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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, 2002

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 | 
| | Title of each class |  | on which registered   | 
| |                     |  |                       | 
| | N/A                 |  | N/A                   | 

Securities registered under
Section 12(g) of the Exchange Act:

N/A

(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 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. $5,642,015

State the aggregate market value of the
voting stock held by nonaffiliates 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. $2,210,100 as of April 23, 2002.

State the number of shares outstanding of each of
the issuers classes of common equity, as of the latest
practicable date. 14,734,000 shares of Common Stock, $.001 par
value, outstanding as of April 23, 2002.

DOCUMENTS INCORPORATED BY REFERENCE 
None





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PART I



Item 1.     Description of
Business.


General

With the January 31, 2001 sale of Fimas Sdn
Bhd. (Fimas), SETO Holdings, Inc. (formerly Semicon
Tools, Inc.) (the Company), a Nevada corporation,
re-adjusted its business by disposing of its consumer
electronics manufacturing operations due to its low gross profit
margins, increasing losses and high working capital
requirements. The Company now principally (1) fabricates
and distributes industrial ceramic products,
(2) manufactures and sells rechargeable batteries for power
tools, toys and other consumer products and
(3) manufactures and sells small industrial diamond cutting
tools. Approximately 50% 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
(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, 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 June 30, 1998, the Company issued 100,000
shares of Common Stock to acquire 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. In February 2001, the Company
decided to discontinue Fujis operations since, to a large
extent, (1) Fuji had become a duplication of the
manufacturing and marketing efforts of the Companys
wholly-owned subsidiary, Hong Kong Batteries Industries Ltd.
(HKBI), a Hong Kong manufacturer with joint venture
partners in mainland China and a distributor of electronic
components and batteries, and (2) HKBI had more attractive
pricing structures. In September 2001, the Company sold
Fujis assets to G Com Net Inc. (GCN), a New
York corporation, for $290,000 payable within 12 months.
GCN is currently in the process of setting up operations in
Panama for manufacturing rechargeable batteries. GCN will serve
as one of our distributors for batteries manufactured by HKBI
and will purchase components from the Company.

On November 19, 1999, the Company acquired
all of the issued and outstanding capital stock of HKBI in
exchange for 1,500,000 shares of the Companys Common
Stock. In January 2001, the parties mutually agreed to reduce
the purchase price by 100,000 shares, which shares were returned
to the Company and cancelled. In March 2001, the Company issued
to the former shareholders of HKBI an additional 500,000 shares
because it generated a

2



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certain amount of post-acquisition net income.
The acquisition of HKBI marked the beginning of the
Companys emphasis on the design, manufacturing, marketing
and distribution of products for the telecommunications industry.


On November 27, 1999, the Company issued
5,000,000 shares of its Companys Common Stock to acquire
all of the issued and outstanding capital stock of Fimas Sdn
Bhd. (Fimas), a Malaysian holding corporation with
facilities in Malaysia and Suzhou, China, to manufacture
electronic consumer products such as DVD players, CD-Rom drives,
home theater systems, CD players and a wireless computer mouse.
On January 31, 2001, the Company sold Fimas back to its
former owners in exchange for the 5,000,000 shares of Common
Stock the Company originally issued to acquire Fimas. The
Company decided to dispose of Fimas because of its low gross
profit margins, increasing losses and high working capital
requirements.

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. This venture ended in June 2000 because the
process proved unsuccessful.

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, SOUTHEAST ASIA, AND, TO A LESSER
EXTENT, PANAMA, 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 Company principally (1) fabricates and
distributes industrial ceramics products, (2) manufactures
and sells rechargeable batteries, and (3) manufactures and sells
small industrial diamond cutting tools for industry.

Excluding discontinued operations, the percentage
contributions to the Companys sales by product line for
the fiscal years ended January 31, 2000, 2001 and 2002 are
as follows:

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|                                 |  |                             |    |             |  |      |    |  |  |  |              | 
|-------------------------------- |  | --------------------------- | -- | ----------- |  | ---- | -- |  |  |  | ------------ | 
|                                 |  |                            
|                                 |  | Contribution to Total Sales
|                                 |  |                            
|                                 |  |                             |    | January 31,
|Product line                     |  | 2000                        |    | 2001        |  | 2002
|                                 |  |                             |    |             |  |     
|Cellular Telephone Batteries     |  |                             | 31 | %           |  |      | 13 |  |  |  | discontinued | 
|Other Rechargeable Batteries     |  |                             | 11 |             |  |      | 46 |  |  |  | 30           | 
|Industrial Ceramic Products      |  |                             | 37 |             |  |      | 25 |  |  |  | 45           | 
|Industrial Diamond Cutting Tools |  |                             | 17 |             |  |      | 14 |  |  |  | 12           | 
|Miscellaneous Products           |  |                             | 4  |             |  |      | 2  |  |  |  | 13           | 

Rechargeable Batteries

The Company distributes rechargeable battery
packs principally for power tools, notebook computers, and
camcorders. These products are manufactured for the Company
through a joint venture between HKBI and a company in mainland
China, based on battery designs and modifications engineered by
HKBI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s products include many custom batteries for OEM
and private label customers. The Company currently has an
insignificant share of the battery market, which is dominated by
mass retailers such as Radio Shack and Staples. The Company
competes principally 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, 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.

Industrial 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
materials. 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. 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.

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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 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, which
are marketed primarily to semiconductor manufacturers.

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, 2002, the Company had a
backlog of orders of approximately $3 million, all of which
it expects to ship by June 30, 2002. 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.

5



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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. The Company also manufactures
rechargeable batteries at a facility in Shenzhen, China. 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, 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, 2002
and 2001, the Company spent approximately $125,000 and $75,000,
respectively, on its research and development activities.

Employees

The Company employs approximately 25 full-time
employees, of which 20 work in its diamond tools and ceramics
facilities and 5 work in its rechargeable battery facilities. It
also utilizes outside consultants and part-time workers when
required.

Item 2.     Description
of Property.

In Malaysia, the Company leases approximately
4,600 square feet of manufacturing and warehouse space and 500
square feet of office space in Kepala Batas, Penang, pursuant to
a lease expiring July 2004 with minimum annual lease payments of
$7,200. It also occupies approximately 1,500 square feet of
office space in Penang, pursuant to a lease expiring September
2002, with a minimum annual lease payment of $12,000.

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 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.

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Item 3.     Legal Proceedings.

There are no pending material 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.

PART II

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

Market Information

The Companys Common Stock, $.001 par value,
is traded on NASDAQs over-the-counter Bulletin Board under
the symbol SETO.

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 2002, as provided by Pink Sheets
LLC. Such quotations reflect inter-dealer prices without retail
mark-up, mark-down or commission and may not represent actual
transactions.

|               |  |     |      |      |  |   |      | 
|-------------- |  | --- | ---- | ---- |  | - | ---- | 
|               |  | Low |      | High
|               |  |     |      |     
|2002           |  |     |      |      |  |   |      | 
|First quarter  |  | $   | .13  |      |  | $ | .20  | 
|2001           |  |     |      |      |  |   |      | 
|First quarter  |  | $   | .21  |      |  | $ | .74  | 
|Second quarter |  |     | .13  |      |  |   | .18  | 
|Third quarter  |  |     | .13  |      |  |   | .19  | 
|Fourth quarter |  |     | .13  |      |  |   | .17  | 
|2000           |  |     |      |      |  |   |      | 
|First quarter  |  |     | .38  |      |  |   | 2.75 | 
|Second quarter |  |     | 1.21 |      |  |   | 2.00 | 
|Third quarter  |  |     | 1.03 |      |  |   | 1.81 | 
|Fourth quarter |  |     | .31  |      |  |   | 1.10 | 

Holders

As of April 23, 2002, there were 326 record
holders of the Companys Common Stock.

Recent Sales of Unregistered
Securities

In June 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.

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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. (In January 2001, Mr. Tommy returned 100,000 of his
shares to the Company for cancellation.)

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 31, 2001, the Company sold
Fimas back to its former owners in return for such 5,000,000
shares.)

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. (In March 2001, the consultant returned 200,000
of these shares to the Company for cancellation.)

In February 2000, the Company issued 100,000
shares of Common Stock to SCAL Distributors in connection with a
distribution agreement, pursuant to Section 4(2) of
the Securities Act.

In March 2000, the Company issued an aggregate of
875,000 shares of Common Stock sold at a price of $.40 per share
to three investors, pursuant to Section 4(2) of the
Securities Act.

In March 2000, the Company issued 180,000 shares
to GoPublicNow.com (GPN), an investor relations
company, for services to be rendered, pursuant to
Section 4(2) of the Securities Act. GPN subsequently
returned 77,600 of those shares to the Company for cancellation.

In April 2000, the Company issued an aggregate of
317,500 shares of Common Stock sold at a price of $1.25 per
share to 15 investors, pursuant to Section 4(2) of the
Securities Act.

In March 2001, the Company issued 500,000 shares
to the former owners of HKBI, the Companys wholly-owned
subsidiary. Such shares were issued as an additional purchase
price based on HKBIs generation of a certain amount of
post-acquisition net income, pursuant to
Section 4(2) of the Securities Act.

In April 2001, the Company issued an aggregate of
500,000 shares to Eugene Pian (250,000 shares), Craig Pian
(150,000 shares) and Francine Pian (100,000 shares) for agreeing
to extend the terms of their respective employment agreements
for an additional five years, pursuant to
Section 4(6) of the Securities Act. Such shares were
cancelled December 6, 2001 and replaced with options to
purchase a like number of shares at $0.15 per share exercisable
until April 30, 2006.

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

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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.

Item 6.     Managements
Discussion and Analysis or Plan of Operation.

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 ASIA, AND, TO A LESSER EXTENT,
PANAMA, 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, INTENSE
COMPETITION AND TECHNOLOGICAL OBSOLESCENCE. THE COMPANY ASSUMES
NO OBLIGATION TO UPDATE SUCH FORWARD-LOOKING STATEMENTS, IF ANY,
AT ANY TIME.

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MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION

OVERVIEW AND GENERAL DEVELOPMENTS

1.   General



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | With Fimas Sdn Bhd (Fimas) and Fuji
        Fabrication Sdn Bhd (Fuji) no longer a part of the
        Company consistent with its strategic restructuring plan, the
        Companys concentration and emphasis in fiscal year 2002
        ending January 31, 2002 has been on its remaining major
        product lines: technical ceramics (sales of $2,338,673 or 41.5%
        of the total), diamond coated cutting tools (sales of $794,010
        or 14.1% of the total) and industrial batteries (sales of
        $2,039,543 or 36.1% of the total). This has led to what
        management believes are very satisfactory results. Net Income
        for the year ending January 31, 2002 was 9.2% of sales,
        gross profit was 45.8% of sales and all four (4) quarters
        were profitable.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | For the fiscal year, on an historically
        comparative corporate basis, net sales at $5,642,015, income
        from continuing operations at $559,636, net income at $521,688
        and earnings/share at $.04 were all the Companys highest
        in their category.                                                                                                                                                                                                          
|
| | Further, Management believes that this trend will
        continue and anticipates reporting net sales of a minimum of
        $7 million and net income in excess of $600,000 for the
        next fiscal year ending January 31, 2003. The latter would
        be the Companys highest comparative results in its
        history. Supporting these projections is the current substantial
        backlog of $3.0 million, which will be delivered over the
        next four months.
|
| | The Company continues to operate with a
        significant part of its sales external to the USA. $1,587,846 or
        28.1% of its sales were made in the Far East and                                                                                                                                                                                                                                                                                                                 

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | $1,035,089, or 18.4% were made in Canada. The
        balance of $3,019,080 or 53.5% of its sales were domestic.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | Concerning the Discontinued Operations, there
        should be no further financial impact on the Company from Fimas.
        In the case of Fuji, the sale of its equipment, supplies and
        material to a private, independent company for $290,547 has been
        converted to a one year note maturing on September 30,
        2002. The shipment from its location in Malaysia to its
        destination in Panama has taken place. In addition, offsetting
        the latter to a small degree, certain other Fuji transactions
        are still in process from which the Company anticipates a net
        liability of $85,846.



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. | The financial statements for both fiscal year
        2001 ending January 31, 2001 and fiscal year 2000 ending
        January 31, 2000 have been restated to reflect
        modifications in the results of operations in several foreign
        subsidiaries, two of which are no longer a part of the Company:
        Fimas disassociated from the Company as of January 31,
        2001; Fuji discontinued by the Company during May, 2001; and
        Hong Kong Batteries Industries Ltd. (HKbil), the
        Companys ongoing distributor of consumer product batteries.



| |                                                                                         
| | ----------------------------------------------------------------------------------------
| | The net income changes resulting from the
        modification for fiscal year 2001 are:

|                             |          |   |          |          |  
|---------------------------- | -------- | - | -------- | -------- | -
|from continuing operations   |          | $ | 34,472   |         
|from discontinued operations |          |   | (169,038 | )       
|                             |          |   |          |         
|                             | net loss |   | $        | (135,166 | )



| |                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The resulting impact of the modifications on
        retained earnings for that year was an additional deficit of
        $99,567 so that the restated retained earnings as of
        January 31, 2001 is ($2,052,089).

11



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##### 



2.   Financial
Condition



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Management believes its financial condition is
        healthy and strong and will remain so throughout fiscal 2003,
        the next fiscal year ending January 31, 2003. During the
        last quarter of fiscal year 2002, ending January 31, 2002,
        total shareholders equity increased by 9.2% to $2,837,620.
        In addition, whereas total current assets decreased by 6.4%, its
        application went to reducing current liabilities by 22.8% from
        $2,199,722 at October 31, 2001 to $1,697,404. During the
        quarter, accounts payable were reduced by $315,850 or 47.6% and
        accrued expenses were reduced by $224,936 or 50.7%. Cash as of
        January 31, 2002 was at $543,072 or approximately 19% of
        the total current assets.

FISCAL 2002 COMPARED TO 2001
RESTATED



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In fiscal year 2002, ended January 31, 2002,
        net sales increased 14.2% from $4,938,478 to $5,642, 015 and
        income from operations increased 85.5% from $296,853 to $550,644
        compared to fiscal year 2001 ended January 31, 2001. Net
        income in fiscal year 2002 was $521,688 (or 9.2% of sales)
        compared to a loss of $795,157 in fiscal year 2001. Fiscal year
        2001 income for the Company was substantially impacted by losses
        from subsidiaries no longer a part of the Company: from
        operations, Fimas lost $154,518 and Fuji lost $65,497; and the
        Company lost an additional $685,262 on the disposal of Fimas.                                       
|
| | Gross profit in fiscal year 2002 increased 21.7%
        from $1,823,711 to $2,030,862 compared to fiscal year 2001 and
        the gross profit margin increased 6.8% from 42.9% to 45.8%
        compared to fiscal year 2001. Other fiscal year 2002 financial
        results also showed improvements when compared to fiscal year
        2001: income from operations was 85.5% higher at $550,644;
        income before taxes was slightly more than 3 times higher at
        $483,880; and income from continuing operations was slightly
        more than 5 times higher at $559,636. In addition, during fiscal
        year 2002, selling, general and administrative expenses at
        $2,030,862 was a favorable

12



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##### 



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 36.0% of sales as a result of managements
        efforts to reduce and control these costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | As explained in the Overview and General
        Developments section and as can be discerned from the above
        discussion, fiscal year 2002 realized very good financial
        results for the Company. Although negatively affected to some
        degree immediately following the 9/11 event,
        which caused operations to fall a little short of the annual
        $6 million which management projected for sales for the
        year, in December and January sales picked up. The prime mover
        for this resurgence and for the year as a whole was the
        technical ceramics product line: sales in fiscal year 2002 at
        $2,338,673 were 60.8% higher than the $1,454,133 of fiscal year
        2001 and income from operations in fiscal year 2002 at $629,852
        (26.9% of its sales) were 73.0% higher than the $364,013 of
        fiscal year 2001.
|
| | As of the end of fiscal year 2002, management
        believes its organizational structure to be sound, stabilized
        and better focused and that its operation will continue to be
        more efficient and profitable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

FISCAL 2001 RESTATED COMPARED TO 2000
RESTATED



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In fiscal year 2001 ending January 31, 2001,
        net sales increased 100% from $2,467,992 to $4,938,478 and
        income from operations increased slightly more than 200% from
        $98,584 to $296,853 compared to fiscal year 2000. While income
        from continuing operations was at $110,120 in fiscal year 2001,
        fiscal year 2000 incurred a loss of $18,298 from continuing
        operations. Fiscal year 2000 saw positive income contributions
        from both Fimas and Fuji totaling a net income of $104,539, but
        fiscal year 2001 saw quite the opposite from the two
        disassociated/discontinued subsidiaries incurring a total net
        loss of $905,277. Therefore, fiscal year 2001 had a net loss of
        $795,157 compared to a net gain of $86,241 in fiscal year 2000.

13



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##### 





| |                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Disregarding the discontinued operations, fiscal
        year 2001 saw several financial results improvements when
        compared to fiscal 2000: gross profit was higher by 45.0%,
        selling, general and administrative expense was lower by 33.2%
        as a percentage of sales, and income from operations was 50.0%
        higher as a percentage of sales.

LIQUIDITY AND CAPITAL RESOURCES



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | At January 31, 2002, the Company had current
        assets of $2,865,299 inclusive of $543,072 of unrestricted cash,
        and current liabilities of $1,697,404 yielding a current ratio
        of 1.69:1, a 21.6% increase over the ratio of October 31,
        2001. The current ratio is the best in its history so that
        Management believes that this measure of a companys
        ability to meet current obligations reflects positively on the
        Companys financial condition.                                                                                                                       
|
| | Certain transactions have occurred affecting
        liquidity. During fiscal year 2002, the Company purchased 20,000
        shares of Treasury stock for $3,000. Also, as a result of
        provisions in their employment agreements, 3 officers were
        awarded bonuses totaling $53,688. The Company has accrued the
        expense and will shortly pay the bonus. Management does not
        believe either transaction materially affects its positive
        liquidity status.                                                                                                                                  
|
| | The $290,547 promissory note receivable is a
        result of Fujis asset sale as previously described in the
        Overview and General Developments Section. It should generate
        quarterly cash infusions of $7,263 in interest payments over a
        period of 12 months ending September 30, 2002 with the
        full face value due at that time. Although a distinct benefit,
        Management does not feel that this cash inflow is essential to
        meeting its needs and that its operations standard cash
        flow plus its borrowing capability can suffice for the next
        fiscal year.
|
| | There are no plans for large scale, high-priced
        equipment purchases as of now. The Company does have a need for
        dicing saws, both for replacement purposes as well as growth
        needs. These pieces of equipment are utilized in the very
        profitable                                                                                                                                                                                                                                                                                                                                                  

14



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##### 



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | cutting portion of the industrial ceramics
        product line. Two saws were needed for added capacity, and were
        obtained during the fiscal year. One costing $56,000 was paid
        for in cash and the other, costing $32,000 was paid for under a
        lease.                                                                                                                                                                                                                                                                                                                              
|
| | The Companys line of credit of
        $1.2 million is with a friendly and cooperative financial
        institution. An open balance of approximately $400,000 remains
        as of April 30, 2002. Although no assurances can be given,
        the Company is satisfactorily servicing the loan and expects no
        problems in continuing to do so. Further, the same institution
        has indicated that additional funds for proven growth purposes
        may be forthcoming whenever the Company satisfactorily documents
        the associated facts.                                     
|
| | On the other hand, although no such prospects are
        presently known, funds for any suitable strategic acquisitions,
        to which the Company will be open and for which it has decided
        to focus on the U.S. will probably have to emanate from new
        financing sources. Although positive discussions for such
        financing have recently taken place and additional sources may
        have to be explored, there is no assurance that such funds will
        become available and if so, that it will be sufficient and on
        acceptable terms to satisfy requirements.
|
| | Since the Company has a net operating loss
        carryforward of approximately $2,500,000 to apply against
        Federal and State tax liability in the future through the year
        2009, it anticipates tax benefits to continue for several years.
        The Company anticipates its profitability to continue and, thus,
        to realize improved cash flow for the latter reason. In fiscal
        year 2002 just ended, the net tax benefit amounted to $75,756.                                                                                                                          

Effects of Foreign Currency
Fluctuations

The Companys foreign operations are subject
to risks related to fluctuations in foreign currency exchange
rates. During fiscal year 2002, the foreign currency exchange
loss was $1,161; and during fiscal year 2001 the foreign
currency exchange gain was $881, and, thus, neither materially
impacted operational results.

15



---



##### 



Management believes that for fiscal year 2003,
two factors will continue to keep its foreign currency exchange
losses or gains, if any, 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, as now
constituted, foreign operations are expected to continue to
provide strong revenue and earnings growth.

Disclosures About Market Risk

The Company is exposed to market risks from
changes in interest rates and foreign currency exchange rates.
To manage exposure to these fluctuations, the Company may
occasionally enter 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
rates fluctuations results from wholly-owned subsidiary
operations in Malaysia and Hong Kong as well as business from
foreign clientele located elsewhere and from the Companys
share of the earnings of these operations, which are denominated
in other currencies.

Also, 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.

Impact of Inflation

Although it is difficult to predict the impact of
inflation on costs and revenues of the Company in connection
with its products, the Company does not anticipate that
inflation will materially impact its cost of operation or the
profitability of its products during fiscal year 2003.

16



---



##### 



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 10-KSB was prepared and involve risks
and uncertainties that could cause future results, performance
and 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, Hong Kong and Southeast Asia in
general, and other parts of the globe. They include, 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, ceramic, electronic,
telecommunication manufacturing industries and manufacturing
industries in general; 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:                                                     
|
| | Independent Accountants Report                                                                     
|
| | Consolidated Balance Sheet as at January 31,
        2002                                           
|
| | Consolidated Statement of Income (Loss) for the
        Years ended January 31, 2002 and 2001       
|
| | Consolidated Statement of Comprehensive Income
        for the Years ended January 31, 2002 and 2001
|
| | Consolidated Statement of Cash Flows for the
        Years ended January 31, 2002 and 2001          
|
| | Consolidated Statement of Shareholders
        Equity for the Years ended January 31, 2002 and 2001
|
| | Notes to Consolidated Financial Statements                                                          

17



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##### 





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

None.

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 |  |     | 62 |          |  | President, Chief Executive Officer and Director 
|Craig Pian     |  |     | 40 |          |  | Executive Vice President, Treasurer and Director
|Francine Pian  |  |     | 42 |          |  | Secretary and 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 from
Manhattan College with a Bachelor of Science Degree in Business.

18



---



##### 



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.
Ms. Pian graduated from the Laboratory Institute of
Merchandising in New York City with a degree in marketing.

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.

The Company and Eugene Pian entered into an
employment agreement dated May 1, 1996, providing for him to be
the Companys President through April 30, 2001, and
receive (a) a base annual salary of $100,000 plus annual
increases as determined by the Board of Directors,(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 an option to purchase
1,000,000 shares of the Companys common stock at $.25 per
share through May 5, 2001 (extended in April 2001 to April
30, 2006). In February 1997, the agreement was amended to grant
him an option to purchase an additional 1,000,000 shares at a
price of $.10 per share. In July 1998 the agreement was amended
to grant him an option to purchase an additional 500,000 shares
at $.50 per share for agreeing to extend the contract term to
June 30, 2003. In March 2000 the agreement was amended to
increase his annual base salary to $125,000 and to grant him
250,000 shares of common stock for agreeing to extend the
contract term to April 30, 2006. In December 2001, the
agreement was amended to cancel the grant of 250,000 shares and
instead grant to him options to purchase 250,000 shares of
common stock at $0.15 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.

The Company and Craig Pian entered into an
employment agreement dated May 1, 1996, providing for him to be
the Companys Executive Vice President and Treasurer
through April 30, 2001 and receive (a) a base annual
salary of $75,000 plus annual increases as determined by the
Board of Directors,(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. In May 1996 he received a signing bonus of
$25,000. Under the Agreement, Mr. Pian was granted an
option to purchase 1,000,000 shares of the Companys common
stock at $.25 per share through May 1, 2001 (extended in
April 2001 to April 30, 2006). In February 1997, the
agreement was amended to grant him an option to purchase an
additional 1,000,000 shares at a price of $.10 per share. In
July 1998 the agreement was amended to grant him an option to
purchase an additional 500,000 shares at $.50 per share for
agreeing to extend the contract term to June 30, 2003. In
March 2000 the agreement was amended to increase his annual base
salary to

19



---



##### 



$110,000 and to grant him 150,000 shares of
common stock for agreeing to extend the contract term to
April 30, 2006. In December 2001, the agreement was amended
to cancel the grant of 150,000 shares and instead grant to him
options to purchase 150,000 shares of common stock at $0.15 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
|                                     |  |                     |      | Annual       |  | Underlying
|                                     |  |                     |      | Salary       |  | Bonus      |         | Comp. (1) |  | Options/
|Name and
Principal Position          |  | Year                |      | ($)          |  | ($)        |         | ($)       |  | SARs (#)
|                                     |  |                     |      |              |  |            |         |           |  |         
|Eugene Pian, Chief Executive Officer |  |                     | 2001 |              |  |            | 125,000 |           |  |          | 27,370 |  |  |  |       |  |  |  | 250,000 | 
|                                     |  |                     | 2000 |              |  |            | 110,000 |           |  |          |       |  |  |  |       |  |  |  |        | 
|                                     |  |                     | 1999 |              |  |            | 110,000 |           |  |          |       |  |  |  |       |  |  |  |        | 
|Craig Pian, Executive Vice President |  |                     | 2001 |              |  |            | 115,000 |           |  |          | 26,370 |  |  |  |       |  |  |  | 150,000 | 
|and Treasurer                        |  |                     | 2000 |              |  |            | 113,423 |           |  |          |       |  |  |  | 58,813 |  |  |  |        | 
|                                     |  |                     | 1999 |              |  |            | 91,384  |           |  |          |       |  |  |  | 28,997 |  |  |  |        | 






|    |                                                                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.

20



---



##### 



Option/ SAR Grants in Last Fiscal
Year

|            |  |                   |         |                |  |             |     |            |  |              |      |  |  |  |          |  |  |   |      | 
|----------- |  | ----------------- | ------- | -------------- |  | ----------- | --- | ---------- |  | ------------ | ---- |  |  |  | -------- |  |  | - | ---- | 
|            |  |                   |         |                |  |            
|            |  | Individual Grants |         |                |  |            
|            |  |                   |         |                |  |            
|            |  | Number of         |         | % of Total     |  |             |     |            |  |             
|            |  | Securities        |         | Options/SARS   |  |             |     |            |  |             
|            |  | Underlying        |         | Granted to     |  | Exercise or |     |            |  | Market Price
|            |  | Options/SARS      |         | Employees      |  | Base Price  |     | Expiration |  | on Date of  
|Name        |  | Granted (#)       |         | in Fiscal Year |  | ($/share)   |     | Date       |  | of Grant ($)
|            |  |                   |         |                |  |             |     |            |  |             
|Eugene Pian |  |                   | 250,000 |                |  |             | 50% |            |  | $            | 0.15 |  |  |  | 04/30/06 |  |  | $ | 0.15 | 
|Craig Pian  |  |                   | 150,000 |                |  |             | 30% |            |  | $            | 0.15 |  |  |  | 04/30/06 |  |  | $ | 0.15 | 

Aggregated Option/ SAR Exercises in Fiscal
Year 2002

and Option/ SAR Values at January 31,
2002


|            |  |             |   |          |  |                        |   |                      |  |             |           |               |  |  |   |  |  |  |        |  |  |  |   | 
|----------- |  | ----------- | - | -------- |  | ---------------------- | - | -------------------- |  | ----------- | --------- | ------------- |  |  | - |  |  |  | ------ |  |  |  | - | 
|            |  |             |   |          |  |                        |   |                     
|            |  |             |   |          |  | Number of Securities   |   | Value of Unexercised
|            |  |             |   |          |  | Underlying Unexercised |   | in-the-Money        
|            |  | Shares      |   |          |  | Options/SARs           |   | Options/SARs at     
|            |  | Acquired on |   | Value    |  | Fiscal Year-End (#)    |   | Fiscal Year-End ($) 
|            |  | Exercise    |   | Realized |  |                        |   |                     
|Name        |  | (#)         |   | ($)      |  | Exercisable            |   | Unexercisable        |  | Exercisable |           | Unexercisable
|            |  |             |   |          |  |                        |   |                      |  |             |           |              
|Eugene Pian |  |             |  |          |  |                        |  |                      |  |             | 250,000   |               |  |  | 0 |  |  |  |       |  |  |  |  | 
|            |  |             |  |          |  |                        |  |                      |  |             | 1,000,000 |               |  |  | 0 |  |  |  |       |  |  |  |  | 
|            |  |             |  |          |  |                        |  |                      |  |             | 1,000,000 |               |  |  | 0 |  |  |  | 50,000 |  |  |  |  | 
|            |  |             |  |          |  |                        |  |                      |  |             | 500,000   |               |  |  | 0 |  |  |  |       |  |  |  |  | 
|Craig Pian  |  |             |  |          |  |                        |  |                      |  |             | 150,000   |               |  |  | 0 |  |  |  |       |  |  |  |  | 
|            |  |             |  |          |  |                        |  |                      |  |             | 1,000,000 |               |  |  | 0 |  |  |  |       |  |  |  |  | 
|            |  |             |  |          |  |                        |  |                      |  |             | 1,000,000 |               |  |  | 0 |  |  |  | 50,000 |  |  |  |  | 
|            |  |             |  |          |  |                        |  |                      |  |             | 500,000   |               |  |  | 0 |  |  |  |       |  |  |  |  | 

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 23, 2002. 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
        c/o Semicon Tools, Inc.
        554 North State Road
        Briarcliff Manor, NY 10510 |  | President and Director |  |           | 4,589,567(1 | )          |  |  | 26.3% | 

21



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##### 



|                                                                                                              |  |                                                  |                        |           |             |            |             |   |      |  |      | 
|------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------ | ---------------------- | --------- | ----------- | ---------- | ----------- | - | ---- |  | ---- | 
|Name and Address of                                                                                           |  | Position                                         |                        | Number    |             | Percentage
|Beneficial Owner                                                                                              |  | with Company                                     |                        | of Shares |             | of Class  
|                                                                                                              |  |                                                  |                        |           |             |           
|Craig Pian
        c/o Semicon Tools, Inc.
        554 North State Road
        Briarcliff Manor, NY 10510    |  | Executive Vice President, Treasurer and Director |                        |           | 2,850,333(2 | )          |             |   | 16.4 | 
|Francine Pian
        c/o Semicon Tools, Inc.
        554 North State Road
        Briarcliff Manor, NY 10510 |  |                                                  | Secretary and Director |           |             |            | 1,103,560(3 | ) |      |  | 7.2  | 
|All Directors and Executive
        Officers as a Group
        (3 Persons)                                   |  |                                                  |                        |           |             |            | 8,543,460(4 | ) |      |  | 41.2 | 






|    |                                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes currently exercisable options to
        purchase 2,750,000 shares of Common Stock, 225,000 shares of
        Common Stock held under voting trusts which terminate when the
        shareholder sells his stock, and 25,000 shares owned by his
        spouse as to which he disclaims beneficial ownership.
|   
|(2) | Includes currently exercisable options to
        purchase 2,650,000 shares of Common Stock.                                                                                                                                                                                                                           
|   
|(3) | Includes currently exercisable options to
        purchase 600,000 shares of Common Stock.                                                                                                                                                                                                                             
|   
|(4) | Includes currently exercisable options to
        purchase 6,000,000 shares of Common Stock.                                                                                                                                                                                                                           

Item 12. Certain Relationships and
Related Transactions.

None.

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



| |                        
| | -----------------------
| | (a)  Index of Exhibits.

|      |  |                                                                              
|----- |  | -----------------------------------------------------------------------------
|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(g) |  | Thermode/ Synthrode Supplier Agreement1                                      
|10(h) |  | East Coast Sales Acquisition Agreement3                                      

22



---



##### 



|      |  |                                                                        
|----- |  | -----------------------------------------------------------------------
|10(i) |  | $300,000 Promissory Note3                                              
|10(j) |  | Amendment to East Coast Sales Acquisition
        Agreement4           
|10(k) |  | Hong Kong Batteries Industries, Ltd. Acquisition
        Agreement 5   
|10(l) |  | Fimas Sdn Bhd. Acquisition Agreement6                                  
|10(m) |  | Fimas Sdn Bhd. Disposition Agreement8                                  
|16    |  | The required letter from the former
        accountants7               
|21    |  | List of Subsidiaries                                                   
|23(a) |  | Report of Independent Chartered Accountants of
DTI Technology SDN BHD  
|23(b) |  | Report of Independent Chartered Accountants of
SETO Technology SDN BHD 
|23(c) |  | Report of Independent Chartered Accountants of
FUJI Fabrication SDN BHD
|23(d) |  | Consent of Independent Public Accountants of
DTI Technology SDN BHD    
|23(e) |  | Consent of Independent Public Accountants of
SETO Technology SDN BHD   
|23(f) |  | Consent of Independent Public Accountants of
FUJI Fabrication SDN BHD  



| |                          
| | -------------------------
| | (b)  Reports on Form 8-K.

None.



|   |                                                                                                                                    
|-- | -----------------------------------------------------------------------------------------------------------------------------------
|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, 1999.                                        
|  
|6. | Incorporated by Reference from Registrants
        Form 8-K Report dated December 10, 1999.                                       
|  
|7. | Incorporated by Reference from Registrants
        Form 8-K Report dated January 29, 1993.                                        
|  
|8. | Incorporated by Reference from Registrants
        Form 8-K Report dated January 31, 2001.                                        

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.

23



---



##### 



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 30, 2002

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 30, 2002







| |                   | 
| | ----------------- | 
| | /s/ Craig A. Pian | 
| |                   | 
| | Craig A. Pian     | 
| | Director          | 



| |                     
| | --------------------
| | Date: April 30, 2002







| |                   | 
| | ----------------- | 
| | /s/ Francine Pian | 
| |                   | 
| | Francine Pian     | 
| | Director          | 



| |                     
| | --------------------
| | Date: April 30, 2002

24



---



##### 



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, 2002 and the related consolidated statements of
income (loss), comprehensive income (loss), cash flows and shareholders equity
for the years ended January 31, 2002 and 2001. 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, Hong Kong
Batteries Industries, Ltd. and SETO Technology SDN BHD, wholly owned
subsidiaries, which statements reflect total assets of $1,389,550 at January
31, 2002 and total sales from continuing operations for the years ended January
31, 2002 and 2001 of $2,540,267 and $2,703,850 respectively. We did not audit
the financial statements of Fimas SDN BHD, a subsidiary which was disposed of
in January 2001 and which statements reflect a loss from discontinued
operations of $154,518 for the year ended January 31, 2001. We did not audit
the financial statements of Fuji Fabrication SDN BHD, a subsidiary which was
disposed of in September 2001 and which statements reflect a net loss from
discontinued operations of $67,867 and $65,497 for the years ended January 31,
2002 and 2001, respectively. Those statements were audited by other auditors
whose reports have 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., Fimas SDN BHD and SETO Technology
SDN BHD, is based solely on the report of the other auditors.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
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 reports 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, 2002 and the results of their operations, cash
flows and changes in shareholders equity for the years ended January 31, 2002
and 2001, in accordance with accounting principles generally accepted in the
United States of America.

As described in Note 19 to the financial statements, the Company restated
its financial statements as of and for the year ended January 31, 2001 to
reflect changes in the financial statements received from its foreign
subsidiaries.

|                                        |  |                        
|--------------------------------------- |  | -----------------------
|April 25, 2002
Mountainside, New Jersey |  | ZELLER WEISS & KAHN LLP

F-1



---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET  JANUARY 31, 2002

|                                            |                                                                                       |   |                           |                      |   |           |           | 
|------------------------------------------- | ------------------------------------------------------------------------------------- | - | ------------------------- | -------------------- | - | --------- | --------- | 
|ASSETS                                     
|Current assets:                             |                                                                                       |   |                           |                     
|                                            | Cash                                                                                  |   | $                         | 543,072              |  
|                                            | Accounts receivable, less allowance
for doubtful accounts of $13,350                  |   |                           | 938,643              |  
|                                            | Note receivable                                                                       |   |                           | 290,547              |  
|                                            | Inventory                                                                             |   |                           | 859,812              |  
|                                            | Prepaid expenses and other assets                                                     |   |                           | 90,225               |  
|                                            | Deferred tax asset, current portion                                                   |   |                           | 143,000              |  
|                                            |                                                                                       |   |                           |                     
|                                            |                                                                                       |   |                           | Total current assets |   |           | 2,865,299 | 
|                                            |                                                                                       |   |                           |                     
|Property and equipment, net of depreciation |                                                                                       |   | 711,012                   |                     
|                                            |                                                                                       |   |                           |                     
|Other assets:                               |                                                                                       |   |                           |                     
|                                            | Goodwill, net of amortization                                                         |   |                           | 773,636              |  
|                                            | Security deposits and other assets                                                    |   |                           | 51,237               |  
|                                            | Deferred tax asset, net of current portion                                            |   |                           | 287,000              |  
|                                            |                                                                                       |   |                           |                     
|                                            |                                                                                       |   | 1,111,873                 |                     
|                                            |                                                                                       |   |                           |                     
|                                            |                                                                                       | $ | 4,688,184                 |                     
|                                            |                                                                                       |   |                           |                     
|LIABILITIES AND SHAREHOLDERS EQUITY       
|Current liabilities:                        |                                                                                       |   |                           |                     
|                                            | Current portion of long-term debt                                                     |   | $                         | 83,349               |  
|                                            | Notes payable                                                                         |   |                           | 1,047,652            |  
|                                            | Accounts payable                                                                      |   |                           | 347,429              |  
|                                            | Accrued expenses                                                                      |   |                           | 218,974              |  
|                                            |                                                                                       |   |                           |                     
|                                            |                                                                                       |   | Total current liabilities |                      |   | 1,697,404 |          
|                                            |                                                                                       |   |                           |                     
|Other liabilities:                          |                                                                                       |   |                           |                     
|                                            | Deferred lease liability                                                              |   |                           | 22,500               |  
|                                            | Long-term debt, net of current portion                                                |   |                           | 44,814               |  
|                                            | Net liabilities of discontinued operations,
less assets to be disposed of             |   |                           | 85,846               |  
|                                            |                                                                                       |   |                           |                     
|Commitments and contingencies               |                                                                                       |   | 153,160                   |                     
|                                            |                                                                                       |   |                           |                     
|Shareholders equity:                       |                                                                                       |   |                           |                     
|                                            | Common stock par value $.001; 100,000,000
shares authorized; 14,783,400 shares issued |   |                           | 14,783               |  
|                                            | Additional paid in capital                                                            |   |                           | 4,515,786            |  
|                                            | Currency translation adjustment                                                       |   |                           | (150,522             | )
|                                            | Retained earnings (deficit)                                                           |   |                           | (1,530,401           | )
|                                            |                                                                                       |   |                           |                     
|                                            |                                                                                       |   | 2,849,646                 |                     
|                                            | Less common shares held in treasury, 49,400
shares at cost                            |   |                           | (12,026              | )
|                                            |                                                                                       |   |                           |                     
|                                            |                                                                                       |   | 2,837,620                 |                     
|                                            |                                                                                       |   |                           |                     
|                                            |                                                                                       | $ | 4,688,184                 |                     
|                                            |                                                                                       |   |                           |                     

See notes to consolidated financial statements.

F-2



---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME (LOSS)

YEARS ENDED JANUARY 31, 2002 AND 2001

|                                             |                                           |         |           |         |       |          |           |          |       |  
|-------------------------------------------- | ----------------------------------------- | ------- | --------- | ------- | ----- | -------- | --------- | -------- | ----- | -
|                                             |                                           |         |           |         |       |          |           | 2001    
|                                             |                                           |         |           | 2002    |       | Restated
|                                             |                                           |         |           |         |       |         
|Net sales                                    |                                           | $       | 5,642,015 |         |       | $        | 4,938,478 |         
|Cost of sales                                |                                           |         | 3,060,509 |         |       |          | 2,817,914 |         
|                                             |                                           |         |           |         |       |          |           |         
|Gross profit                                 |                                           |         | 2,581,506 |         |       |          | 2,120,564 |         
|Selling, general and administrative expenses |                                           |         | 2,030,862 |         |       |          | 1,823,711 |         
|                                             |                                           |         |           |         |       |          |           |         
|Income from operations                       |                                           |         | 550,644   |         |       |          | 296,853   |         
|                                             |                                           |         |           |         |       |          |           |         
|Other income (expenses):                     |                                           |         |           |         |       |          |           |         
|                                             | Interest income                           |         |           | 20,412  |       |          |           | 13,419   |      
|                                             | Loss on disposal of assets                |         |           | (1,337  | )     |          |           | (12,250  | )    
|                                             | Interest expense                          |         |           | (86,678 | )     |          |           | (144,272 | )    
|                                             | Foreign currency exchange                 |         |           | (1,161  | )     |          |           | 881      |      
|                                             |                                           |         |           |         |       |          |           |         
|                                             |                                           |         | (66,764   | )       |       |          | (142,222  | )       
|                                             |                                           |         |           |         |       |          |           |         
|Income before income taxes (benefit)         |                                           |         | 483,880   |         |       |          | 154,631   |         
|Income taxes (benefit)                       |                                           |         | (75,756   | )       |       |          | 44,511    |         
|                                             |                                           |         |           |         |       |          |           |         
|Income from continuing operations            |                                           |         | 559,636   |         |       |          | 110,120   |         
|                                             |                                           |         |           |         |       |          |           |         
|Discontinued operations:                     |                                           |         |           |         |       |          |           |         
|                                             | Loss from operations of subsidiaries      |         |           | (67,867 | )     |          |           | (220,015 | )    
|                                             | Income (loss) on disposal of subsidiaries |         |           | 29,919  |       |          |           | (685,262 | )    
|                                             |                                           |         |           |         |       |          |           |         
|                                             |                                           |         | (37,948   | )       |       |          | (905,277  | )       
|                                             |                                           |         |           |         |       |          |           |         
|Net income (loss)                            |                                           | $       | 521,688   |         |       |          | ($795,157 | )       
|                                             |                                           |         |           |         |       |          |           |         
|Earnings per share information:              |                                           |         |           |         |       |          |           |         
|                                             | Income from continuing operations:        |         |           |         |       |          |           |          |      
|                                             |                                           | Basic   |           | $       | 0.04  |          |           | $        | 0.01  |  
|                                             |                                           |         |           |         |       |          |           |         
|                                             |                                           | Diluted |           | $       | 0.04  |          |           | $        | 0.00  |  
|                                             |                                           |         |           |         |       |          |           |         
|                                             | Discontinued operations:                  |         |           |         |       |          |           |          |      
|                                             |                                           | Basic   |           | $       | (0.00 | )        |           | $        | (0.05 | )
|                                             |                                           |         |           |         |       |          |           |         
|                                             |                                           | Diluted |           | $       | (0.00 | )        |           | $        | (0.05 | )
|                                             |                                           |         |           |         |       |          |           |         

See notes to consolidated financial statements.

F-3



---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

YEARS ENDED JANUARY 31, 2002 AND 2001

|                                        |                                         |   |         |    |          |  |           |        | 
|--------------------------------------- | --------------------------------------- | - | ------- | -- | -------- |  | --------- | ------ | 
|                                        |                                         |   |         |    |          |  | 2001     
|                                        |                                         |   | 2002    |    | Restated
|                                        |                                         |   |         |    |         
|Net income (loss)                       |                                         | $ | 521,688 |    |          |  | ($795,157 | )     
|Other comprehensive income, net of tax: |                                         |   |         |    |          |  |           |       
|                                        | Foreign currency translation adjustment |   |         | 54 |          |  |           | 48,397 | 
|                                        |                                         |   |         |    |          |  |           |       
|Comprehensive income (loss)             |                                         | $ | 521,742 |    |          |  | ($746,760 | )     
|                                        |                                         |   |         |    |          |  |           |       

See notes to consolidated financial statements.

F-4



---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

YEARS ENDED JANUARY 31, 2002 AND 2001

|                                |                                                                                |   |                                                    |                                                        |   |         |          |          |   |         |           |  
|------------------------------- | ------------------------------------------------------------------------------ | - | -------------------------------------------------- | ------------------------------------------------------ | - | ------- | -------- | -------- | - | ------- | --------- | -
|                                |                                                                                |   |                                                    |                                                        |   |         |          |          |   | 2001   
|                                |                                                                                |   |                                                    |                                                        |   | 2002    |          | Restated
|                                |                                                                                |   |                                                    |                                                        |   |         |          |         
|Operating activities:           |                                                                                |   |                                                    |                                                        |   |         |          |         
|                                | Income from continuing operations                                              |   | $                                                  | 559,636                                                |   |         | $        | 110,120  |  
|                                | Adjustments to reconcile net income to cash
provided by continuing operations: |   |                                                    |                                                        |   |         |          |          |  
|                                |                                                                                |   | Depreciation and amortization                      |                                                        |   | 173,250 |          |          |   | 134,957 |          
|                                |                                                                                |   | Provision for deferred income taxes                |                                                        |   | (94,874 | )        |          |   |         |          
|                                |                                                                                |   | Loss on sale of assets                             |                                                        |   | 1,337   |          |          |   | 12,250  |          
|                                |                                                                                |   | Compensatory stock issued                          |                                                        |   | 38,430  |          |          |   | 50,400  |          
|                                |                                                                                |   | Compensatory stock surrendered                     |                                                        |   | (25,200 | )        |          |   |         |          
|                                |                                                                                |   | Changes in other operating assets and
liabilities: |                                                        |   |         |          |          |   |         |          
|                                |                                                                                |   |                                                    | Accounts and notes receivable                          |   |         | (248,604 | )        |   |         | (102,401  | )
|                                |                                                                                |   |                                                    | Inventories                                            |   |         | (60,503  | )        |   |         | (123,692  | )
|                                |                                                                                |   |                                                    | Prepaid expenses and other current assets              |   |         | 37,054   |          |   |         | (15,830   | )
|                                |                                                                                |   |                                                    | Other assets                                           |   |         | (44,290  | )        |   |         | 7,210     |  
|                                |                                                                                |   |                                                    | Accounts payable and accrued expenses                  |   |         | (157,168 | )        |   |         | (282,086  | )
|                                |                                                                                |   |                                                    | Deferred lease liability                               |   |         | 6,000    |          |   |         | 6,000     |  
|                                |                                                                                |   |                                                    |                                                        |   |         |          |         
|                                |                                                                                |   |                                                    | Net cash (used in) provided by
continuing operations   |   |         | 185,068  |          |   |         | (203,072  | )
|                                |                                                                                |   |                                                    |                                                        |   |         |          |         
|                                |                                                                                |   |                                                    | Net cash provided by (used in)
discontinued operations |   |         | 26,684   |          |   |         | (601,413  | )
|                                |                                                                                |   |                                                    |                                                        |   |         |          |         
|                                |                                                                                |   |                                                    | Net cash provided by (used in)
operating activities    |   |         | 211,752  |          |   |         | (804,485  | )
|                                |                                                                                |   |                                                    |                                                        |   |         |          |         
|Investing activities:           |                                                                                |   |                                                    |                                                        |   |         |          |         
|                                | Proceeds from sale of assets                                                   |   |                                                    | 1,237                                                  |   |         |          |          |  
|                                | Purchase of property and equipment                                             |   |                                                    | (201,558                                               | ) |         |          | (182,270 | )
|                                |                                                                                |   |                                                    |                                                        |   |         |          |         
|                                |                                                                                |   |                                                    | Net cash used in investing activities                  |   |         | (200,321 | )        |   |         | (182,270  | )
|                                |                                                                                |   |                                                    |                                                        |   |         |          |         
|Financing activities:           |                                                                                |   |                                                    |                                                        |   |         |          |         
|                                | Proceeds from issuance of common stock                                         |   |                                                    |                                                        |   |         |          | 758,927  |  
|                                | Proceeds from financing                                                        |   |                                                    | 251,649                                                |   |         |          | 919,899  |  
|                                | Payment of debt                                                                |   |                                                    | (316,237                                               | ) |         |          | (442,389 | )
|                                | Purchase of treasury stock                                                     |   |                                                    | (3,000                                                 | ) |         |          |          |  
|                                |                                                                                |   |                                                    |                                                        |   |         |          |         
|                                |                                                                                |   |                                                    | Net cash provided by (used in)
financing activities    |   |         | (67,588  | )        |   |         | 1,236,437 |  
|                                |                                                                                |   |                                                    |                                                        |   |         |          |         
|Net increase (decrease) in cash |                                                                                |   | (56,157                                            | )                                                      |   |         | 249,682  |         
|Cash, beginning of period       |                                                                                |   | 599,229                                            |                                                        |   |         | 349,547  |         
|                                |                                                                                |   |                                                    |                                                        |   |         |          |         
|Cash, end of period             |                                                                                | $ | 543,072                                            |                                                        |   | $       | 599,229  |         
|                                |                                                                                |   |                                                    |                                                        |   |         |          |         

See notes to consolidated financial statements.

F-5



---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY

YEARS ENDED JANUARY 31, 2002 AND 2001

|                                                                            |  |        |            |       |  |         |        |             |  |            |            |              |  |            |               |   |  |  |             |       |  |  |          |   |  |   |            |  
|--------------------------------------------------------------------------- |  | ------ | ---------- | ----- |  | ------- | ------ | ----------- |  | ---------- | ---------- | ------------ |  | ---------- | ------------- | - |  |  | ----------- | ----- |  |  | -------- | - |  | - | ---------- | -
|                                                                            |  |        |            |       |  |         |        |             |  |            |            |              |  | Equity     |               |   |  |  |             |       |  |  |          |   |  |  
|                                                                            |  |        |            |       |  |         |        |             |  |            |            |              |  | adjustment |               |   |  |  |             |       |  |  |          |   |  |  
|                                                                            |  |        |            |       |  |         |        |             |  | Additional |            | from foreign |  | Accumu-    |               |   |  |  |             | Total
|                                                                            |  |        |            |       |  | Common  |        | paid in     |  | currency   |            | lated        |  | Treasury   | Stockholders'
|                                                                            |  | Shares |            | stock |  | capital |        | translation |  | (deficit)  |            | stock        |  | equity    
|                                                                            |  |        |            |       |  |         |        |             |  |            |            |              |  |           
|Balance at January 31, 2000                                                 |  |        | 18,118,500 |       |  | $       | 18,119 |             |  | $          | 8,152,075  |              |  |            | ($198,975     | ) |  |  | ($1,256,932 | )     |  |  | ($9,026  | ) |  | $ | 6,705,261  |  
|Shares issued for cash                                                      |  |        | 1,262,500  |       |  |         | 1,262  |             |  |            | 757,665    |              |  |            |               |   |  |  |             |       |  |  |          |   |  |   | 758,927    |  
|Shares issued for services                                                  |  |        | 180,000    |       |  |         | 180    |             |  |            | 50,220     |              |  |            |               |   |  |  |             |       |  |  |          |   |  |   | 50,400     |  
|Shares cancelled                                                            |  |        | (200,000   | )     |  |         | (200   | )           |  |            | (6,982     | )            |  |            |               |   |  |  |             |       |  |  |          |   |  |   | (7,182     | )
|Cancellation of shares regarding acquisition
of Fimas, SDN BHD              |  |        | (5,000,000 | )     |  |         | (5,000 | )           |  |            | (4,450,000 | )            |  |            |               |   |  |  |             |       |  |  |          |   |  |   | (4,455,000 | )
|Foreign currency translation adjustment for
the year ended January 31, 2001 |  |        |            |       |  |         |        |             |  |            |            |              |  |            | 48,399        |   |  |  |             |       |  |  |          |   |  |   | 48,399     |  
|Net loss for the year ended January 31, 2001                                |  |        |            |       |  |         |        |             |  |            |            |              |  |            |               |   |  |  | (795,157    | )     |  |  |          |   |  |   | (795,157   | )
|                                                                            |  |        |            |       |  |         |        |             |  |            |            |              |  |            |               |   |  |  |             |       |  |  |          |   |  |   |            |  
|Balance, January 31, 2001                                                   |  |        | 14,361,000 |       |  |         | 14,361 |             |  |            | 4,502,978  |              |  |            | (150,576      | ) |  |  | (2,052,089  | )     |  |  | (9,026   | ) |  |   | 2,305,648  |  
|Shares issued for services                                                  |  |        | 512,400    |       |  |         | 512    |             |  |            | 37,918     |              |  |            |               |   |  |  |             |       |  |  |          |   |  |   | 38,430     |  
|Shares cancelled                                                            |  |        | (90,000    | )     |  |         | (90    | )           |  |            | (25,110    | )            |  |            |               |   |  |  |             |       |  |  |          |   |  |   | (25,200    | )
|Purchase of treasury stock                                                  |  |        |            |       |  |         |        |             |  |            |            |              |  |            |               |   |  |  |             |       |  |  | (3,000   | ) |  |   | (3,000     | )
|Foreign currency translation adjustment
for the year ended January 31, 2001 |  |        |            |       |  |         |        |             |  |            |            |              |  |            | 54            |   |  |  |             |       |  |  |          |   |  |   | 54         |  
|Net income for the year ended
January 31, 2002                              |  |        |            |       |  |         |        |             |  |            |            |              |  |            |               |   |  |  | 521,688     |       |  |  |          |   |  |   | 521,688    |  
|                                                                            |  |        |            |       |  |         |        |             |  |            |            |              |  |            |               |   |  |  |             |       |  |  |          |   |  |   |            |  
|Balance, January 31, 2002                                                   |  |        | 14,783,400 |       |  | $       | 14,783 |             |  | $          | 4,515,786  |              |  |            | ($150,522     | ) |  |  | ($1,530,401 | )     |  |  | ($12,026 | ) |  | $ | 2,837,620  |  
|                                                                            |  |        |            |       |  |         |        |             |  |            |            |              |  |            |               |   |  |  |             |       |  |  |          |   |  |   |            |  

See notes to consolidated financial statements.

F-6



---



##### 



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 under the brand name Semicon Tools, Inc.
(STI) that are used to cut and separate electronic components and devices. In
addition, it has four 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.



| |  |                                                                                                                                                                                      
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Hong Kong Batteries Industries Ltd. (HKBI), based in Hong Kong, China
with joint venture manufacturing facilities in main land China, manufactures
batteries for consumer products.



| |  |                                                                                                                                                          
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | SETO Technology, SDN BHD is a Malaysian Corporation
which offers sales and services to United States corporations for
contract manufacturing in Malaysia.



|   |  |                                            
|-- |  | -------------------------------------------
|2. |  | Summary of significant accounting policies:



| |  |                                                                                                                              
| |  | -----------------------------------------------------------------------------------------------------------------------------
| |  | Basis of presentation:                                                                                                       
| |  | Certain amounts in the prior years financial statements have been reclassified to
conform to the current years presentation



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Principles of consolidation:                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | The consolidated financial statements of SETO Holdings, Inc. and subsidiaries
include all the accounts of the Company, and all of the subsidiaries listed above after
elimination of all significant intercompany transactions and accounts. The financial
statements give retroactive effect to the disposition of Fuji Fabrication, SDN BHD during the year
ended January 31, 2002 and Fimas, SDN BHD during the year ended January 31, 2001. (See Note 16)



| |  |                                                                                                                                                                                                                                                                                                                                                                             
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Use of estimates                                                                                                                                                                                                                                                                                                                                                            
| |  | The preparation of financial statements in conformity with accounting principles generally accepted
in the United States, requires management to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and
liabilities. Actual results could differ from those estimates.



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Cash and cash equivalents:                                                                                                                                                                                                                                                                                                                                                                                              
| |  | Cash and cash equivalents include highly liquid, temporary cash investments having original maturity
dates of three months or less. Short-term investments include certificates of deposit, commercial
paper and other investments not qualifying as cash equivalents. For reporting purposes, such cash
equivalents and short-term investments are stated at cost plus accrued interest, which approximates
fair value.

F-7



---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|   |  |                                                        
|-- |  | -------------------------------------------------------
|2. |  | Summary of significant accounting policies (continued):



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Concentrations of credit risk:                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | Financial instruments that potentially subject the Company to concentrations of credit risk consist
primarily of cash and cash equivalents and accounts receivable. The Company
places its cash and cash equivalents with high quality financial institutions. The
Federal Deposit Insurance Corporation (FDIC) insures the cash balances up to
$100,000. At January 31, 2002 the Company had uninsured cash balances of $422,324.



| |  |                                                                                                                                                           
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Inventories:                                                                                                                                              
| |  | Inventories are stated at the lower of cost or market, cost being determined on a first-in, first-out
basis. Market is considered at net realizable value.



| |  |                                                                                                                                                                                                
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Property and equipment:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | Property and equipment are stated at cost less accumulated depreciation. Major renewals and
improvements are capitalized; minor replacements, maintenance and repairs are
charged to current operations. Depreciation is computed using the straight-line method over the estimated
useful lives of machinery and equipment. Leasehold improvements are amortized over
the shorter of the useful life of the improvement or the life of the related
lease. The Company performs periodic reviews for the impairment of long-lived assets.



| |  |                                                                                                        
| |  | -------------------------------------------------------------------------------------------------------
| |  | The estimated useful lives for significant property and equipment
categories are as follows (in years):

|                        |  |              |         | 
|----------------------- |  | ------------ | ------- | 
|                        |  | Useful lives
|                        |  |             
|Leasehold improvements  |  |              | 10 - 50 | 
|Manufacturing equipment |  |              | 5 - 20  | 
|Office equipment        |  |              | 5 - 14  | 



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Accounting change                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, Business Combinations,and SFAS No.
142, Goodwill and Other Intangible Assets.SFAS 141 requires that the purchase method
of accounting be used and establishes new standards for the recognition of certain
identifiable assets, separate of goodwill, for all business combinations initiated
after June 30, 2001. SFAS No. 142 will require that goodwill and intangible assets
with indefinite useful lives no longer be amortized, but instead tested for impairment
at least annually. SFAS No. 142 will also require that intangible assets with definite
useful lives be amortized over their respective estimated useful lives to their
estimated residual values.
|
| |  | The Company adopted provisions of SFAS No. 141 effectively July 1, 2001
and will fully adopt SFAS No. 142 effective January 1, 2002. In accordance
with the transitional provisions of SFAS No. 142, goodwill acquired in purchase
business combinations completed after June 30, 2001 is not amortized, but is
evaluated for impairment in accordance with the accounting literature in effect
prior to the issuance of SFAS No. 142. Goodwill and intangible assets acquired
in business combinations completed before July 1, 2001 continue to be amortized
through January 31, 2001.                                                                                                                                                             

F-8



---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|   |  |                                                        
|-- |  | -------------------------------------------------------
|2. |  | Summary of significant accounting policies (continued):



| |  |                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Long-lived assets:                                                                                                                                                                                                                                                                                                                                                                                      
| |  | Long-lived assets consist primarily of property and equipment and other intangible assets. The recoverability of
long-lived assets is evaluated periodically whenever
events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If
an impairment loss exists, the carrying amount of the
related long-lived asset is reduced to its estimated
fair value.



| |  |                                                                                                                                                                                                                                                                                                                                                                   
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Hire purchase obligations:                                                                                                                                                                                                                                                                                                                                        
| |  | Assets acquired under an installment plan are capitalized as fixed assets and the corresponding obligations are treated as
long-term liabilities. 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.



| |  |                                                                                                                                                                                                                                                                                                                                 
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Revenue recognition:                                                                                                                                                                                                                                                                                                            
| |  | The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales
price is fixed or determinable and collectibility is
probable. Generally, these criteria are at the time
product is accepted by the customer. Shipping and
handling costs are included in cost of goods sold.



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 shares 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.



| |  |                                                                                                                                                                                                                                                                                                                                     
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 adjusted
for these timing differences.



| |  |                                                                                                                                                                                        
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Deferred taxation:                                                                                                                                                                     
| |  | Provision is made by the liability method for taxation 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. At the present time the
Company does not provide any non-pension post
retirement benefits.

F-9



---



##### 



SETO HOLDINGS, 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 demand 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. |  | Accounts receivable:



| |  |                                                     
| |  | ----------------------------------------------------
| |  | Following is a summary of receivables at January 31:

|                          |                                       |   |         |         |  
|------------------------- | ------------------------------------- | - | ------- | ------- | -
|Trade accounts            |                                       | $ | 933,350 |        
|Miscellaneous receivables |                                       |   | 18,643  |        
|                          |                                       |   |         |        
|                          |                                       |   | 951,993 |        
|                          | Less: allowance for doubtful accounts |   |         | (13,350 | )
|                          |                                       |   |         |        
|                          |                                       | $ | 938,643 |        
|                          |                                       |   |         |        



| |  |                                                                                                                           
| |  | --------------------------------------------------------------------------------------------------------------------------
| |  | At January 31, 2002 accounts receivable in the amount of $951,993 was
pledged as collateral in
connection with bank loans.



|   |  |           
|-- |  | ----------
|5. |  | Inventory:



| |  |                                      
| |  | -------------------------------------
| |  | Inventories at January 31 consist of:



|                |  |   |         | 
|--------------- |  | - | ------- | 
|Finished goods  |  | $ | 499,894 | 
|Work in process |  |   | 77,174  | 
|Raw materials   |  |   | 275,706 | 
|Supplies        |  |   | 7,038   | 
|                |  |   |         | 
|                |  | $ | 859,812 | 
|                |  |   |         | 



| |  |                                                                                                                 
| |  | ----------------------------------------------------------------------------------------------------------------
| |  | At January 31, 2002 inventory in the amount of $859,812 was pledged as
collateral in connection with bank loans.



|   |  |                        
|-- |  | -----------------------
|6. |  | Property and equipment:



| |  |                                                                                             
| |  | --------------------------------------------------------------------------------------------
| |  | The following is a summary of property and equipment at cost, less accumulated depreciation:

|                        |                               |       |           |          |         | 
|----------------------- | ----------------------------- | ----- | --------- | -------- | ------- | 
|Leasehold improvements  |                               | $     | 150,961   |         
|Manufacturing equipment |                               |       | 840,013   |         
|Office equipment        |                               |       | 131,436   |         
|                        |                               |       |           |         
|                        |                               |       | 1,122,410 |         
|                        | Less accumulated depreciation |       |           | (411,398 | )      
|                        |                               |       |           |         
|                        |                               | Total |           | $        | 711,012 | 
|                        |                               |       |           |         



| |  |                                                                                                         
| |  | --------------------------------------------------------------------------------------------------------
| |  | Depreciation expense charged to operations was $173,250 and $138,534 in
2002 and 2001, respectively.    
|
| |  | Machinery and equipment with a cost of $1,122,410 is pledged as collateral for bank and equipment loans.

F-10



---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|   |  |          
|-- |  | ---------
|7. |  | Goodwill:



| |  |                                                                                                                                                                                                                                                                                                                                       
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In January, 1990, the Company acquired East Coast Sales Company for $309,000. The purchase price exceeded the fair value of
the assets by $134,281 which was assigned to goodwill,
and is being amortized on a straight-line basis over
forty years. As of January 31, 2002, accumulated
amortization of goodwill amounted to $48,828.



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In November 1999, the Company acquired Hong Kong Batteries Industries, Ltd. for $727,000. The purchase price exceeded fair
value of the assets by $747,300 which was assigned to
goodwill and is being amortized on the straight-line
basis over twenty years as of February 1, 2001. Prior
to that date, the goodwill was amortized over forty
years. The change did not have a material effect on the
financial statements. As of January 31, 2002,
accumulated amortization of goodwill amounted to
$59,117.



| |  |                                                                                                  
| |  | -------------------------------------------------------------------------------------------------
| |  | Amortization expense charged to operations in 2002 and 2001 was $40,722
and $18,638 respectively.



|   |  |                                  
|-- |  | ---------------------------------
|8. |  | Notes payable and long-term debt:



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company has an outstanding line of credit with a financial institution in the
amount of
$1,200,000. The
line of credit
carries interest at
an annual rate of
2.90% plus the 30
day dealer
commercial paper
rate with an
expiration date of
October 31, 2002.
As of January 31,
2002, the Company
had utilized
$1,047,652 of the
line of credit.
The personal
guarantee of the
Companys President
and the assets of
the Company secure
the loan.



| |  |                                                                    
| |  | -------------------------------------------------------------------
| |  | Long-term debt of the domestic companies consists of the following:

|                  |                      |  |      |   |      |   |             |         |   |  |      |  | 
|----------------- | -------------------- |  | ---- | - | ---- | - | ----------- | ------- | - |  | ---- |  | 
|                  |                      |  |      |   |      |   | Balance     |         |   |  |     
|                  |                      |  |      |   |      |   | January 31, |         |   |  |     
|                  |                      |  | Rate |   | 2002 |   | Maturity   
|                  |                      |  |      |   |      |   |            
|Equipment loan(a) |                      |  | 15   | % |      | $ | 37,644      |         |   |  | 2004 | 
|Shareholder(b)    |                      |  | 15   | % |      |   | 56,444      |         |   |  | 2002 | 
|Equipment loan(c) |                      |  | 10   | % |      |   | 34,075      |         |   |  | 2004 | 
|                  |                      |  |      |   |      |   |             |         |   |  |      | 
|                  |                      |  |      |   |      |   | 128,163     |         |   |  |      | 
|                  | Less current portion |  |      |   |      |   |             | (83,349 | ) |  |      |  | 
|                  |                      |  |      |   |      |   |             |         |   |  |      | 
|                  |                      |  |      |   |      | $ | 44,814      |         |   |  |      | 
|                  |                      |  |      |   |      |   |             |         |   |  |      | 



| |  | 
| |  | 
| |  | 

| |  | (a) |  | The note is payable in monthly installments of $1,607 including
interest.                                                
| |  | --- |  | -------------------------------------------------------------------------------------------------------------------------
| |  | (b) |  | The note is payable to a shareholder in monthly amounts of $4,731,
including interest and was paid off on April 15, 2002.
| |  | (c) |  | The note is payable in seventeen monthly installments of $1,033, including interest.                                     



| |  |                                              
| |  | ---------------------------------------------
| |  | The maturities of these loans are as follows:

|                 |  |   |         | 
|---------------- |  | - | ------- | 
|January 31, 2003 |  | $ | 83,349  | 
|January 31, 2004 |  |   | 29,292  | 
|January 31, 2005 |  |   | 15,522  | 
|                 |  |   |         | 
|                 |  | $ | 128,163 | 
|                 |  |   |         | 



| |  |                                                                                                                                                               
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Notes payable of the foreign subsidiaries consist of a note payable in the
amount of $27,392 with interest payable at 2% above the lenders base lending
rates.

F-11



---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|   |  |                               
|-- |  | ------------------------------
|9. |  | Commitments and contingencies:



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company is 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 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, 2002 |  | $ | 60,000  | 
|January 31, 2003 |  |   | 64,500  | 
|January 31, 2004 |  |   | 66,000  | 
|January 31, 2005 |  |   | 66,000  | 
|January 31, 2006 |  |   | 66,000  | 
|Thereafter       |  |   | 442,500 | 
|                 |  |   |         | 
|                 |  | $ | 765,000 | 
|                 |  |   |         | 



| |  |                                                                                                                                                                                                         
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Rent expense charged to operations was $81,420 and $73,478 in 2002 and
2001 respectively.                                                                                                               
|
| |  | The Company also leases three vehicles under operating leases with terms
expiring through 2003. Total lease expense was $49,283 and $49,283 for the
years ended January 31, 2002 and 2001, respectively.



|    |  |                                                                               
|--- |  | ------------------------------------------------------------------------------
|10. |  | Income taxes:                                                                 
|   
|    |  | The federal and state income tax provision (benefit) is summarized as follows:

|          |               |                           |   |         |         |      |   |        |        | 
|--------- | ------------- | ------------------------- | - | ------- | ------- | ---- | - | ------ | ------ | 
|          |               |                           |   | 2002    |         | 2001
|          |               |                           |   |         |         |     
|Current:  |               |                           |   |         |         |      |   |       
|          | Federal       |                           | $ | 0       |         |      | $ | 0      |       
|          | State         |                           |   | 3,405   |         |      |   | 6,895  |       
|          | Foreign       |                           |   | 9,313   |         |      |   | 37,616 |       
|          |               |                           |   |         |         |      |   |       
|          |               | Total current             |   |         | 12,718  |      |   |        | 44,511 | 
|          |               |                           |   |         |         |      |   |       
|Deferred: |               |                           |   |         |         |      |   |       
|          | Federal       |                           |   | (94,874 | )       |      |   |        |       
|          | State
Foreign |                           |   | 6,400   |         |      |   |        |       
|          |               |                           |   |         |         |      |   |       
|          |               | Total deferred            |   |         | (88,474 | )    |   |        |        | 
|          |               |                           |   |         |         |      |   |       
|          |               | Total provision (benefit) |   | $       | (75,756 | )    |   | $      | 44,511 | 
|          |               |                           |   |         |         |      |   |       



| |  |                                                                                                                                                                                      
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A reconciliation of the provision (benefit) for income taxes with amounts
determined by applying the statutory U.S.
Federal Income Tax Rate to income before
income taxes as follows:

|                                                  |                                    |   |          |         |      |   |          |        |  
|------------------------------------------------- | ---------------------------------- | - | -------- | ------- | ---- | - | -------- | ------ | -
|                                                  |                                    |   | 2002     |         | 2001
|                                                  |                                    |   |          |         |     
|Computed tax at the federal
statutory rate of 34% |                                    | $ | 164,520  |         |      | $ | 30,306   |       
|State tax, net of federal benefit                 |                                    |   | 11,478   |         |      |   | 4,551    |       
|Foreign tax effect, net                           |                                    |   | (25,627  | )       |      |   | (102,021 | )     
|Operating loss carry forward                      |                                    |   | (131,253 | )       |      |   | (98,009  | )     
|Reduction in valuation allowance                  |                                    |   | (94,874  | )       |      |   |          |       
|Disposition of subsidiary                         |                                    |   |          |         |      |   | 209,684  |       
|Other, net                                        |                                    |   |          |         |      |   |          |       
|                                                  |                                    |   |          |         |      |   |          |       
|                                                  | Provision (benefit) for income tax |   | $        | (75,756 | )    |   | $        | 44,511 |  
|                                                  |                                    |   |          |         |      |   |          |       
|                                                  | Effective income tax rate          |   |          | -16     | %    |   |          | 29     | %
|                                                  |                                    |   |          |         |      |   |          |       

F-12



---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|    |  |                          
|--- |  | -------------------------
|10. |  | Income taxes (continued):

|                                                   |                                              |                                |         |         |         |   |         |         |         | 
|-------------------------------------------------- | -------------------------------------------- | ------------------------------ | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|Deferred tax asset:                                |                                              |                                |         |         |         |   |         |        
|                                                   | Loss carry forward                           |                                | $       | 848,000 |         |   | $       | 376,991 |        
|                                                   | Allowance for doubtful accounts              |                                |         | 4,300   |         |   |         | 3,519   |        
|                                                   |                                              |                                |         |         |         |   |         |        
|                                                   |                                              | Total deferred tax assets      |         |         | 852,300 |   |         |         | 380,510 | 
|                                                   |                                              |                                |         |         |         |   |         |        
|Deferred tax liabilities:                          |                                              |                                |         |         |         |   |         |        
|                                                   | Difference between book and tax
depreciation |                                |         | 300     |         |   |         | 4,516   |        
|                                                   |                                              |                                |         |         |         |   |         |        
|                                                   |                                              | Total deferred tax liabilities |         |         | 300     |   |         |         | 4,516   | 
|                                                   |                                              |                                |         |         |         |   |         |        
|Net deferred tax assets before
valuation allowance |                                              |                                | 852,000 |         |         |   | 375,994 |        
|Valuation allowance                                |                                              |                                | 422,000 |         |         |   | 40,868  |        
|                                                   |                                              |                                |         |         |         |   |         |        
|Net deferred tax asset                             |                                              | $                              | 430,000 |         |         | $ | 335,126 |        
|                                                   |                                              |                                |         |         |         |   |         |        



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | The Company has a net operating loss carryforward of approximately $2,500,000 to apply against federal and state tax liabilities in
the future through the year 2009.                                                                                                                                                                                                                                                                                                                   
|   
|    |  | The Company does not provide for U.S. Income Taxes or foreign withholding taxes on the
undistributed
earnings of foreign
subsidiaries, as
such cumulative
earnings are
intended to be
permanently
reinvested in those
operations. It is
not practicable to
estimate the amount
of unrecognized
deferred tax
liabilities for
these undistributed
foreign earnings.                                                                                                                       
|   
|    |  | The foreign subsidiaries do not have any tax credits under Section 108 if
the Income Tax Act,
1967 (Malaysia) to
frank the payment
of dividend out of
its entire retained
profit. For this
reason the foreign
subsidiaries are
liable to a charge
equivalent to 28%
of the deemed tax
deductible from
gross dividends
payable under
section 108(5) of
the Income Tax Act,
1967.                                                                                                         
|   
|11. |  | Common stock:                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | During the year ended January 31, 2002, the Company issued 512,400 shares
of its common stock to individuals who
provided services to the Company. The Company also
cancelled 90,000 shares previously issued and
purchased 20,000 shares of its treasury stock for
$3,000.                                                                                                                                                                                                             
|   
|    |  | During the year ended January 31, 2001, the Company issued 1,262,500
shares of its common stock with net proceeds of
$758,927 due upon the exercise of certain stock
purchase options, and restricted private placement
stock. In addition, the Company issued common stock
for services to both affiliated individuals and
nonaffiliated entities, which provided consulting and
financial services by introducing funding sources and
also created public awareness about the Company.

F-13



---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|12. |  | Earnings per share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | Basic earnings per share of common stock is computed using the weighted-average number of
common shares
outstanding during
the period.
Diluted earnings
per share amounts
reflect the
incremental
increase in common
shares outstanding
assuming the
exercise of all
employee stock
options and
restricted stock
units that would
have had a dilutive
effect on earnings
per share. Diluted
earnings per share
also assumes that
any dilutive
convertible debt
outstanding was
converted at the
later of the date
of issuance or the
beginning of the
period, with
related interest
and outstanding
common shares
adjusted
accordingly. A
reconciliation of
the number of
shares used in the
calculation of
basic and diluted
earnings per share
is as follows for
the years ended
January 31, 2002
and 2001.

|                                            |                                                              |  |            |          |      |  |            |           | 
|------------------------------------------- | ------------------------------------------------------------ |  | ---------- | -------- | ---- |  | ---------- | --------- | 
|                                            |                                                              |  | 2002       |          | 2001
|                                            |                                                              |  |            |          |     
|Weighted average common shares outstanding  |                                                              |  | 14,557,463 |          |      |  | 19,365,825 |          
|Effect of using diluted securities:         |                                                              |  |            |          |      |  |            |          
|                                            | Weighted average common equivalent
shares from stock options |  |            | (768,478 | )    |  |            | 4,195,946 | 
|                                            |                                                              |  |            |          |      |  |            |          
|Diluted number of common shares outstanding |                                                              |  | 13,788,985 |          |      |  | 23,561,771 |          
|                                            |                                                              |  |            |          |      |  |            |          



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | Securities that were outstanding but were not included in the computation of diluted
earnings per share
because their
effect was
antidilutive
include options to
purchase 6,025,000
and 5,750,000
shares of common
stock for the years
ended January 31,
2002 and 2001
respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|13. |  | Common stock options:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | 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 Non-statutory
Stock Option Committee of the Board of Directors of the Company administers the
Plan. 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. Under the Plan, the option exercise price is equal to the fair
market value of the Companys common stock at the date of the grant. Options
currently expire no later than ten years from the grant date. Proceeds
received by the Company from exercises of stock options are credited to common
stock and additional paid-in capital.

F-14



---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|    |  |                                                                                       
|--- |  | --------------------------------------------------------------------------------------
|13. |  | Common stock options (continued):                                                     
|   
|    |  | Additional information with respect to the Plans stock option activity is
as follows:

|                                        |           |  |           |          |          |   |          |      | 
|--------------------------------------- | --------- |  | --------- | -------- | -------- | - | -------- | ---- | 
|                                        |           |  |           |          |          |   | Weighted
|                                        |           |  |           |          |          |   | Average 
|                                        |           |  | Number of |          | Exercise
|                                        |           |  | Shares    |          | Price   
|                                        |           |  |           |          |         
|Outstanding at January 31, 2001         |           |  | 5,750,000 |          |          | $ | .25      |     
|                                        | Granted   |  |           | 500,000  |          |   |          | .15  | 
|                                        | Cancelled |  |           | (225,000 | )        |   |          | 1.06 | 
|                                        |           |  |           |          |          |   |          |     
|Outstanding at January 31, 2002         |           |  | 6,025,000 |          |          | $ | .21      |     
|                                        |           |  |           |          |          |   |          |     
|Options exercisable at January 31, 2001 |           |  | 5,600,000 |          |          | $ | .24      |     
|                                        |           |  |           |          |          |   |          |     
|Options exercisable at January 31, 2002 |           |  | 2,500,000 |          |          | $ | .11      |     
|                                        |           |  |           |          |          |   |          |     

Stock Options Outstanding

|                          |  |             |           |               |  |          |      |  |  |   |      | 
|------------------------- |  | ----------- | --------- | ------------- |  | -------- | ---- |  |  | - | ---- | 
|                          |  |             |           |               |  | Weighted |      |  |  |  
|                          |  | Number      |           | Average       |  | Weighted
|                          |  | of          |           | Remaining     |  | Average 
|                          |  | Shares      |           | Contractual   |  | Exercise
|Ranges of exercise prices |  | Outstanding |           | Life in years |  | Price   
|                          |  |             |           |               |  |         
|$0.10  $0.25             |  |             | 4,500,000 |               |  |          | 4.25 |  |  | $ | 0.17 | 
|$0.26  $0.50             |  |             | 1,500,000 |               |  |          | 4.25 |  |  | $ | 0.50 | 
|$0.51  $1.50             |  |             | 25,000    |               |  |          | 0.27 |  |  | $ | 1.50 | 
|                          |  |             |           |               |  |          |      |  |  |   |      | 
|                          |  |             | 6,025,000 |               |  |          | 2.50 |  |  | $ | 0.27 | 
|                          |  |             |           |               |  |          |      |  |  |   |      | 

Stock Options Exercisable

|                          |  |             |           |               |  |          |      |  |  |   |      | 
|------------------------- |  | ----------- | --------- | ------------- |  | -------- | ---- |  |  | - | ---- | 
|                          |  |             |           |               |  | Weighted |      |  |  |  
|                          |  | Number      |           | Average       |  | Weighted
|                          |  | of          |           | Remaining     |  | Average 
|                          |  | Shares      |           | Contractual   |  | Exercise
|Ranges of exercise prices |  | Outstanding |           | Life in years |  | Price   
|                          |  |             |           |               |  |         
|$0.10  $0.25             |  |             | 2,500,000 |               |  |          | 4.25 |  |  | $ | 0.11 | 
|$0.26  $0.50             |  |             |           |               |  |          |      |  |  |   |      | 
|$0.51  $1.50             |  |             |           |               |  |          |      |  |  |   |      | 
|                          |  |             |           |               |  |          |      |  |  |   |      | 
|                          |  |             | 2,500,000 |               |  |          | 4.25 |  |  | $ | 0.10 | 
|                          |  |             |           |               |  |          |      |  |  |   |      | 



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company has elected to follow APB-25 (Accounting for Stock Issued to
Employees) in accounting for its employee stock
options. Accordingly, no compensation expense is
recognized in the Companys financial statements
because the exercise price of the Companys employee
stock options equals the market price of the Companys
common stock on the date of grant. The Company has
determined that the pro forma net income impact under
Financial Accounting Standards Board Statement No. 123
(Accounting for Stock-Based Compensation) does not
produce a material difference. The Company has noted
that the volatility of the stock makes valuation by
any other method inconsequential.

F-15



---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|14. |  | Stock based compensation to non-employees:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | The Company recognized compensation to non-employees for stock issued as
compensation at the discounted fair market value of
the stock as of the date of issue. Discounted fair
market value is determined based on the average
closing price per day over the last twelve months
period following the date of issue. At January 31,
2002 the Company issued a total of 512,400 shares of
common stock to consultants and recognized consulting
expense of $38,430. In addition, the Company
cancelled 90,000 shares of its common stock
previously issued to a consultant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | During the year ended January 31,
2001, the Company
issued 180,000 shares
of common stock to GoPublic.Com for consulting
services. As a result, the Company has recorded
$50,400 in consulting expense, which was being
amortized over the term of the contract, which has
since been canceled.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|15. |  | Employment agreements:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | On May 1, 1996, the Company entered into employment agreements with its
President and Vice President. The Term of the agreements has been extended to
April 30, 2006. Compensation is set at a base of $125,000 and $110,000 for the
President and Vice President, respectively, with each getting a bonus of 5% of
the increase in SETO Holdings, Inc./East Coast Sales Companys consolidated net
income over the net income from the previous years. Each employee also
received 1,000,000 stock options at $0.25, 1,000,000 stock options at $0.10 and
500,000 stock options at $0.50. The Vice President also received 50,000 stock
options at $0.50 in February 2000. On December 6, 2001 the President received
250,000 stock options and the Vice President received 150,000 stock options
with both having an exercise price of $.15 per share to replace common shares
previously issued and cancelled. The options were not part of the 1997
Non-statutory Stock Option Plan effectuated March 25, 1997. As of January 31,
2002, 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 has been
extended to April 30, 2006. Compensation is set at a base of $60,000 with a
bonus of 2% of any increase in SETO Holdings, Inc./East Coast Sales Companys
consolidated net income over the net income from the previous years. The
employee also received 500,000 stock options exercisable at $0.50 per share.
On December 6, 2001 the employee received 100,000 options exercisable at $.15
per share. These options were not part of the 1997 Non-statutory Stock Option
Plan effectuated March 25, 1997. As of January 31, 2002, none of these options
had been exercised.                                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | As of January 31, 2002 the Company has accrued bonuses of $53,688
to the officers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|16. |  | Disposition of subsidiary:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | In November 1999, the Company purchased 100% of the outstanding common
shares of Fimas, SDN BHD (Fimas) in a transaction
accounted for as a purchase. The Company issued
5,000,000 shares of its common stock valued at $0.89 per
share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | In January 2001, the Company disposed of its subsidiary and reacquired
the common stock previously issued in the acquisition at
$0.89 per share. As a result of the sale, activities
for Fimas have been accounted for as discontinued
operations. These results are presented as net amounts
in the Consolidated Statements of Income, with prior
periods restated to conform to the current presentation.
The condensed results of the discontinued operations
were as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

F-16



---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|    |  |                           
|--- |  | --------------------------
|16. |  | Disposition of subsidiary:

|                                             |  |      |  |      |  |   |            |  
|-------------------------------------------- |  | ---- |  | ---- |  | - | ---------- | -
|                                             |  | 2002 |  | 2001
|                                             |  |      |  |     
|Net sales                                    |  |      |  |      |  | $ | 24,091,242 |  
|Cost of sales                                |  |      |  |      |  |   | 22,889,911 |  
|                                             |  |      |  |      |  |   |            |  
|Gross profit                                 |  |      |  |      |  |   | 1,201,331  |  
|                                             |  |      |  |      |  |   |            |  
|Selling, general and administrative
expenses |  |      |  |      |  |   | 1,206,932  |  
|Interest expense                             |  |      |  |      |  |   | 150,691    |  
|Other income                                 |  |      |  |      |  |   | (1,774     | )
|                                             |  |      |  |      |  |   |            |  
|                                             |  |      |  |      |  |   | 1,355,849  |  
|                                             |  |      |  |      |  |   |            |  
|Income (loss) before income taxes            |  |      |  |      |  |   | (154,518   | )
|Income taxes                                 |  |      |  |      |  |   |            |  
|                                             |  |      |  |      |  |   |            |  
|Net income (loss)                            |  |      |  |      |  |   | ($154,518  | )
|                                             |  |      |  |      |  |   |            |  



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company recorded approximately $83,849 in a provision for severance
pay, lease obligations and other related costs, included in the loss from
discontinued operations in the accompanying statement of income (loss). As of
January 31, 2002, the Company has paid these expenses.                                                                                                                                                   
|
| |  | In June 1998, the Company purchased 100% of the outstanding common shares of Fuji Fabrication, SDN BHD (Fuji) for $100,000, in a
transaction accounted for as a purchase.                                                                                                                                                                                                                                                              
|
| |  | In September 2001, the Company disposed of Fuji and reported a gain on
the sale in the amount
of $29,919. As a
result of the sale,
activities for Fuji
have been accounted
for as discontinued
operations. These
results are presented
as net amounts in the
Consolidated
Statements of Income,
with prior periods
restated to conform to
the current
presentation. The
condensed results of
the discontinued
operations were as
follows:

|                                             |  |      |          |      |  |   |          |  
|-------------------------------------------- |  | ---- | -------- | ---- |  | - | -------- | -
|                                             |  | 2002 |          | 2001
|                                             |  |      |          |     
|Net sales                                    |  | $    | 180,102  |      |  | $ | 714,811  |  
|Cost of sales                                |  |      | 197,389  |      |  |   | 668,992  |  
|                                             |  |      |          |      |  |   |          |  
|Gross Profit (loss)                          |  |      | (17,287  | )    |  |   | 45,819   |  
|                                             |  |      |          |      |  |   |          |  
|Selling, general and administrative expenses |  |      | 124,363  |      |  |   | 100,663  |  
|Interest expense                             |  |      | 3,040    |      |  |   | 10,653   |  
|Other income                                 |  |      | (77,297  | )    |  |   |          |  
|                                             |  |      |          |      |  |   |          |  
|                                             |  |      | 50,106   |      |  |   | 111,316  |  
|                                             |  |      |          |      |  |   |          |  
|Loss before income taxes                     |  |      | (67,393  | )    |  |   | (65,497  | )
|Income taxes                                 |  |      | 474      |      |  |   |          |  
|                                             |  |      |          |      |  |   |          |  
|Net loss                                     |  |      | ($67,867 | )    |  |   | ($65,497 | )
|                                             |  |      |          |      |  |   |          |  

F-17



---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                          
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|17. |  | Principal products and segmentation of sales:                                                                                                                                                                                                                                                                                                                                                            
|   
|    |  | The Companys principal products are industrial ceramics, diamond cutting tools, cellular phone batteries and industrial 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.
|   
|    |  | Financial information relating to the principal industry segments and classes of products:                                                                                                                                                                                                                                                                                                               

|                          |                                         |   |           |           |      |   |           |           |  
|------------------------- | --------------------------------------- | - | --------- | --------- | ---- | - | --------- | --------- | -
|                          |                                         |   | 2002      |           | 2001
|                          |                                         |   |           |           |     
|Sales to customers:       |                                         |   |           |           |      |   |           |          
|                          | Industry A  Ceramics                   |   | $         | 2,338,673 |      |   | $         | 1,454,133 |  
|                          | Industry B  Diamond tools              |   |           | 794,010   |      |   |           | 855,962   |  
|                          | Industry C  Industrial batteries       |   |           | 2,039,543 |      |   |           | 2,576,773 |  
|                          | Industry D  Telecommunication products |   |           | 469,789   |      |   |           | 51,610    |  
|                          |                                         |   |           |           |      |   |           |          
|                          |                                         | $ | 5,642,015 |           |      | $ | 4,938,478 |          
|                          |                                         |   |           |           |      |   |           |          
|Operating profit or loss: |                                         |   |           |           |      |   |           |          
|                          | Industry A  Ceramics                   |   | $         | 629,852   |      |   | $         | 364,013   |  
|                          | Industry B  Diamond tools              |   |           | (225,162  | )    |   |           | (317,128  | )
|                          | Industry C  Industrial batteries       |   |           | 78,123    |      |   |           | 276,750   |  
|                          | Industry D  Telecommunication products |   |           | 67,831    |      |   |           | (26,782   | )
|                          |                                         |   |           |           |      |   |           |          
|                          |                                         | $ | 550,644   |           |      | $ | 296,853   |          
|                          |                                         |   |           |           |      |   |           |          
|Identifiable assets:      |                                         |   |           |           |      |   |           |          
|                          | Industry A  Ceramics                   |   | $         | 980,075   |      |   | $         | 512,018   |  
|                          | Industry B  Diamond tools              |   |           | 2,286,648 |      |   |           | 1,447,537 |  
|                          | Industry C  Industrial batteries       |   |           | 592,427   |      |   |           | 841,555   |  
|                          | Industry D  Telecommunication products |   |           | 140,851   |      |   |           | 29,600    |  
|                          | Corporate                               |   |           | 688,183   |      |   |           | 1,169,127 |  
|                          |                                         |   |           |           |      |   |           |          
|                          |                                         | $ | 4,688,184 |           |      | $ | 3,999,837 |          
|                          |                                         |   |           |           |      |   |           |          



| |  |                                                                                                                                                               
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Two customers each accounted for more than 10% of total sales and
together accounted for approximately 39% of total sales for the year
ended January 31, 2002.

F-18



---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|    |  |                                                          
|--- |  | ---------------------------------------------------------
|17. |  | Principal products and segmentation of sales (continued):
|   
|    |  | Foreign and domestic operations and export sales:        

|                     |               |   |           |           |      |   |           |           | 
|-------------------- | ------------- | - | --------- | --------- | ---- | - | --------- | --------- | 
|                     |               |   | 2002      |           | 2001
|                     |               |   |           |           |     
|Sales to customers:  |               |   |           |           |      |   |           |          
|                     | United States |   | $         | 3,019,080 |      |   | $         | 1,359,235 | 
|                     | Far East      |   |           | 1,587,846 |      |   |           | 3,047,331 | 
|                     | Canada        |   |           | 1,035,089 |      |   |           | 531,912   | 
|                     |               |   |           |           |      |   |           |          
|                     |               | $ | 5,642,015 |           |      | $ | 4,938,478 |          
|                     |               |   |           |           |      |   |           |          
|Operating profit:    |               |   |           |           |      |   |           |          
|                     | United States |   | $         | 132,155   |      |   | $         | 71,245    | 
|                     | Far East      |   |           | 158,623   |      |   |           | 197,407   | 
|                     | Canada        |   |           | 259,866   |      |   |           | 28,201    | 
|                     |               |   |           |           |      |   |           |          
|                     |               | $ | 550,644   |           |      | $ | 296,853   |          
|                     |               |   |           |           |      |   |           |          
|Identifiable assets: |               |   |           |           |      |   |           |          
|                     | United States |   | $         | 2,091,191 |      |   | $         | 1,767,928 | 
|                     | Far East      |   |           | 1,926,801 |      |   |           | 1,655,933 | 
|                     | Canada        |   |           | 670,192   |      |   |           | 575,977   | 
|                     |               |   |           |           |      |   |           |          
|                     |               | $ | 4,688,184 |           |      | $ | 3,999,837 |          
|                     |               |   |           |           |      |   |           |          



|    |  |                                    
|--- |  | -----------------------------------
|18. |  | Supplemental cash flow information:

|                                                                      |  |      |        |      |  |   |           | 
|--------------------------------------------------------------------- |  | ---- | ------ | ---- |  | - | --------- | 
|                                                                      |  | 2002 |        | 2001
|                                                                      |  |      |        |     
|Interest paid during the year                                         |  | $    | 83,972 |      |  | $ | 152,953   | 
|                                                                      |  |      |        |      |  |   |           | 
|Income taxes paid during the year                                     |  | $    | 1,251  |      |  |   |           | 
|                                                                      |  |      |        |      |  |   |           | 
|Supplemental schedule of non-cash investing
and financing activities: |  |      |        |      |  |   |           | 
|Equipment acquired under a note obligation                            |  | $    | 32,000 |      |  |   |           | 
|                                                                      |  |      |        |      |  |   |           | 
|Cancellation of common shares relating to
disposition of subsidiary   |  |      |        |      |  | $ | 4,518,362 | 
|                                                                      |  |      |        |      |  |   |           | 

F-19



---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|    |  |                                                                                                                                                                                                        
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|19. |  | Restatement of prior year results:                                                                                                                                                                     
|   
|    |  | The financial statements for the year
ended January 31, 2001 have been restated to reflect a change in the results of operations
of its foreign subsidiaries.
The effect of the changes
was as follows:

|                                                          |                                      |   |             |          |  
|--------------------------------------------------------- | ------------------------------------ | - | ----------- | -------- | -
|Income from continuing operations, as previously reported |                                      | $ | 75,648      |         
|Income from continuing operations, as restated            |                                      |   | 110,120     |         
|                                                          |                                      |   |             |         
|                                                          | Net change                           |   |             | 34,472   |  
|                                                          |                                      |   |             |         
|Discontinued operations, as previously reported:          |                                      |   |             |         
|                                                          | Loss from operations of subsidiaries |   |             | (154,518 | )
|                                                          | Loss on disposal of subsidiaries     |   |             | (581,121 | )
|                                                          |                                      |   |             |         
|                                                          |                                      |   | (735,639    | )       
|                                                          |                                      |   |             |         
|Discontinued operations, as restated:                     |                                      |   |             |         
|                                                          | Loss from operations of subsidiaries |   |             | (220,015 | )
|                                                          | Loss on disposal of subsidiaries     |   |             | (685,262 | )
|                                                          |                                      |   |             |         
|                                                          |                                      |   | (905,277    | )       
|                                                          |                                      |   |             |         
|                                                          | Net change                           |   |             | (169,638 | )
|                                                          |                                      |   |             |         
|Increase in net loss                                      |                                      |   | (135,166    | )       
|Retained earnings (deficit), as previously reported       |                                      |   | (1,952,522  | )       
|Adjustment to give effect to disposition of subsidiary    |                                      |   | 35,599      |         
|                                                          |                                      |   |             |         
|Retained earnings (deficit), as restated                  |                                      |   | ($2,052,089 | )       
|                                                          |                                      |   |             |         
|Earnings per share information, as previously reported:   |                                      |   |             |         
|Income from continuing operations:                        |                                      |   |             |         
|                                                          | Basic                                |   | $           | 0.00     |  
|                                                          |                                      |   |             |         
|                                                          | Diluted                              |   | $           | 0.00     |  
|                                                          |                                      |   |             |         
|Discontinued operations:                                  |                                      |   |             |         
|                                                          | Basic                                |   |             | ($0.04   | )
|                                                          |                                      |   |             |         
|                                                          | Diluted                              |   |             | ($0.03   | )
|                                                          |                                      |   |             |         
|Earnings per share information, as restated:              |                                      |   |             |         
|Income from continuing operations
Basic                   |                                      | $ | 0.01        |         
|                                                          |                                      |   |             |         
|                                                          | Diluted                              |   | $           | 0.00     |  
|                                                          |                                      |   |             |         
|Discontinued operations:                                  |                                      |   |             |         
|                                                          | Basic                                |   |             | ($0.05   | )
|                                                          |                                      |   |             |         
|                                                          | Diluted                              |   |             | ($0.05   | )
|                                                          |                                      |   |             |         

F-20