##### 



---

---

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-KSB

(Mark One)

|  |  |                                                                                                                                
|- |  | -------------------------------------------------------------------------------------------------------------------------------
|x |  | Annual Report Pusuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended January 31, 2003 
|  |  |                                                                                                                                
|o |  | 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 0-28698

SETO HOLDINGS, INC.

(Exact name of small business issuer as specified in its charter)


|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Nevada                                                         |  | 77-0082545                             
|                                                               |  |                                        
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S.) Employer
Identification Number

554 North State Road, Briarcliff Manor, New York, 10510

(Address of principal executive offices)


Registrants telephone number, including area code (914) 923-5000

Securities registered pusuant to Section 12(b) of the Act:

None

Securities registered pusuant to Section 12(g) of the Act:

None

Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceeding 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 |  | 



---

---





---



##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-KSB

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein,
and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated
by reference in Part III of the Form 10-KSB or any amendment to this form 10-KSB. x

State issuers revenues for its most recent fiscal year. $7,364,438

State 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.
$3,331,481 as of April 28, 2003.

State the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date.
14,484,700 shares of common stock, $0.001 par value, outstanding on April 28, 2003.

DOCUMENTS INCORPORATED BY REFERENCE

None





---



##### 



PART I

ITEM 1. DESCRIPTION OF BUSINESS

Industry

We principally distribute and fabricate on a value-added basis,
industrial ceramic products for the airline security, aircraft, aerospace,
defense and microwave industries. We also manufacture and distribute small
disposable precision diamond cutting tools which are used in the fabrication of
semiconductor chips and integrated circuit boards for the semiconductor and
electronic industries. In addition to fabricating and manufacturing, we also
provide contract manufacturing for personal safety devices and to produce
medical, automotive and mining safety devices. In fiscal 2003 we exited the
businesses of manufacturing consumer electronic products and rechargeable and
other, batteries, as discussed below and in Business
Developments over
the Last Three Years, and in  Item 6 Managements Discussion and Analysis
of Financial Condition and Results of Operations  Discontinued
Operations.

We are
incorporated in Nevada in 1986. Our Internet address is
www.setoholdings.com. On our
web site we post the following filings as soon as reasonable practicable after
they are electronically filed with or furnished to the Securities and Exchange
Commission: our annual report on Form 10-KSB, our quarterly reports on Form
10-QSB, our current reports on Form 8-K and any amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934. All such filings on our web site are available free of
charge.

Business Developments Over The Past Three Years

Since June 1998, we have made acquisitions and formed joint ventures
designed to enable us to sell rechargeable batteries for telephones, power
tools, and other consumer products. All of our efforts have been unsuccessful,
and these businesses were either sold or discontinued. A summary of these
transactions is set forth below:

On June 30, 1998, we 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 designed, manufactured and distributed
cellular telephone and other rechargeable batteries. On November 19, 1999, we
acquired all the issued and outstanding common stock of Hong Kong Batteries
Industries, Ltd. (HKBI), a Hong Kong manufacturer and distributor of
electronic components and industrial batteries, with joint venture partners in
mainland China, in exchange for 1,500,000 shares of our common stock. In
January 2001, we mutually agreed to reduce the purchase price by 100,000 share,
which were returned to us and cancelled. In March 2001, we issued to the
former shareholders of HKBI an additional 500,000 shares due to HKBI
generating a certain amount of post acquisition net income. The acquisition of
HKBI marked the beginning of our emphasis on the design, manufacturing,
marketing and distribution of products for the telecommunications industry. On
November 27, 1999, we issued 5,000,000 shares of our common stock to acquire
all 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, we sold Fimas back to their former owners in exchange
for the 5,000,000 shares of common stock we originally issued to
acquire Fimas.
We decided to dispose of Fimas due to its low gross profit margins,
increasing losses and high working capital requirements. In February 2001, we
decided to discontinue Fujis operations because we could not compete with
Chinese Companies. China was producing batteries for a third of what it cost us to manufacture.
On October 1, 2001, we sold certain equipment and inventory used to
manufacture and assemble cellular telephone packs to G Com Net, Inc. (G Com),
a New York corporation for $290,547. We accepted a promissory note for the
full amount, interest was stated at 10% and the note was originally due on
October 1, 2002, such note was then amended on October 1,
2002 to increase the principal amount to $396,693 and to reflect the sale
of additional supplies and unpaid interest, to extend the maturity date to
September 30, 2003, and to provide for the payment of interest on a monthly
basis instead of quarterly. Interest payments on this note are current,
although, no assurance can be given that they will remain current or that the
note will be paid on maturity. In April 2001, we discontinued our SETO Ventures
U.S. distribution company and its Circle 1.com marketing company, both of which
were formed in 2000. On October 31, 2002, following a significant reduction in





---



##### 



revenues and profits which we could not overcome, we closed HKBI, and
thereafter we dissolved our Lexal Battery Co., Ltd. and Vision Shenzen Center
Power Tech Co., Ltd. joint ventures, effectively terminating our foray into the
business of manufacturing and selling consumer electronic products and
rechargeable and other batteries for consumer products.

Products

Our major products include industrial ceramics, diamond cutting tools, and
personal safety devices, such as our CPR trainer.

Our major customers are:



| |  | Original equipment manufactures who make airport security,
bomb detection devices, jet engine and missiles;
|- |  | -----------------------------------------------------------------------------------------------------------
| 
| |  | Original equipment manufacturers who make semiconductors and
light emitting diodes (LEDs); and            
| 
| |  | Safety and rescue industries.                                                                              

Focusing on our core competencies in the fabrication of industrial
ceramics as well as our diamond tools and personal safety devices, we believe
we are well positioned to provide our customers with the quality products they
demand.

Each of our operating segments uses its core competencies, and we use our
relatively small size to provide niche services for larger companies in order
to compete vigorously in each relevant market segment. Our East Coast Sales
Company segment focuses on industrial ceramics for the security, detection and
jet engine industries. Our Semicon Tools DTI Technology segment focuses on
diamond cutting tools for the semiconductor and electronic industries.
Finally, our SETO Technology segment focuses on contract manufacturing for the
safety and rescue industries.

Industrial Ceramic Products  East Coast Sales Company

East Coast Sales Company (ECS) operating segment 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 for the airline security and detection industries and jet
engine manufacturers. The products are manufactured by third parties and
fabricated by us and warehoused and then distributed by us from our New York
facilities.

After the terrorist attacks on September 11th, East Coast Sales
experienced an increase in demand of our ceramic products used in the
manufacture of airport safety and detection devices. Our three major customers
are developing new products all which will require our ceramic products. In
addition to airport security devices our ceramic products are used in military
defense equipment such as missiles and by manufacturers of jet engines for both
commercial and military use.

Net revenue for the Industrial Ceramic Products operating segment made up
approximately 79% of our consolidated net revenue in fiscal 2003.

Industrial Diamond Cutting Tools  Semicon Tools/DTI Technology

Semicon Tools/DTI Technology manufactures and distributes diamond dicing
blades. Dicing blades are made of industrial diamonds bonded with 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, which are the most
commonly used, diamond/thermoset plastic known as resin blades, which are
used in precision electronic saws for cutting ceramic substrates and have a
shorter useful life, and diamond nickel allow hubbless blades. Hubbed blades
are competitively manufactured





---



##### 



principally by Disco, Inc. and Kulicke & Soffa
Corporation. We manufacture hubbed and hubbless blades at our Malaysian
facility and we currently have an insignificant share of the world-wide dicing
blade market. There can be no assurance that we will be able to increase our
market share.

We also manufacture and distribute Scribes and Dressers. A Scribe, which
resembles a small pencil, has a tip that contains a gem quality diamond which
is used to cut silicon wafers and perform die and integrated circuit
separation. These products, which we assemble in our New York facility, have
limited growth potential in this application since the semiconductor and
electronic industries have 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 are also preferred for certain low volume applications which do not
justify the capital expense of using a dicing saw. We occasionally use
subcontractors to set or lap the diamonds into the tools. Dressers are
diamond tipped tools generally used to dress or shape abrasive grinding
wheels in machine shops. These products, which are assembled in our Malaysian
facility, are sold to companies such as Black & Decker and Snap-On Tools, who
then resells them to third parties. We believe that there are multiple foreign
suppliers of these dressers.

Net revenue for the Industrial Diamond Cutting Tool operating segment made
up approximately 11% of our consolidated net revenue in fiscal 2003.

Contract Manufacturing  SETO Technology

SETO Technology provides contract-manufacturing services for personal
electronic safety devices and to produce medical, automotive and mining safety
devices. This segment is currently developing and selling medical training
products, auto safety devices and safety helmets. Currently this segments
main product is a CPR training device used by the medical industry. We have
five different models under contract on an exclusive and nondisclosure basis.
SETO Technology has also contracted with a third party to develop and
manufacture a safety helmet that we expect to bring to market in fiscal 2004.

Net revenue for the Contract Manufacturing operating segment made up
approximately 10% of our consolidated net revenue in fiscal 2003.

Miscellaneous Products

In addition to the products mentioned above, we distribute small precision
tools such as tweezers, pliers, vacuum pickups and scribes, core drills and
sinter blades for ceramic applications. We also distribute cleaning chemicals,
inspection gloves and other items used to preserve a contamination-free
environment, which we market primarily to semiconductor manufacturers.

Raw Materials

We purchase our raw materials and supplies from multiple sources. None of
the raw materials and supplies we require is currently in short supply,
although factors outside of our control could adversely impact their future
availability.

Backlog

Our sales are made primarily pursuant to standard purchase orders for
delivery of standard products. We believe that only a small portion of our
order backlog is noncancellable and that the dollar amount associated with the
noncancellable portion is not material. Therefore, we do not believe that our
backlog as of any particular date is indicative of future results.





---



##### 



Competition

Our operating segments each are intensely competitive. Virtually all
competitors have greater financial and personnel resources and greater market
recognition than our company has. As a result, these competitors can obtain
better payment terms and service from suppliers. Furthermore, we face 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. We believe the principal competitive
factors affecting its products are quality, price and availability.

Marketing

We market our products though joint ventures, account representatives,
telephone solicitations, participation in trade shows, the Internet and
advertisements in trade journals.

Manufacturing Facilities

In Briarcliff Manor, New York, we operate a machine shop and a
manufacturing facility for resin/diamond dicing blades. We lease a facility in
Kepala Batas, Penang, Malaysia which is equipped to manufacture dicing blades
and diamond dressing tools.

Government Regulation

We believe our operations and facilities are in compliance with all
federal, state and local environmental laws in the United States and Malaysia.
We have not incurred any special or unusual costs to comply with environmental
laws or other applicable governmental regulations.

Research and Development

In fiscal years ended January 31, 2003 and 2002, we spent approximately
$138,878 and $40,000, respectively, on deferred product development costs
regarding our new safety helmet.

Employees

We employ approximately 18 full-time employees, of which 6 employees work
in the United States and the remaining 12 are employed in Malaysia. We also
utilize outside consultants and part-time workers when required.

ITEM 2. DESCRIPTION OF PROPERTY

In Malaysia, we lease approximately 4,600 square feet of manufacturing and
warehouse space and 500 square fee of office space in Kepala Batas, Penang,
pursuant to a lease expiring in July 2004, with a minimum annual lease payment
of $7,200. We also occupy approximately 1,500 square feet of office space in
Penang, pursuant to a lease expiring in September 2004, with a minimum annual
lease payment of $12,000.

In the United States, we lease 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 principal shareholder, pursuant to a 15 year lease
which expires on April 30, 2013, with an annual base rent, excluding utilities,
maintenance and repairs, as follows: years 1 to 5 $60,000; years 6 to 10,
$66,000 and years 11 to 15, $72,000.

ITEM 3. LEGAL PROCEEDINGS

There are no pending material legal proceedings to which we are a party to
or which any of our property is subject, and we know on no such threatened or
contemplated proceedings against us.





---



##### 



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

Our 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 our common stock for each calendar quarter within the last two fiscal
years, and for the first calendar quarter of 2003, 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
|               |  |     |      |     
|2003           |  |     |      |      |  |   |      | 
|First quarter  |  | $   | 0.21 |      |  | $ | 0.34 | 
|              
|2002           |  |     |      |      |  |   |      | 
|First quarter  |  | $   | 0.13 |      |  | $ | 0.20 | 
|Second quarter |  | $   | 0.13 |      |  | $ | 0.20 | 
|Third quarter  |  | $   | 0.19 |      |  | $ | 0.39 | 
|Fourth quarter |  | $   | 0.19 |      |  | $ | 0.31 | 
|              
|2001           |  |     |      |      |  |   |      | 
|First quarter  |  | $   | 0.21 |      |  | $ | 0.74 | 
|Second quarter |  | $   | 0.13 |      |  | $ | 0.18 | 
|Third quarter  |  | $   | 0.13 |      |  | $ | 0.19 | 
|Fourth quarter |  | $   | 0.13 |      |  | $ | 0.17 | 

Holders

As of April 14, 2003, there were 330 record holders of our common stock.

Recent Sales of Unregistered Securities

On January 28, 2000, we issued 250,000 shares of our common stock to an
individual who rendered consulting services to us valued at $68,000 in
connection with our 1999 acquisition of Fimas Sdn Bhd. . 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 us for cancellation.

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

In March 2000, we issued an aggregate of 875,000 shares of our 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, we 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 us for cancellation. See Note 22 in the financial statements.

In April 2000, we 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, we issued 500,000 shares pursuant to Section 4(2) of the
Securities Act to the former owners of Hong Kong Batteries Industries, Ltd.
(HKBI), our former wholly owned subsidiary which we acquired in December
1999, and discontinued in fiscal 2003. Such shares were issued as an
additional purchase price based on HKBIs generation of a certain amount of
post acquisition net income,.

In April 2001, we issued an aggregate of 500,000 shares our officers,
Eugene Pian (250,000 shares), Craig Pian (150,000 shares) and Francine Pian
(100,000 shares), to agreeing to extend the terms of their respective
employment agreements for an additional five years, pursuant to Section 4(2) of
the Securities Act. Such shares were cancelled on December 6, 2001 and
replaced with options to purchase a like number of shares at $.15 per share
with an expiration date of 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
receive such dividends as may be declared by the Board of Directors out of
assets legally available, 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 Company.

Dividends

We have not paid cash dividends to date and we intend to apply our
earnings, if any, for use in our activities. Payments of cash dividends in
future will be wholly dependent upon the Board of Directors and upon our
earnings, financial condition, capital requirements and other factors we deem
relevant. 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 us,
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

The following section should be read in conjunction with Item 1: Business
and Item 7: Financial Statements.

The Strategy, Critical Accounting Estimates and Outlook sections all
contain a number of forward-looking statements, all of which are based on our
current expectations. Our actual results may differ materially.

Recent Developments

We are currently restating our previously issued financial statements for
the two years ended January 31, 2002, including the corresponding fiscal 2002
and 2003 quarterly periods. The impact of the restatement on such prior
periods was reflected as an adjustment to opening retained earnings as of
February 1, 2001. The restatement will be reported in Amendment No. 2 to the
Companys Annual Report on form 10-KSB/A for the years ended January 31 2001
and 2002 and Amendment No. 2 to the Companys Quarterly Reports on Form
10-QSB/A for the quarterly periods ended April 30, 2001 and 2002, July 31, 2001
and 2002, and October 31, 2001 and 2002.

As discussed in more detail below under Results of Operations, in 2001 we
issued shares of our common stock as compensation to a consulting firm. We
originally valued the consulting agreement at $255,600 and were amortizing it
over its term. In the fourth quarter of fiscal 2001, due to changing market
conditions and the lack of performance by the consulting company, we revalued
the consulting agreement down to $50,400. After being advised by the staff of
the Securities and Exchange Commission (SEC), we have decided to use the fair
value of our common stock to determine the fair value of services rendered at
the time the contract was signed in accordance with FAS No. 123 (Accounting for
Stock Based Compensation), and decreased fiscal 2002s net income by $8,823,
from $521,688 to $512,865.

Throughout the following Managements Discussion and Analysis of Financial
Condition and Results of Operations, all amounts referencing prior periods and
prior period comparisons reflect the balances and amounts on a restated basis.

Strategy

Our goal is to be a niche company, with the ability to provide products
and services to a variety of larger corporations who need contract
manufacturing and/or made-to-order products. Our primary areas of focus are
the fabrication of ceramic parts for the airline security business and jet
engine manufacturing along with cutting blades for silicon wafers.

All of our businesses operate in competitive environments characterized by
the introduction of new products with lower prices. As part of our overall
strategy, we use our relatively small size and ability to provide niche
services for larger companies in order to compete vigorously in each relevant
market segment. Our competition comes from established businesses as well as
new entrants to the marketplace. The trend in the United States (U.S.) toward
HomeLand Security will offer us new opportunities, but will result in more
competition. Competition tends to increase pricing pressure on our products,
which may mean that we must offer our products at lower prices than we had
anticipated, resulting in lower profits. Because some of our customers already
have established products, it is inherently difficult for us to compete against
them. In addition, certain market segments in which we compete, such as dicing
blade products, have experienced an overall economic decline, increasing the
degree of competition within this market segment. When we believe it is
appropriate, we will take various steps, including discontinuing older products
and reducing prices, in order to increase acceptance of our products and to be
competitive within each relevant market segment.

We plan to continue to cultivate new businesses and work with the security
and chip making industries to expand our product lines.





---



##### 



East Coast Sales Company East Coast Sales Company (ECS) operating
segment specializes in the distribution and value-added fabrication of
technical ceramic products for the airline security industry and jet engine
manufacturers, and distributes clean room supplies and tools. Our strategy for
ceramic fabrication is to increase our production efficiency by utilizing our
foreign subsidiarys labor force and updating our machinery. After September
11th, East Coast Sales experienced an increase in demand for its ceramic
products used in the manufacture of airport safety and detection devices. Our
three major customers are developing new products which will require our
ceramic products. In addition to airport security devices, our ceramic
products are used in military defense equipment such as missiles, and by
manufacturers of jet engines for both commercial and military use. To increase
the acceptance and deployment of our ceramic products, we are focused on
providing our customers with the highest quality products and services.

Semicon Tools and DTI Technology Semicon Tools and DTI Technology
operating segments strategy is to produce quality diamond cutting tools for
the semiconductor industry. We plan to improve the quality and capability of
our diamond cutting products that we currently have on the market. We are
currently consulting with an outside source in Taiwan to improve our
manufacturing process and diamond tool technology. The diamond tool
segment is very dependent on the semiconductor industry which over last three years
has experienced economic decline and is still not showing signs of growth. The
diamond blades manufactured by DTI Technology are a vital part of East Coast
Sales ceramic fabrication process.

SETO Technology SETO Technologys strategy is to provide
contract-manufacturing services for personal electronic safety devices and to
produce medical, automotive and mining safety devices. This segment is
currently developing and selling medical training products, auto safety devices
and safety helmets. Currently this segments main product is a CPR training
device used by the medical industry. We have five different models under
contract on an exclusive and nondisclosure basis. SETO Technology has also
contracted with a third party to develop and manufacture a safety helmet that
we expect to bring to market in fiscal 2004. As of January 31, 2003 we have
advanced a total of $178,878 to the developer who is producing the tooling and
molds to be used in the manufacturing process of the helmet. We expect to
start depreciating and expensing these costs when we begin producing the
helmets in fiscal 2004.

Critical Accounting Estimates

The methods, estimates and judgments we use in applying our accounting
policies have a significant impact on the results reported in our financial
statements. Some of these accounting policies require us to make difficult and
subjective judgments, often as a result of the need to make estimates of
matters that are inherently uncertain. Our most critical accounting estimates
include the assessment of recoverability of goodwill, which impacts write-offs
of goodwill; valuation of inventory, which impacts gross margin; assessment of
recoverability of long-lived assets, which primarily impacts gross margin when
we impair assets or accelerate their depreciation; and recognition and
measurement of current and deferred income tax assets and liabilities, which
impacts our tax provision. Below we discuss these policies further, as well as
the estimates and judgments involved. We also have other policies that we
consider to be key accounting policies, such as our policy for revenue
recognition; however, this policy does not meet the definition of critical
accounting estimates because they generally require us to make estimates or
judgments that are difficult or subjective.

Goodwill In conjunction with the implementation of the new accounting
rules for goodwill as of the beginning of Fiscal 2003, we completed a goodwill
impairment review of East Coast Sales Company which is the reporting unit that
has substantially all of our recognized goodwill. According to our accounting
policy, we also performed an annual review during the fourth quarter of fiscal
2003, and in both reviews we found no impairment. We will perform a similar
review in the fourth quarter of each year, or more frequently if indicators of
potential impairment exist. Our impairment review process is based on a
discounted future cash flow approach that uses our estimates of revenue for the
reporting unit, driven by assumed market growth rates and assumed segment
share, and estimated costs as well as appropriate discount rates. In the
future, we may incur charges for impairment of goodwill if the ceramic
fabrication business experiences an economic downturn, new technology becomes
available, we lose market acceptance, we fail to deliver new products, or if we
fail to achieve our assumed revenue growth rates or assumed gross margin.





---



##### 



Inventory Our policy for valuation of inventory, including the
determination of obsolete or excess inventory requires us to estimate the
future demand for our products within specific time horizons, generally one
year or less. If our demand forecast for specific products is greater than
actual demand and we fail to reduce manufacturing output accordingly, we could
be required to record additional inventory reserves, which would have a
negative impact on our gross margin.

Long-Lived Assets We assess the impairment of long-lived assets when events
or changes in circumstances indicate that the carrying value of the assets or
the asset grouping is not recoverable. Factors that we consider in deciding
when to perform impairment review include significant under-performance of a
business or product line in relation to expectations, significant negative
industry or economic trends, and significant changes in our use of the assets.
Recoverability of assets that will continue to be used in our operations is
measured by comparing the carrying amount of the assets grouping to the related
total future net cash flows. If an assets grouping carrying value is not
recoverable through those cash flows, the asset grouping is considered to be
impaired. The impairment is measured by the difference between the assets
carrying amount and their fair value, based on the best information available,
including market prices or discounted cash flow analysis.

Income Taxes In determining income for financial statement purposes, we
must make certain estimates and judgments. These estimates and judgments occur
in the calculation of certain tax liabilities and in the determination of the
recoverability of certain tax assets, which arise from temporary differences
between the tax and financial statement recognition of revenue and expense. As
of January 31, 2003, taxes were not provided on approximately $56,508 of
undistributed earnings of foreign subsidiaries, as we invest or expect to
invest the undistributed earnings indefinitely. If in the future these
earnings are repatriated to the United States, or if we determine such earnings
will be remitted in the foreseeable future, additional tax provisions would be
required.

We must assess the likelihood that we will be able to recover our deferred
tax assets. If recovery is not likely, we must increase our provision for
taxes by recording a reserve, in the form of a valuation allowance, for the
deferred tax assets that we estimate will not ultimately be recoverable. As of
January 31, 2003, we believe that our recorded deferred tax assets will
ultimately be recovered. However, should there be a change in our ability to
recover our deferred tax assets; our tax provision would increase in the period
in which we determine that the recovery is not probable.

In addition, the calculation of our tax liabilities involves dealing with
uncertainties in the application of complex tax regulations. We recognize
potential liabilities for anticipated tax audit issues in the U.S. and other
tax jurisdictions based on our estimate of whether, and the extent to which,
additional taxes will be due. If payment of these amounts ultimately proves to
be unnecessary, the reversal of the liabilities would result in tax benefits
being recognized in the period when we determine the liabilities are no longer
necessary. If our estimate of tax liabilities proves to be less than the
ultimate assessment, a further charge to expense would result.

Results of Operations

The financial statements for fiscal 2002 and 2001 have been restated. In
fiscal 2001, we issued 180,000 shares of our common stock as compensation to a
consulting firm for a fifteen month contract. We originally valued the
consulting agreement at $255,600 and were amortizing it over its term. In the
fourth quarter of fiscal 2001, due to changing market conditions and the lack
of performance by the consulting company, we revalued the consulting contract
down to $50,400. After being advised by the staff of the Securities and
Exchange Commission (SEC), we used the fair value of our common stock to
determine the fair value of services rendered at the time the contract was
signed in accordance with FAS No. 123 (Accounting for Stock Based
Compensation). This correction resulted in us recognizing in Fiscal 2002, and
additional $8,823 in Selling, General and Administrative expenses which
decreased net income for fiscal 2002 from $521,688 to $512,865. In addition,
the implementation of FAS No. 123 had no impact on our liquidity or cash flows
for fiscal 2002.





---



##### 



In addition, we have corrected a typographical error in our computation of
earnings per share in fiscal 2002. The diluted number of common shares
outstanding was originally stated as 13,788,985. The correct amount Per Share)
the diluted number of common shares outstanding should have been the same
amount as the weighted common shares outstanding at January 31, 2002.
Anti-dilution occurred when the exercise price in the assumed conversion of our
outstanding stock options was below the average market price (out of the money)
of our common stock for the year.

The following table sets forth certain consolidated statements of income
data as a percentage of net revenue for the periods indicated:

|                                                               |  |      |        |          |  |      |        |  
|-------------------------------------------------------------- |  | ---- | ------ | -------- |  | ---- | ------ | -
|                                                               |  |      |        |          |  | 2002
|                                                               |  | 2003 |        | Restated
|                                                               |  |      |        |         
|Net revenues                                                   |  |      | 100.00 | %        |  |      | 100.00 | %
|Cost of sales                                                  |  |      | 48.90  | %        |  |      | 40.52  | %
|                                                               |  |      |        |          |  |      |        |  
|Gross margin                                                   |  |      | 51.10  | %        |  |      | 59.48  | %
|Selling, general and administrative expenses                   |  |      | 29.38  | %        |  |      | 46.27  | %
|Amortization of goodwill                                       |  |      | 0.00   | %        |  |      | 0.09   | %
|Amortization and impairment of acquisition-related intangibles |  |      | 0.14   | %        |  |      | 0.00   | %
|                                                               |  |      |        |          |  |      |        |  
|Operating income                                               |  |      | 21.58  | %        |  |      | 13.12  | %

For fiscal 2003, our net revenue of $7,364,438 was up approximately 104%
compared to fiscal 2002, primarily due to the increase in demand for our
ceramic products used by the airline security and jet engine manufacturing
industries. Net revenue for our diamond tool segment was flat with fiscal 2002
and our contract manufacturing revenues were up 50%, primarily due to market
acceptance of our CPR training device.

Our gross margin percentage in fiscal 2003 of 51% was lower compared to
59% in fiscal 2002, primarily due to lower margins in our ceramic segment. The
gross margin for our diamond tool segment was flat compared to fiscal 2002; and
our gross margins for our contract manufacturing segment was down 7%, which was
due to us lowering unit prices in order to compete with products manufactured
in China.

For fiscal 2003, the majority of our consolidated net revenue and gross
margin came from sales of our custom ceramic products.

Ceramics  East Coast Sales Company

The revenue and operating income for the East Coast Sales Company
operating segment for the two years ended January 31, 2003 and 2002 were as
follows:

|                 |  |      |           |          |  |      |           | 
|---------------- |  | ---- | --------- | -------- |  | ---- | --------- | 
|                 |  |      |           |          |  | 2002
|                 |  | 2003 |           | Restated
|                 |  |      |           |         
|Revenue          |  | $    | 5,843,564 |          |  | $    | 2,338,673 | 
|Operating income |  | $    | 1,890,414 |          |  | $    | 629,852   | 

The East Coast Sales Company operating segment is our ceramics division,
which had a dramatic increase in sales due to the effects of September 11th.
Net revenues for this segment increased $3,504,891 or 150% in fiscal 2003
compared to fiscal 2002. The increase in revenue was due to significantly
higher sales of custom cut ceramics that are used in airport security devices
and in the manufacturing process of jet engines and missiles for the military.





---



##### 



Net operating income for the East Coast Sales Company operating segment
increased by $1,260,562 or 200% compared to fiscal 2002 primarily due to the
increase in demand from the industries mentioned above.

Diamond Tools  Semicon Tools/DTI Technology

The revenue and operating loss for the diamond tool operating segment for
the two years ended January 31, 2003 and 2002 were as follows:

|               |  |      |          |          |  |      |          |  
|-------------- |  | ---- | -------- | -------- |  | ---- | -------- | -
|               |  |      |          |          |  | 2002
|               |  | 2003 |          | Restated
|               |  |      |          |         
|Revenue        |  | $    | 817,066  |          |  | $    | 794,010  |  
|Operating loss |  | $    | (311,437 | )        |  | $    | (225,162 | )

Net revenue in fiscal 2003 was up $23,056 or 3%, compared to fiscal 2002.
The net operating loss for fiscal 2003 increased $38,275 or 38%, compared to
fiscal 2002. The increase in the net operating loss from fiscal 2002 to fiscal
2003 was primarily due to lower average selling prices of diamond cutting
tools. The lower selling prices reflected the impact of competitive pricing
pressures and a very soft semiconductor industry. In addition, the following
expenses; utilities, insurance and labor, all increased substantially in fiscal
2003 compared to fiscal 2002.

Contract Manufacturing  SETO Technology

The revenue and operating income for the contract manufacturing operating
segment for the two years ended January 31, 2003 and 2002 were as follows:

|                 |  |      |         |          |  |      |         | 
|---------------- |  | ---- | ------- | -------- |  | ---- | ------- | 
|                 |  |      |         |          |  | 2002
|                 |  | 2003 |         | Restated
|                 |  |      |         |         
|Revenue          |  | $    | 703,808 |          |  | $    | 469,789 | 
|Operating income |  | $    | 10,334  |          |  | $    | 67,831  | 

Net revenue for fiscal 2003 was up $234,019 or 50%, compared to fiscal
2002, primarily due to higher unit volume, however, it was offset by higher
operating expenses which decreased operating income by $57,497 or 85%, compared
to fiscal 2002. Lower unit costs combined with higher labor and utility costs
were responsible for the decrease in operating income.





---



##### 



Operating Expenses

Operating expenses for the two years ended January 31, 2003 and 2002 were
as follows:

|                                                               |  |      |           |          |  |      |           | 
|-------------------------------------------------------------- |  | ---- | --------- | -------- |  | ---- | --------- | 
|                                                               |  |      |           |          |  | 2002
|                                                               |  | 2003 |           | Restated
|                                                               |  |      |           |         
|Selling, general and administrative expenses                   |  | $    | 2,163,762 |          |  | $    | 1,667,028 | 
|Amortization of goodwill                                       |  | $    | 0         |          |  | $    | 3,357     | 
|Amortization and impairment of acquisition-related intangibles |  | $    | 10,000    |          |  | $    | 0         | 

Selling, general and administrative expenses increased $496,734, or 30%
compared to fiscal 2002. This increase was primarily due to the significant
increase in sales from our ceramic segment, East Coast Sales Company, which
caused an increase in overtime wages, an increase in commissions paid, and
increased travel expenses.

Amortization of goodwill decreased $3,357 in fiscal 2003 compared to
fiscal 2002, which was due to the adoption of SFAS No. 142 on February 1, 2002.
We have ceased amortizing amounts related to goodwill and the remaining balance
of goodwill is now all related to our East Coast Sales Company segment.

Amortization and impairment of acquisition-related intangibles increased
$10,000 in fiscal 2003 compared to fiscal 2002. On December 1, 2002, we
acquired the customer lists from a Malaysian company for $300,000. We are
amortizing the cost over a period of 5 years. Our future annual amortization
expense will be $60,000 for the next four years and $50,000 in fiscal 2008. If
market conditions change and it is deemed that the customer lists do not have
any future benefit and become impaired, we may write off the entire amount,
which would have a negative effect on our operating income.

Interest and Other, Net

Interest and other, net and taxes for the two years ended January 31, 2003
and 2002 were as follows:

|                                     |  |      |           |          |  |      |          |  
|------------------------------------ |  | ---- | --------- | -------- |  | ---- | -------- | -
|                                     |  |      |           |          |  | 2002
|                                     |  | 2003 |           | Restated
|                                     |  |      |           |         
|Interest income                      |  | $    | 33,005    |          |  | $    | 9,875    |  
|Gain (loss) on sale of assets        |  | $    | 1,068     |          |  |      | ($1,337  | )
|Interest expense                     |  |      | ($101,217 | )        |  |      | ($84,678 | )
|Foreign currency exchange loss       |  |      | ($1,534   | )        |  |      | ($1,161  | )
|Provision for income taxes (benefit) |  | $    | 44,681    |          |  |      | ($85,069 | )

For fiscal 2003, interest income increased primarily due to the payments
we received on our note receivable from G-Com Net, which we discuss in detail
in the Discontinued Operations section below. In fiscal 2003 we had a small
gain on some miscellaneous equipment we sold in Malaysia compared to a loss of
$1,337 in fiscal 2002, neither of which had a material effect on our financial
statements.

Interest
expense increased $16,539, or 20%, to $101,217 in fiscal 2003
compared to $84,678 in fiscal 2002. This increase was primarily due to us
drawing down more on our line-of-credit during the first two quarters of fiscal
2003 to finance the additional purchases of ceramics that was necessary to keep
up with the increased demand of our products from the security and jet engine
manufacturing industries. During the third and fourth quarters of fiscal 2003
we generated enough cash flows to pay down the line-of-credit from its high of
$1,047,652 to $545,025 at January 31, 2003.





---



##### 



Foreign currency exchange loss increased $373, or 32%, in fiscal 2003 to
$1,534 compared to $1,161 in fiscal 2002. We experience currency translation
gains or losses when we purchase items from foreign countries (other than
Malaysia) whose currencies are not pegged to the U.S. Dollar. Historically,
these gains and losses have been insignificant and therefore we do not expect
any significant losses in the future.

Our effective income tax rate was 29% in fiscal 2003 compared to an
effective income tax benefit of 55% for fiscal 2002. The increase in the
effective rate in fiscal 2003 is primarily due to the growth in net income from
our U.S. operating segment East Coast Sales Company. This net income will
absorb a portion of our federal net operating loss carryforward. The effective
rate in fiscal 2002 benefited from us increasing our deferred tax assets due to
our expected increase in profitability in the U.S. We expect to realize the
full benefit of our net operating loss carryover by fiscal 2005.

Discontinued Operations

As discussed below, in fiscal 2003, we have exited the business of
manufacturing consumer electronic products and rechargeable and other batteries
for consumer products. On February 1, 2001, we adopted a formal plan to sell
Fuji Fabrication, Sdn, Bhd. On October 1, 2001; we sold the
assets, which
consisted primarily of inventory and equipment of Fuji Fabrication to G Com Net
for $290,547. We assumed 10% note for the full amount of the selling price which
was due on September 30, 2002. On October 1, 2002 at the request of G Com Net,
we increased the principal amount of the note to $396,693 due to sales of
additional inventory and previously accrued interest and extend its
maturity so the note is payable in full on
September 30, 2003. Currently we believe G Com Net will repay the note on its
due date. As of April 28, 2003, G Com Net is current with all interest
payments required by the new note. If conditions change and there is a
definite indication that the note is impaired we would then have to write off
the note in full. This would have a negative effect on our net income (loss)
from discontinued operations.

On October 31, 2002, we adopted a formal plan to discontinue the
operations of Hong Kong Batteries Industries, Ltd. (Hong Kong Batteries). Hong
Kong Batteries was a trading company that bought industrial batteries from
manufacturers in mainland China and resold them to companies in Hong Kong, Asia
and Europe. When China was approved for World Trade Organization Status (WTO)
at the end of 2001, without our knowledge most of Hong Kong Batteries
suppliers hired English speaking sales and marketing managers and began to
directly approach all the end user customers of Hong Kong Batteries. During
the first and second quarters of fiscal 2003, Hong Kong Batteries was still
receiving orders from its customers. Then during the third quarter it did not
receive any orders and was informed by its customers that the Chinese
suppliers offered substantial discounts if they bought their products directly
from the Chinese manufacturers. After many discussions and meetings with the
management of Hong Kong Batteries, we could not overcome the problem and
decided to cease operations as soon as possible due to the lack of revenue and
the high overhead cost we would have incurred if we continued operating. The discontinuance of Hong Kong Batteries Industries, Ltd resulted in us
writing off $688,183 in goodwill and incurring an additional $225,759 in
disposal costs, which consisted mainly of the write off of cash advances to
Hong Kong Batteries and travel expenses.

In conjunction with the discontinuance of the operations of Fuji
Fabrication and Hong Kong Batteries, we have accrued $34,000 for additional
estimated disposition costs.





---



##### 



The components of income (loss) from discontinued operations of
subsidiaries are as follows:

Fuji Fabrication

|                                             |  |      |          |          |  |      |         |  
|-------------------------------------------- |  | ---- | -------- | -------- |  | ---- | ------- | -
|                                             |  |      |          |          |  | 2002
|                                             |  | 2003 |          | Restated
|                                             |  |      |          |         
|Net sales                                    |  | $    | 0        |          |  | $    | 180,102 |  
|Cost of sales                                |  |      |          |          |  |      | 197,389 |  
|                                             |  |      |          |          |  |      |         |  
|Gross profit                                 |  |      |          |          |  |      | (17,287 | )
|                                             |  |      |          |          |  |      |         |  
|Selling, general and administrative expenses |  |      | 7,691    |          |  |      | 124,363 |  
|Interest and other, net                      |  |      | (129,708 | )        |  |      | (74,257 | )
|                                             |  |      |          |          |  |      |         |  
|                                             |  |      | (122,017 | )        |  |      | 50,106  |  
|                                             |  |      |          |          |  |      |         |  
|Income (loss) before income taxes            |  |      | 122,017  |          |  |      | (67,393 | )
|Income taxes                                 |  |      | 14       |          |  |      | 474     |  
|                                             |  |      |          |          |  |      |         |  
|Net income (loss)                            |  | $    | 122,003  |          |  | $    | (67,867 | )
|                                             |  |      |          |          |  |      |         |  

For fiscal 2003 Fuji Fabrications interest and other, net consisted of
debt forgiven by our subsidiary, DTI Technology. DTI Technology wrote off the
corresponding receivable that from Fuji Fabrication and charged this amount to
discontinued operations. In our consolidated statement of income, this amount
had no effect on our loss from discontinued operations as it was a zero net
transaction or a wash.

Hong Kong Batteries

|                                             |  |      |          |          |  |      |           |  
|-------------------------------------------- |  | ---- | -------- | -------- |  | ---- | --------- | -
|                                             |  |      |          |          |  | 2002
|                                             |  | 2003 |          | Restated
|                                             |  |      |          |         
|Net sales                                    |  | $    | 445,641  |          |  | $    | 2,039,543 |  
|Cost of sales                                |  |      | 368,534  |          |  |      | 1,600,943 |  
|                                             |  |      |          |          |  |      |           |  
|Gross income                                 |  |      | 77,107   |          |  |      | 438,600   |  
|                                             |  |      |          |          |  |      |           |  
|Selling, general and administrative expenses |  |      | 347,635  |          |  |      | 360,477   |  
|Interest and other, net                      |  |      | (14,891  | )        |  |      | (10,537   | )
|                                             |  |      |          |          |  |      |           |  
|                                             |  |      | 332,744  |          |  |      | 349,940   |  
|                                             |  |      |          |          |  |      |           |  
|Income (loss) before income taxes            |  |      | (255,637 | )        |  |      | 88,660    |  
|Income tax (benefit)                         |  |      | (9,313   | )        |  |      | (9,313    | )
|                                             |  |      |          |          |  |      |           |  
|Net income (loss)                            |  | $    | (246,324 | )        |  | $    | 79,347    |  
|                                             |  |      |          |          |  |      |           |  





---



##### 



Financial Condition

Our financial condition remains strong. At January 31, 2003, cash totaled
$508,414, up from $182,417 at January 31, 2002. At January 31, 2003, total
short-term and long-term debt was $1,106,609, a decrease of $411,521 compared
to January 31, 2002. At January 31, 2003, total debt was $1,106,609 which
represented 34% of stockholders equity.

For fiscal 2003, cash provided by operating activities was $1,367,389,
compared to $278,513 in fiscal 2002. Cash was provided by net income adjusted
for non-cash related items. Increases in accounts receivable, notes
receivable, inventory and deferred product development costs were offset by
depreciation, decreases in prepaid expenses, other assets and accounts payable.
For fiscal 2003, net cash used in discontinued operations was $134,862,
compared to cash provided by discontinued operations of $195,561 in fiscal
2002. This decrease was primarily due to Hong Kong Batteries fiscal 2003 net
loss, along with a decrease in accounts payable and accrued expenses. For
fiscal 2003, our three largest customers accounted for approximately 70% of net
revenue, with one of these customers accounting for approximately 56% of net
revenue. At January 31, 2003, these three largest customers accounted for
approximately 82% of net accounts receivable.

We used $422,285 in net cash for investing activities during fiscal 2003,
compared to $139,744 during fiscal 2002. The increase in cash used for
investing activities as compared to fiscal 2002 was due to the purchase of
customer lists for $300,000 in December 2002. Capital expenditures in fiscal
2003 remained relatively flat compared to fiscal 2002. We anticipate capital
expenditures of $250,000 for fiscal 2004.

We used $619,107 in net cash for financing activities in fiscal 2003,
which increased from $67,588 in fiscal 2002. The major financing uses of cash
for both years were the repayment of debt and repurchase of our common stock.
In fiscal 2003, we purchased 249,300 shares of our common stock for $50,241.
Financing sources of cash of $407,374 during fiscal 2003 were primarily from
amounts we drew down on our revolving line-of-credit. In addition we paid back
at total of $910,000 on the line of credit during fiscal 2003. We have another
potential source of liquidity from authorized borrowings in the form of a
line-of-credit with a U.S. financial institution for $1.7 million. At January
31, 2003, we had $1,154,975 available for use from this line of credit.

We believe that we have the financial resources needed to meet our
anticipated business requirements for the next 12 months, including capital
expenditures for the expansion or upgrading of our manufacturing capacity and
working capital requirements.





---



##### 



Outlook

In general, as we look ahead to the rest of fiscal 2004, the outlook
continues to be uncertain, and we anticipate a year that will be largely driven
by the airline security, military, jet engine and semiconductor industries as
well as the global economy. Although it is difficult to predict product demand
for the rest of fiscal 2004, we expect a 30% to 40% decrease in revenue from
our ceramic segment, East Cost Sales Company. During the second quarter of
fiscal 2004 we may be able to better forecast ceramic sales more accurately due
to the Department of HomeLand Security issuing new orders for security devices.
The outlook for the diamond tools industry continues to be weak. We are
trying to cut costs in order to compete with other manufacturers and we are
planning to improve the quality and capability of our diamond cutting products.
The diamond tool industry is very dependent on the semiconductor
industry,
which over last three years has experienced economic decline and is still not
showing signs of growth. The outlook for the contract manufacturing segment
remains strong, however, we are still trying to cut costs and improve
profitability. Currently, we have a contract with a third party to develop and
manufacture a safety helmet that we expect to bring to market in fiscal 2004.
In this environment, revenue growth for our new safety helmet is largely
dependent on the commercial acceptance of our current designs and
successfully marketing the
designs to the safety and rescue industries, which we can not assure.

Our financial results are substantially dependent on sales of ceramics and
related products by the East Coast Sales Company operating segment. Revenue is
partly a function of the mix of products we offer, all of which are difficult
to forecast. Because of the changing conditions throughout the world our
revenue is subject to the impact of economic conditions in various geographic
regions.

Our gross margin expectation for fiscal 2004 is approximately 54% plus or
minus a few points, which is a slight increase from the fiscal 2003 gross
margin of 51%. Our gross margin varies depending on unit sales volumes and
product mixes. Our policy for valuation of inventory, including the
determination of obsolete inventory, requires us to estimate the future demand
for our products within six months or less. The estimates of future demand
that we use in the valuation of inventory are also used for near-term factory
planning. If our demand forecast is greater than actual demand and we fail to
reduce manufacturing output accordingly, we would likely be required to record
additional inventory reserves, which would have a negative impact on our gross
margin. Various other factors including unit sales volumes and new
technologies will also continue to affect cost of sales and the variability of
gross margin percentages.

In fiscals 2003 and 2002 we improved our cutting blade facility and
updated our ceramics fabrication facility. We expect that capital spending
will increase to $250,000 for fiscal 2004 from $ 124,785 in fiscal 2003. The
increase is primarily due to the expected tooling equipment needed to produce
our new safety helmet. If market demand does not grow or our new products are
not accepted, revenues and gross margins may also be adversely affected.

Depreciation for fiscal 2004 is expected to be approximately $150,000,
compared to $141,488 in fiscal 2003. Most of this increase would be included
in cost of sales.

We expect amortization of other intangible assets to be approximately
$60,000 in fiscal 2004, as compared to $10,000 in fiscal 2003.

In conjunction with the implementation of the new accounting rules for
goodwill, we completed the initial goodwill impairment review as of the
beginning of fiscal 2003 and the required annual review during the fourth
quarter of fiscal 2003 for East Coast Sales Company, which is the reporting
unit with substantially all of our recorded goodwill. We found no impairment.
Our impairment review process is based on a discounted cash flow approach that
uses estimates of revenue for the reporting unit and appropriate discount
rates. The estimates we used are consistent with the plans and estimates that
we are using to manage the underlying business. If we fail to deliver products
for this group, if our new products fail to gain market acceptance, or if
market conditions in the ceramic business decline, our revenue and cost
forecasts may not be achieved and we may incur charges for impairment of
goodwill.

We expect our tax rate to be approximately 25% for fiscal 2004. This
estimate is lower than the rate in fiscal 2003, primarily due the anticipated
decrease in net revenues from our East Coast Sales Company





---



##### 



operating segment
and the use of our available net operating loss carryover for federal income
tax purposes. The expected rate is based on current tax law and is subject to
change.

Our future results of operations and the other forward-looking statements
contained in this Outlook section and in our Strategy and Critical
Accounting Estimates sections involve a number of risks and uncertainties, in
particular the statements regarding our strategies, our expectations regarding
new products, future economic conditions, revenues, gross margin and costs,
capital spending and depreciation and amortization. In addition to the factors
discussed above, among the other factors that could cause actual results to
differ materially are the following: business and economic conditions and
trends in the airline security business, jet engine manufacturers, microchip
industry, and safety industries in various geographic regions; possible
disruption in commercial activities related to terrorist activity and armed
conflict, such as change in logistics and security arrangements, and reduced
end-user purchases relative to expectations; the impact of events outside the
United States, such as the business impact of fluctuating currency rates,
unrest or political instability in a locale; changes in customer order
patterns; competitive factors and acceptance of new products in specific market
segments; pricing pressures; excess or obsolete inventory and variations in
inventory valuation.

We believe that we have the products, facilities, personnel and financial
resources for continued business success, but future revenues, costs, margins
and profits are all influenced by a number of factors, including those
discussed above, all of which are inherently difficult to forecast.

Forward-Looking Statement

THIS
ANNUAL REPORT ON FORM 10-KSB, INCLUDING WITHOUT LIMITATION, ITEM 6,
MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION,
CONTAINS STATEMENTS WHICH ARE NOT HISTORICAL FACTS AND ARE
FORWARD-LOOKING STATEMENTS WHICH REFLECT MANAGEMENTS
EXPECTATIONS, ESTIMATES AND ASSUMPTIONS. SUCH STATEMENTS ARE BASED ON
INFORMATION AVAILABLE AT THE TIME THIS FORM 10K-SB WAS PREPARED AND
INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE FUTURE RESULTS,
PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO DIFFER SIGNIFICANTLY
FROM PROJECTED RESULTS. FACTORS THAT COULD CAUSE ACTUAL FUTURE
RESULTS TO DIFFER MATERIALLY INCLUDE, AMONG OTHERS, THE RISKS OF
DOING BUSINESS IN MALAYSIA AND SOUTHEAST ASIA, THE ABILITY OF G COM
NET TO PAY ITS $396,693 NOTE TO US AT MATURITY ON SEPTEMBER 30, 2003,
LACK OF ACCEPTANCES OF OUR NEW PRODUCTS ABILITY TO RETAIN CREDIT
FACILITIES WE NEED, 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.

INSERT
A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to financial market risks, including changes in currency
exchange rates and interest rates. We do not try to mitigate these risks by
utilizing derivative financial instruments or other risky strategies.

A substantial majority of our revenue, expense, and capital purchasing
activities are transacted in U. S. dollars. However, we do enter into these
transactions in other currencies, primarily the Malaysian Ringgit. The
Malaysian Ringgit is pegged to the U.S. Dollar and is translated to U.S.
dollars for consolidated purposes. In fiscal 2003 we reported a foreign
currency exchange loss of $1,534, compared to a loss of $1,161 in fiscal 2002,
neither of which materially impacted the financial statements.

Inflation has not had a material effect on our revenues and income from
continuing operations in the past four years. Inflation is not expected to
have a material future effect.





---



##### 



ITEM 7. FINANCIAL STATEMENTS

The following are filed as part of this Report:



| |  |  | Independent Auditors Report                                                                
| | - |  | --------------------------------------------------------------------------------------------
|
| |  |  | Consolidated Balance Sheet as of January 31, 2003                                           
|
| |  |  | Consolidated Statement of Income for the Years Ended January 31, 2003 and 2002              
|
| |  |  | Consolidated Statement of Stockholders Equity for the Years Ended January 31, 2003 and 2002
|
| |  |  | Consolidated Statement of Cash Flows for the Years Ended January 31, 2003 and 2002          
|
| |  |  | Noted to Consolidated Financial Statements                                                  





---



##### 



INDEX

Item 7. Financial Statements

|                                   |                                                                                                         |  |     |            | 
|---------------------------------- | ------------------------------------------------------------------------------------------------------- |  | --- | ---------- | 
|Independent Auditors Report        |                                                                                                         |  | F-1 |           
|Consolidated Financial Statements: |                                                                                                         |  |     |           
|                                   | Consolidated Balance Sheet as of January 31, 2003                                                       |  |     | F-2        | 
|                                   | Consolidated Statements of Income for the years
ended January 31, 2003 and 2002, restated               |  |     | F-3        | 
|                                   | Consolidated Statements of Stockholders Equity
for the years ended January 31, 2003 and 2002, restated |  |     | F-4        | 
|                                   | Consolidated Statements of Cash Flows for the years
ended January 31, 2003 and 2002, restated           |  |     | F-5        | 
|                                   | Notes to Financial Statements                                                                           |  |     | F-6 - F-23 | 





---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET  JANUARY 31, 2003

|                                                   |                                                                                       |                            |                                            |            |           |           | 
|-------------------------------------------------- | ------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ---------- | --------- | --------- | 
|ASSETS                                            
|CURRENT ASSETS                                     |                                                                                       |                            |                                            |           
|                                                   | Cash and cash equivalents                                                             |                            | $                                          | 508,414    |          
|                                                   | Accounts receivable                                                                   |                            |                                            | 885,975    |          
|                                                   | Note receivable                                                                       |                            |                                            | 396,693    |          
|                                                   | Inventory                                                                             |                            |                                            | 900,412    |          
|                                                   | Prepaid expenses and other current assets                                             |                            |                                            | 30,424     |          
|                                                   | Deferred product development costs                                                    |                            |                                            | 178,878    |          
|                                                   | Deferred tax asset, current portion                                                   |                            |                                            | 249,617    |          
|                                                   | Net assets of discontinued operations, less liabilities                               |                            |                                            | 42,243     |          
|                                                   |                                                                                       |                            |                                            |           
|                                                   |                                                                                       | TOTAL CURRENT ASSETS       |                                            |            | 3,192,656 |          
|                                                   |                                                                                       |                            |                                            |           
|PROPERTY, PLANT AND EQUIPMENT, NET OF DEPRECIATION |                                                                                       |                            | 587,259                                    |           
|                                                   |                                                                                       |                            |                                            |           
|OTHER ASSETS                                       |                                                                                       |                            |                                            |           
|                                                   | Goodwill                                                                              |                            |                                            | 85,453     |          
|                                                   | Other intangible asset                                                                |                            |                                            | 290,000    |          
|                                                   | Security deposits and other assets                                                    |                            |                                            | 6,000      |          
|                                                   | Deferred tax asset, net of current portion                                            |                            |                                            | 170,309    |          
|                                                   |                                                                                       |                            |                                            |           
|                                                   |                                                                                       | TOTAL OTHER ASSETS         |                                            |            | 551,762   |          
|                                                   |                                                                                       |                            |                                            |           
|                                                   |                                                                                       |                            | TOTAL ASSETS                               |            | $         | 4,331,677 | 
|                                                   |                                                                                       |                            |                                            |           
|LIABILITIES AND STOCKHOLDERS EQUITY              
|CURRENT LIABILITIES                                |                                                                                       |                            |                                            |           
|                                                   | Current portion of long-term debt                                                     |                            | $                                          | 41,827     |          
|                                                   | Note payable, line of credit                                                          |                            |                                            | 545,025    |          
|                                                   | Accounts payable                                                                      |                            |                                            | 102,093    |          
|                                                   | Accrued expenses                                                                      |                            |                                            | 369,067    |          
|                                                   |                                                                                       |                            |                                            |           
|                                                   |                                                                                       | TOTAL CURRENT LIABILITIES  |                                            |            | 1,058,012 |          
|                                                   |                                                                                       |                            |                                            |           
|OTHER LIABILITIES                                  |                                                                                       |                            |                                            |           
|                                                   | Deferred lease liability                                                              |                            |                                            | 28,500     |          
|                                                   | Long-term debt, net of current portion                                                |                            |                                            | 20,097     |          
|                                                   |                                                                                       |                            |                                            |           
|                                                   |                                                                                       | TOTAL OTHER LIABILITIES    |                                            |            | 48,597    |          
|                                                   |                                                                                       |                            |                                            |           
|STOCKHOLDERS EQUITY                               |                                                                                       |                            |                                            |           
|                                                   | Common stock par value $.001; 100,000,000
shares authorized; 14,558,400 shares issued |                            |                                            | 14,558     |          
|                                                   | Additional paid in capital                                                            |                            |                                            | 4,674,648  |          
|                                                   | Accumulated other comprehensive income                                                |                            |                                            | (150,522   | )        
|                                                   | Retained earnings (deficit)                                                           |                            |                                            | (1,297,912 | )        
|                                                   |                                                                                       |                            |                                            |           
|                                                   |                                                                                       |                            | 3,240,772                                  |           
|                                                   | Less common shares held in treasury, 73,700 shares at cost                            |                            |                                            | (15,704    | )        
|                                                   |                                                                                       |                            |                                            |           
|                                                   |                                                                                       | TOTAL STOCKHOLDERS EQUITY |                                            |            | 3,225,068 |          
|                                                   |                                                                                       |                            |                                            |           
|                                                   |                                                                                       |                            | TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |            | $         | 4,331,677 | 
|                                                   |                                                                                       |                            |                                            |           

See Notes to Consolidated Financial Statements.






---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JANUARY 31, 2003 AND 2002 (RESTATED)

|                                                              |                                                                |   |            |           |          |   |            |           | 
|------------------------------------------------------------- | -------------------------------------------------------------- | - | ---------- | --------- | -------- | - | ---------- | --------- | 
|                                                              |                                                                |   |            |           |          |   | 2002      
|                                                              |                                                                |   | 2003       |           | Restated
|                                                              |                                                                |   |            |           |         
|Net revenues                                                  |                                                                | $ | 7,364,438  |           |          | $ | 3,602,472  |          
|Cost of sales                                                 |                                                                |   | 3,601,365  |           |          |   | 1,459,566  |          
|                                                              |                                                                |   |            |           |          |   |            |          
|Gross margin                                                  |                                                                |   | 3,763,073  |           |          |   | 2,142,906  |          
|                                                              |                                                                |   |            |           |          |   |            |          
|                                                              | Selling, general and administrative expenses                   |   |            | 2,163,762 |          |   |            | 1,667,028 | 
|                                                              | Amortization of goodwill                                       |   |            |          |          |   |            | 3,357     | 
|                                                              | Amortization and impairment of acquisition-related intangibles |   |            | 10,000    |          |   |            |          | 
|                                                              |                                                                |   |            |           |          |   |            |          
|Operating expenses                                            |                                                                |   | 2,173,762  |           |          |   | 1,670,385  |          
|                                                              |                                                                |   |            |           |          |   |            |          
|Operating income                                              |                                                                |   | 1,589,311  |           |          |   | 472,521    |          
|                                                              |                                                                |   |            |           |          |   |            |          
|Interest and other, net                                       |                                                                |   | (68,678    | )         |          |   | (77,301    | )        
|                                                              |                                                                |   |            |           |          |   |            |          
|Income before income taxes (benefit)                          |                                                                |   | 1,520,633  |           |          |   | 395,220    |          
|Income taxes (benefit)                                        |                                                                |   | 44,681     |           |          |   | (85,069    | )        
|                                                              |                                                                |   |            |           |          |   |            |          
|Income from continuing operations                             |                                                                |   | 1,475,952  |           |          |   | 480,289    |          
|                                                              |                                                                |   |            |           |          |   |            |          
|Discontinued operations:                                      |                                                                |   |            |           |          |   |            |          
|                                                              | Income (loss) from operations of subsidiaries                  |   |            | (124,321  | )        |   |            | 11,480    | 
|                                                              | Gain (loss) on disposal of subsidiaries                        |   |            | (913,942  | )        |   |            | 29,919    | 
|                                                              |                                                                |   |            |           |          |   |            |          
|                                                              |                                                                |   | (1,038,263 | )         |          |   | 41,399     |          
|                                                              |                                                                |   |            |           |          |   |            |          
|Net income                                                    |                                                                | $ | 437,689    |           |          | $ | 521,688    |          
|                                                              |                                                                |   |            |           |          |   |            |          
|Earning per share information:                                |                                                                |   |            |           |          |   |            |          
|                                                              | Income from continuing operations                              |   |            |           |          |   |            |           | 
|                                                              | Basic                                                          |   | $          | 0.10      |          |   | $          | 0.03      | 
|                                                              |                                                                |   |            |           |          |   |            |          
|                                                              | Diluted                                                        |   | $          | 0.10      |          |   | $          | 0.03      | 
|                                                              |                                                                |   |            |           |          |   |            |          
|                                                              | Discontinued operations:                                       |   |            |           |          |   |            |           | 
|                                                              | Basic                                                          |   | $          | (0.07     | )        |   | $          | 0.00      | 
|                                                              |                                                                |   |            |           |          |   |            |          
|                                                              | Diluted                                                        |   | $          | (0.07     | )        |   | $          | 0.00      | 
|                                                              |                                                                |   |            |           |          |   |            |          
|Weighted average common shares outstanding                    |                                                                |   | 14,484,700 |           |          |   | 14,557,463 |          
|                                                              |                                                                |   |            |           |          |   |            |          
|Weighted average common shares outstanding, assuming dilution |                                                                |   | 14,484,700 |           |          |   | 14,557,463 |          
|                                                              |                                                                |   |            |           |          |   |            |          

See Notes to Consolidated Financial Statements.






---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
YEARS ENDED JANUARY 31, 2003 AND 2002 (RESTATED)

|                                      |                                                   |                            |            |        |   |       |        |         |   |         |           |            |   |               |         |             |   |               |          |             |   |   |            |         |   |   |           |         |         | 
|------------------------------------- | ------------------------------------------------- | -------------------------- | ---------- | ------ | - | ----- | ------ | ------- | - | ------- | --------- | ---------- | - | ------------- | ------- | ----------- | - | ------------- | -------- | ----------- | - | - | ---------- | ------- | - | - | --------- | ------- | ------- | 
|                                      |                                                   |                            |            |        |   |       |        |         |   |         |           |            |   |               |         |             |   |               |          | Accumulated |   |   |            |         |   |   |           |        
|                                      |                                                   |                            |            |        |   |       |        |         |   |         |           | Additional |   |               |         |             |   | Other         |          |             |   |   |            | Total  
|                                      |                                                   |                            |            |        |   |       |        | Common  |   | paid in |           | Treasury   |   | Comprehensive |         | Accumulated |   | Stockholders'
|                                      |                                                   |                            |            | Shares |   | stock |        | capital |   | Stock   |           | Income     |   | deficit       |         | equity     
|                                      |                                                   |                            |            |        |   |       |        |         |   |         |           |            |   |               |         |            
|Balance at January 31, 2001, restated |                                                   |                            | 14,361,000 |        |   | $     | 14,361 |         |   | $       | 4,708,178 |            |   | $             | (9,026  | )           |   | $             | (150,576 | )           |   | $ | (2,248,466 | )       |   | $ | 2,314,471 |        
|Components of comprehensive income:   |                                                   |                            |            |        |   |       |        |         |   |         |           |            |   |               |         |             |   |               |          |             |   |   |            |         |   |   |           |        
|                                      | Net income                                        |                            |            |       |   |       |        |        |   |         |           |           |   |               |         |            |   |               |          |            |   |   |            | 512,865 |   |   |           | 512,865 |        
|                                      | Change in foreign currency translation adjustment |                            |            |       |   |       |        |        |   |         |           |           |   |               |         |            |   |               |          | 54          |   |   |            |        |   |   |           | 54      |        
|                                      |                                                   |                            |            |        |   |       |        |         |   |         |           |            |   |               |         |             |   |               |          |             |   |   |            |         |   |   |           |        
|                                      |                                                   | Total comprehensive income |            |        |  |       |        |         |  |         |           |            |  |               |         |             |  |               |          |             |  |   |            |         |  |   |           |         | 512,919 | 
|                                      |                                                   |                            |            |        |   |       |        |         |   |         |           |            |   |               |         |             |   |               |          |             |   |   |            |         |   |   |           |        
|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    | )      
|                                      |                                                   |                            |            |        |   |       |        |         |   |         |           |            |   |               |         |             |   |               |          |             |   |   |            |         |   |   |           |        
|Balance at January 31, 2002, restated |                                                   |                            | 14,783,400 |        |   |       | 14,783 |         |   |         | 4,720,986 |            |   |               | (12,026 | )           |   |               | (150,522 | )           |   |   | (1,735,601 | )       |   |   | 2,837,620 |        
|Components of comprehensive income:   |                                                   |                            |            |        |   |       |        |         |   |         |           |            |   |               |         |             |   |               |          |             |   |   |            |         |   |   |           |        
|                                      | Net income                                        |                            |            |       |   |       |        |        |   |         |           |           |   |               |         |            |   |               |          |            |   |   |            | 437,689 |   |   |           | 437,689 |        
|                                      |                                                   |                            |            |        |   |       |        |         |   |         |           |            |   |               |         |             |   |               |          |             |   |   |            |         |   |   |           |        
|                                      |                                                   | Total comprehensive income |            |        |  |       |        |         |  |         |           |            |  |               |         |             |  |               |          |             |  |   |            |         |  |   |           |         | 437,689 | 
|                                      |                                                   |                            |            |        |   |       |        |         |   |         |           |            |   |               |         |             |   |               |          |             |   |   |            |         |   |   |           |        
|Purchase of treasury stock            |                                                   |                            |           |        |   |       |       |         |   |         |          |            |   |               | (50,241 | )           |   |               |         |             |   |   |           |         |   |   | (50,241   | )      
|Shares cancelled, treasury stock      |                                                   |                            | (225,000   | )      |   |       | (225   | )       |   |         | (46,338   | )          |   |               | 46,563  |             |   |               |         |             |   |   |           |         |   |   |          |        
|                                      |                                                   |                            |            |        |   |       |        |         |   |         |           |            |   |               |         |             |   |               |          |             |   |   |            |         |   |   |           |        
|Balance at January 31, 2003           |                                                   |                            | 14,558,400 |        |   | $     | 14,558 |         |   | $       | 4,674,648 |            |   | $             | (15,704 | )           |   | $             | (150,522 | )           |   | $ | (1,297,912 | )       |   | $ | 3,225,068 |        
|                                      |                                                   |                            |            |        |   |       |        |         |   |         |           |            |   |               |         |             |   |               |          |             |   |   |            |         |   |   |           |        

See Notes to Consolidated Financial Statements.






---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 31, 2003 AND 2002 (RESTATED)

|                        |                                                                                   |                                                                                |                                           |                                                        |         |          |           |          |         |          |          |  
|----------------------- | --------------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | ----------------------------------------- | ------------------------------------------------------ | ------- | -------- | --------- | -------- | ------- | -------- | -------- | -
|                        |                                                                                   |                                                                                |                                           |                                                        |         |          |           |          |         | 2002    
|                        |                                                                                   |                                                                                |                                           |                                                        |         | 2003     |           | Restated
|                        |                                                                                   |                                                                                |                                           |                                                        |         |          |           |         
|OPERATING ACTIVITIES    |                                                                                   |                                                                                |                                           |                                                        |         |          |           |         
|                        | Income from continuing operations                                                 |                                                                                | $                                         | 1,475,952                                              |         |          | $         | 480,289  |        
|                        | Adjustments to reconcile net income to net cash provided
by operating activities: |                                                                                |                                           |                                                        |         |          |           |          |        
|                        |                                                                                   | Depreciation                                                                   |                                           |                                                        | 141,488 |          |           |          | 89,081  |         
|                        |                                                                                   | Amortization of goodwill                                                       |                                           |                                                        |        |          |           |          | 3,357   |         
|                        |                                                                                   | Amortization and impairment of intangibles and other acquisition-related costs |                                           |                                                        | 10,000  |          |           |          |         |         
|                        |                                                                                   | (Gain) loss on sale of equipment                                               |                                           |                                                        | (1,068  | )        |           |          | 1,337   |         
|                        |                                                                                   | Provision for deferred income taxes                                            |                                           |                                                        | 10,074  |          |           |          | (94,874 | )       
|                        |                                                                                   | Compensatory stock issued                                                      |                                           |                                                        |        |          |           |          | 38,430  |         
|                        |                                                                                   | Compensatory stock surrendered                                                 |                                           |                                                        |         |          |           |          | (25,200 | )       
|                        | Changes in assets and liabilities:                                                |                                                                                |                                           |                                                        |         |          |           |          |        
|                        |                                                                                   |                                                                                | Accounts receivable                       |                                                        |         | (69,672  | )         |          |         | (405,616 | )       
|                        |                                                                                   |                                                                                | Note receivable                           |                                                        |         | (106,146 | )         |          |         |          |         
|                        |                                                                                   |                                                                                | Inventories                               |                                                        |         | (40,600  | )         |          |         | (60,503  | )       
|                        |                                                                                   |                                                                                | Prepaid expenses and other current assets |                                                        |         | 18,519   |           |          |         | 21,071   |         
|                        |                                                                                   |                                                                                | Deferred product development costs        |                                                        |         | (138,878 | )         |          |         | (40,000  | )       
|                        |                                                                                   |                                                                                | Other assets                              |                                                        |         | 45,237   |           |          |         | (4,290   | )       
|                        |                                                                                   |                                                                                | Accounts payable, and accrued expenses    |                                                        |         | 151,345  |           |          |         | 73,870   |         
|                        |                                                                                   |                                                                                | Deferred lease liability                  |                                                        |         | 6,000    |           |          |         | 6,000    |         
|                        |                                                                                   |                                                                                |                                           |                                                        |         |          |           |         
|                        |                                                                                   |                                                                                |                                           | NET CASH PROVIDED BY (USED IN) CONTINUING OPERATIONS   |         |          | 1,502,251 |          |         |          | 82,952   |  
|                        |                                                                                   |                                                                                |                                           | NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS |         |          | (134,862  | )        |         |          | 195,561  |  
|                        |                                                                                   |                                                                                |                                           |                                                        |         |          |           |         
|                        |                                                                                   |                                                                                |                                           | NET CASH PROVIDED BY OPERATING ACTIVITIES              |         |          | 1,367,389 |          |         |          | 278,513  |  
|                        |                                                                                   |                                                                                |                                           |                                                        |         |          |           |         
|INVESTING ACTIVITIES    |                                                                                   |                                                                                |                                           |                                                        |         |          |           |         
|                        | Proceeds from sale of equipment                                                   |                                                                                |                                           | 2,500                                                  |         |          |           | 1,237    |        
|                        | Purchase of distribution lines                                                    |                                                                                |                                           | (300,000                                               | )       |          |           |         |        
|                        | Purchase of property and equipment                                                |                                                                                |                                           | (124,785                                               | )       |          |           | (140,981 | )      
|                        |                                                                                   |                                                                                |                                           |                                                        |         |          |           |         
|                        |                                                                                   |                                                                                |                                           | NET CASH USED IN INVESTING ACTIVITIES                  |         |          | (422,285  | )        |         |          | (139,744 | )
|                        |                                                                                   |                                                                                |                                           |                                                        |         |          |           |         
|FINANCING ACTIVITIES    |                                                                                   |                                                                                |                                           |                                                        |         |          |           |         
|                        | Increase (decrease) in short-term debt, net                                       |                                                                                |                                           | (502,627                                               | )       |          |           | 251,649  |        
|                        | Repayments of and retirement of long-term debt                                    |                                                                                |                                           | (66,239                                                | )       |          |           | (316,237 | )      
|                        | Repurchase and retirement of common stock                                         |                                                                                |                                           | (50,241                                                | )       |          |           | (3,000   | )      
|                        |                                                                                   |                                                                                |                                           |                                                        |         |          |           |         
|                        |                                                                                   |                                                                                |                                           | NET CASH USED IN FINANCING ACTIVITIES                  |         |          | (619,107  | )        |         |          | (67,588  | )
|                        |                                                                                   |                                                                                |                                           |                                                        |         |          |           |         
|NET INCREASE IN CASH    |                                                                                   |                                                                                | 325,997                                   |                                                        |         |          | 71,181    |         
|CASH, BEGINNING OF YEAR |                                                                                   |                                                                                | 182,417                                   |                                                        |         |          | 111,236   |         
|                        |                                                                                   |                                                                                |                                           |                                                        |         |          |           |         
|CASH, END OF YEAR       |                                                                                   | $                                                                              | 508,414                                   |                                                        |         | $        | 182,417   |         
|                        |                                                                                   |                                                                                |                                           |                                                        |         |          |           |         

See Notes to Consolidated Condensed Financial Statements.






---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Nature of Operations

SETO Holdings, Inc.(the Company) a Nevada Corporation, is primarily in
the business of selling small precision disposable diamond and other base
material tools used to cut and separate electronic components and devices. In
addition, the Company has three wholly owned subsidiaries with their own
product lines. They are as follows:

East Coast Sales Company, Inc.(ECS) is a Connecticut corporation, which
distributes and fabricates industrial ceramic products for the aircraft,
aerospace, defense, and detection industries in addition to distributing clean
room supplies and tools for use by semiconductor and electronic manufacturing
companies.

DTI Technology, SDN BHD(DTI) is a Malaysian company, which manufactures
a product line similar to that of SETO Holdings, Inc.

SETO Technology, SDN BHDis a Malaysian corporation, which offers sales
and services to United States corporations for contract manufacturing in
Malaysia and is also designing and developing two new safety devices which it
expects to launch in fiscal 2004.

Note 2: Accounting Policies:

Use of Estimates

The preparation of financial statements in conformity with accounting
principles accepted in the U.S. requires management to make estimates and
judgments that affect the amounts reported in the financial statements and
accompanying notes. The accounting estimates that require managements most
difficult and subjective judgments include the assessment of recoverability of
property, equipment, and goodwill, inventory, and the recognition and
measurement of income tax assets and liabilities. The actual results
experienced by the Company may differ materially from managements estimates.

Principles of Consolidation

The consolidated financial statements include the Companys accounts and
those of its wholly owned subsidiaries. Upon consolidation, all significant
intercompany accounts and transactions are eliminated. Certain Prior period
amounts have been reclassified to conform to the current period presentation.
Accounts denominated in non-U.S. currencies have been remeasured using the U.S.
Dollar as the functional currency.

Accounting Change

Effective January 31, 2002, the Company completed the adoption of
Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combination, and SFAS No. 142, Goodwill and Other Intangible Assets. As
required by SFAS No. 142, the Company discontinued amortizing the remaining
balances of goodwill as of the beginning of fiscal 2003. Through January 31,
2002, goodwill had been amortized over an estimated life of 40 years. All
remaining and future acquired goodwill will be subject to an impairment test in
the fourth quarter of each year, or earlier if indicators of potential
impairment exists, using a fair-value-based approach. According to SFAS No.
141 goodwill should not be amortized, rather it should be tested for impairment
at a level of reporting referred to as a reporting unit. A reporting unit is
an operating segment or one level below an operating segment. The balance of
goodwill on the balance sheet is related to the Companys East Coast Sales
Company segment.

The Company completed the initial goodwill impairment review as of the
beginning of fiscal 2003, and completed the annual impairment review during the
fourth quarter of fiscal 2003, and found no impairment. All identifiable
intangible assets will continue to be amortized over their estimated useful
lives and assessed for impairment under SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. There were no goodwill
impairments in fiscal 2003 and 2002.

F-6



---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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.

Currency Risk. The Company transacts business in currencies other than
the U.S. dollar, primarily the Malaysian Ringgit. The Malaysian Ringgit is
pegged to the U.S. dollar therefore the Company has not established any
transaction or balance sheet risk management programs. 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. Acquisition related 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.

Foreign Operations

Substantially all or the Companys products are manufactured in Malaysia.
The foreign operations represent captive manufacturing facilities of the
Company. The Companys operations are subject to various political, economic,
and other risks and uncertainties inherent in countries in which the Company
operates. Among other risks, the Companys operations are subject to the risks
of restrictions on transfer of funds; export duties, quotas, and embargoes;
domestic and international customs and tariffs; changing taxation policies;
foreign exchange restrictions; and political conditions and government
regulations.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined
on a first-in, first-out basis and market is considered at net realizable
value. Inventories at fiscal year-end were as follows:

|                |  |   |         | 
|--------------- |  | - | ------- | 
|Finished goods  |  | $ | 603,989 | 
|Work in Process |  |   | 66,338  | 
|Raw Materials   |  |   | 224,979 | 
|Supplies        |  |   | 5,106   | 
|                |  |   |         | 
|                |  | $ | 900,412 | 
|                |  |   |         | 

Product Development Costs

The Company defers certain costs related to the preliminary activities
associated with the manufacture of its products, which the Company has
determined to have future economic benefit. These costs are then expensed in
the period in which the initial shipment of the related product is made.
Management periodically reviews, and when necessary revises, its estimate of
the future benefit of these costs and expenses them if they deem there is no
longer a future benefit. At January 31, 2003, the Company has capitalized
product development costs of $178,878. This amount represents advance payments
for contractual services for the development tooling equipment and molds for a
new personal safety device that the Company expects to release in fiscal 2004.

F-7



---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred Tax Assets

Included in the accompanying Balance Sheet at January 31, 2003 is a
deferred tax asset of $419,926 that represents the Companys tax benefit of its
federal net operating loss carryover. Realization of this asset is dependent
on the Companys ability to generate future taxable income. Management
believes that it is more likely than not that forecasted taxable income will be
sufficient to utilize the tax carryforwards before their expiration in 2009.
However, there can be no assurance that the Company will meet its expectations
of future income. As a result, the amount of the deferred tax asset considered
realizable could be reduced in the near term if estimates of future taxable
income are reduced. Such an occurrence could materially adversely affect the
Companys results of operations and financial condition.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed for
financial reporting purposes principally using the straight-line method over
the following estimated useful lives:

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

Reviews are regularly performed to determine whether facts and
circumstances exist which indicate that the carrying amount of assets may not
be recoverable or the useful life is shorter than originally estimated. The
Company assesses the recoverability of its assets by comparing the projected
undiscounted net cash flows associated with the related asset or group of
assets over their remaining lives against their respective carrying amounts.
Impairment, if any, is based on the excess of the carrying amount over the fair
value of those assets. If assets are determined to be recoverable, but the
useful lives are shorter than originally estimated, the net book value of the
assets is depreciated over the newly determined remaining useful lives.

Identified Intangible Assets

Acquisition-related intangibles include developed technology and customer
lists, and are amortized on a straight-line basis over periods ranging from 2-6
years. All identified intangible assets are classified within other assets on
the balance sheet. In the quarter following the period in which identified
assets become fully amortized, the fully amortized balances are removed from
the gross asset and accumulated amortization accounts.

Identified intangible assets are regularly reviewed to determine whether
facts and circumstances exist which indicate that the useful life is shorter
than originally estimated or the carrying amount of assets may not be
recoverable. The Company assesses the recoverability of identifiable
intangible assets by comparing the projected undiscounted net cash flows
associated with the related asset or group of assets over their remaining lives
against their respective carrying amounts. Impairment, if any, is based on the
excess of the carrying amount over the fair value of those assets.

Revenue Recognition

The Company recognizes net revenue when the earnings process is complete,
as evidenced by an agreement with the customer, transfer of title and
acceptance, if applicable, as well as fixed pricing and probable
collectibility. When the Company sells its products to distributors, the
distributors have substantial independent operations under sales arrangements
whose terms do not allow for rights of return or price protection on unsold
products held by them. In these instances, the Company recognizes revenue when
it ships the product directly to the distributors. Shipping and handling costs
billed to customers are included in net revenue and the related shipping costs
are included in cost of sales.

F-8



---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock-Based Compensation

The Company accounts for non-cash stock-based compensation in accordance
with the provisions of Accounting Principles Board Opinion No. 25 (Accounting
for Stock Issued to Employees), and its related interpretations, which state
that no compensation expense is recognized for stock options or other stock
based awards to employees that are granted with an exercise price equal to or
above the estimated fair value per share of the Companys common stock on the
grant date. In the event that stock options are granted with an exercise price
below the estimated fair market value of the Companys common stock at the
grant date, the difference between the fair market value of the Companys
common stock and the exercise price of the stock option is recorded as deferred
compensation. Deferred compensation is amortized to compensation expense over
the vesting period of the related stock option. In fiscal 2003, the Company
did not recognize any non-cash compensation

Reclassifications

Certain amounts reported in the previous year have been reclassified to
conform to the 2003 presentation.

Recent Accounting Pronouncements

In June 2002, the Financial Accounting Standards Boards (FASB) issued SFAS
No. 146, Accounting for Costs Associated with Exit or Disposal Activities.
SFAS No. 146 addresses the timing and amount of cost recognized as a result of
restructuring and similar activities. The Company will apply SFAS No. 146
prospectively to activities initiated after December 31, 2002. SFAS No. 146
had no significant impact at the point of adoption on the Companys
consolidated statements of income or financial position.

In November 2002, the FASB issued interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees. FIN 45
requires a guarantor to recognize at the inception of a guarantee, a liability
for the fair value of the obligation it has undertaken in issuing the
guarantee. The Company will apply FIN 45 to guarantees, if any, issued after
January 31, 2003. At adoption, FIN 45 did not have an impact on the Companys
consolidated statements of income or financial position. FIN 45 also requires
guarantors to disclose certain information for guarantees, including product
warranties outstanding at January 31, 2003.

In December, 2002, the FASB issued Statement of Accounting Standards No.
148, Accounting for Stock-Based Compensation-Transition and Disclosure (SFAS
148), which provides for alternative methods to transition to the fair value
method of accounting for stock options in accordance with provisions of FASB
No. 123, Accounting for Stock Based Compensation. In addition, SFAS 148
requires disclosure of the effects of an entitys accounting policy with
respect to stock-based compensation on reported net income and earnings per
share in annual and interim financial statements. The Company will adopt the
annual and interim disclosure requirements beginning in the first quarter of
fiscal 2004. The transition provisions of SFAS 148 are currently not
applicable to the Company as it continues to account for stock based
compensation in accordance with Statement of Accounting Standards No. 123.

In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. FIN 46 requires an investor
with a majority of the variable interests in a variable interest entity to
consolidate the entity and also requires majority and significant variable
interest investors to provide certain disclosures. A variable interest entity
is an entity which the equity investors do not have a controlling interest or
the equity investment at risk is insufficient to finance the entities
activities without receiving additional financial support from the other
parties. At January 31, 2003, the Company does not have an investment in any
variable interest entity that must be consolidated.

Treasury Stock

The Company accounts for treasury stock using the cost method.

F-9



---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3: Accounts Receivable

The following is a summary of accounts receivable at January 31, 2003:

|                                     |  |   |         |  
|------------------------------------ |  | - | ------- | -
|Trade accounts                       |  | $ | 905,975 |  
|Less allowance for doubtful accounts |  |   | (20,000 | )
|                                     |  |   |         |  
|                                     |  | $ | 885,975 |  
|                                     |  |   |         |  

At January 31, 2003 accounts receivable in the amount of $905,975 were
pledged as collateral in connection with bank loans.

Note 4: Note Receivable

In September 2001, the Company decided to discontinue operations of its
Fuji Fabrication segment, a manufacturer of rechargeable cellular phone
batteries, and put the assets of the business up for sale. The assets which
consisted primarily of inventory and equipment were sold on October 1, 2002
with the Company assuming an interest bearing note in the amount of $290,547
that was originally due on October 1, 2002. On October 1, 2002 the note was
recast in the amount of $396,693 which included additional purchases of
inventory, previously accrued interest and extended the due date of the note to
September 30, 2003.

Note 5: Property and Equipment

The following is a summary of property and equipment at cost less
depreciation at January 31, 2003:

|                              |  |   |           |  
|----------------------------- |  | - | --------- | -
|Leasehold improvements        |  | $ | 151,315   |  
|Manufacturing equipment       |  |   | 817,676   |  
|Office equipment              |  |   | 94,075    |  
|                              |  |   |           |  
|                              |  |   | 1,063,066 |  
|Less accumulated depreciation |  |   | (475,807  | )
|                              |  |   |           |  
|Total                         |  | $ | 587,259   |  
|                              |  |   |           |  

Depreciation expense charged to operations was $141,488 and $89,081 in
fiscal 2003 and 2002, respectively. At January 31, 2003, property and
equipment with a cost of $1,063,066 was pledged as collateral for the Companys
bank and equipment loans.

Note 6: Goodwill

The Company adopted SFAS No. 142 effective January 31, 2002 and
accordingly, has ceased amortizing amounts related to goodwill starting January
31, 2002. The balance of goodwill is related to the Companys East Coast Sales
Company segment. In accordance with SFAS No. 142, the Company has evaluated
the fair value of its East Coast Sales segment and determined that none of the
goodwill recorded was impaired. The fair value was determined using a
reasonable estimate of future cash flows of the segment and a risk adjusted
discount rate to compute a net present value of future cash flows.

Note 7: Identified Intangible Assets

On December 1, 2002, the Company acquired the customer lists from a
Malaysian Company for $300,000, to be amortized over a period of 5 years. The
Companys identified intangible assets are subject to amortization.
Amortization of identified intangible assets amounted to $10,000 in fiscal 2003
and $0 for fiscal 2002.

F-10



---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Based on the carrying value of identified intangible assets recorded at
January 31, 2003, and assuming no subsequent impairment of the underlying
assets, the annual amortization expense, excluding acquisition-related costs,
is expected to be as follows:

|               |  |      |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|-------------- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|               |  | 2004 |        | 2005 |  | 2006 |        | 2007 |  | 2008
|               |  |      |        |      |  |      |        |      |  |     
|Customer lists |  | $    | 60,000 |      |  | $    | 60,000 |      |  | $    | 60,000 |  |  | $ | 60,000 |  |  | $ | 50,000 | 

Note 8: Earnings Per Share

The number of shares used in the computation of the Companys basic and
diluted earnings per common share is as follows:

|                                                             |  |      |            |      |  |  |            | 
|------------------------------------------------------------ |  | ---- | ---------- | ---- |  |  | ---------- | 
|                                                             |  | 2003 |            | 2002
|                                                             |  |      |            |     
|Weighted average common shares outstanding                   |  |      | 14,484,700 |      |  |  | 14,557,463 | 
|Effect of using diluted securities:                          |  |      |            |      |  |  |            | 
|Weighted average common equivalent shares
from stock options |  |      | 0          |      |  |  | 0          | 
|                                                             |  |      |            |      |  |  |            | 
|Diluted number of common shares outstanding                  |  |      | 14,484,700 |      |  |  | 14,557,463 | 
|                                                             |  |      |            |      |  |  |            | 

Weighted average common shares outstanding, assuming dilution, includes
the incremental shares that would be issued upon the exercise of stock options.
For 2003 (and 2002) approximately 6 million of the Companys stock options
were excluded from the calculation of diluted earnings per share because their
inclusion would have been antidilutive. These options could be dilutive in the
future.

Note 9: Common Stock Repurchase Program

The Company has an ongoing authorization from the board of Directors to
repurchase up to 1 million shares of SETOs common stock in open market or
negotiated transactions in compliance with Rule 10b-18 of the Securities
Exchange Act, subject to market conditions, applicable legal requirements and
other factors. This program does not obligate the Company to acquire any
particular amount of its common stock, and the program may be suspended at any
time at the Companys discretion. During 2003 the company repurchased 249,300
shares of common stock at a cost of $50,241. As of January 31, 2003, 750,700
shares remained available under the repurchase authorization.

Note 10: Borrowings

Short-Term Debt

Short-term debt at January 31, 2003 was as follows:

|                                  |  |   |         | 
|--------------------------------- |  | - | ------- | 
|Current portion of long-term debt |  | $ | 41,827  | 
|Line of credit                    |  |   | 545,025 | 
|                                  |  |   |         | 
|Total                             |  | $ | 586,852 | 
|                                  |  |   |         | 

Short-term debt at January 31, 2003 consisted of an outstanding line of
credit with a U.S. financial institution in the amount of $1,700,000. The line
of credit expires on October 31, 2003 and carries interest at an annual rate of
2.90% plus the 30 day dealer commercial paper rate. As of January 31, 2003,
the Company had utilized $545,025 of the line of credit. The loan is secured
by the personal guarantee of the Companys president and the Companys assets.

F-11



---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Long-Term Debt

Long-term debt at January 31, 2003 was as follows:

|                                                             |  |   |         |  
|------------------------------------------------------------ |  | - | ------- | -
|Payable in U.S. dollars:                                     |  |   |         |  
|Equipment loan, due fiscal 2005 at 15%                       |  | $ | 23,130  |  
|Equipment loan, due fiscal 2005 at 10%                       |  |   | 22,717  |  
|Payable in other currencies:                                 |  |   |         |  
|Malaysian Ringgit, Equipment loan, due fiscal 2004 at 14.16% |  |   | 2,542   |  
|Malaysian Ringgit, Equipment loan, due fiscal 2005 at 12.50% |  |   | 13,535  |  
|                                                             |  |   |         |  
|                                                             |  |   | 61,924  |  
|Less current portion of long-term debt                       |  |   | (41,827 | )
|                                                             |  |   |         |  
|Total                                                        |  | $ | 20,097  |  
|                                                             |  |   |         |  

The aggregate debt maturities were as follows:

|                 |  |   |        | 
|---------------- |  | - | ------ | 
|January 31, 2004 |  | $ | 41,827 | 
|January 31, 2005 |  |   | 20,097 | 
|                 |  |   |        | 
|                 |  | $ | 61,924 | 
|                 |  |   |        | 

The Malaysian borrowings were made in connection with the financing of
manufacturing equipment for the Companys Malaysian subsidiary.

Note 11: Concentrations of Credit Risk

Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents
and accounts receivable. The Federal Deposit Insurance Corporation (FDIC)
insures the cash balances up to $100,000. At January 31, 2003 the Company had
uninsured cash balances of $363,367.

A majority of the Companys trade receivables are derived from sales to
original equipment manufacturers of security detection and protection devices.
The Companys three largest customers accounted for approximately 70% of net
revenue for fiscal 2003 and increased from 58% for fiscal 2002. At January 31,
2003, the three largest customers accounted for approximately 82% of net
accounts receivable (40% of net accounts receivable at January 31, 2002).

The Company attempts to keep pace with the changing security and cutting
blade industries, and has adopted credit policies and standards intended to
accommodate industry growth and inherent risk. Management believes that credit
risks are moderated by the diversity of the Companys customers and geographic
sales areas. SETO performs ongoing credit evaluations of its customers.

Note 12: Interest and Other, Net

|                               |  |      |          |      |  |   |          |  
|------------------------------ |  | ---- | -------- | ---- |  | - | -------- | -
|                               |  | 2003 |          | 2002
|                               |  |      |          |     
|Interest income                |  | $    | 33,005   |      |  | $ | 9,875    |  
|Gain (loss) on sale of assets  |  |      | 1,068    |      |  |   | (1,337   | )
|Interest expense               |  |      | (101,217 | )    |  |   | (84,678  | )
|Foreign currency exchange loss |  |      | (1,534   | )    |  |   | (1,161   | )
|                               |  |      |          |      |  |   |          |  
|Total                          |  |      | ($68,678 | )    |  |   | ($77,301 | )
|                               |  |      |          |      |  |   |          |  

F-12



---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13: Comprehensive Income

The components of other comprehensive income were $0 for fiscal 2003 and
$54 for fiscal 2002. The $54 charged to comprehensive income in 2002 was a
result of the discontinuance of Fuji Fabrication Sdn Bhd. The remaining amount
of ($150,522) on the Companys balance sheet under accumulated other
comprehensive income is all related to the acquisition of the Companys
foreign subsidiary, DTI Technology, Sdn Bhd.

The components of accumulated other comprehensive income at January 31,
2003 consisted of $150,522 in foreign currency translation adjustments relating
to the acquisition of the Companys foreign subsidiary DTI Technology Sdn Bhd.

Note 14: Provision for Taxes

Income before income taxes and the provision for income taxes consisted of
the following:

|                                                      |  |      |           |          |  |      |         |  
|----------------------------------------------------- |  | ---- | --------- | -------- |  | ---- | ------- | -
|                                                      |  |      |           |          |  | 2002
|                                                      |  | 2003 |           | Restated
|                                                      |  |      |           |         
|Domestic                                              |  | $    | 1,464,125 |          |  | $    | 399,658 |  
|Foreign                                               |  |      | 56,508    |          |  |      | (4,438  | )
|                                                      |  |      |           |          |  |      |         |  
|Income from continuing operations before
income taxes |  | $    | 1,520,633 |          |  | $    | 395,220 |  
|                                                      |  |      |           |          |  |      |         |  

|                |  |      |        |          |  |      |          |  
|--------------- |  | ---- | ------ | -------- |  | ---- | -------- | -
|                |  |      |        |          |  | 2002
|                |  | 2003 |        | Restated
|                |  |      |        |         
|Current:        |  |      |        |          |  |      |          |  
|Federal         |  | $    | 8,567  |          |  | $    | 0        |  
|State           |  |      | 4,074  |          |  |      | 3,405    |  
|Foreign         |  |      | 21,966 |          |  |      |          |  
|                |  |      |        |          |  |      |          |  
|Total current   |  |      | 34,607 |          |  |      | 3,405    |  
|                |  |      |        |          |  |      |          |  
|Deferred:       |  |      |        |          |  |      |          |  
|Federal         |  |      | 10,074 |          |  |      | (94,874  | )
|Foreign         |  |      | 0      |          |  |      | 6,400    |  
|                |  |      |        |          |  |      |          |  
|Total deferred  |  |      | 10,074 |          |  |      | (88,474  | )
|                |  |      |        |          |  |      |          |  
|Total provision |  | $    | 44,681 |          |  |      | ($85,069 | )
|                |  |      |        |          |  |      |          |  

F-13



---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The provision for taxes reconciles to the amount computed by applying the
statutory federal rate of 35% to income before taxes as follows:

|                                         |  |      |          |          |  |      |          |  
|---------------------------------------- |  | ---- | -------- | -------- |  | ---- | -------- | -
|                                         |  |      |          |          |  | 2002
|                                         |  | 2003 |          | Restated
|                                         |  |      |          |         
|Computed expected tax                    |  | $    | 532,222  |          |  | $    | 138,327  |  
|State tax, net of federal benefit        |  |      | 137,042  |          |  |      | 37,408   |  
|Non U.S. income taxed at different rates |  |      | (19,778  | )        |  |      | 0        |  
|Operating loss carryforward              |  |      | (594,731 | )        |  |      | (165,930 | )
|Reduction in valuation allowance         |  |      | (10,074  | )        |  |      | (94,874  | )
|                                         |  |      |          |          |  |      |          |  
|Other,
net                               |  |      |          |          |  |      |          |  
|Provision (benefit) for income tax       |  | $    | 44,681   |          |  |      | ($85,069 | )
|                                         |  |      |          |          |  |      |          |  
|Effective income (benefit) tax rate      |  |      | 29       | %        |  |      | 55       | %
|                                         |  |      |          |          |  |      |          |  

The Company reduced its tax provision for fiscal 2003 and 2002 by
approximately $503,877 and $139,880, respectively, due to the tax benefit
related to the Companys net operating loss carryforward of $1,831,025 and
$2,224,236 for fiscal 2002.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Companys deferred assets and liabilities at fiscal year-ends were as
follows:

|                                                   |  |      |         |          |  |      |         | 
|-------------------------------------------------- |  | ---- | ------- | -------- |  | ---- | ------- | 
|                                                   |  |      |         |          |  | 2002
|                                                   |  | 2003 |         | Restated
|                                                   |  |      |         |         
|Deferred tax assets:                               |  |      |         |          |  |      |         | 
|Loss carryforwards                                 |  | $    | 622,549 |          |  | $    | 848,000 | 
|Allowance for doubtful accounts                    |  |      | 6,800   |          |  |      | 4,300   | 
|                                                   |  |      |         |          |  |      |         | 
|Total deferred tax assets                          |  |      | 629,349 |          |  |      | 852,300 | 
|                                                   |  |      |         |          |  |      |         | 
|Deferred tax liabilities:                          |  |      |         |          |  |      |         | 
|Difference between book and tax
depreciation       |  |      | 3,315   |          |  |      | 300     | 
|                                                   |  |      |         |          |  |      |         | 
|Total deferred tax liabilities                     |  |      | 3,315   |          |  |      | 300     | 
|                                                   |  |      |         |          |  |      |         | 
|Net deferred tax assets before
valuation allowance |  |      | 626,034 |          |  |      | 852,000 | 
|Valuation allowance                                |  |      | 206,108 |          |  |      | 422,000 | 
|                                                   |  |      |         |          |  |      |         | 
|Net deferred tax asset                             |  | $    | 419,926 |          |  | $    | 430,000 | 
|                                                   |  |      |         |          |  |      |         | 

The Company does not provide for U.S. income taxes or foreign withholding
taxes on the undistributed earnings of its 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.

F-14



---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15: 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 10 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. No options were issued during fiscal 2003.

Additional information with respect to stock option activity other than
the Companys Non-statutory Stock Option Plan is as follows:

|                                        |  |                  |           |                |  |                  |      | 
|--------------------------------------- |  | ---------------- | --------- | -------------- |  | ---------------- | ---- | 
|                                        |  |                  |           |                |  | Weighted Average
|                                        |  | Number of Shares |           | Exercise Price
|                                        |  |                  |           |               
|Outstanding at January 31, 2002         |  |                  | 6,025,000 |                |  | $                | 0.21 | 
|Granted                                 |  |                  | 0         |                |  |                  | 0.00 | 
|Cancelled                               |  |                  | (25,000   | )              |  |                  | 1.50 | 
|                                        |  |                  |           |                |  |                  |      | 
|Outstanding at January 31, 2003         |  |                  | 6,000,000 |                |  | $                | 0.25 | 
|                                        |  |                  |           |                |  |                  |      | 
|Options exercisable at January
31, 2002 |  |                  | 2,500,000 |                |  | $                | 0.11 | 
|                                        |  |                  |           |                |  |                  |      | 
|Options exercisable at January
31, 2003 |  |                  | 4,500,000 |                |  | $                | 0.17 | 
|                                        |  |                  |           |                |  |                  |      | 

Stock Options Outstanding

|                          |  |                  |           |                     |  |                  |      |  |  |   |      | 
|------------------------- |  | ---------------- | --------- | ------------------- |  | ---------------- | ---- |  |  | - | ---- | 
|                          |  |                  |           |                     |  | Weighted Average |      |  |  |  
|                          |  |                  |           |                     |  | Remaining        |      |  |  |  
|                          |  | Number of Shares |           | Contractual Life in |  | Weighted Average
|Ranges of Exercise Prices |  | Outstanding      |           | Years               |  | Exercise Price  
|                          |  |                  |           |                     |  |                 
|$0.10 - $0.25             |  |                  | 4,500,000 |                     |  |                  | 3.25 |  |  | $ | 0.17 | 
|$0.26 - $0.50             |  |                  | 1,500,000 |                     |  |                  | 3.25 |  |  | $ | 0.50 | 
|                          |  |                  |           |                     |  |                  |      |  |  |   |      | 
|                          |  |                  | 6,000,000 |                     |  |                  | 3.25 |  |  | $ | 0.25 | 
|                          |  |                  |           |                     |  |                  |      |  |  |   |      | 

Stock Options Exercisable

|                          |  |                  |           |                     |  |                  |      |  |  |   |      | 
|------------------------- |  | ---------------- | --------- | ------------------- |  | ---------------- | ---- |  |  | - | ---- | 
|                          |  |                  |           |                     |  | Weighted Average |      |  |  |  
|                          |  |                  |           |                     |  | Remaining        |      |  |  |  
|                          |  | Number of Shares |           | Contractual Life in |  | Weighted Average
|Ranges of Exercise Prices |  | Outstanding      |           | Years               |  | Exercise Price  
|                          |  |                  |           |                     |  |                 
|$0.10 - $0.25             |  |                  | 4,500,000 |                     |  |                  | 3.25 |  |  | $ | 0.17 | 
|$0.26 - $0.50             |  |                  | 0         |                     |  |                  | 0.00 |  |  | $ | 0.00 | 
|                          |  |                  |           |                     |  |                  |      |  |  |   |      | 
|                          |  |                  | 4,500,000 |                     |  |                  | 3.25 |  |  | $ | 0.17 | 
|                          |  |                  |           |                     |  |                  |      |  |  |   |      | 

F-15



---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 16: Stock Based Compensation to Non-Employees

In Fiscal 2002, 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 by the
average closing price of the stock each day for the prior twelve month 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 (see Note 22). In addition, the Company cancelled 90,000 shares of
its common stock previously issued to a consultant.

Note 17: Commitments

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 each of
the second five years and $72,000 for each of the final five years. The
Company is also obligated for insurance and any increases in real estate taxes
over the base year as stipulated by the lease. The lease requires the
following future minimum payments:

|                 |  |   |         | 
|---------------- |  | - | ------- | 
|January 31, 2004 |  | $ | 64,500  | 
|January 31, 2005 |  |   | 66,000  | 
|January 31, 2006 |  |   | 66,000  | 
|January 31, 2007 |  |   | 66,000  | 
|January 31, 2008 |  |   | 66,000  | 
|Thereafter       |  |   | 376,500 | 
|                 |  |   |         | 
|                 |  | $ | 705,000 | 
|                 |  |   |         | 

Rent expense charged to operations was $84,988 and $81,420 in fiscal 2003
and 2002, respectively.

In addition, the Company leases several vehicles under operating lease
terms expiring through fiscal 2004. Total lease expense was $24,716 and
$49,283 for the years ended January 31, 2003 and 2002, respectively.

Note 18: 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 in exchange for 400,000
shares of common stock they both received in April 2001. These shares were
duly cancelled by the Company on December 6, 2001. These options were not part
of the 1997 Non-statutory Stock Option Plan effectuated March 25, 1997. As of
January 31, 2003, 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 in exchange for the 100,000 shares of common received in April 2001.
These shares were duly cancelled by the Company on December 6, 2001. These
options were not part of the 1997 Non-statutory Stock Option Plan effectuated
March 25, 1997. As of January 31, 2003, none of these options had been
exercised.

F-16



---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of January 31, 2003 and 2002, the Company has accrued officers bonuses
of $134,054 and $53,688, respectively.

Note 19: Discontinued Operations

On February 1, 2001, the Company adopted a formal plan to sell Fuji
Fabrication, SDN, BHD. On October 1, 2001, the assets of Fuji Fabrication,
which consisted primarily of inventory and equipment, were sold for $290,547
with the Company assuming a note for the full amount of the selling price. On
October 1, 2002 the Company recast the note for $396,693, which included the
sales of additional inventory and previously accrued interest. Interest on the
note is stated at 10% (annually) and is payable in 12 monthly installments.
The note is payable in full on September 30, 2003.

Net sales of Fuji Fabrication for the years ended January 31, 2003 and
2002 were $0 and $180,102, respectively. These amounts are not included in net
sales in the accompanying consolidated statements of income, but rather 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:

|                                             |                   |   |          |         |      |   |         |          |  
|-------------------------------------------- | ----------------- | - | -------- | ------- | ---- | - | ------- | -------- | -
|                                             |                   |   | 2003     |         | 2002
|                                             |                   |   |          |         |     
|Net sales                                    |                   | $ | 0        |         |      | $ | 180,102 |         
|Cost of sales                                |                   |   |          |         |      |   | 197,389 |         
|                                             |                   |   |          |         |      |   |         |         
|                                             | Gross loss        |   |          |         |      |   |         | (17,287  | )
|                                             |                   |   |          |         |      |   |         |         
|Selling, general and administrative expenses |                   |   | 7,691    |         |      |   | 124,363 |         
|Interest and other, net                      |                   |   | (129,708 | )       |      |   | (74,257 | )       
|                                             |                   |   |          |         |      |   |         |         
|                                             |                   |   | (122,017 | )       |      |   | 50,106  |         
|                                             |                   |   |          |         |      |   |         |         
|Income (loss) before income taxes            |                   |   | 122,017  |         |      |   | (67,393 | )       
|Income taxes                                 |                   |   | 14       |         |      |   | 474     |         
|                                             |                   |   |          |         |      |   |         |         
|                                             | Net income (loss) |   | $        | 122,003 |      |   |         | ($67,867 | )
|                                             |                   |   |          |         |      |   |         |         

Due to increased competition from China and a decrease in profitability,
on October 31, 2002 the Company adopted a formal plan to discontinue Hong Kong
Batteries Industries, Ltd.

The discontinuance of Hong Kong Batteries Industries, Ltd resulted in the
Company writing off $688,183 in goodwill and incurring an additional $225,759
in disposal costs which consisted mainly of write offs of cash advances to Hong
Kong Batteries and travel expenses.

Net sales of Hong Kong Batteries Industries, Ltd for the years ended
January 31, 2003 and 2002 were $445,641 and $2,039,543, respectively. These
amounts are not included in net sales in the accompanying consolidated
statements of income.

|                                             |                   |   |          |           |          |   |           |         | 
|-------------------------------------------- | ----------------- | - | -------- | --------- | -------- | - | --------- | ------- | 
|                                             |                   |   |          |           |          |   | 2002     
|                                             |                   |   | 2003     |           | Restated
|                                             |                   |   |          |           |         
|Net sales                                    |                   | $ | 445,641  |           |          | $ | 2,039,543 |        
|Cost of sales                                |                   |   | 368,534  |           |          |   | 1,600,943 |        
|                                             |                   |   |          |           |          |   |           |        
|                                             | Gross margin      |   |          | 77,107    |          |   |           | 438,600 | 
|                                             |                   |   |          |           |          |   |           |        
|Selling, general and administrative expenses |                   |   | 347,635  |           |          |   | 360,477   |        
|Interest and other, net                      |                   |   | (14,891  | )         |          |   | (10,537   | )      
|                                             |                   |   |          |           |          |   |           |        
|                                             |                   |   | 332,744  |           |          |   | 349,940   |        
|                                             |                   |   |          |           |          |   |           |        
|Income (loss) before income taxes            |                   |   | (255,637 | )         |          |   | 88,660    |        
|Income tax (benefit)                         |                   |   | (9,313   | )         |          |   | (9,313    | )      
|                                             |                   |   |          |           |          |   |           |        
|                                             | Net income (loss) |   |          | ($246,324 | )        |   | $         | 79,347  | 
|                                             |                   |   |          |           |          |   |           |        

F-17



---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In conjunction with the discontinuance of operations, at January 31, 2003,
the Company has recorded a provision of $34,000 for estimated disposition
costs.

Note 20: Principal Products and Segmentation of Sales

The Company has adopted FASB Statement No. 131, Disclosures about
Segments of a Business Enterprise and Related Information. The Company is
managed in three principal operating segments, which are (1) custom cut and
fabricated ceramic parts for the aircraft, aerospace, defense,
detection/protection industries, (2) the manufacturing of disposable precision
diamond cutting tools for the semiconductor and electronics industries, and (3)
contract manufacturing of personal safety devices. These operating segments
were determined based on the nature of the products and services offered.
Operating segments are defined as components of an enterprise about which
separate financial information is available and is evaluated regularly by the
chief operating decision-maker (CEO) to decide how to allocate resources and to
assess performance.

Operating segments do not record inter-segment revenue, and, accordingly,
there is none to be recorded. The accounting policies for segment reporting
are the same as for the Company as a whole. Financial information relating to
the principal industry segments and classes of products are as follows:

|                          |                                     |                                     |                        |           |           |           |          |           |          |           | 
|------------------------- | ----------------------------------- | ----------------------------------- | ---------------------- | --------- | --------- | --------- | -------- | --------- | -------- | --------- | 
|                          |                                     |                                     |                        |           |           |           |          |           | 2002    
|                          |                                     |                                     |                        |           | 2003      |           | Restated
|                          |                                     |                                     |                        |           |           |           |         
|Sales to customers:       |                                     |                                     |                        |           |           |           |          |          
|                          | Industry A  Ceramics               |                                     | $                      | 5,843,564 |           |           | $        | 2,338,673 |         
|                          | Industry B  Diamond tools          |                                     |                        | 817,066   |           |           |          | 794,010   |         
|                          | Industry D  Contract manufacturing |                                     |                        | 703,808   |           |           |          | 469,789   |         
|                          |                                     |                                     |                        |           |           |           |          |          
|                          |                                     |                                     | Total sales            |           | $         | 7,364,438 |          |           | $        | 3,602,472 | 
|                          |                                     |                                     |                        |           |           |           |          |          
|Operating profit or loss: |                                     |                                     |                        |           |           |           |          |          
|                          |                                     | Industry A  Ceramics               |                        | $         | 1,890,414 |           |          | $         | 629,852  |          
|                          |                                     | Industry B  Diamond tools          |                        |           | (311,437  | )         |          |           | (225,162 | )        
|                          |                                     | Industry D  Contract manufacturing |                        |           | 10,334    |           |          |           | 67,831   |          
|                          |                                     |                                     |                        |           |           |           |          |          
|                          |                                     |                                     | Total operating profit |           | $         | 1,589,311 |          |           | $        | 472,521   | 
|                          |                                     |                                     |                        |           |           |           |          |          

Information as to the Companys sales in different geographical areas is
as follows:

|                    |               |               |   |           |           |          |   |           |           | 
|------------------- | ------------- | ------------- | - | --------- | --------- | -------- | - | --------- | --------- | 
|                    |               |               |   |           |           |          |   | 2002     
|                    |               |               |   | 2003      |           | Restated
|                    |               |               |   |           |           |         
|Sales to customers: |               |               |   |           |           |          |   |          
|                    | United States |               | $ | 2,831,380 |           |          | $ | 1,990,988 |          
|                    | Far East      |               |   | 193,612   |           |          |   | 138,120   |          
|                    | Canada        |               |   | 4,339,446 |           |          |   | 1,473,364 |          
|                    |               |               |   |           |           |          |   |          
|                    |               | Total revenue |   | $         | 7,364,438 |          |   | $         | 3,602,472 | 
|                    |               |               |   |           |           |          |   |          

Net property, plant and equipment by country were as follows:

|              |                                          |   |         |         |          |   |         |         | 
|------------- | ---------------------------------------- | - | ------- | ------- | -------- | - | ------- | ------- | 
|              |                                          |   |         |         |          |   | 2002   
|              |                                          |   | 2003    |         | Restated
|              |                                          |   |         |         |         
|United States |                                          | $ | 211,803 |         |          | $ | 236,167 |        
|Malaysia      |                                          |   | 375,456 |         |          |   | 366,695 |        
|              |                                          |   |         |         |          |   |         |        
|              | Total property, plant and equipment, net |   | $       | 587,259 |          |   | $       | 602,862 | 
|              |                                          |   |         |         |          |   |         |        

In fiscal 2003, one customer accounted for 56% of the Companys revenue
and three customers accounted for 70% of the Companys revenue. In fiscal
2002, three customers accounted for 58% of the Companys revenue.

F-18

SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 21: Supplemental Cash Flow Information

|                                                                      |  |      |        |          |  |      |         | 
|--------------------------------------------------------------------- |  | ---- | ------ | -------- |  | ---- | ------- | 
|                                                                      |  |      |        |          |  | 2002
|                                                                      |  | 2003 |        | Restated
|                                                                      |  |      |        |         
|Interest paid during the year                                         |  | $    | 99,263 |          |  | $    | 83,972  | 
|                                                                      |  |      |        |          |  |      |         | 
|Income taxes paid during the year                                     |  | $    | 4,908  |          |  | $    | 777     | 
|                                                                      |  |      |        |          |  |      |         | 
|Supplemental schedule of non-cash investing and
financing activities: |  |      |        |          |  |      |         | 
|Equipment acquired under a note obligation                            |  |      |        |          |  | $    | 32,000  | 
|                                                                      |  |      |        |          |  |      |         | 
|Increase in note receivable                                           |  |      |        |          |  | $    | 290,547 | 
|                                                                      |  |      |        |          |  |      |         | 

Note 22: Restatement of Prior Year Results

In fiscal 2001, the Company issued 180,000 shares of its common stock as
compensation to a consulting firm for a consulting contract with a 15 month
term. The Company originally valued the consulting agreement at $255,600 and
was amortizing it over its term. In the fourth quarter of fiscal 2001, due to
changing market conditions and the lack of performance by the consulting
company, management revalued the consulting contract down to $50,400. The
staff of the Securities and Exchange Commission (SEC) has advised the Company
that in regard to Stock Based Compensation to Non-Employees, the fair value of
publicly traded shares is generally more readily determinable than the fair
value of services rendered and that under FAS No. 123 (Accounting for Stock
Based Compensation) revaluation is not permitted. Following a series of
discussions with the SEC Staff, the Company agreed to restate its consolidated
financial statements for all years presented using FAS No. 123. Accordingly,
the accompanying consolidated financial statements have been restated from
those originally reported to reflect the resolution of these discussions
between the Company and the SEC Staff regarding the valuation of stock based
compensation to non-employees. This correction resulted in the Company
recognizing in Fiscal 2002, $8,823 in additional Selling, General and
Administrative expenses which decreased net income for fiscal 2002 from
$521,688 to $512,865. The correct implementation of FAS No. 123 had no impact
on the Companys liquidity or cash flows for fiscal 2002.

In fiscal 2003, due to Chinas acceptance into the World Trade
Organization (WTO), the Company disposed of its Hong Kong Batteries Industries
Ltd. operating segment. With China being accepted into the WTO, Hong Kong
Batteries Industries customers were now able to purchase comparable products
manufactured in mainland China for considerably less prices than Hong Kong
Batteries was charging. Accordingly, the accompanying consolidated financial
statements for fiscal 2002 have been restated from those originally reported to
reflect the discontinuance of Hong Kong Batteries Industries Ltd. As a result,
income from continuing operations for fiscal 2002 decreased 79,347 and income
from discontinued operations increased $79,347. Earnings per share were not
affected.

In fiscal 2002, the Company reported weighted average common shares
outstanding, assuming dilution of 13,788,985 shares which was incorrect. The
correct amount should have been 14,557,463, because the weighted average common
shares outstanding, assuming dilution, should not include the incremental
shares that would be issued upon the exercise of stock options because there
effect was antidilutive and should have been excluded from the calculation.

F-19



---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following illustrates the effect of the above mentioned restatements:

|                                                              |  |               |            |             |  |   |            |  
|------------------------------------------------------------- |  | ------------- | ---------- | ----------- |  | - | ---------- | -
|                                                              |  | 2002         
|                                                              |  |              
|                                                              |  | As Originally |            |             |  |  
|                                                              |  | Reported      |            | As Restated
|                                                              |  |               |            |            
|Net revenues                                                  |  | $             | 5,642,015  |             |  | $ | 3,602,472  |  
|Cost of sales                                                 |  |               | 3,060,509  |             |  |   | 1,459,566  |  
|                                                              |  |               |            |             |  |   |            |  
|Gross margin                                                  |  |               | 2,581,506  |             |  |   | 2,142,906  |  
|                                                              |  |               |            |             |  |   |            |  
|Selling, general and administrative expenses                  |  |               | 1,990,140  |             |  |   | 1,675,851  |  
|Amortization of goodwill                                      |  |               | 40,722     |             |  |   | 3,357      |  
|                                                              |  |               |            |             |  |   |            |  
|Total operating expenses                                      |  |               | 2,030,862  |             |  |   | 1,679,208  |  
|                                                              |  |               |            |             |  |   |            |  
|Operating income                                              |  |               | 550,644    |             |  |   | 463,698    |  
|Interest and other, net                                       |  |               | (66,764    | )           |  |   | (77,301    | )
|                                                              |  |               |            |             |  |   |            |  
|Income before income taxes (benefit)                          |  |               | 483,880    |             |  |   | 386,397    |  
|Income taxes (benefit)                                        |  |               | (75,756    | )           |  |   | (85,069    | )
|                                                              |  |               |            |             |  |   |            |  
|Income from continuing operations                             |  |               | 559,636    |             |  |   | 471,466    |  
|Discontinued operations:                                      |  |               |            |             |  |   |            |  
|Income (loss) from operations of subsidiaries                 |  |               | (67,867    | )           |  |   | 11,480     |  
|Gain (loss) on disposal of subsidiaries                       |  |               | 29,919     |             |  |   | 29,919     |  
|                                                              |  |               |            |             |  |   |            |  
|                                                              |  |               | (37,948    | )           |  |   | 41,399     |  
|                                                              |  |               |            |             |  |   |            |  
|Net income (loss)                                             |  | $             | 521,688    |             |  | $ | 512,865    |  
|                                                              |  |               |            |             |  |   |            |  
|Earning per share information:                                |  |               |            |             |  |   |            |  
|Income from continuing operations                             |  | $             | 0.04       |             |  | $ | 0.04       |  
|Basic                                                         |  | $             | 0.04       |             |  | $ | 0.04       |  
|                                                              |  |               |            |             |  |   |            |  
|Diluted                                                       |  | $             | 0.04       |             |  | $ | 0.04       |  
|                                                              |  |               |            |             |  |   |            |  
|Discontinued operations:                                      |  |               |            |             |  |   |            |  
|Basic                                                         |  |               | ($0.00     | )           |  | $ | 0.00       |  
|                                                              |  |               |            |             |  |   |            |  
|Diluted                                                       |  |               | ($0.00     | )           |  | $ | 0.00       |  
|                                                              |  |               |            |             |  |   |            |  
|Weighted average common shares outstanding                    |  |               | 14,557,463 |             |  |   | 14,557,463 |  
|                                                              |  |               |            |             |  |   |            |  
|Weighted average common shares outstanding,
assuming dilution |  |               | 13,788,985 |             |  |   | 14,557,463 |  
|                                                              |  |               |            |             |  |   |            |  

F-20



---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restatement of fiscal 2002 statement of cash flows is as follows:

|                                                                                  |  |               |          |             |  |   |          |  
|--------------------------------------------------------------------------------- |  | ------------- | -------- | ----------- |  | - | -------- | -
|                                                                                  |  | 2002         
|                                                                                  |  |              
|                                                                                  |  | As Originally |          |             |  |  
|                                                                                  |  | Reported      |          | As Restated
|                                                                                  |  |               |          |            
|OPERATING ACTIVITIES                                                              |  |               |          |             |  |   |          |  
|Income from continuing operations                                                 |  | $             | 550,813  |             |  | $ | 471,466  |  
|Adjustments to reconcile net income to net cash provided
by operating activities: |  |               |          |             |  |   |          |  
|Depreciation                                                                      |  |               | 132,528  |             |  |   | 89,081   |  
|Amortization of goodwill                                                          |  |               | 40,722   |             |  |   | 3,357    |  
|Loss on sale of equipment                                                         |  |               | 1,337    |             |  |   | 1,337    |  
|Provision for deferred income taxes                                               |  |               | (94,874  | )           |  |   | (94,874  | )
|Compensatory stock issued                                                         |  |               | 38,430   |             |  |   | 38,430   |  
|Compensatory stock surrendered                                                    |  |               | (25,200  | )           |  |   | (25,200  | )
|Changes in assets and liabilities:                                                |  |               |          |             |  |   |          |  
|Accounts receivable                                                               |  |               | (248,604 | )           |  |   | (405,616 | )
|Inventories                                                                       |  |               | (60,503  | )           |  |   | (60,503  | )
|Prepaid expenses and other current assets                                         |  |               | 45,877   |             |  |   | 45,877   |  
|Other assets                                                                      |  |               | (44,290  | )           |  |   | (44,290  | )
|Accounts payable, and accrued expenses                                            |  |               | (157,168 | )           |  |   | 73,870   |  
|Deferred lease liability                                                          |  |               | 6,000    |             |  |   | 6,000    |  
|                                                                                  |  |               |          |             |  |   |          |  
|NET CASH PROVIDED BY CONTINUING OPERATIONS                                        |  |               | 185,068  |             |  |   | 98,935   |  
|NET CASH PROVIDED BY DISCONTINUED OPERATIONS                                      |  |               | 26,684   |             |  |   | 195,561  |  
|                                                                                  |  |               |          |             |  |   |          |  
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                         |  |               | 211,752  |             |  |   | 294,496  |  
|                                                                                  |  |               |          |             |  |   |          |  
|INVESTING ACTIVITIES                                                              |  |               |          |             |  |   |          |  
|Proceeds from sale of equipment                                                   |  |               | 1,237    |             |  |   | 1,237    |  
|Purchase of property and equipment                                                |  |               | (201,558 | )           |  |   | (140,981 | )
|                                                                                  |  |               |          |             |  |   |          |  
|NET CASH USED IN INVESTING ACTIVITIES                                             |  |               | (200,321 | )           |  |   | (139,744 | )
|                                                                                  |  |               |          |             |  |   |          |  
|FINANCING ACTIVITIES                                                              |  |               |          |             |  |   |          |  
|Increase (decrease) in short-term debt, net                                       |  |               | 251,649  |             |  |   | 251,649  |  
|Repayments of and retirement of long-term debt                                    |  |               | (316,237 | )           |  |   | (316,237 | )
|Repurchase and retirement of common stock                                         |  |               | (3,000   | )           |  |   | (3,000   | )
|                                                                                  |  |               |          |             |  |   |          |  
|NET CASH USED IN FINANCING ACTIVITIES                                             |  |               | (67,588  | )           |  |   | (67,588  | )
|                                                                                  |  |               |          |             |  |   |          |  
|NET INCREASE (DECREASE) IN CASH                                                   |  |               | (56,157  | )           |  |   | 87,164   |  
|CASH, BEGINNING OF YEAR                                                           |  |               | 599,229  |             |  |   | 111,236  |  
|                                                                                  |  |               |          |             |  |   |          |  
|CASH, END OF YEAR                                                                 |  | $             | 543,072  |             |  | $ | 198,400  |  
|                                                                                  |  |               |          |             |  |   |          |  

Cash, beginning of year decreased by Hong Kong Batteries Industries
cash balance of $487,993 at January 31, 2001. The net change in cash from the
Companys discontinued operations is reflected in Net Cash Provided by
Operating Activities.

F-21



---



##### 



SETO HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In addition, the following equity accounts have been restated:

|                            |  |               |             |             |  |          |             |               |  |   |             |   |  |   |             |  
|--------------------------- |  | ------------- | ----------- | ----------- |  | -------- | ----------- | ------------- |  | - | ----------- | - |  | - | ----------- | -
|                            |  | 2002          |             | 2001       
|                            |  |               |             |            
|                            |  | As Originally |             |             |  |          |             | As Originally |  |   |             |  
|                            |  | Reported      |             | As Restated |  | Reported |             | As Restated  
|                            |  |               |             |             |  |          |             |              
|Additional paid in capital  |  | $             | 4,515,786   |             |  | $        | 4,720,986   |               |  | $ | 4,502,178   |   |  | $ | 4,708,178   |  
|                            |  |               |             |             |  |          |             |               |  |   |             |   |  |   |             |  
|Retained earnings (deficit) |  |               | ($1,530,401 | )           |  |          | ($1,735,601 | )             |  |   | ($2,052,089 | ) |  |   | ($2,248,466 | )
|                            |  |               |             |             |  |          |             |               |  |   |             |   |  |   |             |  
|Total stockholders equity  |  | $             | 2,837,620   |             |  | $        | 2,837,620   |               |  | $ | 2,305,648   |   |  | $ | 2,314,471   |  
|                            |  |               |             |             |  |          |             |               |  |   |             |   |  |   |             |  

Fiscal 2001s change in additional paid in capital and retained earnings
(deficit) was a result of the Company applying FAS No. 123 and recognizing an
additional $196,377 in consulting fees.

Fiscal 2002s change in additional paid in capital and retained earnings
was a combination of fiscal 2001s adjustment plus the Company recognized an
additional $8,823 in consulting fees that were considered prepaid as of January
31, 2001.

F-22



---



##### 



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 Pian   |  |     | 63 |          |  | President, Chief Executive Officer and Director 
|Craig Pian    |  |     | 41 |          |  | Executive Vice President, Treasurer and Director
|Francine Pian |  |     | 43 |          |  | 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 Company from its inception in 1975
until its acquisition by the Company in January 1990. From 1969 to 1975, Mr.
Pian was a division manager for Consolidated Refining Company, where he was
responsible for organizing a division that manufactured materials necessary to
plate and stamp semiconductor materials and supervising all the sales and
manufacturing. From 1960 to 1969, he was vice president of Semi Alloys, Inc.
where he was responsible for the manufacture and sales of fabricated metal
products to the semiconductor industry.

Craig Pian Craig 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. Craig 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. Craig Pian
graduated from Manhattan College with a Bachelor of Science Degree in Business.

Francine Pian Ms. Pian has been a director of the Company since March
1996. She has been employed by the Company since 1987, serving as the
Companys 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

Based solely on a review of copies for Forms 3, 4, and 5 received, and
on written representations from its officers and directors that is updating
Section 16(a) forms were required to be filed by them, we believe that no
officer or director filed a late report or failed to file a required report
under Section 16(a) of the Exchange Act during or in respect at the year ended
January 31, 2003.





---



##### 



ITEM 10. EXECUTIVE COMPENSATION

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 in exchange for 400,000
shares of common stock they both received in April 2001. These shares were
duly cancelled by the Company on December 6, 2001. These options were not part
of the 1997 Non-statutory Stock Option Plan effectuated March 25, 1997. As of
January 31, 2003, 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 in exchange for the 100,000 shares of common received in April 2001.
These shares were duly cancelled by the Company on December 6, 2001. These
options were not part of the 1997 Non-statutory Stock Option Plan effectuated
March 25, 1997. As of January 31, 2003, none of these options had been
exercised.

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 information for our
Chief Executive Officer and our executive officers who had total annual salary
and bonus for any of the last three fiscal years exceeding $100,000.

|                                     |  |      |      |        |  |                     |         |              |  |         |        |  |  |        |   |            |  |            |         | 
|------------------------------------ |  | ---- | ---- | ------ |  | ------------------- | ------- | ------------ |  | ------- | ------ |  |  | ------ | - | ---------- |  | ---------- | ------- | 
|                                     |  |      |      |        |  |                     |         |              |  |         |        |  |  |        |   |            |  | Long-Term 
|                                     |  |      |      |        |  | Annual Compensation |         | Compensation
|                                     |  |      |      |        |  |                     |         |             
|                                     |  |      |      |        |  |                     |         |              |  |         |        |  |  |        |   |            |  | Securities
|                                     |  |      |      |        |  |                     |         |              |  |         |        |  |  | Other  |   | Underlying
|                                     |  |      |      |        |  |                     |         |              |  |         |        |  |  | Annual |   | Options/  
|Name and Principal Position          |  | Year |      | Salary |  | Bonus               |         | Comp(1)      |  | SARs(#)
|                                     |  |      |      |        |  |                     |         |              |  |        
|Eugene Pian, Chief Executive Officer |  |      | 2002 |        |  |                     | 142,308 |              |  |         | 55,856 |  |  |        |  |            |  |            |        | 
|                                     |  |      | 2001 |        |  |                     | 125,000 |              |  |         | 27,370 |  |  |        |  |            |  |            | 250,000 | 
|                                     |  |      | 2000 |        |  |                     | 110,000 |              |  |         |       |  |  |        |  |            |  |            |        | 
|                                    
|Craig Pian, Executive Vice           |  |      | 2002 |        |  |                     | 159,808 |              |  |         | 55,856 |  |  |        |  |            |  |            |        | 
|President and Treasurer              |  |      | 2001 |        |  |                     | 115,000 |              |  |         | 26,370 |  |  |        |  |            |  |            | 150,000 | 
|                                     |  |      | 2000 |        |  |                     | 113,423 |              |  |         |       |  |  |        |  |            |  |            |        | 



---

|(1) |  | Excludes perquisites and other benefits, unless the aggregate
amount of such compensation is at least the lesser of either $50,000
of 10% of the total annual salary and bonus reported for the named
executive officer.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





---



##### 



Options/SAR Grants in the Last Fiscal Year

None issued

Aggregated Option/SAR Exercises in Fiscal Year 2003 and Option/SAR Values at
January 31, 2003

|            |  |          |   |          |  |             |   |                        |  |                        |           |                      |  |  |   |  |  |  |         |  |  |  |   | 
|----------- |  | -------- | - | -------- |  | ----------- | - | ---------------------- |  | ---------------------- | --------- | -------------------- |  |  | - |  |  |  | ------- |  |  |  | - | 
|            |  |          |   |          |  |             |   |                        |  | Number of Securities   |           | Value of Unexercised
|            |  | Shares   |   |          |  |             |   | Underlying Unexercised |  | in-the-Money          
|            |  | Acquired |   |          |  |             |   | Options/SARs Fiscal    |  | Options/SARs at Fiscal
|            |  | on       |   | Value    |  | Year-End(#) |   | Year-end($)           
|            |  | Exercise |   | Realized |  |             |   |                       
|Name        |  | (#)      |   | ($)      |  | Exercisable |   | Unexercisable          |  | Exercisable            |           | Unexercisable       
|            |  |          |   |          |  |             |   |                        |  |                        |           |                     
|Eugene Pian |  |          |  |          |  |             |  |                        |  |                        | 250,000   |                      |  |  | 0 |  |  |  | 50,000  |  |  |  |  | 
|            |  |          |  |          |  |             |  |                        |  |                        | 1,000,000 |                      |  |  | 0 |  |  |  | 100,000 |  |  |  |  | 
|            |  |          |  |          |  |             |  |                        |  |                        | 1,000,000 |                      |  |  | 0 |  |  |  | 250,000 |  |  |  |  | 
|            |  |          |  |          |  |             |  |                        |  |                        | 500,000   |                      |  |  | 0 |  |  |  |        |  |  |  |  | 
|Craig Pian  |  |          |  |          |  |             |  |                        |  |                        | 150,000   |                      |  |  | 0 |  |  |  | 30,000  |  |  |  |  | 
|            |  |          |  |          |  |             |  |                        |  |                        | 1,000,000 |                      |  |  | 0 |  |  |  | 100,000 |  |  |  |  | 
|            |  |          |  |          |  |             |  |                        |  |                        | 1,000,000 |                      |  |  | 0 |  |  |  | 250,000 |  |  |  |  | 
|            |  |          |  |          |  |             |  |                        |  |                        | 500,000   |                      |  |  | 0 |  |  |  |        |  |  |  |  | 
|            |  |          |   |          |  |             |   |                        |  |                        |           |                      |  |  |   |  |  |  |         |  |  |  |   | 

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The following table sets forth certain information as to the number of
shares of our common stock deemed to be owned beneficially by each person known
by the Registrant to be the beneficial owner of more than 5% of our outstanding
common stock, each of its executive officers and directors, and all of its
executive officers and directors as a group at April 28, 2003. Except as
indicated in the footnotes to this table, we believe that the named persons
have sole voting power with respect to the shares indicated:

|                                     |  |                       |                  |  |                     |                           |  |  |           |  |           |  |       |   |       |  
|------------------------------------ |  | --------------------- | ---------------- |  | ------------------- | ------------------------- |  |  | --------- |  | --------- |  | ----- | - | ----- | -
|Name and Address of Beneficial Owner |  | Position with Company | Number of Shares |  | Percentage of Class
|                                     |  |                       |                  |  |                     |                          
|Eugene Pian                          |  |                       |                  |  |                     | President & Director      |  |  | 4,589,567 |  |           |  | 31.69 | %
|c/o Semicon Tools, Inc.              |  |                       |                  |  |                     |                           |  |  |           |  |           |  |       |   |       |  
|554 North State Road                 |  |                       |                  |  |                     |                           |  |  |           |  |           |  |       |   |       |  
|Briarcliff Manor, NY 10510           |  |                       |                  |  |                     |                           |  |  |           |  |           |  |       |   |       |  
|                                    
|Craig Pian                           |  |                       |                  |  |                     | Executive Vice President, |  |  | 2,850,333 |  |           |  | 19.68 | %
|c/o Semicon Tools, Inc.              |  |                       |                  |  |                     | Treasurer & Director      |  |  |           |  |           |  |       |  
|554 North State Road                 |  |                       |                  |  |                     |                           |  |  |           |  |           |  |       |   |       |  
|Briarcliff Manor, NY 10510           |  |                       |                  |  |                     |                           |  |  |           |  |           |  |       |   |       |  
|                                    
|Francine Pian                        |  |                       |                  |  |                     | Secretary & Director      |  |  | 1,103,560 |  |           |  | 7.62  | %
|c/o Semicon Tools, Inc.              |  |                       |                  |  |                     |                           |  |  |           |  |           |  |       |   |       |  
|554 North State Road                 |  |                       |                  |  |                     |                           |  |  |           |  |           |  |       |   |       |  
|Briarcliff Manor, NY 10510           |  |                       |                  |  |                     |                           |  |  |           |  |           |  |       |   |       |  
|                                    
|All Directors and Executive Officer  |  |                       |                  |  |                     |                           |  |  |           |  |           |  |       |  
|as a group (3 persons)               |  |                       |                  |  |                     |                           |  |  |           |  | 8,543,460 |  |       |   | 58.98 | %





---



##### 





---

|(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 sell 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 REALTIONSHIPS AND RELATED TRANSACTIONS

None

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K



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

|      |  |                                                                                                                                                                      
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3(a)  |  | Articles of Incorporation(1)                                                                                                                                         
|3(b)  |  | By-Laws(1)                                                                                                                                                           
|3(c)  |  | Amendment to Articles of Incorporation(2)                                                                                                                            
|10(a) |  | Agreement of merger with Semicon Tools, Inc., a New York Corporation(2)                                                                                              
|10(b) |  | Articles of Merger(2)                                                                                                                                                
|10(c) |  | Certificate of Merger(2)                                                                                                                                             
|10(d) |  | Patent License(1)                                                                                                                                                    
|10(e) |  | Patent No. 4,219.004(1)                                                                                                                                              
|10(f) |  | License Agreement with Bookuk Industry Company, Ltd.(1)                                                                                                              
|10(g) |  | Thermode/Synthrode Supplier Agreement(1)                                                                                                                             
|10(h) |  | East Coast Sales Acquisition Agreement(3)                                                                                                                            
|10(i) |  | $300,000 Promissory Note(3)                                                                                                                                          
|10(j) |  | Amendment to East Coast Sales Acquisition Agreement(4)                                                                                                               
|10(k) |  | Hong Kong Batteries Industries, Ltd. Acquisition Agreement(5)                                                                                                        
|10(l) |  | Fimas Sdn. Bhd. Acquisition Agreement(6)                                                                                                                             
|10(m) |  | Fimas Sdn. Bhd. Disposition Agreement(8)                                                                                                                             
|16    |  | The required letter from former accountants(7)                                                                                                                       
|21    |  | List of Subsidiaries                                                                                                                                                 
|99.1  |  | Certifications of chief executive officer and chief financial officer
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley act of 2002



|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|





---



##### 



ITEM 14. CONTROLS AND PROCEDURES



| | (a) |  | Evaluation of Disclosure Controls and Procedures: Our
principal executive and financial officers reviewed and evaluated
our disclosure controls and procedures (as defined in Exchange Act
Rule 13a-14) as of a date within 90 days before the filing of this
Form 10-KSB. Based on that evaluation, our principal executive and
financial officers concluded that our disclosure controls and
procedures are effective in timely providing them with material
information relating to the Company, as required to be disclosed in
the reports we file under the Exchange Act.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Changes in Internal Controls: There were no significant
changes in our internal controls or other factors that could
significantly affect those controls subsequent to the date of our
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.                                                                                                                                                                                                                                                                          





---



##### 



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, 2003
| | ---------------------------------------------------------------------

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.



| | By: /s/ Eugene J. Pian
Eugene J. Pian
Director
Date: April 30, 2003
| | -------------------------------------------------------------------



| | By: /s/ Craig A. Pian
Craig A. Pian
Director
Date: April 30, 2003
| | -----------------------------------------------------------------



| | By: /s/ Francine Pian
Francine Pian
Director
Date: April 30, 2003
| | -----------------------------------------------------------------

Supplemental Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Exchange Act Bu Non-reporting Issuers



| | 1. |  | No annual report to security holders covering 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.





---



##### 



CERTIFICATIONS

I, Eugene J. Pian, certify that:



|1. |  | I have reviewed this annual report on for
10-KSB of SETO Holdings, Inc.;                                                                                                                                                                                                                                                 
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does
not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements
made, in light of the circumstances under which such
statements were made, not misleading with respects to the
period covered by this annual report;
|  
|3. |  | Based on my knowledge, the financial
statements, and other financial information included in this
annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of
the Registrant as of, and for, the periods presented in this
annual report;                    
|  
|4. |  | The Registrants other certifying officers and
I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and have;                                                                                                   



| | a. |  | designed such disclosure
controls and procedures to ensure that material
information relating to the registrant, including its
consolidated subsidiaries, is made known to us by
others within those entities, particularly during the
period in which this annual report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of
the Registrants disclosure controls and procedures
as of a date within 90 days prior to the filing date
of this annual report (the Evaluation Date); and                                                                                                  
|
| | c. |  | presented in this annual report
our conclusions about the effectiveness of the
disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The Registrants other certifying officers and
I have disclosed, based on our most recent evaluation, to the
Registrants auditors and the audit committee of Registrants
board of directors (or person performing the equivalent
functions):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in
the design or operation of internal controls which
could adversely affect the Registrants ability to
record, process, summarize and report financial data
and have identified for the Registrants auditors and
material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not
material, that involves management or other employees
who have a significant role in the Registrants
internal controls; and                                                                                                                                        



|6. |  | The Registrants other certifying officers and
I have indicated in this annual report whether there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies
and material weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Date: April 30, 2003
|--------------------



|____________________
Eugene J. Pian
|-----------------------------------





---



##### 



I, Craig Pian, certify that:



|7.  |  | I have reviewed this annual report on for
10-KSB of SETO Holdings, Inc.;                                                                                                                                                                                                                                                 
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|8.  |  | Based on my knowledge, this annual report does
not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements
made, in light of the circumstances under which such
statements were made, not misleading with respects to the
period covered by this annual report;
|   
|9.  |  | Based on my knowledge, the financial
statements, and other financial information included in this
annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of
the Registrant as of, and for, the periods presented in this
annual report;                    
|   
|10. |  | The Registrants other certifying officers and
I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and have;                                                                                                   



| | a. |  | designed such disclosure
controls and procedures to ensure that material
information relating to the registrant, including its
consolidated subsidiaries, is made known to us by
others within those entities, particularly during the
period in which this annual report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of
the Registrants disclosure controls and procedures
as of a date within 90 days prior to the filing date
of this annual report (the Evaluation Date); and                                                                                                  
|
| | c. |  | presented in this annual report
our conclusions about the effectiveness of the
disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|11. |  | The Registrants other certifying officers and
I have disclosed, based on our most recent evaluation, to the
Registrants auditors and the audit committee of Registrants
board of directors (or person performing the equivalent
functions):
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in
the design or operation of internal controls which
could adversely affect the Registrants ability to
record, process, summarize and report financial data
and have identified for the Registrants auditors and
material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not
material, that involves management or other employees
who have a significant role in the Registrants
internal controls; and                                                                                                                                        



|12. |  | The Registrants other certifying officers and
I have indicated in this annual report whether there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies
and material weaknesses.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: April 30, 2003

______________________
Craig Pian





---



##### 



I, Francine Pian, certify that:



|13. |  | I have reviewed this annual report on for
10-KSB of SETO Holdings, Inc.;                                                                                                                                                                                                                                                 
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|14. |  | Based on my knowledge, this annual report does
not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements
made, in light of the circumstances under which such
statements were made, not misleading with respects to the
period covered by this annual report;
|   
|15. |  | Based on my knowledge, the financial
statements, and other financial information included in this
annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of
the Registrant as of, and for, the periods presented in this
annual report;                    
|   
|16. |  | The Registrants other certifying officers and
I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and have;                                                                                                   



| | a. |  | designed such disclosure
controls and procedures to ensure that material
information relating to the registrant, including its
consolidated subsidiaries, is made known to us by
others within those entities, particularly during the
period in which this annual report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of
the Registrants disclosure controls and procedures
as of a date within 90 days prior to the filing date
of this annual report (the Evaluation Date); and                                                                                                  
|
| | c. |  | presented in this annual report
our conclusions about the effectiveness of the
disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|17. |  | The Registrants other certifying officers and
I have disclosed, based on our most recent evaluation, to the
Registrants auditors and the audit committee of Registrants
board of directors (or person performing the equivalent
functions):
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in
the design or operation of internal controls which
could adversely affect the Registrants ability to
record, process, summarize and report financial data
and have identified for the Registrants auditors and
material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not
material, that involves management or other employees
who have a significant role in the Registrants
internal controls; and                                                                                                                                        



|18. |  | The Registrants other certifying officers and
I have indicated in this annual report whether there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies
and material weaknesses.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: April 30, 2003

____________________
Francine Pian