<PAGE> 1




                   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 (Fee required)
For the fiscal year ended  June 30, 1996

Transition report under Section 13 or 15(d) of the Securities Exchange Act of 
1934 (No fee required)

     For the transition period from             to

                 Commission File Number: 0-24138


                       UNITED PAYPHONE SERVICES, INC.
               (Name of Small Business Issuer in its Charter)
     

     
                 Nevada                                                        
                                                         88-0232816 
       State or Other Jurisdiction of       (I.R.S. EmployeIdentification No.)
       Incorporation or Organization     

            1725 West Third Street- Tempe. Arizona       85281
           (Address of Principal Executive Offices)   (Zip Code)

                                     (602) 829-8777
                    (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 required to be filed by 
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such 
shorter period that the registrant was required to file such reports), and (2) 
has been subject to such filing requirements for the past 90 days.

           Yes X        No

Check 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 definitive 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> 2

     The issuer's revenues for the year ended June 30, 1996, were $2,127,574.

The aggregate market value of the voting stock held by non-affiliates 
(approximately 1,775,034 shares as of September 27, 1996) based upon the 
average of the bid and asked prices of such stock as of September 27, 1996, as 
reported on the Electronic Bulletin Board, was $1,109,396.

The number of shares of Common Stock of the issuer outstanding as of September 
27, 1996, was 5,277,099.

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

Documents Incorporated by Reference:

Certain exhibits required to be filed herewith are incorporated by reference 
from the issuer's registration statement on Form 10-SB (Commission File No. 
0-24138) filed with the Commission on May 13, 1994.  Also incorporated by 
reference into this Form 10-KSB are certain exhibits filed with the Company's 
1994 Annual Report on Form 10-KSB, the exhibits filed with the Company's 
Registration Statement on  Form SB-2 (Commission File Number 33-85884) filed 
with the Commission on October 24, 1994, and the exhibits filed with the 
Company's Current Report on Form 8-K filed with the Commission on April 12, 
1995.


<PAGE>  3

                                   TABLE OF CONTENTS

                                                                 Page No.
PART I

 Item 1. Description of Business . . . . . . . . . . . . . . . . . .  1

 Item 2. Description of Property . . . . . . . . . . . . . . . . . .  7

 Item 3.  Legal Proceedings . . . . . . . . . . . . . . . . . . . .   7

 Item 4.  Submission of Matters to a Vote of Security Holders . . .   9

PART II


 Item 5. Market Price of and Dividends on the Registrant's
         Common Equity and Other Stockholder Matters . . . . . . . .  9

 Item 6.  Management's Discussion and Analysis or Plan of Operation  10

 Item 7.  Financial Statements . . . . . . . . . . . . . . . . . .   13

 Item 8.  Changes in and Disagreements With Accountants . . . . . .  13

 Item 9.  Directors, Executive Officers, Promoters and
          Control Persons . . . . . . . . . . . . . . . . . . . . .  13

PART III


 Item 10. Executive Compensation . . . . . . . . . . . . . . . . .   15

 Item 11. Security Ownership of Certain Beneficial Owners and 
          Management . . . . . . . . . . . . . . . . . . . . . . .   17

 Item 12. Certain Relationships and Related Transactions . . . . .   19

 Item 13. Exhibits List and Reports on Form 8-K . . . . . . . . . .  20

<PAGE>  4

PART I

Item 1. Description of Business.

Glossary of Terms

For purposes of this Form 10-KSB, the following terms shall be as defined as 
follows:

       FCC  is the Federal Communications Commission.

InterLATA calls are telephone calls between local access and transport areas.

LEC  is a local exchange carrier, which is a company providing local telephone 
services (for instance, in the Company's area of operations, U.S. West)  

Non-coin calls are calling card, credit card, collect and third-party billed 
calls.

OSP means an operator services provider, such as AT&T or Sprint.

          Property Owners are the owners of the locations, such as convenience 
stores, service stations, grocery stores, hotels, shopping centers, truck 
stops, and airports, at which public pay telephones are installed.

General

United Payphone Services, Inc. (the " Company") was incorporated in the State 
of Nevada on July 24, 1987, under the name "KTA Corporation."  On September 
25, 1989, the Company changed its name to United Payphone Services, Inc.  The 
Company is in the business of operating, servicing and maintaining a system of 
privately-owned (non-LEC) public pay telephones located in the State of 
Arizona.  The Company currently generates revenues from coin calls and 
non-coin calls made from its approximately 890 pay telephones.  Approximately 
510 of these telephones are located in the metropolitan Phoenix area, 
approximately 280 of these telephones are located in the metropolitan Tucson 
area, and the remainder of the Company's telephones are located in other areas 
of Arizona.  All of these pay telephones, in addition to approximately 70 
telephones which are currently unused, are owned by the Company.  The pay 
telephones are generally installed in locations where the demand for pay 
telephone service is heaviest, such as convenience stores, service stations, 
hotels, shopping centers, and restaurants.  The Company does business in the 
State of Arizona under the name "U.S. Payphone, Inc."

Prior to December 1994, the Company's operations were located in Las Vegas, 
Nevada.  In December 1994, the Company sold all of its pay telephone location 
contracts in Las Vegas, Nevada to unrelated third parties.  The Company 
retained all of its pay telephone equipment as part of this sale.  After 
completing this sale, the Company relocated its pay telephone equipment in 
Arizona.  The foregoing sale was consummated because the Company believed its 
competitors in Las Vegas engaged in unreasonable methods of competition and 
that the Company would be forced to continue to engage in costly litigation to 
compete in the Las Vegas market. 

<PAGE> 5

In September 1996, the Company completed the sale of 305,500 Units pursuant to 
an SB-2 Registration Statement and Prospectus dated February 8, 1996.  The 
Company realized gross proceeds of $458,250 from the offering (before 
deduction of expenses associated with the offering).  Each Unit sold in such 
offering consisted of two shares of Common Stock, one Class A Warrant and one 
Class B Warrant.   Each Class A Warrant entitles the holder thereof to 
purchase one share of Common Stock at an exercise price of $1.25 at any time 
prior to February 8, 1998, and each Class B Warrant entitles the holder 
thereof to purchase one share of Common Stock at an exercise price of $1.3125 
at any time prior to February 8, 1999.  The Class A Warrants and the Class B 
Warrants may be redeemed by the Company during a 30-day period on not less 
than 30 days' prior written notice at a redemption price of $.01 per Warrant, 
provided that the closing price of the Common Stock exceeds  (i)  $1.2375 per 
share of Common Stock with respect to redemption of the Class A Warrants,  and 
(ii) $1.44375 per share of Common Stock with respect to redemption of the 
Class B Warrants, for 20 consecutive business days within any period of 30 
consecutive business days ending within 10 days preceding the notice of 
redemption.

Industry Background

In 1984, a ruling by the U.S. District Court for the District of Columbia in 
the well-documented Bell System antitrust divestiture case, United States v. 
American Telephone & Telegraph Company, created various business opportunities 
in the telecommunications industry.  In 1985, the FCC and most of the state 
public service commissions followed this initiative by authorizing the 
connection of competitive or privately owned public pay telephones to the 
public switched network.  Prior to that time, the Bell System and other 
monopoly LECs owned all public telephones in the United States.

     Prior to 1987, coin calls were the sole source of revenue for independent 
public pay telephone companies.  Long distance calling card and collect calls 
from these pay telephones were handled exclusively by AT&T.  All revenue, 
except the coins deposited in public pay telephones, went to AT&T rather than 
to the owner of the public pay telephone.  Beginning in 1987, a competitive 
operator service system developed which allowed OSP's to offer independent
public pay telephone companies commissions for directing operator assisted or 
calling card calls to them.

The Company's Coin Call Revenues

The Company's pay telephones generate coin revenues from interstate and 
intrastate long distance calls and local calls.  For the fiscal years ended 
June 30, 1996 and 1995, the Company's total coin revenues represented 
approximately 66.0% and 65.7%, respectively, of the Company's total revenues.  
The Company estimates that 80-85% of its gross coin revenues for the fiscal 
year ended June 30, 1996 were derived from local calls.  The fact that "busy" 
and non-connect calls are part of the Company's billing system, but generate 
no revenues, prevents the Company from calculating exact figures for local 
calls.  The Company charges the same rates for local coin calls as the LEC's 
charge.  The LEC's typically charge $0.25 for a local coin call in Arizona.

<PAGE> 6

The Company's Non-Coin Call Revenues 

In April 1994, the Company entered into a week-to-week agreement with Unitec, 
Inc. ("Ul") pursuant to which UI provides operator and long-distance service 
for all calls made from all of the Company's pay telephones.  The Company 
receives a percentage of the revenue from all non-coin telephone calls placed 
from the Company's pay telephones which are billed by UI.  These amounts are 
paid each week by Ul.  The agreement with Ul may be terminated at any time by 
either party.  The Company is not required to send a minimum number of 
billable interstate or intrastate minutes to Ul.    For the years ended June 
30, 1996 and 1995, the Company generated approximately 34.0% and 34.3%, 
respectively, of its total revenues from non-coin telephone calls.

Site Selection

The Company attempts to locate its pay telephones where there is a 
demonstrated high demand for public pay telephone service based upon high foot 
traffic or a reason for a patron to stop, such as at a truck stop.  Each 
location is evaluated by the Company's local manager for suitability based 
upon the past personal experience of the manager in the pay telephone 
business.  Generally, each such manager must have worked for the Company for 
at least three years performing technical and installation services related to 
the pay telephones before becoming a manager.  In addition, managers must be 
familiar with all aspects of the pay telephone business, including 
installation, service and maintenance, collections, and computer support.  If 
available from the LEC, the performance history of each potential location is 
obtained by the prospective Property Owner and is evaluated by the Company's 
manager.  If such performance history is not available, locations are 
generally selected based upon the experience of the manager in the geographic 
area of the proposed new location.  If a pay telephone fails to perform as 
anticipated within three to six months, it is generally removed and placed in 
a new location.

The Company has focused its efforts on securing accounts with small local 
businesses rather than with larger national accounts with the belief that the 
loss of a single large national account could have a material adverse change 
on the Company's operations.  The Company utilizes a sales force in securing 
locations for its pay telephones.  This sales force is composed of one 
full-time and two part-time salespersons who are compensated solely by 
commissions generated from their sales.  The Company generally allows its 
salespersons to take a draw against future commissions earned.

The Company's pay telephones are installed pursuant to agreements with 
Property Owners.  Most of these agreements are written.  Each of the 
agreements has a specified term, generally for five years.  Each agreement 
provides for a revenue sharing arrangement between the Company and the 
particular Property Owner, which is generally a percentage of either the gross 
or net coin and non-coin revenue generated from the use of the pay 
telephones.  The percentage of revenue paid to the Property Owner is generally 
fixed for the period of the agreement.  The agreements typically allow the 
Company to terminate the agreement in the event the telephone fails to 
generate at least $200 per month in profit; the agreements are typically not 
terminable by the Property Owner.

The Company is obligated to service, clean, and maintain the pay telephone 
equipment installed pursuant to the placement agreements.  Ownership of the 
pay telephone equipment remains with the Company, and the Company is obligated 
to maintain insurance on the pay telephone equipment.

<PAGE> 7

Service and Maintenance

The Company maintains a staff of eight telephone technicians located in the 
various areas in which the Company's pay telephones are located.  The software 
system used with the telephones enables the Company via modem to diagnose the 
vital functions of the telephones and to count the coins in the pay telephones 
on a daily basis.  Such software programs are obtained from the manufacturers 
of the pay telephones by means of a license granted to the Company to use the 
software with such pay telephones.  In addition, the Company owns a software 
system which enables the Company to compute the commissions due to each 
Property Owner based upon actual collections.

The Company's pay telephones are polled via modem on a daily basis for 
potential operational problems and for coin counts.  This routine allows the 
Company to respond quickly to any suspected problems at its pay telephones and 
to collect the coins on a scheduled basis.  Generally, the Company is able to 
determine possible problems at its pay telephones before the telephone users 
report the problems to the Company.  As a result of the Company's computer 
system, the Company's telephones are usually repaired within 24 hours.  This 
system also enables the Company to reduce the number of visits required to 
maintain the operation of and collect the coins from each pay telephone.

Based upon the results of the polling of each of the telephones each night, 
the Company can determine which of the telephones requires collection or 
service.  The Company's service technicians are authorized to remove the coin 
boxes from the pay telephones.  Upon removing the sealed coin box from the pay 
telephone, the technician is unaware of the number of coins in the coin box, 
while management, through use of the pay telephone software system, has an 
accurate count of the coins.  Once the coin boxes are returned to the office 
of the Company, the coin boxes are opened by the office manager and the coins 
are counted.  The amount in each coin box is recorded and compared with the 
information provided by the software system.  The Company reconciles variances 
at each telephone on a regular basis.

Vandalism has had a negligible effect upon the operations or profitability of 
the Company's pay telephones.  Management estimates that approximately one 
percent of the Company's pay telephone equipment is vandalized on a weekly 
basis.  Such vandalism usually consists of damage to the handsets.  If 
vandalism at a particular location persists, management usually will relocate 
the pay telephones to a more secure location at the same site or will stake 
out the location to catch the vandals.  The Company has rarely been forced to 
completely remove a pay telephone because of vandalism.

     The Company believes that unauthorized use of the Company's long-distance 
service by so-called "hackers" has been substantially eliminated and had an 
immaterial effect on the Company's results of operations in the fiscal year 
ended June 30, 1996.  If a hacker charges an unauthorized long distance 
telephone call to one of the Company's pay telephones, the Company can notify 
the long distance carrier and receive credit for such call.  Management 
estimates that its current arrangements with its long distance carrier 
prevents approximately 90 percent of such unauthorized calls from being 
placed; management also estimates that it is able to identify almost all of 
the remaining unauthorized long distance calls by hackers and receive credit 
back from the long distance carrier.

Equipment
The Company considers its pay telephone equipment to be based upon the latest 
technology.  Approximately 85-90% of the pay telephones currently operated by 
the Company were manufactured by GTE and approximately 10-15% were 
manufactured by Protel.  Although  most of the pay telephones were purchased 
approximately seven years ago, they have been updated on a regular basis with 
new electronics from the manufacturers approximately every 6-12 months.  In 
addition to the pay telephone equipment, the Company purchases other equipment 
required for its business, including vans for installers, maintenance and 
various repair equipment.

The Company's pay telephones use microprocessors that provide voice 
synthesized calling instructions and the capability to detect and count coins 
deposited during each call.  These intelligent telephones also provide 
information to the caller at certain intervals regarding the time remaining on 
each call and the need for an additional deposit.


<PAGE> 8
 
Regulation

General 

The Company's operations are significantly influenced by the regulation of pay 
telephone services.  Authority for regulation for these services is currently 
vested in the FCC and the various state public service commissions, including 
the Arizona Corporation Commission.  Regulatory jurisdiction is determined in 
part by the interstate or intrastate character of the subject service, and the 
degree of regulatory oversight exercised varies from state to state.  While 
most matters affecting the Company's operations fall within the administrative 
purview of these regulatory agencies, state and federal legislatures and the 
federal district court administering the AT&T divestiture decree have 
authority to regulate aspects of the Company's operations.

Arizona Corporation Commission Regulatory Proceedings

The Company's public payphone service are subject to regulation by the Arizona 
Corporation Commission (the "ACC").  In May 1995, in response to 
administrative rules promulgated by the ACC, the Company filed an application 
for a certificate of convenience and necessity ("CC&N") to allow the Company 
to provide public payphone services to end-users (customers) in Arizona.  The 
ACC also required the Company to file a request to have the Company's tariff, 
or rates charged for various services, approved by the ACC.  The Company's 
application for a CC&N has not yet been approved or disapproved by the ACC, 
and there may be no assurance when the ACC will rule on the Company's 
application for a CC&N.  However, based on information currently available to 
it, the Company believes that the tariff requested by the Company will be 
denied by the ACC, and that the ACC will require the Company to operate under 
a tariff which provides for significantly lesser rates and surcharges than 
those currently charged by the Company.  In that event, the Company's revenues 
and ability to operate profitably would be materially adversely affected.  See 
"Item 6-Management's Discussion and Analysis or Plan or Operations-Results of 
Operations for the Fiscal Years Ended June 30, 1996 and 1995."  The Company 
is, however, presently unable to determine when the ACC will rule on its 
application for a CC&N or the Company's tariff request, or the decision to be 
rendered by the ACC.

The Company also currently utilizes an operator services provider which is 
designated as an "Alternative Operator Services" provider ("AOS") under 
applicable ACC regulations.  There are approximately 20 AOS providers 
currently operating in Arizona.  The Company's AOS provider has, in response 
to administrative rules promulgated by the ACC, filed an application for a 
CC&N in order to provide operator services in Arizona.  The Company's AOS 
provider was also required to file a tariff request with the ACC.  The ACC has 
not yet acted on the application for a CC&N or the tariff application  of the 
Company's AOS provider, and there may be no assurance as to when the ACC will 
do so or the decision to be rendered by the ACC.  However, in the event the 
application for a CC&N of the Company's current AOS provider is denied or the 
tariff which has been requested by that entity is modified in an adverse 
fashion, the Company would be forced to attempt to contract with another AOS 
provider.  There may be no assurance that the Company would be successful in 
contracting with another operator services provider, or the tariff under which 
the operator services provider would be operating.  The Company's revenues and 
ability to operate profitably could be materially adversely affected if either 
(i) the Company is unable to contract with another AOS provider, or (ii) the 
tariff under which such AOS provider is operating provides for lesser rates 
and surcharges for operator services than are currently charged by the AOS 
provider currently utilized by the Company.  See "Item 6-Management's 
Discussion and Analysis or Plan of Operation-Results of Operations for the 
Years Ended June 30, 1996 and 1995." 

<PAGE 9>

Federal Regulation

     The Company's public payphone services are subject to federal regulation, 
including but not limited to regulation by the FCC.  In October 1990, Congress 
adopted the Telephone Operator Consumer Services Improvement Act of 1990 (the 
"Act") which established various requirements for "call aggregators" such as 
the Company.  Pursuant to this Act, aggregators must (a) post information on 
or near the telephone which identifies the operator services provider 
servicing that telephone, informs the consumer of the right to obtain access 
to another carrier and includes the telephone number of the consumer affairs 
division of the FCC, and (b) permit customers to use "950" and "800" numbers 
and pay no more for calls made using any access code than aggregators charge 
for "0+" calls, that is, calls that are made by entering a "0" followed by a 
long distance number.  The Company believes that it is in substantial 
compliance with the Act.

Under the Act, each user of the Company's pay telephones has the right to 
access any long distance operator service company to make a non-coin InterLATA 
call from the Company's pay telephones.  Prior to 1992, the Company received 
no commission or revenue if the user of the Company's pay telephones accessed 
an operator service provider other than the operator service provider selected 
by the Company.  However, since 1992, the FCC has required operator service 
providers to compensate public pay telephone providers for interstate calls 
placed through pay telephones, including those used by the Company.  The 
Company received approximately $26,000 in compensation during the fiscal year 
ended June 30, 1996 from operator service providers for interstate calls 
placed through the Company's telephones.

In 1991, the FCC introduced a proposal to mandate a new system for routing 
"0+" calls called Billed Party Preference ("BPP").  Currently, "0+" calls are 
sent through the operator service provider to which the Property Owner or pay 
telephone provider presubscribes.  Under BPP, calls would be routed 
automatically to the operator service provider preferred by the party being 
billed for the call.  The FCC believes that BPP would provide three principal 
benefits.  First, the FCC believes BPP would make operator services more "user 
friendly" by allowing "0+" callers to make all of their operator-assisted 
calls with the operator service provider with which the billed party had 
chosen to do business at the rates offered by such operator service provider.  
Second, the FCC believes that BPP would force operator service providers to 
refocus their competitive efforts towards serving customers rather than 
serving aggregators.  Finally, the FCC believes that BPP would eliminated 
certain AT&T advantages in the operator services market by allowing AT&T 
competitors to offer end users the same "0+" access as AT&T.  On the other 
hand, the FCC has noted that BPP is an expensive technology.  

The FCC has solicited and received comments on its BPP proposal.  The FCC is 
reviewing these comments and is expected to reach a decision concerning its 
BPP proposal in the foreseeable future; however, no date for such decision has 
been set.  The Company is unable to determine whether BPP will be adopted and, 
if so, what the precise BPP regulations will entail.  However, adoption of any 
BPP regulation under which "0+" calls would be routed automatically to the 
operator services provider preferred by the party being billed for the call 
would likely have a material adverse impact on the Company's results of 
operations and could threaten the Company's ability to continue its public 
payphone operations.  See "Item 6-Management's Discussion and Analysis or Plan 
of Operation-Results of Operations for the Years Ended June 30, 1996 and 
1995." 

<PAGE> 10

Competition

     The market for public payphone services in Arizona is fragmented but very 
competitive due principally to the large number of providers of public 
payphone services in Arizona.  The Company competes with U.S. West, one of the 
LEC's which operates in Arizona, as well as with at least 75 other independent 
providers of public payphone services.  These independent providers include 
Pacific Communications, Advanced Payphone and National Brands, all of which 
(in addition to U.S. West) have considerably greater financial and other 
resources than the Company.

     In addition to those factors described in "--Regulation" above, the 
Company believes that the principal competitive factor in the public payphone 
industry is the ability to place public telephones in desirable, profitable 
locations, which in turn is dependent on  (a) the ability to locate desirable 
payphone locations, (b) the ability to pay competitive signing or other 
bonuses to Property Owners, (c) the ability to pay competitive commission 
rates to Property Owners, and (d) the level of service provided to the 
Property Owner.  The Company believes that it is at a competitive disadvantage 
compared to U.S. West and the independent providers of public payphone 
services which are larger and have more resources than the Company with 
respect to all of the competitive factors described above.

Employees

As of September 27, 1996, the Company had 12 full-time employees, four of whom 
were executive, management, administrative, accounting or clerical personnel, 
and eight of whom were installers, maintenance and repair personnel and coin 
collectors.  In addition, the Company uses from one to three commissioned 
sales persons who are independent contractors. 

Patents and Trademarks.

The Company does not own any patents or trademark rights.

Item 2. Description of Property.

The Company currently leases office and repair facilities in two different 
locations.  The following is a summary of the facilities leased by the 
Company:

<TABLE>

<S>        <C>
Tempe, AZ  Size: approximately 6,400 square feet of office and warehouse space
           Rent:  approximately $2,900 per month
           Term: Lease expires on April 30, 1999

Tucson, AZ Size: approximately 1,440 square feet of office and warehouse space
           Rent:  approximately $850 per month
           Term: Lease expires on March 31, 1997

</TABLE>

<PAGE> 11

Item 3. Legal Proceedings.

Except as described below, neither the Company nor any of its properties 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 
director, officer or affiliate of the Company, any owner of record of 
beneficially of more than five percent 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.

     Sales Tax Appeal

In March 1993, the Arizona Department of Revenue issued an Arizona transaction 
privilege (sales) tax deficiency assessment in the amount of $73,680 against 
the Company with respect to coin revenues received in operating private pay 
telephones in the State of Arizona during the audit period from January 1, 
1990, through January 31, 1993.  A timely protest was filed with the 
Department seeking abatement of the entire assessment.  The principal issue in 
the Company's controversy is the taxability of its coin revenues under the 
telecommunications classification.  It is the Company's position that the 
operation of private pay telephones does not constitute telecommunications 
because the pay telephones do not transmit signals.

   At the first administrative hearing on the above issue, the administrative 
hearing officer for the Department ruled in favor of the Company, determining 
that the operation of the pay telephones did not constitute intrastate 
telecommunication services.  Upon review, the Director of the Arizona 
Department of Revenue reversed that decision, thereby upholding the 
assessments.  The case is now pending before the Arizona State Board of Tax 
Appeals.  The Company has taken a reserve of approximately $132,000 to cover 
potential sales taxes owed by the Company in the event that the Company is 
unsuccessful in its appeal.  This reserve does not include any reserve to 
cover potential sales taxes which may be due and owing for the fiscal year 
ended June 30, 1996.  See the Company's Financial Statements attached hereto, 
including but not limited to the Company's Balance Sheets at June 30, 1996 and 
1995, respectively, and Note 5  thereto. 

     Federal Grand Jury Investigation

     On or about September 21, 1995, the Company received a subpoena to 
produce certain corporate records in connection with a grand jury 
investigation before the United States District Court, District of Nevada, 
(Case Number 94-2175).  The Company has been informed by the government that 
the government is investigating whether payments were wrongfully made by the 
Company at the direction of Michael Swan, the Company's former Chief Executive 
Officer and a former director of the Company, to certain brokers and/or 
broker/dealers during the period from approximately January 1, 1991 through 
December 31, 1994.   The Company has not been definitively informed by the 
government that Mr. Swan is a target of the investigation; however, based on 
information available to it, the Company believes that Mr. Swan is a target of 
the investigation.  The government informed the Company on August 21, 1996 
that Mr. and Mrs. Westfere, the Company's current Chief Executive Officer and 
Secretary/Treasurer, are neither subjects or targets of the grand jury 
investigation, and the government has not contacted any other current officers 
or employees concerning the investigation.  The government has not informed 
the Company as to the relief, if any, to be sought by the government.  The 
Company has complied with the Subpoena and continues to cooperate with the 
government's investigation.  The Company is presently unable to assess the 
potential liability, if any, to the Company as a result of the activities 
which are the subject of the above investigation.

<PAGE> 12

     Mr. Swan resigned as an officer and a director of the Company in April 
1995.  Concurrently with Mr. Swan's resignation, the Company and Mr. Swan 
entered into a Consulting Agreement pursuant to which Mr. Swan was to serve as 
a financial consultant and advisor to the Company in return for the Company's 
payment of a monthly consulting fee of $5,000 to Mr. Swan and the Company's 
reimbursement of Mr. Swan's reasonable business expenses on behalf of the 
Company.  The Consulting Agreement had a term of three years commencing in 
April 1995.  Mr. Swan also received options to purchase 250,000 shares of the 
Company's Common Stock at the then-current market price of the Company's 
Common Stock.  On October 3, 1996, the Company and Mr. Swan entered into a 
Severance Agreement, pursuant to which: (a) the Consulting Agreement was 
terminated; (b) Swan is expressly 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 the original term of the Consulting Agreement (April 1998).  The 
Company may terminate the Severance Agreement in the event (i) Swan breaches 
the Severance Agreement, (ii) Swan is convicted of a felony involving or 
related to Swan's previous employment with the Company or services provided by 
Swan for the benefit of or related to the Company, or (iii) of Swan's death.  
See also "Item 12-Certain Relationships and Related Transactions."  The 
Severance Agreement is filed as Exhibit 10.5 hereto.

Item 4. Submission of Matters to a Vote of Security Holders.

No matter was submitted during the fourth quarter of the fiscal year ended 
June 30, 1996, 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, 1996, only 236,800 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.   
The table below sets forth for the periods indicated the high and low bid 
quotations for the Company's Common Stock.  These quotations reflect 
inter-dealer prices, without retail markup, mark-down, or commission and may 
not necessarily represent actual transactions.  

<TABLE>
<CAPTION>
                                 Quarter      High         Low
 <S>                           <C>        <C>          <C>
     Fiscal year ended
     June 30, 1995                First      $1.00        $0.50
                                  Second     $1.00        $0.75
                                  Third      $0.75        $0.50
                                  Fourth     $0.75        $0.50
     Fiscal year ended                        $.75        $0.50
     June 30, 1996     
                                  Second      $.63        $0.50
                                  Third       $.69        $0.50
                                  Fourth      $.82        $0.50

</TABLE>

<PAGE> 13

As of September 27, 1996, there were approximately 579 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.  As of September 27, 1996, the Company had outstanding 727 shares of 
its Series A 6% Preferred Stock which had preference on any dividends paid.  
The Company paid a total of $24,088 in accrued dividends on its Series A 6% 
Preferred Stock in the fiscal year ended June 30, 1996, and the Company has an 
additional $84,468 in accrued but unpaid dividends on its Series A 6% 
Preferred Stock for the fiscal year ended June 30, 1996.  Additionally, the 
Company has issued to the holder of the Series A 6% Preferred Stock a 
Promissory Note in the principal amount of $113,760 in satisfaction of 
dividends which accrued during the fiscal year ended June 30, 1995.  Nevada 
law  restricts the funds from which dividends may legally be paid.  The 
Company anticipates that dividends for the foreseeable future, if any, will be 
limited to dividends necessary to satisfy the Company's obligations under the 
issued and outstanding shares of the Company's Series A 6% Preferred Stock, 
and that no dividends will be paid on the Company's Common Stock.

Item 6. Management's Discussion and Analysis or Plan of Operation.

Results of Operations

       Results of Operations for the Years Ended June 30, 1996 and 1995

      The Company had a net loss of $92,529 in the fiscal year ended June 30, 
1996, compared to a net loss of $190,163 in the fiscal year ended June 30, 
1995.  The Company had a net loss attributable to its Common Stock (which 
gives effect to dividends accrued during such fiscal year on the Company's 
issued and outstanding Series A 6% Preferred Stock) of  $201,585 during the 
fiscal year ended June 30, 1996, compared to a net loss attributable to its 
Common Stock (which gives effect to dividends accrued during such fiscal year 
on the Company's issued and outstanding Series A 6% Preferred Stock) of 
$299,441 in the fiscal year ended June 30, 1995. 
      
     The Company's gross revenues increased to $2,127,574 in the fiscal year 
ended June 30, 1996, compared to $2,074,244 in the comparable prior period, an 
increase of 2.5% over the comparable prior period.  The Company's cost of 
sales increased by 3.6% , or to $988,876, for the year ended June 30, 1996 
from $954,385 for the year ended June 30, 1995.  As a result of the foregoing, 
the Company's gross profit margins were 53.5% and 54.0% for the years ended 
June 30, 1996 and 1995, respectively.  The Company believes that this slight 
reduction in gross profit and gross profit margin resulted largely from the 
decrease in operator service revenues.  The Company had miscellaneous income 
of $48,499 in the year ended June 30, 1996, compared to $12,095 in the year 
ended June 30, 1995.  The Company's miscellaneous income includes 
approximately $42,000 in income recognized from a reserve previously taken to 
cover potential charges owed to AT&T.

<PAGE> 14

     The Company's selling, general and administrative expenses decreased by 
7.1% to $1,286,296 for the fiscal year ended June 30, 1996, compared to 
$1,384,225 in the fiscal year ended June 30, 1995.  This decrease was 
attributable to a reduction in depreciation and amortization charges to 
$319,518 in the current year from $438,331 in the comparable prior period as a 
result of the full depreciation and amortization of a portion of the Company's 
fixed assets.  This was offset by an increase of 2.2% in the Company's general 
and administrative expenses to $966,778 in the current year from $945,894 in 
the comparable prior period as a result of expenses incurred in  connection 
with the Company's SB-2 stock offering.  The Company had a gain on the sale of 
equipment of $3,625 and $58,117 in the fiscal years ended June 30, 1996 and 
1995, respectively; the gain in the comparable prior period resulted from the 
sale of the Company's Las Vegas pay telephone location contracts in December 
1994.

     The Company issued 727 shares of its Series A 6% Preferred Stock to 
Teletek in June 1994 in consideration for cash advances and the settlement of 
certain litigation involving the Company.  The above shares require 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 paid $24,088 in accrued dividends during 
the fiscal year ended June 30, 1996, and the Company has an additional $84,468 
in accrued but unpaid dividends on the Series A 6% Preferred Stock for the 
fiscal year ended June 30, 1996.  Additionally, the Company has issued to the 
holder of the Series A 6% Preferred Stock a Promissory Note in the principal 
amount of $113,760 in satisfaction of the Company's obligations with respect 
to accrued and unpaid dividends on the Series A 6% Preferred Stock for the 
fiscal year ended June 30, 1995.

     The Company's future results of operations will be materially affected by 
(i) whether an FCC bill party preference (or similar rules) are adopted, (ii)  
the decisions rendered by the ACC concerning the Company's application for a 
CC&N and tariff request, and (iii) the decisions rendered by the ACC 
concerning the applications for CC&N's and tariff requests by the AOS 
providers servicing the State of Arizona, including the AOS provider currently 
utilized by the Company.  In the event that the Company continues its payphone 
operations and none of the above adversely affects such operations, the 
Company anticipates that in the fiscal year ending June 30, 1997: (i) its 
gross revenues will increase by approximately 5% over the comparable prior 
period due to a slight expansion of the Company's pay telephone base; (ii) its 
selling, general and administrative expenses will likely decrease by 
approximately $75,000-$125,000, or 6-10%, from the comparable prior period, 
due largely to a decrease in the Company's depreciation and amortization 
charges; (iii) the Company will have a net profit of $10,000-$75,000; and (iv) 
the Company will have a net loss attributable to its Common Stock of 
$35,000-$100,000 (which gives effect to dividends accrued on its outstanding 
Series A 6% Preferred Stock during such period).  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 FCC's 
adoption of a bill party preference (or similar rules); the ACC's decisions on 
the applications for a CC&N and tariff request by the Company and its 
competitors; the ACC's decisions on the applications for a CC&N and tariff 
requests by the AOS providers operating in the State of Arizona; the adoption 
of other regulatory measures not currently anticipated by the Company; the 
Company's sale of all or a portion of its pay telephone assets; the Company's 
entrance into one or more new lines of business; the continued employment of 
key management; a change in control of the Company due to the conversion by 
Teletek, Inc. of its Series A 6% Preferred Stock or other events; the 
potential decrease in dividends payable on the Company's Series A 6% Preferred 
Stock as a result of the potential conversion of such stock into Common Stock; 
the Company's ability to locate its pay telephones in profitable locations 
pursuant to contracts with Property Owners which are on terms favorable to the 
Company; increased competition for the Company's services; and a material 
adverse change in economic conditions in general or in Arizona in particular.  
The Company is exploring various potential business combinations which could 
involve the sale of all or a portion of the Company's pay telephone assets and 
the Company's use of the proceeds received from such sale to enter a new line 
of business.  The Company has not entered into any agreement with respect to 
the foregoing, and there may be no assurance that the Company will enter into 
any such agreement.  See "Item 1-Description of Business-Regulation."

<PAGE> 15

     Results of Operations for the Fiscal Years Ended June 30, 1995 and 1994

     The Company had a net loss of $190,113 in the fiscal year ended June 30, 
1996, compared to a net loss of $745,958 in the fiscal year ended June 30, 
1995.  The Company had a net loss attributable to its Common Stock (which 
gives effect to dividends accrued on the Company's outstanding Series A 6% 
Preferred Stock during the applicable period) of $299,441 in the fiscal year 
ended June 30, 1995, compared to a net loss attributable to its Common Stock 
(which gives effect to dividends accrued on the Company's outstanding Series A 
6% Preferred Stock during the applicable period) of $750,319 in the fiscal 
year ended June 30, 1994.  

     The Company's gross revenues increased by 16.1% to $2,074,244 in the 
fiscal year ended June 30, 1995, compared to $1,786,217 in the fiscal year 
ended June 30, 1994.  The Company's cost of sales decreased by 1.2% to 
$954,385 in the fiscal year ended June 30, 1995, compared to $965,798 in the 
comparable prior period.  As a result of the foregoing, the Company's gross 
profit margin increased to 54.0% in the fiscal year ended June 30, 1995 from 
46.% in the comparable prior period.  The Company believes that the increase 
in revenues, gross profit and gross profit margins were largely attributable 
to relocation of the Company's pay telephones to more profitable locations in 
Arizona (primarily the metropolitan Phoenix and Tucson areas) in January-April 
1995.  The Company had miscellaneous income of $12,095 and $32,676 in the 
fiscal years ended June 30, 1995 and 1994, respectively, which was generated 
primarily from dial around revenues received from long distance carriers.  

     The Company's selling, general and administrative expenses increased by 
3.0% to $1,384,225 in the fiscal year ended June 30, 1995 compared to 
$1,343,367 in the comparable prior period.  This increase was due to the 
contingency accrual for additional sales tax of $79,748 in the fiscal year 
ended June 30, 1995 and an increase in depreciation and amortization charges 
to $438,331 in the fiscal year ended June 30, 1995 from $412,426 in the 
comparable prior period.  These increased costs were offset in part by a 
decrease in salaries and other administrative costs as a result of the 
Company's relocation of its operations from Las Vegas to Phoenix in 
January-April 1995.  

     Liquidity and Capital Resources

     The Company requires capital to support the purchase of new pay 
telephones and related equipment, for repairs and upgrades to existing pay 
telephones and related equipment, and for working capital and general 
corporate purposes.

     At June 30, 1996, the Company had cash and cash equivalents of $694,293, 
compared to cash and cash equivalents of $184,999 at June 30, 1995.  This 
increase resulted primarily from the Company's receipt of gross proceeds of 
$458,250 from the sale of Common Stock and Warrants in its SB-2 offering.  The 
SB-2 offering was terminated in September 1996.  See "Item 1-Description of 
Business-General."    The Company also generated $221,725 in net cash flows 
from operations in the fiscal year ended June 30, 1996.  The foregoing 
increases in cash and cash equivalents were offset by a net decrease in cash 
of $140,710 for the purchase of property and equipment in such period and by a 
decrease in cash of $24,089 used to pay accrued dividends on the Company's 
Series A 6% Preferred Stock.  See "Results of Operations for the Fiscal Years 
Ended June 30, 1996 and 1995" above and the Financial Statements filed 
herewith.

<PAGE> 16

     The funding sources currently available to the Company include operating 
cash flow and potential additional financings.  As noted above, the Company 
terminated its SB-2 stock offering in September 1996.  The Company has no 
current plans to sell additional shares of capital stock and has no third 
party financing arrangements in place.  Therefore, the Company's sole source 
of additional cash for the foreseeable future is likely to be its net 
operating cash flow, if any.  Principal uses of working capital will include 
payment of the Company's general and administrative expenses and the Company's 
liabilities for accrued and unpaid dividends on its outstanding shares of 
Series A 6% 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 
federal and state regulations and regulatory proceedings which could have a 
material adverse impact on the Company.  The Company is unable to determine 
whether pending federal or state regulatory measures will be adopted or the 
exact nature of the regulatory measures, if any.  However, the Company 
believes that these matters could have a material adverse impact on the 
Company and its operations and could prevent the Company from continuing its 
payphone operations.  See "Item 1-Description of Business-Regulation" and 
"--Results of Operations for the Fiscal Years Ended June 30, 1996 and 1995."  
The Company is exploring various business combinations which might result in 
the Company's sale of all or a portion of its pay telephone assets and the 
Company's use of proceeds received from that sale to enter a new line of 
business.  The Company has not entered into any agreement concerning the 
foregoing, and there may be no assurance that such an agreement will be 
entered into by the Company.

Item 7. Financial Statements.
     
            The following financial statements are attached hereto and 
incorporated herein:
                                                                    Page

Independent Auditors' Report . . . . . . . . . .  . . . . . . . .    F-3

Balance Sheets for the years ended June 30, 1996 and 1995 . . . .    F-4

Statements of Operations for the Years Ended June 30, 1996, 
 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . .   F-5

Statements of Stockholders' Equity for the years ended June 30,
 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . .   F-6

Statements of Cash Flows for the years ended June 30, 1996,
 1995 and 1994  . . . . . . . . . . . . . . . . . . . . . . . . . .  F-7

Notes to Financial Statements . . . . . . . . . . . . . . . . . . .  F-8
     

Item 8. Changes in and Disagreements With Accountants.

None.

<PAGE> 17

PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons.
General

The following  information  is provided for the Company's executive officers 
and directors at September 27, 1996:

     David Westfere, 30, has been President, Chief Executive Officer, Chief 
Executive Officer and a director of the Company since April 6, 1995.  He was 
the Company's General Manager of Operations from January 1991 until April 6, 
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.  

Ramona Westfere, 44, has been a director and Secretary/Treasurer of the 
Company since April 6, 1995.  From 1989 to April 6, 1995, she was employed by 
the Company as an administrative assistant to a former officer and director of 
the Company during such period.   Ms. Westfere is Mr. Westfere's wife.

Todd D. Chisholm, 34, 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, in Salt Lake City, Utah, and 
from September 1992 until June 1994, he was employed as audit manager by 
Jones, Jensen, Orton & Company, Certified Public Accountants, in Salt Lake 
City.   From June 1994 to the present, Mr. Chisholm has been self-employed as 
a certified public accountant in Salt Lake City.  From April 1995 to the 
present, he has also been Vice-President and Chief Financial Officer of The 
Solarium, Inc., a privately held tanning salon.  

Mr. and Mrs. Westfere were appointed as directors of the Company on April 6, 
1995 by the Company's sole remaining director at the time.   Mr. Chisholm was 
appointed as a director on June 27, 1995 by Mr. and Mrs. Westfere, who were 
the Company's sole remaining directors at the time of such appointment.

The term of office of each director is one year or until his successor is 
elected at the annual meeting of shareholders of the Company.  All officers of 
the Company serve at the pleasure of the Company's Board of Directors.   The 
Board of Directors has no nominating, audit or compensation committee. 

Compliance with Section 16(a) of the Exchange Act

For the fiscal year ended June 30, 1995, Teletek, Inc., a 10% owner of the 
Company's Common Stock during such fiscal year, failed to file a Form 3 on a 
timely basis.  Said party failed to file a Form 3 upon the Company registering 
its Common Stock pursuant to Section 12 of the Securities Exchange Act of 
1934, as amended, on  or about July 12, 1994.  Teletek, Inc. has also failed 
to file a Form 5 for such fiscal year and for the fiscal year ended June 30, 
1996. 

<PAGE> 18

Item 10.  Executive Compensation.

The following table sets forth the aggregate executive compensation earned by 
or paid to former management of the Company for the fiscal years ended June 
30, 1995 and 1994:
<TABLE>
<CAPTION>
                              Annual Compensation           
               
                                                                     Other
                                                                    Annual
                     Name and Principal                            Compen-
                     Positions          Year     Salary     Bonus  sation     
                     <S>                <C>                     <C>
                     Michael G. Swan     1995                    $39,500(2)(3)
                     President(1)

                                         1994         

</TABLE>

     (1)  Mr. Swan was the Chief Executive Officer and a director of the 
Company during the fiscal year ended June 30, 1994 and for that portion of the 
fiscal year ended June 30, 1995 until his resignation as an officer and 
director of the Company on April 6, 1995.  

(2)  Of this amount, $24,500 was paid to Higgins Family Limited Partnership, 
and the balance was paid to Mr. Swan in connection with a consulting agreement 
between the Company and Mr. Swan commencing April of 1995.

(3) The Company paid no long-term compensation to Mr. Swan for the periods 
reported.

The following table sets forth the aggregate executive compensation 
earned by or paid to current management of the Company for the fiscal years 
ended June 30, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
                                 Annual Compensation     

  <S>                      <C>     <C>        <C>       <C>                     
                                                            Other
                                                            Annual
     Name and Principal                                     Compen-     
     Positions               Year     Salary     Bonus      sation          

     David Westfere,
     President(1)(2)         1996     $ 32,440          0  $ 46,972(3)

                             1995     $ 32,400   $ 16,000  $ 35,031(4)
     
                             1994     $ 32,400   $ 11,000  $ 21,336(5)

</TABLE>

<PAGE> 19 
     
(1) Mr. Westfere was appointed Chief Executive Officer and a director of the 
Company on April 6, 1995.  He was the Company's general manager of operations 
during the fiscal year ended June 30, 1994 and during the portion of the 
fiscal year ended June 30, 1995 prior to being appointed Chief Executive 
Officer of the Company.

(2) The Company did not pay any long-term compensation to Mr. Westfere during 
the above periods.

(3)  The Company paid health insurance premiums of $5,972 for Mr. Westfere and 
his family during this period.  The Company also paid a total of $36,000  to 
C&N, Inc., a company controlled by Mr. Westfere, for property management 
services related to the Company's leased office and warehouse facilities 
during such period.  See "Item 12-Certain Relationships and Related 
Transactions."  This figure also includes a $5,000 bonus paid to Mr. Westfere 
and each of the Company's other directors for services rendered as directors 
during the fiscal year ended June 30, 1996.

     (4) During such period, the Company paid (i) health insurance premiums 
for Mr. Westfere and his family of $8,331; (ii) a car allowance of $8,700 to 
Mr. Westfere; (iii) fees for property management services related to the 
Company's leased office and warehouse facilities of $6,000 to Mr. Westfere and 
$12,000 to C&N, Inc., a corporation controlled by Mr. Westfere. 

     (5) During such period, the Company paid (i) health insurance premiums 
for Mr. Westfere and his family of $6,936; and (ii) a car allowance of $14,400 
to Mr. Westfere.

No other executive officer of the Company received any compensation exceeding 
$100,000 for the fiscal years ended June 30, 1996, 1995 or 1994.

<PAGE> 20

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.  In December 
1995, the company paid a $5,000 bonus to each of the Company's directors for 
their services as directors during the fiscal year  ended June 30, 1996.  No 
other fees have been paid to the Company's directors.

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 27, 1996, 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:
<TABLE>
<CAPTION>
     Name and Address        Amount and Nature of
     of Beneficial Owner     Beneficial Ownership     Percent of Class
<S>                           <C>                         <C>
     Oak Holdings, Inc.          2,500,000(1)                47.4%
     Apartado 63685
     Panama, Republic of Panama

     Grafton Holdings S.A.       2,500,000(2)                47.4%
     Apartado 63685
     Panama, Republic of Panama

     Peter Robin Baily           2,500,000(3)                47.4%
     Apartado 6-4569
     Panama City, Republic of Panama

     Pedro Coranado
     Apartado 6-2495             2,500,000(4)                47.4%
     Panama City, Republic of Panama
</TABLE>

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

 (2) These shares are held directly 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 directly 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.


<PAGE> 21
     
 (4)  These shares are held directly and of record by Oak Holdings, 
Inc.  Mr. Coranado 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.
<TABLE>

<S>                        <C>                     <C>
     Teletek, Inc.            6,138,257(5)            58.9%
     3340 Topaz Street
     Suite 2 1 0
     Las Vegas, NV 89121

     Higgins Family Limited 
     Partnership                235,230(6)              4.5%
     2654 East Topaz Square
     Las Vegas, NV 89121

     Michael G. Swan            487,198(7)              9.2%
     2654 East Topaz Square
     Las Vegas, Nevada 89121

     Todd D. Chisholm                 0                  N/A
     50 West Broadway
     Suite 1130
     Salt Lake City, Utah 84101
</TABLE>

      (5)  Of these shares, a total of 992,065 shares are held of record by 
Teletek, Inc. ("Teletek").  Based solely upon the foregoing shares, Teletek, 
Inc. currently owns approximately 18.8% of the total issued and outstanding 
shares of Common Stock of the Company (5,277,099 shares).  In addition, 
Teletek owns 727 shares of the Company's Series A 6% Preferred Stock.  These 
shares of Series A 6% Preferred Stock are convertible at 75% of the average 
bid prices of the Common Stock for the ten trading days immediately prior to 
conversion based upon the cash amount attributable to such shares and any 
unpaid interest.  The cash amount of such preferred shares, plus unpaid 
interest, as of September 27, 1996, was approximately $1,929,822.  The average 
bid price of the Company's Common Stock on the 10 trading days immediately 
prior to September 27, 1996 was $.50 per share.  Therefore, based upon the 
conversion price of $.375 per share, the shares of Series A 6% Preferred Stock 
owned by Teletek would be convertible into a total of 5,146,192 shares of the 
Company's Common Stock.  In that event, Teletek would own a total of 6,138,257 
shares of Common Stock, or 59.8% of the total issued and outstanding shares of 
Common Stock of the Company. 

  (6)  These shares are held of record by this entity.  Michael Swan, a former 
Chief Executive Officer and director of the Company, is the general partner of 
the Partnership and controls the disposition of the shares owned by the 
Partnership.  Mr. Swan may therefore be deemed to be a beneficial owner of 
such shares.

  (7)  Represents (i) 237,198 shares owned by the Higgins Family Limited 
Partnership, of which Mr. Swan is the General Partner; and (ii) 250,000 shares 
which may be purchased by Mr. Swan upon the exercise of stock options which 
are currently exercisable.

<PAGE> 22

<TABLE>
  <S>                             <C>                 <C>
     David Westfere                   10,000(8)          (9)
     1725 West Third Street
     Tempe, AZ 85281

     Ramona Westfere                  10,000(8)          (9) 
     1725 West Third Street
     Tempe, AZ 85281

     Directors and Executive          10,000             (9)
     Officers as a Group
     (3 Persons)

     (8)  These shares are owned jointly by Mr. and Mrs. Westfere, husband and 
wife.
     (9)  Less than 1%.

          As of September 27, 1996, the Company had  outstanding 727 shares of 
Series A 6% Preferred Stock, all of which shares were owned of record by 
Teletek, Inc.

          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 Teletek should elect to convert its shares of Series A 
6% 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 property management services at the Company's two 
office/warehouse facilities.  The Company paid C&N a total of $36,000 under 
this agreement during the fiscal year ended June 30, 1996.  Mr. Westfere, an 
officer and director of the Company, is the president of C&N, and Mr. and Mrs. 
Westfere 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 terms that 
could be obtained with a non-affiliated party.

<PAGE> 23

     On April 6, 1995, the Company entered into a Consulting Agreement with 
Mr. Swan, who was a director of the Company and the Company's Chief Executive 
Officer until his resignation on that same date.   Pursuant to the Consulting 
Agreement, Mr. Swan served as a financial consultant and advisor to the 
Company in return for the Company's payment of a monthly consulting fee of 
$5,000 and the Company's reimbursement of Mr. Swan's reasonable business 
expenses on behalf of the Company.  Mr. Swan also received options to purchase 
250,000 shares of the Company's Common Stock at the then-current market price 
for the Company's Common Stock.  The Consulting Agreement had a term of three 
years commencing in April 1995.  The Company paid Mr. Swan $60,000 in 
consulting fees and reimbursed Mr. Swan (through an entity controlled by Mr. 
Swan, High Desert Holdings, Inc.) for $8,092 in business expenses incurred 
during the fiscal year ended June 30, 1996.  On October 3, 1996, the Company 
and Mr. Swan entered into a Severance Agreement, pursuant to which: (a) the 
Consulting Agreement was terminated; (b) Mr. Swan is expressly 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 
Mr. Westfere, the Company's Chief Executive Officer; and (c)  the Company 
agreed to pay Mr. Swan $5,000 per month through the original term of the 
Consulting Agreement (April 1998).  The Company may terminate the Severance 
Agreement in the event Swan (i) breaches the Severance Agreement, (ii) is 
convicted of a felony involving or related to Swan's previous employment with 
the Company or services provided by Swan for the benefit of or related to the 
Company; or (iii) dies.  See also "Item 3-Legal Proceedings" for additional 
information concerning legal proceedings involving the Company and Mr. Swan.  
The Severance Agreement is filed as Exhibit 10.5 hereto.

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
S-B:
Exhibit No.              Description of Exhibit                        Page

3(i)          Articles of Incorporation, as amended                     *

3(ii)         By-Laws of the Company, as currently in effect            *

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

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

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

10.1          Assignment and Assumption of Liabilities Agreement        **

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

<PAGE> 24

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   Page __ 
             Company and Michael Swan

10.6         Form 12b-25 dated September 26, 1996                   *****

*      Incorporated by reference to the exhibits filed 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.

***    Incorporate by reference to the exhibits filed with the Company's 
registration statement on Form SB-2 (Commission File Number 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 April 12, 1995.

***** Incorporated by reference to the Company's Form 12b-25 dated September 
26, 1996.


(b)     No reports on Form 8-K were filed by the Company during the last 
quarter of the period covered by this report.

<PAGE> 25

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.

                                              UNITED PAYPHONE SERVICES, INC.

                                               By /s/ David D. Westfere
                                                  David D. Westfere

                                     Its President and Chief Executive Officer

                                     Date:  October 11, 1996.

                                                                                
                                              By:  /s/ Ramona Westfere
                                                   Ramona Westfere
                                                                                
                                Its Principal Accounting and Financial Officer

                                                                                
                                Date: October 11, 1996


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                                  October 11, 1996
David D. Westfere, Director

By: /s/ Ramona Westfere                                    October 11, 1996
Ramona Westfere, Director

By: /s/ Todd D. Chisholm                                   October 11, 1996
Todd D. Chisholm, Director


<PAGE> F1



                           UNITED PAYPHONE SERVICES, INC.

                               FINANCIAL STATEMENTS

                             June 30, 1996 and 1995


<PAGE> F2

                                 C O N T E N T S

</TABLE>
<TABLE>
<CAPTION>
                                                              Page
<S>                                                          <C>
INDEPENDENT AUDITORS' REPORT                                    3

BALANCE SHEETS                                                  4

STATEMENTS OF OPERATIONS                                        5

STATEMENTS OF STOCKHOLDERS' EQUITY                              6

STATEMENTS OF CASH FLOWS                                        7

NOTES TO FINANCIAL STATEMENTS                                   8

</TABLE>

<PAGE> F3



                        INDEPENDENT AUDITORS' REPORT


Officers and  Directors
United Payphone Services, Inc.
Tempe, Arizona


We have audited the balance sheet of United Payphone Services, Inc. as of June 
30, 1996, and the related statements of operations, stockholders' equity, and 
cash flows for the year then ended.  These financial statements are the 
responsibility of the Company's management.  Our responsibility is to express 
an opinion on these financial statements based on our audit. 

We conducted our audit in accordance with generally accepted auditing 
standards.  Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 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 audit provides 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 United Payphone Services, 
Inc. as of June 30, 1996, and the results of its operations and its cash flows 
for the year then ended, in conformity with generally accepted accounting 
principles.  The financial statements of United Payphone Services, Inc. as of 
June 30, 1995, were audited by other auditors whose report dated August 28, 
1995, expressed an unqualified opinion on those statements.





Salt Lake City, Utah
July 26, 1996


<PAGE> F4

                        UNITED PAYPHONE SERVICES, INC.
                               BALANCE SHEETS
                          June 30, 1996 and 1995

<TABLE>
<CAPTION>

                                           1996                 1995       
    ASSETS
<S>                                <C>                <C>
CURRENT ASSETS
  Cash and cash equivalents           $     694,293      $     184,999 
  Trade accounts receivable                  29,524             53,310 
  Prepaid expenses                            5,000              8,216 
          TOTAL CURRENT ASSETS              728,817            246,525 

PROPERTY AND EQUIPMENT                      707,204            876,977 

OTHER ASSETS
  Deposits                                    2,106              3,216 


TOTAL ASSETS                        $     1,438,127    $     1,126,718 

</TABLE>
The accompanying notes are an integral part of these financial statements

<PAGE> F5

                        LIABILITIES AND STOCKHOLDERS' EQUITY
                        
<TABLE>
<CAPTION>
                                            1996                1995       
                             
<S>                               <C>                 <C>                  
CURRENT LIABILITIES
  Accounts payable                   $      106,997       $    151,982 
  Accrued expenses                           32,212             16,978 
  Accrued preferred dividends                84,967                -    
  Current portion of long-term liabilities      770                -    
          TOTAL CURRENT LIABILITIES         224,946            168,960 
 
LONG-TERM LIABILITIES                       173,201            169,443 
COMMITMENTS AND CONTINGENCIES               132,442            132,442 
          TOTAL LIABILITIES                 530,589            470,845 

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 5,277,099 and 4,666,099 
   shares, respectively                       5,277              4,666 
  Capital in excess of par value          3,039,921          2,587,282 
  Retained earnings (deficit)            (3,955,251)        (3,753,666)
          TOTAL STOCKHOLDERS' EQUITY        907,538            655,873 

          TOTAL LIABILITIES
                AND EQUITY          $     1,438,127      $   1,126,718 
</TABLE>
The accompanying notes are an integral part of the financial statements


<PAGE> F6

                        UNITED PAYPHONE SERVICES, INC.
                         STATEMENTS OF OPERATIONS
                  Years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
                            1996                 1995                 1994    

<S>              <C>                  <C>                  <C>
INCOME
  Coin collection   $     1,455,517      $     1,372,382      $     1,223,473 
  Operator services         635,212              701,862              562,744 
  Service fees               36,845                  -                   -    
                          2,127,574            2,074,244            1,786,217 
  Cost of sales             988,876              954,385              965,798 
          GROSS PROFIT    1,138,698            1,119,859              820,419 

EXPENSES
  General and
   administrative expenses  966,778              945,894              930,941 
  Depreciation and 
   amortization             319,518              438,331              412,426 
                          1,286,296            1,384,225            1,343,367 
      OPERATING LOSS       (147,598)            (264,366)            (522,948)

OTHER INCOME (EXPENSE)
  Miscellaneous income       48,499               12,095               32,676 
  Interest income             2,995                4,041                3,743 
  Gain on sale of equipment   3,625               58,117                  -    
  Loss from litigation          -                   -                (258,429)
                             55,119               74,253             (222,010)
Net loss before income taxes(92,479)            (190,113)            (744,958)

Income tax expense               50                   50                  880 

          NET LOSS          (92,529)            (190,163)            (745,838)

Preferred dividends         109,056              109,278                4,481 

  NET LOSS ATTRIBUTABLE 
   TO COMMON STOCK      $  (201,585)      $     (299,441)     $      (750,319)

  NET LOSS PER SHARE    $      (.04)      $         (.06)     $          (.16)

  WEIGHTED AVERAGE 
   SHARES OUTSTANDING     4,734,544            4,666,099            4,666,099 

</TABLE>
Certain 1995 and 1994 items have been reclassified to conform to the 1996
presentation

The accompanying notes are an integral part of the financial statements

<PAGE> F7

                       UNITED PAYPHONE SERVICES, INC.
                    STATEMENTS OF STOCKHOLDERS' EQUITY
                 Years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
                                                              Capital in       
                                     Common Stock              Excess of
                                 Shares       Amount           Par Value

<S>                         <C>          <C>               <C>
Balance at 6/30/93             4,716,099    $    4,716        $  2,658,032
      

Issuance of preferred
 stock to related party
 for relief of debt                 -              -                -          
              
Capital contribution
 by stockholder                     -              -                52,000     
 
Cancellation of common
 shares in lieu of payment
 of note receivable              (50,000)          (50)            (32,750)     

Preferred dividends                 -               -                -    

Net loss for year ended
 6/30/94                            -               -                -          

Balance at 6/30/94             4,699,099         4,666           2,587,282      

Preferred dividends                 -               -                -         

Net loss for year ended
6/30/95                             -               -                -

Balance at 6/30/95             4,666,099         4,666           2,587,282   

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

Cost of stock offering               -              -               (5,000)     

Preferred dividends                  -              -                  -     

Net loss for year ended
 6/30/96                             -              -                  -       

Balance at 6/30/96              5,277,099        5,277           3,039,921   

</TABLE>

Certain 1995 and 1994 items have been reclassified to conform to the
 1996 presentation

The accompanying notes are an integral part of the financial statements


<PAGE> F8

                            UNITED PAYPHONE SERVICES, INC.
                     STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
                       Years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
                                             Retained            Total
                            Preferred        Earnings        Stockholders'
                              Stock          (Deficit)         (Equity)
<S>                    <C>              <C>              <C>
Balance at 6/30/93        $      -         $ (2,703,906)    $    (131,158)

Issuance of preferred
 stock to related party
 for relief of debt        1,817,591              -             1,817,591

Capital contribution
 by stockholder                  -                -                52,000

Cancellation of common
 shares in lieu of payment
 of note receivable              -                -               (32,800)

Preferred dividends              -               (4,481)           (4,481)

Net loss for year ended
 6/30/94                         -             (745,838)         (745,838)

Balance at 6/30/94         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         1,817,591         (3,753,666)          655,873      

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

Cost of stock offering           -                -                (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         1,817,591         (3,955,251)          907,538

</TABLE>

Certain 1995 and 1994 items have been reclassified to conform to the 1996 
presentation

The accompanying notes are an integral part of the financial statements

<PAGE> F9

                       UNITED PAYPHONE SERVICES, INC.
                               STATEMENTS OF CASH FLOWS
                       Years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
                                         1996           1995          1994     
<S>                                <C>            <C>           <C>
CASH FLOWS FROM
 OPERATING ACTIVITIES
  Cash received from coin
   collections and services           $2,151,361     $2,096,318    $1,787,490   
  Cash received from interest 
   and other income                       51,493         16,136        36,419 
                                       2,202,854      2,112,454     1,823,909 
   Less cash paid for:
    Cost of sales                      1,033,861        915,079       981,837 
    General and administrative
     expenses                            947,162        807,699       676,483 
    Interest costs                            56          1,148           499 
    Income taxes paid 
     to governments                           50             50           880 
                                       1,981,129      1,723,976     1,659,699 
  Net cash flows from operating
   activities                            221,725        388,478       164,210 

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of property and equipment    (148,210)      (480,913)     (306,668)
  Sale of property and equipment           7,500         74,500           -    
  Cash paid for deposits                    -              (979)          -    
          Net cash used by 
           investing activities         (140,710)      (407,392)     (306,668)

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from loans                       -           125,294       296,020 
  Cash used to reduce 
   short-term borrowing                     -           (13,496)          -    
  Cash used to reduce
   long-term liabilities                    (882)           -         (59,669)
  Cash used to pay dividends             (24,089)      (113,759)          -    
  Capital contributed by shareholder        -               -          52,000 
  Cash received from issuance of stock   453,250            -             -    
          Net cash flows from (used by)
           financing activities          428,279         (1,961)      288,351 

          NET INCREASE (DECREASE) IN
          CASH AND CASH EQUIVALENTS      509,294        (20,875)      145,893 
          CASH AND CASH EQUIVALENTS
          AT BEGINNING OF YEAR           184,999        205,874        59,981 

          CASH AND CASH EQUIVALENTS
          AT END OF YEAR             $   694,293    $   184,999   $   205,874 
</TABLE>
NON-CASH FINANCING ACTIVITIES
During the year ended June 30, 1996 the Company acquired office equipment with 
a cost of $5,410 through a capital lease.  
During the year ended June 30,1994 the Company paid for expenses totaling 
$449,318 by issuing common stock and retired debt totaling $1,817,591 by 
issuing preferred stock.  During the same year a note receivable was settled 
by cancelling common stock.

Certain 1995 and 1994 items have been reclassified to conform to the 1996
presentation

The accompanying notes are an integral part of the financial statements

<PAGE> F10

                       UNITED PAYPHONE SERVICES, INC.
                      NOTES TO FINANCIAL STATEMENTS
                        June 30, 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
United Payphone Services, Inc. operates private pay telephones in the Phoenix 
and Tucson, Arizona areas.  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.  Since 
that time operations have been moved to Arizona.  Prior to May, 1996 the 
controlling shareholder was Oak Holdings, Inc.  Because of the May, 1996 stock 
offering, Oak Holdings' interest fell below 50%.

     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 is 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.

<PAGE> F11

                          UNITED PAYPHONE SERVICES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                            June 30, 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.

     Net Loss Per Common Share
Net loss per common share is calculated by dividing net loss attributable to 
common stock (net loss adjusted by preferred dividends) by the weighted 
average number of common shares outstanding.  The calculation of fully diluted 
net loss per share was antidilutive in each period presented, and therefore, 
the same as primary loss per share.


NOTE 2 -     CASH AND CASH EQUIVALENTS
The Company maintains cash balances at banks in Arizona and Utah.  Accounts 
are insured by the Federal Deposit Insurance Corporation up to $100,000.  At 
June 30, 1996,  the Company's uninsured bank balances total $358,550 ($0 for 
1995).

<PAGE> F12

                      UNITED PAYPHONE SERVICES, INC.
                     NOTES TO FINANCIAL STATEMENTS
                       June 30, 1996 and 1995

NOTE 3 -     PROPERTY AND EQUIPMENT
Property and equipment as of June 30, 1996 and 1995 are detailed in the 
following summary:
<TABLE>
<CAPTION>
 
                                        Accumulated          Net Book   
 1996                       Cost         Depreciation           Value      
 <S>                  <C>               <C>                <C>
 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 
</TABLE>
<TABLE>
<CAPTION>
                                        Accumulated           Net Book  
 1995                        Cost       Depreciation           Value      
<S>                    <C>              <C>              <C>
 Furniture and fixtures $     21,337      $    8,497      $     12,840 
     Office equipment         87,728           51,349           36,379 
     Automobiles              56,101           31,279           24,822 
     Payphones             1,633,846        1,429,808          204,038 
     Payphone accessories    337,201          118,885          218,316 
     Payphone installations  407,506           56,295          351,211 
     Property improvements    31,743            2,372           29,371 

                     $     2,575,462      $ 1,698,485      $   876,977 

</TABLE>

NOTE 4 -     LONG-TERM LIABILITIES
<TABLE>
<CAPTION>
                                                   1996                 1995    
<S>                                         <C>                <C>   
 Note payable to related party,  principal and 
  interest due September, 1997, bearing 
  interest at 8%, unsecured                  $     55,683        $     55,683 

  Note payable to related party, principal and 
   interest due September, 1997, bearing
   interest at 8%, unsecured                      113,760             113,760 
</TABLE>

<PAGE> F13

                          UNITED PAYPHONE SERVICES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                            June 30, 1996 and 1995

NOTE 4 -     LONG-TERM LIABILITIES (CONTINUED)

<TABLE>
<CAPTION>
                                                  1996                 1995     
<S>                                           <C>                 <C>           
 Capital lease payable to vendor in monthly 
  installments of $106, due December, 2001, 
  bearing interest at 12%, secured by
  equipment                                       4,528                  -    
                                                173,971               169,443 
     Less current portion                          (770)                 -    

     Long-term portion                    $     173,201         $     169,443 

</TABLE>
     Maturities of long-term liabilities over the next five years are as 
follows:
<TABLE> 
             <C>                                      <C>  
               1997                                    $     770 
               1998                                      170,311 
               1999                                          978 
               2000                                        1,102 
               2001                                          810 
               Thereafter                                     -    

              Total long-term liabilities              $ 173,971 
</TABLE>
Future minimum lease payments under capital leases together with the present 
value of  the net minimum payments as of June 30, 1996 are as follows:
<TABLE>
             <C>                                <C>
               1997                                $     1,272 
               1998                                      1,272 
               1999                                      1,272 
               2000                                      1,272 
               2001                                        848 
               Total minimum lease paymets               5,936 
                Less amount representing interest       (1,408)

               Present value of net minimum lease
                payments (current portion of $770) $     4,528

</TABLE>

<PAGE> F14

                           UNITED PAYPHONE SERVICES, INC.
                           NOTES TO FINANCIAL STATEMENTS
                             June 30, 1996 and 1995

NOTE 5 -     COMMITMENTS AND CONTINGENCIES (CONTINUED)
     Contingent liability
In 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
payphones.  A timely protest was filed with the Department of Revenue seeking
abatement of the entire assessment.

At issue is the taxability of the coin revenue under the classification of 
telecommunications.  Under Arizona law, telecommunications is defined as the 
transmitting of a signal.  Since the Company's pay telephones use the signal 
of the local exchange carrier, legal counsel believes that the Company's 
operations do not constitute intrastate telecommunication services and 
therefore are not subject to sales tax as such.

The Company's protest has been consolidated with those of seven other private 
pay telephone operators.  At the first administrative hearing the hearing 
officer ruled in favor of the taxpayers.  Upon review the Director of the 
Department of Revenue reversed the decision of the hearing officer.  An appeal 
was made before the Arizona State Board of Tax Appeals in October, 1995.  The 
Board of Appeals has not yet issued a decision.

The Department of Revenue has abated the penalties assessed in connection with 
the original deficiency assessment.  Management believes that a compromise 
will ultimately be reached and that the accrued contingent liability of 
$132,442 will be sufficient to settle the matter.

     Operating lease
The Company has entered into a long-term operating lease for its corporate 
headquarters and operations facility in Tempe, Arizona.  The lease calls for 
monthly lease payments of $3,030.  The minimum lease obligation over the next 
five years is summarized below:
<TABLE>
              <C>                   <C>
               1997                   $     36,365 
               1998                         36,365 
               1999                         30,304 
               2000                            -     
               2001                            -     
</TABLE>

     Consulting Agreement
A long-term consulting agreement has been entered into with an individual.  
The agreement calls for the payment of a monthly consulting fee of $5,000.  
The agreement runs through April, 1998.

<PAGE> F15

                        UNITED PAYPHONE SERVICES, INC.
                        NOTES TO FINANCIAL STATEMENTS
                           June 30, 1996 and 1995

NOTE 6 -     CAPITAL STOCK
     Preferred Stock
The Company has outstanding 727 shares of cumulative, convertible, 
preferred stock at June 30, 1996 and 1995.  Cumulative dividends at 6% are 
payable annually.  Dividends are in arrears to the amount of $84,967.  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, on class A warrant and one class B warrant.  Each class A 
warrant entitles the holder to purchase one share of common stock at $1.25 per 
share and expires in January, 1998.  Each class B warrant entitles the holder 
to purchase one share of common stock at $1.31 per share and expires in 
January, 1999.


NOTE 7 -     INCOME TAXES
The Company used an asset and liability approach to financial accounting and 
reporting for income taxes.  The difference between the financial statement 
and income tax bases for 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.


<PAGE> F16

                        UNITED PAYPHONE SERVICES, INC.
                        NOTES TO FINANCIAL STATEMENTS
                           June 30, 1996 and 1995

NOTE 7 -     INCOME TAXES (CONTINUED)
Income taxes payable as of June 30, 1996 and 1995 are detailed in the 
following summary:
<TABLE>
<CAPTION>
                                           1996                 1995       
     <S>                              <C>                   <C>
     Currently payable                   $     50             $     50 

     Deferred income tax liability       $     -              $     -    

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

     Net deferred income tax liability   $     -              $     -    

</TABLE>

The deferred tax assets result from net operating loss carryforwards 
available.

At June 30, 1996, the Company had net operating loss carryforwards available 
to offset future income taxes totaling $2,805,251 expiring from 2003 and 2011.

The Company's income tax expense differed from the statutory federal rate of 
34% due to state income taxes, and carryfowards of prior year net operating 
losses.



<PAGE> F17

                         UNITED PAYPHONE SERVICES, INC.
                         NOTES TO FINANCIAL STATEMENTS
                           June 30, 1996 and 1995

NOTE 8 -     CASH FLOWS FROM OPERATING ACTIVITIES
The following schedule reconciles net loss as reported in the 
accompanying statements of operations with net cash flows from operating 
activities in the statements of cash flows:
<TABLE>
<CAPTION>
                              1996                 1995               1994     
<S>                   <C>               <C>                  <C>
 Net loss              $     (92,529)     $     (190,163)     $     (745,838)

 Adjustments to reconcile
  net loss to net cash
  flows from operating
  activities:
 Depreciation and amortization
  expense                    319,518              438,331             412,426 
 Bad debt                        -                   -                  5,052 
 Issuance of stock for expense   -                   -                449,318 
 Gain on sale of equipment    (3,625)             (58,117)            (11,661)
 (Increase) decrease in assets:
 Accounts receivable          23,787               22,074              14,873 
 Prepaid expenses and deposits 4,326               54,570               6,254 

Increase (decrease) in liabilities:
 Accounts payable            (44,985)              39,306             (16,039)
 Accrued expenses             15,233               82,477              49,825 

    Net cash flows from
     operating activities $  221,725        $     388,478      $      164,210 

</TABLE>

<PAGE> F18

                           UNITED PAYPHONE SERVICES, INC.
                           NOTES TO FINANCIAL STATEMENTS
                              June 30, 1996 and 1995

NOTE 9 -     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, 1996 are as follows:
 
<TABLE>
<CAPTION>
                                 Carrying               Fair        
                                 Amounts               Values
<S>                          <C>                  <C>
Cash and cash equivalents      $  694,293          $  694,293
Long-term debt including
  current maturities              173,971             179,971
Preferred stock                 1,817,591           2,536,744
Warrants, Class A                    -                  3,055
Warrants, Class B                    -                  3,055

</TABLE>
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.

Long-term Debt
The fair values of the long-term debt are estimated using discounted
cash flow analyses 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
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.


<PAGE> F19

                        UNITED PAYPHONE SERVICES, INC.
                        NOTES TO FINANCIAL STATEMENTS
                           June 30, 1996 and 1995

NOTE 10-     RELATED PARTY TRANSACTIONS
The Company has entered into an agreement with C & N, Inc., to provide 
management services for $3,000 per month.  C & N, Inc., is a related party by 
virtue of the ownership of C & N, Inc. being Officers and Directors of the 
Company.

As described in Note 4, the Company has notes payable to a related party.  The 
related party is Teletek, Inc., who is a significant shareholder in the 
Company.

As described in Note 5, the Company has entered into a consulting agreement 
with an individual.  The individual is a related party by virtue of stock 
ownership in the Company.

During July, 1995 the Company loaned $20,000 to the Company's president.  The 
amount was subsequently repaid with interest in December, 1995.


<PAGE> 26

                                SEVERANCE AGREEMENT


THIS SEVERANCE AGREEMENT (the "Agreement") is entered into on October __, 
1996, by and between UNITED PAYPHONE SERVICES, INC., a Nevada corporation (the 
"Company"), and MICHAEL G. SWAN ("Swan").
RECITALS
     A.  The Company and Swan are parties to a Consulting Agreement dated 
         April 7, 1995 (the "Consulting Agreement"), pursuant to which Swan has 
         provided financial consulting and advisory services to the Company.
     B.  The Company and Swan believe that it is in their mutual best 
         interests to terminate Swan's services under the Consulting Agreement. 
              NOW, THEREFORE, the parties hereby agree as follows:
AGREEMENTS
     1.  Termination of Consulting Agreement.  The Consulting Agreement is 
         hereby terminated, effective immediately.  Additionally, Swan agrees 
         that,without the prior written consent of David Westfere, the
         President of the Company ("Westfere"), Swan shall not (a) perform 
         any services whatsoever for, or for the benefit of, the Company, or 
         (b) represent or hold himself out to bean agent or representative of 
         the Company in any capacity whatsoever.  Any breach by Swan of this 
         Paragraph 1 shall entitle the Company to terminate this Agreement 
         and terminate any further payments to Swan which would otherwise be 
         required by Paragraph 2 hereof.

     2.  Severance Payments.  The Company hereby agrees to pay Swan the sum of 
         $5,000 per month, payable on the 15th day of each month, commencing in 
         September 1996 and continuing through April 1998.  Swan shall not be 
         entitled to reimbursement of any business or other expenses incurred
         on or after September 15, 1996, or to any other payments or
         reimbursements of any nature whatsoever by the Company.
     3.  Confidential Information.  All confidential information which Swan 
         may now possess or acquire in the future concerning the Company shall 
         not be disclosed by Swan to any third person without the prior 
         written consent of Westfere.
     4.  Termination.  The Company may terminate this Agreement immediately  
         upon written notice to Swan upon the occurrence of any one or more 
         of the following: (a) Swan's breach of this Agreement, including 
         without limitation Swan's breach of Paragraph 1 hereof; (b) Swan's 
         conviction of any felony involving or related to (i) Swan's previous 
         employment with the Company, or (ii) services provided by Swan for the 
         benefit of or related to the Company; or (c) Swan's death.  
     5.  Entire Agreement.  This Agreement sets forth the entire understanding 
         of the parties with respect to the subject matter hereof, supersedes 
         all existing agreements between them concerning such subject matter, 
         and may be modified only by a written instrument duly executed by 
         Westfere on behalf of the Company and Swan.
     6.  Notices.  Any notice or other communication required or permitted to 
         be given hereunder shall be in writing and shall be mailed by 
         certified mail, return receipt requested, or hand delivered (by
         messenger or overnight delivery service) to the Company or Swan at
         the following address:

<PAGE> 27

         If to the Company:

         United Payphones Services, Inc.
         1725 West Third Street
         Tempe, Arizona 85281
         Attention: David Westfere

         If to Swan:
     
         Michael G. Swan
         c/o High Desert Holdings, Inc.
         3340 Topaz Street
         Suite 210
         Las Vegas, Nevada 89121

7.       Counterparts.  This Agreement may be executed in any number of 
         counterparts, each of which shall be deemed an original, but all of
         which together shall constitute one and the same instrument.
8.       Attorney's Fees.  In the event of any dispute or litigation arising
         hereunder, the successful party in such dispute or litigation shall
         be entitled to recover its costs and reasonable attorneys' fees from 
         the other party to such dispute or litigation.
9.       Governing Law.  This Agreement shall be governed by and construed in
         accordance with the laws of the State of Arizona.

         DATED on October __, 1996.
         
                                  UNITED PAYPHONES SERVICES, INC.
                        
                                  By /s/  David Westfere
                                         David Westfere

                                  Its President

                                                 COMPANY

                                  Michael Swan
                                  Michael Swan

<PAGE> 28