UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                  FORM 10-KSB/A
                                 AMENDMENT NO. 2

(Mark One)

[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

     For the fiscal year JUNE 30, 1998

[ ]  TRANSITION  REPORT UNDER SECTION 13 OR 15(D) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

            For the Transition period from:____________to:___________

                         Commission File Number. 0-24138


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

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


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

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


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

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

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

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

               Yes [X]  No [ ]

              Check  here if there is no  disclosure  of  delinquent  filers  in
response to Item 405 of Regulation S-B contained in this form, and no disclosure
will be contained,  to the best of registrant's  knowledge, in definite proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
<PAGE>
         The Issuer's revenues for the year ended June 30, 1998, were $ none.

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

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

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

                      Documents incorporated by Reference:

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

         A Form 8-K was filed on July 17, 1998  regarding a voluntary  change of
auditors for the Registrant.

         A Rule 12b-25 Notice of Inability to Timely File was filed on September
28, 1998, and the Form 10-KSB was filed on October 13, 1998.
<PAGE>

                                TABLE OF CONTENTS


                                                                        Page No.
                                                                        --------
PART II

Item 7.   Financial Statements.............................................3

PART III

Item 13.  Exhibits List and Reports on Form 8-K............................4


                                       2
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.

    The following  financial  statements  are attached  hereto and  incorporated
herein:

For Fiscal Years Ending June 30, 1998 and 1997

             HEADING                                                       PAGE
             -------                                                       ----

Independent Auditor's Report                                               F-1

Consolidated Balance Sheet for the Year Ended June 30, 1998                F-2

Consolidated Statements of Operations for the Years Ended
June 30, 1998 and 1997                                                     F-3

Consolidated Statements of Changes in Stockholder's Equity
for the years ended June 30, 1998 and 1997                                 F-4

Consolidated Statements of Cash Flows for the years ended
June 30, 1998 and 1997                                                     F-5

Notes to Financial Statements                                              F-7



                                       3
<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 SB-2.
Exhibit
  No.               Description of Exhibit                                  Page
-------             ----------------------                                  ----
3(i)     Articles of Incorporation as amended                                 *
3(ii)    Bylaws of the Company, as currently in effect                        *
3(iii)   Certificate regarding Series A 6% Preferred Stock                  ***
3(iv)    Certificate of Amendment of Articles of Incorporation,
         dated June 20, 1997                                                 *1
3(v)     Articles of Incorporation - Precision Plastics Molding, Inc.        *3
3(vi)    Bylaws - Precision Plastics Molding, Inc.                           *3
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)                               ******
10.8     Asset Purchase Agreement between the Company, Precision
         and Premier Plastics Corp, dated June 15, 1998.                     *3
10.9     Asset Purchase Agreement between the Company, Precision
         and Accurate Thermoplastics, Inc., dated July 15, 1998              *3
10.10    Preferred Stock Exchange Agreement                                  *3
23       Consent of Independent Certified Public Accountants                 *3
27       Financial Data Schedule                                             *3
-------------
*       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.
******  Incorporated  by reference to the Company's  current  Report on Form 8-K
        (Commission  File No.  0-24138)  filed with the  Securities and Exchange
        Commission on March 15, 1997.
*1      Incorporated  by reference to the exhibits filed with the Company's 1997
        Annual Report on Form 10-KSB  (Commission  file No.  0-24138) filed with
        the Securities and Exchange Commission on October 9, 1997.
*2      Incorporated  by reference to the exhibits filed with the Company's 1996
        Annual Report on Form 10-KSB  (Commission  file No.  0-24138) filed with
        the Securities and Exchange Commission on October 11, 1996.
*3      Incorporated  by reference to the exhibits filed with the Company's 1998
        Annual Report on Form 10-KSB  (Commission  file No.  0-24138) filed with
        the Securities and Exchange Commission on October 13, 1998.

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

         A Rule 12b-25  Notice of Inability to Timely File was made on September
28, 1998 and the Annual  Report form 10-KSB for fiscal year ending June 30, 1998
was filed on October 13, 1998.

                                       4
<PAGE>
                                   SIGNATURES

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


DIAMOND EQUITIES, INC.
Registrant

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


Date: October 26, 1998
     -----------------


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


Date: October 26, 1998
     -----------------


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


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


Date: October 26, 1998
     -----------------



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


Date: October 26, 1998
     -----------------

                                       5

<PAGE>

                             DIAMOND EQUITIES, INC.
                              FINANCIAL STATEMENTS
                             JUNE 30, 1998 AND 1997

                                 C O N T E N T S

                                                                        Page
                                                                        ----

CONSOLIDATED INDEPENDENT AUDITORS' REPORT ...............................F-1

CONSOLIDATED BALANCE SHEET...............................................F-2

CONSOLIDATED STATEMENTS OF OPERATIONS ...................................F-3

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY...............F-4

CONSOLIDATED STATEMENTS OF CASH FLOWS....................................F-5

NOTES TO FINANCIAL STATEMENTS ...........................................F-7

<PAGE>
                          INDEPENDENT AUDITORS' REPORT



To the Board of Directors of
Diamond Equities, Inc.:


We have audited the accompanying consolidated balance sheet of Diamond Equities,
Inc.  (the  "Company"),  as of  June  30,  1998  and  the  related  consolidated
statements of operations, changes in stockholders' equity and cash flows for the
year then ended. These consolidated  financial statements are the responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these financial statements based on our audit.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial  position of Diamond Equities,
Inc. at June 30, 1998 and the results of its  operations  and its cash flows for
the year then ended in conformity with generally accepted accounting principles.




KING, WEBER & ASSOCIATES, P.C.
Tempe, Arizona
August 6, 1998


                                      F-1
<PAGE>
DIAMOND EQUITIES, INC.

CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
--------------------------------------------------------------------------------
ASSETS

CURRENT ASSETS:
   Cash and cash equivalents                                        $   600,231
   Certificate of deposit                                               505,404
   Accounts receivable (net of allowance of $35,588)                     10,560
   Notes receivable - current portion                                    35,750
   Inventories                                                            5,400
   Prepaid expenses                                                       5,111
                                                                    -----------
         Total current assets                                         1,162,456

PROPERTY, MACHINERY AND EQUIPMENT                                       197,162

OTHER ASSETS                                                             66,000

NOTES RECEIVABLE - noncurrent portion                                   405,625
                                                                    -----------
         TOTAL ASSETS                                               $ 1,831,243

LIABILITIES AND STOCKHOLDERS' EQUITY:

CURRENT LIABILITIES:
    Accounts payable                                                $   111,234
   Accrued liabilities                                                    8,473
   Preferred stock dividends payable                                    194,023
   Capital lease obligations - current portion                           21,362
   Bank lines of credit                                                 250,200
                                                                    -----------
         Total current liabilities                                      585,292

CAPITAL LEASE OBLIGATIONS - LONG-TERM PORTION                            10,150
                                                                    -----------
         Total liabilities                                              595,442

MINORITY INTEREST                                                        66,975

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
   Preferred stock, convertible, 18,000 shares
     authorized, issued and outstanding                               1,817,591
   Common stock, $0.001 par value, 50,000,000 shares
     authorized, 4,666,099 issued and outstanding                         4,666
   Paid in capital                                                    2,582,282
   Accumulated deficit                                               (3,235,713)
                                                                    -----------
         Total stockholders' equity                                   1,168,826

         TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                 $ 1,831,243
                                                                    ===========

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                      F-2
<PAGE>

DIAMOND EQUITIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
--------------------------------------------------------------------------------
                                                         1998          1997
                                                         ----          ----
                                                                   (AS RESTATED)

GENERAL AND ADMINISTRATIVE EXPENSES                  $   355,100    $   230,021
                                                     -----------    -----------
MISCELLANEOUS (INCOME) AND EXPENSES
  Allowance for note and related account receivable      441,213
  Interest income                                        (53,179)       (57,514)
  Interest expense                                         2,849
  Other income                                            (6,409)          (896)
                                                     -----------    -----------
     Total other expense                                 384,474        (58,410)
                                                     -----------    -----------
LOSS FROM CONTINUING OPERATIONS BEFORE
   INCOME TAXES AND MINORITY INTEREST                   (739,574)      (171,611)

INCOME TAX PROVISION                                          50             50
                                                     -----------    -----------
LOSS FROM CONTINUING OPERATIONS BEFORE
   MINORITY INTEREST                                    (739,624)      (171,661)

MINORITY INTEREST                                          5,114
                                                     -----------    -----------

LOSS FROM CONTINUING OPERATIONS                         (734,510)      (171,661)

DISCONTINUED OPERATIONS
 Loss from discontinued operations,
   net of applicable income taxes                        (35,413)       (78,101)
 Gain on disposal of discontinued operations,
   net of applicable income taxes of $11,740           1,848,279
                                                     -----------    -----------
        Total discontinued operations                    (35,413)     1,770,178
                                                     -----------    -----------

NET (LOSS) INCOME                                    ($  769,923)   $ 1,598,517
                                                     ===========    ===========
BASIC NET (LOSS) INCOME PER COMMON SHARE
  Continuing operations                              $     (0.16)   $     (0.06)
  Discontinued operations                                  (0.01)          0.36
                                                     ===========    ===========
     Total                                           $     (0.17)   $      0.30
                                                     ===========    ===========

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING             4,666,099      4,971,878


              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-3
<PAGE>
DIAMOND EQUITIES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                       ACCUMULATED
                                COMMON STOCK     ADDITIONAL  PREFERRED     DEFICIT        TOTAL
                            SHARES     AMOUNT     PAID-IN      STOCK    (AS RESTATED)  (AS RESTATED)
                            ------     ------     -------      -----    -------------  -------------
<S>                        <C>        <C>       <C>         <C>         <C>           <C>
BALANCE JULY 1, 1996       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 (AS RESTATED)        --       --           --          --    1,598,517   $ 1,598,517
                          ----------  -------   ----------  ----------  -----------   -----------

BALANCE JUNE 30,1997       4,666,099    4,666    2,582,282   1,817,591   (2,465,790)    1,938,749

  Net loss                        --       --           --          --     (769,923)     (769,923)
                          ----------  -------   ----------  ----------  -----------   -----------

BALANCE JUNE 30, 1998      4,666,099  $ 4,666   $2,582,282  $1,817,591  ($3,235,713)  $ 1,168,826
                          ==========  =======   ==========  ==========  ===========   ===========
</TABLE>



              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-4
<PAGE>
DIAMOND EQUITIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
--------------------------------------------------------------------------------
                                                          1998          1997
                                                          ----          ----
CASH FLOWS FROM OPERATING ACTIVITIES:                              (AS RESTATED)
  Net (loss) income                                  $  (769,923)   $ 1,598,517
  Adjustments  to  reconcile  net  (loss)
   income to net cash used in  operating
    activities:
    Undistributed minority interest                       (5,114)
    Loss from discontinued operations                     35,413         78,101
    Gain on sale of discontinued operations           (1,848,279)
    Depreciation and amortization                          8,458          4,979
    Allowance on note and accounts receivable            441,213
    Loss on disposal of equipment                          1,425
  Changes in assets and liabilities
   (net of acquisitions):
     Accounts receivable                                  (9,697)         9,232
     Interest receivable                                     316         (1,900)
     Inventories                                          (5,400)
     Prepaid expenses                                     (5,111)         8,742
     Other assets                                         (6,000)
     Accounts payable                                     (8,068)         5,815
     Accrued liabilities                                 (99,250)       (22,592)
                                                     -----------    -----------
   Net cash flows used in continuing activities         (421,738)      (167,385)
   Net cash flows (used in) provided from
     discontinued operations                            (123,511)        49,157
                                                     -----------    -----------

       Net cash used in operating activities            (545,249)      (118,228)
                                                     -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property, machinery and equipment           (8,345)        (4,994)
  Cash loaned for notes receivable                       (35,750)
  Purchase of certificates of deposit                   (505,404)
  Purchase of business assets                            (80,000)
  Cash committed and paid under investment agreement     (60,000)
  Capital expenditures of discontinued operations        (40,617)
  Proceeds from the sale of discontinued operations    1,688,750
                                                     -----------    -----------
       Net cash (used in) provided by investing
         activities                                     (689,499)     1,643,139
                                                     -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings on lines of credit                          250,200
  Payments on long-term liabilities                     (173,971)
  Cash used to rescind stock issuance                   (458,250)
  Principal payments on capital leases                    (2,204)
                                                     -----------    -----------
       Net cash provided by (used in) financing
         activities                                      247,996       (632,221)
                                                     -----------    -----------
(DECREASE) INCREASE IN CASH                             (986,752)       892,690
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR           1,586,983        694,293
                                                     -----------    -----------
CASH AND CASH EQUIVALENTS, END OF YEAR               $   600,231    $ 1,586,983
                                                     ===========    ===========

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-5
<PAGE>
DIAMOND EQUITIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
--------------------------------------------------------------------------------
                                                              1998         1997
                                                              ----         ----
SUPPLEMENTAL CASH FLOW INFORMATION:
     Interest paid                                          $  1,634    $ 17,838
                                                            ========    ========

     Income taxes paid                                      $ 11,840    $     50
                                                            ========    ========

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

       1998
       Accounts payable assumed in asset purchase           $  6,490
                                                            ========

       Capital leases assumed in asset purchase             $ 33,716
                                                            ========

     Value of subsidiary common stock issued
       in asset purchase                                    $ 75,000
                                                            ========

     1997
     Note receivable from sale of equipment                             $811,250
                                                                        ========


              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-6
<PAGE>


DIAMOND EQUITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998 AND 1997
--------------------------------------------------------------------------------

1.   ORGANIZATION AND BASIS OF PRESENTATION

     The consolidated  financial statements include the accounts and activity of
     Diamond  Equities,   Inc.  and  its  majority  owned  subsidiary  Precision
     Plastics, Inc. (the "Company").  All significant intercompany  transactions
     and balances have been eliminated in consolidation.

     The Company was previously in the business of locating sites and installing
     pay telephone equipment. The Company would pay commissions to the owners of
     the sites where its  equipment  was located and earned its revenue based on
     pay telephone charges to customers.  On November 15, 1996, the Company sold
     all of its  pay-telephone  assets,  its only business  segment,  to Tru-Tel
     Communications,  LLC.  The  discontinued  operations  were  located  in the
     southwestern  United  States.  The  Company  changed  its  name to  Diamond
     Equities,  Inc.  on June 20,  1997 and has since been  seeking  acquisition
     targets. On June 15, 1998 the Company's wholly owned subsidiary,  Precision
     Plastics  Molding,  Inc.  ("Precision"),  purchased the assets of a plastic
     injection molding business.  The new business is located in Arizona and its
     business is generated in the  southwestern  United  States.  Operations  of
     Precision  are  included for the period June 15, 1998 through June 30, 1998
     in the  accompanying  statement of  operations  for the year ended June 30,
     1998.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     CASH AND CASH EQUIVALENTS  include all short-term highly liquid investments
     that are readily  convertible  to known  amounts of cash and have  original
     maturities of three months or less.

     INVENTORIES  consist of finished  goods,  work in process and raw materials
     and are stated at the lower of cost (specific identification) or market.

     PROPERTY, MACHINERY AND EQUIPMENT are stated at cost and are depreciated on
     the  straight-line  method over their  respective  estimated  useful  lives
     ranging  from  3 to 10  years.  Property,  machinery  and  equipment  under
     capitalized  leases are stated at the  lesser of fair  market  value or the
     present  value of future  minimum  lease  payments as of the date placed in
     service,  and  amortized on the  straight-line  method over the term of the
     lease.

     REVENUE  RECOGNITION  - The Company  recognizes  revenue  upon  shipment of
     product  and  recognized   revenue  from  the  discontinued   pay-telephone
     operation upon receipt of coin and rendering of telephone service.

     INCOME  TAXES  - The  Company  provides  for  income  taxes  based  on  the
     provisions  of  Statement  of  Financial   Accounting  Standards  No.  109,
     ACCOUNTING  FOR INCOME  TAXES,  which among  other  things,  requires  that
     recognition  of deferred  income  taxes be measured  by the  provisions  of
     enacted tax laws in effect at the date of financial statements.

                                       F-7
<PAGE>
     FINANCIAL INSTRUMENTS - Financial instruments consist primarily of cash and
     cash  equivalents,  notes  receivable,  investments and  obligations  under
     accounts payable,  accrued expenses,  debt, and capital lease  instruments.
     The  carrying  amounts  of cash and  cash  equivalents,  accounts  payable,
     accrued  expenses and short-term debt approximate fair value because of the
     short  maturity of those  instruments.  The carrying value of the Company's
     capital lease arrangements  approximates fair value because the instruments
     were  valued at the retail  cost of the  equipment  at the time the Company
     entered  into the  arrangements.  Fair  value of officer  notes  receivable
     cannot be  estimated  because  of the nature of the  relationship  with the
     creditor.  The fair value of the note  receivable  related to the  business
     segment disposal is discussed in Note 5.

     USE OF ESTIMATES - The  preparation  of financial  statements in conformity
     with generally accepted  accounting  principles requires management to make
     estimates and  assumptions  that affect the reported  amounts of assets and
     liabilities and disclosure of contingent assets and liabilities at the date
     of the  financial  statements  and the  reported  amounts of  revenues  and
     expenses  during the  reporting  period.  Actual  results could differ from
     those estimates.

     EARNINGS  (LOSS) PER COMMON SHARE - Net earnings (loss) per common share is
     calculated by dividing net income (loss) by the weighted  average number of
     common shares  outstanding.  The Company  adopted SFAS No. 128 EARNINGS PER
     SHARE for the year ended  June 30,  1997.  There was no effect of  adopting
     SFAS No. 128 on net income per common share other than because SFAS No. 128
     requires  the use of income  from  continuing  operations  as the  "control
     number"  for  determination  of  whether to  include  potentially  dilutive
     securities,  diluted earnings per share for the year ended June 30, 1997 is
     not  presented  because the effect of including the  convertible  preferred
     stock  would  be  antidilutive  since  there  is  a  loss  from  continuing
     operations.

3.   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, 1998, the Company's uninsured bank balances total $954,872.

4.   INVESTMENT

     The Company entered into an investment  agreement in March 1998 to purchase
     120,000  shares of common stock of a company at $0.50 per share or $60,000.
     The  agreement  stipulates  that  the  funds  are to be held in a  separate
     account  and used by the  investee  to pay agreed  upon  expenditures.  The
     shares are being held by a transfer  agent and are to be issued  ratably as
     expenditures are paid. At June 30, 1998,  $10,763 had been advanced and the
     balance of $49,237  remains in the special  restricted  account.  The total
     investment   balance  of  $60,000  is  included  in  other  assets  in  the
     accompanying balance sheet.

                                       F-8
<PAGE>
5.   NOTES RECEIVABLE

     Notes receivable consist of the following at June 30, 1998:

     Note receivable, sale of assets                             $ 811,250
     Loans to officers                                              20,000
     Other receivables                                              15,750
     Allowance for possible losses                                (405,625)
                                                                 ---------
        Total                                                      441,375

        Less current portion                                        35,750
                                                                 =========
        Long-term portion                                        $ 405,625
                                                                 =========

     On  November  15, 1996 the  Company  sold all of its assets  related to the
     operation of the pay-telephone business. In connection with the sale of the
     assets,  the Company  received a note  receivable of $811,250.  The note is
     payable  to the  Company  in  monthly  installments  of  $14,000  including
     interest at 8% per annum,  which were to commence  February 15, 1997,  with
     the balance due January 15,  2002.  No payments  have been  received on the
     note and the Company has commenced legal proceedings to collect the amount.
     Management  has  estimated  the  discounted  value  of the  note  based  on
     probabilities  it  has  established  for  collection  and  timing  of  such
     collections  including  any  receipt  of  collateral  from  the  guarantor.
     However, management believes there is significant uncertainty regarding the
     timing  of any  future  payments  as well as the value of  personal  assets
     available  from the  guarantor of the note.  No payments have been received
     and there is  uncertainty as to the outcome of the  litigation.  Management
     believes  that an allowance  for loss of $405,625 is  reasonable.  Interest
     income on the  impaired  loan will be  recognized  only when  payments  are
     received.

6.   INCOME  (LOSS) PER SHARE
<TABLE>
<CAPTION>
                                                 1998                                 1997
                                                 ----                                 ----
                                                            Per                  (as restated)   Per
                                    Income      Shares     Share       Income        Shares     Share
                                    ------      ------     -----       ------        ------     -----
<S>                               <C>          <C>       <C>        <C>           <C>          <C>
     Net (Loss) Income            $(769,923)   4,666,099            $ 1,598,517    4,971,878
     Preferred Stock Dividends           --                            (109,056)
                                  ---------                         -----------
                                  $(769,923)                        $ 1,489,461
                                  =========                         ===========
     BASIC EARNINGS PER SHARE

     (Loss) Income Available to
        Common Shareholders
     Continuing operations         (734,510)               $(0.16)   $ (280,717)               $(0.06)
     Discontinued operations        (35,413)                (0.01)    1,770,178                  0.36
                                  ---------                ------    ----------                ------

         Total                    $(769,923)   4,666,099   $(0.17)  $ 1,489,461    4,971,878   $ 0.30
                                  =========                ======   ===========                ======

     Effect of Dilutive Securities
      Preferred Stock                   N/A                                              N/A

     DILUTED EARNINGS PER SHARE         N/A                                              N/A
</TABLE>

     Diluted  earnings  per share are not  presented  because the effect of such
     would be antidilutive  for both years ending June 30, 1998 and 1997 because
     the Company has losses from continuing operations.

                                       F-9
<PAGE>
7.   INVENTORIES

     Inventories consist of the following at June 30, 1998:

             Raw materials                            $  300
             Work in process                           4,891
             Packaging supplies                          209
                                                      ------
                   Total inventories                  $5,400
                                                      ======

8.  PROPERTY, MACHINERY AND EQUIPMENT

     Property,  machinery and  equipment  consisted of the following at June 30,
     1998:

        Equipment                                              $172,320
        Furniture and fixtures                                   33,711
        Office equipment                                          8,769
                                                               --------
           Total                                                214,800
        Less accumulated depreciation and amortization           17,638

        Property, machinery and equipment - net                $197,162
                                                               ========

     Depreciation  expense for the years ended June 30, 1998 and 1997 was $8,458
     and $4,979, respectively.

9.   BUSINESS ACQUISITION

     In June, 1998, the Company,  through its Precision  subsidiary,  purchased
     substantially all of the operating assets of Premier Plastics  Corporation,
     a plastic injection molding business in Tempe, Arizona, for an $80,000 cash
     payment,  the  assumption of  liabilities  in the amount of $40,000 and the
     issuance  of 300,000  shares of common  stock of the  subsidiary  valued at
     $75,000.  The  acquisition  was  recorded  under  the  purchase  method  of
     accounting.  The aggregate purchase price of $195,000 has been allocated to
     the assets acquired and liabilities  assumed based on their respective fair
     market  values.  The aggregate  consideration  paid  approximated  the fair
     market value of the net assets  acquired and no goodwill was recorded.  The
     operating  results of Premier  Plastics  are  included in the  accompanying
     consolidated financial statements for the period June 15, 1998 through June
     30, 1998.

     The  following  summarizes  unaudited  pro  forma  consolidated   financial
     information  assuming that the acquisition of Premier Plastics  Corporation
     occurred on July 1, 1997:

              Net Sales             $ 307,601
              Net Loss              $(693,432)
              Loss per Share        $  ( 0.15)

     The pro forma financial information is presented for informational purposes
     only and may not  necessarily  reflect the  results  had  Premier  Plastics
     Corporation actually been acquired on July 1, 1997, nor is this information
     indicative of the future consolidated  results.

                                       F-10
<PAGE>
     Management  determined that is was not practicable to determine  results of
     operations for Premier for the year ended June 30, 1997

10.  BANK LINES OF CREDIT

     Bank  line  of  credit,  collateralized  by  certificate  of
     deposit,  interest  at prime plus  0.25%  (8.75% at June 30,
     1998),  interest is due monthly,  principal  due March 1999,
     credit limit of $200,000                                           $150,200

     Bank  line  of  credit,  collateralized  by  certificate  of
     deposit,  interest  at prime  plus  7.64%,  interest  is due
     monthly,  principal due April 1999, credit limit of $235,000
                                                                         100,000
                                                                        --------
     Total current portion                                              $250,200
                                                                        ========
11.  INCOME TAXES

     The Company  recognizes  deferred income taxes for the differences  between
     financial accounting and tax bases of assets and liabilities.  Income taxes
     for the years ended June 30, consisted of the following:

                                                   1998              1997
                                                   ----              ----

         Current tax provision (benefit)         $(134,551)        $ 11,790
         Deferred tax provision                    134,501              -0-
                                                 ---------         --------

         Total income tax provision              $      50         $ 11,790
                                                 =========         ========

     A deferred tax liability of $162,000 at June 30, 1998 relates  primarily to
     the  difference  in the  financial  accounting  and tax  bases  of the note
     receivable  related  to the sale of  business  assets  in  fiscal  1997.  A
     deferred  tax asset of $882,736  relates  primarily to net  operating  loss
     carryforwards  at June 30, 1998 of  $2,064,000  for both  federal and state
     purposes and a credit for alternative minimum tax purposes of $11,740.  The
     federal  carryforwards  expire  in  fiscal  2009  through  2013.  The state
     carryforwards  expire in fiscal 2000 through 2004. The deferred  income tax
     asset is significantly offset by a valuation allowance of $720,736.

     Deferred income taxes for the year ended June 30, 1998, relate to temporary
     differences  for the recognition of a deferred income tax asset for the net
     operating loss carryforward. The valuation allowance was increased $300,736
     from $420,000 (as restated) to $720,736,  reflecting primarily the increase
     in the 1998 current tax benefit and the  $162,000  decrease in the deferred
     income tax liability  related to the allowance  recorded on note receivable
     which was accounted for under an installment method for income tax purposes
     on the sale of assets in fiscal 1997.

                                       F-11
<PAGE>
     A  reconciliation  setting forth the differences  between the effective and
     statutory tax rate is as follows:
                                                     1998            1997
                                                     ----            ----
         Federal statutory rates                    (34.0)%          34.0%
         State income taxes                          (8.0)            9.0
         Valuation allowance and utilization
           of operating loss carryforwards           39.2           (42.3)
         Other, net                                   2.8              --
                                                    -----            -----
         Effective rate                              -0-%             0.7%
                                                    =====            =====
12.  LEASES

     OPERATING LEASES

     The Company leases its administrative  office and operations facility under
     operating leases that expire in 1999 and 1998,  respectively.  Rent expense
     under  these  leases was  approximately  $12,000  and $11,000 for the years
     ended June 30, 1998 and 1997.  Minimum  annual lease  payments  under these
     agreements are as follows:

               Years ended June 30:
                           1999                 $ 15,112
                           2000                    2,190
                                                --------
                           Total                $ 17,302
                                                ========
     CAPITAL LEASES

     The Company  assumed capital leases for equipment in the purchase of assets
     as  discussed  in Note 7.  The  following  presents  future  minimum  lease
     payments  under  capital  leases by year and the  present  value of minimum
     lease payments as of June 30, 1998:

               Year ended June 30:
                           1998                     $24,394
                           1999                      10,519
                                                     ------
               Total minimum lease payments          34,913
               Less amount representing interest      3,401

       Present value of minimum lease payments       31,512
               Current portion                       21,362
                                                    -------
               Long-term portion                    $10,150
                                                    =======

      Assets capitalized under the capital leases total approximately $82,000.

                                       F-12
<PAGE>
13.   STOCKHOLDERS' EQUITY

      PREFERRED STOCK
      In November 1997, the Company's  Board of Directors  approved the issuance
      and  exchange of 18,000  shares of a new Series B Preferred  Stock for the
      outstanding 727 shares of Series A Stock. The Series B Preferred Stock was
      valued at  $1,817,591,  the  stated  value of the  Series A Stock,  and is
      convertible into 18,000,000  shares of common stock. The Series A Stock 6%
      cumulative  dividends shall remain in arrears in the amount of $194,023 or
      $266.88  per  share.  There  are no  cumulative  dividends  on the Class B
      preferred stock.

      COMMON STOCK
      Options to purchase  250,000  shares of common stock granted in April 1995
      pursuant to a consulting agreement,  which was terminated in October 1996,
      were canceled in November 1997.

14.   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 5) 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 for the year ended June 30, 1997.
      The results of  discontinued  operations  for the year ended June 30, 1998
      represent the final  settlement of an estimated  sales tax liability  that
      had been contested by the Company.  Because the tax benefit of the loss is
      offset by a corresponding  valuation allowance,  there is no tax effect of
      the loss from discontinued operations for the year ended June 30, 1998.

15.   EMPLOYEE STOCK OPTION PLAN

      The Company adopted an employee stock option plan in June 1998 pursuant to
      which options may be granted to key employees, including officers, whether
      or not they are directors, who are selected by the Board of Directors. The
      exercise  price of the  options  granted  pursuant  to the  Plan  shall be
      determined by the Board of Directors on a case-by-case basis.  Options are
      exercisable  over a three year period and only while the optionee  remains
      an employee of the  Company,  except that,  in the event of an  optionee's
      termination  of  employment  by reason  of  disability  or death  while an
      employee. The aggregate number of shares that may be issued under the Plan
      shall not exceed 900,000 shares.  As of June 30, 1998, no options had been
      granted under the Plan.

16.   RELATED PARTY TRANSACTIONS

      The Company  loaned  $10,000  each to two officers of the Company in May
      1998. The notes receivable bear interest at 5% with principal and interest
      due May 1999.

                                       F-13
<PAGE>
      The Company  pays  $3,000 per month to C&N,  Inc.  ("C&N") for  management
      services.  C&N is owned by an officer and  director of the Company and his
      family.  The agreement between the Company and C&N commenced on January 1,
      1995 and is  renewable  from year to year.  The  Company  paid C&N $36,000
      under this agreement during the years ended June 30, 1998 and 1997.

      An officer and director of the Company  performs  accounting  services for
      the Company at a flat fee per month for compilation  and payroll  services
      and is paid an  hourly  fee for any  additional  work.  The  Company  paid
      $28,610 to the officer's accounting firm for the year ended June 30, 1998.

      In October  1996 the Company  entered  into a Severance  Agreement  with a
      former director of the Company pursuant to which the Company agreed to pay
      $5,000 per month to the individual through April 1998. For the years ended
      June 30, 1998 and 1997, $2,217 and $107,783 respectively,  are included in
      discontinued operations relating to this agreement.

17.   COMMITMENTS AND CONTINGENCIES

      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, 1997 a complaint for
      breach of contract was filed. 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 filing  counterclaims.  The counterclaims
      allege that the Company failed to disclose  accurately the average life of
      the placement  contracts for the pay telephones in the Phoenix and Tucson,
      Arizona area and that the revenues reported to Tru-Tel Communications, LLC
      and Finova Capital Corporation were purportedly  overstated at the time of
      the asset purchase agreement. Tru-Tel Communications, LLC is claiming that
      they have been  damaged in an amount in excess of  $900,000.  The  Company
      intends to vigorously  contest the  counterclaims  and pursue the original
      claims against all party defendants. A trial date of June 1, 1999 has been
      scheduled.  Although the Company  believes that the outcome of this matter
      will not adversely affect the Company's  financial condition or results of
      operations, if the defendant prevails in this matter, it would be unlikely
      that the  Company  would  collect on the  balance  of the note  receivable
      discussed in Note 5.

      On June 15, 1998, the Company entered into an employment agreement with an
      employee for an initial term of three years.  The employee is to receive a
      base salary ranging from $65,000 to $95,000  depending on annual sales and
      shall be adjusted annually by the increase, if any, in the cost of living.
      For each fiscal year in which the Company  has  positive  earnings  before
      depreciation,  interest and taxes  (EBDIT) in the amount of $500,000,  the
      employee shall receive a bonus of 5% of EBDIT.  The agreement is renewable
      for additional three year terms.

                                       F-14
<PAGE>
18.   SUBSEQUENT EVENTS

      The Company's  subsidiary,  Precision,  entered into an asset purchase and
      sale agreement with a plastic injection molding business on July 15, 1998.
      Precision acquired the assets for a purchase price of $560,000, consisting
      of a  $375,000  cash  payment  and a  promissory  note  in the  amount  of
      $185,000,  and the assumption of specified  liabilities totaling $671,603.
      The note is  secured  by the  assets  and  bears  interest  at 8% with the
      principal and accrued interest payable in two installments of $105,000 due
      ninety days from the closing and $80,000 due one hundred  eighty days from
      the closing.

      On July 17, 1998, the Company  purchased  2,000,000 shares of common stock
      of its majority owned subsidiary Precision for $400,000.

19.   PRIOR PERIOD ADJUSTMENT

      The  financial  statements  for the year  ended  June 30,  1997  have been
      restated  for  correction  of an error  related to a  severance  agreement
      entered into by the Company with a former  officer.  The error  relates to
      failure to accrue the liability  incurred under that agreement at June 30,
      1997. The effect of the error resulted in reducing net income for the year
      ended June 30,  1997 by  $47,783  representing  the unpaid  balance of the
      severance  agreement at June 30, 1997. The effect of the restatement is as
      follows:

                                                 As previously
        For the year ended June 30, 1997           reported         As restated
        ------------------------------------------------------------------------
        Balance sheet:
          Accrued expenses                        $   59,940         $  107,723
          Accumulated deficit                      2,418,007          2,465,790

        Statement of operations:
          Loss from continuing operations           (206,661)          (171,661)
          Income from discontinued operations      1,852,961          1,770,178
          Net Loss                                 1,646,300          1,598,517

        Net Inocme (Loss) per Common Share:
          Continuing operations                   $    (0.06)        $    (0.06)
          Discontinued operations                       0.37               0.36
                                                  ===========        ==========
             Total                                $     0.31         $     0.30
                                                  ===========        ==========

                                   * * * * * *

                                       F-15