SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT 1934
For the transition period from __________ to ___________
Commission file number 2-78335-NY
Providential Holdings, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Nevada 13-3121128 (State or Other Jurisdiction of (I.R.S. employer Incorporation or Organization) Identification No.)
8700 Warner Avenue, Fountain Valley, California 92708
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code
JR Consulting, Inc.
180 Varick Street, 13th Floor, New York, New York, 10014
Indicate by check (X) whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or 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 ( )
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
39,832,869 SHARES OF COMMON STOCK, $.04 PAR VALUE PER SHARE, WERE OUTSTANDING AS OF May 6, 2002 (including 11,800,000 shares of treasury stock).
PROVIDENTIAL HOLDINGS, INC. CONSOLIDATED BALANCE SHEET MARCH 31,2002 (UNAUDITED) ASSETS CURRENT ASSETS Cash and cash equivalents $ - ---------- Total Current Assets PROPERTY & EQUIPMENT Furniture and equipment 107,005 Automobiles 81,103 ---------- 188,108 Less: Accumulated Depreciation (128,355) ---------- Total Property & Equipment 59,753 OTHER ASSETS 120,000 ---------- TOTAL ASSETS $ 179,753 ========== PROVIDENTIAL HOLDINGS, INC. CONSOLIDATED BALANCE SHEET March 31, 2002 (UNAUDITED) continued LIABILITIES AND SHAREHOLDERS' DEFICIT CURRENT LIABILITIES Accrued expenses $ 2,865,163 Accounts payable 581,355 Convertible promissory notes 1,750,000 Short-term notes payable 947,193 Current portion of notes payable 137,559 Due to officer 132,222 Other current liabilities 140,356 ---------- Total Current Liabilities 6,533,848 NOTES PAYABLE 20,838 ---------- TOTAL LIABILITIES 6,574,686 COMMITMENTS AND CONTINGENCIES - PROVIDENTIAL HOLDINGS, INC. CONSOLIDATED BALANCE SHEET March 31, 2002 (UNAUDITED) continued STOCKHOLDERS' DEFICIT Preferred stock (Series I, Class A), $5.00 par value, 10,000,000 shares authorized, 90,000 shares issued and outstanding 450,000 Common stock, $.04 par value, 100,000,000 shares authorized, 39,832,869 shares issued and outstanding 1,593,315 Treasury stock, $.04 par value, 11.8 million shares issued and outstanding (472,000) Addition paid-in capital 3,472,851 Accumulated other comprehensive (517,009) Accumulated deficit (10,922,090) ---------- Total shareholders' deficit (6,394,933) ---------- $ 179,753 ========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
PROVIDENTIAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Nine Months Ended Three Months Ended March 31, March 31, 2002 2001 2002 2001 ------ ------ ------ ------ REVENUES Commissions and fees $ - $ - $ - $ 631,134 Other income - - - 28,413 -------- ---------- --------- --------- Total Revenues - - - 659,547 OPERATING EXPENSES Commissions - - - 124,843 Clearing charges and assessments - - - 182,002 Quote service and market fees - - - 131,456 Professional and consulting fees 38,208 49,694 413,303 924,636 Salaries - 27,011 7,280 177,285 Other general and administrative expenses 62,164 120,825 193,672 575,748 -------- ---------- --------- --------- Total Operating Expenses 100,372 197,530 614,255 2,115,970 -------- ---------- --------- --------- LOSS FROM OPERATIONS (100,372) (197,530) (614,255) (1,456,423) OTHER INCOME (EXPENSE) Interest expense (211,499) (239,554) (639,238) (718,096) Interest income 7 653 72 3,088 Rental income 900 25,127 3,000 75,865 PROVIDENTIAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) continued Loss on sale of marketable securities - - (9,155) (44,419) Impairment of assets (172,868) - (252,868) - Gain on investment - - 3,768 4,254 Gain on legal settlement 100,000 - 100,000 - Other income (expense) 28,087 48,034 577,059 96,284 -------- -------- --------- -------- Total Other Income (Expense) (255,373) (165,740) (217,362) (583,024) -------- -------- --------- -------- NET INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS AND PROVISION FOR INCOME TAXES (355,745) (363,270) (831,617) (2,039,447) PROVISION (BENEFIT) FOR INCOME TAXES - - 800 5,523 -------- -------- -------- --------- NET INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS (355,745) (363,270) (832,417) (2,044,970) DISCONTINUED OPERATIONS, NET OF TAX - - - (65,906) -------- --------- -------- --------- NET INCOME (LOSS) $ (355,745) $ (363,270) $ (832,417) $(2,110,876) ======== ========= ======== ========= DIVIDENDS REQUIRED OF PREFERRED STOCK (13,500) (15,450) (37,500) (46,350) NET LOSS APPLICABLE TO COMMON SHAREHOLDERS (369,245) (378,720) (869,917) (2,157,226) PROVIDENTIAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) continued OTHER COMPREHENSIVE LOSS, NET OF TAX Unrealized loss on marketable securities ( 54,820) - (366,820) (23,808) -------- --------- -------- -------- TOTAL COMPREHENSIVE LOSS $ (424,065) $ (378,720) $(1,236,737) $(2,181,034) ========= ========= ========= ========== BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 27,623,000 27,323,000 27,623,000 27,232,000 ---------- ---------- ---------- ---------- BASIC AND DILUTED NET LOSS PER SHARE $ (0.02) $ (0.01) $ (0.04) $ (0.08) ========== ========== ========== ========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
PROVIDENTIAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine months Ended December 31, 2002 2001 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss from continued operations $ (869,917) $ (2,044,970) Adjustments to reconcile net loss from continued operations to net cash used in continued operating activities: Discontinued operations - (65,906) Gain on sale of property - (4,254) Reduction of accrued expenses through legal settlement (100,000) - Loss on sale of marketable securities 5,387 44,419 Depreciation 19,254 92,124 Amortization of deferred revenue (93,750) (83,334) Impairment of property and equipment 252,868 - Payment of consulting expense with marketable securities 103,000 392,200 Securities received for consulting services (486,820) - (Increase) decrease in accounts receivable 119,482 (Increase) decrease in prepaid expenses and other assets (22,436) 53,774 Increase in accounts payable 52,331 256,136 Increase (decrease) in accrued expenses 535,819 404,036 Decrease in other liabilities 41,635 (20,280) ----------- ------------ NET CASH USED IN OPERATING OPERATIONS (562,629) (856,573) PROVIDENTIAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) continued CASH FLOWS FROM INVESTING ACTIVITIES Sale of property and equipment 4,268 - Proceeds received from sale of residential property - 325,000 Impairment of assets (80,000) - Purchases of marketable securities - (320,832) Proceeds received from sale of marketable securities 19,024 334,857 -------- -------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES: (56,708) 339,025 CASH FLOWS FROM FINANCING ACTIVITIES Borrowing on notes payable 477,193 650,336 Payments on notes payable (10,256) (293,812) Advances from officer 91,980 101,842 Payments on advances from officer (34,400) (135,500) Issuance of common stock 80,600 - Shareholder dividends and distributions - (15,500) ----------- ---------- NET CASH PROVIDED BY FINANCING ACTIVITIES 605,117 307,366 NET DECREASE IN CASH (14,220) (210,182) CASH, beginning of period 14,220 291,909 ----------- ---------- CASH, ended of period $ - $ 81,727 =========== ========== PROVIDENTIAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) continued SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 15,096 $ 121,336 ---------- --------- Income taxes $ 800 5,523 ========== ========= THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
PROVIDENTIAL HOLDINGS, INC.
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND REORGANIZATION
Providential Holdings, Inc. ("PHI") was organized under the laws of the State of Nevada on June 8, 1982 under the name of JR Consulting, Inc.; subsequently on February 9, 2000 it changed its name to Providential Holdings, Inc. From its inception through September 7, 1995, the Company generated nominal revenues and did not actively engage in business. Prior to the corporate combination agreement with Providential Securities, Inc. PHI had an operating subsidiary, Diva Entertainment, Inc ("Diva"). Diva operated two modeling agencies, one in New York and one in California. Diva was disposed off concurrently with the reorganization of the Company.
Providential Securities, Inc. ("Providential") was incorporated in the State of California on October 8, 1992. It operated a securities brokerage service in Fountain Valley, CA and New York City, NY. The principal markets for Providential's services were individual investors who were located throughout the United States. Providential bought and sold securities for its customers through a number of different markets, utilizing a brokerage clearinghouse to transact the trades. Since October 2000, due to the results of a NASD examination, Providential has ceased its operations in the securities brokerage business. (See Note 2)
On October 28, 1999 PHI entered into a corporate combination agreement (the "Agreement") with Providential, whereby PHI acquired all the outstanding shares of Providential in exchange for 20,000,000 shares of PHI common stock. The transaction was consummated on January 14, 2000. In addition, as a covenant under the Agreement, PHI was required to enter into an agreement to sell to Havilland Limited, all of the shares of Diva owned by PHI as well as to assign all of its rights, title and interest in an Option Agreement to Havilland Limited. (The Option Agreement gave PHI the option to purchase additional shares of Diva's common stock at its $.001 par value in order for PHI to maintain at least a 65% interest in Diva's outstanding common shares.) PHI's officers and directors resigned their positions and the shareholders of Providential assumed control of the two entities
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
(together as "the Company"). The PHI shares are restricted against resale pursuant to the provisions of federal and state securities laws. Providential's shareholders of record as of the closing date owned approximately 75% of PHI's common stock. The acquisition has been treated as a capital transaction in substance, rather than a business combination, and was deemed a "reverse acquisition" for accounting purposes. Accordingly, Providential was the accounting acquirer and the historical financial statements prior to January 14, 2000 were those of Providential. In the accompanying financials statements, the capital structure and losses per share of Providential have been retroactively restated to reflect the acquisition as if it occurred at the beginning of the period. The operations of PHI have been included with those of Providential from the acquisition date.
The sale of Diva was consummated on June 30, 2000, whereby all of the shares of Diva owned by PHI as well as all of its rights, title and interest in the Option Agreement were exchanged for assignment to and assumption by Havilland Limited of the amounts due by PHI to officers of Diva amounting to $617,781, the amounts due to PHI from Diva amounting to $94,843 and the return of 135,000 shares of common stock of PHI owned by Havilland. The total gain resulting from the sale of Diva of approximately $1.2 million was considered in the allocation of the purchase price to the assets and liabilities of PHI. Included in the total gain of $1.2 million was Diva's net profit of $245,606 earned during the holding period from January 14, 2000 to June 30, 2000.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited consolidated financial statements of the Company contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of the Company as of March 31, 2002 and the results of its operations and cash flows for the periods ended March 31, 2002 and 2001. The results of operations and cash flows for the nine month period ended March 31, 2002 are not necessarily indicative of the results of operations or cash flows which may be reported for the remainder of the 2002 fiscal year.
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
The accompanying unaudited interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q. Pursuant to such rules and regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The accompanying unaudited interim consolidated financial statements should be read in connection with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the period ended June 30, 2001.
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 periods. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements for the nine-month periods ended March 31, 2001 include the accounts of Providential Holdings, Inc., Providential Securities, Inc. and Providential Clearing, Inc., collectively referred to as the "Company". The consolidated financial statements for the nine-month period ended March 2002 include the accounts of Providential Holdings, Inc. and Providential Clearing, Inc., All significant inter-company transactions have been eliminated in consolidation.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
On July 20, 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." These statements make significant changes to the accounting for business combinations, goodwill, and intangible assets.
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
SFAS No. 141 establishes new standards for accounting and reporting requirements for business combinations and will require that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method will be prohibited. This statement is effective for business combinations completed after June 30, 2001.
SFAS No. 142 establishes new standards for goodwill acquired in a business combination and eliminates amortization of goodwill and instead sets forth methods to periodically evaluate goodwill for impairment. Intangible assets with a determinable useful life will continue to be amortized over that period. This statement became effective January 1, 2002.
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset Retirement Obligations". SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement is effective for financial statements issued for fiscal years beginning after June 15, 2002.
SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," was issued in August 2001. SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001, and
addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. This statement supersedes SFAS No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of a segment of a business.
The adoption of above pronouncements, did not materially impact the Company's financial position or results of operations.
NOTE 2 - NASD EXAMINATION AND DISCONTINUANCE OF PROVIDENTIAL SECURITIES, INC.
After the completion of a routine audit of Providential Securities, Inc. ("Providential") in July and August 2000, the National Association of Securities Dealers, Inc. alleged that Providential violated certain provisions of the NASD's Conduct Rules 2120, 2330, 2110 and 3010, and Rules 15c2-4, 10b-5, 10b-9 and 15c3-3 of the Securities and Exchange Commission. Providential Securities, Inc. and Henry Fahman voluntarily submitted a Letter of Acceptance, Waiver and Consent ("AWC",), which was accepted by NASD Regulation, Inc. on October 27, 2000, as follows:
Providential and Henry Fahman accepted and consented, without admitting or denying the alleged violations, to the entry of the following findings by NASD Regulation, Inc.:
From in or about December 15, 1998 through June 15, 1999, Providential Securities, through its Private Placement Memorandum, offered and sold one hundred three thousand (103,000) shares of Series I Class A Convertible Cumulative Preferred Stock in Providential Securities, Inc. for five hundred fifteen thousand dollars ($515,000) to twenty-two (22) customers. In connection with the Private Placement Memorandum, Providential Securities made certain misrepresentations or omissions in soliciting investments from public customers, such as: failure to disclose that an officer of Providential Securities could make contributions to help meet the minimum requirement; failure to disclose Providential Securities, Inc.'s disciplinary history whereby Providential Securities, Inc. and Henry Fahman, jointly and severally, were fined $28,500 for net capital deficiencies and for failing to send the requisite written notification or confirmation in fifty eight (58) securities transactions to public customers; and failure to disclose that Henry Fahman was ordered to requalify by examination as a financial and operational principal.
That Providential's use of the private placement funds mainly for Providential's own operational purposes (more than for those represented in the private placement memorandum) amounted to conversion or improper use of those funds thus violating the Conduct Rules 2110 and 2330.
NOTE 2 - NASD EXAMINATION AND DISCONTINUANCE OF PROVIDENTIAL
SECURITIES, INC., continued
That Providential, acting through Henry Fahman, violated SEC Rule 15c2-4, SEC Rule 10b-9, and Conduct Rule 2110 (a) by not utilizing a proper escrow account for the investment funds received, (b) by not retaining the private placement funds until the minimum requirement was met, and (c) by not refunding these funds to the customers when the minimum was not met, or not met in a timely manner.
That by receiving and controlling funds from public customers in connection with the private placement, Providential became obligated to comply with the full provisions of SEC Rule 15c3-3 (during the period of January through at least March, 1999, Providential Securities, through Henry Fahman, and Providential's financial and operations principal, Theodore Fahman, failed to compute the reserve requirements, and set aside appropriate reserves for customer protection.
That Providential, acting through Henry Fahman, in violation of Conduct Rule 3010(a) and Membership and Registration Rule 1018, was operating three non-registered supervisory jurisdiction branch offices, and that while Providential's membership agreement limited the firm's branch activities to two branches, there were at least seven full-service satellite locations, thereby violating Conduct Rule 2110 and Membership and Registration Rule 1014.
That both Providential and Henry Fahman also violated Membership and Registration Rule 1030 for failing to enforce Membership and Registration Rule 1031(a) by allowing four individuals with deficiencies in license registration to conduct a securities business during much of 1998 and 1999.
That Providential and Henry Fahman failed to comply with Membership and Registration Rule 1030 by failing to enforce Rule 1032(f) by allowing five individuals to act in the capacity of equity trader with deficiency in registration as Limited Representative-Equity Traders.
That Providential and Henry Fahman also violated Membership and Registration Rule 1120 and Conduct Rule 2110 by permitting a broker to conduct business and earn commissions, while his status was "inactive" as a result of his failing to complete his continuing education requirements.
NOTE 2 - NASD EXAMINATION AND DISCONTINUANCE OF PROVIDENTIAL
SECURITIES, INC., continued
That from on or about May 2, 2000 through May 30, 2000, Providential Securities, Inc. distributed biased communications to the public regarding its ProTimer service through the World Wide Web.
Providential Securities, Inc. and Henry Fahman also consented to the imposition, at a maximum, of the following sanctions:
Providential shall be censured, fined $115,000.00 and shall offer rescission to those public customers who participated in the Providential Private Placement. Providential shall provide proof in form satisfactory to NASDR's District 2 staff of its offer of rescission to the customers who participated in the Providential Private Placement. In addition, to the extent the offer of rescission is accepted by any investors, Providential is ordered to provide proof of payment of the restitution in a form satisfactory to the District 2 NASDR staff, no later than 120 days after acceptance of the Letter of Acceptance, Waiver and Consent. Henry Fahman shall be banned, in all capacities, from associating with any NASD member.
Based upon the above-mentioned circumstances, Providential Securities, Inc. withdrew its membership from the NASD in October 2000 and ceased its securities brokerage operation. The fine of $115,000 is included in accrued expenses in the accompanying consolidated financial statements. The Company has offered all Preferred Stock holders rescission on their investment. As of the date of this report the Company has redeemed $65,000 of the preferred stock plus accrued interest.
NOTE 3 - IMPAIRMENT OF ASSETS
The Company wrote off the receivables of $172,868 that deemed to be unrecoverable during the quarter ended March 31, 2002. This was recorded as a loss on impairment of assets in the financial statement.
NOTE 4 - CONVERTIBLE PROMISSORY NOTES
The Company issued some convertible promissory notes in March and April 2000 of $1,350,000 plus interest due on September 28, 2000 and $400,000 plus interest due on October 21, 2000. These notes are essentially demand notes that have a six-month term and bear interest at 8% annually, unless the notes are in default, in which instance the interest rate will increase to 12% annually. Further, the notes bear a redemption premium, based upon the date of redemption equal to: 5% if within the first 60 days; 10% if within the second 60 days; 15% if within the third 60 day-period, and 20% if redeemed after 181 days. On the 180th day, the Company can require the holders to convert (if a registration statement is in effect) the notes into common stock. After the 180th day, only the holders can elect to convert - no right of the Company to force conversion after that time. On the second anniversary, any remaining notes will automatically covert into common stock (if a registration statement is in effect). If the conversion is at the direction of the Company, then, in addition to the redemption amount, the Company would also owe a 20% per annum rate of return on the redemption amount.
The notes may be paid by tender of common stock of the Company, with the conversion rate for the issuance of the common stock equal to the "closing price" on the date of the initial purchase of the notes, which is the average of the closing bid price for the five previous trading days. Repricing warrants have also been issued in contemporaneous amounts, such that any decrease in the trading price of the stock will entitle the note holders to reset the exercise price to a lower price than that which existed on the closing date. The number of shares issued under the repricing warrants is directly linked to the Company's stock price on the conversion date of the notes. As the stock price decreases, the number of shares to be issued pursuant to the repricing warrants increase. The note purchasers are also entitled to a separate set of warrants, equal to 20% of the total purchase amounts of the notes acquired, allowing for an exercise price of 110% of the closing price and having a 5-year term.
NOTE 4 - CONVERTIBLE PROMISSORY NOTES, continued
In accepting these subscriptions for these convertible notes, the Company had agreed to file a registration statement with respect to the Company's common stock to be issued upon conversion of the notes and any exercise of the warrants, with the initial filing to occur within 60 days of the "first closing", which occurred on March 28, 2000. A 2% per month penalty will accrue if the registration statement is not declared effective on or prior to the 181st day following the first closing. The holders have the right to require repayment in cash if no registration statement is in effect on the 181st day. Since this registration statement was not filed within the first 60 days of the first closing, nor has it been declared effective within 181 days after the first closing, the note holders have the right to the 2% penalty and repayment in cash. The Company has not paid these notes as of the date of this report and will also owe the note holders the 12% default rate and the 20% redemption premium noted above.
NOTE 5 - LITIGATION
LEGAL PROCEEDINGS SETTLED AND UNPAID AS OF MARCH 31, 2002:
QUANG VAN CAO AND NHAN THI NGUYEN CAO VS. PROVIDENTIAL SECURITIES, INC. ET AL.
This case was originally submitted to Orange County Superior Court, CA on June 25, 1997, Case No. 781121, and subsequently moved to NASD Dispute resolution for arbitration. On or about August 24, 2000, the Company's legal counsel negotiated with the Claimant's counsel and unilaterally reached a settlement that had not been approved by the Company. While the Company was in the process of re-negotiating the terms of said settlement, the Claimants filed a request for arbitration hearing before the National Association of Securities Dealers on October 4, 2000, Case No. 99-03160. Thereafter, the Claimants filed a complaint with the Orange County Superior Court, CA on October 31, 2000, Case No. 00CC13067 for alleged breach of contract for damages in the sum of $75,000.00 plus pre-judgment interest, costs incurred in connection with the complaint, and other relief. Without admitting or denying any allegations, the Company reached a settlement agreement with the Claimants whereby the Company would pay the Claimants a total of $62,500.00 plus $4,500.00 in
NOTE 5 LITIGATION, continued
administrative costs. As the date of this report, the Company has paid $2,500 and is subject to an entry of judgment for $79,000.00. The settlement amount has been accrued in the accompanying consolidated financial statements.
The arbitration case brought by Richard Shaffer against Providential Securities, Inc., was closed in the quarter ended March 31, 2002. The total claim requested by the claimant of $100,000 plus interest was denied. This was recorded as a gain on legal settlement in the financial statements since this amount has been accrued in the prior period.
COFFIN COMMUNICATIONS GROUP VS. PROVIDENTIAL HOLDINGS, INC.
On February 19, 2002 Coffin Communications Group filed a complaint with Superior Court of California, County of Los Angeles Limited Jurisdiction, against the Company (Case No. 02E01535) for $8,500 plus prejudgment interest, attorney's fees and costs, and other and further relief. This claim is in connection with investor relations' services rendered by Coffin Communications Group. The Company intends to settle this case. The sought amount of $8,500 (excluding interest) has been accrued in the accompanying consolidated financial statements as of March 31, 2002.
DOW JONES & COMPANY, INC. VS. PROVIDENTIAL SECURITIES, INC. AND PROVIDENTIAL HOLDINGS, INC.
On March 19, 2002 Dow Jones & Company filed a complaint with the Superior Court of California, County of Orange, West Justice Center (Case No. 02WL1633), against Providential Securities, Inc., the discontinued operations of the Company, and Providential Holdings, Inc. for $9,973.10 plus prejudgment interest at the rate of ten (10%) per annum from November 1, 2000, reasonable attorneys' fees and other and further relief. This claim is in connection with services allegedly rendered by the Plaintiff to Providential Securities, Inc. prior to November 2000. The Company intends to settle this case. The sought amount of $9,973.10 (excluding interest) has been accrued in Accrued Expenses in the accompanying consolidated financial statements as of 3/31/2002.
NOTE 5 LITIGATION, continued
CONSECO FINANCE VENDOR SERVICES CORPORATION FKA GREEN TREE VENDOR SERVICES CORPORATION VS. PROVIDENTIAL SECURITIES, INC., HENRY D. FAHMAN AND TINA T. PHAN
In September 1997 Providential Securities, Inc. entered into a written Lease Agreement to lease certain items of equipment from Green Tree Vendor Services, in return for which Providential Securities, Inc. agreed to pay thirty-six monthly installments, each in the amount of $1,552.01. On or about September 12, 2000, and subsequently, Providential Securities, Inc. was unable to make the monthly payments to Claimant due to the lack of revenues following the interruption and subsequent closure of its securities brokerage operations. (See Note 16) Claimant filed a complaint for money with the Superior Court of the State of California, County of Orange (Case No. 01CC02613) on February 23, 2001 seeking $39,102.50 plus interest thereon at the legal rate from September 12, 2000. Providential Securities, Inc. intends to settle this case. The sought amount of $39,102 (excluding interest) has been accrued in the accompanying consolidated financial statements.
FRANCIS VAUSE, MARK VAUSE, FRANCIS VAUSE, JR., IAN VAUSE AND MARGARET HODSON VS. JERSEY TRANSFER & TRUST COMPANY AND PROVIDENTIAL HOLDINGS, INC.
Claimants filed a complaint with the United States District Court, District of New Jersey (Case No. 00-4353(JAGF) on September 6, 2000 seeking damages of $500,000.00 against Jersey Transfer & Trust Company and Providential Holdings, Inc. for refusing to remove the restrictive legends and register a total of 568,332 shares of Rule 144 stock held by Claimants. Providential Holdings, Inc. and Jersey Transfer & Trust Company ("Defendants") relied on representation by the former management of JR Consulting, Inc., later changed to Providential Holdings, Inc., that the captioned shares were not free of all encumbrances and were issued for invalid consideration. This case is still pending and the Company has filed a cross-claim against Peter Zachariou, the former president of JR Consulting, Inc. The sought amount of $500,000 has been accrued in Accrued Expenses in the accompanying consolidated financial statements.
NOTE 5 LITIGATION, continued
JAMES C. HU VS. MINGMAN HU AND PROVIDENTIAL SECURITIES, INC.
Mingman Hu was a registered representative with Providential Securities, Inc. who served Claimant's investment account. Claimant filed a complaint with the Los Angeles County Superior Court, Northeast District on April 27, 2001 (Case No. G0027156) seeking compensatory damages in the amount of $11,609.11 plus 12% interest and emotional distress damages in excess of $50,000.00 for Mingman Hu's failure to honor her written agreement with Claimant. Mingman Hu was an independent contractor with Providential Securities, Inc. and was responsible for any alleged claims by Claimant. Providential Securities, Inc. will vigorously defend this case. The sought amount of $61,609 (excluding interest) has been accrued in the accompanying consolidated financial statements.
LAWRENCE NGUYEN VS. HENRY D. FAHMAN, PROVIDENTIAL HOLDINGS, INC. AND HUNG NGUYEN aka TONY NGUYEN
On December 19, 2000 Henry D. Fahman executed a Demand Promissory Note and pledged 1,049,600 shares of common stock of Providential Holdings, Inc. for a personal loan in the amount of $150,000.00 from Claimant. This note was amended on February 22, 2001 to mature on March 19, 2001. Henry D. Fahman repaid $25,000.00 to Claimant and requested an extension for repayment of said note to July 15, 2001, which was agreed by Claimant and guaranteed by Mr. Derek Nguyen, a mutual friend of both Claimant's and Henry D. Fahman's. On May 31, 2001, Claimant filed a complaint with the Superior Court of California, County of Orange, Central Justice Center (Case No. 01CC07055) seeking $125,000.00 plus interest at the highest rate allowed by law from and after December 19, 2000, attorney fees and costs, exemplary and punitive damages, and ownership of the pledged shares of common stock of Providential Holdings, Inc. As of the date of this report, Henry Fahman has repaid the Claimant a total of $45,000 and is committed to repaying the remaining balance plus interest and legal costs. The Company has not accrued any amount relating to this case in the accompanying consolidated financial statements.
NOTE 5 LITIGATION, continued
IMPERIAL BUSINESS CREDIT, INC. VS. PROVIDENTIAL SECURITIES, INC., TINA T. PHAN, TIMOTHY DACK FAHMAN, THEODORE DACK FAHMAN, AND HENRY DACK FAHMAN.
On or about November 20, 1997, Nara Bank, N.A. and Providential Securities, Inc. entered into a Written Lease Agreement ("Agreement") wherein Nara Bank, N.A. agreed to lease certain computer equipment to Providential Securities, Inc. Thereafter, the Agreement was assigned from Nara Bank, N.A. to Claimant's Assignor Oak Financial Services. Thereafter, the Agreement was assigned from Claimant's Assignor to Claimant. Pursuant to the terms of the Agreement, Providential Securities, Inc. agreed to pay Nara Bank, N.A. the sum of $1,187.40 per month for sixty months. On or about September 15, 2000, and subsequently, Providential Securities, Inc. was unable to make the monthly payments to Claimant due to the lack of revenues following the interruption and subsequent closure of its securities brokerage operations. (See Note 16) Claimant filed a complaint for money with the Superior Court of the State of California, County of Orange (Case No. 01CC07697) on June 14, 2001 seeking $30,873.40 plus interest thereon at the rate of ten percent (10%) per annum from September 15, 2000. Providential Securities, Inc. intends to settle this case. The sought amount of $30,873 (excluding interest) has been accrued in the accompanying consolidated financial statements.
NGON VU VS. PROVIDENTIAL SECURITIES, INC.
Claimant was a former employee of Providential Securities, Inc. who was laid off in 2000 due to closure of business. The Claimant complained to the Department of Industrial Relations (DIR) for allegedly unpaid vacation and salaries. On June 13, 2001, the DIR filed a request to enter a judgment against Providential Securities, Inc. for $9,073.64 including wages and interest, penalty, post hearing and filing fee. Providential Securities, Inc. is appealing the request for judgment. The sought amount of $9,074 has been accrued in the accompanying consolidated financial statements.
NOTE 5 LITIGATION, continued
MARK TOW, ESQ. VS. PROVIDENTIAL HOLDINGS, INC.
This case is pre-arbitration. The Company hired Mark Tow, Esq. to prepare an SB-2 Registration Statement and prepaid him $25,000 in retainage. Because Mark Tow was unable to complete the work according to schedule, the Company hired Stradling Yocca Carson & Rauth to replace Mark Tow. Stradling Yocca Carson & Rauth completed the SB-2 Registration Statement and filed with the SEC on 9/28/2000. Mark Tow sent the Company a letter in June 2001 seeking a total of $75,000.00 for his allegedly rendered service. The Company intends to vigorously defend this case. The Company has accrued $50,000 relating to this case in Accrued Expenses in the accompanying consolidated financial statements since the original agreement with Mark Tow was for a total service fee of $75,000 and the Company has already paid $25,000 as a retainer to be offset against the total fees.
The Company has several arbitration cases that are either pending or in preliminary stages against Providential Securities, Inc. relating to the discontinued securities brokerage operations of the Company. The Company intends to defend each of the matters vigorously but may enter into a settlement where appropriate based on the specific allegations involved and the potential cost to defend the matter. The total amount of damages sought by all the claimants of these cases is $172,337. This amount has been accrued in the accompanying consolidated financial statements.
NOTE 6 - BASIC AND DILUTED NET LOSS PER SHARE
Net loss per share is calculated in accordance with SFAS No. 128, "Earnings per Share". Under the provision of SFAS No. 128, basic net loss per share is computed by dividing the net loss for the period by the weighted-average number of common shares outstanding for the period. Diluted EPS is based on the weighted-average number of shares of common stock outstanding for the period and common stock equivalents outstanding at the end of the period. Common stock equivalents have been excluded from the calculation of weighted-average shares for purposes of calculating diluted net loss per share for 2002 and 2001 periods, as such inclusion is anti-dilutive.
Three Months Ended Nine Months Ended March 31, March 31, 2001 2000 2001 2000 ------ ------ ------ ------ Basic and diluted net income (loss) per share:
Net Loss $(369,245) $ (378,720) $(869,917) $(2,157,226)
Basic and diluted weighted average
number of common shares outstanding
during the period:
27,623,000 27,323,000 27,623,000 27,232,000
Basic and diluted net loss per share:
$ (0.01) $ (0.01) $ (0.03) $ (0.08)
NOTE 7 - STOCK BASED COMPENSATION PLAN
On July 10, 2000 the Company adopted a Stock Option and Incentive Plan (the "Plan") which provides for the issuance of up to a maximum of 16 million shares of the Company's common stock to officers, employees and non-employee directors at the sole discretion of the board of directors. On August 10, 2000 the Company granted 14 million options under the Plan to officers, directors and employees at an exercise price of $.50 per share. All the options were exercisable on July 1, 2001 and expire on December 31, 2002. As of the date of this report there have been no options exercised and five million of these options have been forfeited.
NOTE 8 - CONTRACTS, COMMITMENTS AND SUBSEQUENT EVENTS
AGREEMENT WITH DATALOGIC CONSULTING, INC.
DataLogic Consulting, Inc., a Texas corporation, is an IT consulting firm and a SAS Institute Quality Partner. The Company has assisted Datalogic in connection with its merger plan with Topclick International, Inc. and other development strategies. On April 25, 2001, but effective April 18, 2001, Datalogic Consulting, Inc. and the Company entered into an agreement whereby the Company would receive 10% equity in the new company that would result from the consummation of the proposed merger between Datalogic Consulting, Inc. and Topclick International, Inc. The merger plan between Datalogic and Toplick was consummated on July 20, 2001. The Company received 2,666,922 shares of Datalogic International, Inc. (the new name for Topclick International, Inc.) as the fee for the merger and acquisition consulting services it has performed. This investment in Datalogic International, Inc. is carried on the financial statements of Providential Holdings, Inc. at its market value as of March 31, 2002. The company has received 1.2 million shares as of March 31, 2002.
JOINT VENTURE AGREEMENT WITH MIMI BAN
On November 27, 2001 by effective November 23, 2001, the Company signed a joint venture agreement with Mimi Ban, an individual, whereby Mimi Ban would transfer the liquid crystal display (LCD) technologies to Providential for the purpose of setting up and operating one or more LCD manufacturing plants in Vietnam. According to the joint venture agreement, Mimi Ban will share 30%, Providential Holdings, Inc. will share 60% and other business partners and investors, including HTV Co., Ltd., will share 10% of the net profits that will be generated from any and all LCD plant(s) that will be established in Vietnam and elsewhere as a result of this agreement. This joint venture agreement supersedes all prior agreements, arrangements and covenants, including but not limited to the Joint Venture Agreement between Boxo, Inc. and the Company dated January 4, 2001 and the Letter of Intent between Boxo, Inc. and the Company dated December 20, 2000 and any amendment thereof. As of the date of this report there have been no manufacturing plants operating or has been set-up.
NOTE 8 - CONTRACTS, COMMITMENTS AND SUBSEQUENT EVENTS, continued
INTERNATIONAL CENTER FOR TRAINING AND CONSULTING, VIETNAM'S MINISTRY OF TRADE
International Center for Training and Consulting (ICTC) is an organization under the Ministry of Trade of Vietnam that promotes economics, trade, investment and training activities between Vietnam and foreign organizations. Providential Holdings, Inc. and ICTC signed an agreement in March 2001 to cooperate in the areas of trade, economics, and technology. ICTC is responsible for representing Providential Holdings in connection with appropriate Vietnamese organizations, businesses, and individual businessmen and investors in Vietnam. ICTC will also perform consulting services and provide information on various economic, trade and investment projects as may be required by Providential. Fees between the parties will be negotiated on an as project basis. As of the date of this report, ICTC has introduced Vietnam-based Delta Electromechanis Co, Ltd., a manufacturer of electric bicylces, and Nam Hiep Co. Ltd., a manufacturer of orgnanic fertilizer and construction company to PHI as potential joint ventures; however, there have been no projects completed.
CHU LAI INDUSTRIAL ZONE, QUANG NAM PROVINCE, VIETNAM
Providential Holdings has entered into an agreement with Chu Lai Industrial Zone (CLIZ) Authority, Quang Nam Province, Central Vietnam, to develop this industrial and export processing zone, to upgrade a paper mill, and to implement two to five investment projects in Chu Lai by the end of 2002. As of the date of this report the Company has not assisted in funding this project. The Company expects its main role in this project to be the manager organizing the different companies that will operate their business at this location. As the date of this report, the Company has not assisted in funding this project.
A wholly owned division of the Company originally formed on April 10, 2001 under the name "Providential Imex", to focus on trade commerce with Vietnam. This division changed its name to Provimex on July 5, 2001. The Company believes that its trade commerce business will grow substantially as a result of the imminent ratification of the Trade Agreement between Vietnam and the United States. As the date of this report, the Company has not generated any revenues through this division.
NOTE 8 - CONTRACTS, COMMITMENTS AND SUBSEQUENT EVENTS, continued
PROVIDENTIAL ADVISORY SERVICES, INC.
Providential Advisory Services, Inc. (PAS) was formed in February 2000 as a California corporation. Its mission is to create distinctive value and enrich client's lives by providing high quality investment advisory services that will help improve their asset value over time. The Company purchased 60 percent of the outstanding shares of this entity in July 2001 for $1,000. As of the date of this report this corporation has had no sales, cost of sales or gross profit.
AGREEMENT WITH LEXOR INTERNATIONAL, INC.
On October 9, 2001, the Company entered into an agreement to provide merger and acquisition consulting services to Lexor International, Inc., a Maryland corporation, and to assist Lexor in its business combination plan with in its business combination plan with Pan-American Automotive Corporation, a Delaware corporation. According to the agreement, the Company will be receiving 10% equity interest in the resulting company as compensation for its advisory and consulting services. On October 22, 2001, Pan-American signed a definitive agreement to acquire 100% of Lexor in exchange for stock in Pan-American. This transaction was closed on November 5, 2001 and on November 15, 2001 the Company received 24,761,900 restricted shares of Pan-American Automotive Corporation's common stock, (after the 7 to 1 reverse split). Pan-American Automotive Corporation changed its name to Lexor International, Inc. and again effectuated a 10 to 1 reverse split of its common stock on December 19, 2001. As a result, the Company currently owns 2,476,191 shares of Lexor International, Inc. The Company will not record any value for such shares until a trading market value is established for such shares.
NOTE 8 - CONTRACTS, COMMITMENTS AND SUBSEQUENT EVENTS, continued
EQUITY LINE OF CREDIT
The Company had an agreement for a $20 million equity line of credit at the beginning of November 2001 with Boston-based Dutchess Private Equities Fund, L.P. The line of credit's term is three years. The amount the Company can receive is dependent on the amount of free trading shares put in an escrow account or an effective registration statement and certain other conditions. The Company can borrow up to 95 percent of the market price (as defined by the agreement) of the registered shares or the free-trading shares deposited in escrow. Each time the Company receives funds agains this line of credit it incurs a 3 percent fee, payable in cash on the gross proceeds, and an additional 1 percent fee on the total value of the equity line, payable in shares of the Company's common stock. As of the date of this report no funds have been received against this line of credit.
OFFICE SPACE LEASE
The Company currently leases its office space from PAUB ENTERPRISES, LLC at $4,263 per month. This lease commenced on April 1, 2001 and expires on March 31, 2004.
The Company also has been unable to make all their monthly payments on other equipment leases due to the lack of revenues following the interruption and subsequent closure of its securities brokerage operations. The Company is in litigation with some of the equipment lessors and is negotiating additional payoffs with other equipment lessors.
NOTE 8 - CONTRACTS, COMMITMENTS AND SUBSEQUENT EVENTS, continued
JOINT VENTURE WITH MINH HIEU COMPANY
On January 1, 2002 the Company entered into an agreement with Minh Hieu Joint Stock Company of Ho Chi Minh City, Vietnam to form "Providential JVC," a joint venture company under the laws of the Socialist Republic of Vietnam. According to the terms of the agreement, the Company will contribute $140,000 to the initial required capital and own 70% of Providential JVC while Minh Hieu Company will contribute $60,000 for 30% of the joint venture enterprise. Providential JVC's main line of business will include industrial garments, packaging products and accessories. No capital contribution has been made to date.
INVESTMENT IN SLIMTECH, INC.
On April 30, 2002, the Company consummated an agreement to acquire 51% equity interest in SlimTech, Inc., a Nevada corporation, in exchange for 3,000,000 shares of the Company's restricted common stock. SlimTech is a distributor of LCD (liquid crystal display) computer flat screens and other consumer electronics. SlimTech had no operations through March 31, 2002.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion includes the operations of the Company for each of the periods discussed. This discussion and analysis should be read in conjunction with the Company's consolidated financial statements and the related notes thereto, which are included elsewhere in this document.
This discussion contains "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Although the Company believes that the expectations reflected in such forward looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Such forward looking statements involve risks and uncertainties and actual results could differ from those described herein and future results may be subject to numerous factors, many of which are beyond the control of the Company.
Providential Holdings, Inc. ("PHI") was organized under the laws of the State of Nevada on June 8, 1982 under the name of JR Consulting, Inc.; subsequently on February 9, 2000 it changed its name to Providential Holdings, Inc. From its inception through September 7, 1995, the Company generated nominal revenues and did not actively engage in business. Prior to the corporate combination agreement with Providential Securities, Inc. PHI had an operating subsidiary, Diva Entertainment, Inc ("Diva"). Diva operated two modeling agencies, one in New York and one in California.
Providential Securities, Inc. ("Providential") was incorporated in the State of California on October 8, 1992. It operated a securities brokerage service in Fountain Valley, CA and New York City, NY. The principal markets for Providential's services were individual investors who were located throughout the United States. Providential bought and sold securities for its customers through a number of different markets, utilizing a brokerage clearinghouse to transact the trades. In October 2000, due to the results of a NASD examination, Providential has ceased its operations in the securities brokerage business.
On October 28, 1999 PHI entered into a corporate combination agreement (the "Agreement") with Providential, whereby PHI acquired all the outstanding shares of Providential in exchange for 20,000,000 shares of PHI common stock. The transaction was consummated on January 14, 2000. In addition, as a covenant under the Agreement, PHI was required to enter into an agreement to sell all of the shares of Diva owned by PHI. PHI's officers and directors resigned their positions and the shareholders of Providential assumed control of the two entities (together as "the Company"). Providential's shareholders of record as of the closing date owned approximately 75% of PHI's common stock. The acquisition has been treated as a capital transaction in substance, rather than a business combination, and was deemed a "reverse acquisition" for accounting purposes. Accordingly, Providential was the accounting acquirer and the historical financial statements prior to January 14, 2000 were those of Providential. The operations of PHI have been included with those of Providential from the acquisition date.
Since the discontinuance of its securities brokerage operations in
October 2000, the Company has restructured its primary scope of
business and currently operates in the following areas: (1) PHI
Technologies, (2) PHI Capital services, (3) PHI International, and
(4) PHI Special Situations. Events and developments relating to these areas are described in more detail elsewhere in this report.
The following table sets forth certain information relating to the Company's operations for the three months ended March 31, 2002 and 2001 (Dollars in thousands):
Third Qtr. 2002 Third Qtr. 2001 ---------------- ---------------- Commissions and fees $ - $ - Other income - - ----------- ---------- Total revenues - - Operating expenses 100 197 ----------- ---------- Income (Loss) from operations (100) (197) Other expense (255) (166) ----------- ---------- Net loss before income taxes (355) (363) Provision (benefit) for income taxes - - ----------- ---------- Net loss $ (355) $ (363) =========== ==========
Commissions and fees. The company is redirecting the focus and there has been a start-up period that has caused a lag in revenue. Turn around is expected in the 4th quarter of fiscal year 2002.
Other income. The company is redirecting the focus there has been a start-up period that has caused a lag in revenue. Turn around is expected in the 4th quarter of fiscal 2002.
Operating expenses. Operating expenses consisted primarily of commission expense, professional fees (accounting and legal), facility rent, clearing charges and assessments, market fees, consulting fees and employee compensation. The Company's operating expenses decreased dramatically as a result of the change in focus of the Company to consulting and mergers and acquisition.
Loss from operations. The Company's loss for the 3rd Qtr. of 2002 was $100,000 compares to a loss in the same period in 2001 of $197,000. This is a difference of $97,000. This decrease was principally due to the change in focus of the Company and the lower costs associated with the new focus and related operations.
Net Other income (expenses). Net other expenses increased from $166,000 for the three months ended March 31, 2001 to net other expenses $255,000 for the three months ended March 31, 2002. The change was principally due to an arbitration settlement in the favor of the Company for $100,000, interest expenses of $211,000 and impairment of other assets of $173,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $0 and $14,000 as of March 31, 2002 and June 30, 2001, respectively.
The Company's operating activities used $563,000 and used $856,000 in the nine months ended March 31, 2002 and 2001, respectively.
Net cash used by investing activities of $57,000 in the 2002 period was due primarily to the acquisition of assets at $80,000. Net cash provided by investing activities of $339,000 in the 2001 period was due to proceeds received from a sale of residential property and sales of marketable securities offset by purchases of marketable securities.
Cash provided in 2002 financing activities was mainly from borrowings on notes payable for $477,000 and borrowings from officer for $92,000.
The Company's notes payable at March 31, 2002 consisted of the following: (i) convertible promissory notes of $1.75 million, of which $1.35 million was due September 28, 2000 and $400,00 was due October 21, 2000 (principal and interest), (which has not been paid as of the date of this report) with an effective default interest rate of 12 percent plus a 20% redemption premium if paid after 181 days from original issuance (ii) note payable of $125,000 to an individual, due June 30, 2001 (principal and interest) (which has not been paid as of the date of this report), with an interest rate of 8 percent; (iii) two auto loans for $36,000 and (iv) short term notes to be paid off in the Company's common stock in the amount of $859,000.
The Company's operations are currently financed through various loans. Management has taken action and is formulating additional plans to strengthen the Company's working capital position and generate sufficient cash to meet its operating needs. Among the actions taken, the Company has secured a $20-million equity line of credit from Dutchess Private Equities Fund, L.P. and intends to file a Form SB-2 Registration Statement to raise additional capital to implement its business plan. In addition, the Company also anticipates generating more revenue through its proposed mergers and acquisitions(See Note 8). No assurances can be made that management will be successful in achieving its plan or that additional capital will be available on a timely basis or at acceptable terms.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Item 2. CHANGES IN SECURITIES
Item 3. DEFAULTS UPON SENIOR SECURITIES
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Item 5. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 2.3 Plan of Acquisition of Nettle Global Communication Corp. (incorporated by reference to the Company's Current Report on Form 8-K filed May 3, 2002). Exhibit 10.26 Joint Venture Agreement with Vietnam's Minh Hieu Joint Stock Company. Exhibit 10.27 Memorandum of Agreement with HDT Enterprises, LLC dated March 15, 2002. Exhibit 10.28 Memorandum of Agreement and Principle Contract with Vietnam's Center of Telecom Technology. Exhibit 10.29 Stock Purchase Agreement with SlimTech, Inc. dated April 30, 2002. Incorporated by reference to the Company's Current Report on Form 8-K, dated May 1, 2002).
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date May 6, 2002 PROVIDENTIAL HOLDINGS, INC. By: /s/ Henry Fahman Henry Fahman President and Chairman By: /s/ Tina Phan Tina Phan Secretary/Treasurer and Director
Exhibit 10.26 Joint Venture Agreement with Vietnam's Minh Hieu Joint Stock Company.
CONTRACT TO ESTABLISH PROVIDENTIAL JOINT VENTURE
Based on The Investment Law of Vietnam and relevant legal documents, the parties mentioned hereafter have signed a Joint Venture contract to establish in the Socialist Republic of Vietnam a Joint Venture company as follows:
A. The Vietnamese party:
1. Name of the company: Minh Hieu Joint Stock Company.
2. Registered capital: VND 1,000,000,000 (One Billion VND).
3. Head office: 119/4 Pham The Hien St., Ward 3, District 8, Ho Chi Minh City.
Telephone: 848-865-6813; Fax: 848-865-0304.
4. Main line of business:
- Industrial garments,
- Packing manufacturing,
- Dealing with garment and its accessories.
5. Certificate of Incorporation:
No 4103000679, issued by Business Registration Office of Ho Chi Minh City,
Date: November 7, 2001.
6. Delegated representative: Tang Binh Trong Title: Founder, delegated representative.
B. The Foreign party:
1. Name of the company: Providential Holdings, Inc.
2. Registered capital: USD 4,000,000 (Four Million US dollars). 3. Head office: 8700 Warner Avenue, Fountain Valley, CA 92708 (USA).
Telephone: (714) 596-0244; Fax: (714) 596-0252.
4. Main line of business:
- Investments and investment advisory services,
- Financial services,
- Information Technology,
- Merger and acquisition advisory services,
- Imports and Exports.
5. Certificate of Incorporation:
No C3349-82, issued by Nevada State; Date: June 08, 1982.
6. Delegated representative: Henry D. Fahman Title: Chairman & CEO.
The parties agree to establish the JV company in the
S.R. Vietnam with the purpose of:
- Industrial garments,
- Packing manufacturing,
- Dealing with garments and its accessories.
The name of the JV company: Providential JVC. The transaction name of the JV company in English is:
Address of the JV company: 119/4 Pham The Hien St.,
Ward 3, District 8, Ho Chi Minh
Goods/services Unit 1st&2nd yr 3rd year 4th year - Garments Set 1,200,000 1,500,000 2,000,000 - Packing Set 2,000,000 3,000,000 4,000,000
Products and services of the JV company will mainly be done in the domestic market.
1. Total invested capital of the JVC: USD1,000,000
(One Million US dollars).
2. Legal capital of the JVC is: USD200,000 of which:
a. The Vietnamese party contributes USD60,000, accounting for 30 percent of the legal capital by cash and other fixed assets.
b. The foreign party contributes: USD140,000, accounting for 70 percent of the legal capital by cash and other fixed assets.
c. In addition to its legal capital the JV company may acquire loans from banks and/or credit organizations. The loans may be decided by unanimous decision of the Board of Management of the JV and in conformity with the provisions of the laws of Vietnam.
d. Profit sharing and risks shall be based on the provisions of contribution of each member.
The two parties undertake to contribute their respective
capital fully and on time as follows:
The first month after the day of receipt of the Investment License:
contribute 50% of the legal capital.
The third month: 50% of the legal capital.
The term of the JV contract is 30 years (Thirty years) from the date of the issuing of the JV Investment License. Any change to this term shall have to be agreed upon by both parties concerned and reported to the License Issuing Organ for approval.
Commencing from date of the issuing of the JV Investment License, this contract shall be implemented following the schedule below:
- Accomplishment of procedure of registration: 01 month.
- Factory office: 02 months.
- Actual production: 03 months.
After fulfilling all financial obligations towards the State of Vietnam, the remaining profits of the JV company are extracted to establish the developing fund, the welfare fund and other appropriate funds (the scopes and the principal of using each fund shall be decided by the board of management in conformity with the laws of the Socialist Republic of Vietnam). The net profits of the JV company are shared according to the scale of contribution of the legal capital.
Any disputes between the parties arising in the respect of the implementation of the cintract is resolved at first through negotiations. In case where the parties in dispute cannot agree with each other, the disputes shall be brought to the Economic Arbitration Organization or the Economic Court of Vietnam.
The decision of the Economic Arbitration Organization or the Economic Court of Vietnam is final and the JV Parties must carry out.
The JV may terminate its operation in the following
- By force majeure cases such as earthquake, flood, fire, war, etc.
- The JV has incurred such losses that it cannot continue to operate and by proposal of the Board of Management.
- By decision from the License Issuing Organ with reason that the JV has violated the purpose and scope of activities stipulated in the Charter and Investment License.
- By a judgement of the Court with juridical effect.
- At expiration of the duration stipulated in the Investment License.
All other relating items that are not stipulated in the JV contract and the JV Charter shall be implemented by the parties in accordance with the Foreign Investment Law of Vietnam and in the JV Investment License.
The JV contract may be added and/or amended after unanimous decision of the Board of Management of the JV and must be approved by the License Issuing Organ.
This contract shall take effect immediately after the investment application is approved by the License Issuing Organ.
The JV contract is signed in Ho Chi Minh City on 01-01-2002 in the Vietnamses version and in English by 06 original copies. Both versions are of equal validity.
The Foreign Party The Vietnamese Party PROVIDENTIAL HOLDINGS, INC. MINH HIEU JOINT STOCK COMPANY Chairman & CEO Founder, Delegated Representative /SS/ Henry D. Fahman /SS/ Tang Binh Trong Henry D. Fahman Tang Binh Trong (sealed) (sealed)
Exhibit 10.27 Memorandum of Agreement with HDT Enterprises, LLC dated March 15, 2002.
Memorandum of Agreement
This Agreement is made as of the 15th day of March, 2002 ("The Effective Date"), by HDT Enterprises LLC, (a California Limited Liability Corporation) with principal business address at 9708 Moss Glenn, Fountain Valley, CA 92708, (hereinafter known as HDT) and Providential Holdings, Incorporated, (a Nevada Corporation) with principal business address at 8700 Warner Avenue, Fountain Valley, CA 92708, (hereinafter known as "PHI").
1. HDT and PHI hereby agree as follows:
1.1. HDT and PHI shall from time to time collaborate in various business ventures that may be mutually beneficial to both parties.
1.2. HDT and PHI agree, in particular, to arrange financing for the implementation of various potential commercial, industrial and other projects in Vietnam.
1.3. HDT's duties and considerations will be as follows:
A. Introducing and making available various financing sources, including but not limited to Sewang World of 234 Trikimm 171 Jang dong Youseong-gu Taejon 305-343, Korea, to PHI for the purpose of funding various potential commercial, industrial and other projects in Vietnam and elsewhere.
B. Introducing and making available various engineering, procurement and construction entities, including but not limited to Sewang World of 234 Trikimm 171 Jang dong Youseong-gu Taejon 305-343, Korea, to PHI for the purpose of implementing various potential commercial, industrial and other projects in Vietnam and elsewhere.
C. Performing other functions and duties that may deem necessary to procure and implement various potential commercial, industrial and other projects in Vietnam and elsewhere.
1.4. PHI's considerations and duties will be as follows:
A. Identifying, analyzing, evaluating and introducing various potential commercial, industrial and other projects in Vietnam and elsewhere to various entities that are introduced and made available to PHI by HDT, including but not limited to Sewang World of 234 Trikimm 171 Jang dong Youseong-gu Taejon 305-343, Korea.
B. Coordinating, managing or providing assistance to manage the procurement of various potential commercial, industrial and other projects in Vietnam and elsewhere.
C. Performing any and all tasks that may be required to procure and implement various potential commercial, industrial and other projects in Vietnam and elsewhere.
2. HDT and PHI shall share 50% each in the net profits generated from any and all projects that will have been implemented in Vietnam and elsewhere as a result of this Agreement. These profits shall be determined after production costs, sales costs, marketing costs, administrative costs, general office costs, overhead costs, consulting fees, legal fees, miscellaneous expenses and applicable taxes that will be deducted from the operating income.
3. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but of which together shall constitute one and the same instrument. A faxed or emailed signature shall be acceptable as an original legal signature.
4. This Agreement is legal and binding.
5. The laws of the State of California shall govern this Agreement.
6. Indemnification. Each party shall hold the other party harmless from and against, and shall indemnify the other party for, any liability, loss and costs, and expenses or damages however caused by reason of any injury (whether to body, property, personal or business character, or reputation) sustained by any person or to any person or property by reason of any act of neglect, default or omission of it or any of its agents, employees, or other representatives arising out of or in relation to this Agreement. Nothing herein is intended to nor shall it relieve either party from liability for its own act, omission or negligence. All remedies provided by law or in equity shall be cumulative and not in the alternative.
7. Authorization. PHI's and HDT's signatories herein have full power and authority to enter into this Agreement and to carry out the transactions contemplated hereby.
8. No Violation. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will violate any provision of the charter or by-laws of PHI and HDT or violate, or be in conflict with, or constitute a default under, any agreement or commitment to which PHI and HDT are a party to, or violate any statute or law or any judgment, decree, order, regulation or rule of any court or government authority.
9. Consents. No consent of any person, other than the signatories hereto, is necessary to the consummation of the transactions contemplated hereby including, without limitation, consents from parties to loans, contracts, leases or other agreements and consents from government agencies, whether federal, state or local.
10. Confidentiality. HDT and PHI each agrees to provide reasonable security measures to keep information confidential whose release may be detrimental to the business. HDT and PHI shall each require their employees, agents, affiliates, subcontractors, other licenses, and others who will properly have access to the information through HDT and PHI respectively, to first enter into appropriate non-disclosure agreements requiring the confidentiality contemplated by this Agreement in perpetuity.
11. Waiver of Compliance. Any failure of HDT on the one hand, or PHI on the other, to comply with any obligation, agreement or condition herein may be expressly waived in writing, but such waiver of failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppels with respect to, any subsequent or other failure.
12. Other Business Opportunities. Except as expressly provided in this Agreement, PHI and HDT shall have the right to independently engage in and receive full benefits from other business activities.
13. Compliance with Regulatory Agencies. Each party represents to the other party that all actions, direct or indirect, taken by it and its respective agents, employees and affiliates in connection with this Agreement and any financing or underwriting hereunder shall conform to all applicable Federal and State securities laws.
14. Notices. Any notices to be given hereunder by any party to the other may be effected by personal delivery in writing or by mail, registered or certified, postage prepaid with return receipt requested. Mailed notices shall be addressed to the parties at the addresses appearing in the introductory paragraph of this Agreement, but any party may change their address by written notice in accordance with this subsection. Notices delivered personally shall be deemed communicated as of actual receipt; mailed notices shall be deemed communicated as of three (3) days after mailing.
15. Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by PHI without the prior written consent of HDT and vice versa, except by operation of law.
16. Publicity. Neither PHI nor HDT shall make or issue, or cause to be made or issued, any announcement or written statement concerning this Agreement or the transactions contemplated hereby for dissemination to the general public without the prior consent of the other party. This provision shall not apply, however, to any announcement or written statement required to be made by law or the regulations of any Federal or State governmental agency, except that the party required to make such announcement shall, whenever practicable, consult with the other party concerning the timing and consent of such announcement before such announcement is made.
17. Entire Agreement. This Agreement, including any Exhibits hereto, and any other documents and certificates delivered pursuant to the terms hereof, set forth the entire agreement and understanding of the parties hereto in respect to the subject matter contained herein, and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, all as of the day and year first above written.
/s/ Henry D. Fahman____________Date 3/18/02 Henry D. Fahman Chairman and CEO- Providential Holdings, Incorporated /s/ Jonathan Nguyen____________Date 3/18/02 Witness: Jonathan Nguyen /s/ Hanh D. Tran_______________Date 3/18/02 Hanh D. Tran President - HDT Enterprises, LLC. /s/ Hai Tran___________________Date 3/18/02 Witness: Hai Tran
Exhibit 10.28 Memorandum of Agreement and Principle Contract with Vietnam's Center of Telecom Technology
MEMORANDUM OF AGREEMENT AND
This Memorandum of Agreement and Principle Contract is made as of the 23rd day of March, 2002 ("The Effective Date") in Los Angeles, California, USA, by:
PARTY A: CENTER OF TELECOM TECHNOLOGY
Natural Center for Natural Science & Technology
Address: 789 Le Hong Phong, District 10, Ho Chi Minh City,
Tel: (84-8) 863-1314, Ext. 36
Fax. (84-8) 862-5293
Represented by: Dr. Hoang Quang Thuan, President
PARTY B: PROVIDENTIAL HOLDINGS, INC.
Address: 8700 Warner Avenue, Fountain Valley, CA 92708
Tel.: (714) 849-1577
Fax. (714) 596-0302
Represented by: Henry D. Fahman, Chairman & CEO
The parties have hereby mutually agreed as follows:
1. Party A and Party B shall from time to time collaborate in various business ventures that may be mutually beneficial to both parties.
2. Party A and Party B shall collaborate, in particular, to form a joint venture enterprise or strategic alliances with appropriate Vietnamese entities to provide wireless access for various organizations and end-users throughout Vietnam.
3. Party A and Party B shall collaborate, in particular, to provide advisory and consulting services to various domestic and foreign companies.
4. Responsibilities and benefits: Party A and Party B shall determine the nature and level of responsibilities and benefits for each project on a case-per-case basis.
5. Authorization: Signatories of both parties herein have full power and authority to enter into this Memorandum of Agreement and Principle Contract and to carry out the transactions contemplated hereby.
6. This Memorandum of Agreement and Principle Contract is executed in 4 copies, 2 in English and 2 in Vietnamese. Each copy is equally valid and effective from the date of signing.
IN WITNESS WHEREOF, the parties hereto have caused this Memorandum of Agreement and Principle Contract to be duly executed, all as of the day and year first above written.
/SS/ Thuan Quang Hoang__________Date 3/23/02
Dr. Thuan Quang Hoang
President - Center of Telecom Technology
/SS/ Henry D. Fahman___________Date 3/23/02
Henry D. Fahman
Chairman and CEO- Providential Holdings, Incorporated