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. As of October 31, 2000, due to the results of a NASD examination, Providential has ceased its operations in the securities brokerage business. (See Note 3)

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, 2001 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 completed, Providential changed its year-end to June 30 to correspond with PHI's year-end. Therefore, the accompanying consolidated financials include the year ending June 30, 2001 compared to the six months ending June 30, 2000.

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

Long-lived assets are 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.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Maintenance and repair costs are charged to expense as incurred; costs of major additions and betterments are capitalized. When property and equipment 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 property and equipment 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 2001 and 2000; 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 has elected to account for stock-based compensation plans under the intrinsic value method and to disclose the pro forma amounts using the fair value method.

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.

REVENUE RECOGNITION

The Company recognized commission and fee revenue when the security transaction was complete and the commission or fee had 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 and the implementation of this standard did not have a material impact on its financial statements.

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. Consequently, the Company's ability to collect the amounts due from customers is affected by economic fluctuations and each customer's ability to pay.

ACCOUNTING DEVELOPMENTS

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 January 2001, the Financial Accounting Standards Board Emerging Issues Task Force issued EITF 00-27 effective for convertible debt instruments issued after November 16, 2000. This pronouncement requires the use of the intrinsic value method for recognition of the detachable and imbedded equity features included with indebtedness, and requires amortization of the amount associated with the convertibility feature over the life of the debt instrument rather than the period for which the instrument first becomes convertible. The adoption of this EITF has not had a material impact on the Company's financial position or operating results.

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 and expects these pronouncements will not materially impact the Company's financial position or results of operations.

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.

Management is in the process of evaluating the requirements of SFAS No. 143 and 144 but does not expect these pronouncements will materially impact the Company's financial position or results of operations.

RECLASSIFICATIONS

Certain amounts in the 2000 financial statements have been reclassified to conform to the 2001 presentation.

NOTE 3 - 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, president of Providential, 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.

- 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 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 June 30, 2001 the Company has redeemed $65,000 of the preferred stock plus accrued dividends.

On October 1, 2000 the Board of Directors of the Company decided to discontinue its securities brokerage business effective on October 31, 2000. On October 31, 2000 all assets and liabilities of Providential Securities, Inc. were assumed by Providential Holdings, Inc. The Company reported operations of Providential Securities, Inc. for October 2000 as discontinued operations.

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

NOTE 4 - 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 5 - 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, 2001 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 for the year ending June 30, 2001 and the six months ending June 30, 2000 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 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  $173,189      $23,000        $150,189

The changes in net unrealized holding loss on securities available for sale that has been included as a separate component of stockholders' equity for the twelve months ended June 30, 2001 and for the six months ended June 30, 2000 were $28,869 and $106,155, respectively.

 Furniture and equipment:           $111,273
 Automobiles:                         81,103
                                    ---------
                                    $192,376
Less: Accumulated depreciation:     (109,101)
                                    ---------
Net:                                $ 83,275
                                    =========

The Company depreciates its furniture, equipment and automobiles on a straight-line basis over an estimated useful life of 5 years.

Depreciation and amortization expense was $132,950 and $66,288 for the twelve and six months ended June 30, 2001 and June 30, 2000, respectively.

At the end of September 2000 the Company completed the sale of a residential condo used for accommodating business guests. The Company recognized a gain, net of broker and escrow fees, of $4,254 on the sale.

On June 22, 2001 the Company completed sale of its corporate office building. The Company recognized a gain, net of broker and escrow fees, of $546,925 on the sale. The Company currently leases its office space from the new owners at $4,263 per month.

NOTE 8 - DUE TO OFFICER

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

NOTE 9 - CONVERTIBLE PROMISSORY NOTES

Convertible promissory notes of $1,750,000 consist of $1,350,000 plus interest was due on September 28, 2000 and $400,000 plus interest was 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 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. The penalties, premium amount and interest have been accrued in the accompanying consolidated financials in Accrued Expenses.

NOTE 10 - SHORT-TERM NOTES PAYABLE

Short-term notes payable at June 30, 2001 consists of the following:

Note payable to a corporation, due on demand(principal andinterest), secured by 500,000 shares of a stockholder and previous officer of the Company, guaranteed by an officer of the Company, with an interest rate of 12%, a repayment premium of 5% per month on the outstanding balance and 30,000 of attached warrants with an exercise price of $.10, vested immediately and exercisable at any time.

$100,000

Note payable to a corporation, due on demand (principal and interest), secured by 500,000 shares of the Company's restricted common stock, guaranteed by an officer of the Company, with an interest rate of 12%, a repayment premium of 5% per month on the outstanding balance and convertible to common stock of the Company at any time at a conversion price calculated using the average closing bid price of the common stock for the five trading days immediately preceding the conversion date.

55,000

Note payable to an individual, was due on May 8, 2001 (principal and interest), secured by one million shares of the Company's restricted common stock, with an initial fee of 30,000 shares of the Company's restricted common stock valued at $4,875 at date of inception, a $15,000 fee due upon maturity and another $15,000 late fee.

150,000

Note payable to an individual, due on July 15, 2001 (principal and interest) and a $5,000 fee due upon maturity.

50,000

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

NOTE 11 - NOTES PAYABLE

Notes payable at June 30, 2001 consists of the following:

Note payable to a corporation, principal and interest due June 30, 2001, with an interest rate of 8%.

$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 17.9%, maturing on September 21, 2004 and March 16, 2004,respectively.

                                                     43,653
                                                   --------
                                                    168,653
Less: Current portion                               138,337
                                                   --------
                                                   $ 30,316
                                                   ========

Future annual principal payments on notes payable at June 30, 2001 are as follows:

2002                                               $138,337
2003                                                 13,499
2004                                                 15,588
2005                                                  1,229
                                                   --------
                                                   $168,653
                                                   ========

Accrued interest                                    $1,013,085
Accrued Payroll tax                                     30,000
Accrued professional fees                              153,120
                                                     ---------
                                                    $1,196,205
                                                     =========

NOTE 13 - 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. Accrued dividends, which is included in other current liabilities at June 30, 2001 and June 30, 2000 was $57,055 and $18,555, respectively.

During the year ending June 30, 2001 the Company 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 3)

NOTE 14 - ISSUANCE OF COMMON STOCK AND ADDITIONAL PAID IN CAPITAL

During November and December 2000 the Company issued 11.8 million shares of common stock to its treasury. These shares were issued at their par value of $.04 per share for a total amount of $472,000.

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 were 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 were 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 were restricted from trading for one year from issue date.

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

NOTE 15 - LITIGATION

LEGAL PROCEEDING SETTLED AND UNPAID AS OF YEAR-END:

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 by August 7, 2001. Since the Company failed to pay the Claimants the settlement amounts by the deadline, it agreed to entry of judgment for $77,500.00. The late settlement amount of $77,500 has been accrued in the accompanying consolidated financial statements.

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. 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 3) 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 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 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 the accompanying consolidated financial statements.

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 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 from Claimant. This note was amended on February 22, 2001 to mature on March 19, 2001. Henry D. Fahman repaid $25,000 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 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 3) 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 $9,074 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.

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 the accompanying consolidated balance sheet 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 have been settled but not paid as of year-end relating to the day-trading operations of the Company. The total settlement amount of these cases was $54,505. This amount has been accrued in the accompanying consolidated financial statements.

The Company has several arbitration cases that are either pending or in preliminary stages against Providential Securities, Inc. relating to the day-trading operations and the ordinary course of the discontinued securities brokerage business 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 the accompanying consolidated financial statements.

NOTE 16 - INCOME TAXES

The Company's income tax provision in the current year represents mandatory state taxes for each corporation and some penalties and interest relating to late payments.

The Company's income tax provision for the six months ending June 30, 2000 was 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.

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

                                Year Ended Six Months Ended
                                June 30,2001      June 30, 2000
                               --------------     --------------
Tax at U.S. Federal statutory rates:
                                 $  (683,600)     $ (2,707,300)

State income taxes, net of federal effect:

                                 $  (120,600)     $   (477,800)
Change in valuation allowance:
                                 $   809,723      $  3,323,627
                               --------------     --------------
                                 $     5,523      $    138,527
                               ==============     ==============

As of June 30, 2001 the Company's deferred tax asset amounted to approximately $4.0 million, which relates primarily to NOL carryforwards. The deferred tax asset for the year had a related valuation allowance in the same amount.

The Company had no significant deferred tax liabilities as of June 30, 2001.

As of June 30, 2001, the Company estimated the available NOL carryforwards to be approximately $10.1 million, subject to certain limitations, which will expire on various dates through 2016.

The Company has failed to file its federal and state tax returns for June 30, 2001 and 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.

                                       2001        2000
                                      ------      ------
Basic and diluted net loss per share:
Numerator:
      Net Loss                      $(2,015,644) $(8,101,126)

Denominator:

      Basic and diluted weighted average
      number of common shares outstanding
      during the period:
                                     27,323,000   26,439,600
                                    ------------  -----------
Basic and diluted net loss per share:  $  (0.07)  $    (0.31)
                                    ============  ===========

   FOR THE YEAR
  ENDING JUNE 30,                       AMOUNT
-------------------------------------------------
      2002                            $27,689
      2003                              3,400
                                      -------
                                      $31,089
                                      =======

Lease expense for the twelve and six months ending June 30, 2001 and June 30, 2000 was $44,460 and $85,325, respectively.

JOINT VENTURE AGREEMENT WITH HTV CO.,LTD.

The Company entered into a Joint Venture Agreement with HTV Co., Ltd. of Ho Chi Minh City, Vietnam in January 2001, effective December 13, 2000 to form Manna Technologies for the purpose of manufacturing LCD products. The Company is committed to contributing $2.1 million of cash as invested capital to receive 70 percent ownership of Manna Technologies. Manna Technologies received its permit from the Vietnamese government in March 2001. The manufacturing plant is to be located in Long Binh, Bien Hoa City, Dong Nai Province, Vietnam. The Company is committed to also assist in funding the cost of the plant, which is expected to be approximately $35 million. The Company had not invested any capital as of the date of this report. The construction on the plant has not started and is expected to take at least nine months to be completed. The joint venture contract expires in March 2021.

INTERNATIONAL CENTER FOR TRAINING AND CONSULTING, VIETNAM'S MINISTRY OF TRADE AGREEMENT

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, there have been no projects completed, except for a pending proposal to acquire a majority equity interest of Delta Co, Ltd., a manufacturer of electric bicycles in Ho Chi Minh City, Vietnam.

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 percent 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 fee for the merger and acquisition consulting services the Company performed resulted in 2,666,922 shares of Datalogic International, Inc. (the new name for Topclick International, Inc.). The Company has received 1.2 million shares as of the date of this report.

CHU LAI INDUSTRIAL ZONE, QUANG NAM PROVINCE, VIETNAM

Providential Holdings has entered into an agreement on March 25, 2001 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 three to five investment projects in Chu Lai by the end of 2002. 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.

PROVIMEX

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. Provimex is expected to generate revenues and profits for the Company through the exporting and importing of industrial and consumer goods.

NOTE 19 - 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 fully vested 14 million options under the Plan to officers, directors and employees at an exercise price of $.50 per share. All the options are 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 5 million of these options have been forfeited.

As the Company complies with Accounting Principles Board Opinion No.
25 "Accounting for Stock Issued to Employees" in accounting for options issued to employees no compensation expense has been recorded. Had compensation costs for the Company's stock option plan been determined based upon fair value at the grant date consistent with Statement of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation," the Company's net loss and loss per share as of June 30, 2001 would have been as follows:

Net loss as reported          $ (2,015,644)
Net loss - pro forma          $ (7,265,484)
Loss per share as reported    $ (0.07)
Loss per share - pro forma    $ (0.27)

The weighted average fair value of options granted for the year ending June 30, 2001 is $.37. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The following assumptions were used for grants in fiscal year 2001: risk-free rate of 6.0 percent; no expected dividend yield; expected volatility of 540 percent; and an expected life of 2.4 years.

NOTE 20 - GOING CONCERN UNCERTAINTY

As shown in the accompanying consolidated financial statements, the Company incurred a net loss of $2.0 million for the year ended June 30, 2001. As of June 30, 2001, the Company had a negative working capital of $5.4 million and a shareholder deficit of $5.3 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, 2002 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 proposed mergers and acquisitions. (See Notes 19 and 22) No assurances can be made that management will be successful in achieving its plan.