NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - 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.

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. Subsequent to year-end, due to the results of a NASD examination, Providential has ceased its operations in the securities brokerage business. (See Note 16)

REORGANIZATION

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 (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.

NEW SUBSIDIARY

During February 2000 the Company formed a California corporation, Providential Clearing, Inc. as a vehicle to effectuate the purchase of a self-clearing broker-dealer and to operate a securities clearing firm. As of June 30, 2000 this subsidiary has had no operations.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

Prior to the corporate combination PHI's year-end was June 30 and Providential's year-end was December 31. After the corporate combination was complete Providential changed its year-end to June 30 to correspond with PHI's year-end. Therefore the accompanying consolidated financials include the six months ending June 30, 2000 compared to the year ending December 31, 1999.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Providential Holdings, Inc., Providential Securities, Inc. and Providential Clearing, Inc., collectively referred to as the "Company". All significant inter-company transactions have been eliminated in consolidation.

CASH AND CASH EQUIVALENTS

The Company considers all liquid investments with a maturity of three months or less from the date of purchase that are readily convertible into cash to be cash equivalents.

MARKETABLE SECURITIES

The Company's securities are classified as available-for-sale and, as such, are carried at fair value. Securities classified as available-for-sale may be sold in response to changes in interest rates, liquidity needs, and for other purposes. The Company does not currently have any held-to-maturity or trading securities.

Unrealized holding gains and losses for available-for-sale securities are excluded from earnings and reported as a separate component of stockholder's equity. Realized gains and losses for securities classified as available-for-sale are reported in earnings based upon the adjusted cost of the specific security sold.

IMPAIRMENT OF LONG-LIVED ASSETS

Equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset or group of assets, a loss is recognized for the difference between the fair value and carrying value of the asset or group of assets.

FIXED ASSETS

Fixed assets are stated at cost. Maintenance and repair costs are charged to expense as incurred; costs of major additions and betterments are capitalized. When fixed assets are sold or otherwise disposed of, the cost and related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is reflected in income.

DEPRECIATION AND AMORTIZATION

The cost of fixed assets is depreciated over the estimated useful lives of the related assets. Depreciation and amortization of fixed assets are computed on a straight-line basis.

NET EARNINGS (LOSS) PER SHARE

The Company adopted the provisions of Statement of Financial Accounting Standards No. 128, Earnings per Share ("SFAS No. 128"). SFAS No. 128 eliminates the presentation of primary and fully diluted earnings per share ("EPS") and requires presentation of basic and diluted EPS. Basic EPS is computed by dividing income (loss) available to common stockholders 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 earnings per share for 2000 and 1999, as such inclusion is anti- dilutive.

STOCK-BASED COMPENSATION

In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS No. 123 prescribes accounting and reporting standards for all stock-based compensation plans, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights. SFAS No. 123 requires compensation expense to be recorded (i) using the new fair value method or (ii) using the existing accounting rules prescribed by Accounting Principles Board Opinion No. 25, "Accounting for stock issued to employees" (APB 25) and related interpretations with proforma disclosure of what net income and earnings per share would have been had the Company adopted the new fair value method. The Company uses the intrinsic value method prescribed by APB 25 and has opted for the disclosure provisions of SFAS No. 123. The implementation of this standard did not have any impact on the Company's financial statements.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of financial accounting standard No. 107, Disclosures about fair value of financial instruments, requires that the Company disclose estimated fair values of financial instruments. The carrying amounts reported in the statements of financial position for current assets and current liabilities qualifying as financial instruments are a reasonable estimate of fair value.

COSTS OF START-UP ACTIVITIES

In April 1998, the ASEC of AICPA issued SOP No. 98-5, "Reporting on the costs of start-up activities", effective for fiscal years beginning after December 15, 1998. SOP 98-5 requires the costs of start-up activities and organization costs to be expensed as incurred. The implementation of this standard did not have a material impact on the Company's financial statements.

REVENUE RECOGNITION

The Company recognizes commission and fee revenue when the security transaction is complete and the commission or fee has been earned. The Company recognizes other service income when the service has been completed. Expenses are recognized in the period in which the corresponding liability is incurred.

ADVERTISING

The Company expenses advertising costs as incurred.

COMPREHENSIVE INCOME

Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS No. 130"), establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity, except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS No. 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The Company adopted this standard in fiscal 1999.

INCOME TAXES

Deferred income tax assets and liabilities are computed annually for differences between the financial statements and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income (loss). Valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.

REPORTING OF SEGMENTS

Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information ("SFAS No. 131"), which supersedes Statement of Financial Accounting Standards No. 14, Financial Reporting for Segments of a Business Enterprise, establishes standards for the way that public enterprises report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements regarding products and services, geographic areas and major customers. SFAS No. 131 defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

PENSION AND OTHER BENEFITS

In February 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 132, Employers' Disclosures about Pensions and Other Post-retirement Benefits ("SFAS No. 132"), which standardizes the disclosure requirements for pensions and other post-retirement benefits. The Company adopted this standard in fiscal 1999 and the implementation of this standard did not have any impact on its financial statements.

RISKS AND UNCERTAINTIES

In the normal course of business, the Company is subject to certain risks and uncertainties. The Company provides its product on unsecured credit to most of its customers, the majority of which are in the defense industry. Consequently, the Company's ability to collect the amounts due from customers is affected by the economic fluctuations in that industry.

ACCOUNTING DEVELOPMENTS

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", effective for fiscal years beginning after June 15, 1999, which has been deferred to June 30, 2000 by publishing of SFAS No. 137. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. This Statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial condition and measure those instruments at fair value. The accounting for changes in the fair value of a derivative instrument depends on its intended use and the resulting designation. The Company does not expect that the adoption of this standard will have a material impact on its financial statements.

In June 1999, the Financial Accounting Standards Board ("FASB") issued Financial Accounting Standards (SFAS) No. 136, "Transfer of Assets to a Not-for-Profit Organization or Charitable Trust that raises or Holds Contributions for Others." This statement is not applicable to the Company.

In June 2000, the FASB issued Financial Accounting Standards (SFAS) No. 138, "Accounting for Certain Instruments and Certain Hedging Activities." This statement is not applicable to the Company.

In June 2000, the FASB issued Financial Accounting Standards (SFAS) No. 139, "Rescission of FASB Statement No. 53 and Amendments to Statements No. 63, 89, and 121." This statement is not applicable to the Company.

In September 2000, the FASB issued Financial Accounting Standards SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and a replacement of FASB Statement No. 125." This statement is not applicable to the Company.

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.

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 becomes effective January 1, 2002.

Management is in the process of evaluating the requirements of SFAS No. 141 and 142, but does not expect these pronouncements will materially impact the Company's financial position or results of operations.

In December 1999, the Securities and Exchange Commission (the "SEC") issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." SAB No. 101 summarizes the SEC's views on the application of GAAP to revenue recognition. In June 2000, the SEC released SAB No. 101B that delays the implementation date of SAB 101 until no later than the fourth fiscal quarter of fiscal year beginning after December 15, 1999. The Company has reviewed SAB No. 101 and believes that it is in compliance with the SEC's interpretation of revenue recognition.

In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain Transactions involving Stock Compensation." This Interpretation clarifies (a) the definition of employee for purposes of applying APB Opinion No. 25, (b) the criteria for determining whether a plan qualifies as a no compensatory plan,
(c) the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. The adoption of this Interpretation has not had a material impact on the Company's financial position or operating results.

In September 2000, Emerging Issues Task Force Issue 00-10 (EITF 00-10), "Accounting for Shipping and Handling Fees and Costs" was issued. EITF 00-10 provides guidance on the financial reporting of shipping and handling fees. This statement is not applicable to the Company.

RECLASSIFICATIONS

Certain amounts in the 1999 financial statements have been reclassified to conform with the 2000 presentation.

PROVIDENTIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 LOSS ON DISPOSAL OF LAND AND PRIOR PERIOD ADJUSTMENT

On September 18, 1998 Providential Securities, Inc. issued 2,650,000 of its common stock in exchange for an interest in a parcel of undeveloped property in Coos Bay, Oregon. The Company recorded a prior period adjustment in the amount of $23,187,500 by reducing the equity and reducing the recorded value of this asset to properly reflect the land's value at cost.

In June 2000 the Company entered into a "Sale and Purchase Agreement" with an unrelated third party to sell this undeveloped property in Coos Bay, Oregon. The selling price consisted of a five-year demand note for $26,500,000 without interest. The Company did not recognize any gain due to the uncertainty of the note's realizability, instead a loss on disposal of land of $3,312,500 has been recorded in the accompanying consolidated financial statements.

NOTE 4 INVESTMENTS

INVESTMENT IN POSTYOURHOME.COM

On April 3, 2000 the Company purchased 25 percent of the outstanding shares of an unrelated startup company, Postyourhome.com for $5,000. The shares may not be transferred without an effective registration with the United States Securities and Exchange Commission. This investment is being accounted for using the equity method. As of June 30, 2000 Postyourhome.com had no sales, cost of sales or gross profit, resulting in a loss from continuing operations and net loss. The Company's share of the investee's net loss is reflected in the accompanying financial statements and accordingly, this investment is recorded at no value as required by the equity method of accounting.

INVESTMENT IN PROVIDENTIAL TECHNOLOGY, INC.

The Company has purchased less than 10 percent of the outstanding shares of Providential Technology, Inc. This corporation was engaged in software development for financial service providers. The Company provided the initial funding of $165,000 for Providential Technology to develop a market-timing program and an online trading platform for equities. These projects were discontinued in October 2000 due to lack of additional funding. This investment has been recorded at no value and any funds invested into this corporation have been written off in the accompanying financials.

                 Cost Basis    Fair Value   Gross Unrealized Loss
                 ----------    ----------   ---------------------

Marketable
securities         $345,850      $224,530           $121,320

The change in net unrealized holding loss on securities available for sale that has been included as a separate component of stockholders' equity for the six months ended June 30, 2000 was $106,155.

NOTE 6 - FIXED ASSETS

Fixed assets consisted of the following at June 30, 2000:

Office Building: This office building is the Company's headquarters and is located at 8700 Warner Avenue, Fountain Valley, CA 92708

The Company leased approximately 6,700 square feet of this 20,000 square-foot office building to a long-term tenant and a number of executive offices to other tenants.

The Company sold this office building in June 2001. (See Note 17)

ii) Residential Property: During January 1999 the Company purchased a condominium in Irvine, California for the use of accommodating business guests. This property was sold for fair market value in September 2000. (See Note 17)

Depreciation expense was $66,288 and $104,169 for the six months ended June 30, 2000 and for the year ended December 31, 1999, respectively.

NOTE 7 - DUE TO OFFICER

Due to officer, represents advances made by one officer of the Company, which are non-interest bearing, unsecured and due on demand.

NOTE 8 NOTES PAYABLE

Notes payable at June 30, 2000 consists of the following:

Convertible promissory notes, $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.

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.

$1,750,000

Mortgage payable to a financial institution, due in monthly installments of $11,659 (principal and interest) to January 7, 2023, secured by an office building and land, with an interest rate of prime plus 1.5% (11% at June 30, 2000) (This mortgage has been paid subsequent to year-end when the building and land were sold, see Note 17.)

1,228,942

Mortgage payable to a financial institution, due in monthly installments of $1,438 (principal and interest) to January 1, 2007, secured by a condominium, with an interest rate of 8.31%. (This mortgage has been paid subsequent to year-end when the condominium was sold, see Note 17.)

227,325

Note payable, principal and interest due June 30, 2001, with an interest rate of 8%, secured by an investment.

125,000

Notes payable secured by two automobiles, one to a corporation and one to a financial institution, due in monthly installments of $453 and $963, with interest rates of 8.35% and 3.45%, maturing on September 21, 2004 and January 16, 2004,

respectively.

                                                           58,342
                                                       ----------
                                                        3,389,609
Less: Current portion                                   1,902,263
                                                       ----------
                                                       $1,487,346
                                                       ==========

Future annual principal payments on notes payable at June 30, 2000 are as follows:

                                              $1,902,263
                                                  29,476
                                                  31,906
                                                  29,736
                                                  21,404
Thereafter                                     1,374,824
                                               ----------
                                              $3,389,609
                                               ==========

NOTE 9 - SERIES I CLASS A CONVERTIBLE CUMULATIVE PREFERRED STOCK

During the year ended December 31, 1999 Providential Securities, Inc. placed a subscription offering for its newly authorized Series I, Class A Preferred Stock. There were 10,000,000 shares authorized, of which 103,000 shares were issued at $5.00 per share. Holders of the Series I Class A Convertible Cumulative Preferred Stock are entitled to receive a cumulative cash dividend at a rate of 12% per year, accrued quarterly. Dividends, including any accumulated and unpaid dividends, shall be paid on the Preferred Stock before any dividends are paid to the holders of the Company's Common Stock. Each share of the Preferred Stock is convertible into one share of Common Stock of the Company at any time after two years from the date of issue or immediately prior to the Company's initial public offering, whichever event occurs first. The Company may redeem the Preferred Stock for a price equal to 120 percent of the par value of said Preferred Stock (plus accumulated and unpaid dividends) at any time after two years from the date of issuance, but only after giving the investor the opportunity through written notice to convert his or her investment to Common Stock. At June 30, 2000 there was $18,555 in accrued dividends. There were no accrued dividends at December 31, 1999.

Subsequent to year-end the Company has redeemed 13,000 outstanding shares of Preferred Stock in exchange for principal plus any unpaid dividends as required by the NASD settlement and the litigation settlement. (See Note 11 and Note 16)

NOTE 10 ISSUANCE OF COMMON STOCK AND ADDITIONAL PAID IN CAPITAL

On April 25, 2000 the Company sold 100,000 shares of common stock to an unrelated party for cash at a price of $1.25 per share. These shares are restricted from trading for one year from issue date.

On April 25, 2000 the Company issued 282,000 shares of common stock in exchange for consulting services. The consulting fees were recorded at the fair value of the common stock on issue date. These shares are restricted from trading for one year from issue date.

Also on April 25, 2000 the Company issued 249,600 shares of common stock to an officer of the Company in exchange for forgiveness of debt. There was no gain or loss recorded on the forgiveness of debt as the face value of the loan from officer was equal to the fair value of the common stock on issue date. These shares are restricted from trading for one year from issue date.

During 1999 the Company received $743,498 in cash as contributed capital. Also during 1999 the Company incurred $600,000 of acquisition costs in exchange for 1,200,000 shares of common stock.

NOTE 11 - LITIGATION

LEGAL PROCEEDINGS SETTLED SUBSEQUENT TO YEAR-END:

JOHN E. DUKES, MONTEVILLE DICKINSON, ROSALIE RAMOS, HILARIO RAMOS AND ROSALIE RAMOS, AND ELITE INVESTMENTS VS. PROVIDENTIAL SECURITIES, INC. ET AL.

The plaintiffs, who subscribed to a Private Placement Memorandum by Providential Securities, Inc., purchased Series I Class A Convertible Cumulative Preferred Stock of Providential Securities, Inc. in March and April 1999 in the following sums:
John E. Dukes-$10,000.00, Monteville Dickinson-$10,000.00, Rosalie Ramos-$20,000.00, Hilario Ramos and Rosalie Ramos- $15,000.00, and Elite Investments, a Nevada Limited Partnership- $10,000.00. John E. Dukes, Monteville Dickinson, and Rosalie Ramos filed a complaint for rescission and restitution of $10,000.00, $10,000.00, and $20,000.00, respectively, with the Superior Court of California in and for the Orange County; Case No. 00CC128803 on October 25, 2000. Elite Investments filed the same on March 29, 2001 for $10,000.00, Case No. 01CC04192 and Hilario Ramos and Rosalie Ramos also filed the same on April 17, 2001 for $15,000.00, Case No. 01CC05048. The Company reached a settlement agreement and paid the above-mentioned plaintiffs a total of $103,654 including principals, interests and legal expenses on June 21, 2001. The interest and legal expenses have been accrued in Accrued Expenses in the accompanying consolidated balance sheet as of June 30, 2000.

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 administrative costs. As the date of this report, the Company has paid $2,500 and is subject to an entry of judgement for $77,500.00. The settlement amount has been accrued in Accrued Expenses in the accompanying consolidated balance sheet as of June 30, 2000.

JEFFREY L. BACLET VS. PROVIDENTIAL SECURITIES, INC., PROVIDENTIAL HOLDINGS, INC. AND HENRY FAHMAN

Claimant alleged that Providential Securities, Inc. owed him $250,000.00 and 1,000,000 free-trading shares of common stock due to the termination of his employment with Providential Securities, Inc. on June 19, 2000. Claimant filed a complaint and Writ of Attachment with the Superior Court of California, Orange County for $250,000.00 (Case No. 00C13071). This case was settled for $30,000.00 and dismissed on June 20, 2001. The settlement amount has been accrued in Accrued Expenses in the accompanying consolidated balance sheet as of June 30, 2000.

CENTERPOINT FINANCIAL SERVICES, LLC VS. PROVIDENTIAL HOLDINGS, INC., PROVIDENTIAL SECURITIES, INC. ET AL.

Claimant filed a complaint (Superior Court of the State of California for the County of Orange Case No. 01CC03876) for money in connection with an equipment lease that was entered into between and by Providential Securities, Inc. and Direct Capital Corporation and simultaneously assigned to Claimant in August 1999. This case was settled for $27,090.87, including attorney fees, on June 15, 2001. The settlement amount has been accrued in Accrued Expenses in the accompanying consolidated balance sheet as of June 30, 2000.

TIME WARNER COMMUNICATION VS. PROVIDENTIAL SECURITIES

Claimant filed a complaint (Superior Court of the State of California for the County of Orange Case No. 00WL7120) for amounts due in connection with advertising performed on behalf of the defendant. This case was settled for $7,500, including attorney fees, on July 12, 2001. The settlement amount has been accrued in Accrued Expenses in the accompanying consolidated balance sheet as of June 30, 2000.

PENDING LITIGATION:

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 Accrued Expenses in the accompanying consolidated balance sheet as of June 30, 2000.

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. Defendants are seeking a dismissal of the case and may cross-claim against the appropriate former management of JR Consulting, Inc. The sought amount of $500,000 has been accrued in Accrued Expenses in the accompanying consolidated balance sheet as of June 30, 2000.

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 Accrued Expenses in the accompanying consolidated balance sheet as of June 30, 2000.

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. Henry Fahman is committed to repaying his personal obligation to Claimant. The Company has not accrued any amount relating to this case in the accompanying consolidated financial statements.

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 Accrued Expenses in the accompanying consolidated balance sheet as of June 30, 2000.

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 Accrued Expenses in the accompanying consolidated balance sheet as of June 30, 2000.

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 balance sheet as of June 30, 2000 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.

ARBITRATION CASES

The Company has several arbitration cases against Providential Securities, Inc. which were closed subsequent to year-end relating to the daily trading operations of the Company. The total settlement amount of these cases was $72,005. This amount has been accrued in Accrued Expenses in the accompanying consolidated balance sheet as of June 30, 2000.

The Company has several arbitration cases that are either pending or in preliminary stages against Providential Securities, Inc. relating to the daily trading 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 $271,850. This amount has been accrued in Accrued Expenses in the accompanying consolidated balance sheet as of June 30, 2000.

NOTE 12 - INCOME TAXES

The Company's income tax provision in the current year is a result of the Company increasing its valuation allowance to 100 percent for deferred tax assets and recording a current state provision of $2,400 for mandatory state taxes for each corporation.

For the year ended December 31, 1999 the Company recorded a provision for mandatory state taxes of $800 and recorded a Federal tax benefit of $136,127.

The reconciliation of income tax expense (benefit) computed at the U.S. Federal statutory rate to income tax expense (benefit) is as follows:

                                Six Months Ended       Year Ended
                                June 30, 2000   December 31, 1999
                                --------------- -----------------
Tax at U.S. Federal
statutory rates                  $  (2,647,800)     $   (136,127)
State income taxes,
net of federal effect                 (467,300)          (23,222)
Change in valuation allowance        3,253,627            24,022
                                --------------- -----------------
                                 $     138,527      $   (135,327)
                                =============== =================

As of June 30, 2000 the Company's deferred tax asset amounted to approximately $3.3 million, which relates primarily to NOL carryforwards. The deferred tax asset had a related valuation allowance in the same amount.

The Company had no significant deferred tax liabilities as of June 30, 2000.

As of June 30, 2000, the Company estimated the available NOL carryforwards to be approximately $8.2 million, subject to certain limitations, which will expire on various dates through 2015.

The Company has failed to file its federal and state tax returns for June 30, 2000. The Company does not expect the filing of the tax returns to have a material impact on the Company's financial condition.

                                Six Months Ended       Year Ended
                                June 30, 2000   December 31, 1999
                                --------------  -----------------
Basic and diluted net loss per share:

Numerator:

  Net Loss                        $(8,101,126)        $ (265,046)

Denominator:

  Basic and diluted weighted
  average number of common shares
  outstanding during the period    26,439,600         20,000,000
                                   -----------       ------------
Basic and diluted net
loss per share                    $      (.31)         $    (.01)
                                   ===========       ============

Basic and diluted comprehensive loss per share:

Numerator:

  Net comprehensive loss          $(8,207,281)        $ (280,211)

Denominator:

  Basic and diluted weighted
  average number of common shares
  outstanding during the period    26,439,600         20,000,000
                                   -----------       ------------
Basic and diluted net
comprehensive loss per share      $      (.31)         $    (.01)
                                   ===========       ============

      FOR THE YEAR
     ENDING JUNE 30,                   AMOUNT
----------------------------------------------------
    2001                                $ 72,866
    2002                                  27,689
    2003                                   3,400
                                         --------
                                        $103,955
                                         ========

Rent expense for the six months ended June 30, 2000 and the year ended December 31, 1999 was $85,325 and $166,316, respectively.

NOTE 15 - GOING CONCERN UNCERTAINTY

As shown in the accompanying financial statements, the Company incurred a net loss of $8.1 million during the year ended June 30, 2000. As of June 30, 2000, the Company had a negative working capital of $3.7 million and a shareholder deficit of $3.2 million. Since the main operating subsidiary Providential Securities, Inc. ceased its securities brokerage operations in October 2000, there has been no significant revenue stream for the Company. These factors, as well as the uncertain conditions that the Company faces in its day-to-day operations, create an uncertainty as to the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

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 through June 30, 2001 and beyond. Among the actions taken, the Company has filed Form SB-2 Registration Statement to raise additional capital and is currently in the process of attaining additional financing. In addition, the Company also anticipates generating more revenue through its merger and acquisition advisory and consulting services and through its proposed acquisitions. (See Note 17) No assurances can be made that management will be successful in achieving its plan.

NOTE 16 - 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.

- 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.

NOTE 16 - NASD EXAMINATION AND DISCONTINUANCE OF PROVIDENTIAL
SECURITIES, INC., continued

- 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.

- 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 was included in accrued expenses at June 30, 2000 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.