UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the transition period from
_________ to __________
Commission file number 33-5820-LA
SETO HOLDINGS, INC.
(Name of small business issuer in its charter)
Nevada 77-00882545
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
554 North State Road
Briarcliff Manor, New York 10510
(Address of principal executive offices) Zip Code
Issuer's telephone number (914) 923-5000
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange on
Title of each class which registered
N/A N/A
Securities registered under Section 12(g) of the Exchange Act:
N/A
(Title of class)
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Seto Holdings, Inc. and Subsidiaries
(Formerly Semicon Tools, Inc. and Subsidiaries)
Briarcliff Manor, New York
We have audited the consolidated balance sheet of Seto Holdings, Inc.
(formerly Semicon Tools, Inc.) and Subsidiaries as of January 31, 1999 and the
related consolidated statements of income (loss), comprehensive income, cash
flows and changes in shareholders equity for the years ended January 31, 1999
and 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of DTI
Technology, SDN BHD and Fuji Fabrication SDN BHD, wholly owned subsidiaries,
which statements reflect total assets of $959,985 at January 31, 1999 and total
sales for the years ended January 31, 1999 and 1998 of $675,022 and $122,777,
respectively. Those statements were audited by other auditors whose report has
been furnished to us, and our opinion, insofar as it relates to the amounts
included for DTI Technology, SDN BHD and Fuji Fabrication, SDN BHD, is based
solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we 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 principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Seto Holdings, Inc. (formerly
Semicon Tools, Inc.) and Subsidiaries as of January 31, 1999 and the results of
their operations and their cash flows for the years ended January 31, 1999 and
1998, in conformity with generally accepted accounting principles.
ZELLER WEISS & KAHN
April 28, 1999
Mountainside, New Jersey
F-1
<PAGE>
SETO HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY SEMICON TOOLS, INC. AND SUBSIDIARIES)
CONSOLIDATED BALANCE SHEET - JANUARY 31, 1999
ASSETS
Current assets:
Cash $ 66,052
Accounts receivable, less allowance
for doubtful accounts of $10,500 388,464
Inventory 760,698
Prepaid expenses and other current assets 34,310
Deferred tax asset, current portion 108,000
----------
Total current assets 1,357,524
---------
Property and Equipment 579,757
---------
Other assets:
Goodwill, net of amortization 116,217
Security deposits 15,550
Deferred tax asset, net of current portion 216,000
Loan receivable, officer 10,815
----------
358,582
----------
$2,295,863
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 145,260
Notes payable, bank 335,000
Accounts payable 266,633
Accrued expenses 44,761
----------
Total current liabilities 791,654
----------
Long-term debt, net of current portion 222,847
----------
Deferred lease liability 4,500
-----
Commitments and contingencies
Shareholders' equity:
Common stock par value $.001; 100,000,000
shares authorized 10,548,500 shares issued 10,549
Additional paid in capital 2,779,625
Currency translation adjustment ( 119,374)
Retained earnings (deficit) ( 1,378,772)
----------
1,292,028
Less common shares held in treasury, 49,400
shares at cost 15,166
-----------
Total shareholders equity 1,276,862
---------
$2,295,863
----------
See notes to consolidated financial statements.
F-2
<PAGE>
SETO HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY SEMICON TOOLS, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENT OF INCOME (LOSS)
YEARS ENDED JANUARY 31, 1999 AND 1998
1998
1999 Restated
Net sales $2,646,650 $1,931,606
Cost of sales 1,036,651 555,505
---------- ----------
Gross profit 1,609,999 1,376,101
Selling, general and administrative
expenses 1,432,671 1,172,175
---------- ----------
Income from operations 177,328 203,926
---------- ----------
Other income (expenses):
Interest expense ( 53,647) ( 35,701)
Loss on foreign currency exchange ( 900) ( 37,719)
---------- ----------
( 54,547) ( 73,420)
---------- ----------
Income before income taxes 122,791 130,506
Deferred income tax (benefit) ( 109,750) ( 120,500)
---------- ----------
Income from continuing operations 232,541 251,006
---------- ----------
Discontinued operations:
Income from operations of subsidiary 1,017,537 378,580
Loss on disposal of subsidiary ( 1,477,040)
---------- ----------
( 459,503) 378,580
---------- ----------
Net income (loss) ($ 226,962) $ 629,586
========== ==========
Earnings per share information:
Income from continuing operations $ .02 $ .02
---------- ----------
Discontinued operations:
Income from operations of subsidiary .06 .03
Loss on disposal of subsidiary ( .09)
---------- ----------
( .03) .03
---------- ----------
Net income (loss) per share ($ .01) $ .05
========== ==========
See notes to consolidated financial statements.
F-3
<PAGE>
SETO HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY SEMICON TOOLS, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEARS ENDED JANUARY 31, 1999 AND 1998
1999 1998
---- ----
Net income (loss) ($226,962) $629,586
Other comprehensive income, net of tax:
Foreign currency translation adjustment 466,126 ( 585,500)
-------- --------
Comprehensive income $239,164 $ 44,086
======== ========
See notes to consolidated financial statements.
F-4
<PAGE>
SETO HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY SEMICON TOOLS, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED JANUARY 31, 1999 AND 1998
<TABLE>
<CAPTION>
<S> <C> <C>
1998
1999 Restated
Operating activities:
Income form continuing operations $232,541 $251,006
Adjustments to reconcile net income to cash
provided by continuing operations:
Depreciation and amortization 50,667 42,599
Compensatory stock issued 5,000
Loss on foreign currency exchange 900 37,719
Changes in other operating assets and
liabilities:
Accounts receivable ( 85,190) ( 132,849)
Inventories ( 382,242) ( 161,318)
Prepaid expenses and other current assets 20,803 26,036
Deferred tax assets ( 109,750) ( 120,500)
Other assets 3,861 ( 4,072)
Accounts payable and accrued expenses 189,655 68,034
Deferred lease liability 4,500
-------- --------
Net cash provided by (used in) operating
activities ( 69,255) 6,655
-------- --------
Investing activities:
Purchase of property and equipment ( 341,440) ( 57,140)
Increase in loan receivable, officer ( 10,815)
-------- --------
Net cash used in investing activities ( 352,255) ( 57,140)
-------- --------
Financing activities:
Proceeds from issuance of common stock 120,000 500
Proceeds from financing 387,352 251,283
Payment of debt ( 140,387) ( 211,537)
Purchase of treasury stock ( 15,166)
-------- --------
Net cash provided by financing activities 351,799 40,246
-------- --------
Effect of exchange rate changes on cash 29,668
-------- --------
Net decrease in cash ( 40,043) ( 10,239)
Cash, beginning of year 106,095 116,334
-------- --------
Cash, end of year $ 66,052 $106,095
======== ========
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
SETO HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY SEMICON TOOLS, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED JANUARY 31, 1999 AND 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Equity
adjustment
Additional from foreign Retained Total
Common paid in currency earnings Treasury Shareholders'
Shares stock capital translation (deficit) stock equity
------ ----- ------- ----------- ------- ----- ------
Balance, January 31, 1997 9,367,500 $ 9,368 $2,517,945 ($1,781,396) $ 745,917
Shares issued for services 500,000 500 500
Issuance of shares regarding acquisition
of subsidiary, Teik Tatt, SDN BHD 10,000,000 10,000 6,614,144 6,624,144
Foreign currency translation adjustment
for the year ended January 31, 1998 ($585,500) ( 585,500)
Net income for the year ended January 31,
1998 629,586 629,586
---------- ------- ---------- -------- ---------- ------- ----------
Balance, January 31, 1998 19,867,500 19,868 9,132,089 ( 585,500) ( 1,151,810) 7,414,647
Cancellation of shares issued regarding
acquisition of subsidiary, Teik Tatt,
SDN BHD (10,000,000) ( 10,000) ( 6,614,143) ( 6,624,143)
Issuance of shares regarding acquisition
of subsidiary, Fuji Fabrication, SDN BHD 100,000 100 99,900 100,000
Shares issued for cash 450,000 450 119,550 120,000
Shares issued for services 131,000 131 42,229 42,360
Purchase of treasury stock ($15,166) ( 15,166)
Foreign currency translation adjustment
for the year ended January 31, 1999 466,126 466,126
Net loss for the year ended January 31,
1999 ( 226,962) ( 226,962)
---------- ------- ---------- -------- ---------- ------- ----------
Balance, January 31, 1999 10,548,500 $10,549 $2,779,625 ($119,374) ($1,378,772) ($15,166) $1,276,862
========== ======= ========== ======== ========== ======= ==========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
SETO HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY SEMICON TOOLS, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization of the Company:
Seto Holdings, Inc. (the "Company"), a Nevada corporation, is primarily in
the business of selling small precision disposable diamond and other base
material tools used to cut and separate electronic components and devices. In
addition, it has three subsidiaries with their own product lines.
One of the Company's wholly-owned subsidiaries, East Coast Sales Company,
Inc. ("ECS") is a Connecticut corporation which distributes and fabricates
industrial ceramic products and distributes clean room supplies and tools. This
company, which was acquired on January 26, 1990, was accounted for in a manner
similar to the pooling of interests method of accounting. The total cost of the
acquisition, $309,000, was paid for by the issuance of a $300,000 note, bearing
interest at 10% per annum, and the issuance of 60,000 shares of the Company's
$.001 par value common stock.
The Company's wholly-owned subsidiary, DTI Technology, SDN BHD is a
Malaysian company which manufactures a product line similar to that of Seto
Holdings, Inc. Seto Holdings, Inc. acquired the assets of DTI Technology, SDN
BHD on June 22, 1996. The total cost of the acquisition, $125,048, was paid for
by the issuance of 300,000 shares of the Company's $.001 par value common stock
with a negotiated fair value of $.42 per share.
The Company's other wholly-owned subsidiary, Fuji Fabrication, SDN BHD, a
Malaysian corporation, manufactures cellular phone replacement batteries. On
June 30, 1998, the Company issued 100,000 shares of its unregistered common
shares in exchange for 100% of the outstanding shares of Fuji Fabrication, SDN
BHD, the value of the shares being $1.00 per share. The acquisition was
accounted for as a purchase.
2. Summary of significant accounting policies:
Principles of consolidation: The consolidated financial statements of Seto
Holdings, Inc. and subsidiaries include all the accounts of Seto Holdings, Inc.,
East Coast Sales Company, DTI Technology, SDN BHD and Fuji Fabrication SDN BHD
after elimination of all significant intercompany transactions and accounts. The
financial statements give retroactive effect to the disposition of Teik Tatt
Holding Co., SDN BHD.
F-7
<PAGE>
SETO HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY SEMICON TOOLS, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of significant accounting policies (continued):
Cash and cash equivalents:
Cash and cash equivalents include all highly liquid investments with an
original maturity of three months or less.
Inventories:
Inventories, which consist solely of finished goods, are stated at the
lower of cost or market. Market is considered at net realizable
value.
Per share amounts:
Net earnings per share are calculated by dividing net earnings by the
weighted average shares of common stock of the Company and weighted
average of common stock equivalents outstanding for the period.
Common stock equivalents represent the dilutive effect of the assumed
exercise of certain outstanding stock options. The Company uses the
treasury stock method in its treatment of stock options.
Foreign currency translation policy:
For foreign subsidiaries whose functional currency is the local foreign
currency, balance sheet accounts are translated at exchange rates in
effect at the end of the year and income statement accounts are
translated at average exchange rates for the year . Translation gains
or losses are included as a separate component of shareholders'
equity. Exchange differences arising from foreign currency
translation are included in the profit and loss account.
Property and equipment:
Property and equipment are stated at cost. Depreciation of property and
equipment is provided using the straight-line method over the
following useful lives:
Years
Manufacturing 5-20
Furniture and fixtures 7-20
Other equipment 5-14
Buildings and improvements 10-50
Automotive equipment 5
Expenditures for major renewals and betterment that extend the useful
lives of property and equipment are capitalized. Expenditures for
maintenance and repairs are charged to expense as incurred.
F-8
<PAGE>
SETO HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY SEMICON TOOLS, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of significant accounting policies (continued):
Income taxes:
The Company has elected to file a consolidated corporate income tax
return with its subsidiaries. For tax reporting purposes, the Company
uses certain accelerated depreciation methods which may create timing
differences between book and tax income. Deferred income taxes will
be reflected for these timing differences.
Deferred taxation:
Provision is made by the liability method for taxation deferred in
respect of all timing differences. Deferred tax benefit is recognized
only when there is reasonable assurance of realization.
Post retirement benefits:
OnDecember 31, 1990, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 106,
"Employers' Accounting for Post Retirement Benefits Other Than
Pensions." SFAS No. 106 requires that companies recognize the cost of
providing post retirement health care and other non-pension benefits
over the employees' service periods, rather than as the benefits are
paid. The Company does not provide any non-pension post retirement
benefits at the present time.
Allowance for doubtful accounts:
Anallowance for doubtful accounts has been established based on
management's review of the outstanding accounts receivable balance
and their determination of possible uncollectible accounts.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
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 those estimates.
Hire purchase obligations:
Assets acquired under an installment plan are capitalized as fixed
assets and the corresponding obligations are treated as a long-term
liability. Financing charges are allocated to the profit and loss
account over the purchase periods using the "sum of the years digits"
method to give a constant periodical rate of interest on the
remaining liabilities.
F-9
<PAGE>
SETO HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY SEMICON TOOLS, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Nature of operation, risks and uncertainties:
The Company currently has a minuscule share of the dicing blade and
ceramics market. There can be no assurance that the Company will be
able to increase its market share or that the market will increase.
Furthermore, the Company faces the possibility of adverse market
conditions from technological changes, shifting product emphasis among
competitors and the entry of new competitors into the market.
4. Property and equipment:
Major classifications of property and equipment are as follows:
Leasehold improvements $ 97,516
Manufacturing equipment 977,470
Office equipment 51,269
----------
1,126,255
Less accumulated depreciation 546,498
-------
$ 579,757
==========
5. Goodwill:
On January 26, 1990, the Company acquired East Coast Sales Company (its
wholly-owned subsidiary) for a cost of $309,000. The purchase price exceeded the
fair value of the assets by $134,281 which amount was assigned to goodwill, and
is being amortized on a straight-line basis over forty years. Accumulated
amortization of goodwill aggregated $38,757 as of January 31, 1999.
On June 30, 1998, the Company acquired Fuji Fabrication, SDN BHD for a cost
of $100,000. The purchase price exceeded fair value of the assets by $20,999,
which amount was assigned to goodwill and is being amortized over a forty year
period. Accumulated amortization of goodwill aggregated $306 as of January 31,
1999.
F-10
<PAGE>
SETO HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY SEMICON TOOLS, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Commitments and contingencies:
In April 1998, the Company moved its New York operations and is currently
obligated under a lease agreement with an entity owned by an officer of the
Company which expires on April 30, 2013. Annual rent expense is as follows:
$60,000 for each of the first five years, $66,000 for each of the second five
years and $72,000 for each of the final five years. The Company is also
obligated for insurance and the increase in real estate taxes over the base year
as stipulated in the lease. This lease requires the following future minimum
rental payments:
January 31, 2000 $ 60,000
January 31, 2001 60,000
January 31, 2002 60,000
January 31, 2003 60,000
January 31, 2004 64,500
Thereafter 640,500
--------
$945,000
========
Rent expense amounted to $69,483 for the year ended January 31, 1999.
The Company also leases three vehicles under operating leases with terms
expiring through 1999. Total lease expense was $33,317 and $33,597 for
the year ended January 31, 1999 and 1998, respectively.
7. Common stock:
During the year ended January 31, 1999, the Company issued 450,000
shares of its common shares with net proceeds of $120,000 upon the
exercise of certain common stock purchase options.
The Company issued 100,000 shares of its common shares to acquire Fuji
Fabrication, SDN BHD and 1,270,000 shares to acquire Southsonic
Corporation, Inc., SDN BHD, 1,200,000 of which were returned to the
Company and cancelled (see Note 1). It also issued 36,000 shares for
certain consulting and professional services rendered.
8. Notes payable and long-term debt:
The Company has an outstanding line of credit with the a bank for
$500,000. Interest is payable monthly at a rate of 1% per year over
prime. The loan is secured by the personal guarantee of the Company's
president and the assets of Seto Holdings, Inc. At January 31, 1999,
the Company had utilized $335,000 of this line.
F-11
<PAGE>
SETO HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY SEMICON TOOLS, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Notes payable and long-term debt (continued):
Long-term debt consists of the following:
Balance
January 31,
Rate 1999 Maturity
Notes payable:
Bank (a) Prime + 1% $ 41,291 2001
Shareholder (b) 10% 104,816 2002
Shareholder (c) 15% 222,000 2004
--------
368,107
Less current portion 145,260
-------
$222,847
========
(a) The note is payable in monthly installments of $1,989 including
interest. Machinery and equipment with a cost of $57,000 is
pledged as collateral.
(b) The note is payable in monthly installments of $4,053 including
interest.
(c) The note is payable as follows:
March 15, 1999 $25,000
April 15, 1999 13,500
May 15, 1999 13,500
The remaining balance of $170,000 is payable in monthly
installments of $4,731 beginning March 15, 1999 through
February 2003.
The maturities of these loans are as follows:
January 31, 2000 $145,260
January 31, 2001 102,664
January 31, 2002 63,739
January 31, 2003 51,772
January 31, 2004 4,672
F-12
<PAGE>
SETO HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY SEMICON TOOLS, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Income taxes:
Effective February 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"), the cumulative effect of which was not material to the
consolidated financial statements and is therefore not presented
separately. Under the asset and liability method of SFAS No. 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the year in which those
temporary differences are expected to be recovered or settled. Under
SFAS No. 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes
the enactment date; this effect was immaterial for the years ending
January 31, 1999 and 1998. The deferred tax asset less the deferred tax
liabilities has been reduced by a valuation allowance equal to the net
tax benefit in excess of the estimated taxable profits over the next
three years.
Provision for income taxes (benefit):
1999 1998
---- ----
Current 0 $ 58,718
Deferred ($109,750) ( 179,218)
-------- --------
Total benefit ($109,750) ($120,500)
======== ========
Areconciliation of the income tax provision at the federal statutory
rate to the income tax provision at the effective tax rate is as
follows
1999 1998
---- ----
Income tax computed at the
federal statutory rates 0 $ 44,968
State tax (net of federal benefit) 0 13,750
Net operating loss carryforward ($109,750) ( 179,218)
-------- --------
Provision (credit) for income taxes ($109,750) ($120,500)
======== ========
The components of deferred tax assets and liabilities consist of the
following:
Deferred tax asset:
Net operating loss carryforward $475,000 $480,000
-------- --------
Total deferred tax asset 475,000 480,000
Valuation allowance 151,000 265,750
-------- --------
$324,000 $214,250
======== ========
F-13
<PAGE>
SETO HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY SEMICON TOOLS, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Income taxes (continued):
The Company has a net operating loss carry forward of approximately
$1,600,000 for federal and state purposes which will expire in 2008.
10. Employment and consulting agreements:
Employment agreements:
On May 1, 1996, the Company entered into employment agreements with its
President and Vice President. The term of the agreements covers a five
year period expiring April 30, 2003. Compensation is set at a base of
$100,000 and $75,000 for the President and Vice President,
respectively, with each getting a bonus of 5% of the increase in Seto
Holdings, Inc./East Coast Sales consolidated net income over the net
income from the previous years. Each employee also received 1,000,000
stock options at $.25, 1,000,000 stock options at $.10 and 500,000
stock options at $.50. The options were not part of the 1997
Non-statutory Stock Option Plan effectuated March 25, 1997. As of
January 31, 1999, none of these options had been exercised.
On July 15, 1998, the Company entered into an employment agreement with
the acting secretary of the Company. The term of the agreement covers a
five year period expiring July 15, 2003. Compensation is set at a base
of $55,000 with a bonus of 2% of any increase in Seto Holdings,
Inc./East Coast Sales consolidated net income over the net income from
the previous years. The employee also received 500,000 stock options
exercisable at $.50 per share, none of which have been exercised as of
January 31, 1999. These options were not part of the 1997 non-statutory
stock option Plan effectuated March 25, 1997.
Consulting agreements:
On January 1, 1998, the Company granted a consultant an option to
purchase 100,000 shares of common stock of Seto Holdings,Inc. at a
price of $.05 per share for a period of three years from the date of
signing. This option was issued for services the consultant provided
which were related to the Teik Tatt acquisition. The shares underlying
these options were issued pursuant to the Company's 1997 Non-Statutory
Stock Option Plan. The option was exercised February 6, 1998.
On February 9, 1998, the Company entered into a consulting agreement for
the period February 9, 1998 to December 31, 1998, subsequently extended
to December 2000 for strategic planning, corporate planning, merger and
acquisition and divestiture advice. In consideration for the consulting
services, the Company granted an option to the consultant to purchase
600,000 shares of common stock at a price of $.50 per share for a
period of two years commencing four months from the date of signing.
This
F-14
<PAGE>
SETO HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY SEMICON TOOLS, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Employment and consulting agreements (continued):
Consulting agreements (continued):
option was reduced to 300,000 shares at $.25 per share. The shares
underlying these options were issued pursuant to the Company's 1997
non-statutory Stock Option Plan, 100,000 shares were issued subsequent
to January 31, 1999.
Also on February 9, 1998, the Company entered into a consulting
agreement for the period February 9, 1998 to December 31, 1998 and
subsequently extended to December 2000 for strategic planning,
corporate planning, merger and acquisition and divestiture advice. In
consideration for the consulting agreement the Company granted an
option to purchase 100,000 shares of common stock at a price of $.50
per share for a period of two years commencing four months from the
date of the signing of this agreement. 50,000 options have been
exercised. The shares underlying these options will be registered under
the Securities Act of 1933.
On July 1, 1998, the Company entered into a consulting agreement for the
period July 1, 1998 to June 30, 1999 for strategic planning, corporate
planning, mergers and acquisitions and divestiture advice. In
consideration for the consulting agreement the Company granted an
option to purchase 1,000,000 shares of its common stock at a price of
$.50 per share for one year from the date of signing this agreement.
This option was reduced to 100,000 shares at $.30 per share.
11. Computation of earnings per share:
1999 1998
---- ----
Weighted average number of
common shares outstanding 10,300,219 9,276,741
Assumed conversion of
stock options 1,335,615
---------- ---------
Weighted average number of
common shares outstanding 10,300,219 10,612,356
========== ==========
The conversion of stock options was not assumed for the year ended
January 31, 1999 as the effect would be antidilutive.
F-15
<PAGE>
SETO HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY SEMICON TOOLS, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Acquisition of subsidiary, Fuji Fabrication, SDN BHD:
On June 30, 1998, the Company purchased 100% of the outstanding common
shares of Fuji Fabrication, SDN BHD in a transaction to be accounted
for as a purchase. The Company issued 100,000 shares of its common
stock valued at $1.00 per share.
The assets acquired and liabilities assumed as of June 30, 1998, the
date of the acquisition, are as follows:
Current assets $ 72,511
Non-current assets 23,795
------
96,306
Current liabilities 17,305
------
Net assets acquired 79,001
Purchase price 100,000
-------
Excess of purchase price over
net assets acquired $ 20,999
========
13. Disposition of subsidiary, Teik Tatt Holding Co., SDN BHD:
In November 1997, the Company issued 10,000,000 shares of unregistered
common shares in exchange for 100% of the outstanding shares of Teik
Tatt Holding Co., SDN BHD, a Malaysian corporation, which manufactures
rubber bands, plastic ropes and recycles plastic and metal from wire
cable, electronic devices and circuit boards. The acquisition was
valued at the book value of the acquired company of $6,560,000 or
approximately $.66 per share. The transaction was reversed effective
September 15, 1998 when the Company returned all of the acquired shares
of Teik Tatt Holding Co. in exchange for the 10,000,000 shares of its
common stock, which were immediately cancelled.
14. Common stock options outstanding:
On March 25, 1997, the Company effectuated a Non-statutory Stock Option
Plan for the purpose of advancing the interests of the Company and its
stockholders by helping the Company obtain and retain the services of
key management employees, officers, directors and consultants. The Plan
is administered by the Non-statutory Stock Option Committee of the
Board of Directors of the Company. The committee has full authority and
F-16
<PAGE>
SETO HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY SEMICON TOOLS, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Common stock options outstanding (continued):
discretion to determine the eligible participants to be granted the
options, the date of issuance, exercise price and expiration date. The
total number of shares set aside for the Plan is 6,500,000. As of
January 31, 1999, 950,000 options had been issued under the Plan, of
which 220,000 had been exercised by April 1999.
The Company has elected to continue use of the methods of accounting
described by APB-25 "Accounting for Stock Issued to Employees" which is
based on the intrinsic value of equity instruments and has not adopted
the principles of SFAS-123 "Accounting for Stock Based Compensation"
effective for fiscal year beginning after December 15, 1995, which is
based on fair value. There is no significant difference between
compensation cost recognized by APB-25 and the fair value method of
SFAS-123. The Company has not recognized compensation on the granting
of options or warrants to employees and consultants since the fair
value of warrants or options is the same as or less than the exercise
price.
Summary of options are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Exercise Expiration
Date Amount Price Date
Eugene Pian, Officer 05/01/96 1,000,000 $.25 05/01/01
Eugene Pian, Officer 02/13/97 1,000,000 .10 05/01/01
Eugene Pian, Officer 07/15/98 500,000 .50 06/30/03
Craig Pian, Officer 05/01/96 1,000,000 .10 05/01/01
Craig Pian, Officer 02/13/97 1,000,000 .10 05/01/01
Craig Pian, Officer 07/15/98 500,000 .50 06/30/03
Francine Pian, Officer 07/15/98 500,000 .50 06/30/03
Tan Hun Chin, Director 11/27/97 $ 500,000 .10 11/27/00
Consultant 06/19/98 300,000 .25 06/09/00
Consultant 07/01/98 100,000 .30 04/30/99
Employee 11/05/97 25,000 .05 11/05/99
Employee 11/05/97 25,000 .05 11/05/99
</TABLE>
15. Principal products and segmentation of sales:
The Company's principal products are industrial ceramics, diamond
cutting tools and cellular batteries. The tools include dicing blades
which are components of precision electronic saws, scribes which are
used to cut silicon wafers, porcelain and ceramic molds and dressers
which are used for the shading and forming of grinding wheels in the
machine tool industry.
F-17
<PAGE>
SETO HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY SEMICON TOOLS, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Principal products and segmentation of sales (continued):
Financial information relating to the principal industry segments and
classes of products:
<TABLE>
<CAPTION>
<S> <C>
January 31,
January 31, 1998
1999 Restated
Sales to customers:
Industry A:
Ceramics $1,461,621 $ 1,225,248
Industry B:
Diamond tools 617,140 554,695
Industry C:
Cellular batteries 428,850
Miscellaneous 139,039 151,663
---------- -----------
$2,646,650 $ 1,931,606
========== ===========
Operating profit or loss:
Industry A $ 438,477 $ 409,901
Industry B ( 353,558) ( 279,395)
Industry C 37,872
---------- -----------
$ 122,791 $ 130,506
========== ===========
Identifiable assets:
Industry A $ 441,285 $ 397,069
Industry B 1,303,039 719,554
Industry C 116,819
---------- ----------
$1,861,143 $1,116,623
========== ==========
</TABLE>
Two customers each accounted for more than 10% of total sales and
together accounted for approximately 44% of total sales for the year
ended January 31, 1999.
Foreign and domestic operations and export sales:
<TABLE>
<CAPTION>
<S> <C> <C>
January 31, January 31,
1999 1998
Sales to customers:
United States $1,604,300 $1,170,868
Far East 476,970 348,108
Canada 565,380 412,630
---------- ----------
$2,646,650 $1,931,606
========== ==========
</TABLE>
F-18
<PAGE>
SETO HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY SEMICON TOOLS, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Principal products and segmentation of sales (continued):
<TABLE>
<CAPTION>
<S> <C>
January 31,
January 31, 1998
1999 Restated
Operating profit:
United States $ 74,431 $ 79,108
Far East 22,129 23,519
Canada 26,231 27,879
---------- ----------
$ 122,791 $ 130,506
========== ==========
Identifiable assets:
United States $1,128,156 $ 676,856
Far East 335,410 201,234
Canada 397,577 238,533
---------- ----------
$1,861,143 $1,116,623
========== ==========
</TABLE>
16. Year 2000 compliance:
The Company operates date sensitive computer equipment in its operations
in the United States and Malaysia. The accounting and bookkeeping
computer programs have been upgraded to be year 2000 compliant at a
cost of less then $1,000 in the United States. The Company's domestic
manufacturing equipment is not date-sensitive. The Company purchased
all-new manufacturing and computer equipment in Malaysia, which is year
2000 compliant, at a cost of approximately $200,000.
Like many other businesses, the Company is at risk from year 2000
failures on the part of its suppliers.
17. Supplemental cash flow information:
<TABLE>
<CAPTION>
<S> <C>
1998
1999 Restated
Interest paid during the year $ 53,656 $ 35,701
======== ==========
Income taxes paid during the year $ 0 $ 0
======== ==========
Supplemental schedule of non-cash investing and financing activities:
Issuance of common shares for purchase
of subsidiary $100,000
Reconciliation of increase in cash:
Cash at beginning of year, as originally
reported $1,352,231
Decrease in cash resulting from disposition
of foreign subsidiary 1,235,897
Cash at beginning of year, as restated $ 116,334
</TABLE>
F-19
<PAGE>
GENERAL
During the fiscal year ended January 31, 1999, Seto Holdings, Inc. (the
"Company") altered its business plans and objectives and reorganized its
subsidiaries and their product lines for faster growth into two major groupings:
Technical Products to Industry with three (3) operating subsidiaries; and
Consumer Products with one (1) operating subsidiary. This management decision
followed and was conditioned by the acquisition of Fuji and its cellular phone
battery line and the disassociation from and the disposal of two other
subsidiaries, TTH and Southsonic. The Company believes that an understanding of
the two subsidiary reversal transactions leading to this discussion and analysis
being made essentially on the continuing operations only, will be helpful.
1. On September 15, 1998, the Company reversed its acquisition of TTH when
it returned all shares that it owned as a result of the 1997
acquisition in exchange for the 10,000,000 shares of its own common
stock, which shares were immediately cancelled. This transaction was
mutually deemed acceptable and in the best interests of both parties
following the unanticipated disappearance and reduction of credit
facilities in Malaysia.
2. On January 30, 1999, the acquisition of Southsonic was completely
voided and cancelled. The action was a result of Southsonic's inability
to fulfill a major condition of the acquisition agreement concerning
the delivery of assets free and clear of any claim, lien, security
interest, pledge, restriction, charge or encumbrance.
The discontinuance of both TTH and Southsonic subsidiaries and their operations
reflect on the Company's statement of income as mostly non-cash, accounting
transactions except for approximately $60,000. The latter amount was expended
primarily for purposes of public relations, financing searches and miscellaneous
expenses directly associated with those subsidiaries business and presence as
part of the corporate structure. These transactions are one time events and for
this reason, management feels it is best to address the portion of the statement
of income above the discontinued operations line for the remainder of the
discussion.
In spite of the disassociation from TTH and Southsonic, the Company remains with
a presence in Malaysia via DTI and Fuji which it is expected will become more
significant in time, especially Fuji. Accordingly, economic and political
conditions there, and in Southeast Asia as a whole, will remain of importance to
the Company. Management believes that steps taken by the Malaysian Government
since the outset of the areas downturn in mid 1997 involving financial
uncertainties have had a calming and stabilizing effect. In any event, although
no assurance can be given, the Company believes that there will be no adverse
effect on its operations or financial condition during 1999 because of it.
FINANCIAL CONDITION
The Company's financial condition remains healthy. Reflecting its highest level
of sales for a fiscal year from its long existing business and the advent of
revenues beginning to be derived from its cellular phone battery product line, a
comparison of the balance sheet as of January 31, 1999 to October 31, 1998
follows:
1. Total assets increased by 7.5% to $2,295,863 and current assets
increased by 1% to $1,357,524
2. Mainly because property and equipment increased by 11.6% to match the
sales growth necessities, current liabilities increased by 11.3% to
$830,949
3. Other balance sheet comparisons which management believes is of note:
a. Total shareholders' equity increased by 7.3% and its total assets
increased by 7.5%
b. Notes payable to bank increased by 21.8% reflecting the
Company's drawing on its line of credit to support the working
capital needs associated with its revenue
<PAGE>
RESULTS OF OPERATIONS
Discounting the discontinued operations of TTH and Southsonic, for the fiscal
year ended January 31, 1999, Seto experienced its highest annual sales in the
history of the Company, its second highest income from operations (at $232,541
it was $18,455 or 7.4% less). These results are attributable to most of the
present product lines, especially ceramics, diamond tools inclusive of dicing
blades and scribes and the start of the sales for the cellular phone batteries.
The income from continuing operations were impacted by a planned increase in
public relations expenses and the move of the Company and associated get ready
expenses of the new headquarters and manufacturing/warehouse facilities in
Briarcliff Manor, New York.
In the fiscal year ended January 31, 1999 compared to the fiscal year ended
January 31, 1998, sales increased from $1,931,606 to $2,646,650 or 37% gross
profit margins continued in the 60%-65% range and income from continuing
operations was $232,154 compared to 1998's $251,006.
With regard to cost of sales, as the cellular phone battery business grows it
will impact the average gross profit historical figure mentioned above. The
material cost of manufacturing the batteries will be the reason whereas labor
costs will remain low. However, with volume growth, unit cost of materials will
decrease.
Management continues to take steps to hold ongoing expenses at its current
favorable level and to identify new and more economical sources of supply.
Looking ahead to the next fiscal year beginning February 1, 1999, management
believes business in certain product lines will contribute to increasing total
Company revenue by at least 50%.
1. Cellular phone batteries:
a. An e-commerce site will be opened in the spring of 1999 for
retailing.
b. Fuji has recently received Malaysian Government exemptions from
a 30% import duty tax and a 20% sales tax on battery cells.
c. Fuji was acquired on June 30, 1998 and, thus, did not complete a
full year with the Company.
d. Cellular phones are expected to grow in the U.S. from 66.5
million to 110 million in 2002. Worldwide, 162.9 million sold in
1998.
2. Hard disk drive parts:
a. Company has purchase orders for these new products from two
companies.
b. The parts are consumable.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1999, the Company had current assets of $1,357,524 and current
liabilities of $830,949 yielding a positive working capital position of $526,575
and a current ratio of 1.6:1. These routine measures of a company's ability to
meet current obligations reflects positively on the Company's liquidity and
internal resources for the current level of business and will contribute to
satisfying its suppliers of goods and services concerned about
credit-worthiness.
As for growth capital, to some extent its should be satisfied by the recent
increase received from the Company's bank on its outstanding line of credit
which rose to $500,000 from $350,000. However, because of the anticipated
increase in sales, especially in its cellular phone battery product line
manufactured in Malaysia by its wholly-owned subsidiary, Fuji, the Company has
been seeking additional capital via higher lines of credit and bank loans.
However, no new definite funding source has yet been identified and no assurance
can be given that such financing will be obtained on commercially reasonable
terms, or at all.
During the fiscal year, certain stock options were exercised in the amount of $
and the Company initiated its stock buyback program by purchasing 29,400 shares
in October 1998 and 20,000 in December 1998. The Company has instituted a
moratorium on its buyback program and will utilize its capital for the growth of
the Company.
During the fiscal year ending January 31, 1998, the Company purchased a
computerized precision saw for $33,000 in conjunction with the increase of its
ceramic value-added fabrication product line, of which $24,000 was financed.
Also, a belt driven assembly line for use by Fuji was purchased for
approximately $12,000. As at the end of the fiscal year, there were no material
commitments for like capital expenditures.
EFFECTS OF FOREIGN CURRENCY FLUCTUATIONS
The Company's foreign operations are subject to certain risks related to
fluctuation in foreign currency exchange rates. In fiscal 1998, ending January
31, 1998, due to a strengthening U.S. dollar and weaker Malaysian ringgit, the
Company recognized $37,719 in foreign currency exchange losses, which did not
have a material adverse effect on net income. In fiscal 1999, that loss dropped
to $900. While future fluctuations in currency exchange rates could impact
results of operations or financial conditions, foreign operations are expected
to continue to provide strong financial results and earnings growth.
A number of economists, including some high in the U.S. Government's financial
circles, believe that predictable policies (e.g. pegging exchange rates, which
Malaysia did in 1998, and sticking to that policy) yields a key element of
financial stability. That is a course which Malaysia has chosen to follow. In
addition, what also helps is the fact that Malaysia has no great overhang of
foreign debt - any squandering and misuse of funds in the recent past was done
with domestic funds. At the moment, the perception is that the financial crisis
which began in mid-1997 in Southeast Asia is easing and may be ending e.g. in
the first quarter of 1999, container traffic from the West Coast to East Asia
ran 10% ahead projections. This appears to bode well for Malaysia.
Disclosure about market risks
The Company is exposed to market risks primarily from changes in interest rates
and foreign currency exchange rates. To manage exposure to these fluctuations,
the Company occasionally enters into various hedging transactions. The Company
does not use derivatives for trading purposes, or to generate income or to
engage in speculative activity and the Company never uses leveraged derivatives.
The Company does not use derivatives to hedge the value of its net investments
in these foreign operations.
<PAGE>
The Company exposure to foreign exchange rate fluctuations results from
investment in foreign ventures in Malaysia and from the Company's share of the
earnings of these operations, which are denominated in the Malaysian ringgit.
Year 2000 costs
The Company currently operates numerous date-sensitive computer application and
network systems throughout its business. As the century change approaches, it is
essential for the Company to ensure that these systems properly recognize the
year 2000 and continue to process operations and financial information. The
Company recently upgraded its computer system and is year 2000 compliant.
Impact of inflation
Although it is difficult to predict the impact of inflation on costs and
revenues of the Company in connection with the Company's products, the Company
does not anticipate that inflation will materially impact its costs of
operations or the profitability of its products.
FORWARD-LOOKING STATEMENTS
This "Managements Discussion and Analysis of Plan Operation" contains statements
which are not historical facts and are forward-looking statements and
expressions such as "expect", "believe", "anticipate", "may" or similar
variations of such terms which reflect management's confidence, expectations,
estimates and assumptions. Such statements are based on information available at
the time this 10KSB was prepared and involve risks and uncertainties that could
cause future results to differ materially include, among others, partial
dependence on the semiconductor industry, availability of raw materials, intense
competition, technological obsolescence, continued relationship with major
customers and the risks of doing business in Malaysia and Southeast Asia,
including, without limitations, economic and political conditions, foreign
currency translation risks, tariffs and other foreign trade policies and
dependence on inexpensive labor in such countries. Seto assumes no obligation
for updating any such forward-looking statement, if any, at any time.
<PAGE>
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 is not contained in this form, and no
disclosure 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]
State issuer's revenues for its most recent fiscal year. $2,646,650
State the aggregate market value of the voting stock held by non affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. $3,764,593 as of April 26, 1999.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. 11,109,101 shares of Common Stock,
$.001 par value, outstanding as
of April 26, 1999.
DOCUMENTS INCORPORATED BY REFERENCE - None
2
<PAGE>
PART I
Item 1. Description of Business.
General
SETO Holdings, Inc. (formerly Semicon Tools, Inc.) (the
"Company"), a Nevada corporation, principally manufactures and/or distributes
(1) industrial ceramic products,(2) small disposable diamond cutting tools
(dicing blades and scribes, which are the cutting components of precision
electronic saws, scribers used by the electronics and semiconductor industries,
and dressers for the shaping and forming of grinding wheels in the machine tool
industry), and (3) cellular telephone and other rechargeable batteries.
Approximately 26% of the Company's revenues are generated in Malaysia.
Business Development over the Past Three Years
For more than the past three years, the Company principally
has (a) distributed and fabricated on a "value-added" basis industrial ceramic
products, and (b) sold small, disposable precision diamond cutting tools, which
include diamond-coated nickel dicing blades (which are components of precision
electronic saws) and diamond scribes, both of which are used to cut integrated
circuits, and diamond dressers which are used to shape grinding wheels in
machine shops. These products are marketed to the microelectronics and
semiconductor industries primarily for use in the manufacture of electronic
components and devices. Since June 1996, when it purchased all of the assets of
KBR (Malaysia) Sdn. Bhd. ("KBR"), a Malaysian corporation, the Company's dicing
blades have been manufactured in Malaysia. Its other cutting tools and ceramics
have been made and fabricated, respectively, at its facility in New York. The
Company sells its products to hundreds of Fortune 1000 companies, including IBM,
National Semiconductor, Motorola and General Motors.
On November 26, 1997, the Company acquired all of the issued
and outstanding capital stock of Teik Tatt Holding Co. (1979) Sdn. Bhd. ("TTH"),
a Malaysian corporation which principally manufactured rubber bands and plastic
rope and recycled scrap nonferrous metals, in exchange for 10,000,000 shares of
Common Stock, which resulted in a change-in-control of the Company. On September
15, 1998 the Company reversed its acquisition of TTH by selling all of the
issued and outstanding capital stock of TTH to Tan Khay
3
<PAGE>
Swee, the former owner of TTH, in exchange for 10,000,000 shares of the
Company's Common Stock, the amount of the original purchase price. The following
discussion of the Company's business does not take into account the operations
of TTH.
On June 30, 1998, the Company issued 100,000 shares of Common
Stock to Tan Hun Hooi as consideration for its acquisition of all of the issued
and outstanding shares of Fuji Fabrication Sdn. Bhd. ("Fuji"), a Malaysian
company which principally designs, manufactures and distributes cellular
telephone and other rechargeable batteries.
Forward-Looking Statements
THIS ANNUAL REPORT ON FORM 10-KSB, INCLUDING WITHOUT
LIMITATION ITEM 6, MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION,
CONTAINS STATEMENTS WHICH ARE NOT HISTORICAL FACTS AND ARE FORWARD-LOOKING
STATEMENTS WHICH REFLECT MANAGEMENT'S EXPECTATIONS, ESTIMATES AND ASSUMPTIONS.
SUCH STATEMENTS ARE BASED ON INFORMATION AVAILABLE AT THE TIME THIS FORM 10K-SB
WAS PREPARED AND INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE FUTURE
RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO DIFFER SIGNIFICANTLY FROM
PROJECTED RESULTS. FACTORS THAT COULD CAUSE ACTUAL FUTURE RESULTS TO DIFFER
MATERIALLY INCLUDE, AMONG OTHERS, THE RISKS OF DOING BUSINESS IN MALAYSIA AND
SOUTHEAST ASIA, INCLUDING, WITHOUT LIMITATION, ECONOMIC AND POLITICAL
CONDITIONS, FOREIGN CURRENCY TRANSLATION RISKS, TARIFFS AND OTHER FOREIGN TRADE
POLICIES AND DEPENDENCE ON INEXPENSIVE LABOR IN SUCH COUNTRIES, PARTIAL
DEPENDENCE ON THE SEMICONDUCTOR MANUFACTURING INDUSTRY, AVAILABILITY OF RAW
MATERIALS, COMPETITION AND TECHNOLOGICAL OBSOLESCENCE. THE COMPANY ASSUMES NO
OBLIGATION TO UPDATE SUCH FORWARD-LOOKING STATEMENTS, IF ANY, AT ANY TIME.
Principal Products
Overview
The percentage contributions to the Company's sales by product
line for the fiscal years ended January 31, 1999, 1998 and 1997 are as follows:
4
<PAGE>
Contribution to Total Sales
January 31,
Product line 1996 1997 1998
------------ ------ ------ ------
Industrial Ceramic Products 58% 67% 55%
Diamond Cutting Tools 33 29 9
Cellular Telephone Batteries - - 16
Miscellaneous Products 9 4 20
Industrial Ceramic Products
The Company distributes two principal categories of industrial
ceramic products: (1) insulators, tubes, rods and crucibles and other labware,
all of which are standard catalogue items, and (2) machinable ceramics. The
products are manufactured by third parties and warehoused and distributed by the
Company from its facilities in Briarcliff Manor, New York, often after a
value-added machining process performed either by the Company or subcontractors.
The products are used principally by the aerospace, electronic detection
equipment and industrial heating industries.
Diamond Cutting Tools
Dicing Blades. Dicing blades are made of diamonds bonded to a
circular nickel alloy blade. They are used with the precision electronic dicing
saws which the microelectronics and semiconductor industries use to cut and
separate integrated circuits and discrete devices made from silicon and other
wafers. The blade market consists principally of hubbed blades, made of diamond
nickel alloy (the most common), diamond/thermoset plastic (called resin blades,
which are the blades most widely used in precision electronic saws for cutting
ceramic substrates, even though they have a shorter useful life) and diamond
nickel alloy hubless blades. Hubbed blades are competitively manufactured
principally by Disco, Inc., Semitec Corporation and Kulicke & Soffa Corporation.
The Company, which manufactures hubbed and hubless blades in its Malaysian
facility, has an insignificant share of the world-wide dicing blade market.
There can be no assurance that the Company will be able to increase its market
share.
Scribes. Scribes, which have tips made out of gem
quality diamonds, are used to cut silicon wafers and perform die
and integrated circuit separation. These products, which are
assembled in the Company's facility in Briarcliff Manor, New York,
5
<PAGE>
have limited growth potential in this application since the electronics and
semiconductor industries have in large part switched from scribing machines to
dicing saws for the wafer cutting process. However, diamond scribes are
preferred over sawing for cutting certain wafer materials because they provide
cleaner separation. They also are preferred for certain low volume applications
which do not justify the capital expense of using a dicing saw. The Company
occasionally uses subcontractors to set or "lap" the diamonds into the tools.
Dressers. Dressers are diamond-tipped tools generally used to
"dress" or shape abrasive grinding wheels in machine shops. These products,
which are assembled in the Company's facility in Malaysia, are sold by the
Company principally to companies such as Black & Decker and Snap On Tools which
resell them to third parties. The Company believes that there are multiple
foreign suppliers of these dressers.
Cellular Telephone and Other Rechargeable Batteries
The Company manufactures battery packs principally for
cellular telephones, notebook computers, and camcorders. All products are
manufactured by the Company in Malaysia, based on battery designs and
modifications done by the Company's research and development team. The Company's
products rely on the availability of an adequate supply of battery cells and
components, which the Company purchases from multiple international electronics
manufacturers. The Company has qualified batteries for such major companies as
Ericsson, Nokia, Panasonic, NEC and OKI. In addition, the Company manufactures
many custom batteries for OEM and private label customers. The Company currently
has an insignificant share of the battery market, which is dominated by the
cellular telephone manufacturers, such as Motorola, Nokia and Ericsson, and mass
retailers such as Radio Shack and Staples. The Company competes principally on
the basis of quality and price and will begin promoting its products on the
World Wide Web to customers who are seeking only limited quantities and
therefore are of minimal interest to wholesalers and distributors.
Miscellaneous Products
The Company distributes small precision tools such as
tweezers, pliers, vacuum pickups and scribes, core drills and sinter blades for
ceramic applications. It also distributes cleaning chemicals, inspection gloves
and other items used to
6
<PAGE>
preserve a contamination free environment, and they are primarily marketed to
IBM and Lucent Technologies.
Customers
During the fiscal year ended January 31, 1999, two of the
Company's customers accounted for approximately 44% of its consolidated net
sales.
Raw Materials
The Company purchases its raw materials and supplies from
multiple sources. None of the raw materials and supplies it requires currently
are in short supply although factors outside of the Company's control could
adversely impact their future availability.
Backlog
As of January 31, 1999, the Company had a backlog of orders of
approximately $1.1 million, all of which it expects to ship by May 30, 1999.
While such orders may be cancelled or postponed, the Company believes that they
are firm and the resulting revenues will be realized.
Competition
The Company's operating segments each are intensely
competitive. Virtually all competitors have greater financial and personnel
resources and greater market recognition than the Company. As a result, these
competitors can obtain better payment terms and service from suppliers.
Furthermore, the Company faces the possibility of adverse market conditions
arising from tariff revisions resulting from changes in foreign trade policies,
raw material shortages, technological change, shifting product emphasis among
competitors and the entry of new competitors into its markets. The Company
believes the principal competitive factors affecting its products are quality
and price.
Marketing
The Company markets its products through account
representatives, distributors, telephone solicitations, participation in trade
shows, advertisements in trade journals and the Internet.
7
<PAGE>
Manufacturing Facilities
In Briarcliff, New York, the Company operates a machine shop
and a manufacturing facility for resin/diamond dicing blades. The Company owns a
facility in Kepala Batas, Penang, Malaysia, equipped to manufacture dicing
blades and diamond dressing tools and another facility located in Batu Maung,
Penang, Malaysia, where it manufactures rechargeable batteries. See Item 2
below, "Description of Property."
Government Regulation
The Company believes its operations and facilities are in
compliance with all federal, state and local environmental laws in the United
States and Malaysia. The Company has not incurred any special or unusual costs
to comply with environmental laws or other applicable governmental regulations.
Research and Development
In the fiscal years ended January 31, 1999 and 1998, the
Company spent approximately $50,000 and $60,000, respectively, on its research
and development activities.
Employees
The Company employs approximately 40 full-time employees, of
which 20 work in its diamond tools and ceramics facilities and 20 work in its
battery pack facilities. It also utilizes outside consultants and part-time
workers when required.
Item 2. Description of Property.
In Malaysia, the Company leases approximately 4,000 square
feet of manufacturing space and 500 square feet of office space in Kepala Batas,
Penang, pursuant to a lease expiring July 2001 with minimum annual lease
payments of $7,200. It also occupies approximately 3,500 square feet of
manufacturing facilities and 600 square feet of office space in Batu Maung,
pursuant to a lease expiring July 2001, with a minimum annual lease payment of
$11,400.
In the United States, the Company leases approximately 2,400
square feet of manufacturing and warehouse space and 1,200
8
<PAGE>
square feet of office space in Briarcliff Manor, New York, from Rachrob Realty,
LLC, a company owned by Eugene Pian, the President and a principal shareholder
of the Company, pursuant to a fifteen (15) year lease which expires on April 30,
2013, with annual base rents, excluding utilities, maintenance and repairs, as
follows: Years One to Five - $60,000; Years Six to Ten - $66,000; Years Eleven
to Fifteen - $72,000.
Item 3. Legal Proceedings.
There are no pending legal proceedings to which the Company is
a party or to which any of its property is subject and no such proceedings are
known to the Company to be threatened or contemplated by or against it.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during
the last fiscal quarter covered by this Report.
9
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Market Information
The Company's Common Stock, $.001 par value, is traded in the
over-the-counter market on the OTC Bulletin Board under the symbol "SETO". Such
Stock is not traded or quoted on any automated quotation system.
The following table sets forth the range of high and low bid
information for the Company's Common Stock for each calender quarter within the
last two fiscal years, and for the first calendar quarter of 1999, as provided
by the National Quotation Bureau, Inc. Such quotations reflect inter-dealer
prices without retail mark-up, mark-down or commission and may not represent
actual transactions.
1999 Low High
First quarter .14 $1.625
1998
First quarter .29 .70
Second quarter .61 .9
Third quarter .19 .80
Fourth quarter .20 .335
1997
First quarter .070 .200
Second quarter .050 .140
Third quarter .050 .155
Fourth quarter .075 .450
Holders
As of April 26, 1999, there were 320 record holders of the Company's Common
Stock.
10
<PAGE>
Recent Sales of Unregistered Securities
On November 26, 1997, the Company issued 10,000,000 shares of
its Common Stock pursuant to Section 4(2) of the Securities Act of 1933, as
amended, in exchange for all of the issued and outstanding capital stock of TTH.
The shares were issued to Tan Khay Swee. (The Company sold TTH back to Mr. Tan
Khay Swee on September 15, 1998 in return for such 10,000,000 shares.)
On July 1, 1998, the Company issued 100,000 shares of its
Common Stock pursuant to Section 4(2) of the Securities Act of 1933, as amended,
in exchange for all of the issued and outstanding stock of Fuji Fabrication Sdn.
Bhd. The shares were issued to Tan Hun Hooi.
Voting and Other Rights
Holders of Common Stock are entitled to one vote for each
share held. There are no preemptive, subscription, conversion or redemption
rights pertaining to the Common Stock. Holders of Common Stock are entitled to
receive such dividends as may be declared by the Board of Directors out of
assets legally available therefor and to share ratably in the assets of the
Company available upon liquidation.
The holders of Common Stock do not have the right to cumulate
their votes in the election of directors and, accordingly, the holders of more
than 50% of all such shares outstanding can elect all of the directors of the
Company.
Dividends
The Company has not paid cash dividends to date and intends to
apply its earnings, if any, for use in its activities. Payment of cash dividends
in the future will be wholly dependent upon the Board of Directors and upon the
Company's earnings, financial condition, capital requirements and other factors
deemed relevant by them. It is not likely that cash dividends will be paid in
the foreseeable future.
In the event of the acquisition of or merger with a business
by the Company, control of the Company and its Board of Directors may pass to
others. In that event, the payment of dividends would be wholly dependent upon
such persons.
11
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of
Operation.
General
In fiscal year 1998 the Company altered its business plans and
objectives and reorganized its product lines for faster growth into two major
groupings: Technical Products to Industry and Consumer Products. This decision
followed the Company's June 1998 acquisition of Fuji Fabrication Sdn. Bhd.
("Fuji") and its cellular telephone battery line and its September 1998 sale of
TTH back to its former owner.
During the fiscal year ended January 31, 1999, excluding the
results of discontinued operations the Company experienced the highest annual
net sales in its history and its second highest income from continuing
operations. These results are attributable principally to continued growth in
fabricated industrial ceramics (sales of $1,461,621 compared to $1,225,249) and
diamond cutting tools (sales of $617,140 compared to $554,695) and the launch of
the Company's cellular telephone battery product line in July 1998 (sales of
$428,850).
The Company's financial condition remains healthy. At
January 31, 1999, the Company had total assets of $2,295,863.
Mainly because of short term borrowings needed to fund the purchase
of raw materials and additional property and equipment, which
increased by 11.6%, to match anticipated sales growth, current
liabilities increased by 6% to $791,654. Notes payable to bank
increased by 21.8%, reflecting the Company's drawing down on its
line of credit principally to support the working capital needs
associated with the cost of raw materials needed to manufacture
cellular telephone batteries.
The Company conducts substantially all of its manufacturing
and assembly operations in Malaysia. Accordingly, economic and political
conditions there, and in Southeast Asia as a whole, will remain of importance to
the Company. Management believes that steps taken by the Malaysian Government
since the outset of the area's downturn in mid-1997 involving financial
uncertainties have had a calming and stabilizing effect. In any event, although
no assurance can be given, the Company believes that regional circumstances will
have no material adverse effect on its operations or financial condition during
the fiscal year beginning February 1, 1999.
12
<PAGE>
In fiscal 1999, Management believes certain product lines will
contribute to an anticipated 50% increase in revenues:
1. Cellular telephone batteries:
a. The Company will have the benefit of a full
year of sales;
b. An e-commerce site will be opened in the
Spring of 1999 for retail sales;
c. The Company's Malaysian subsidiary has
recently received exemptions from a
Malaysian 30% import duty tax and a 20%
sales tax on battery cells and a waiver of
its 1999 corporate income tax waiver; and
d. Sales of cellular telephones in the United
States are expected to grow from 66.5
million to 110 million in 2002. (Worldwide,
162.9 million were sold in 1998.)
2. Hard Disk Drive parts
a. The Company has received purchase orders for
these new products from two disk drive
manufacturers; and
b. The parts are consumable.
Fiscal 1998 Compared to Fiscal 1997
Including discontinued operations, in the fiscal year ended
January 31, 1999 the Company had a net loss of $(226,962), compared to net
income of $629,586 in the prior year. However, excluding discontinued
operations, the Company's net sales increased 37%, from $1,931,606 to
$2,646,650, and income from continuing operations declined $18,465, or 7.4%,
from $251,006 to $232,541. The decrease in income from continuing operations
principally resulted from (1) a $260,498 increase in general and administrative
expenses from non-recurring costs related to increases in public relations
expenses and the Company's relocation from Armonk, New York to its new
headquarters and manufacturing/warehouse facilities in Briarcliff Manor, New
York, and (2) a near-doubling in cost of sales (an increase of $481,145,
13
<PAGE>
or 87%) attributable mainly to the high material cost of manufacturing cellular
telephone batteries. The significant increase in cost of sales was attributable
principally to the Company's launch of its cellular telephone batteries in July
1998, and these products will continue to cause a decrease in the Company's
gross margins. However, with anticipated volume growth, the Company's unit cost
of these products should decline.
Fiscal 1997 Compared with Fiscal 1996
For the year ended January 31, 1998, the Company's net sales
increased to $7,808,380, a 487% increase over the $1,602,830 in fiscal 1996, and
net income was $629,586 or $.05 per share, a 250% increase over the $213,652 or
$.02 per share in fiscal 1996. The acquisition of TTH contributed $5,876,774 to
net sales and $378,580 to net income during the fourth quarter of fiscal 1997.
In fiscal 1997 gross profit was $2,586,816, or 33% of gross revenues, as
compared to $1,105,570, or 69% of gross revenues in fiscal 1996. In fiscal 1997,
gross profit increased due to higher sales, and gross profit as a percentage of
gross revenues decreased principally due to low profit margins on TTH's
operations, especially its recycling business.
In fiscal 1997, net sales of the Company's diamond cutting
tools increased approximately 4% to $554,695 but generated a loss of $279,395,
approximately 43% higher than the loss in fiscal 1996. Net sales of industrial
ceramics and clean room supplies increased by 26.5% to $1,226,136, and related
net income increased by $31.6% to $409,901. Net sales of TTH for the
approximately two-month period after its acquisition by the Company were
$5,876,774 and related net income was $378,580.
Liquidity and Capital Resources
At January 31, 1999, the Company had current assets of
$1,357,524, including $66,052 of unrestricted cash, and current liabilities of
$830,949, yielding a positive working capital position of $526,575 and a current
ratio of 1.6.:1. These standard measures of a company's ability to meet its
current obligations reflect positively on the Company's improved liquidity and
its ability to internally generate or obtain the funds necessary to support its
current level of business and are expected to enable the Company to obtain more
favorable payment terms from its suppliers.
14
<PAGE>
During the fiscal year, the Company received $120,000 from the
exercise of stock options. The Company also initiated a stock buyback program by
purchasing 29,400 shares in October 1998 and 20,000 in December 1998. The
Company has instituted a moratorium on this program and will utilize its capital
to fund its future growth.
Although no assurances can be given, the Company expects that
internally generated funds together with its existing credit facilities will
enable it to meet it obligations as they come due and finance its operations.
The Company recently increased its available line of credit to $500,000 from
$350,000. To improve its liquidity and accelerate its anticipated growth,
especially in sales of its cellular telephone batteries, the Company has been
seeking additional capital via even higher lines of credit and bank loans.
However, no new definite funding source has yet been identified and no assurance
can be given that such financing will be obtained on commercially reasonable
terms, or at all.
During the fiscal year ending January 31, 1999, the Company
purchased a computerized precision saw for $33,000 in conjunction with the
increased sales of industrial ceramic and fabrication product lines, of which
$24,000 was financed, and a belt-driven assembly line for approximately $12,000
for use by Fuji in its battery business. As at the end of fiscal 1998, there
were no material commitments for significant capital expenditures.
A small percentage of the Company's profits may not be
distributable to the Company's other subsidiaries or as dividends. Under
Malaysian law a Malaysia corporation is required to maintain a statutory reserve
of five percent (5%) of profit after taxation in accordance with the Foreign
Investment Law until such reserve equals ten percent (10%) of legal capital.
Such reserve is non-distributable.
Effects of Foreign Currency Fluctuations
The Company's foreign operations are subject to certain risks
related to fluctuation in foreign currency exchange rates. In the fiscal year
ended January 31, 1998, due to a strengthening U.S. dollar and a weaker
Malaysian ringgit the Company's operating results were hurt by a $37,719 loss on
foreign currency exchange. In fiscal 1998, such loss amounted to only $900,
although the Company suffered a foreign currency translation adjustment of
($119,374). While future fluctuations in currency exchange rates
15
<PAGE>
could impact results of operations or financial conditions, foreign operations
are expected to continue to provide strong financial results and earnings
growth.
A number of economists, including some high in the United
States Government's financial circles, believe that predictable policies (e.g.,
pegging exchange rates, which Malaysia did in 1998, and sticking to that policy)
yields a key element of financial stability. That is a course which Malaysia has
chosen to follow. At the moment, the perception is that the financial crises
which began in mid-1997 in Southeast Asia is easing and may be ending, e.g., in
the first quarter of 1999, container traffic from the West Coast to East Asia
ran 10% ahead of projections. This appears to bode will for Malaysia.
Disclosures about Market Risk
The Company is exposed to market risks primarily from changes
in interest rates and foreign currency exchange rates. To manage exposure to
these fluctuations, the Company occasionally enters into various hedging
transactions. The Company does not use derivatives for trading purposes, or to
generate income or to engage in speculative activity, and the Company never uses
leveraged derivatives. The Company does not use derivatives to hedge the value
of its net investments in these foreign operations.
The Company's exposure to foreign exchange rate fluctuations
results from wholly-owned subsidiary operations in Malaysia, and from the
Company's share of the earnings of these operations, which are denominated in
the Malaysian ringgit.
Year 2000 Costs
The Company currently operates numerous date-sensitive
computer applications and network systems throughout its business. As the
century change approaches, it is essential for the Company to ensure that these
systems properly recognize the year 2000 and continue to process operational and
financial information. The Company recently upgraded its computer systems and is
year 2000 compliant.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standard (FAS 130),
16
<PAGE>
"Reporting Comprehensive Income." This statement establishes standards for
reporting and display of comprehensive income and requires that all components
of comprehensive income be reported in financial statement having the same
prominence as other financial statements. For the Company, FAS 130 was effective
in 1998, and it requires reclassification of prior period financial statements
for comparative purposes. Adoption of this standard should have little effect on
the Company's financial statements as the new requirements primarily involve
modifications to the way that existing information is displayed.
Also in June 1997, the FASB issued FAS 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement supersedes
FAS 14, "Financial Reporting of Segments of a Business Enterprise," by
establishing new standards for the way that a public business enterprise reports
operating segment information in its annual and interim financial statements. In
general, FAS 131 requires reporting of financial information as it is used by
senior company management for evaluating performance and deciding how to
allocate resources. The statement is effective for 1998, but need not be applied
to interim financial statements in that year. Comparative information for
earlier years must be restated.
Impact of Inflation
Although it is difficult to predict the impact of inflation on
costs and revenues of the Company in connection with the Company's products, the
Company does not anticipate that inflation will materially impact its costs of
operation or the profitability of its products.
Forward-Looking Statements
THIS "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION", CONTAINS STATEMENTS WHICH ARE NOT HISTORICAL FACTS AND ARE
FORWARD-LOOKING STATEMENTS WHICH REFLECT MANAGEMENT'S EXPECTATIONS, ESTIMATES
AND ASSUMPTIONS. SUCH STATEMENTS ARE BASED ON INFORMATION AVAILABLE AT THE TIME
THIS FORM 10K-SB WAS PREPARED AND INVOLVE RISKS AND UNCERTAINTIES THAT COULD
CAUSE FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO DIFFER
SIGNIFICANTLY FROM PROJECTED RESULTS. FACTORS THAT COULD CAUSE ACTUAL FUTURE
RESULTS TO DIFFER MATERIALLY INCLUDE, AMONG OTHERS, THE RISKS OF DOING BUSINESS
IN MALAYSIA AND SOUTHEAST ASIA, INCLUDING, WITHOUT LIMITATION, ECONOMIC AND
POLITICAL CONDITIONS,
17
<PAGE>
FOREIGN CURRENCY TRANSLATION RISKS, TARIFFS AND OTHER FOREIGN TRADE POLICIES AND
DEPENDENCE ON INEXPENSIVE LABOR IN SUCH COUNTRIES, PARTIAL DEPENDENCE ON THE
SEMICONDUCTOR MANUFACTURING INDUSTRY, AVAILABILITY OF RAW MATERIALS, INTENSE
COMPETITION AND TECHNOLOGICAL OBSOLESCENCE. THE COMPANY ASSUMES NO OBLIGATION TO
UPDATE SUCH FORWARD-LOOKING STATEMENTS, IF ANY, AT ANY TIME.
Item 7. Financial Statements.
The following are filed as part of this Report:
Consolidated Financial Statements:
Independent Accountants' Report
Consolidated Balance Sheet as at January 31, 1999
Consolidated Statement of Income (Loss) for the Years ended
January 31, 1999 and 1998
Consolidated Statement of Comprehensive Income for the Years
ended January 31, 1999 and 1998
Consolidated Statement of Cash Flows for the Years ended
January 31, 1999 and 1998
Consolidated Statement of Changes in Stockholders' Equity for
the Years ended January 31, 1999 and 1998
Notes to Consolidated Financial Statements
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
18
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange
Act.
The following table sets forth certain information concerning
the current directors and executive officers of the Company, who will serve for
one year or until their respective successors are elected and have qualified:
NAME AGE POSITION
Eugene J. Pian 59 President, Chief
Executive Officer
& Director
Craig Pian 37 Executive Vice
President, Treasurer
& Director
Francine Pian 39 Secretary
Tan Hun Chin 37 Director
Craig and Francine Pian are the children of Eugene Pian.
Eugene J. Pian. Mr. Pian has been President of the Company since April
1987. He was President of East Coast Sales from its inception in 1975 until its
acquisition by the Company in January 1990. From 1969 to 1975, he was Division
Manager of Consolidated Refining Company, where he was responsible for
organizing a division manufacturing the materials necessary to plate and stamp
semiconductor materials and supervising all sales and manufacturing. From 1960
to 1969, he was Vice President of Semi Alloys, Inc., where he was responsible
for the manufacture and sale of fabricated metal products to the semiconductor
industry.
Craig Pian. Mr. Pian has been Executive Vice President and Treasurer of the
Company since February 1, 1995. He has been employed by the Company since April
1987. Mr. Pian has been involved with all aspects of the Company's diamond
cutting tool and ceramic operations as well as the Company's United States
manufacturing, sales and administrative operations. Mr. Pian
19
<PAGE>
graduated Manhattan College with a Bachelor of Science Degree in
Business.
Francine Pian. Ms. Pian has been a director of the Company since March
1996. She has been employed by the Company since 1987, serving as its Secretary
since March 1996.
Tan Hun Chin. Mr. Tan, domiciled in Malaysia, has been a director of the
Company since November 1998. Since 1991 he has been a Managing Director of
Gentlecare Learning Center (M) Sdn. Bhd., a childcare center in Malaysia. Since
1996 he has been an Executive Director of Intellect Technology Aura (M) Sdn.
Bhd., an electronic sub-contract manufacturing company. He has been Managing
Director of Fuji Fabrication Sdn. Bhd. since it became a wholly-owned subsidiary
of the Company in June 1998. Mr. Tan has Management and Business degrees from
the United Kingdom and Canadian Universities.
Compliance with Section 16(a) of the Securities Exchange Act of
1934
The Company does not have any securities registered under Section 12 of the
Securities Exchange Act of 1934 and, accordingly, compliance with Section 16(a)
thereof is not required or applicable.
Item 10. Executive Compensation.
Employment Agreements.
Mr. Eugene Pian, the Company's President, serves under a five (5) year
employment agreement dated May 1, 1996 providing for (a) a base annual salary of
$100,000 plus annual increases as determined by the Board of Directors, but in
no event less than the increase in the Consumer Price Index over the preceding
calendar year, (b) a bonus equal to five percent (5%) of any increase in the
Company's consolidated net income and (c) an automobile allowance of $500 per
month or use of a Company car. Under the Agreement, Mr. Pian was granted five
(5) year options to purchase 1,000,000 shares of the Company's Common stock at
$.25 per share and 1,000,000 shares at $.10 per share. He may demand
registration by the Company under the Securities Act of all or any part of the
option shares as to which stock options have been exercised and may piggyback
any other shares which he owns.
20
<PAGE>
Mr. Craig Pian, the Company's Executive Vice President and Treasurer,
serves under a five (5) year employment agreement dated May 1, 1996 providing
for (a) a base annual salary of $75,000 plus annual increases as determined by
the Board of Directors, but in no event less than the increase in the Consumer
Price Index over the preceding calendar year, (b) a bonus equal to five percent
(5%) of any increase in the Company's consolidated net income, (c) an automobile
allowance of $500 per month or use of a Company car and (d) a one-time signing
bonus of $25,000. Under the Agreement, Mr. Pian was granted five (5) year
options to purchase 1,000,000 shares of the Company's Common stock at $.25 per
share and 1,000,000 shares at $.10 per share. He may demand registration by the
Company under the Securities Act of all or any part of the option shares as to
which stock options have been exercised and may piggyback any other shares which
he owns.
Director Compensation
Directors do not receive compensation for their services as directors, but
may be reimbursed for expenses incurred for attendance at meetings of the Board
of Directors.
Summary Compensation
The following Summary Compensation Table reflects certain information for
the Company's Chief Executive Officer and the Company's executive officers who
had total annual salary and bonus for any of the last three fiscal years
exceeding $100,000.
21
<PAGE>
Summary Compensation Table
Long Term
Annual Compensation Compensation
Other Securities
Name and Annual Underlying
Principal Salary Bonus Comp. (1) Options/
Position Year ($) ($) ($) SARs (#)
--------- ---- ------ ----- --------- --------
Eugene Pian, Chief 1998 107,499 - - 500,000
Executive 1997 101,662 1,868 - 1,000,000
Officer 1996 92,784 - - 1,000,000
Craig Pian, 1998 83,769 - 53,665 500,000
Executive Vice 1997 73,648 26,868 28,317 1,000,000
President and 1996 70,615 - 21,829 1,000,000
Treasurer
- --------------------
(1) Excludes perquisites and other benefits, unless the aggregate amount of
such compensation is at least the lesser of either $50,000 or 10% of
the total annual salary and bonus reported for the named executive
officer.
Options/SAR Grant Table: The following information is
provided for the Company's executive officers:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
Number of % of Total
Securities Options/SARs Exercise
Underlying Granted to or Base
Options/SARs Employees in Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date
Eugene Pian, 500,000 33% $.50 March 2003
Chief
Executive
Officer
Craig Pian 500,000 33% $.50 March 2003
22
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
The following table sets forth certain information as to the number of
shares of the Company's Common Stock deemed to be owned beneficially by each
person known by the Registrant to be the beneficial owner of more than 5% of the
outstanding Common Stock, each of its executive officers and directors, and all
of its executive officers and directors as a group, at April 15, 1999. Except as
indicated in the footnotes to this table, the Company believes that the named
persons have sole voting power with respect to the shares indicated:
Name and Address of Position Number Percentage
Beneficial Owner with Company of Shares of Class
Eugene J. Pian President and 5,574,000(1) 41%
c/o Semicon Tools, Inc. Director
554 North State Road
Briarcliff Manor, NY 10510
Craig Pian Executive Vice 3,010,000(2) 22
c/o Semicon Tools, Inc. President,
554 North State Road Treasurer and
Briarcliff Manor, NY 10510 Director
Francine Pian Secretary 785,500(3) 7
c/o Semicon Tools, Inc. and Director
554 North State Road
Briarcliff Manor, NY 10510
Tan Hun Chin Director 500,000(4) 4
#35,Lintang Delima 3, Greenlane
11700 Penang, Malaysia
All Directors and Executive 9,869,500(5) 58
Officers as a Group
(4 Persons)
(1) Includes currently exercisable options to purchase 2,500,000 shares of
Common Stock, and 1,552,613 shares of Common Stock held under voting trusts.
Each Voting Trust terminates when the shareholder sells his stock.
(2) Includes currently exercisable options to purchase 2,500,000 shares of
Common Stock.
(3) Includes currently exercisable options to purchase 500,000 shares of
Common Stock.
(4) Includes currently exercisable options to purchase 500,000 shares of
Common Stock.
(5) Includes currently exercisable options to purchase 6,000,000 shares of
Common Stock.
Item 12. Certain Relationships and Related Transactions.
N/A
23
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
(a) Index of Exhibits.
Exhibit Page
3(a) Articles of Incorporation1
3(b) By-Laws1
3(c) Amendment to Articles of
Incorporation2
10(a) Agreement of Merger with
Semicon Tools, Inc., a
New York Corporation2
10(b) Articles of Merger2
10(c) Certificate of Merger2
10(d) Patent License1
10(e) Patent No. 4,219.0041
10(f) License Agreement with Bookuk
Industry Company, Ltd.1
10(i) Thermode/Synthrode Supplier
Agreement1
10(j) East Coast Sales Acquisition
Agreement3
10(k) $300,000 Promissory Note3
10(l) Amendment to East Coast Sales
Acquisition Agreement4
10(m) Teik Tatt Holding Co. (1979)
Sdn. Bhd. Acquisition Agreement5
10(n) Teik Tatt Holding Co.
Disposition Agreement6
16 The required letter from the
former accountants7
21 List of Subsidiaries
27 Financial Data Schedule
1. Incorporated by Reference from Registrant's
Registration Statement on Form S-18 declared
effective on June 8, 1988.
2. Incorporated by Reference from Registrant's
Form 8-K Report dated May 19, 1987.
3. Incorporated by Reference from Registrant's
Form 8-K Report dated February 19, 1990.
4. Incorporated by Reference from Registrant's
Form 10-K Report for the year ended January 31,
1991.
5. Incorporated by Reference from Registrant's
Form 8-K Report dated December 9, 1997.
6. Incorporated by Reference from Registrant's
Form 8-K Report dated September 19, 1998.
7. Incorporated by Reference from Registrant's
Form 8-K Report dated January 29, 1993.
24
<PAGE>
Supplemental Information to be Furnished With
Reports Filed Pursuant to Section 15(d)
of the Exchange Act By Non-reporting Issuers
(1) No annual report to security holders covering the registrant's last
fiscal year was sent to security holders; and
(2) No proxy statement, form of proxy or other proxy soliciting material
has been sent to more than ten of the registrant's security holders with respect
to any annual or other meeting of security holders.
25
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SETO HOLDINGS, INC.
(Registrant)
By /s/ Eugene J. Pian
Eugene J. Pian, President
Date: April 29 1999
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
/s/ Eugene J. Pian
Eugene J. Pian
Director
Date: April 29, 1999
/s/ Craig A. Pian
Craig A. Pian
Director
Date: April 29, 1999
/s/ Francine Pian
Francine Pian
Director
Date: April 29, 1999
/s/ Tan Hun Chin
Tan Hun Chin
Director
Date: April 29, 1999
26
<PAGE>
EXHIBIT 21
Subsidiaries of
SETO Holdings, Inc.
Name of State/Jurisdiction
Subsidiary of Incorporation
Semicon Tools, Inc. New York
East Coast Sales Company, Inc. Connecticut
DTI Technology, Sdn. Bhd. Malaysia
Fuji Fabrication, Sdn. Bhd. Malaysia
27
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<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-31-1999
<EXCHANGE-RATE> 1
<CASH> 66,052
<SECURITIES> 0
<RECEIVABLES> 388,464
<ALLOWANCES> 10,500
<INVENTORY> 760,698
<CURRENT-ASSETS> 1,357,524
<PP&E> 1,126,255
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<TOTAL-ASSETS> 2,295,863
<CURRENT-LIABILITIES> 791,654
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0
0
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<CGS> 1,036,651
<TOTAL-COSTS> 1,432,671
<OTHER-EXPENSES> 900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53,647
<INCOME-PRETAX> 122,791
<INCOME-TAX> (109,750)
<INCOME-CONTINUING> 232,541
<DISCONTINUED> (459,503)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (226,962)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
