UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB


  [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934
                    For the fiscal year ended March 31, 2002

                                       OR

    [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
                     EXCHANGE ACT OF 1934 (no fee required)
                   For the transition period     to
                                            ----   ----

                           Commission File No. 0-24374

                         LUCAS EDUCATIONAL SYSTEMS, INC.
                 (Name of small business issuer in its charter)

             Delaware                                          62-1690722
 (State or other jurisdiction of                           (I.R.S. Employer
  incorporation or organization)                          Identification No.)

               2591 Dallas Parkway, Suite 102, Frisco, Texas 75034
            (Address of principal executive offices)       (Zip Code)

       Registrant's telephone number, including area code: (469) 633-0100

        Securities registered pursuant to Section 12(b) of the Act: None

    Securities registered pursuant to Section 12(g) of the Act: Common Stock,
                                  value $0.001


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. YES X  NO
                                      ---   ---

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation  S-B contained  herein,  and none will be  contained,  to the best of
registrant's   knowledge,   in  definitive   proxy  or  information   statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [X]

The registrant's revenues for its most recent fiscal year were:  $-0-


The aggregate  market value of the voting and  non-voting  common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold,  or the average bid and asked price of such common  equity,  as of May 20,
2002 was $626,277.

At May 20, 2002,  the  registrant  had  outstanding  3,339,016  shares of common
stock.


   Transitional Small Business Disclosure Format (check one): Yes    No X
                                                                 ---   ---
<PAGE>

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

                                     PART I

Item 1.     Description of Business                                           3

Item 2.     Description of Property                                           4

Item 3.     Legal Proceeding                                                  4

Item 4.     Submission of Matters to a Vote of Security Holders               4


                                     PART II

Item 5.     Market for Common Equity and Related Stockholder Matters          4

Item 6.     Management's Discussion and Analysis or Plan of Operations        4

Item 7.     Financial Statements                                              5

Item 8.     Changes in and Disagreements with Accountants on Accounting
            and Financial Disclosure                                          6


                                    PART III

Item 9.     Directors, Executive Officers, Promoters and Control Persons;
            Compliance with Section 16(a) of the Exchange Act                 6

Item 10.    Executive Compensation                                            7

Item 11.    Security Ownership of Certain Beneficial Owners and Management    8

Item 12.    Certain Relationships and Related Transactions                    8

Item 13.    Exhibits and Reports on Form 8-K                                  8



                                       2
<PAGE>
                                     PART I

Item 1.  DESCRIPTION OF BUSINESS
         -----------------------

General
-------

Founded  in 1996 by Jerry R.  Lucas to  commercialize  the  learning  techniques
developed  by Mr.  Lucas  over 30 years of  research  and  experimentation,  the
predecessor of the company was merged into a publicly traded corporation in 1997
and exists  today as a  development  stage  company  trading on the OTC Bulletin
Board under the symbol LCSE.

Mr.  Lucas  has  devoted  his  life  to   cultivating   ideas  and  methods  for
memory-retention.  The  resulting  methodology  is known as The  Lucas  Learning
System(TM). His guest appearances on nationally syndicated television shows such
as the Tonight Show and Good Morning  America,  coupled with his countless  live
appearances  and seminars  earned Mr. Lucas the title of Doctor  Memory(TM).  He
graduated Phi Beta Kappa from Ohio State University,  became the only three-time
recipient  of the Big Ten player of the year award,  Mr.  Lucas was chosen seven
times as an All-Pro  during his career with the New York  Knicks,  was  inducted
into the NBA Hall of Fame in 1979,  and was  recently  named  one of the 50 most
outstanding NBA players of all time. In late 1999 Mr. Lucas was chosen as one of
the five most outstanding college basketball players of the twentieth century by
Sports Illustrated.  In the resulting article he was specifically recognized for
his memory-retention expertise.

Late in 1999, Mr. Lucas retained the consulting  services of Jeffrey R. Gullo to
assist with the development and revision of the company's business and marketing
plans,  and to assist in  securing  capital to  transition  the  company  from a
development  stage into  operations.  In March  2000,  the  company  completed a
private  placement  of  $1,400,000  of  Series A  Convertible  Preferred  Stock,
appointed  two  directors  to fill  vacancies,  hired Mr.  Gullo to  become  its
President and Chief Executive Officer, and hired a Chief Financial Officer.

During Fiscal 2001 the capital raised in connection  with the private  placement
was used by the company to further develop its initial product line and commence
the marketing and  distribution of its products.  In the quarter ended September
30, 2000 the company began  accepting  and filling  product  orders  through its
direct  distribution  channel  as well as  establishing  a  distribution  avenue
through traditional bookstores.

In December 2000 the company announced its intention to seek additional  funding
to allow  it to exit  the  development  stage  and  build  sales  and  marketing
organization.  On  February  28,  2001 the  company  announced  that it had been
unsuccessful in raising the necessary funding.  Further, the Board resolved that
the company maximize its value by ceasing current operations and pursue a merger
candidate  that might value the public entity after the current  operations  had
been removed.  All employees were terminated,  Mr. Lucas resigned from the Board
to pursue personal  interests and the remaining Board members  proceeded to wind
down the  operations in an orderly  manner to maximize the residual value of the
public entity.

On June 19, 2001,  Halter  Capital  Corporation  purchased  1,687,178  shares of
common stock from various shareholders, thereby acquiring approximately 50.5% of
the  outstanding  shares of the  corporation.  All of the existing  officers and
directors resigned and were replaced by a new management team, Messrs.  Kevin B.
Halter and Kevin Halter Jr.

New Management is currently  exploring  various  avenues to acquire and/or merge
the company with an existing business which would enhance shareholder value.

NonProduct Overview
-------------------

The company employed a market driven product development strategy. This strategy
focused on near term selling opportunities while prioritizing resources to those
products  projected  to  create  the most  value for the  company.  It sought to
develop products which are easily and cost effectively reproducible to penetrate
high demandvalue market segments.  As of the cessation of operations on February
28, 2001, the company has no specific product or service offering.

Employees

As of March 31, 2002, there were no employees.

Environmental Impact
--------------------

None of the company's activities utilized any hazardous materials or resulted in
any  discharge  of  pollutants  into the  environment.  The company  believes it
complies fully with all environmental laws and regulations.

                                       3
<PAGE>

Regulation
----------

There are no specific regulatory issues affecting the company not common to
publicly held businesses in general.


Item 2.  DESCRIPTION OF PROPERTY
         -----------------------

As of March 31, 2002 the company did not own or lease any property.

Item 3.  LEGAL PROCEEDINGS
         -----------------

The company was not engaged in any legal proceedings on the date of this report.


Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
         ---------------------------------------------------

None

                                     PART II

Item 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
         --------------------------------------------------------


Market Information

The company's common stock is traded in the  over-the-counter  market on the OTC
Bulletin  Board under the symbol LCSE.  Prior to August 1, 2001 the stock traded
under the  symbol  LEDS.  The  following  table  shows  the  price  range of the
company's common stock as reported by Nasdaq for the last two fiscal years.

     Quarter Ended                      High     Low
     -------------                      ----     ----

     March 31, 2002                     0.40     0.21
     December 31, 2001                  0.41     0.20
     September 30, 2001                 0.60     0.14
     June 30, 2001                      0.35     0.07
     March 31, 2001                     0.19     0.06
     December 31, 2000                  0.75     0.06
     September 30, 2000                 2.00     0.10
     June 30, 2000                      2.25     0.50

Holders
-------

As of May 20, 2002, there were 137 record holders of the company's common stock.

Dividends
---------

The company does not  anticipate any stock or cash dividends on its common stock
in the foreseeable future.

Item 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
         ----------------------------------------------------------

     General
     -------

     In  November  1997,  the  company  completed  a  reorganization  whereby it
     acquired all of the  outstanding  voting  securities  of Lucas  Educational
     Systems,  Inc., a Nevada  corporation.  During the remainder of fiscal 1998
     and continuing  through  fiscal 1999 and 2000, the company  remained in the
     developmental stage and sought funding from various sources to enable it to
     seek marketing and distribution channels for its products,  which are based
     upon a proprietary memory enhancement methodology developed by its founder,
     Jerry R. Lucas.

     In March 2000, the company  completed a private  placement of 89,974 shares
     of Series A Convertible  Preferred Stock to accredited investors as defined
     in  Regulation D  promulgated  pursuant to the  Securities  Act of 1933, as
     amended.

     During the Year Ended March 31, 2001 the capital raised in connection  with
     the  private  placement  was used by the  company  to further  develop  its
     initial  product line and commence the  marketing and  distribution  of its
     products.  The company began accepting and filling product orders in August
     2000  through its direct  distribution  channel as well as  establishing  a
     distribution avenue through traditional bookstores.

                                       4
<PAGE>

     In December 2000 the company  announced  its  intention to seek  additional
     funding  to allow it to exit the  development  stage  and  build  sales and
     marketing organization.  On February 28, 2001 the company announced that it
     had been unsuccessful in raising the necessary funding.  Further, the Board
     resolved that the company maximize its value by ceasing current  operations
     and pursue a merger  candidate that might value the public entity after the
     current  operations had been removed.  All employees were  terminated,  Mr.
     Lucas  resigned  from  the  Board  to  pursue  personal  interests  and the
     remaining Board members proceeded to wind down the operations in an orderly
     manner to maximize the residual value of the public entity.

     On June 19, 2001, Halter Capital Corporation  purchased 1,687,178 shares of
     common stock from various  shareholders,  thereby  acquiring  approximately
     50.5% of the  outstanding  shares of the  corporation.  All of the existing
     officers and directors  resigned and were replaced by a new management team
     consisting of Messrs. Kevin B. Halter and Kevin Halter, Jr.

     New  Management is currently  exploring  various  avenues to acquire and/or
     merge the company with an existing business which would enhance shareholder
     value.

     Results of Operations
     ---------------------

     Net  revenues  for the Year Ended  March 31,  2002 were $-0- as compared to
     $72,581 for the prior year. The generation of revenue  recognizes  that the
     company began selling its products during the year ended March 31, 2001 and
     prior to that did not have products available for sale.

     Net loss for the year ended March 31, 2002 was $62,820 as compared to a net
     loss of  $1,718,407  for the  year  ended  March  31,  2001.  The net  loss
     decreased as the company  decreased  its focus on product  development  and
     distribution

     Liquidity
     ---------

     As a development stage company, the company has historically relied on cash
     generated  through the sale of various  equity  instruments  as its primary
     source of liquidity.  Available  cash at March 31, 2002 of $46 represents a
     decrease of $9,339 compared to available cash at March 31, 2001.

     As of March 31,  2002 the  company  had no  significant  credit  facilities
     available.  While the company is seeking  additional equity funding,  there
     can be no assurances that such funding is forthcoming.


     Forward Looking Information
     ---------------------------

     This report  contains  certain  forward-looking  statements and information
     relating  to the  company  that are based on the  beliefs of the  company's
     management  as  well  as  assumptions  made  by and  information  currently
     available to the company's management. When used in this report, words such
     as "anticipate,"  "believe,"  "estimate," "expect," "intend," "should," and
     similar  expressions,  as they  relate to the  company  or its  management,
     identify  forward-looking  statements.  Such statements reflect the current
     views of the  company  with  respect to future  events  and are  subject to
     certain risks,  uncertainties  and assumptions  relating to the operations,
     results of  operations,  liquidity  and  growth  strategy  of the  company,
     including  competitive factors and pricing pressures,  changes in legal and
     regulatory requirements,  interest rate fluctuations,  and general economic
     conditions, as well as other factors described in this report.

Should one or more of the risks  materialize,  or should underlying  assumptions
prove  incorrect,  actual  results or outcomes  may vary  materially  from those
described herein as anticipated, believed, estimated, expected or intended.


Item 7.  FINANCIAL STATEMENTS


INDEX TO FINANCIAL STATEMENTS                                               Page

Independent Auditors' Report                                               F2-F3

Consolidated Balance Sheet                                                  F-4

Consolidated Statements of Operations                                       F-5

Consolidated Statement of Stockholders Equity                               F-6

Consolidated Statements of Cash Flows                                       F-12

Notes to Consolidated Financial Statements                                  F-14


                                       5
<PAGE>

Item  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          ----------------------------------------------------------------------
          FINANCIAL DISCLOSURE
          --------------------

     On August 13, 2001,  the  Company's  Board of Directors  made a decision to
terminate the services of its  independent  certified  public  accounting  firm,
Tanner + Co. of Salt Lake City,  Utah. The  termination of Tanner + Co. resulted
from a business decision made by management of the Company,  in conjunction with
the July 2001  change in control,  that it would be in the best  interest of the
Company to engage the services of an independent  accountant which has a current
relationship  with other  companies  associated  with the Company's  management.
During the  Company's two most recent  fiscal years and any  subsequent  interim
period preceding the dismissal, the Company has had no disagreements with Tanner
+ Co. on any matter of accounting  principles or practices,  financial statement
disclosure  or  auditing  scope or  procedure.  No  accountant's  report  on the
financial  statements  for  either of the past two years  contained  an  adverse
opinion  or a  disclaimer  of  opinion  or  was  qualified  or  modified  as  to
uncertainty,  audit scope or  accounting  principles,  except for the  following
going concern qualification: "The accompanying consolidated financial statements
have been prepared  assuming that the Company will continue as a going  concern.
As  discussed  in note B to the  consolidated  financial  statements,  there  is
substantial  doubt  about the  ability  of the  Company to  continue  as a going
concern.  Management's plans in regard to that matter are also discussed in note
B. The  consolidated  financial  statements do not include any adjustments  that
might result from the outcome of this uncertainty".


On  August  13,  2001,  the  Board of  Directors  of the  Company  approved  and
authorized  the  engagement  of  S.W.  Hatfield,  CPA of  Dallas,  Texas  as the
independent  certified  public  accountant  for  the  Company.   Prior  to  such
engagement,  the Company had not consulted with S.W. Hatfield,  CPA on any prior
matters,  including  any  matters  relative  to the  application  of  accounting
principles or any subject of disagreement with Tanner + Co.


                                    PART III

Item 9.  DIRECTORS,   EXECUTIVE   OFFICERS,  PROMOTERS   AND  CONTROL  PERSONS;
         ----------------------------------------------------------------------

         COMPLIANCE WITH 16(A) OF THE EXCHANGE ACT



     Section 16(a) Beneficial Ownership Reporting Compliance

Under U.S.  securities laws,  directors,  certain executive officers and persons
holding more than 10% of the  Company's  common stock must report their  initial
ownership  of the  common  stock  and  any  changes  in  that  ownership  to the
Securities and Exchange  Commission.  The Securities and Exchange Commission has
designated specific due dates for these reports and the company must identify in
this Proxy  Statement  those  persons who did not file these  reports  when due.
Based on its  review of the  reports  filed  with the  Securities  and  Exchange
Commission and written  representations of its directors and executive officers,
the Company  believes,  that all persons subject to reporting filed the required
reports on time during the year ended March 31, 2002.

Directors and Executive Officers


Name                   Age     Position with Company
----                   ---     ---------------------

Kevin B. Halter         66     Chairman, President, Director and Chief Executive
                               Officer
Kevin Halter Jr.        41     Director, Secretary & Treasurer



Kevin B. Halter, has been Chairman,  President,  CEO and Director of the Company
since June 19,  2001.  Mr.  Halter has served as Chairman of the Board and Chief
Executive Officer of Halter Capital Corporation, a privately held investment and
consulting  firm,  since  1987.  He has  served  as  Chairman  of the  Board and
President of Millennia, Inc. and Chairman of the Board of Digital Communications
Technology  Corporation  since  1994.  He is also the  Chairman of the Board and
President  of  Millennia   Tea  Masters,   Inc.  a  position  held  since  1998.
Additionally,  Mr. Halter is the  President and Director of Omni Doors,  Inc., a
position held since April 6. 2001. Mr. Halter is the father of Kevin Halter, Jr.


                                       6
<PAGE>
<TABLE>
<CAPTION>

Kevin Halter,  Jr., has been a Director,  Secretary and Treasurer of the Company
since June 19, 2001. He is the President of Securities Transfer  Corporation,  a
stock transfer company registered with the Securities and Exchange Commission, a
position that he has held since 1987.  Mr. Halter has served as Vice  President,
Secretary  and  a  director  of  Millennia,   Inc.  and  Digital  Communications
Technology  Corporation  since  1994.  Since  1998 he has  also  served  as Vice
President,  Secretary,  Treasurer and a director of Millennia Tea Masters,  Inc.
Additionally,  Mr. Halter is  Secretary-Treasurer  and a director of Omni Doors,
Inc., a position held since April 6, 2001. He is the son Kevin B. Halter.

Directors serve for a term of one year or until their successors are elected and
qualified. Directors do not receive cash compensation for serving as such.

Executive officers are appointed by and serve at the will of the Board of
Directors.


Item 10. EXECUTIVE COMPENSATION
         ----------------------

The  following  summary   compensation  table  sets  forth  certain  information
regarding compensation paid during each of the fiscal years ended March 31, 2002
and 2001, to the persons serving as the company's  chief  executive  officer and
each executive officer.

                               Annual Compensation
                               -------------------    Restricted     Securities       All
Name and                       Fiscal                    Stock       Underlying      Other
Principal Position             Year       Salary        Awards         Options    Compensation
-------------------            ------     ------      ----------     ----------   ------------
<S>                            <C>        <C>         <C>            <C>          <C>

Kevin B. Halter                2002       $24,500         -0-            -0-          $-0-
President and CEO              2001       $ -0-           -0-            -0-          $-0-

Kevin Halter, Jr.              2002       $ -0-           -0-            -0-          $-0-
CFO, Secretary and Treasurer   2001       $ -0-           -0-            -0-          $-0-

Jeffrey R. Gullo               2002       $ -0-           -0-            -0-          $-0-
former President & CEO         2001       $262,000     2,385,000      5,430,000       $-0-

Steven R. Crowell              2002       $-0-            -0-            -0-          $-0-
former CFO                     2001       $113,000        -0-            -0-          $-0-
</TABLE>


                                       7
<PAGE>

Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
         --------------------------------------------------------------

The  following  table  sets  forth  certain  information  concerning  beneficial
ownership  of the  company's  common stock as of May 20, 2002 by (i) each person
who is known to us to own beneficially more than five percent of the outstanding
shares of common stock,  (ii) each director and executive officer of the company
and (iii) all directors and executive officers as a group.

       Name and Address of                                          Percent of
        Beneficial Owner                   Number of Shares       Voting Control
       -------------------                 ----------------       --------------

      Kevin B. Halter (1)                       1,733,178             51.9%
      2591 Dallas Parkway
      Suite 102
      Frisco, Texas 75034

      Kevin Halter,Jr.(1)                       1,687,178             51.0%
      2591 Dallas Parkway
      Suite 102
      Frisco, Texas  75034


      Halter Capital Corporation                1,687,178             51.0%
      2591 Dallas Parkway
      Suite 102
      Frisco, TX 75034


      Directors and executive                   1,733,178             51.9%
      officers as a group (2 persons)

     (1)  includes 1,687,178 shares owned by Halter Capital  Corporation,  which
          is owned by Kevin B. Halter and Kevin Halter Jr.


Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
         ----------------------------------------------

None


Item 13.  EXHIBITS AND REPORTS ON FORM 8-K
          --------------------------------

          (a)  Exhibits - none

          (b)  Reports on Form 8-K

A Form 8-K was filed on June 25, 2001,  disclosing in Item 1 a change in control
of the company; disclosing in Item 6 the resignation of directors.


                                       8
<PAGE>

                                   SIGNATURES

In  accordance  with Section 13 or 15(d) of the  Securities  and Exchange Act of
1934,  the company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized this 22nd day of May 2002.

                                         LUCAS EDUCATIONAL SYSTEMS, INC.



                                         By:    /s/ Kevin B. Halter
                                            ------------------------------------
                                            Kevin B. Halter
                                            Chief Executive Officer and Director

In accordance  with the  Securities  Exchange Act of 1934,  this report has been
signed  below by the  following  persons  on  behalf of the  company  and in the
capacities and on the dates indicated.

         Name                          Office                          Date
         ----                          ------                          ----

/s/ Kevin B. Halter           Chairman, Chief Executive Officer     May 22, 2002
--------------------          and director (Principal
Kevin B. Halter               Executive Officer)


/s/ Kevin Halter Jr.          Principal Financial Officer           May 22, 2002
--------------------          and Principal Accounting Officer
Kevin Halter Jr.


                                       9
<PAGE>

                         LUCAS EDUCATIONAL SYSTEMS, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



                                                                            Page
                                                                            ----

Reports of Independent Certified Public Accountants
   S. W. Hatfield, CPA                                                      F-2
   Tanner + Co.                                                             F-3

Financial Statements

   Consolidated Balance Sheets
     as of March 31, 2002 and 2001                                          F-4

   Consolidated Statements of Operations and Comprehensive Income
     for the years ended March 31, 2002 and 2001                            F-5

   Consolidated Statement of Changes in Stockholders' Equity (Deficit)
     for the years ended March 31, 2002 and 2001                            F-6

   Consolidated Statements of Cash Flows
     for the years ended March 31, 2002 and 2001                            F-12

   Notes to Consolidated Financial Statements                               F-14





                                                                             F-1

<PAGE>

S. W. HATFIELD, CPA
certified public accountants

Member:    Texas Society of Certified Public Accountants
           Press Club of Dallas


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
               --------------------------------------------------


Board of Directors and Stockholders
Lucas Educational Systems, Inc.

We have audited the accompanying consolidated balance sheet of Lucas Educational
Systems,  Inc. (a Delaware  corporation  and a  development  stage  company) and
Subsidiary  as of March 31,  2002 and the  related  consolidated  statements  of
operations and comprehensive loss, changes in stockholders' equity (deficit) and
cash flows for the year ended March 31, 2002 and for the period from December 5,
1998 (date of commencement of development  stage) through March 31, 2002.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial  statements based on our audit. The consolidated  financial statements
of Lucas  Educational  Systems,  Inc and Subsidiary as of and for the year ended
March 31, 2001 were  audited by other  auditors  whose report was dated June 11,
2001  and  included  a  paragraph  expressing   substantial  doubt  about  Lucas
Educational Systems, Inc's ability to continue as a going concern.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial  position of Lucas Educational
Systems,  Inc. (a development stage company) and Subsidiary as of March 31, 2002
and the  results of its  operations  and its cash flows for the year ended March
31, 2002, in conformity with  accounting  principles  generally  accepted in the
United States of America.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note B to the
consolidated  financial  statements,  the  Company has no viable  operations  or
significant  assets and is dependent upon  significant  shareholders  to provide
sufficient  working  capital to maintain the integrity of the corporate  entity.
These  circumstances  create  substantial  doubt about the Company's  ability to
continue  as a going  concern  and are  discussed  in Note B.  The  consolidated
financial  statements do not contain any adjustments  that might result from the
outcome of these uncertainties.



                                                  S. W. HATFIELD, CPA
Dallas, Texas
May 9, 2002

                                                                             F-2
<PAGE>

                          INDEPENDENT AUDITOR'S REPORT
                          ----------------------------


To the Board of Directors and Stockholders of
Lucas Educational Systems, Inc.

We have audited the accompanying consolidated balance sheet of Lucas Educational
Systems, Inc. (a development stage company) as of March 31, 2001 and the related
consolidated  statements of operations,  stockholders' equity and cash flows for
the year then ended and the  cumulative  amounts since December 5, 1996 (date of
commencement of development stage). These consolidated  financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial  position of Lucas Educational
Systems,  Inc.  and  Subsidiary  as of March  31,  2001 and the  results  of its
operations and its cash flows for the year then ended and the cumulative amounts
since  December  5,  1996  (date  of  commencement  of  development  stage),  in
conformity with accounting principles generally accepted in the United States of
America.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note B to the
consolidated financial statements,  there is substantial doubt about the ability
of the Company to continue as a going concern.  Management's  plans in regard to
that matter are also described in Note B. The consolidated  financial statements
do not  include  any  adjustments  that might  result  from the  outcome of this
uncertainty.



                                                             Tanner + Co.
Salt Lake City, Utah
June 11, 2001

                                                                             F-3
<PAGE>
<TABLE>
<CAPTION>

                        LUCAS EDUCATIONAL SYSTEMS, INC.
                          (a development stage company)
                           CONSOLIDATED BALANCE SHEETS
                             March 31, 2002 and 2001

                                                                   March 31,      March 31,
                                                                      2002           2001
                                                                  -----------    -----------
<S>                                                               <C>            <C>
                                     ASSETS
                                     ------
Current Assets
   Cash in bank                                                   $        46    $     9,385
   Inventory                                                             --             --
   Prepaid expenses                                                      --            6,715
   Deposits                                                              --           25,028
                                                                  -----------    -----------
     Total Current Assets                                                  46         41,128
                                                                  -----------    -----------

Property and Equipment - At cost
   Computer equipment                                                    --            4,098
   Less accumulated depreciation                                         --             (695)
                                                                  -----------    -----------

       Net Property and Equipment                                        --            3,403
                                                                  -----------    -----------

Other Assets                                                             --             --
                                                                  -----------    -----------

Total Assets                                                      $        46    $    44,531
                                                                  ===========    ===========

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                 ----------------------------------------------

Current Liabilities
   Accounts payable - trade                                       $     4,644    $    15,262
   Other accrued liabilities                                             --              789
   Accrued officer compensation                                        24,500           --
   Due to affiliates                                                    5,242           --
                                                                  -----------    -----------
     Total Current Liabilities                                         34,386         16,051
                                                                  -----------    -----------

Commitments and Contingencies

Stockholders' Equity (Deficit)
   Preferred stock - $0.001 par value
     1,000,000 shares authorized;
     none issued and outstanding                                         --             --
   Common stock - $0.001 par value
     20,000,000 shares authorized
     3,339,016 shares issued and outstanding, respectively              3,339          3,339
   Additional paid-in capital                                       3,286,059      3,286,059
   Deficit accumulated during the development stage                (3,323,260)    (3,260,440)
                                                                  -----------    -----------
                                                                      (33,862)        28,958
   Treasury stock (500 shares at cost)                                   (478)          (478)
                                                                  -----------    -----------
     Total Stockholders' Equity (Deficit)                             (34,340)        28,480
                                                                  -----------    -----------

Total Liabilities and Stockholders' Equity                        $        46    $    44,531
                                                                  ===========    ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.
                                                                             F-4

<PAGE>
<TABLE>
<CAPTION>
                         LUCAS EDUCATIONAL SYSTEMS, INC.
                          (a development stage company)
          CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                     Years ended March 31, 2002 and 2001 and
    Period from December 5, 1996 (date of commencement of development stage)
                             through March 31, 2002


                                                                                              Period from
                                                                                            December 5, 1996
                                                       Year ended          Year ended            through
                                                        March 31,           March 31,           March 31,
                                                             2002                2001                2002
                                                    ----------------    ----------------    ----------------
<S>                                                 <C>                 <C>                 <C>

Revenues                                            $           --      $         72,581    $         72,581

Cost of Goods Sold                                              --                36,822              36,822
                                                    ----------------    ----------------    ----------------

Gross Profit                                                    --                35,759              35,759
                                                    ----------------    ----------------    ----------------

Operating expenses
   General and administrative expenses                        64,780           1,778,073           3,380,727
                                                    ----------------    ----------------    ----------------

Loss from Operations                                         (64,780)         (1,742,314)         (3,344,968)

Other income
   Interest income                                             1,960              23,907              26,339
   Interest expense                                             --                  --                (4,631)
                                                    ----------------    ----------------    ----------------

Loss before provision for income taxes                       (62,820)         (1,718,407)         (3,323,260)

Provision for income taxes (benefit)                            --                  --                  --
                                                    ----------------    ----------------    ----------------

Net Loss                                                     (62,820)         (1,718,407)         (3,323,260)

Other comprehensive income                                      --                  --                  --
                                                    ----------------    ----------------    ----------------

Comprehensive Loss                                  $        (62,820)   $     (1,718,407)   $     (3,323,260)
                                                    ================    ================    ================

Loss per weighted-average share
   of common stock outstanding,
   computed on Net Loss - basic and fully diluted   $          (0.02)   $          (0.51)
                                                    ================    ================

Weighted-average number of shares
   of common stock outstanding                             3,339,016           3,395,000
                                                    ================    ================
</TABLE>


The accompanying notes are an integral part of these financial statements.
                                                                             F-5

<PAGE>
<TABLE>
<CAPTION>

                         LUCAS EDUCATIONAL SYSTEMS, INC.
                          (a development stage company)
      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
    Period from December 5, 1996 (date of commencement of development stage)
                             through March 31, 2002


                                                                                                  Additional
                                           Preferred Stock                 Common Stock             paid-in
                                        Shares         Amount         Shares         Amount         capital
                                      -----------    -----------    -----------    -----------    -----------
<S>                                   <C>            <C>            <C>            <C>            <C>
Issuance of common stock
   for cash at inception                     --             --        2,175,000    $     2,175    $    (2,075)

Net loss for the period                      --             --             --             --             --
                                      -----------    -----------    -----------    -----------    -----------

Balances at March 31, 1997                   --             --        2,175,000          2,175         (2,075)

Common stock issued in
   recapitalization                          --             --          462,468            463           (422)

Common stock issued for
   Cash and services                         --             --           48,000             48        114,952
   Trade payables                            --             --           83,251             83        199,917
   Services                                  --             --           42,188             42        101,207

Net loss for the year                        --             --             --             --             --
                                      -----------    -----------    -----------    -----------    -----------

Balances at March 31, 1998                   --             --        2,810,907          2,811        413,579

Common stock issued for
   Cash                                      --             --           22,500             22        179,978
   Debt and trade payables                   --             --          100,000            100        299,900
   Services                                  --             --          180,000            180        364,820

Collection of stock
   subscription receivable                   --             --             --             --             --

Contributed shares (113,750 shares)          --             --             --             --             --
Sale of Treasury stock for cash              --             --             --             --          227,500

Net loss for the year                        --             --             --             --             --
                                      -----------    -----------    -----------    -----------    -----------

Balances at March 31, 1999                   --             --        3,113,407          3,113      1,485,777

The accompanying notes are an integral part of these financial statements.
                                                                             F-6

<PAGE>


                         LUCAS EDUCATIONAL SYSTEMS, INC.
                          (a development stage company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) - CONTINUED
    Period from December 5, 1996 (date of commencement of development stage)
                             through March 31, 2002



                                                                        Stock
                                       Unearned      Accumulated    subscription     Treasury
                                     compensation      deficit       receivable       stock          Total
                                      -----------    -----------    -----------    -----------    -----------

Issuance of common stock
   for cash at inception              $      --      $      --      $      --      $      --      $       100

Net loss for the period                      --              (63)          --             --              (63)
                                      -----------    -----------    -----------    -----------    -----------

Balances at March 31, 1997                   --              (63)          --             --               37

Common stock issued in
   recapitalization                          --             --             --             --               40

Common stock issued for
   Cash and services                         --             --              (25)          --          114,975
   Trade payables                            --             --             --             --          200,000
   Services                                  --             --             --             --          101,250

Net loss for the year                        --         (351,181)          --             --         (351,181)
                                      -----------    -----------    -----------    -----------    -----------

Balances at March 31, 1998                   --         (351,244)           (25)          --           65,121

Common stock issued for
   Cash                                      --             --             --             --          180,000
   Debt and trade payables                   --             --             --             --          300,000
   Services                              (106,875)          --             --             --          258,125

Collection of stock
   subscription receivable                   --             --               25           --               25

Contributed shares (113,750 shares)          --             --             --             --             --
Sale of Treasury stock for cash              --             --             --             --          227,500

Net loss for the year                        --         (895,509)          --             --         (895,509)
                                      -----------    -----------    -----------    -----------    -----------

Balances at March 31, 1999               (106,875)    (1,246,753)          --             --          135,262


The accompanying notes are an integral part of these financial statements.

                                                                             F-7

<PAGE>

                         LUCAS EDUCATIONAL SYSTEMS, INC.
                          (a development stage company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) - CONTINUED
    Period from December 5, 1996 (date of commencement of development stage)

                             through March 31, 2002


                                                                                                  Additional
                                           Preferred Stock                 Common Stock             paid-in
                                        Shares         Amount         Shares         Amount         capital
                                      -----------    -----------    -----------    -----------    -----------

Balances at March 31, 1999                   --             --        3,113,407          3,113      1,485,777

Common stock issued for
   Services                                  --             --          596,250            597        547,839

Convertible Preferred Stock
   issued for Cash                         89,974             90           --             --        1,399,910

Cancellation of common
   stock issued for services                 --             --          (12,500)           (13)       (56,238)

Stock compensation earned                    --             --             --             --             --

Net loss for the year                        --             --             --             --             --
                                      -----------    -----------    -----------    -----------    -----------

Balances at March 31, 2000                 89,974             90      3,697,157          3,697      3,377,288

Treasury stock purchased
    (500 shares)                             --             --             --             --             --

Stock compensation earned                    --             --             --             --             --

Contributed shares                           --             --         (596,250)          (596)           596

Treasury stock purchased
   and retired                               --             --       (2,011,250)        (2,011)       (89,666)

Conversion of preferred stock             (89,974)           (90)     2,249,359          2,249         (2,159)

Net loss for the year                        --             --             --             --             --
                                      -----------    -----------    -----------    -----------    -----------

Balances at March 31, 2001                   --             --        3,339,016          3,339      3,286,059


The accompanying notes are an integral part of these financial statements.
                                                                             F-8


<PAGE>

                         LUCAS EDUCATIONAL SYSTEMS, INC.
                          (a development stage company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) - CONTINUED
    Period from December 5, 1996 (date of commencement of development stage)


                                                                       Stock
                                       Unearned      Accumulated    subscription    Treasury
                                     compensation      deficit       receivable       stock          Total
                                      -----------    -----------    -----------    -----------    -----------

Balances at March 31, 1999               (106,875)    (1,246,753)          --             --          135,262

Common stock issued for
   Services                              (546,435)          --             --             --             --

Convertible Preferred Stock
   issued for Cash                           --             --             --             --        1,400,000

Cancellation of common
   stock issued for services               56,250           --             --             --             --

Stock compensation earned                  50,625           --             --             --           50,625

Net loss for the year                        --         (295,280)          --             --         (295,280)
                                      -----------    -----------    -----------    -----------    -----------

Balances at March 31, 2000               (548,435)    (1,542,033)          --             --        1,290,607

Treasury stock purchased
    (500 shares)                             --             --             --             (478)          (478)

Stock compensation earned                 548,435           --             --             --          548,435

Contributed shares                           --             --             --             --             --

Treasury stock purchased
   and retired                               --             --             --             --          (91,677)

Conversion of preferred stock                --             --             --             --             --

Net loss for the year                        --       (1,718,407)          --             --       (1,718,407)
                                      -----------    -----------    -----------    -----------    -----------

Balances at March 31, 2001                   --       (3,260,440)          --             (478)        28,480

The accompanying notes are an integral part of these financial statements.
                                                                             F-9

<PAGE>

                         LUCAS EDUCATIONAL SYSTEMS, INC.
                          (a development stage company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) - CONTINUED
    Period from December 5, 1996 (date of commencement of development stage)


                                                                                                  Additional
                                           Preferred Stock                 Common Stock             paid-in
                                        Shares         Amount         Shares         Amount         capital
                                      -----------    -----------    -----------    -----------    -----------

Balances at March 31, 2001                   --             --        3,339,016          3,339      3,286,059

Net loss for the year                        --             --             --             --             --
                                      -----------    -----------    -----------    -----------    -----------

Balances at March 31, 2002            $      --      $      --        3,339,016    $     3,339    $ 3,286,059
                                      ===========    ===========    ===========    ===========    ===========






The accompanying notes are an integral part of these financial statements.
                                                                            F-10

<PAGE>

                         LUCAS EDUCATIONAL SYSTEMS, INC.
                          (a development stage company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) - CONTINUED
    Period from December 5, 1996 (date of commencement of development stage)



                                                                       Stock
                                       Unearned      Accumulated    subscription    Treasury
                                     compensation      deficit       receivable       stock          Total
                                      -----------    -----------    -----------    -----------    -----------

Balances at March 31, 2001                   --       (3,260,440)          --             (478)        28,480

Net loss for the year                        --          (62,820)          --             --          (62,820)
                                      -----------    -----------    -----------    -----------    -----------

Balances at March 31, 2002            $      --      $(3,260,440)   $      --      $      (478)   $   (34,340)
                                      ===========    ===========    ===========    ===========    ===========
</TABLE>





The accompanying notes are an integral part of these financial statements.
                                                                            F-11

<PAGE>
<TABLE>
<CAPTION>

                         LUCAS EDUCATIONAL SYSTEMS, INC.
                          (a development stage company)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     Year ended March 31, 2002 and 2001 and
    Period from December 5, 1996 (date of commencement of development stage)
                             through March 31, 2002


                                                                                                 Period from
                                                                                               December 5, 1996
                                                          Year ended          Year ended            through
                                                           March 31,           March 31,           March 31,
                                                                2002                2001                2002
                                                       ----------------    ----------------    ----------------
<S>                                                    <C>                 <C>                 <C>
 Cash Flows from Operating Activities
  Net Loss                                            $        (62,820)   $     (1,718,407)   $     (3,323,260)
   Adjustments to reconcile net income to net cash
     provided by operating activities
       Depreciation and amortization                               --                31,047              87,283
       Loss on sale of property and equipment                      --                13,715              13,715
       Exchange of assets for services                            3,403                --                 4,665
       Common stock issued for services and payables               --                  --               844,375
       Stock compensation                                          --               548,435             599,060
       (Increase) Decrease in
         Inventories                                               --              (171,613)           (177,223)
         Prepaid expenses and other                              31,743             (28,698)               --
       Increase (Decrease) in
         Accounts payable and accrued liabilities                13,093              84,061             143,878
                                                       ----------------    ----------------    ----------------
Net cash used in operating activities                           (14,581)         (1,241,460)         (1,807,507)
                                                       ----------------    ----------------    ----------------

Cash Flows from Investing Activities
   Purchases of property and equipment                             --               (30,314)           (140,064)
   Proceeds from sale of property and equipment                    --                 5,213               5,213
                                                       ----------------    ----------------    ----------------
Net cash used in investing activities                              --               (25,101)           (134,851)
                                                       ----------------    ----------------    ----------------

Cash Flows from Financing Activities
   Cash advanced by affiliate                                     5,242                --                 5,242
   Proceeds on related party notes payable                         --                  --                36,000
   Payments on related party notes payable                         --                (2,500)            (21,000)
   Proceeds from sale of convertible preferred stock               --                  --             1,400,000
   Proceeds from sale of common stock                              --                  --               295,140
   Purchase of treasury stock                                      --                  (478)               (478)
   Proceeds from sale of treasury stock                            --                  --               227,500
                                                       ----------------    ----------------    ----------------
Net cash provided by financing activities                         5,242              (2,978)          1,942,404
                                                       ----------------    ----------------    ----------------

Increase (Decrease) in Cash and Cash Equivalents                 (9,339)         (1,269,539)                 46

Cash and cash equivalents at beginning of period                  9,385           1,278,924                --
                                                       ----------------    ----------------    ----------------

Cash and cash equivalents at end of period             $             46    $          9,365    $             46
                                                       ================    ================    ================

</TABLE>

                                  - Continued -


The accompanying notes are an integral part of these financial statements.
                                                                            F-12

<PAGE>
<TABLE>
<CAPTION>

                         LUCAS EDUCATIONAL SYSTEMS, INC.
                          (a development stage company)
                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
                     Year ended March 31, 2002 and 2001 and
    Period from December 5, 1996 (date of commencement of development stage)
                             through March 31, 2002


                                                                                                   Period from
                                                                                                 December 5, 1996
                                                              Year ended         Year ended           through
                                                               March 31,          March 31,          March 31,
                                                                    2002               2001               2002
                                                           ----------------   ----------------   ----------------
<S>                                                        <C>                <C>                <C>
Supplemental Disclosure of
   Interest and Income Taxes Paid
     Interest paid for the period                          $           --     $           --     $          4,631
                                                           ================   ================   ================
     Income taxes paid for the period                      $           --     $           --     $          1,655
                                                           ================   ================   ================

Supplemental Disclosure of Non-Cash
   Investing and Financing Activities

     Related party debt settled with common stock          $           --     $           --     $         15,000
                                                           ================   ================   ================
     Acquisition and retirement of treasury stock
       in exchange for inventory with a value of
       approximately $177,223 and property and
       equipment with a net book value of
       approximately $29,188; net of trade payables
       assumed of approximately $114,734                   $           --     $         91,677   $         91,677
                                                           ================   ================   ================
     Par value effect of the conversion of 89,974 shares
       of preferred stock into 2,249,359 shares
       of common stock                                     $           --     $             90   $             90
                                                           ================   ================   ================
</TABLE>



The accompanying notes are an integral part of these financial statements.
                                                                            F-13

<PAGE>

                         LUCAS EDUCATIONAL SYSTEMS, INC.
                          (a development stage company)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS

Lucas  Educational  Systems,  Inc.  (Company) was  incorporated on June 11, 1992
under  the  laws of the  State  of  Delaware.  The  Company's  initial  business
operations,  which  commenced on December 5, 1996,  was to change the way people
learn through  Learning That Lasts(TM).  It's mission was to gain recognition as
the  Nation's  leading   authority  and  largest  provider  of  memory  training
techniques and related educational products.

In  February  2001,  the  Company's  Board of  Directors  resolved  to cease all
operations  related to  educational  activities  and to pursue either the merger
with or acquisition of an unrelated operating entity to enhance the value of the
public  entity.  As of March 31,  2001,  the Company had ceased all  operations,
terminated all employees and settled significantly all of the remaining accounts
of the Company.  As of March 31, 2002,  the Company had only nominal  assets and
liabilities and no business operations.

The Company's  business plan was never fully  implemented  or  operational  and,
accordingly,  has never fully commenced operations.  Accordingly, the Company is
considered to be in the development stage.

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates and assumptions  that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.

The financial  statements include the amounts of both Lucas Educational Systems,
Inc. and its wholly-owned subsidiary,  Lucas Educational Systems, Inc. (a Nevada
corporation).  All  significant  intercompany  amounts have been  eliminated  in
consolidation. The consolidated entity is referred to as Company.


NOTE B - GOING CONCERN UNCERTAINTY

Due to the lack of sustaining operations from inception, the Company has
generated no significant operating revenues and has incurred cumulative cash
losses of approximately $1,800,000.

The Company is fully  dependent on either future sales of securities or upon its
current  management  and/or advances or loans from  significant  stockholders or
corporate  officers  to  provide  sufficient  working  capital to  preserve  the
integrity of the corporate entity.

There is no assurance that the Company will be able to obtain additional funding
through the sales of additional  securities or, that such funding, if available,
will be obtained on terms favorable to or affordable by the Company.

It  is  the  intent  of  management  and  significant  stockholders  to  provide
sufficient  working  capital  necessary to support and preserve the integrity of
the  corporate  entity.  However,  there  is  no  legal  obligation  for  either
management or significant stockholders to provide additional future funding.

                                                                            F-14

<PAGE>

                         LUCAS EDUCATIONAL SYSTEMS, INC.
                          (a development stage company)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1.   Cash and cash equivalents
     -------------------------

     The Company considers all cash on hand and in banks,  including accounts in
     book overdraft  positions,  certificates of deposit and other highly-liquid
     investments with maturities of three months or less, when purchased,  to be
     cash and cash equivalents.

     Cash  overdraft  positions may occur from time to time due to the timing of
     making bank deposits and releasing checks, in accordance with the Company's
     cash management policies.

2.   Inventory
     ---------

     Inventory consisted of books and educational  materials held for resale and
     are  stated at the lower of cost or market  using the  first-in,  first-out
     (FIFO) method.

3.   Property and equipment
     ----------------------

     Property and equipment was listed at cost, less  accumulated  depreciation.
     Depreciation was computed using the straight-line method over the estimated
     useful  lives of the  assets  or term of the  affiliated  lease  agreement.
     Expenditures  for  maintenance  and repairs are charged to operations  when
     incurred and betterments which affect future periods are capitalized. Gains
     or losses on the  disposition  of property and equipment are  recognized in
     the accompanying financial statements on the date of occurrence.

4.   Organization costs
     ------------------

     Organization costs, incurred at the initial  capitalization of the Company,
     were  amortized  over a sixty (60)  month  period  using the  straight-line
     method.

5.   Income taxes
     ------------

     The Company uses the asset and liability  method of  accounting  for income
     taxes. At March 31 2002 and 2001, respectively,  the deferred tax asset and
     deferred tax liability accounts, as recorded when material to the financial
     statements,  are entirely the result of  temporary  differences.  Temporary
     differences   represent  differences  in  the  recognition  of  assets  and
     liabilities for tax and financial reporting purposes, primarily accumulated
     depreciation and amortization, allowance for doubtful accounts and vacation
     accruals.

     As of March 31,  2002,  the Company has only  nominal  net  operating  loss
     carryforwards  as a result of the June 2001 change in  control.  Due to the
     provisions  of Internal  Revenue  Code Section 338, the Company may have no
     net operating loss carryforwards available to offset financial statement or
     tax  return  taxable  income in future  periods in the event of a change in
     control   involving  50  percentage  points  or  more  of  the  issued  and
     outstanding securities of the Company.


                                                                            F-15
<PAGE>

                         LUCAS EDUCATIONAL SYSTEMS, INC.
                          (a development stage company)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

6.   Earnings (loss) per share
     -------------------------

     Basic  earnings  (loss) per share is computed  by  dividing  the net income
     (loss)  by  the   weighted-average   number  of  shares  of  common   stock
     outstanding.  The  calculation of fully diluted  earnings  (loss) per share
     assumes the  dilutive  effect of the  exercise of  outstanding  options and
     warrants,  using the treasury stock method,  at either the beginning of the
     respective period presented or the date of issuance, whichever is later. As
     of March 31,  2002,  the  Company has no  warrants  and options  issued and
     outstanding. As of March 31, 2001, the outstanding warrants and options are
     deemed  to be  anti-dilutive  due  to  the  Company's  net  operating  loss
     position.

7.   Revenue Recognition
     -------------------

     Revenue  is  recognized  by the  Company  at the point at which an order is
     shipped at a fixed price,  collection is reasonably assured and the Company
     has no remaining performance obligations.

8.   Advertising expenses
     --------------------

     Advertising  costs are charged to operations at the point that the expenses
     are incurred.

9.   Product development costs
     -------------------------

     Product  development costs are charged to operations in the period in which
     the expenses are incurred.


NOTE D - FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of cash,  accounts  receivable,  accounts  payable and notes
payable, as applicable,  approximates fair value due to the short term nature of
these items  and/or the current  interest  rates  payable in relation to current
market conditions.


NOTE E - CONCENTRATIONS OF CREDIT RISK

In prior periods, the Company maintained cash balances in financial institutions
which were in excess of federally  insured  limits.  The Company  experienced no
loss from any of these exposures.

                                                                            F-16
<PAGE>

                         LUCAS EDUCATIONAL SYSTEMS, INC.
                          (a development stage company)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE F - INCOME TAXES

The  components  of income tax  (benefit)  expense for the years ended March 31,
2002 and 2001, respectively, are as follows:

                                                         Year ended   Year ended
                                                          March 31,    March 31,
                                                            2002         2001
                                                         ----------   ----------
     Federal:
       Current                                           $     --     $     --
       Deferred                                                --           --
                                                         ----------   ----------
                                                               --           --
                                                         ----------   ----------
     State:
       Current                                                 --           --
       Deferred                                                --           --
                                                         ----------   ----------
                                                               --           --
                                                         ----------   ----------

       Total                                             $     --     $     --
                                                         ==========   ==========

As of March 31, 2002, as a result of a June 2001 change in control,  the Company
has a net operating loss carryforward of approximately  $12,000 to offset future
taxable income. Subject to current regulations,  this carryforward will begin to
expire  in  2021.  The  amount  and  availability  of  the  net  operating  loss
carryforwards  may be subject to limitations  set forth by the Internal  Revenue
Code. Factors such as the number of shares ultimately issued within a three year
look-back  period;  whether  there is a deemed  more than 50  percent  change in
control; the applicable long-term tax exempt bond rate; continuity of historical
business;  and  subsequent  income  of the  Company  all enter  into the  annual
computation of allowable annual utilization of the carryforwards.

The Company's income tax expense (benefit) for each of the years ended March 31,
2002 and 2001,  respectively,  differed  from the  statutory  federal rate of 34
percent as follows:

                                                        Year ended   Year ended
                                                         March 31,    March 31,
                                                           2002         2001
                                                        ----------   ----------

Statutory rate applied to income before income taxes    $  (21,000)  $ (607,000)
   Increase (decrease) in income taxes resulting from:
     State income taxes                                       --           --
     Other, including change in valuation
       reserve for deferred tax asset                       21,000      607,000
                                                        ----------   ----------

       Income tax expense                               $     --     $     --
                                                        ==========   ==========



                                                                            F-17

<PAGE>

                         LUCAS EDUCATIONAL SYSTEMS, INC.
                          (a development stage company)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE F - INCOME TAXES - CONTINUED

Temporary  differences,  consisting primarily of statutory deferrals of expenses
for organizational costs and statutory  differences in the depreciable lives for
property and equipment, between the financial statement carrying amounts and tax
bases of assets and liabilities give rise to deferred tax assets and liabilities
as of March 31, 2002 and 2001, respectively:

                                                      March 31,      March 31,
                                                         2002           2001
                                     -                ----------    -----------
Deferred tax asset
  Net operating loss carryforwards   $                     4,000    $ 1,131,000
  Less valuation allowance                                (4,000)    (1,131,000)
                                     -                ----------    -----------

Net Deferred Tax Asset               $                      --      $      --
                                     =                ==========    ===========


NOTE G - COMMON STOCK TRANSACTIONS

Reverse Stock Split

On July 31, 2000, the Stockholders  approved a one-for-four reverse stock split.
The effect of this action is reflected in the accompanying  financial statements
as of the first day of the first period presented.

Series A Preferred Stock

On March 1,  2000,  the  Company  established  a series of  voting,  convertible
preferred stock designated as "Series A Preferred  Stock",  consisting of 90,000
shares with stated par value of $0.001 per share. On March 24, 2000, the Company
issued an  aggregate  89,974  shares of Series A Preferred  Stock to  accredited
investors.  On March 24,  2001,  in  accordance  with the rights and  privileges
attached to the Series A Preferred  Stock,  the holders  converted 100.0% of the
issued and outstanding Series A Preferred Stock into Common Stock.

Stock Option Plans

As of June 30, 2001, all outstanding stock options plans, and grants thereunder,
were terminated and the Company has no continuing obligations under any of these
arrangements.



                                                                            F-18