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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, 2000
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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
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SETO HOLDINGS, INC.
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(Name of small business issuer in its charter)
Nevada 77-00882545
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
554 North State Road
Briarcliff Manor, New York 10510
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(Address of principal executive offices) Zip Code
Issuer's telephone number (914) 923-5000
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Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange on
Title of each class which registered
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N/A N/A
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Securities registered under Section 12(g) of the Exchange Act:
N/A
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(Title of class)
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
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to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
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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. $6,643,088
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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. $26,339,671 as of April 17, 2000.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. 19,464,101 shares of Common Stock,
$.001 par value, outstanding as of April 13, 2000.
DOCUMENTS INCORPORATED BY REFERENCE - None
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PART I
Item 1. Description of Business.
General
With the recent acquisition of Hong Kong Batteries Industries, Ltd. and
Fimas Sdn Bhd., SETO Holdings, Inc. (formerly Semicon Tools, Inc.) (the
"Company"), a Nevada corporation, completely re-directed its business objectives
and mission. It now principally manufactures and/or distributes (1) power tool
batteries, (2) cellular telephone and other rechargeable batteries, (3) consumer
electronics and (4) industrial ceramic products. As a result, other products
which previously were major contributors to the Company's total revenue stream,
now play a reduced role in that regard, namely, the manufacture and distribution
of 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). Approximately 92.5% of
the Company's revenues are generated in Malaysia and other parts of Asia.
Business Development over the Past Three Years
Until mid-1998, 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. The
Company's customers for these products consist of hundreds of Fortune 1000
companies such as IBM, National Semiconductor, Motorola and General Motors.
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.
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 non-
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ferrous 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 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 and
operating results 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.
On November 19, 1999, the Company acquired all of the issued and
outstanding capital stock of Hong Kong Batteries Industries Ltd. ("HKbiL"), a
Hong Kong manufacturer and distributor of electronic components and batteries,
in exchange for 1,500,000 shares of the Company's common stock. In the event
that the Company makes available to HKbiL an aggregate of $700,000 and HKBI's
operations for the fiscal year ending January 31, 2001 generate net income of at
least $300,000, then the Company shall issue to the former stockholders of HKbiL
an additional 500,000 shares of the Company's common stock.
On November 27, 1999, the Company acquired all of the issued and
outstanding capital stock of Fimas Sdn Bhd. ("Fimas"), a Malaysian holding
corporation with a manufacturing facility in Malaysia and Suzhou, China, in
exchange for 5,000,000 shares of the Company's Common Stock. In the event that
the Company makes available to Fimas an aggregate of $1,500,000 for additional
working capital and Fimas' operations for the fiscal year ending March 31, 2001
generate net income of at least $1,000,000, then the Company will issue to the
former stockholders of Fimas an additional 1,000,000 shares of the Company's
Common Stock. Fimas manufactures electronic consumer products such as DVD
players, CD-Rom drives, home theater systems, CD players and a wireless
computer mouse.
On December 6, 1999, the Company entered into a joint venture with
International Bearing Networks, LLC ("IBN") a privately owned company in
California, to manufacture and supply a new diamond dicing blade developed by
IBN which is manufactured using a proprietary process called Diamond Life(TM).
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The acquisition of HKBI and Fimas marks the beginning of the Company's
emphasis on the design, manufacturing, marketing and distribution of products
for the electronics and telecommunications industries. In line with its new
direction, the Company has recently entered into a number of joint ventures
aimed at either providing support for its products' technological designs and
requirements or providing additional marketing and distribution capabilities. On
March 20, 2000, the Company entered into a joint venture agreement with
Circlecom Sdn Bhd. ("Circlecom"), a telecommunications company that uses Voice
Over Internet Protocol to provide telecommunications services through a network
with MCI-Worldcom. Circlecom has created and maintains virtual private networks
for the transmission of international calling traffic and provides video
communications through the distribution of a prepaid calling card. By entering
this joint venture with Circlecom, the Company hopes to penetrate the Malaysian
markets for government projects and to become a significant player in the
Malaysian Multinational Super Corridor, a business, public, banking and
government internet system in Kuala Lumpur.
On March 23, 2000 the Company acquired all of the assets of SETO (M)
Sdn Bhd. ("SETO (M)"), a joint venture formed between the Company and certain
individuals for the design and development of various telecommunications
products such as a Net PC, a Web handset, an Internet phone, an ADSL modem and a
PABX for Voice Over Internet Protocol. If SETO(M) attains a profit of $1,000,000
for the year ending January 31, 2001, the individuals would receive options to
purchase 300,000 shares of the Company's Common Stock at a price of $2.50 per
share. If SETO (M) attains a profit of $2.5 million for the year ending January
31, 2002, the individuals would receive options to purchase 600,000 shares of
the Company's Common Stock at a price of $3.50 per share.
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 ASIA, INCLUDING,
WITHOUT LIMITATION, ECONOMIC AND POLITICAL CONDITIONS,
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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 Company operates as a broad-based technical manufacturer and
distributor in two major areas: (1) consumer products, which includes cellular
phone batteries, power tool batteries and other rechargeable batteries for all
uses, and consumer electronics, and (2) technical products to industry, which
includes diamond tools, wafer fab supplies and technical ceramics.
The percentage contributions to the Company's sales by product line for
the fiscal years ended January 31, 1998, 1999 and 2000 are as follows:
Contribution to Total Sales
---------------------------
January 31,
Product line 1998 1999 2000
------------ ------ ------ ------
Cellular Telephone Batteries -- 16% 17%
Other Rechargeable Batteries -- -- 6
Consumer Electronics -- -- 46
Industrial Ceramic Products 64 55 20
Diamond Cutting Tools 29 23 9
Miscellaneous Products 8 5 2
Cellular Telephone, Power Tool and Other Rechargeable Batteries
The Company manufactures rechargeable battery packs principally for
cellular telephones, power tools, notebook computers, and camcorders. These
products are manufactured by the Company in Malaysia and mainland China, based
on battery designs and modifications engineered 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 recently entered
into joint venture agreements with two third-party suppliers in China to supply
batteries to the Company when the Company receives an order that is
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beyond its manufacturing capacity or is for a product which the Company does not
now manufacture. The Company's products include replacement batteries for such
major cellular phone companies as Ericsson, Nokia, Panasonic, NEC and OKI and
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 phone 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, price and availability.
Consumer Electronics
The Company manufactures a variety of consumer electronic products
including DVD players, CD-Rom drives, home theatre systems, CD players and a
wireless mouse. These products, which bear the SETO brand name, are manufactured
by the Company at manufacturing facilities in Suzhou, China, a suburb of
Shanghai, and Kulim, Malaysia. The products are sold directly to the consumer
via the Company's SETO E MALL website, and to companies such as ACER
Technologies, Lite-On Technology, Philips Sound Systems and SONY Electronics.
The Company has an insignificant share of the consumer electronics market and
competes on the basis of quality, price and availability.
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 fabricated, 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,
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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, 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.
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 preserve a contamination-free environment, and they are
primarily marketed to IBM and Lucent Technologies.
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
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the Company's control could adversely impact their future availability.
Backlog
As of January 31, 2000, the Company had a backlog of orders of
approximately $11 million, all of which it expects to ship by June 30, 2000.
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, price and availability.
Marketing
The Company markets its products through joint ventures, account
representatives, distributors, telephone solicitations, participation in trade
shows, the Internet and advertisements in trade journals.
Manufacturing Facilities
In Briarcliff, New York, the Company operates a machine shop and a
manufacturing facility for resin/diamond dicing blades. The Company leases 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. The Company also
manufactures rechargeable batteries at a facility in Shenzhen, China and it
manufactures consumer electronics in its facilities in Kulim, Malaysia and
Suzhou, China. See Item 2 below, "Description of Property."
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Government Regulation
The Company believes its operations and facilities are in compliance
with all federal, state and local environmental laws in the United States,
Malaysia and China. 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, 2000 and 1999, the Company spent
approximately $350,000 and $50,000, respectively, on its research and
development activities.
Employees
The Company employs approximately 500 full-time employees, of which 20
work in its diamond tools and ceramics facilities, 30 work in its battery pack
facilities and 450 work in its consumer electronics 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
addition, the Company owns three facilities in Kulim, which includes facilities
to manufacture consumer electronics as well as office space and 15,248 square
feet of manufacturing space. There are mortgages on the facilities in Kulim
totaling $213,000 for which Fimas' land and buildings are pledged as collateral.
In mainland China, the Company owns one office and one factory in
Suzhou where it manufactures consumer electronics. The combined square footage
of the consumer electronics manufacturing space in Suzhou and Kulim is 17,809
square feet. The combined square footage of the office space in its consumer
electronics facilities in Suzhou and Kulim is 7,324 square feet. The Company
also owns 1700 square feet of manufacturing and warehouse space in Shenzhen
where it manufactures rechargeable batteries, as well as 500 square feet of
office space.
In the United States, the Company leases approximately 2,400 square
feet of manufacturing and warehouse space and 1,200 square feet of office space
in Briarcliff Manor, New York, from
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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.
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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 calendar quarter within the
last two fiscal years, and for the first calendar quarter of 2000, 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.
2000 Low High
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First quarter $.38 $2.75
1999
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First quarter .14 1.625
Second quarter .30 .67
Third quarter .30 .55
Fourth quarter .40 .76
1998
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First quarter .29 .70
Second quarter .61 .9
Third quarter .19 .80
Fourth quarter .20 .335
Holders
As of April 13, 2000, there were 325 record holders of the Company's
Common Stock.
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
(the "Securities Act"), in
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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 in exchange for all of the issued
and outstanding stock of Fuji Fabrication Sdn. Bhd. The shares were issued to
Tan Hun Hooi.
On December 10, 1999, the Company issued 1,500,000 shares of its Common
Stock pursuant to Section 4(2) of the Securities Act in exchange for all of the
issued and outstanding stock of Hong Kong Batteries Industries, Ltd. The shares
were issued as follows: 900,000 shares to To Wai Kwong Tommy and 600,000 shares
to Siu Suet Ping.
On December 12, 1999, the Company issued 5,000,000 shares of its Common
Stock pursuant to Section 4(2) of the Securities Act in exchange for all of the
issued and outstanding stock of Fimas Sdn Bhd. The shares were issued as
follows: 2,475,000 shares to Yap Hun Kok; 825,000 shares to Lim Ah Huat; 825,000
shares to Voon Soo Tuck; 150,000 shares to Voon Su Piang; 150,000 shares to Wang
Yunn Ing; 100,000 shares to Tiew Cheow Nan; and 475,000 shares to Fimas Global
Sdn Bhd.
On January 28, 2000, the Company issued 250,000 shares of its Common
Stock to an individual who rendered consulting services to the Company valued at
$68,000 in connection with the Company's acquisition of Fimas. The shares were
issued pursuant to Section 4(2) of the Securities Act.
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,
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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.
Item 6. Management's Discussion and Analysis or Plan of Operation.
GENERAL
During fiscal year 1999 ending January 31, 2000, the Company continued to
significantly expand its Consumer Products Sector of business while its
Industrial Products to Industry Sector plateaued and is anticipated, in the
future, to play a reduced role in the Company's growth. The prime reasons for
the degree of growth were two acquisitions made in November 1999.
During the fiscal year, disregarding the impact of the results of operations
which were discontinued with the dissociation in September 1998 of an earlier
acquisition due to unsuspected and serious credit deviations from that which
were obligated, the Company experienced its highest annual sales and income
from operations in its history and achieved its greatest net worth.
More specifically, these results are attributable to sales of the cellular
battery product line initiated with the acquisition in mid-1998 of Fuji
Fabrications SDN BHD ("Fuji") (an increase of 157% to $1,102,258); the
rechargeable battery product line initiated with acquisition at 1999 year-end
of Hong Kong Batteries Industries, Ltd. ("HKBI") ($376,486 in sales over only a
10 week period, whereas there was none the fiscal year previous); and the
consumer electronics product line initiated with the acquisition at 1999 year-
end of Fimas SDN BHD ("Fimas") ($3,084,159 in sales over only a 9 week period,
whereas there was none the fiscal year previous).
The Company's financial condition remains healthy. As of January 31, 2000, both
total assets at $13,484,786 and total current assets at $6,821,915 increased
over the previous quarter's report by approximately 4 and 3 times respectively.
Similarly, cash and total shareholders' equity increased over that at October
31, 1999 several times along with an associated requirement of an in-line
increase in long-term debt of approximately 3 times. These results are mostly
also attributable to the above mentioned acquisitions and the consolidation
process.
The Company has operations in several countries in the Far East: Malaysia, China
and Hong Kong and Thailand. Altogether, it derives approximately 68.5% of its
revenues from that part of the world; whereas most of its foreign subsidiaries
are Malaysian with some fabrication plants located in China. Thus, economic and
political conditions in Malaysia and China are of major interest to the Company.
As for Malaysia, it appears to be economically strong with a projected 5.3%
growth for the current year. In addition, its banking system, although still
carrying a large amount of non-performing assets on their books, is
restructuring to become a sturdy, competitive one.
In China, with an emphasis on acceptance into the World Trade Organization and
Permanent Normal Trade Relations with the U.S., the Government appears to be
planning and taking steps to level the economic playing field not only between
private and state enterprises, but between foreign and domestic firms. The
market reforms are occurring and increased economic opportunity will increase as
foreign and private firms invest. The Company believes, however, that regardless
of the final WTO outcome, its Chinese operations will continue to profit and
expand with an excellent chance for normalization in U.S. trade relations.
In any event, although no assurance can be given, the Company believes that
regional conditions and circumstances will have no material adverse effect on
the operations or financial condition during the fiscal year beginning February
1, 2000.
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In fiscal 2000, Management believes that the cellular phone and power tool
battery lines and the consumer electronic lines will grow substantially,
especially with a full year of sales from Fimas and HKBI. It is anticipated that
revenues and net income both will increase almost an order of magnitude. This
latter statement is reinforced by unaudited proforma financial statements which
incorporate Fimas and HKBI as if they were part of the Company for the entire
fiscal year of 1999: sales of $21,661,373, net income of $571,146 from
continuing operations and earnings per share from continuing operations of
$0.048. Further reinforcement emanates from the marketplace itself; namely: a
significant portion of the Company's product lines is being driven by the two
biggest technological trends, namely: mobile phones and the Internet. As global
businesses, they are still in its infancy. The prospects for the future globally
appears to be without bounds and thus, the affected Company product lines are
expected to realize increasing revenues. As an example, last year, Europe's
cellfone population exploded from 93 million to 170 million whereas the
worldwide increase was 283 million.
To sell its product lines, SETO Holdings, Inc. aggressively markets its products
through advertisements in trade journals, account representatives, distributors,
trade shows, telephone solicitations, and now, the Internet.
The manufacture and distribution of such a wide range of products by all the
company subsidiaries has allowed management to maximize the effectiveness of its
marketing operations enabling them to offer customers the most expansive
selection of needed disposable products. As of this report, the Company's
backlog is approximately $11 million all of which is expected to be shipped by
June 30th.
FISCAL 1999 COMPARED TO FISCAL 1998
- -----------------------------------
In the fiscal year ended January 31, 2000, net sales increased 151%, from
$2,646,650 to $6,643,088; and income from operations increased 60.7% from
$177,328 to $264,970 compared to the prior year. Net income after taxes in the
current fiscal year was $86,241 compared to a loss of $232,541 in the fiscal
year ended January 31, 1999. Several factors affecting these and other results
are:
1. The Company's product mix is now skewed towards batteries and consumer
electronics representing 68.7% of revenues. As a consequence, gross profit
margins decreased 51.8% from the previous year, going from 60.8% to 29.3%.
This trend will continue because the newer lines will become a greater
portion of sales and are more competitively priced.
2. Selling, general and administrative expenses in the current fiscal year of
$1,659,998 represented only 25.0% of sales compared to the 54.1% for the
year ended January 31, 1999. This is a result of selling, general and
administrative expenses stabilizing whereas net sales increased
significantly. With the continuing growth in sales which Management
forecasts, selling general and administrative will represent a smaller and
smaller portion of sales, improving the potential for profitability.
3. Whereas interest expense in the current fiscal year slightly more than
doubled, it remained approximately at the same pro-rated portion of sales.
Management believes, therefore, that its funding actions are cautious and
appropriate. As pointed out in the previous Section, on a consolidated
yearly basis with acquisitions incorporated for the entire year,
substantially higher sales and net profit are realized. Management
believes, therefore, that the growth trend predicted will bring with it:
1. An improvement in all or most operating ratios.
2. Increasing profitability and higher earnings per share.
<PAGE> 16
FISCAL 1998 COMPARED TO FISCAL 1997
- -----------------------------------
Including discontinued operations, in the fiscal year ended January 31, 1999 the
Company has 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 expense 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, 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.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At January 31, 2000, the Company has current assets of $6,821,915, including
$363,372 of unrestricted cash, and current liabilities of $5,431,490 yielding a
positive working capital position of $1,390,425 and a current ratio of 1.26:1.
Dun and Bradstreet, in a report dated March 3, 2000, stated that SETO Holdings,
Inc.'s financials as of October 31, 1999, the latest report it had, reflected a
satisfactory liquidity position and a fair debt to equity ratio compared to
other companies in the same line of business. These standard measures of a
company's ability to meet its current obligations reflect positively on the
Company's financial standing. In addition, it demonstrates an ability to
internally generate or, as a result, obtain funds necessary to support its
current level of business and enables the Company to obtain favorable payment
terms from its suppliers because of its credit-worthiness.
Not reflected in the financials is the post closing sale of $1,150,000 of
restricted stock, a direct cash infusion. In addition, the Company benefited
from the exercise of stock options ($90,000) and improved on its line of credit
to $750,000, an increase of approximately $150,000, by replacing a bank source
with an institutional source, Merrill Lynch Business Financial Services, Inc.
("Merrill"). Merrill has also indicated that the size of the line could grow
with the Company's progress. These transactions, coupled with the profit
throw-offs allow for the near term cash flow required for the Company's sales
growth in the next several months, the expansion of the Company's office staff
and a marketing effort inclusive of the SETO web site.
Management believes other extraordinary growth potential exists via
acquisitions. If in the Far East, it anticipates utilizing a non-cash investment
via the use of common stock; and if in the United States, cash or partial cash
will be required. In either case, Management anticipates that it will also have
to supply working capital following a completed transaction. Although in the
process of discussions for loan and investment support for these purposes and
for anticipated growth in its current businesses, no assurance can be given that
such financing will be successfully obtained when required.
Within the next few months, a new saw used in cutting ceramics and other hard
materials is the only equipment which the Company anticipates purchasing at a
cost of $52,000. Management has decided to lease the saw and already has
identified and negotiated for it.
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 Malaysian
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.
<PAGE> 17
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, loss on foreign
currency exchange was only $900, although the Company suffered a foreign
currency translation adjustment of ($119,374). In fiscal 1999 the loss on
foreign currency exchange was $529, although the Company suffered a foreign
currency translation adjustment of ($79,601).
Management believes that for fiscal year 2000, two factors will continue to keep
its foreign currency exchange losses extremely low: Malaysian and Chinese
exchange rates are fixed relative to the U.S. Dollar; and, outside of these
prime Company operating areas, the Company deals in U.S. Dollars almost
exclusively. As a by-product, a number of economists believe that such
predictable policies such as pegging exchange rates yields a key element of
financial stability.
While future fluctuations in currency rates could impact results of operations
or financial conditions, foreign operations are expected to continue to provide
strong financial results and earnings growth.
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 ringit.
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 during fiscal year 2000.
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, foreign currency translation risks, tariffs and other foreign trade
policies and dependence on inexpensive labor in such counties, 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.
<PAGE> 18
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
Seto Holdings, Inc. and Subsidiaries
Briarcliff Manor, New York
We have audited the consolidated balance sheet of Seto Holdings, Inc. and
Subsidiaries as of January 31, 2000 and the related consolidated statements of
income (loss), comprehensive income, cash flows and changes in shareholders
equity for the years ended January 31, 2000 and 1999. 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, Fuji Fabrication SDN
BHD, Hong Kong Batteries Industries, Ltd. and Fimas, SDN BHD, wholly owned
subsidiaries, which statements reflect total assets of $9,835,874 at January 31,
2000 and total sales for the years ended January 31, 2000 and 1999 of $4,558,076
and $675,022, 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,
Hong Kong Batteries Industries, Ltd. and Fimas, 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. and
Subsidiaries as of January 31, 2000 and the results of their operations and
their cash flows for the years ended January 31, 2000 and 1999, in conformity
with generally accepted accounting principles.
Zeller Weiss & Kahn, LLP
April 28, 2000
Mountainside, New Jersey F-1
<PAGE> 19
<TABLE>
<CAPTION>
SETO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET - JANUARY 31, 2000
ASSETS
<S> <C>
Current assets:
Cash $ 363,372
Accounts receivable, less allowance
for doubtful accounts of $10,350 3,514,959
Inventory 2,402,793
Prepaid expenses and other current assets 430,199
Deferred tax asset, current portion 110,592
------------
Total current assets 6,821,915
------------
Property and Equipment 4,193,846
------------
Other assets:
Goodwill, net of amortization 2,205,146
Security deposits 39,345
Deferred tax asset, net of current portion 224,534
------------
2,469,025
------------
$ 13,484,786
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 512,853
Notes payable, bank 1,943,653
Accounts payable 1,762,779
Accrued expenses 1,060,377
Income taxes payable 151,828
------------
Total current liabilities 5,431,490
------------
Long-term debt, net of current portion 1,242,311
------------
Deferred lease liability 10,500
------------
Deferred income taxes payable 130,823
------------
Commitments and contingencies
Shareholders' equity:
Common stock par value $.001; 100,000,000
shares authorized 18,118,500 shares issued 18,119
Additional paid in capital 8,152,075
Currency translation adjustment ( 198,975)
Retained earnings (deficit) ( 1,292,531)
------------
6,678,688
Less common shares held in treasury, 29,400
shares at cost 9,026
------------
Total shareholders' equity 6,669,662
------------
$ 13,484,786
============
</TABLE>
See notes to consolidated financial statements. F-2
<PAGE> 20
<TABLE>
<CAPTION>
SETO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (LOSS)
YEARS ENDED JANUARY 31, 2000 AND 1999
2000 1999
---- ----
<S> <C> <C>
Net sales $ 6,643,088 $ 2,646,650
Cost of sales 4,698,120 1,036,651
----------- -----------
Gross profit 1,944,968 1,609,999
Selling, general and administrative
expenses 1,659,998 1,432,671
----------- -----------
Income from operations 284,970 177,328
----------- -----------
Other income (expenses):
Interest expense ( 177,972) ( 53,637)
Loss on foreign currency exchange ( 529) ( 900)
Interest income 6,238
----------- -----------
( 172,263) ( 54,537)
----------- -----------
Income before income taxes 112,707 122,791
Income tax expense (benefit) 26,466 ( 109,750)
----------- -----------
Income from continuing operations 86,241 232,541
----------- -----------
Discontinued operations:
Income from operations of subsidiary 1,017,537
Loss on disposal of subsidiary ( 1,477,040)
------------
( 459,503)
-----------
Net income (loss) $ 86,241 ($ 226,962)
=========== ===========
Earnings per share information:
Basic income from continuing operations $ .01 $ .02
Loss from discontinued operations .00 ( .03)
----------- -----------
$ .01 ($ .01)
=========== ===========
Fully diluted:
Income from continuing operations $ .01 $ .02
Loss from discontinued operations .00 ( .03)
----------- -----------
$ .01 ($ .01)
=========== ===========
</TABLE>
See notes to consolidated financial statements. F-3
<PAGE> 21
SETO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEARS ENDED JANUARY 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Net income (loss) $ 86,241 ($226,962)
Other comprehensive income, net of tax:
Foreign currency translation adjustment ( 79,601) 466,126
--------- ---------
Comprehensive income $ 6,640 $ 239,164
========= =========
</TABLE>
See notes to consolidated financial statements. F-4
<PAGE> 22
<TABLE>
<CAPTION>
SETO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED JANUARY 31, 2000 AND 1999
2000 1999
--------- ---------
<S> <C> <C>
Operating activities:
Income from continuing operations $ 86,241 $ 232,541
Adjustments to reconcile net income to cash
provided by continuing operations:
Depreciation and amortization 168,741 50,667
Compensatory stock issued 50,800 5,000
Loss on foreign currency exchange 900
Loss on sale of assets 2,064
Changes in other operating assets and
liabilities:
Accounts receivable ( 533,851) ( 85,190)
Inventories 262,731 ( 382,242)
Prepaid expenses and other current assets 36,635 20,803
Deferred tax assets ( 11,126) ( 109,750)
Other assets 3,861
Accounts payable and accrued expenses ( 377,094) 189,655
Income taxes payable 151,828
Deferred lease liability 6,000 4,500
Deferred income taxes 35,560
--------- ---------
Net cash used in operating activities ( 121,471) ( 69,255)
--------- ---------
Investing activities:
Cash acquired on acquisition of subsidiaries 313,565
Purchase of property and equipment ( 109,647) ( 341,440)
Increase in loan receivable, officer ( 10,815)
Proceeds from sale of assets 2,659
--------- ---------
Net cash provided by (used in) investing
activities 206,577 ( 352,255)
--------- ---------
Financing activities:
Proceeds from issuance of common stock 90,000 120,000
Proceeds from financing 290,524 387,352
Payment of debt ( 450,238) ( 140,387)
Purchase of treasury stock ( 15,166)
Increase in loans from directors 206,038
--------- ---------
Net cash provided by financing activities 136,324 351,799
--------- ---------
Effect of exchange rate changes on cash 75,890 29,668
--------- ---------
Net increase (decrease) in cash 297,320 ( 40,043)
Cash, beginning of year 66,052 106,095
--------- ---------
Cash, end of year $ 363,372 $ 66,052
========= =========
</TABLE>
See notes to consolidated financial statements. F-5
<PAGE> 23
<TABLE>
<CAPTION>
SETO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
YEARS ENDED JANUARY 31, 2000 AND 1999
Equity
adjustment
Additional from foreign Retained
Common paid in currency earnings
Shares stock capital translation (deficit)
------ ----- ------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance, January 31, 1998 19,867,500 $ 19,868 $ 9,132,089 ($ 585,500) ($1,151,810)
Cancellation of shares issued regarding
acquisition of subsidiary, Teik Tatt,
SDN BHD (10,000,000) (10,000) (6,614,143)
Issuance of shares regarding acquisition
of subsidiary, Fuji Fabrication, SDN BHD 100,000 100 99,900
Shares issued for cash 450,000 450 119,550
Shares issued for services 131,000 131 42,229
Purchase of treasury stock
Foreign currency translation adjustment
for the year ended January 31, 1999 466,126
Net loss for the year ended January 31,
1999 (226,962)
----------- ----------- ----------- --------- -----------
Balance, January 31, 1999 10,548,500 10,549 2,779,625 (119,374) (1,378,772)
Issuance of shares regarding acquisition
of subsidiary, Hong Kong Batteries
Industries, Ltd. 1,500,000 1,500 725,500
Issuance of shares regarding acquisition
of subsidiary, Fimas, SDN BHD 5,250,000 5,250 4,513,112
Shares issued for cash 330,000 330 87,170
Shares issued for services 510,000 510 129,290
Shares cancelled (20,000) (20) (82,622)
Foreign currency translation adjustment
for the year ended January 31, 2000 (79,601)
Net income for the year ended January
31, 2000 86,241
----------- ----------- ----------- --------- -----------
Balance, January 31, 2000 18,118,500 $ 18,119 $ 8,152,075 ($198,975) ($1,292,531)
=========== =========== =========== ========= ===========
<CAPTION>
Total
Treasury Shareholders'
stock equity
----- ------------
<S> <C> <C>
Balance, January 31, 1998 $ 7,414,647
Cancellation of shares issued regarding
acquisition of subsidiary, Teik Tatt,
SDN BHD (6,624,143)
Issuance of shares regarding acquisition
of subsidiary, Fuji Fabrication, SDN BHD 100,000
Shares issued for cash 120,000
Shares issued for services 42,360
Purchase of treasury stock ($15,166) (15,166)
Foreign currency translation adjustment
for the year ended January 31, 1999 466,126
Net loss for the year ended January 31,
1999 (226,962)
----------- -----------
Balance, January 31, 1999 (15,166) 1,276,862
Issuance of shares regarding acquisition
of subsidiary, Hong Kong Batteries
Industries, Ltd. 727,000
Issuance of shares regarding acquisition
of subsidiary, Fimas, SDN BHD 4,518,362
Shares issued for cash 87,500
Shares issued for services 129,800
Shares cancelled 6,140 (76,502)
Foreign currency translation adjustment
for the year ended January 31, 2000 (79,601)
Net income for the year ended January
31, 2000 86,241
----------- -----------
Balance, January 31, 2000 ($ 9,026) $ 6,669,662
=========== ===========
</TABLE>
See notes to consolidated financial statements. F-6
<PAGE> 24
SETO HOLDINGS, 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 five subsidiaries with their own product
lines.
East Coast Sales Company, Inc. ("ECS") is a Connecticut corporation which
distributes and fabricates industrial ceramic products and distributes
clean room supplies and tools.
DTI Technology, SDN BHD ("DTI") is a Malaysian company which manufactures
a product line similar to that of Seto Holdings, Inc.
Fuji Fabrication, SDN BHD ("FUJI") is a Malaysian corporation which
manufactures cellular phone replacement batteries.
Hong Kong Batteries Industries Ltd. ("HKBI"), based in Hong Kong with
manufacturing facilities in Main Land China, manufactures batteries
for consumer products.
Fimas, SDN BHD, based in Malaysia, with manufacturing facilities in Main
Land China, manufactures consumer electronic products.
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, Fuji Fabrication SDN BHD, Hong
Kong Batteries Industries Ltd. and Fimas, 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.
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.
F-7
<PAGE> 25
SETO HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of significant accounting policies (continued):
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.
Income taxes:
The Company has elected to file a consolidated corporate income tax
return with its domestic subsidiary. 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:
Statement of Financial Accounting Standards (SFAS) No. 106,
"Employers' Accounting for Post Retirement Benefits Other Than Pensions"
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.
F-8
<PAGE> 26
SETO HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of significant accounting policies (continued):
Allowance for doubtful accounts:
An allowance 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.
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:
Buildings $ 351,863
Leasehold improvements 602,890
Manufacturing equipment 5,313,072
Office equipment 501,196
----------
6,769,021
Less accumulated depreciation 2,575,175
----------
$4,193,846
==========
F-9
<PAGE> 27
SETO HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Goodwill:
In January, 1990, the Company acquired East Coast Sales Company 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 $42,114 as of January 31, 2000.
In June, 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 $831
as of January 31, 2000.
In November, 1999, the Company acquired Hong Kong Batteries
Industries, Ltd. for a cost of $727,000. The purchase price exceeded the
net book value of the acquired company by $747,300 which amount was
assigned to goodwill and is being amortized on a straight-line basis over
forty years. Also in November, 1999, the Company acquired Fimas, SDN BHD
for a cost of $4,518,363. The purchase price exceeded the net book value
of the acquired company by $1,333,217. Accumulated amortization of
goodwill aggregated $8,811 at January 31, 2000.
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, 2001 $ 60,000
January 31, 2002 60,000
January 31, 2003 60,000
January 31, 2004 64,500
January 31, 2005 66,000
Thereafter 574,500
--------
$885,000
========
Rent expense amounted to $66,000 for the year ended January 31, 2000
and $69,483 for 1999.
The Company also leases three vehicles under operating leases with
terms expiring through 2003. Total lease expense was $34,452 and $33,317
for the year ended January 31, 2000 and 1999, respectively.
F-10
<PAGE> 28
SETO HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Common stock:
During the year ended January 31, 2000, the Company issued 330,000
shares of its common shares with net proceeds of $90,000 upon the exercise
of certain common stock purchase options.
The Company issued 6,750,000 shares in connection with its acquisition
of Hong Kong Batteries Industries, Ltd. and Fimas, SDN BHD.
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, 2000, the Company had
utilized $279,135 of this line.
Long-term debt of the domestic companies consists of the following:
Balance
January 31,
Rate 2000 Maturity
---- ---- --------
Notes payable:
Bank (a) 8.45% $120,833 2002
Shareholder (b) 10% 64,108 2001
Shareholder (c) 15% 139,471 2003
Shareholder (d) 10% 78,730 2002
Shareholder (e) 57,100 none
--------
460,242
Less current portion 170,802
--------
$289,440
========
(a) The note is payable in monthly installments of $4,167 plus interest.
(b) The note is payable in monthly installments of $4,053 including
interest.
(c) The note is payable in monthly installments of $4,731 including
interest.
(d) The note is payable in monthly installments of $3,633 including
interest.
(e) The Company's principal shareholder has advanced non-interest bearing
funds to the Company. Approximately, $36,000 of this amount is
subordinated to the loans from the bank.
F-11
<PAGE> 29
SETO HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Notes payable and long-term debt (continued):
The maturities of these loans are as follows:
January 31, 2001 $170,802
January 31, 2002 155,062
January 31, 2003 72,605
January 31, 2004 4,673
Indefinite 57,100
--------
$460,242
========
Notes payable and long-term debt of the foreign subsidiaries consist of the
following:
Fimas:
Notes payable:
Bankers acceptances $1,024,210
Bank overdrafts 538,678
ECR 101,630
----------
$1,664,518
==========
Long-term debt:
Principal loan $ 352,191
Capitalized lease 488,375
----------
840,566
Less current portion 333,630
----------
506,936
Amount due directors 218,998
----------
$ 725,934
==========
The Company's land and buildings are pledged as collateral. The loans,
which are guaranteed jointly and severally by the Company's directors,
carry interest rates between 2% and 2.25% above the lender's base lending
rates. The directors of Fimas have made interest-free advances to the
Company which are unsecured and have no fixed repayment terms.
DTI:
Capitalized lease $45,681
Current portion 8,421
-------
$37,260
=======
Hong Kong Batteries Industries, Ltd.:
The directors of Hong Kong Batteries have made interest-free advances
to the Company in the amount of $189,678 which are unsecured and have no
fixed repayment terms.
F-12
<PAGE> 30
SETO HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Income taxes:
Provision for income taxes (benefit):
2000 1999
--------- ---------
Domestic:
Current 0 0
Deferred ($ 11,126) ($109,750)
--------- ---------
Total benefit (11,126) (109,750)
--------- ---------
Foreign:
Current 0 0
Deferred 37,592 0
--------- ---------
37,592 0
--------- ---------
Total $ 26,466 ($109,750)
========= =========
A reconciliation of the income tax provision at the federal statutory
rate to the income tax provision at the effective tax rate is as
follows
2000 1999
--------- ---------
Income tax computed at the domestic
federal statutory rates 0 0
State tax (net of federal benefit) 0 0
Reduction on valuation allowance ($ 11,126) ($109,750)
Foreign deferred taxes 37,592 0
--------- ---------
Provision (credit) for income taxes $ 26,466 ($109,750)
========= =========
The components of deferred tax assets and liabilities consist of the
following:
Deferred tax asset:
Net operating loss carryforward $475,000 $475,000
-------- --------
Total deferred tax asset 475,000 475,000
Valuation allowance 139,874 151,000
-------- --------
$335,121 $324,000
======== ========
F-13
<PAGE> 31
SETO HOLDINGS, 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, 2000, 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, 2000.
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> 32
SETO HOLDINGS, 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, 2000.
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:
2000 1999
---------- ----------
Weighted average number of
common shares outstanding 12,029,547 10,300,219
Assumed conversion of
stock options 6,070,000
---------- ----------
Weighted average number of
common shares outstanding 18,099,547 10,300,219
========== ==========
The conversion of stock options was not assumed for the year ended January
31, 1999 as the effect would be antidilutive.
F-15
<PAGE> 33
SETO HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Acquisition of subsidiary, Fimas, SDN BHD:
In November, 1999, the Company purchased 100% of the outstanding
common shares of Fimas, SDN BHD in a transaction accounted for as a
purchase. The Company issued 5,000,000 shares of its common stock valued
at $.89 per share.
The assets acquired and liabilities assumed as of the date of the
acquisition, are as follows:
Current assets $4,489,000
Non-current assets 3,514,000
----------
8,003,000
Liabilities 4,817,854
----------
Net assets acquired 3,185,146
Purchase price 4,518,363
----------
Excess of purchase price over
net assets acquired $1,333,217
==========
13. Acquisition of subsidiary, Hong Kong Batteries Industries, Ltd.:
In November 1999, the Company purchased 100% of the outstanding
common shares of Hong Kong Batteries Industries, Ltd. in a transaction
accounted for as a purchase. The Company issued 1,500,000 of its common
stock valued at $.484 per share.
The assets acquired and liabilities assumed as of the date of the
acquisition are as follows:
Current assets $494,276
Non-current assets 85,238
--------
579,415
Liabilities 599,814
--------
Net assets acquired ( 20,300)
Purchase price 727,000
--------
Excess of purchase price over
net assets acquired $747,300
========
F-16
<PAGE> 34
SETO HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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>
Exercise Expiration
Date Amount Price Date
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
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 70,000 .25 06/09/00
</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> 35
SETO HOLDINGS, 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:
January 31, January 31,
2000 1999
----------- -----------
Sales to customers:
Industry A:
Ceramics $ 1,324,519 $ 1,461,621
Industry B:
Diamond tools 612,793 617,140
Industry C:
Cellular batteries 1,102,258 428,850
Industry D:
Rechargeable batteries 376,486
Industry E:
Consumer electronics 3,084,519
Miscellaneous 142,513 139,039
----------- -----------
$ 6,643,088 $ 2,646,650
=========== ===========
Operating profit or loss:
Industry A $ 333,978 $ 438,477
Industry B ( 245,384) ( 353,558)
Industry C 20,046 37,872
Industry D 18,801
Industry E 157,529
----------- -----------
$ 284,970 $ 122,791
=========== ===========
Identifiable assets:
Industry A $ 434,250 $ 441,285
Industry B 1,660,441 1,303,039
Industry C 626,089 116,819
Industry D 543,287
Industry E 7,973,651
----------- -----------
$11,237,718 $ 1,861,143
=========== ===========
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:
January 31, January 31,
2000 1999
---------- ----------
Sales to customers:
United States $1,579,586 $1,604,300
Far East 4,551,582 476,970
Canada 511,920 565,380
---------- ----------
$6,643,088 $2,646,650
========== ==========
F-18
<PAGE> 36
SETO HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Principal products and segmentation of sales (continued):
<TABLE>
<CAPTION>
January 31, January 31,
2000 1999
----------- -----------
<S> <C> <C>
Operating profit:
United States $ 67,760 $ 74,431
Far East 195,250 22,129
Canada 21,960 26,231
----------- -----------
$ 284,970 $ 122,791
=========== ===========
Identifiable assets:
United States $ 1,419,984 $ 1,128,156
Far East 9,624,348 335,410
Canada 193,386 397,577
----------- -----------
$11,237,718 $ 1,861,143
=========== ===========
</TABLE>
17. Supplemental cash flow information:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Interest paid during the year $ 177,972 $ 53,656
========== ==========
Income taxes paid during the year $ 0 $ 0
========== ==========
Supplemental schedule of non-cash
investing and financing activities:
Issuance of common shares for
purchase of subsidiaries $5,245,363 $ 100,000
========== ==========
</TABLE>
F-19
<PAGE> 37
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
19
<PAGE> 38
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 60 President, Chief
Executive Officer
& Director
Craig Pian 38 Executive Vice
President, Treasurer
& Director
Francine Pian 40 Secretary
Tan Hun Chin 38 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 graduated Manhattan
College with a Bachelor of Science Degree in Business.
20
<PAGE> 39
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.
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
21
<PAGE> 40
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 $100,000.
Summary Compensation Table
Long Term
Annual Compensation Compensation
------------------- ------------
Other Securities
Name and Annual Underlying
Principal Salary Bonus Comp. (1) Options/
Position Year ($) ($) ($) SARs (#)
--------- ---- ------- ------ --------- --------
Eugene Pian, Chief 1999 110,000 -- -- --
Executive 1998 107,499 -- -- 500,000
Officer 1997 101,662 1,868 -- 1,000,000
Craig Pian, 1999 91,384 -- 28,997 --
Executive Vice 1998 83,769 -- 53,665 500,000
President and 1997 73,648 26,868 28,317 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.
22
<PAGE> 41
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 13, 2000. 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 5,267,180(1) 24%
c/o Semicon Tools, Inc. Director
554 North State Road
Briarcliff Manor, NY 10510
Craig Pian Executive Vice 2,754,333(2) 13
c/o Semicon Tools, Inc. President,
554 North State Road Treasurer and
Briarcliff Manor, NY 10510 Director
Francine Pian Secretary 703,560(3) 4
c/o Semicon Tools, Inc. and Director
554 North State Road
Briarcliff Manor, NY 10510
Tan Hun Chin Director 530,000(4) 3
#35,Lintang Delima 3,
Greenlane
11700 Penang, Malaysia
Yap Hun Kok 2,475,000 13
Lot 8 & 9
Lorong Perusahaan 6C
Kawasan MIEL Kulim
09000 Kulim, Kedah
Malaysia
All Directors and Executive 9,255,073(5) 36
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.
23
<PAGE> 42
(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.
None.
24
<PAGE> 43
Item 13. Exhibits and Reports on Form 8-K.
(a) Index of Exhibits.
Exhibit Page
------- ----
3(a) Articles of Incorporation(1)
3(b) By-Laws(1)
3(c) Amendment to Articles of
Incorporation(2)
10(a) Agreement of Merger with
Semicon Tools, Inc., a
New York Corporation(2)
10(b) Articles of Merger(2)
10(c) Certificate of Merger(2)
10(d) Patent License(1)
10(e) Patent No. 4,219.004(1)
10(f) License Agreement with Bookuk
Industry Company, Ltd.(1)
10(i) Thermode/Synthrode Supplier
Agreement(1)
10(j) East Coast Sales Acquisition
Agreement(3)
10(k) $300,000 Promissory Note(3)
10(l) Amendment to East Coast Sales
Acquisition Agreement(4)
10(m) Teik Tatt Holding Co. (1979)
Sdn. Bhd. Acquisition Agreement(5)
10(n) Teik Tatt Holding Co.
Disposition Agreement(6)
10(o) Hong Kong Batteries
Industries, Ltd.
Acquisition Agreement(7)
10(p) Fimas Sdn Bhd.
Acquisition Agreement(8)
16 The required letter from the
former accountants(9)
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.
25
<PAGE> 44
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
December 9, 1999.
8. Incorporated by Reference from Registrant's Form 8-K Report dated
December 10, 1999.
9. Incorporated by Reference from Registrant's Form 8-K Report dated
January 29, 1993.
26
<PAGE> 45
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.
27
<PAGE> 46
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 28, 2000
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 28, 2000
/s/ Craig A. Pian
-------------------------------
Craig A. Pian
Director
Date: April 28, 2000
/s/ Francine Pian
-------------------------------
Francine Pian
Director
Date: April 28, 2000
/s/ Tan Hun Chin
-------------------------------
Tan Hun Chin
Director
Date: April 28, 2000
28
<PAGE> 1
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
Hong Kong Batteries Industries, Ltd. Hong Kong
Fimas Sdn Bhd. Malaysia
SETO (M) Sdn Bhd. Malaysia
SETOsoft.com,Ltd. Thailand
Circlecom(M) Sdn Bhd. Malaysia
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 363,372
<SECURITIES> 0
<RECEIVABLES> 3,525,309
<ALLOWANCES> 10,350
<INVENTORY> 2,402,793
<CURRENT-ASSETS> 6,821,915
<PP&E> 6,769,021
<DEPRECIATION> 2,575,175
<TOTAL-ASSETS> 13,484,786
<CURRENT-LIABILITIES> 5,431,490
<BONDS> 0
0
0
<COMMON> 18,119
<OTHER-SE> 8,152,075
<TOTAL-LIABILITY-AND-EQUITY> 13,484,786
<SALES> 6,643,088
<TOTAL-REVENUES> 6,643,088
<CGS> 4,698,130
<TOTAL-COSTS> 1,659,998
<OTHER-EXPENSES> 529
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 177,972
<INCOME-PRETAX> 112,707
<INCOME-TAX> 26,466
<INCOME-CONTINUING> 86,241
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 86,241
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
