the promissory note. The
               complaint  also  names as party  defendants,  the  principals  of
               Tru-Tel  Communications,   LLC  and  Finova  Capital  Corporation
               (provider of the financing used to purchase the assets.)

               The  defendants  have  responded  by issuing  counterclaims.  The
               counterclaims allege that the revenues of the Company reported to
               Tru-Tel  Communications,  LLC and Finova Capital Corporation were
               purportedly   overstated  at  the  time  of  the  asset  purchase
               agreement.   The  Company  intends  to  vigorously   contest  the
               counterclaims  and pursue the original  claims  against all party
               defendants.  While it is not  feasible at this time to predict or
               determine  the  ultimate  financial  outcome  of  the  complaint,
               management  does  not  believe  that  it  will  be  party  to any
               unfavorable judgments.

               Other  amounts  due  from  Tru-Tel  Communications,  LLC  include
               $40,562  of  interest  receivable  on the note which has not been
               accrued.  The Company  also paid $18,899 of expenses on behalf of
               Tru-Tel  Communications,  LLC  during the  transition  to the new
               ownership. This amount is included in accounts receivable.

               LEGAL FEES
               The Company has entered into a contingency fee agreement with the
               attorneys  that are  representing  the  Company  in the sales tax
               issue  described  in Note 5. The  agreement  sets the  contingent
               legal fees at one third of the decrease obtained in the sales tax
               due to the Arizona Department of Revenue. The Company has accrued
               $38,580 in legal  fees and has  included  such  amount in accrued
               expenses.  Management feels that the amount accrued is sufficient
               to cover the  legal  fees that  will be  required  upon  ultimate
               settlement of the sales tax issue.


                                       F-14
<PAGE>
                             DIAMOND EQUITIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                          JUNE 30, 1997, 1996 AND 1995


NOTE 8 -       CAPITAL STOCK
               PREFERRED STOCK
               The   Company   has   outstanding   727  shares  of   cumulative,
               convertible,   preferred   stock  at  June  30,  1997  and  1996.
               Cumulative dividends at 6% are payable annually. Dividends are in
               arrears to the amount of $194,023.  Each share of preferred stock
               is convertible at the option of the holder at a rate equal to 75%
               of the  average  bid price of the common  shares for the ten days
               prior to the conversion  date. The preferred  stock is redeemable
               by the  Company at the cash  price  paid for the shares  plus the
               amount of any dividends  accumulated and unpaid as of the date of
               redemption.

               WARRANTS
               Stock purchase  warrants were issued in connection  with the May,
               1996  issuance of common  stock.  The  offering was made in units
               consisting of two shares of common stock, one class A warrant and
               one class B warrant. As a result of the sale of the operations of
               the Company,  the May, 1996 stock issuance,  including  warrants,
               was rescinded.


NOTE 9 -       DISCONTINUED OPERATIONS
               On November 15, 1996 the Company  entered into an asset  purchase
               agreement  with  Tru-Tel  Communications  LLC  whereby all of the
               assets  related to the  operation of the  pay-telephone  business
               were sold.  Proceeds from the sale included $1,688,750 cash and a
               promissory   note   (see   Note   3)   for   $811,250.    Tru-Tel
               Communications,  LLC  assumed  the  Company's  capital  lease  on
               equipment  and  operating  leases  on  facilities.   The  Company
               recorded  a gain on the sale of the  assets of  $1,848,279  after
               taxes.   Revenues  from  the  discontinued   operations   totaled
               $835,858,  $2,127,574 and $2,074,244 for the years ended June 30,
               1997, 1996 and 1995, respectively.


NOTE 10 - INCOME TAXES
               The Company  uses an asset and  liability  approach to  financial
               accounting and reporting for income taxes. The difference between
               the  financial  statement  and  income  tax bases of  assets  and
               liabilities is determined  annually.  Deferred  income tax assets
               and  liabilities  are  computed for those  differences  that have
               future income tax  consequences  using the currently  enacted tax
               laws and  rates  that  apply  to the  periods  in which  they are
               expected  to affect  taxable  income.  Valuation  allowances  are
               established,  if  necessary,  to reduce the  deferred  income tax
               asset to the amount that will more  likely than not be  realized.
               Income tax expense is the current tax payable or  refundable  for
               the  period  plus or minus  the net  change in the  deferred  tax
               assets and liabilities.

                                       F-15
<PAGE>
                             DIAMOND EQUITIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                          JUNE 30, 1997, 1996 AND 1995


NOTE 10 - INCOME TAXES (CONTINUED)
               Income taxes payable as of June 30, 1997 and 1996 are detailed in
               the following summary:
                                                    1997         1996       
                                                    ----         ----       

               Currently payable                  $  11,790   $        50
                                                  =========   ===========

               Deferred income tax liability      $ 324,000   $        --

               Deferred income tax asset            725,000     1,257,000
               Valuation allowance                 (401,000)   (1,257,000)
                                                  ---------   -----------
               Net deferred income tax asset        324,000            -- 
                                                  ---------   -----------

               Net deferred income tax liability  $      --   $        -- 
                                                  =========   ===========

               The  deferred  tax  assets   result  from  net   operating   loss
               carryforwards  available and  carryforwards of credits  resulting
               from alternative minimum taxes paid.

               At  June  30,   1997,   the  Company  had  net   operating   loss
               carryforwards  available to offset future  income taxes  totaling
               $1,742,141  expiring  from 2003 and 2011.  The net  change in the
               valuation allowance for deferred income tax assets was a decrease
               of $856,000,  related to the  utilization  of net operating  loss
               carryforwards.

               The tax  effects  of  temporary  differences  that  give  rise to
               significant  portions of the deferred tax assets and deferred tax
               liabilities at June 30 are as follows:

                                                           1997        1996
                                                           ----        ----
              Deferred income tax assets:
                Net operating loss carryforwards        $ 713,260   $ 1,257,000
                Credit for alternative minimum 
                  taxes paid                               11,740            -- 
                                                        ---------   -----------
              Total gross deferred income tax assets      725,000     1,257,000

              Less valuation allowance                   (401,000)   (1,257,000)
                                                        ---------   -----------
              Net deferred income tax asset               324,000            -- 
                                                        ---------   -----------
              Deferred income tax liabilities:
                Difference on note receivable             324,000            -- 
                                                        ---------   -----------

              Total gross deferred income tax liability   324,000            -- 
                                                        ---------   -----------

              Net deferred income tax liability         $      --   $        -- 
                                                        =========   ===========

                                       F-16
<PAGE>
                             DIAMOND EQUITIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                          JUNE 30, 1997, 1996 AND 1995


NOTE 10 - INCOME TAXES (CONTINUED)
               The  reconciliation  of the  differences  between the  statutory 
               U.S. federal income tax rate and the Company's effective tax rate
               is as follows:

                                                1997      1996    1995       
                                                ----      ----    ----       

                 U.S. Statutory Rate             34.0%  (34.0%) (34.0%)

                 State income tax, net of
                  federal benefit                  --      --      --

                 Effect of net operating loss
                  carryforward and valuation
                  allowance                     (34.0%)  34.0%   34.0%
                                                -----    ----    ----

                 Effective tax rates               --      --      -- 
                                                =====    ====    ====

NOTE 11 - CASH FLOWS FROM OPERATING ACTIVITIES
              The following schedule reconciles net income (loss) as reported in
              the accompanying statements of operations with net cash flows from
              operating activities in the statements of cash flows:

                                                1997         1996       1995    
                                                ----         ----       ----    
               Net income (loss)             $ 1,598,517   $(92,529)  $(190,163)

               Adjustments to reconcile
                net income (loss) to net
                cash flows from operating
                activities:
                Loss from
                 discontinued operations          78,101     95,524     194,204
                Gain on sale of discontinued
                operations                    (1,848,279)        --          --
                Depreciation and amortization
                 expense                           4,979         --          --

               (Increase) decrease in assets:
                Accounts receivable                9,232         --          --
                Interest receivable               (1,900)
                Prepaid expenses and deposits      8,742         --          --

                                       F-17
<PAGE>
                             DIAMOND EQUITIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                          JUNE 30, 1997, 1996 AND 1995

NOTE 11 - CASH FLOWS FROM OPERATING ACTIVITIES (CONTINUED)

                                                    1997        1996      1995  
                                                    ----        ----      ----  
             Increase (decrease) in liabilities:
              Accounts payable                        5,815         --        --
              Accrued expenses                      (22,592)        --        --
                                                  ---------   --------  --------
              Net cash flows from (used
               by) continuing activities           (167,385)     2,995     4,041
              Net cash flows from
               discontinued operations               49,157    218,730   384,437
                                                  ---------   --------  --------

                   Net cash flows from
                   operating activities           $(118,228)  $221,725  $388,478
                                                  =========   ========  ========
NOTE 12 - FAIR VALUES OF FINANCIAL INSTRUMENTS
               The following disclosure of the estimated fair value of financial
               instruments is made in accordance  with the  requirements of SFAS
               No. 107, "Disclosure about Fair Value of Financial  Instruments".
               The carrying  amounts and fair value of the  Company's  financial
               instruments at June 30, 1997 and 1996 are as follows:

                                                    CARRYING         FAIR
               1997                                 AMOUNTS          VALUES     
               ----                                 -------          ------     
               Cash and cash equivalents         $  1,586,983     $  1,586,983
               Note receivable including
                current maturities                    811,250          724,320
               Preferred stock                      1,817,591        2,682,152

                                                    CARRYING          FAIR
               1996                                 AMOUNTS          VALUES     
               ----                                 -------          ------     
               Cash and cash equivalents         $    694,293     $    694,293
               Long-term debt including
                current maturities                    173,971          173,971
               Preferred stock                      1,817,591        2,536,744
               Warrants, Class A                        -                3,055
               Warrants, Class B                        -                3,055
                                       F-18
<PAGE>
                             DIAMOND EQUITIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                          JUNE 30, 1997, 1996 AND 1995

NOTE 12 - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
               The following methods and assumptions were used by the Company in
               estimating its fair value disclosures for financial instruments.

               CASH AND CASH EQUIVALENTS
               The carrying  amounts  reported on the balance sheet for cash and
               cash equivalents approximate their fair value.

               NOTE RECEIVABLE
               The fair value of the note  receivable  was  determined  based on
               discounted  cash flow  analysis  using a discount rate similar to
               financial instruments with similar risk.

               LONG-TERM DEBT
               At June 30, 1997, the Company had no long-term  debt. At December
               31, 1996, the fair values of long-term  debt are estimated  using
               discounted cash flow analysis based on the Company's  incremental
               borrowing rate as the discount rate.

               PREFERRED STOCK
               The  Company's   preferred  stock  is  not  publicly  traded  and
               therefore  a fair value is not  readily  available.  Based on the
               conversion  ratio of the preferred  stock and the current  market
               value of the common stock, a fair value estimate was determined.

               WARRANTS
               At  June  30,  1997,  the  Company  had  no  warrants  issued  or
               outstanding.  At June  30,  1996,  the fair  value  of the  stock
               purchase  warrants was estimated based on the redemption value of
               the warrants.  During the first 30 days after the issuance of the
               warrants the Company had the right to redeem the warrants at $.01
               per warrant. This is the basis of the fair value estimate.


NOTE 13 - RELATED PARTY TRANSACTIONS
               As  described  in Note 6, the  Company  had  notes  payable  to a
               related party. The related party is a significant  shareholder in
               the Company.

               As described in Note 14, the Company has entered into a severance
               agreement with an  individual.  The individual is a related party
               by virtue of stock ownership in the Company.

                                       F-19
<PAGE>
                             DIAMOND EQUITIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                          JUNE 30, 1997, 1996 AND 1995

NOTE 14 -      SUBSEQUENT DISCOVERY OF AN ERROR
               In September,  1998 an error was  discovered in the June 30, 1997
               financial  statements.  The Company  had a  long-term  consulting
               agreement  with a  shareholder.  The  agreement  called  for  the
               payment  of a monthly  consulting  fee of  $5,000.  For the years
               ended  June 30,  1995 and 1996 the  total  consulting  fees  were
               $60,000  and  $60,000.   Such  amounts  have  been   included  in
               discontinued operations.

               During October 1996,  the Company  modified the agreement to be a
               severance agreement.  The severance agreement called for the same
               payments of $5,000 per month.  At June 30, 1996 there was $47,783
               remaining  to be paid on the  agreement,  which was not  accrued.
               This resulted in an understatement of liabilities by $47,783,  an
               understatement  of the loss  before  discontinued  operations  of
               $35,000  and  an  overstatement   of  income  from   discontinued
               operations  of  $82,783.  The net  effect of the error on the net
               income amount was an overstatement of $47,783.

               The financial statements have been restated to reflect the proper
               treatment of the  modification  of the  agreement.  The total fee
               associated with the  consulting/severance  agreement for the year
               ended June 30, 1997 was  $107,783,  all of which was  included in
               discontinued operations.


                                       F-20