UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K AMENDED
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
January 28, 2000
Commission File Number: 002-78335-NY
-----------------------------------
PROVIDENTIAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Nevada, U.S.A. 13-3121128
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8700 Warner Avenue, Fountain Valley, California 92708
(Address of principal executive offices)
(714) 596-0244
(Issuer's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
<PAGE>
Item 7. Financial Statements and Exhibits.
On February 22, 2000, the Company filed an 8-K describing a
change in control resulting from the conclusion of a Corporate
Combination Agreement. Filed herewith are the financial
statements, as required by the Securities Exchange Act of 1934.
The Independent Auditor's Report is prepared by Daniel J.
Holland, CPA, and consists of the balance sheet of Providential
Securities, Inc. as of December 31, 1998 and 1997 and the related
statements of income and retained earnings, and cash flows for
the years then ended. Also filed herewith are the unaudited Pro
Forma Statement of operations derived from the consolidated
statement of operations of J R Consulting, Inc. for the year
ended December 31, 1999 and the audited statement of operations
of Providential Securities, Inc. for the year ended December 31,
1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
Dated: April 19, 2000
PROVIDENTIAL HOLDINGS, INC.
/s/ Henry Fahman
President and Chairman
/s/ Tina Phan
Secretary and Director
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS AS OF DECEMBER 31, 1999
(UNAUDITED)
The following unaudited Pro Forma Statement of operations is
derived from the consolidated statement of operations of J R
Consulting, Inc. for the year ended December 31, 1999 and the
audited statement of operations of Providential Securities, Inc.
for the year ended December 31, 1999. The audited Pro Forma
Statement of Operations reflects the acquisitions of JR
Consulting (a reporting company) by Providential Securities, Inc
(a previously non public company) in a reverse merger using
purchase method of accounting and assumes that such acquisition
was consummated as of January 1, 1999. The unaudited Pro Forma
Statement of Operations should read in conjunction with the
Consolidated Financial Statements of J R Consulting, Inc., the
Financial Statements of Providential Securities, Inc., and the
Notes thereto. The Pro Forma Statement of Operations does not
purport to represent what the Company's results of operation
would actually have been if the acquisition of J R Consulting,
Inc. had occurred on the date indicated or to project the
company's result of operations for any future period or date.
The Pro Forma adjustments as described in the accompanying data,
are based on available information and the assumption set forth
in the footnotes below which management believes are reasonable.
<TABLE>
<S> <C> <C> <C> <C>
Operations Statements J R Consulting, Providential Adjustments for as Adjusted
Data Inc. Securities, Inc. Acquisition
- --------------------- --------------- ---------------- --------------- ---------------
Revenue:
Commissions & Fees $ $ 5,874,022 $ $ 5,874,022
Products & Services 2,195,000 2,195,000
--------------- --------------- --------------- ---------------
2,195,000 5,874,022 8,069,022
--------------- --------------- --------------- ---------------
Expenses:
Costs of operations 3,167,000 6,521,352 9,688,352
--------------- --------------- --------------- ---------------
Loss from Operations (972,000) (647,330) (1,619,330)
--------------- --------------- --------------- ---------------
Other Income - 143,637 143,637
Other Expenses - - (102,300) (1) (102,300)
--------------- --------------- --------------- ---------------
Net Loss before Income Tax (972,000) (503,693) (102,300) (1,577,993)
--------------- --------------- --------------- ---------------
Income Taxes 330,480 (3) 170,386 34,782 (2) 535,648
--------------- --------------- --------------- ---------------
Net Loss $ (641,520) $ (333,307) $ (67,518) $ (1,042,345)
=============== =============== =============== ===============
Weighted average common
stock 26,690,629
===============
Loss per common shares $ (0.04)
</TABLE>
<TABLE>
PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 1999
(UNAUDITED)
<S> <C> <C> <C> <C>
Operations Statements J R Consulting, Providential Adjustments for as Adjusted
Data Inc. Securities, Inc. Acquisition
- --------------------- --------------- ---------------- --------------- ---------------
ASSETS
Current Assets
Cash $ 1,000 $ 199,293 $ $ 200,293
Accounts Receivable 1,275,000 587,855 1,862,855
Marketable & Inventoried
Securities 436,386 436,386
Other current assets 127,000 389,649 34,782 (2) 551,431
--------------- --------------- --------------- ---------------
1,403,000 1,613,183 34,782 3,050,965
Property & Equipments (net) 352,000 2,009,550 2,361,550
Other Assets 904,480 834,123 (102,300) (1) 2,816,823
(330,480) (4)
(535,000) (5)
2,046,000 (6)
Undeveloped Natural
Resources 26,500,000 26,500,000
--------------- --------------- --------------- ---------------
TOTAL ASSETS $ 2,659,480 $ 30,956,856 $ 1,113,002 $ 34,729,338
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Bank Overdraft $ 189,000 $ $ $ 189,000
Accounts Payable 697,000 88,697 785,697
Accrued Expenses 417,000 312,921 729,921
Other current
liabilities 1,409,000 342,834 1,751,834
--------------- --------------- --------------- ---------------
2,712,000 744,452 - 3,456,452
Long term debts 528,000 1,492,364 2,020,364
Stockholders equity
Preferred Stock 1,150,000 515,000 (1,150,000) (6) 515,000
Common Stock 381,000 19,971 (381,000) (6) 19,971
Paid in Capital 2,857,000 28,111,198 (2,857,000) (6) 28,711,198
(1,446,000) (4),(5),(6)
2,046,000 (6)
Retained Earnings
(deficit) (4,968,520) 73,871 34,782 (2) 6,353
(102,300) (1)
4,968,520 (6)
--------------- --------------- --------------- ---------------
(580,520) 28,720,040 1,113,002 29,252,522
TOTAL LIABILITIES &
STOCKHOLDERS'
EQUITY (DEFICIT) 2,659,480 30,956,856 1,113,002 34,729,338
=============== =============== =============== ===============
</TABLE>
Notes:
(1) Represents amortization of goodwill recorded in acquisition
of J R Consulting, Inc.(refer #6 below)
(2) Represents tax effect of goodwill amortized in Pro Forma
statement.
(3) Represents income tax benefits at 34% of Net loss.
(4) Reversal of deferred income tax in the books of J R
Consulting before acquisition
(5) Goodwill in the books of J R Consulting not recorded in the
combined books
(6) Acquisition of J R Consulting has been recorded through
purchase method of accounting through
following:
Assets acquired $ 1,794,000
Liabilities assumed (3,240,000)
Direct acquisition costs (600,000)
--------------
Goodwill recorded in acquisition (2,046,000)
==============
Amortization of
goodwill (20 years) $ (102,300)
==============
<PAGE>
DANIEL J. HOLLAND, CPA Member:
1 Arcilla California Society of CPA's
Rancho Santa Margarita, CA 92688 American Institute of CPA's
(949) 888-8680
FAX: (949) 888-8679
INDEPENDENT AUDITOR'S REPORT
Shareholders
Providential Securities, Inc.
Fountain Valley, California
I have audited the accompanying balance sheet of
Providential Securities, Inc. as of December 31, 1998 and 1997
and the related statements of income and retained earnings, and
cash flows for the years then ended. These financial statements
are the responsibility of the company's management. My
responsibility is to express an opinion on these financial
statements based on my audits.
I conducted my audits in accordance with generally accepted
auditing standards. Those standards require that I plan and
perform the audit to obtain reasonable assurance about whether
the financial, statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principle's used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. I believe that my
audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Providential securities, Inc. as of December 31, 1998 and 1997
and its results of operations and cash flows for the years then
ended, in conformity with generally accepted accounting
principles.
My audit was made for the purpose of forming an opinion on
the basic financial statements taken as a whole. The Schedules of
Net capital Requirement on pages 15 and 16 are presented for
purposes of additional analysis and are not a required part of
the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the
basic financial statements, and in my opinion, is fairly stated
in all material respects in relation to the basic financial
statements taken as a whole.
/s/
Daniel J. Holland
Certified Public Accountant
Rancho Santa Margarita, California February 24, 1999
<PAGE> 1
<TABLE>
PROVIDENTIAL SECURITIES, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
ASSETS
<S> <C> <C>
As of December 31,
-------------------------
1998 1997
Current Assets:
Cash in Bank $ 432,860 $ 170,526
Accounts Receivable 91,399 66,369
Inventoried Securities 190,488 -
Marketable Securities 136,485 136,485
Prepaid Expenses 27,051 7,813
Other Assets 14,846 -
Advance to Shareholder - 55,666
---------- ----------
Total Current Assets 893,128 436,859
Fixed Assets:
Office Building 1,450,702 -
Furniture & Fixtures 30,504 22,748
Office Equipment 114,245 61,821
Leasehold Improvements 15,000 15,000
Less: Accumulated Depreciation (80,060) (26,800)
---------- ----------
Total Fixed Assets 1,530,391 72,769
Other Assets:
Undeveloped Natural Resource
(See Note 10) 26,500,000 -
Escrow Deposit 5,000 60,000
Deposits and Prepaid Rent 49,834 13,923
---------- ----------
Total Other Assets 26,554,834 73,923
========== ==========
$28,978,353 $ 583,551
See accompanying accountant's report and notes to the financial
statements.
</TABLE>
<PAGE> 2
<TABLE>
PROVIDENTIAL SECURITIES, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
As of December 31,
-------------------------
1998 1997
Current Liabilities:
Accounts Payable $ 9,395 $ 23,307
Current Portion-Mortgage Payable 14,002 -
Accrued Salaries and Commissions 212,746 58,469
Accrued Pension Plan - -
Advances from Shareholder 38,610 -
Inventoried Short Positions 176,615 -
Security Deposits from Tenants 19,487
Franchise Tax - 800
Payroll Taxes Payable 16,8651 10,412
---------- ----------
Total Current Liabilities 487,720 92,988
Long Term Liabilities:
Mortgage Payable 1,245,145 -
---------- ----------
Total Long Term Liabilities 1,245,145 -
========== ==========
Total Liabilities 1,732,865 92,988
Stockholder's Equity:
Common Stock, no par value,
40,000,000 shares authorized,
15,451,000 shares issued and
outstanding 19,971 19,971
Additional Paid in Capital 26,1767,700 267,700
Retained Earnings 457,817 202,892
---------- ----------
Total Stockholders' Equity 27,245,488 490,563
========== ==========
$28,978,353 $ 583,551
See accompanying accountant's report and notes to the financial
statements.
</TABLE>
<PAGE> 3
<TABLE>
PROVIDENTIAL SECURITIES, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<S> <C> <C>
Year Ended December 31,
-------------------------
1998 1997
Revenue:
Commissions & Fees $3,680,030 $2,511,880
Principal Transactions (56,720) (15,505)
Other Income 79,047 44,509
---------- ----------
Total Revenue 3,702,357 2,540,884
Expenses:
Automobile Expense 4,578 11,493
Accounting & Legal 56,026 22,863
Bank and finance charges 3,231 3,158
Clearing Charges & Assessments 724,653 668,022
Business Promotion & Advertising 9,147 1,872
Client Reimbursements - 10,829
Commissions 1,689,760 1,280,481
Contract Labor 59,948 17,057
Charitable contributions 25,346 17,410
Depreciation 53,259 16,445
Equipment Lease 75,624 13,199
Insurance & Bonding 9,320 8,995
Interest 125,955 -
Licenses, Permits and Registrations 28,813 22,270
Miscellaneous 25,761 15,233
Office Expense 79,964 4,510
Repairs and Maintenance 27,491 1,846
Penalties 7,325 10,000
Pension Plan Contribution - -
Postage & Freight 6,156 5,593
Quote Service and Market Fees 188,119 143,812
Rent 51,234 74,244
Seminars and Training Material 7,050 -
Salaries 133,159 152,500
Payroll Taxes 12,799 9,145
Property Tax 8,741 -
Telephone 91,951 71,348
Travel 15,431 8,303
Utilities 26,576 -
---------- ----------
Total expenses 3,547,417 2,580,628
Income (Loss) from Operations 154,940 (39,744)
--------- ----------
Other Income:
Interest Income 26,323 34,671
Rental Income 74,462 -
Net income (Loss) Before Taxes 255,725 (5,073)
Provision for Taxes on Income (800) (800)
--------- ----------
Net Income (Loss) 254,925 (5,873)
Retained Earnings - Beginning 202,892 223,592
Prior period adjustment -
Unrealized Loss on Marketable Security - (6,656)
Shareholder Distributions from
Accumulated Adjustments Account - (8,171)
Retained Earnings - Ending $ 457,817 $ 202,892
See accompanying accountant's report and notes to the financial
statements.
</TABLE>
<PAGE> 4
<TABLE>
PROVIDENTIAL SECURITIES, INC.
STATEMENTS OF CHANGES IN OWNERSHIP EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<S> <C> <C>
Year Ended December 31,
-------------------------
1998 1997
Common Stock:
Beginning Balance $ 19,971 $ 19,971
Changes During the Year - -
Ending Balance $ 19,971 $ 19,971
Additional Paid in Capital:
Beginning Balance $ 267,700 $ -
Additional Paid in Capital
Contributed During the Year 26,500,000 267,700
Ending Balance $26,767,700 $ 267,700
Retained Earnings:
Beginning Balance $ 202,892 $ 223,592
Adjustments:
Unrealized Loss (6,656)
Shareholder Distributions
From Previously Taxed Income - (81,171)
Profit (Loss) for the Year 254,925 (54,873)
Ending Balance $ 457,817 $ 202,892
Additional Information:
During the year ended December 31, 1998, the Company altered its
capital stock structure. It authorized a total of 40 million
shares of common stock with no par value. Further, it authorized
two separate classes of preferred stock, each with 10 million
shares authorized and with par value set for each class at $5 per
share.
See accompanying accountant's report and notes to the financial
statements.
</TABLE>
<PAGE> 5
<TABLE>
PROVIDENTIAL SECURITIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<S> <C> <C>
Year Ended December 31,
-------------------------
1998 1997
Cash Flows from Operating Activities:
Net Income (Loss) $ 254,925 $ (5,873)
Adjustments to Reconcile Net Income
to Net Cash Provided by Operations:
Depreciation of Property
and Equipment 53,260 16,445
Increase in Accounts Receivable (25,029) (5,295)
Increase (Decrease) in Deposits &
Prepaid Rent 19,089 (72,272)
Increase in Prepaid Expenses (19,238) (2,992)
(Increase) Decrease in Other Assets (14,846) 1,517
Increase in Inventoried Positions (Net) (13,873) -
Increase (Decrease) in Accounts Payable (13,912) 9,288
Increase (Decrease) in Payroll Tax Payable 6,453 (15,602)
Increase in Accrued Salaries and Commissions 154,277 31,407
Increase (Decrease) in Other Liabilities 18,687 (9,432)
---------- ----------
Total Adjustments 164,868 (46,936)
---------- ----------
Net Cash Provided (Used) by Operations 419,793 (52,809)
---------- ----------
Cash Flows from Investing Activities:
Purchase of Fixed Assets (250,882) (61,121)
Purchase of Marketable Securities-
Net of Unrealized Loss - (22,410)
Increase (Decrease) in Advance
from Shareholder 55,666 (55,666)
Increase in Advance from Shareholder 38,610
---------- ----------
Net Cash Used in Investing Activities (156,606) (139,197)
---------- ----------
Cash Flows from Financing Activities:
Reduction in Principal on Mortgage Payable (853) -
Additional Paid in Capital - 267,700
Shareholder Distributions - (8,171)
---------- ----------
Net Cash Provided (Used) in
Financing Activities (853) 259,529
---------- ----------
Net Increase in Cash 262,334 67,523
---------- ----------
Cash at Beginning of Year 170,526 103,003
---------- ----------
Cash at End of Year $ 432,860 $ 170,526
---------- ----------
Supplementary Information:
The Company expended $125,955 in 1998 and $2,301 in 1997 for
interest and $800 in 1998 and $800 in 1997 for income taxes.
The Company treats cash in banks and in certificates of
deposit with maturities of 90 days or less as cash
equivalents for purposes of this statement.
Non-cash Transactions:
The Company incurred $1,260,000 of debt in order to finance
the acquisition of an equal amount of buildings and
improvements.
The Company acquired Undeveloped Natural Resources in the
amount of $26,500,000 in exchange for an equal amount of
Additional Paid-in-capital.
See accompanying accountant's report and notes to the financial
statements.
</TABLE>
<PAGE> 6
PROVIDENTIAL SECURITIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Providential securities, Inc. ("the Company") was
incorporated in the State of California on October 8, 1992. It
operates a securities brokerage service in Fountain Valley,
California with a licensed branch office in Beaverton, Oregon,
and a satellite office in Los Angeles, California. Through the
National Association of Security Dealers, the Company is licensed
to operate in various other states as well. The principal market
for the Company's services are individual investors that are
located throughout the United States. The Company buys and sells
securities for its customers through a number of different
markets utilizing a brokerage clearinghouse to transact the
trades. The Company also instituted a Day-trading department
during the year ended December 31, 1998 which enabled it to cater
to its clientele that are more active in day-trading activity.
The financial statements of the Company have been prepared using
the accrual basis of accounting. The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from these estimates.
Accounts Receivable
The Company does not provide for an allowance for doubtful
accounts. Accounts receivable represent the commissions earned
during the previous month which are always paid by the Company's
clearing house prior to the end of the subsequent month.
Property and Equipment
The Company records the purchase of property and equipment
at its historical cost and depreciates these assets using the
straight line method over the following estimated useful lives:
Furniture and equipment 5 years
Buildings and improvements 29 years
Income Taxes
The Company, with the consent of its stockholders, have
elected to be taxed as an S-Corporation for federal and state
income tax purposes. As a result, the individual stockholders
are taxed personally on their proportionate share of the income
and expense of the corporation. Consequently, no provision for
corporate income tax is made in these financial statements, other
than the franchise tax due to the State of California.
<PAGE> 7
PROVIDENTIAL SECURITIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 2 - ADVANCES DUE TO/FROM SHAREHOLDER
During the years ended December 31, 1998 and 1997, the
Company advanced monies to, and was advanced monies from, certain
of its shareholders. No interest receivable or payable was
accrued on these advances during the years ended December 31,
1998 or 1997 as the monies are rarely outstanding for more than
one month.
NOTE 3 - MARKETABLE SECURITIES
The Company held certain marketable equity securities as of
December 31, 1998 and 1997 as follows:
Cost Market Value
As of December 31, 1998 and 1997:
Jockey Club - 1,500 shares $ 3,768 $ 0
Tri-Kal Int'l - 15,165 shares 141,241 136,485
Total $ 145,009 $ 136,485
These securities are traded on a bulletin board service and
the market valuation is based upon the offering price determined
by the securities' market maker. The Company records its
marketable securities at the lower of its aggregate cost or
market value. As of December 31, 1998 and 1997 the market value
was lower than the aggregate cost and therefore the Company had
previously recorded the unrealized losses.
NOTE 4 - OFFICE BUILDING
On January 8, 1998, the Company purchased an office building
in Fountain Valley, California containing approximately 20,000
square feet of usable office space. The purchase price of
the building, which includes the approximately .95 acres that it
is situated upon was $1,400,000. The property is encumbered by a
first trust deed mortgage that is explained in Note 7 to these
financial statements.
The Company leases out approximately 6,700 square feet of
the building to two separate tenants under separate leases. One
lease is a year to year agreement, while the other lease is set
to expire in December, 2003. Combined the two leases call for
minimum monthly rents in the amount of $7,053.
<PAGE> 8
PROVIDENTIAL SECURITIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 5 - UNDEVELOPED NATURAL RESOURCE
On or about September 28, 1998, the Company entered into an
agreement with a previously unrelated party whereby the Company
issued 2,650,000 of its authorized common stock (representing
17.15% of the total issued) in exchange for a parcel of
undeveloped property in Coos Bay, Oregon. The property consists
of approximately 80 acres of raw land which contains extensive
Silica Sand deposits. The Company commissioned an evaluation of
the marketable value of the silica deposits and it was determined
by an independent study that the aftermarket value of the
extracted sand was between $53 million and $600 million. The
parties agreed to utilize one-half of the lowest valuation in
order to maintain conservatism and to minimize the dilution of
its outstanding shares of stock. The new shareholders previously
had relations with the Company, one of whom was and still is a
registered representative and the other was an original
incorporator.
Management feels that development of this property will
enable it to diversify the Company's operations and reduce its
dependance on its present core activities. Management is
currently formulating a business plan to estimate all associated
costs, depletion allowances and tax consequences of developing
the property.
NOTE 6 - RELATED PARTY TRANSACTIONS
The Company entered into an agreement with one of its
officers for an operating lease for an automobile which was used
by the Company's president. The lease expires on August 31,
1999. Lease payments were set at $856 per month. During the
year ended December 31, 1998 $856 was expended for the automobile
lease.
NOTE 7 - MORTGAGE PAYABLE
The Company is indebted to a bank for a mortgage which
secures the office building referenced in Note 4. The note was in
the original amount of $1,260,000. The note is payable in
adjustable fully amortized monthly installments of principal and
interest over a period of twenty-five years. interest accrues
based upon the Low New York Prime Rate plus 1.751%. The rate
commenced at 10% and as of December 31, 1998 the rate was at
9.25%. The outstanding principal, including accrued interest, as
of December 31, 1998 was $1,259,147.
<PAGE> 9
PROVIDENTIAL SECURITIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 7 - MORTGAGE, PAYABLE - CONTINUED
Future maturities for the mortgage note are as follows:
Twelve months ended December 31, 1999 $14,002
2000 16,048
2001 17,597
2002 19,295
2003 21,158
Thereafter 1,171,047
1,259,147
Less: Current Portion (14,002)
Long term portion $1,245,145
NOTE 8 - COMMITMENTS AND OBLIGATIONS
In November, 1997 the Company entered into a lease agreement
for office space in Beaverton, Oregon which houses its branch
office. The lease expires in November, 2000. Minimum monthly
rent after the first three months (which were rent free) is set
at $2,495 for the balance of the lease term.
The Company is also obligated under nine separate computer
equipment, communications equipment, vehicle and software leasing
agreements. One of these leases is with a related party and is
referenced in Note 6. The leases have various expiration dates,
none of which extend beyond the year 2002. The agreements also
have various buy-out and renewal terms, however, they are all
treated as operating leases. The current monthly rent payment on
all of these leases totals $12,211 and during the year ended
December 31, 1998 $75,624 was expended on these rental payments.
The minimum annual lease payments during the course of these
facilities and equipment leases are as follows:
Amount
Year ending December 31, 1999 $171,575
2000 116,023
2001 19,440
2002 955
--------
$307,993
<PAGE> 10
PROVIDENTIAL SECURITIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 9 - PENSION PLAN
The Company has instituted a defined contribution Pension
plan for its employees. The terms of the plan are such that
management has the discretion to contribute up to 15% of the
applicable wages for each qualified employee each year. The
Company elected not to make a contribution for 1998 or 1997.
NOTE 10 - CONCENTRATIONS OF RISK
The Company currently utilizes one single brokerage clearing
house to transact all of its trades. Although there are a
limited number of clearing houses, management believes that other
clearing houses could provide similar services on comparable
terms. In fact, the company changed to a different clearing
house at more favorable terms during the past year. The current
firm provides $24.5 million in investor protection for each
account (in addition to the SIPC protection of $500,000.)
NOTE 11 - SUBSEQUENT EVENTS
In January, 1999 the Company committed to purchase
substantially all of the assets of a privately-held company
located in Garden Grove, California. The Company is a registered
Internet Service Provider. The purchase price is tentatively set
at $400,000, and the terms of the agreement call for Providential
Securities to pay $80,000 in cash and issue 400,000 shares of its
common stock to the Company's owners as consideration. The
company purports to have approximately $300,000 in customer
billings as well as some $175,000 in internet service equipment.
The Company is still in the midst of its due diligence in this
matter.
On January 11, 1999 the Company purchased a residential
property located in Irvine, California. The purchase price was
$325,000 and the property is secured by a first trust deed
mortgage with a bank in the amount of $227,500. It is the intent
of the Company to make this residence available to offer to
potential new management personnel as a relocation incentive.
The mortgage is payable in 360 monthly installments of principal
and interest with interest accruing at an adjustable rate based
upon the bank's index fund. The initial rate is at 6.5% and
cannot exceed 12.25%.
Management, in late 1998, published an offering memorandum
for its new preferred class of stock. This offering expires on
March 15, 1999 but management may extend this date if the
minimum, goal of $500,000 in capital is not raised. To date the
Company has received commitments totaling $300,000 towards its
goal. Management intends to utilize this capital to upgrade its
operations.
<PAGE> 11
PROVIDENTIAL SECURITIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 12 --ESTIMATES AND CLAIMS
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported
amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
The Company is a defendant in two customer complaints. One
of the complaints was submitted to arbitration on January 27,
1999 and the arbitrators have not yet returned their judgement.
The other complaint is set for a preliminary arbitration hearing
in August, 1999. The claims would not be covered under the
Company's current insurance policy. The amount of liability, if
any, from the claims cannot be estimated, but management and its
outside counsel are of the opinion that the outcome of the claims
will not have a material impact on the Company's financial
position. Nevertheless, due to uncertainties in the settlement
process, it is at least reasonably possible that management's
view of the outcome will change in the near term.
NOTE 13 - SCHEDULE OF NET CAPITAL REQUIREMENT
The accompanying schedule of net capital requirement
(included in supplementary information) determines the Company's
compliance with the Securities and Exchange Commission's net
worth requirements.
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