UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
   
                                  FORM 10-KSB/A
                                 AMENDMENT NO. 1
    
(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:

                       HEADING                                             PAGE
                       -------                                             ----
   
For Fiscal Year Ending June 30, 1997 and 1996

Independent Auditor's Report                                               F-17

Balance Sheets for the Years Ended June 30, 1997 and 1996                  F-18

Statements of Operations for the Years Ended June 30, 1997, 
1996 and 1995                                                              F-20

Statements of Stockholder's Equity for the years ended June 30, 1997,
1997 and 1995                                                              F-22

Statements of Cash Flows for the years ended June 30, 1997, 1996
and 1995                                                                   F-23

Notes to Financial Statements                                              F-24
    


                                       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                                                 
3(v)     Articles of Incorporation - Precision Plastics Molding, Inc.       E-1
3(vi)    Bylaws - Precision Plastics Molding, Inc.                          E-2
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 Annual  Report on
        January 26, 1998 on Form 10-KSB.
*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   , 1998
     -----------------
    

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

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


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

   
Date: October   , 1998
     -----------------
    
                                       5

<PAGE>
                                  
                             DIAMOND EQUITIES, INC.

                              FINANCIAL STATEMENTS

                             JUNE 30, 1997, AND 1996


<PAGE>


                                 C O N T E N T S

                                                                       Page

INDEPENDENT AUDITORS' REPORT ............................................F-17

BALANCE SHEETS...........................................................F-18

STATEMENTS OF OPERATIONS ................................................F-20

STATEMENTS OF STOCKHOLDERS' EQUITY.......................................F-22

STATEMENTS OF CASH FLOWS.................................................F-23

NOTES TO FINANCIAL STATEMENTS ...........................................F-24

<PAGE>
INDEPENDENT AUDITORS' REPORT


OFFICERS AND DIRECTORS
DIAMOND EQUITIES, INC.
TEMPE, ARIZONA


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

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

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

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


Wisan, Smith, Racker & Prescott, LLP, Certified Public Accounts.

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

                                       F-17
<PAGE>
                             DIAMOND EQUITIES, INC.
                                 BALANCE SHEETS
                             JUNE 30, 1997, AND 1996


                                                        1997              1996  
                                                        ----              ----  
    ASSETS

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

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

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

PROPERTY AND EQUIPMENT                                    20,980         707,204

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




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


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

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

                                       F-18
<PAGE>
                             DIAMOND EQUITIES, INC.
                                 BALANCE SHEETS
                             JUNE 30, 1997, AND 1996


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

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

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

         COMMITMENTS AND CONTINGENCIES

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

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

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

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


                                       F-19
<PAGE>
                             DIAMOND EQUITIES, INC.
                            STATEMENTS OF OPERATIONS
                    YEARS ENDED JUNE 30, 1997, 1996 AND 1995


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

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

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

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

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

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

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

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

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

                                       F-20
<PAGE>
                             DIAMOND EQUITIES, INC.
                      STATEMENTS OF OPERATIONS (CONTINUED)
                    YEARS ENDED JUNE 30, 1997, 1996 AND 1995


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

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

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

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

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

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

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

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


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

                                       F-21
<PAGE>
                             DIAMOND EQUITIES, INC.
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                    YEARS ENDED JUNE 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
                                                 CAPITAL IN                 RETAINED       TOTAL
                              COMMON STOCK       EXCESS OF    PREFERRED     EARNINGS    STOCKHOLDERS'
                           SHARES      AMOUNT    PAR VALUE      STOCK       (DEFICIT)    (EQUITY)   
                           ------      ------    ---------      -----       ---------    --------   
<S>                     <C>         <C>       <C>           <C>         <C>           <C>        
Balance at 6/30/94        4,666,099   $ 4,666   $ 2,587,282   $1,817,591  $(3,454,225)  $   955,314
                          ---------   -------   -----------   ----------  -----------   -----------

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

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

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

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

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

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

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

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

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

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

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

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

                                       F-22
<PAGE>
                             DIAMOND EQUITIES, INC.
                            STATEMENTS OF CASH FLOWS
                    YEARS ENDED JUNE 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
                                                            1997         1996        1995      
                                                            ----         ----        ----      
<S>                                                      <C>           <C>         <C>      
CASH FLOWS FROM OPERATING ACTIVITIES
  Cash received from interest and other income           $    56,510   $   2,995   $   4,041

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

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

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

     CASH AND CASH EQUIVALENTS
     AT BEGINNING OF YEAR                                    694,293     184,999     205,874
                                                         -----------   ---------   ---------
     CASH AND CASH EQUIVALENTS
     AT END OF YEAR                                      $ 1,586,983   $ 694,293   $ 184,999
                                                         ===========   =========   =========
</TABLE>
NON-CASH FINANCING ACTIVITIES
During  the year ended  June 30,  1997 the  Company  sold  equipment  for a note
receivable totaling $811,250.

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

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

                                       F-23
<PAGE>
                             DIAMOND EQUITIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                          JUNE 30, 1997, 1996 AND 1995


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

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

               USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
               The  preparation  of  financial  statements  in  conformity  with
               generally accepted  accounting  principles requires management to
               make estimates and assumptions  that affect  reported  amounts of
               assets  and  liabilities,  disclosure  of  contingent  assets and
               liabilities at the date of the financial statements, and revenues
               and expenses  during the  reporting  period.  In these  financial
               statements,  assets, liabilities,  and earnings involve extensive
               reliance on management's  estimates.  Actual results could differ
               from those estimates.

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

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

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

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

                                       F-24
<PAGE>
                             DIAMOND EQUITIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                          JUNE 30, 1997, 1996 AND 1995


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

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

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

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

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

                                       F-25
<PAGE>
                             DIAMOND EQUITIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                          JUNE 30, 1997, 1996 AND 1995

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

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

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

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

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

                                       F-26
<PAGE>
                             DIAMOND EQUITIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                          JUNE 30, 1997, 1996 AND 1995


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

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

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

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

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

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

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

                                       F-27
<PAGE>
                             DIAMOND EQUITIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                          JUNE 30, 1997, 1996 AND 1995


NOTE 7 -       COMMITMENTS AND CONTINGENCIES

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

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

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

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


                                       F-28
<PAGE>
                             DIAMOND EQUITIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                          JUNE 30, 1997, 1996 AND 1995


NOTE 8 -       CAPITAL STOCK

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

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

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

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

                                       F-29
<PAGE>
                             DIAMOND EQUITIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                          JUNE 30, 1997, 1996 AND 1995


NOTE 10 - INCOME TAXES (CONTINUED)

               Income taxes payable as of June 30, 1997 and 1996 are detailed in
               the following summary:
                                                    1997         1996       
                                                    ----         ----       

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

               Deferred income tax liability      $ 324,000   $        --

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

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

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

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

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

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

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

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

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

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


NOTE 10 - INCOME TAXES (CONTINUED)

               The  reconciliation  of the  differences  between the  statutory 
               U.S. federal income tax rate and the Company's effective tax rate
               is as follows:

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

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

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

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

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

NOTE 11 - CASH FLOWS FROM OPERATING ACTIVITIES

              The following schedule reconciles net income (loss) as reported in
              the accompanying statements of operations with net cash flows from
              operating activities in the statements of cash flows:

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

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

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

                                       F-31
<PAGE>
                             DIAMOND EQUITIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                          JUNE 30, 1997, 1996 AND 1995

NOTE 11 - CASH FLOWS FROM OPERATING ACTIVITIES (CONTINUED)

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

                   Net cash flows from
                   operating activities           $(118,228)  $221,725  $388,478
                                                  =========   ========  ========
NOTE 12 - FAIR VALUES OF FINANCIAL INSTRUMENTS

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

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

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

                                       F-32
<PAGE>
                             DIAMOND EQUITIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                          JUNE 30, 1997, 1996 AND 1995


NOTE 12 - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

               The following methods and assumptions were used by the Company in
               estimating its fair value disclosures for financial instruments.

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

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

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

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

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

NOTE 13 - RELATED PARTY TRANSACTIONS

               As  described  in Note 6, the  Company  had  notes  payable  to a
               related party. The related party is a significant  shareholder in
               the Company.

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

                                       F-33
<PAGE>
                             DIAMOND EQUITIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                          JUNE 30, 1997, 1996 AND 1995


NOTE 14 -      SUBSEQUENT DISCOVERY OF AN ERROR

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

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

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


                                       F-34