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 June 30, 1997

         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

                             DIAMOND EQUITIES, INC.
                    (Formerly United Payphone Services, Inc.)
                    ----------------------------------------- 
                 (Name of Small Business Issuer in its Charter)

<TABLE>
<S>                                                              <C>       
                    Nevada                                       88-0232816
                    ------                                       ----------
         State or Other Jurisdiction of                          (I.R.S. Employer Identification No.)
         Incorporation or Organization


         2010 E. University Drive, Ste. # 3 - Tempe, Arizona     85281
         ---------------------------------------------------     -----
         (Address of Principal Executive Offices)                (Zip Code)
</TABLE>

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

       Securities registered under Section 12(b) of the Exchange Act: None

         Securities registered under Section 12(g) of the Exchange Act:

                     Common Stock, par value $.001 per share
                     ---------------------------------------
                                Class A Warrants
                                ---------------- 
                                Class B Warrants
                                ----------------

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

         Yes [X]     No
<PAGE>
         Check here if there is no disclosure  of delinquent  filers in response
to Item 405 of Regulation S-B contained in this form, and no disclosure  will be
contained,  to  the  best  of  registrant's  knowledge,  in  definite  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

         The Issuer's revenues for the year ended June 30, 1997, were $ none .

         The aggregate  market value of the voting stock held by  non-affiliates
(approximately 1,775,034 shares as of September 27, 1997) based upon the average
of the bid and asked prices of such stock as of September  27, 1997, as reported
on the Electronic Bulletin Board, was $0.13.

         The number of shares of Common  Stock of the issuer  outstanding  as of
September 27, 1997, was 4,666,099.

         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 the Company's 1996
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 S8-K filed with the Commission on December 1, 1996.
                                       1
<PAGE>
                                TABLE OF CONTENTS
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   PART I                                                                                      Page No.

<S>          <C>                                                                                 <C>
Item 1.      Description of Business ........................................................     3
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 ...........................................................    12
Item 8.      Changes in and Disagreements With Accountants ..................................    12
Item 9.      Directors, Executive Officers, Promoters and Control Persons ...................    12


PART III

Item 10.     Executive Compensation .........................................................    13
Item 11.     Security Ownership of Certain Beneficial Owners and Management .................    14
Item 12.     Certain Relationships and Related Transactions .................................    16
Item 13.     Exhibits List and Reports on Form 8-K ..........................................    17
</TABLE>
                                       2
<PAGE>
                                     PART I

         Item 1. Description of Business.

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

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

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

         General.  The  Company  intends  to use  its  working  capital  to take
advantage  of  business  opportunities  which  may  arise  from  time  to  time.
Management  anticipates  that such  opportunities  will become  available to the
Company due primarily to its status as a small, publicly-held entity with liquid
assets and to its  flexibility  in  structuring  and  participating  in business
opportunities.  Decisions as to which business  opportunities to acquire will be
made by management of the Company, which will in all probability act without the
consent, vote or approval of the Company's  shareholders.  The Company presently
has no agreement,  understanding or arrangement to acquire or participate in any
specific  business  opportunity,  nor has it identified  any  opportunities  for
investigation.

         Plan of Operation.  The Company will seek corporate opportunities which
it finds or which are presented to it by persons or firms who or which desire to
employ  the  Company's  funds in their  business  and/or  obtain  the  perceived
advantages of a  publicly-held  corporation.  The Company's  principal  business
objective  will be to seek  long-term  growth  potential  in a business  venture
rather  than to seek  immediate,  short-term  earnings.  The  Company  will  not
restrict its search to any specific business, industry or geographical location,
and the Company may  participate in a business  venture of virtually any kind or
nature.  The  discussion  of  the  proposed  business  under  this  caption  and
throughout  this Form  10-KSB  is  purposefully  general  and is not meant to be
restrictive of the Company's  virtually  unlimited  discretion to search for and
enter into potential business opportunities.

         The Company's working capital will be used generally for the purpose of
identifying,  investigating, analyzing and acquiring business opportunities. The
Company's  proposed business is sometimes  referred to as a "blind pool" because
shareholders  will entrust their investment  monies to the Company's  management
before they have a chance to analyze any  ultimate  use to which their money may
be applied.  Consequently, the Company's potential success is 
                                       3
<PAGE>
heavily  dependent  on the  Company's  management,  which  will  have  virtually
unlimited discretion in searching for and entering into business opportunities.

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

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

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

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

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

         Evaluation of Opportunities. The analysis of new business opportunities
will be undertaken by or under the  supervision of the officers and directors of
the  Company,  none of whom is a  professional  business  analyst.  In analyzing
prospective business opportunities, management will consider such matters as the
available technical,  financial,  and managerial resources;  working capital and
other financial  requirements;  history of operation,  if any; prospects for the
future; nature of present and expected  competition;  the quality and experience
of management  services which may be available and the depth of such management;
the potential for further research,  development, or exploration;  specific risk
factors  not now  foreseeable  but which then may be  anticipated  to impact the
proposed activities of the Company;  the potential for growth or expansion;  the
potential  for  profit;  the  perceived  public  recognition  or  acceptance  of
products, services, or trades; name identification;  and other relevant factors.
Officers and directors of the Company will meet  personally  with management and
key  personnel  of the target  business as part of their  investigation.  To the
extent  possible,  the Company  intends to utilize  written reports and personal
investigation  to evaluate the above  factors.  
                                       4
<PAGE>
The  Company  may  allocate  a minor  portion  of its  working  capital  for the
retention of outside consultants, if the Board deems it necessary, to aid in the
analysis of a business opportunity.

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

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

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

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

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

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

         As part of the Company's  investigation,  officers and directors of the
Company may meet with  management  and key  personnel of a target  company,  may
visit and inspect  facilities,  obtain  independent  analysis or verification of
certain information provided by such Company, check references of management and
key personnel,  and take other reasonable  investigative measures, to the extent
that the Company's limited financial resources and management expertise allow.
                                       5
<PAGE>
         The manner in which the Company  participates  in an  opportunity  will
depend on the nature of the opportunity, the respective needs and desires of the
Company  and other  parties,  the  management  of the  target  company,  and the
relative negotiating strength of the Company and such other management.

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

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

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

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

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

         The  foregoing  is a  forward-looking  statement  within the meaning of
Section 27A of the  Securities  Act of 1933, as amended,  and Section 21E of the
Securities Exchange Act of 1934, as amended,  and is subject to the safe harbors
created thereby. Actual results could differ materially because of the following
factors:  the  inability  to  secure  business  operations;  losses  due  to  an
unprofitable new line of business; the continued employment of key management; a
change in control of the Company due to the conversion by Dingaan Holdings, S.A.
of its Series A 6% Preferred Stock or other events.

         Competition. The Company will be an insignificant participant among the
firms which engage in the acquisition of business opportunities.  There are many
established  venture  capital and financial  concerns  which have  significantly
greater  financial and personnel  resources  and  technical  expertise  than the
Company. In view of the Company's limited financial resources,  the Company will
continue  to  be at a  significant  competitive  disadvantage  
                                       6
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compared to the Company's competitors.  Also, the Company will be competing with
a large  number of other  small,  blind-pool,  public  companies  located in the
Southwest and elsewhere.

         Regulation and Taxation. In view of the Sales of Assets, the Company is
no longer  engaged  in the  telecommunications  business  and  therefore  is not
subject to  regulations  of such  activity by the FCC and state  public  service
conversions.

         The  Company  might,  in  certain  circumstances,  be  deemed  to be an
investment  company  under the  provisions  of Section  3(a)(3) of the 1940 Act,
which could have substantial adverse impact on its operations.  This could occur
if a significant  proportion of its working  capital were invested in short-term
debt  instruments  for longer  than a one-year  period  and the  Company  had no
significant  operations.  The Company  intends to take all  reasonable  steps to
avoid such classification.

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

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

         Item 2. Description of Property.

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

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

         Item 3. Legal Proceedings.

         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 officer or affiliate of the Company,
any owner of record of  beneficially  of more than 5% of the Common Stock of the
Company,  or any  associate  of any such  director,  officer,  affiliate  of the
Company,  or security holder is a party adverse to the Company or has a material
interest adverse to the Company.

         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 period from
January 1, 1990 through  January 31,  1993. A timely  protest was filed with the
Department seeking the abatement of the entire  assessment.  The principal issue
in the Company's  controversy  is the  taxability of its coin revenues under the
telecommunications  classification.  The  Company  does  not  believe  that  the
operation of private pay telephones constitutes  telecommunications  because pay
telephones do not transmit signals.  At the first  administrative  hearing,  the
hearing  officer for the Department  ruled in favor of the Company,  determining
that  the   operation  of  pay   telephones   did  not   constitute   intrastate
telecommunications  services.  Upon  review,  the  Director  of  the  Department
reversed  that  
                                       7
<PAGE>
decision and upheld the assessments.  The case is now pending before the Arizona
State Board of Tax Appeals.  Management  believes  that the Company will incur a
tax liability of  approximately  $130,000 upon the  resolution of this case. The
Company has previously reserved an amount sufficient to pay this tax liability.

         Federal  Grand Jury  Indictments.  On November 6, 1996, a true bill was
returned by the Grand Jury in the United States District Court in Nevada against
Michael G. Swan and Claudia Higgins who are former directors and officers of the
Company. Mr. Swan and Ms. Higgins are accused of racketeering,  RICO violations,
securities  fraud  and wire  fraud.  All of the  charges  arise  out of  alleged
activities  of Mr. Swan and Ms.  Higgins while serving as directors and officers
of the Company.  Also named in the  indictment  was Kevin Orton,  the  Company's
former  accountant.  Mr. Swan and Ms. Higgins were also named as "other relevant
persons and entities," but were not charged, in two other indictments,  alleging
among other things,  securities fraud violations,  filed respectively on October
30, 1996,  and November 6, 1996. The Company was not named as a defendant in the
indictments.  However,  because the indictments  relate to activities alleged to
have been  perpetrated by then officers and directors of the Company,  there can
be no assurance that the indictments ultimately will not have a material adverse
effect on the Company.

         The  government  informed  the  Company on August 21, 1996 that Mr. and
Mrs.   Westfere,   the  Company's  then  current  Chief  Executive  Officer  and
Secretary/Treasurer,  were  neither  subjects  or  targets  of  the  grand  jury
investigation,  and the  government  did not  contact  any  other  then  current
officers or employees  concerning  the  investigation.  The  government  has not
informed  the  Company  as to the  relief,  if any,  to be sought.  The  Company
complied  with the subpoena it received  and  cooperated  with the  government's
investigation.   The  Company  is  presently  unable  to  assess  the  potential
liability,  if any,  to the  Company  as a result  of  activities  which are the
subject of the above investigation.

         Mr. Swan was an officer and 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 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 to: (a) the
Consulting  Agreement was  terminated;  (b) Swan was expressly  prohibited  from
performing  any  services for or from  representing  himself to be an agent or a
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.
Sec also "Item 12 - Certain Relationships 12 and Related Transactions."

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

         The   defendants   have   responded  by  issuing   counterclaims.   The
counterclaims  allege  that the  revenues  of the  Company  reported  to Tru-Tel
Communications,  LLC and Finova Capital Corporation were purportedly  overstated
at the time of the asset purchase  agreement.  The Company intends to vigorously
contest  the  counterclaims  and pursue the  original  claims  against all party
defendants.  While it is not feasible at this time to predict or  determine  the
                                       8
<PAGE>
ultimate  financial  outcome of the complaint,  management does not believe that
the Company will be party to any unfavorable judgments.

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

         No matter was submitted  during the fiscal year ended June 30, 1997, 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,  1997,  only
112,000 shares of the Company's  Common Stock were traded on the Bulletin Board.
The Company  therefore  believes  that there is no  established  public  trading
market for the Company's  Common Stock. The Company also believes that there are
only five market makers which  currently  make a market in the Company's  Common
Stock.  These quotations  reflect  inter-dealer  prices,  without retail markup,
markdown, or commission and may not necessarily represent actual transactions.


                                Quarter          High           Low

     Fiscal Year ended          First           $0.75          $0.50
       June 30, 1996            Second          $0.63          $0.50
                                Third           $0.69          $0.50
                                Fourth          $0.82          $0.50

     Fiscal Year ended          First           $0.50          $0.25
       June 30, 1997            Second          $0.25          $0.19
                                Third           $0.19          $0.13
                                Fourth          $0.13          $0.13

         As of  September  27,  1997,  there were  approximately  580 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 no  dividends on its Series A 6% Preferred  Stock in the fiscal
year ended June 30,  1997,  and the Company  has  $194,023 in accrued but unpaid
dividends  on such  Preferred  Stock for the fiscal  year  ended June 30,  1997.
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 Company's Common Stock.
                                       9
<PAGE>
         Item 6. Management's Discussion and Analysis or Plan of Operation.

Results of Operations

         Results of operations for the years ended June 30, 1997 and 1996

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

         The Company had net income of  $1,362,863 in the fiscal year ended June
30,  1997,  compared  to a net loss of $92,529 in the fiscal year ended June 30,
1996. The Company had net income  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 $1,253,807  during the fiscal year
ended June 30, 1997,  compared to a net loss attributable to its Common Stock of
$201,585 in the fiscal year ended June 30, 1996.  The  difference  in net income
for the year ended June 30,  1997 is largely due to the gain  recognized  on the
sale of the operations of $1,688,750.

         The Company's gross revenues from the discontinued operations decreased
to $835,857 in the fiscal year ended June 30, 1997,  compared to  $2,127,574  in
the comparable  prior period,  a decrease of 61%.  Interest income  increased to
$98,076  in the  fiscal  year ended  June 30,  1997,  compared  to $2,995 in the
comparable prior period,  due to the increase in cash and notes receivable.  The
Company's cost of sales decreased by 65%, or to $346,775 for the year ended June
30,  1997 from  $988,876  for the year ended June 3 0, 1996.  As a result of the
foregoing, the Company's gross profit margins were 58.5% and 53.5% for the years
ended June 30, 1997 and 1996, respectively.  Management believes the increase in
gross profit  margin  resulted  largely  from the decrease in coin  operated pay
telephone (copt) bills by converting phone bills to the flat rate program.

         The Company's selling, general and administrative expenses decreased by
42% to $744,442 for the fiscal year ended June 30, 1997  compared to  $1,286,296
in the fiscal  year ended June 30,  1996.  The  decrease is due to the change of
operations  as well as a  large  decrease  in  depreciation  due to the  sale of
assets.  The  Company had a gain on the sale of  equipment  of  $1,860,019,  and
$3,625 in the fiscal  years ended June 30,  1997,  and 1996,  respectively.  The
difference was due to the sale of  approximately  99% of the fixed assets of the
Company.

         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.  In 1997,  these shares were sold by
Teletek to Dingaan Holdings,  S.A., a major  shareholder of the Company,  during
the fiscal year ended June 30, 1997. 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 accrued $109,056 in preferred dividends during the fiscal
year ended June 30, 1997, and paid  dividends of $24,088 and accrued  $84,468 in
preferred  dividends in the fiscal year June 30, 1996. During the year 1997, the
Company  paid the note  payable of  $113,760  for the 1995 and 1994  fiscal year
dividends that were unpaid.

         The Company's future results of operations will be materially  affected
due to the change of operations  and lack of significant  revenues.  The Company
anticipates  that in the fiscal year ending June 30, 1998,  that new  operations
will be secured to generate sufficient revenues to cover its operating expenses.
However,  no such  operations  have  yet  been  identified,  and  management  is
continuing  its search for a viable merger  candidate or business  operations to
begin.  The  foregoing  is a  forward-looking  statement  within the  meaning of
Section 27A of the  Securities  Act of 1933, as amended,  and Section 21E of the
Securities Exchange Act of 1934, as amended,  and is subject to the safe harbors
created thereby. Actual results could differ materially because of the following
factors:  the  inability  to  secure  business  operations;  losses  due  to  an
unprofitable new line of business; the continued employment of key management; 
                                       10
<PAGE>
a change in control of the Company due to the  conversion  by Dingaan  Holdings,
S.A., of its Series A 6% Preferred Stock or other events.

         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 Conimon 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.

         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  int he 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.

         Liquidity and Capital Resources

         The Company requires capital to support the general and  administrative
expenses of the Company in its search for viable operations.

         At June  30,  1997,  the  Company  had cash  and  cash  equivalents  of
$1,586,983,  compared to cash and cash equivalents of $694,293 at June 30, 1996.
This  increase  of $892,690  resulted  primarily  from the sale of the  payphone
operations,  from which the Company received $1,688,750.  The foregoing increase
in cash was offset by a net  decrease in cash of $118,228  from  continuing  and
discontinued operations, the return of the SB-2 offering of $458,250, the payoff
of long term debt of  $173,971,  and the  purchase of  property &  equipment  of
$45,61 1.

         The  funding  sources  currently   available  to  the  Company  include
potential public  offerings,  however,  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 operating  capital for the
foreseeable future is likely to be from current cash reserves. Principal uses of
working capital will include payment of the Company's general and administrative
expenses and the 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 the
lack of signficant  revenues and  operations.  See Item 6 "Results of Operations
for the Fiscal  Years  Ended June 30, 1997 and 1996".  The Company is
                                       11
<PAGE>
exploring  various  business  combinations,  in various  industries  which might
result  in the  acquisition  of one or more  subsidiaries.  This may  materially
change the cash requirements of the Company, however 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:

<TABLE>
<CAPTION>
                                 Heading                                                     Page
                                 -------                                                     ----
<S>                                                                                          <C>
Independent Auditor's Report                                                                 F-3

Balance Sheets for the Years Ended June 30, 1997 and 1996                                    F-4

Statements of Operations for the Years Ended June 30, 1997 and 1996                          F-5

Statements of Stockholder's Equity for the years ended June 30, 1997, 1996 and 1995          F-7

Statements of Cash Flows for the years ended June 30, 1997, 1996 and 1995                    F-8

Notes to Financial Statements                                                                F-9
</TABLE>

         Item 8. Changes in and Disagreements With Accountants.

         None.

                                    PART III

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

         General.

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

         David  Westfere,  age 31,  has been a  director,  president  and  chief
executive  and  operating  officer of the Company  since April 6, 1995,  and was
General  Manager of Operations  from January 1991 to April 1995. From 1988 until
1990 he was the route  supervisor  for the Company's pay telephone  operation in
Bakersfield, California, and from 1990 until 1991 he was the route supervisor of
the Company's pay telephone operation in Phoenix,  Arizona.  From September 1984
to June 1987 Mr. Westfere attended the University of Akron.

         Todd D. Chisholm, age 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,  and from September
1992 until June 1994 he was employed as audit manager by Jones,  Jensen, Orton &
Company, Certified Public Accountants. Since June 1994 he has been self-employed
as a  certified  public  accountant.  Since  April  1995 he has  also  been  the
vice-president  and chief financial  officer of The Solarium,  Inc., a privately
held tanning salon. Mr. Chisholm  received a bachelor of arts degree in business
from the  University of Utah. He has been a certified  public  accountant  since
1992.
                                       12
<PAGE>
         Mr.  Westfere and Mrs.  Ramona  Westfere were appointed as directors of
the company on April 6, 1995 by the Company's  sole  remaining  directors at the
time.  Mr.  Chisholm  was  appointed  as a  director  on  June  27,  1995 by the
directors.  Mrs.  Westfere  resigned as a director and officer of the Company on
February 1, 1997.

         Compliance  with Section 16(a) of the Exchange Act.  Beginning with 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 also failed to file a Form 5 for such fiscal year
and for the fiscal year ended June 30, 1996. Teletek sold its holdings of Common
Stock of the Company on December 1, 1996 to Dingaan Holdings, S.A..

         Item 10. Executive Compensation.

         The  following  table set forth the  aggregate  executive  compensation
earned by or paid to current management of the Company for the fiscal year ended
June 30, 1997, 1996 and 1995.

<TABLE>
<CAPTION>
                                                            Annual Compensation
Name and Principal Positions          Year       Salary        Bonus        Other Annual Compensation

<S>                                   <C>       <C>            <C>                <C>           
David Westfere, President (1) (2)     1997      $36,800       $  0.00             $42,429.81 (3)
                                      1996      $32,400       $16,000             $46,972.00 (4)
                                      1995      $32,400       $16,000             $35,031.00 (5)
</TABLE>
-------------

(1) Mr. Westfere has been Chief Executive  Officer and a director of the Company
since 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) During the fiscal year 1997, the Company paid (i) health insurance  premiums
of  $6,429.81  and (ii),  $36,000  to C&N,  Inc.,  a company  controlled  by Mr.
Westfere,  for management  services.  See "Item 12 - Certain  Relationships  and
Related Transactions.

(4) The Company paid health  insurance  premiums of $5,972 for Mr.  Westfere and
his family during the fiscal year 1996. The Company also paid a total of $36,000
to C&N, Inc., a company  controlled by Mr.  Westfere,  for  management  services
during such period.

(5) During the fiscal year 1995, 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.

         No other  executive  officer of the Company  received any  compensation
exceeding $100,000 for the fiscal years ended June 1997, 1996, 1995.

         Compensation  of  Directors.  Directors  are permitted to receive fixed
fees and other  compensation  for their services as directors,  as determined by
the Board of Directors.  No such fees were paid to the  Company's  directors for
the fiscal year 1997.
                                       13
<PAGE>
         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, 1997, 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 of Beneficial Owner           Amount and Nature of Beneficial        Percent of Class
------------------------------------           --------------------------------       ----------------
                                                          Ownership
                                                          ---------
<S>                                                     <C>                                <C>
         Oak Holdings, Inc.                             2,500,000 (1)                      53.6%
           Apartado 63685
     Panama, Republic of Panama

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

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

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

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

 Higgins Family Limited Partnership                       235,230 (6)                       5.0%
       2654 East Topaz Square
      Las Vegas, Nevada 89121

          Michael G. Swan                                 487,198 (7)                      10.4%
       2654 East Topaz Square
      Las Vegas, Nevada 89121

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

           David Westfere                                  20,000 (8)                       (9)
       1725 West Third Street
          Tempe, AZ 85281

Directors and Executive Officers as a Group (3             20,000 (9)                       (9)
              persons)
</TABLE>
                                       14
<PAGE>
----------------

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

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

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

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

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

Of the shares sold, a total of 992,065  shares are now held of record by Dingaan
Holdings,  S.A.  ("Dingaan").  Based solely upon the foregoing  shares,  Dingaan
currently owns approximately 21.3% of the total issued and outstanding shares of
Common Stock of the Company (4,666,099  shares).  In addition,  Dingaan owns 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, 1997, was
approximately $2,011,614. The average bid price of the Company's Common Stock on
the 10 trading days immediately prior to September 27, 1997 was $0.13 per share.
Therefore,  based upon the  conversion  price of $.10 per  share,  the shares of
Series A 6% Preferred  Stock owned by Dingaan would be convertible  into a total
of 20,116,140  shares of the Company's Common Stock. In that event Dingaan would
own a total of  21,108,205  shares of Common  Stock,  or 85.2% of the total then
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.

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

(9) Less than 1%.

As of September 27, 1997, the Company had  outstanding 727 shares of Series A 6%
Preferred Stock,  all of which shares were owned of record by Dingaan  Holdings,
S.A..

There are no arrangements known to the Company,  the operation of which may at a
subsequent date result in a change of control of the Company. However, if at any
time Dingaan  should elect to convert its shares of Series 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. 
                                       15
<PAGE>
         Item 12. Certain Relationships and Related Transactions.

         The Company  pays  $3,000 per month to C&N,  Inc.  ("C&N"),  an Arizona
corporation,  for management  services.  The Company paid C&N a total of $36,000
under this agreement  during the fiscal year ended June 30, 1997. Mr.  Westfere,
an officer  and  director  of the  Company,  is the  president  of C&N,  and Mr.
Westfere and his wife and their minor children are C&N's sole shareholders.  The
agreement  between  the  Company and C&N  commenced  on January 1, 1995,  and is
renewable from year to year. The agreement was negotiated  between Mr.  Westfere
and former management of the Company as part of the total  compensation  package
for Mr. and Mrs.  Westfere.  It is believed  that the terms of the agreement are
more  favorable to Mr. and Mrs.  Westfere  than the Company  could obtain with a
non-affiliated party.

         Mr. Chisholm,  a director of the Company,  performs accounting services
for the  Company.  He is paid a flat fee of $890 per month for  compilation  and
payroll  services  and is paid an  hourly  fee for any  additional  work.  It is
believed  that the terms of the  arrangement  are at least as  favorable  as the
terms that could be obtained with a non-affiliated party.

         On April 6, 1995, the Company entered into a Consulting  Agreement with
Michael G. 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  commending 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 (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.
                                       16
<PAGE>
         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.

<TABLE>
<CAPTION>
Exhibit No.                              Description of Exhibit                                      Page
<S>             <C>                                                                                  <C>      
  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                                    ***

  3(iv)         Certificate of Amendment of Articles of Incorporation, dated June 20, 1997           E-1

  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.

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

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

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

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

  10.7          Stock Purchase Agreement between Teletek, Inc. and Dingaan  Holdings, S.A.           ******
                dated December 1, 1996 (change in control of registrant)
</TABLE>
-------------

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

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

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

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

***** Incorporated by reference to the Company's Form 12b-25 dated September 27,
1997.
                                       17
<PAGE>
*2  Incorporated  by  reference to the exhibits  filed with the  Company's  1996
Annual  Report on Form  10-KSB  (Commission  file No.  0-24138)  filed  with the
Securities and Exchange Commission on October 11, 1996.

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

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


                                   SIGNATURES

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


DIAMOND EQUITIES, INC.
----------------------
Registrant

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


Date: October 7, 1997


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


Date: October 7, 1997

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


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


Date: October 7, 1997


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


Date: October 7, 1997
                                       18
<PAGE>





                             DIAMOND EQUITIES, INC.


                              FINANCIAL STATEMENTS


                          June 30, 1997, 1996 and 1995
<PAGE>
                                 C O N T E N T S

                                                                            Page

INDEPENDENT AUDITORS' REPORT ..................................................3

BALANCE SHEETS.................................................................4

STATEMENTS OF OPERATIONS ......................................................5

STATEMENTS OF STOCKHOLDERS' EQUITY............................................ 7

STATEMENTS OF CASH FLOWS...................................................... 8

NOTES TO FINANCIAL STATEMENTS ................................................ 9
<PAGE>
                    WISAN, SMITH, RACKER & PRESCOTT, L.L.P.
                    ---------------------------------------
                          CERTIFIED PUBLIC ACCOUNTANTS


                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------


Officers and Directors
Diamond Equities, Inc.
Tempe, Arizona


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

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

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


Salt Lake City, Utah                  /s/ Wisan, Smith, Racker & Prescott L.L.P.
August 6, 1997                        ------------------------------------------



<TABLE>
<S>                            <C>                              <C>
          MEMBER               132 PIERPONT AVENUE, SUITE 250               MEMBER
   AMERICAN INSTITUTE OF         SALT LAKE CITY, UTAH 84101          UTAH ASSOCIATION OF
CERTIFIED PUBLIC ACCOUNTANTS         FAX (801) 328-2015         CERTIFIED PUBLIC ACCOUNTANTS
                                       (801) 328-2011
</TABLE>
<PAGE>
                             DIAMOND EQUITIES, INC.
                                 BALANCE SHEETS
                          June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
                                                                1997           1996
                                                            -----------    -----------
    ASSETS
<S>                                                         <C>            <C>        
CURRENT ASSETS
  Cash and cash equivalents                                 $ 1,586,983    $   694,293

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

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

PROPERTY AND EQUIPMENT                                           20,980        707,204

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

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

    LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable                                          $   112,812    $   106,997
  Accrued expenses                                               59,940         32,212
  Sales tax payable                                              88,098           --   
  Accrued preferred dividends                                   194,023         84,967
  Current portion of long-term liabilities                         --              770
                                                            -----------    -----------
                              TOTAL CURRENT LIABILITIES         454,873        224,946

LONG-TERM LIABILITIES                                              --          173,201
CONTINGENT LIABILITIES                                             --          132,442
                                                            -----------    -----------
                                      TOTAL LIABILITIES         454,873        530,589

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
  Preferred stock, par value $.001, 6%
    cumulative convertible, non-voting
    Authorized 100,000 shares, issued
    727 shares at stated value                                1,817,591      1,817,591
  Common stock, par value $.001
    Authorized 50,000,000 shares,
    issued 4,666,099 and 5,277,099
    shares, respectively                                          4,666          5,277
  Capital in excess of par value                              2,582,282      3,039,921
  Retained earnings (deficit)                                (2,418,007)    (3,955,251)
                                                            -----------    -----------
                             TOTAL STOCKHOLDERS' EQUITY       1,986,532        907,538
                                                            -----------    -----------

                           TOTAL LIABILITIES AND EQUITY     $ 2,441,405    $ 1,438,127
                                                            ===========    ===========
</TABLE>
Certain 1996 items have been reclassified to conform to the 1997 presentation. 
                                                                               
The accompanying notes are an integral part of the financial statements.       
                                        4
<PAGE>
                             DIAMOND EQUITIES, INC.
                            STATEMENTS OF OPERATIONS
                    Years ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
                                                         1997           1996           1995
                                                     -----------    -----------    -----------
<S>                                                  <C>            <C>            <C>      
INCOME
  Revenues                                           $      --      $      --      $      --
  Cost of sales                                             --             --             --
                                                     -----------    -----------    -----------
                                    GROSS PROFIT            --             --             --

EXPENSES
  General and administrative expenses                    260,042           --             --
  Depreciation and amortization                            4,979           --             --
                                                     -----------    -----------    -----------
                                                         265,021           --             --
                                                     -----------    -----------    -----------
                                  OPERATING LOSS        (265,021)          --             --
                                                     -----------    -----------    -----------

OTHER INCOME (EXPENSE)
  Miscellaneous income                                       896           --             --
  Interest income                                         57,514          2,995          4,041
                                                     -----------    -----------    -----------
                                                          58,410          2,995          4,041
                                                     -----------    -----------    -----------

Income (loss) from continuing
  operations before income taxes                        (206,611)         2,995          4,041

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

                              INCOME (LOSS) FROM     
                           CONTINUING OPERATIONS        (206,661)         2,995          4,041
                                                     -----------    -----------    -----------

DISCONTINUED OPERATIONS
  Income (loss) from discontinued
    operations, net of applicable income
    taxes of $0, $50 and $50                               4,682        (95,524)      (194,204)
  Gain on disposal of discontinued
    operations, net of applicable income
    taxes of $11,740                                   1,848,279           --             --
                                                     -----------    -----------    -----------
                                                       1,852,961        (95,524)      (194,204)
                                                     -----------    -----------    -----------

                               NET INCOME (LOSS)       1,646,300        (92,529)      (190,163)

  Preferred dividends                                    109,056        109,056        109,278
                                                     -----------    -----------    -----------

                               NET INCOME (LOSS)
                                 ATTRIBUTABLE TO
                                    COMMON STOCK     $ 1,537,244    $  (201,585)   $  (299,441)
                                                     ===========    ===========    ===========
</TABLE>

The accompanying notes are an integral part of the financial statements.
                                        5
<PAGE>
                             DIAMOND EQUITIES, INC.
                      STATEMENTS OF OPERATIONS (CONTINUED)
                    Years ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
                                                           1997        1996        1995
                                                        ---------   ---------   ---------
<S>                                                     <C>         <C>         <C>       
PRIMARY EARNINGS (LOSS)
  PER COMMON SHARE
  Loss before discontinued operations                   $   (0.06)  $   (0.02)  $   (0.02)

  Discontinued operations                                    0.37       (0.02)      (0.04)
                                                        ---------   ---------   ---------

                                   PRIMARY EARNINGS
                                   (LOSS) PER SHARE     $    0.31   $   (0.04)  $   (0.06)
                                                        =========   =========   =========

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

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

  Discontinued operations                                    0.19           -           -
                                                        ---------   ---------   ---------

                             FULLY-DILUTED EARNINGS
                                          PER SHARE     $    0.17   $       -   $       -
                                                        =========   =========   =========

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

The accompanying notes are an integral part of the financial statements.
                                        6
<PAGE>
                             DIAMOND EQUITIES, INC.
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                    Years ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
                                 Common Stock            Capital in                   Retained          Total
                          --------------------------     Excess of      Preferred     Earnings      Stockholders'
                             Shares         Amount       Par Value        Stock       (Deficit)       (Equity)
                          -----------    -----------    -----------    -----------   -----------    -------------

<S>                         <C>                <C>        <C>            <C>          <C>               <C>    
Balance at 6/30/94          4,666,099          4,666      2,587,282      1,817,591    (3,454,225)       955,314

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

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

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

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

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

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

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

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

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

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

Net income for year
  ended 6/30/97                  --             --             --             --       1,646,300      1,646,300
                          -----------    -----------    -----------    -----------   -----------    -----------

Balance at 6/30/97          4,666,099    $     4,666    $ 2,582,282    $ 1,817,591   $(2,418,007)   $ 1,986,532
                          ===========    ===========    ===========    ===========   ===========    ===========
</TABLE>

The accompanying notes are an integral part of the financial statements.
                                        7
<PAGE>
                             DIAMOND EQUITIES, INC.
                            STATEMENTS OF CASH FLOWS
                    Years ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
                                                                         1997           1996           1995
                                                                     -----------    -----------    -----------
<S>                                                                  <C>            <C>            <C>        
CASH FLOWS FROM OPERATING ACTIVITIES
  Cash received from interest and other income                       $    56,510    $     2,995    $     4,041

  Less cash paid for:
    General and administrative expenses                                  258,845           --             --
    Income taxes paid to governments                                          50           --             --
                                                                     -----------    -----------    -----------
                                                                         258,895           --             --
                                                                     -----------    -----------    -----------
  Net cash flows from (used by) continuing activities                   (202,385)         2,995          4,041
  Net cash flows from discontinued operations                             84,157        218,730        384,437
                                                                     -----------    -----------    -----------
                        Net cash flows from operating activities         118,228        221,725        388,478

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

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

                                      NET INCREASE (DECREASE) IN
                                       CASH AND CASH EQUIVALENTS         892,690        509,294        (20,875)

                                       CASH AND CASH EQUIVALENTS
                                            AT BEGINNING OF YEAR         694,293        184,999        205,874
                                                                     -----------    -----------    -----------

                                       CASH AND CASH EQUIVALENTS
                                                  AT END OF YEAR     $ 1,586,983    $   694,293    $   184,999
                                                                     ===========    ===========    ===========
NON-CASH FINANCING ACTIVITIES
During  the year ended  June 30,  1997 the  Company  sold  equipment  for a note
receivable totaling $811,250.

During the year ended June 30, 1996 the Company acquired office equipment with a
cost of $5,410 through a capital lease.
</TABLE>
The accompanying notes are an integral part of the financial statements.
                                        8
<PAGE>
                             DIAMOND EQUITIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                          June 30, 1997, 1996 and 1995

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

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

               Use of Estimates in the Preparation of Financial Statements
               -----------------------------------------------------------
               The  preparation  of  financial  statements  in  conformity  with
               generally accepted  accounting  principles requires management to
               make estimates and assumptions  that affect  reported  amounts of
               assets  and  liabilities,  disclosure  of  contingent  assets and
               liabilities at the date of the financial statements, and revenues
               and expenses  during the  reporting  period.  In these  financial
               statements,  assets, liabilities,  and earnings involve extensive
               reliance on management's  estimates.  Actual results could differ
               from those estimates.

               Cash and Cash Equivalents
               -------------------------
               Cash and cash  equivalents  include all cash  balances and highly
               liquid  investments  with original  maturities of less than three
               months.

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

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

               Depreciation
               ------------
               Depreciation  expense is computed using the straight-line  method
               in amounts sufficient to write off the cost of depreciable assets
               over their estimated useful lives.
                                        9
<PAGE>
                             DIAMOND EQUITIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                          June 30, 1997, 1996 and 1995

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

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

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

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

NOTE 3 -       NOTE RECEIVABLE
               On November 15, 1996 the Company  sold all of its assets  related
               to the operation of the  pay-telephone  business (see Note 9). In
               connection  with the sale of the assets,  the Company  received a
               note  receivable  totaling  $811,250.  The note is payable to the
               Company in monthly  installments of $14,000 including interest at
               8% per annum,  beginning  February 15, 1997, with the balance due
               January 15, 2002.
                                       10
<PAGE>
                             DIAMOND EQUITIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                          June 30, 1997, 1996 and 1995

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


NOTE 4 -       PROPERTY AND EQUIPMENT
               Property and  equipment as of June 30, 1997 and 1996 are detailed
               in the following summary:
<TABLE>
<CAPTION>
                                                                Accumulated            Net Book
1997                                          Cost             Depreciation             Value
----                                  ------------------    ------------------    -----------------
<S>                                   <C>                   <C>                   <C>              
Furniture and fixtures                $          21,368     $           7,295     $          14,073
Office equipment                                  7,367                 2,323                 5,044
Automobiles                                       2,192                   329                 1,863
                                      -----------------     -----------------     -----------------

                                      $          30,927     $           9,947     $          20,980
                                      =================     =================     =================

                                                                Accumulated            Net Book
1996                                          Cost             Depreciation             Value
----                                  ------------------    ------------------    -----------------

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

                                      $       2,722,836     $       2,015,632     $         707,204
                                      =================     =================     =================
</TABLE>
                                       11
<PAGE>
                             DIAMOND EQUITIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                          June 30, 1997, 1996 and 1995

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

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

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


NOTE 6 -       LONG-TERM LIABILITIES

                                                           1997          1996
                                                        ---------     ---------
                                                    
Note payable to related party, principal and        
  interest due September, 1997, bearing             
  interest at 8%, unsecured                             $    -        $  55,683
                                                    
Note payable to related party, principal and        
  interest due September, 1997, bearing             
  interest at 8%, unsecured                                  -          113,760
                                                    
Capital lease payable to vendor in monthly          
  installments of $106, due December, 2001,         
  bearing interest at 12%, secured by               
  equipment                                                  -            4,528
                                                        ---------     ---------
                                                             -          173,971
Less current portion                                         -             (770)
                                                        ---------     ---------
                                                    
Long-term portion                                       $    -        $ 173,201
                                                        =========     =========
                                       12
<PAGE>
                             DIAMOND EQUITIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                          June 30, 1997, 1996 and 1995

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

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

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

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

               Consulting Agreement
               --------------------
               A long-term  consulting  agreement  has been entered into with an
               individual  who  is  also a  shareholder  to  provide  consulting
               services to the Company. The agreement calls for the payment of a
               monthly  consulting  fee of  $5,000.  For the year ended June 30,
               1997,   $35,000  of  consulting  expense  has  been  included  in
               continuing  operations.  For the years ended June 30, 1997,  1996
               and 1995,  $25,000,  $60,000  and $60,000  have been  included in
               discontinued operations.
                                       13
<PAGE>
                             DIAMOND EQUITIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                          June 30, 1997, 1996 and 1995

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

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


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


NOTE 10 -      INCOME TAXES
               The Company  uses an asset and  liability  approach to  financial
               accounting and reporting for income taxes. The difference between
               the  financial  statement  and  income  tax bases of  assets  and
               liabilities is determined  annually.  Deferred  income tax assets
               and  liabilities  are  computed for those  differences  that have
               future income tax  consequences  using the currently  enacted tax
               laws and  rates  that  apply  to the  periods  in which  they are
               expected  to affect  taxable  income.  Valuation  allowances  are
               established,  if  necessary,  to reduce the  deferred  income tax
               asset to the amount that will more  likely than not be  realized.
               Income tax expense is the current tax payable or  refundable  for
               the  period  plus or minus  the net  change in the  deferred  tax
               assets and liabilities.
                                       14
<PAGE>
                             DIAMOND EQUITIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                          June 30, 1997, 1996 and 1995

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

                                                     1997              1996
                                                -------------     -------------

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

Deferred income tax liability                   $     324,000     $        -

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

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

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

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

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

                                                      1997             1996
                                                  ------------     ------------

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

  Total gross deferred income tax assets               725,000        1,257,000

    Less valuation allowance                          (401,000)      (1,257,000)
                                                  ------------     ------------
  Net deferred income tax asset                        324,000             -
                                                  ------------     ------------

Deferred income tax liabilities:
  Difference on note receivable                        324,000             -
                                                  ------------     ------------

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

  Net deferred income tax liability               $       -        $       -
                                                  ============     ============
                                       15
<PAGE>
                             DIAMOND EQUITIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                          June 30, 1997, 1996 and 1995

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

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

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

State income tax, net of
 federal benefit                      -          -          -

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

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


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

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

Net income (loss)                     $ 1,646,300    $   (92,529)   $  (190,163)

Adjustments to reconcile
  net income (loss) to net
  cash flows from operating
  activities:
  (Income) loss from
    discontinued operations                (4,682)        95,524        194,204
  Gain on sale of discontinued
    operations                         (1,848,279)          --             --
  Depreciation and amortization
    expense                                 4,979           --             --

(Increase) decrease in assets:
  Accounts receivable                       9,232           --             --
  Interest receivable                      (1,900)
  Prepaid expenses and deposits             8,742           --             --
                                       16
<PAGE>
                             DIAMOND EQUITIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                          June 30, 1997, 1996 and 1995

NOTE 11 -     CASH FLOWS FROM OPERATING ACTIVITIES (CONTINUED)

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

Increase (decrease) in liabilities:
  Accounts payable                              5,815          --           --
  Accrued expenses                            (22,592)         --           --
                                            ---------     ---------    ---------
  Net cash flows from (used
    by) continuing activities                (202,385)        2,995        4,041
  Net cash flows from
    discontinued operations                    84,157       218,730      384,437
                                            ---------     ---------    ---------

               Net cash flows from
              operating activities          $ 118,228     $ 221,725    $ 388,478
                                            =========     =========    =========

NOTE 12 -      FAIR VALUES OF FINANCIAL INSTRUMENTS
               The following disclosure of the estimated fair value of financial
               instruments is made in accordance  with the  requirements of SFAS
               No. 107, "Disclosure about Fair Value of Financial  Instruments".
               The carrying  amounts and fair value of the  Company's  financial
               instruments at June 30, 1997 and 1996 are as follows:

                                                    Carrying             Fair
1997                                                 Amounts            Values
----                                               ----------         ----------
                                                   
Cash and cash equivalents                          $1,586,983         $1,586,983
Note receivable including
 current maturities                                   811,250            724,320
Preferred stock                                     1,817,591          2,682,152

                                                    Carrying             Fair
1996                                                 Amounts            Values
----                                               ----------         ----------
                                                   
Cash and cash equivalents                          $  694,293         $  694,293
Long-term debt including
 current maturities                                   173,971            173,971
Preferred stock                                     1,817,591          2,536,744
Warrants, Class A                                        --                3,055
Warrants, Class B                                        --                3,055

               The following methods and assumptions were used by the Company in
               estimating its fair value disclosures for financial instruments.
                                       17
<PAGE>
                             DIAMOND EQUITIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                          June 30, 1997, 1996 and 1995

NOTE 12 -      FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
               Cash and Cash Equivalents
               -------------------------
               The carrying  amounts  reported on the balance sheet for cash and
               cash equivalents approximate their fair value.

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

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

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

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

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

               As described in Note 7, 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.  For the year ended
               June 30, 1997, $35,000 of consulting expense has been included in
               continuing  operations.  For the years ended June 30, 1997,  1996
               and  1995,   $25,000,   $60,000  and  $60,000,   respectively  of
               consulting expense has been included in discontinued operations.
                                       18
<PAGE>
                                   FORM 10-KSB

                             DIAMOND EQUITIES, INC.
                    (Formerly United Payphone Services, Inc.)

                                    EXHIBITS


           3(iv) Certificate of Amendment of Articles of Incorporation
                               dated June 20, 1997
                                       19